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Reason Foundation

Airport Policy and Security Newsletter #45

Topics include: short-haul flights vs. rail; post-Midway airport privatization; MANPADS defenses; airport landing slots in Europe; the Maginot Line of airport screening; FAMs vs. FFDOs; and other news.

Robert Poole
May 21, 2009

In this issue:


Replacing Short-Haul Air Travel?

"Let's end air travel of less than 500 miles," proclaimed Pennsylvania Gov. Ed Rendell, speaking at the America 2050 conference in New York City on April 17th. That was just one day after President Barack Obama announced his vision for high speed rail. "Imagine whisking through towns at speeds over 100 miles an hour, walking only a few steps to public transportation, and ending up just blocks from your destination." Such a system, he said would reduce travel times, increase mobility, reduce congestion, boost productivity, reduce destructive emissions, and create jobs. Whew!

Because I research and write about surface transportation policy in addition to aviation policy, I know quite a bit about inter-city rail, high-speed and otherwise. For this brief article, let me confine my comments to two questions. First, could inter-city passenger rail do what Gov. Rendell and President Obama say it could? Second, should we make the attempt?

Let's address the second question first, as a question of broad public policy. Once you dig down into the details of what transportation infrastructure costs and who pays for what, you find a fundamental difference between the currently dominant modes of inter-city travel—driving and air travel—and passenger rail. The infrastructure of the former are paid for almost entirely by their users, via federal and state gasoline taxes (and some other motor vehicle taxes) in the case of highways, and via airline ticket taxes and passenger facility fees in the case of air travel (airports and the air traffic control system). By contrast, for passenger rail, the entire cost of creating the infrastructure is paid for by non-users (general taxpayers), and the rail passengers pay only a portion of the operating costs via their ticket prices.

Therefore, proponents of replacing short-haul airline service with inter-city rail are calling upon general taxpayers to create and continually subsidize a transportation mode that is aimed at taking business away from unsubsidized airlines (and motorists driving their own cars on highways that their user taxes are paying for). As one example of the difference in general taxpayer support for these inter-city passenger modes, consider the following statistics. These come from a report produced by the U.S. DOT's Bureau of Transportation Statistics.

"Federal Subsidies for Passenger Transportation" computed net federal subsidy as total federal outlays for a mode minus federal receipts from transportation taxes and user fees paid by users of that mode. For Amtrak, the subsidy turned out to be $186 per thousand passenger miles. For highways that are part of the federal highways system, the comparable figure was minus $2 (i.e., federal highway user tax receipts totaled slightly more than total federal highway outlays). For airlines, the net subsidy was $6 per thousand passenger miles. So the federal subsidy per passenger mile for inter-city rail was found to be 31 times as much as the subsidy per airline passenger mile.

I think that puts a very heavy burden of proof on passenger rail proponents to justify massively subsidizing a mode of transportation designed to take business away from essentially self-supporting, tax-paying airlines. Now let's briefly address the question of whether new inter-city rail of the kind the new Administration plans to subsidize can do the kinds of things Rendell and Obama implied it would do.

A viable alternative to air travel for 300-500-mile trips? Certainly, in the dense Northeast Corridor for trips that are mostly downtown to downtown. But the geographic reality of most of urban America today is that most jobs are not in traditional central business districts; over the past 40 years jobs have followed residences to the suburbs, in Edge Cities and Edgeless Cities. But rail lines serve stations in central business districts, which is not where most people need to go. That also calls into question the potential travel time savings.

As for emissions, most of the actual rail lines to be aided by the new federal program use (and will continue to use) diesel locomotives, not exactly a low-emission power source. The only current plan for truly high-speed rail—California's—would be electric powered. Yet contrary to early claims of its proponents about huge reductions in greenhouse gases, the actual impact of the proposed system (if it achieves the unbelievably high traffic projections put forth by its proponents) would be to provide just 1.5% of the total GHG reductions in California's ambitious GHG reduction plan (and at a cost/ton of between $2,000 and $10,000, versus the generally accepted ceiling of $50/ton).

I understand that some directors of congested major airports would be happy to see short-haul and commuter flights replaced by more lucrative long-haul flights. But that's unlikely to happen. And it's also worth remembering that for airports that operate as connecting hubs, many short-haul flights feed long-haul flights. So unless the new-rail plans bring high-speed rail directly to airports (which is not in the plans, leaving travelers to take expensive cab rides), that vital feeder function would be lost, to the extent that rail did substitute for air service in 300-500-mile markets.

If you're interested in reading more about the proposed California rail system, take a look at the detailed "due diligence" report Reason Foundation had two rail experts prepare last year. Go to www.reason.org/news/show/1003044.html.

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After Midway Deal Collapse, Whither Airport Privatization?

In the month since the $2.5 billion lease of Midway Airport collapsed, due to the winning bidder's inability to put together the financing package, I've been asked repeatedly what this may portend for the future of U.S. airport privatization. To answer this question, it's important to try to understand what happened between the time the MIDCo team submitted its winning bid last September and mid-April when the plug got pulled. What happened was the credit market collapse.

At the time of MIDCo's bid, I was hardly alone in thinking that $2.5 billion was a very aggressive valuation for an airport with no room to add capacity, albeit classed by the FAA as a "large hub" in a still-growing metro area. In 2007-08, leases of existing transportation infrastructure assets were being financed largely by debt (e.g., the Chicago Skyway and Indiana Toll Road). Deal structures of 15% equity and 85% debt were not uncommon. But when credit suddenly got hard to get, banks and revenue bond providers started requiring a lot more equity. (This is akin to home lenders requiring much larger down payments.) Example: late last year a Spanish company acquired several existing toll roads in Chile, and needed 41% equity to close the deal. MIDCo's dominant member was Citi Infrastructure Investors, an infrastructure equity fund. If it had based its calculations last summer on 15% or 20% equity, with the rest coming from various lenders, it may have b een reluctant to put in 50% or more, if that's what lenders were demanding by this spring.

My suspicions were confirmed when the same MIDCo players (Citi, John Hancock Life Insurance, and Vancouver Airport Services), operating as Lysander Gatwick Investment Group, put in a $1.8 billion bid for London Gatwick Airport this spring. That would have been a better use of a good-sized chunk of the equity in Citi's infrastructure fund, given Gatwick's potential for a second runway and new service thanks to the break-up of BAA's near-monopoly on air service to Southeast England. But alas for the Lysander Group, their bid was rejected earlier this month.

Getting back to what happens post-Midway, there are several implications. First, the other governments contemplating leasing airports under the federal Pilot Program (in Austin, Hartford, Jacksonville, Kansas City, Long Beach, Milwaukee, Minneapolis, New Orleans, Ontario) will now have to consider more realistic valuations as they weigh the trade-offs. Second, unless Chicago comes back to the FAA with a new proposal, it will vacate the one slot in the Pilot Program reserved for large hub airports, potentially opening the door for other large cities. And as long as the fiscal crunch for state and local governments continues, we can expect elected officials to continue eyeing asset sales and leases as potential balance-sheet strengtheners.

I have just completed writing a global wrap-up on airport privatization, for Reason Foundation's annual privatization report for 2009. It is due out by mid-July. When you read that, you will see that the global shift toward commercializing and privatizing airports that began in 1987 continues unabated, in Europe, Asia, and Latin America. That means there are even more qualified global airport companies and no shortage of would-be airport investors, despite tightened credit markets. I can't imagine the United States remaining aloof from this megatrend much longer.

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Defense Against MANPADs Not Needed?

Regular readers of this newsletter know that I've been a skeptic, from the outset, of there being a serious threat to U.S. passenger aircraft from Man-Portable Air Defense Systems (MANPADS)—those nifty shoulder-launched anti-aircraft missiles like the Stingers the CIA gave to the mujahedin fighting to drive the Soviets out of Afghanistan in the 1980s. There has still been no release of the results of DHS's 15-month test of Northrop Grumman's Guardian system on 11 FedEx MD-11s in 2007-08. And congressional advocates of multi-billion-dollar programs to equip every U.S. airliner with something like Guardian have been pretty quiet, of late.

So perhaps I shouldn't have been so surprised by a little item in Aviation Daily last week. Buried in a story headlined "FedEx CEO Says Defense Dept. Should Consider Smaller Cargo Jets" was this very provocative comment. USAF Gen. Duncan McNabb, head of the U.S. Transportation Command, was reported by correspondent John Doyle as telling a House Aviation Subcommittee hearing on CRAF (the Civil Reserve Air Fleet) that "commercial aircraft carrying DOD personnel and cargo into danger zones like Iraq do not need onboard defenses against surface to air missiles." He told them that threat assessment and various other DOD tactics and techniques make it unnecessary for such planes to be equipped with anti-missile defenses. And besides, if they were to be so equipped, that would require a lot of very costly training. There is no significant missile threat to CRAF aircraft, he told the Congress members.

At this point, my only question is this: How do we get General McNabb to testify before the committees dealing not just with aviation but with homeland security? If airborne missile defenses are not justified for airliners going into war zones, how on earth could they be cost-effective here in the United States?

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More Squabbles Over Airport Landing Slots

Last month I reported that legacy airlines in Europe had prevailed on the European Commission to suspend for two seasons the "use it or lose it" rule governing airport slots at major EU airports. Under that rule, airlines must surrender slots if they aren't using them at least 80% of the time. Airports and low-cost carriers protested, but the EC prevailed.

But it turns out there has been a significant backlash. Andrew Charlton of Aviation Advocacy reports in his May newsletter that the European Parliament, which was not consulted about the suspension, has struck back. While consenting to the 2009 suspension, the Parliament has demanded that the slot regulation system come up for a full review, and that future changes be decided jointly by the Parliament and the Commission. There will now be a full study of the issue, with a proposal for a revamped system due by the end of the year. Representatives of airports and low-cost carriers are cautiously optimistic, given that the larger airports have long waiting lists for slots, mostly from LCCs that are eager to expand service. The airports need the revenue, airlines and passengers want more low-fare services, so why on earth is the Commission standing in the way of willing buyers and sellers?

That question has relevance for the congested-airports debate here in the United States. In arguing against any kind of pricing approach for the New York airports, the legacy carriers (represented by the International Air Transport Association—IATA) repeatedly proferred as an alternative to slot auctions the IATA Worldwide Scheduling Guidelines (WSG) for slot allocation. Under this system, widely used in Europe, slots are held in perpetuity by those who got there first (meaning mostly legacy carriers), but any new slots that become available (e.g., if a carrier goes out of business or cuts way back at a particular airport) can be traded or sold on a secondary market. It's a great system for keeping the Ins in and the Outs out. But rest assured, IATA tells us, the "use-it-or-lose-it" rule will prevent slot hoarding.

Uh-huh. We are now getting an object lesson in how that works. When push comes to shove in WSG Europe, out the window goes "use-it-or-lose it." So when Transportation Secretary Ray LaHood announced last week, as expected, that he was terminating the Bush administration's plan to auction off a small portion of the slots at the congested New York-area airports, we can at least breathe a sigh of relief that IATA did not succeed in foisting the Worldwide Scheduling Guidelines on us.

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The Maginot Line of Airport Screening

In a paper I will be presenting later this month at the OECD International Transport Forum's "Transport for a Global Economy" conference in Leipzig, I discuss the creation of static, inflexible "Maginot Line"-like defenses against aviation terrorism, such as large, centralized government airport screening organizations. In comparing the U.S. approach with that of Canada and Europe, I discovered that all of Canada's screening services (and much of Europe's) are provided by private security firms. Unlike the minimum-wage rent-a-cops that staffed screening checkpoints at U.S. airports prior to 9/11, the screening contractors in Europe and Canada must meet tough certification standards and ongoing performance standards. Such a system provides considerable flexibility, as threat levels change or, more commonly, as airline activity increases or decreases at particular airports. RAND Corporation and others have cautioned against building Maginot Line fortresse s at particular target sites—but that is what we've done at U.S. airports.

Some of us urged the performance-contracting approach in autumn 2001, as Congress rushed to enact the Aviation & Transportation Security Act (ATSA), which mandated the "federalization" of airport security. For our troubles, we got a five-airport pilot program to test the idea, and the promise that several years after TSA screening was in place at all 400+ airports, those airports would be free to ask TSA for permission to kick out its screeners and replace them with TSA-certified contractors. Oh, and by the way, TSA is also the aviation security regulator of every airport.

Not surprisingly, not a single airport with TSA screeners has asked to opt out (though likewise, none of the five pilot program airports has asked to kick out its private screeners, either). Instead, the modest growth of the TSA's Screening Partnership Program (SPP) has been at airports reaching the threshold of scheduled airline service, and thereby requiring screening. Thus, as of the first of this month, besides the five original pilot program airports (San Francisco, Kansas City, Rochester, Tupelo, and Jackson Hole), the airports that have been added to SPP are Sioux Falls (SD), Key West (FL), Roswell (NM), Sonoma City (CA), and the 34th Street Heliport (NY). The TSA is in the process of selecting a contractor to serve seven small Montana EAS (Essential Air Services) airports, and Butte (MT) has submitted an application to join the SPP.

One other impending development is likely to further strengthen the Maginot Line nature of TSA-provided airport screening. The Obama administration is widely expected to permit TSA screeners to unionize, as Obama promised on the campaign trail. The legislation (ATSA) creating the TSA left this question to be decided by the agency's Administrator, and as of this writing, no one has been nominated for that position. Unionization will not be the end of the world, but it will make it even harder to downsize airport screening workforces when and where it makes sense to do that.

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Feedback on FAMs vs. FFDOs

My article last month on the very poor cost-effectiveness of Federal Air Marshals (FAMs) compared with armed pilots (under the TSA's Federal Flight Deck Officers [FFDO] program) brought several responses. The most detailed was from Billie Vincent, former director of FAA's Office of Civil Aviation Security. In the 1980s, he tells me, the FAM program was part of his organization, and he beefed it up to several hundred members in response to a Presidential order following the 1985 TWA Flight 847 hijacking out of Athens. But now that FFDO has been implemented, he's become a big fan.

"Since 9/11," he writes, "I have published several articles on the FAM versus the FFDO program and advocated a significant addition to the overall structure in response to an FAA NPRM [Notice of Proposed Rule Making]. My proposals were to go almost exclusively with the FFDO program," as well as adding ballistics protection inside the cockpit and covert CCTV cameras in the cabin, able to be monitored from the cockpit and the ground. He also tells me that to put two FAMs on all US commercial aircraft would require in the neighborhood of 56,000 FAMs at a cost of $5.6 billion per year, which "makes absolutely no sense"—and I heartily agree.

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News Notes

Registered Traveler's Growth Continues. Despite offering only head-of-the-line privileges and an increased annual fee of $199, Verified Identity Pass's Clear program keeps setting records. At the end of April, it recorded the one millionth passenger passing through the Clear lanes at Orlando International Airport, its first installation (since 2005). As of now, there are more than 260,000 members in Registered Traveler programs, with specialized lanes at 22 U.S. airports.

Risk-Based "Global Entry" Expands. In previous issues I have contrasted the TSA's Registered Traveler program with the Customs & Border Protection's Global Entry program. Both are open to people who submit data for a background check, and if passed, receive a biometrically encoded ID card allowing them speedier passage at airports. However, the TSA does not actually do a background check on RT applicants, which is why members must go through exactly the same passenger and baggage screening at airports as non-members. By contrast, CBP's Global Entry is a risk-based program, and those accepted can re-enter the United States from airline trips abroad (at participating airports) via quick-service kiosks, rather than waiting in long lines to show their passports to an Immigration official. And last month the U.S. government signed an agreement with The Netherlands to allow reciprocal privileges between Global Entry and the Dutch equivalent, called Privium. Since TSA and CBP are both under th e new leadership of the Department of Homeland Security, perhaps there's still hope to turn Registered Traveler into the kind of risk-based program it was originally intended to be.

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Quotable Quote

"By mutually recognizing these two programs [Global Entry and Privium], the governments of the United States and the Netherlands will be making travel between our nations more convenient and secure." (emphasis added)
--Janet Napolitano, Secretary, Department of Homeland Security, Aviation Daily, April 27, 2009.

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


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