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Airport Policy and Security Newsletter #60

Tarmac delays and canceled flights, taking airport privatization seriously, and pathetic perimeter security

Robert Poole
September 14, 2010

In this issue:

Has the Tarmac Delay Rule Increased Flight Cancellations?

The U.S. DOT’s tarmac delay rule went into effect at the end of April, and when cancellation and delay figures for May appeared in July, a heated controversy erupted. A number of aviation analysts had predicted that the draconian ($27,000 per passenger) penalty for keeping passengers in a plane on the ground more than three hours would lead to risk-averse airline behavior, cancelling flights at risk of exceeding that time period. And because of today’s very high load factors (85% or more), there would be great difficulty in finding seats for those whose flights were cancelled, resulting in ruined business trips and vacations. But the DOT’s figures portrayed May’s cancellations as below average, and that’s what the media reported.

Shortly after the DOT’s May figures appeared, two aviation consultants, Joshua Marks and Darryl Jenkins, released a major study, “Impact of Three-Hour Tarmac Delay Rules and Fines on Passenger Travel Time and Welfare.” (www.tarmaclimits.com) What Marks and Jenkins did was to re-examine the DOT’s Regulatory Impact Analysis, in which the DOT projected that the benefits of the rule would exceed its costs. Their analysis concluded just the opposite: that while 110,000 passengers per year will be spared an average of 3.26 hours of taxi-out delays, at least 200,000 passengers will be on 2,600 flights cancelled directly because of the tarmac delay rule (to avoid the fines), and that those cancellations will drive another 2,600 indirect cancellations, harming another 200,000 passengers. Thus, the ratio of passengers harmed to passengers helped is about four to one. And they estimated the net cost to air travelers as $3.5 to $3.9 billion over a 20-year period.

That was embarrassing enough for the DOT, but as a last-minute addition, Marks and Jenkins concluded that the cancellation data from the first month alone (May) demonstrated their point. The DOT’s Regulatory Impact Analysis said there would be an average of only 41 cancellations per year stemming from the rule, but the DOT data for May, said Marks and Jenkins, showed hundreds of rule-related cancellations. QED.

That was too much for the Office of the Secretary, which sent out a blistering news release, claiming that May’s total cancellation rate was below average and arguing that in any case one month’s data shouldn’t be used to draw longer-term conclusions. And that, in turn, set off a long argument over different ways to crunch the same data, which I won’t bore you with.

I do want to commend the Marks & Jenkins report to you, as an excellent piece of analysis that is well-informed about how airlines and airports actually operate. Having been on several flights that were cancelled in the last few years, I know first-hand the chaos that ensues as the airline tries to rebook up to several hundred passengers into the few available seats on whatever flights are still operating. After reading the entire 73 pages, which added a lot to my knowledge, I find their assessment entirely plausible.

What Ever Happened to Airliner Anti-Missile Systems?


The last time I wrote about the issue of defending U.S. airliners against the hypothetical threat of shoulder-launched anti-aircraft missiles was May 2009. At that point, I noted that the Department of Homeland Security had not released the results of its 15-month test of two competing systems (from BAE and Northrop Grumman) back in 2007-08 and wondered what its findings were.

DHS has still not published the assessment report, but the Federation of American Scientists succeeded in getting a copy via a Freedom of Information Act request, and the findings were discussed in a BusinessWeek article by Angela Greiling Keane dated July 2nd. After operating the two systems for more than 16,000 flight hours on American Airlines airliners and FedEx cargo planes, DHS concluded that the systems (which are deployed on many military planes and some private jets) are effective. But we already knew that. The big question is whether they are cost-effective in a U.S. airline setting.

The report estimated the cost of equipping all U.S. airliners the size of 737s and A318s and larger—over 3,600 aircraft—at $43.3 billion. That cost includes the purchase price and installation as well as ongoing maintenance over a 20-year period. A 2005 RAND Corporation study of the issue estimated that a missile attack that succeeded in bringing down an airliner would cost the country more than $15 billion—assuming that the government’s response was to shut down all air travel for a week. Presumably, then, advocates would argue that it’s worth spending $43 billion to prevent a $15 billion loss, even if we think the probability of that loss is very low.

I have several responses to this. First, target-hardening is a losing game when it comes to defending an entire advanced, wealthy nation. There are simply too many alternative targets. Let’s assume that the $43 billion investment in airliner protection deters terrorists from using black-market heat-seeking missiles against large airliners. They would still be usable against countless other targets: regional jets (now approaching 100-passenger size), railroad locomotives, power plants, etc. You can’t harden all possible targets without bankrupting the country.

Second, even if the domestic heat-seeking missile threat level increases far beyond what I guess it to be, there is a far less costly approach that I’ve written about before. Since these weapons work only at low altitudes (i.e, when planes are landing or taking off), put anti-missile systems around key airports, for a fraction of the cost of equipping all planes.

Third, I question the assumption that a sensible response to a missile attack on one plane would be to shut down all air travel for a week at a cost of $15 billion. Talk about a win for terrorists! One of the most important things we ought to be doing for homeland security is building greater resiliency, recognizing that despite taking sensible and cost-effective measures, some attacks will succeed, and we need to pick up the pieces and go on with our lives. Building more-robust disaster response capabilities would be a far better use of some of that $43 billion than hardening one small set of targets. 

U.S. Airport Privatization Gaining Serious Attention

Over the past year I have probably received more questions from transportation reporters about whether U.S. airport privatization has a future than any other subject. So I’m pleased to note several articles on this subject that have crossed my desk in the last few months, all of which conclude that there is something there, there.

In HNTB’s Aviation Insight magazine (Spring 2010), Dr. Stephen Van Beek, former executive vice president of Airports Council International-North America and now CEO of the Eno Transportation Foundation, concludes that “As funding sources decline, airports will increasingly consider other options for financing capital improvements, including privatization.” That’s a significant point, in that it suggests airport directors themselves, not just cash-hungry mayors and city managers, may look to privatization as a means toward increased airport investment.

Leigh Fisher Management Consultants released a brochure in July titled “Privatization: An Alternative for Addressing Today’s Challenges.” As with Van Beek’s article, this thoughtful discussion seems aimed more at airport professionals than at either elected officials or city budget officers. It also concludes that “a number of factors are likely to give rise to a ‘new realism’ for airport privatization,” including less financial aid available from state and federal programs and less readily available credit and capital than before the credit markets crunch.

The longest and, in my view, most provocative is David L. Bennett’s article in the ABA’s Air & Space Lawyer, titled “Airport Privatization After Midway.” Besides providing a good overview of the federal Airport Privatization Pilot Program and the proposed—but not-financed—deal to lease Midway Airport, Bennett paints Midway as to some extent a unique case, compared with other likely privatization candidates. The deal negotiated with Midway’s airlines—which was nonnegotiable for bidders—was unduly restrictive, in Bennett’s view, and might not be as much of a template for future leases as many have assumed. He also points out that the Illinois legislation granting exemption from property taxation for a leased airport also prohibited any expansion of Midway’s boundaries, which would seriously constrain its growth potential.

What I found most interesting in Bennett’s piece was his discussion of airport privatization opportunities outside of the federal Pilot Program. It is possible to lease a commercial airport without going through that program, and therefore not being subjected to constraints such as the 65% airline approval requirement. To be sure, without that approval, a city cannot take lease payments off the airport, and must use them solely for airport purposes. But cities with multiple airports (e.g., Chicago and Houston with two commercial airports or any number with one commercial airport and several general aviation airports) could lease one and use the lease revenues to invest in the other(s)—and do so without airline approval or going through the formalities of the Pilot Program. He also notes various forms of hybrid lease-management arrangements, such as the long-term concession that developed the $1.4 billion Terminal 4 at JFK International Airport and the recent lease and management contract for Oceanside, California’s GA airport.

In addition to these three articles, the Transportation Research Board’s Airport Cooperative Research Program has a project under way on airport privatization. ACRP 01-14 aims to produce a guidebook for those considering privatizing all or part of a U.S. airport, ranging from commercial service airports to general aviation airports. The research will review existing regulations, summarize current private-sector involvement at U.S. airports, and provide an overview of airport privatization worldwide, along with case studies. The consultant doing the research will also assess the U.S. regulatory and policy framework, as well as current interest and trends in U.S. airport privatization.

Registered Traveler Restarting at Three Airports

Thus far three companies have emerged to restart the head-of-the-line service formerly offered at nearly two dozen airports, mostly by now-defunct Verified Identity Pass under the brand name Clear. The company that won the right to the Clear name and membership records, Alclear, last month announced agreements to offer essentially the same service at Denver and Orlando airports. Orlando received responses to its RFP from Alclear, Henry, Inc.’s JetLanes, and Cogent Systems/iQueue, from which it selected Alclear. Cogent has opened an iQueue line at Indianapolis International and is in talks with a number of other airports about launching service there. Alclear has said it expects the Denver launch to occur in October, but no date has been announced for Orlando. JetLanes has not yet announced any airport deals, but says its business model is less costly because it will avoid using biometrics.

Meanwhile, Jacksonville International Airport has been working with its airlines to create a separate checkpoint for their frequent flier members, and is considering selecting an RT company to operate there. Under the previous RT program, Jacksonville contracted with Vigilant Solutions as its service provider.

None of these RT programs will be risk-based security programs, of the kind Congress envisioned when it called for creation of a Trusted Traveler program as part of the 2001 Aviation & Transportation Security Act, which created the TSA. Under that concept, applicants for membership would have to pass an FBI criminal history background check, just as airport workers must do to gain access to secure areas of airports. When asked by the Airports Council International-North America whether he is open to such a program, new TSA Administrator John Pistole responded that he “has no plans to provide security benefits out of concern that terrorists might exploit the program.” Apparently he thinks there is no danger of terrorists exploiting airport employment.

Ironically, Customs & Border Protection, the TSA’s sister agency within the Department of Homeland Security, continues working to expand its international trusted traveler program called Global Entry. This program allows U.S. international travelers to apply and be subjected to a background check. If they pass, in exchange for a $100 membership fee and provision of fingerprint data, they can bypass Immigration officials when returning to the United States by air, instead scanning their passport and fingerprints at a kiosk. As of July the program had 58,000 members and was available at 20 major airports. CBP plans to buy ads in airline magazines and encourage federal employees to apply, in hopes of building membership to 100,000 by year-end.

Branson Airport Struggling to Survive

In previous issues I have chronicled the rise of privately developed Branson Airport in the Missouri country music capital of the same name. By foregoing federal airport grants, it has gained considerable operating flexibility, such as offering airlines exclusive deals on various routes. But a recent article in The Bond Buyer (August 4th) provides some dismaying numbers on the airport’s growth and finances.

According to the article, here are the projected versus actual passenger numbers:
                       Projected        Actual
2009                180,000         39,000
2010                275,000         115,000 (est.)

Due to those lower passenger numbers, the company is having trouble meeting its debt-service payments. The article reports that the bond trustee, UMB Bank, in July drew $3.14 million from a supplemental reserve. The company’s total debt service reserve was $15.8 million as of June 30th, before that draw-down. The revenue bonds, which traded originally at 90 cents on the dollar in 2008, fell to 64.5 cents late in 2009, and were at 54 cents the first week of August.

Contributing to the airport company’s cash flow problems in the first half of 2010 was the city government’s withholding of $153,000 due for 2009 under a “pay-for-performance” agreement between the city and the company—a payment which was finally made in July. For this year, the agreement has been renegotiated to provide $8.24 per passenger, to be paid directly to the trustee for debt service. But there’s a catch: the payment is “subject to appropriation,” and thus far the financially struggling city has not appropriated any funds for such payments in its 2010 budget.

There is some good news in the pipeline. This month AirTran is increasing the number of flights between Branson and Atlanta, and Branson AirExpress is beginning new service to Chicago Midway and Indianapolis. AirTran and Frontier have been achieving decent load factors of around 82%. So now it is a question of whether growth in passenger numbers occurs at a high enough rate to cover debt service.

Perimeter Security Still Pathetic


Two recent incidents highlight the folly of TSA’s gross over-emphasis on “security theater” at the checkpoints while leaving airport back doors unlocked and vulnerable. On August 19th, a stolen truck missing a wheel crashed through a security gate at Dallas Love Field and led police cars on a wild chase across the airfield, before finally being stopped without damaging any planes or hitting any airport workers. And again on August 30th, a woman with a gun drove, apparently unchallenged, into a “secure” Delta employee parking lot at Atlanta’s Hartsfield-Jackson Airport. Allegedly seeking a Delta employee on some kind of personal mission, the woman brandished a gun while still in her car, and ended up dead, after police fired into the vehicle.

The Dallas incident was more serious for airport security, since that intruder was able to drive onto the taxiways and runways, unlike the Atlanta intruder (who never got out of the Delta parking lot). In the Dallas case, news video showed the truck smashing through a security gate, where there was only an unarmed guard. Like numerous airport perimeters, Love Field’s is “protected” only by a chain link fence. One news article pointed out that some gates at Love Field are equipped with retractable bollards (like those you see around the Capitol and the White House in Washington, DC) which physically prevent someone from driving through. But it only takes one weak link to permit access by someone intent on harm. Many other airports are similarly vulnerable.

TSA’s checkpoint screening is highly labor-intensive, with operating costs that increase every year. By contrast, basic perimeter protection involves mostly one-time capital costs for physical improvements such as ditches, bollards, and video surveillance. One would think that a basic risk assessment would find such one-time investments to be worth at least a small fraction of the annual cost of the enormous checkpoint screening program. But that’s assuming that anyone at TSA is actually doing risk assessment and cost-effectiveness analysis.

Upcoming Conferences

Note: I don’t have space to list all aviation conferences here; below are those at which I or a Reason colleague will be speaking.

Airport Council International-North America 19th Annual Conference and Exhibition, Sept. 26-29, Pittsburgh, PA, David Lawrence Convention Center. Details at: www.aci-na.org/pitt2010/index.html. (Robert Poole speaking)

Airport Consultants Council 32nd Annual Conference, Nov. 8-10, Ponte Vedra Beach, FL, Sawgrass Marriott Resort. Details at: www.acconline.org/content/navigationmenu/ACCevents/annualconference
(Shirley Ybarra speaking)
 
Infrastructure Investor: Chicago, Nov. 18-19, Chicago, IL, Gleacher Center. Details at: www.peimedia.com/infrachicago10. (Shirley Ybarra speaking)

News Notes

BAA USA Changes Hands
The company that introduced brand-name retailers and street pricing to U.S. airport retail, BAA USA, has been acquired by Prospect Capital Corp., a New York-based investment company, and will be renamed Airmall USA. BAA’s first retail operation was the Airmall it developed at the then-new Pittsburgh airport terminal. That facility will continue to be operated by the successor company, along with its retail operations at Baltimore, Boston, and Cleveland airports.

American Outwits Thunderstorms

An FAA safety regulation requires ramp personnel to stay inside when there is lightning in the airport area, causing delays in planes reaching the gates and unloading. But at its two major hubs at DFW and MIA, American Airlines has installed automatic gate-docking systems that allow the plane to taxi up to the gate area sans ground personnel. The jetway can then be connected, allowing passengers to disembark. Now if only they could automate baggage unloading.

Follow-up on TSA Behavior Detection Officers

Shortly after the last issue appeared, with my article on the GAO’s strong critique of the TSA’s untested-but-expanding program of “Behavior Detection Officers” at airport checkpoints, the Philadelphia Inquirer reported on a humiliating experience for a passenger at Philadelphia International Airport. A businesswoman was singled out by BDOs and subjected to a pat-down, after which her purse was searched, including an examination of her checkbook and the receipts in her wallet. After finding a deposit slip and about $8,000 worth of checks to be deposited, the BDOs called for police assistance. Asked later why they called the police, a TSA spokesperson replied, “Because her behavior escalated.” That line is right out of the TSA training for BDOs, but it also looks like an entirely understandable response to the agents’ actions. The ACLU has taken the woman’s case as a violation of the Fourth Amendment protection against unreasonable searches. (Daniel Rubin, “An Infuriating Search at Philadelphia International Airport,” www.philly.com, Aug. 18, 2010)

The Return of Leigh Fisher

Several years ago the huge engineering firm Jacobs acquired aviation consultants Leigh Fisher Associates and renamed it Jacobs Consultancy Aviation Practice. But in July Jacobs announced that it was rebranding the division as LeighFisher Management Consultants. Welcome back to a long-respected name in aviation.

U.K Airports Policy Slammed

In contrast with most of Europe, Latin America, Asia, and the United States, where airport capacity continues to grow, the new U.K. coalition government has announced that there will be no significant airport expansions on its watch, citing global warming concerns. That decision has been criticized by the Institution of Civil Engineers, in a report called “Rethinking Aviation.” ICE’s Simon Godfrey-Arnold told Reuters that “Air transport and airport infrastructure are vital for the UK’s international connectivity and prosperity. As a trading island nation and popular tourist destination, we depend on our ability to connect with the rest of the world.” (www.ice.org.uk/transportbriefings)

Diversified Revenue Key to Airport Success
The Air Transport Research Society, at the University of British Columbia’s Sauder School of Business, released its 2010 ATRS Global Airport Benchmarking Report in July.  It examines the performance and cost-competitiveness of 142 airports and 16 airport groups. A major finding is that non-aeronautical revenue streams help airports achieve greater efficiency and lower airline charges. Among U.S. airports, the top three were Atlanta, Minneapolis/St. Paul, and Tampa. Top scorers in Europe were Oslo and Copenhagen, and the best in Asia/Pacific were Hong Kong and Sydney. (www.atrsworld.org/airportawards.html)

Quotable Quotes

“Here’s a disturbing thought. What if, all along, the theatrical aspect [of TSA] was intentional? TSA has been quoted one too many times as saying they are essentially a deterrent. And if this is to be a deterrent, then they need to have you and me in the pen or pit around the checkpoint, visibly being wanded and patted down. Essentially that requires them to put all of their resources on people who they know are not a problem. It’s sort of reverse profiling.”
--Fred Gevalt, executive producer, “Please Remove Your Shoes,” interview by Andrea Sachs, Washington Post, Aug. 13, 2010

“If airport privatization is going to be a realistic option for [U.S.] airports in the future, Congress will have to expand the number of slots in the Pilot Program. With Midway still occupying the sole large-hub slot, no other large hub airport is eligible. Congress could open the program providing, for example, another five slots with no restrictions on airport size. Unfortunately, the current House version of the FAA reauthorization does not expand the program; instead, it actively discourages the program by not adding slots, raising the airlines’ approval requirement to 75 percent, and eliminating the ability of privatized airports to receive AIP funding. Airports need options. If the airlines and the federal government are unwilling to help fund infrastructure through [increased] fees, AIP, and PFCs, then they should support a privatization program that provides airports with a realistic alternative.”
--Steve Van Beek, President, Eno Transportation Foundation, in “Is Airport Privatization Coming to the United States?” HNTB Aviation Insight, Spring 2010


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


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