Air Traffic Control Reform Newsletter #3

Topics include: corporatized ATC providers adjusting to lower air traffic; the FAA modernization slowdown; and the wrangle over controller productivity.
In this issue:

Corporatized ATC Providers Adjusting to Lower Air Traffic

The party line from controllers' union NATCA is that the post-9/11 reduction in air-traffic revenues at corporatized ATC providers like NATS and Nav Canada exposed the Achilles heel of commercialization. NATCA appears to believe that government agencies are better able to cope with dramatic changes in business conditions.

The actual response of ATC providers suggests otherwise. Despite about 20 percent less U.S. air traffic post-9/11, the FAA has not cut back its spending at all, continuing to operate business-as-usual. By contrast, its corporatized counterparts have been aggressively making cuts in non-essential spending and taking a cautious approach to fees and charges, recognizing the diminished revenues of their airline and GA customers.

On the spending side, the U.K.'s NATS announced a 20 percent cut in management and support staff and postponed construction of its new Scottish ATC center. Nav Canada announced spending cuts of 12 percent, while the Irish Aviation Authority is cutting 10 percent out of its 2002 budget (via outsourcing, job sharing, overhead cuts, and accelerated early retirements).

On the revenue side, a few European providers initially planned significant rate increases (e.g.,Belgium 24 percent, Germany 16 percent). But those announcements came under heavy fire from airline organizations IATA and ERA. Eurocontrol subsequently brokered an agreement under which all 30 member states would freeze en-route charges at 2001 levels for the first three months of 2002. Nav Canada's stakeholder board in December affirmed its previous decision to let its temporary rate reduction expire as of January 1, 2002, which means a 6 percent increase over 2001 levels. But to soften the blow, it also put in place a payment deferral plan, under which the amount of the increase will not have to be paid until the July-October period. And NATS is seeking some degree of relief from the current regulatory regime, which mandates reductions in charges of 4 percent in 2003 and 5 percent in 2004 and 2005.

Both NATS and Nav Canada were hit by a double-whammy on the North Atlantic. In addition to a 20 percent decrease in airline flights, they experienced a 144 percent increase in military traffic, which does not pay fees. Thus, overall workloads remained almost the same, but with 20 percent less revenue. One obvious remedy would be to start charging military flights (as has been the practice under corporatized ATC in Germany and New Zealand).

Several other factors indicate the resiliency of corporatized ATC providers in the face of major change. Nav Canada is drawing on a sizeable "rate stabilization fund" to help cover operating costs during this time of reduced revenue. It is apparently the only provider thus far permitted to accumulate such a fund, but this would be a wise practice for transport agencies to encourage. The company's financial soundness was attested to by its successful sale of C$250 million in medium-term bonds in November, to refinance 5.75 percent debt at 3.75 percent, thanks to today's lower interest rates. The bonds were rated AA+ by Standard & Poor's. NATS, which was part-privatized only last July, is seeking a subordinated loan from the U.K. government (which still owns 49 percent), to help complete the 1.5 billion pound debt facility being arranged by four U.K. banks.


 

Modernization Slowdown — An Unwise Move?

Despite not cutting back at all on its bureaucracy or operating costs, the FAA is cutting back on investment in modernization. According to a January 5 New York Times article, the agency has postponed for two years—from 2003 to 2005—plans to implement Controller Pilot Data Link Communications in 19 en-route centers. CPDLC is a key component of modernization, and is already in routine use by Nav Canada, Air Services Australia, and several other corporatized ATC providers. Administrator Jane Garvey also implied that the ADS-B program sponsored by the Cargo Airline Association might be stretched out; ADS-B does not yet even have a firm deployment schedule to modify.

The agency's slowdown is getting a boost from Inspector General Kenneth Mead, whose latest report recommends that both Free Flight Phase 1 and the Operational Evolution Plan (EOP) should be put on hold, pending a post-9/11 reassessment of both security implications and investment strategies. In particular, the OIG report called for deferring both CPDLC and the Final Approach Spacing Tool.

While there are legitimate reasons to think through the security implications of all ATC technologies, we see no need for further delays in these already long-overdue modernization efforts. It may be that in putting off implementation, FAA is once again deferring to the influence of PATCO. In an excellent survey article on Free Flight components, Aviation Week (Nov. 5, 2001, p. 50) notes that "Managing the comfort level of the controllers will be the FAA's biggest problem." While PATCO itself has not been vocal on the subject, its global counterpart, IFATCA, has been railing for some time against "Transfer of Control Functions to the Cockpit" (their capitalization). But what is Free Flight all about if not that? Sooner or later, the people running ATC in this country are going to have to bite that bullet.


 

Much at Stake in Wrangle over Controller Productivity

Back in 1998 the FAA negotiated a new contract with NATCA. In exchange for very generous pay increases, the union agreed to numerous work-rule changes intended to increase productivity and thereby offset the increased hourly costs. Unfortunately, thus far, the FAA has not been able to document any savings stemming from these changes. One reason is the agency's abominable cost-accounting system, as highlighted once again by the Office of Inspector General.

Soon after the new contract went into effect, OIG recommended that FAA create a labor distribution system to identify which people devoted how much time to which activities. Not only would this provide the means of documenting any productivity gains, it would also provide a more accurate way of forecasting how many controllers would be needed in future years, as technology automated some tasks or shifted others to the cockpit. "FAA's cost accounting system would not be effective and credible without an adequate labor distribution system," according to OIG.

Last April, FAA unveiled the labor reporting system for 36,000 controllers and maintenance technicians, dubbed Cru-X. That system's deficiencies are blasted in a recent OIG report. As devised by FAA, Cru-X allows employees to falsify log-in and log-out times. And it omits any categorization of time spent "off-scope" on collateral duties. While FAA has agreed to fix the latter problem, it refuses to fix the first deficiency, which OIG finds inexplicable. Its report suggests that the agency's position may be due to reluctance to having to negotiate a work rule change with NATCA. And it argues that such a change would be "in the controllers' best interest because it would provide a system that could track time effectively and aid in measuring productivity." And that would make it possible "to quantify gains associated with work rule changes and demonstrate to Congress and FAA's stakeholders that the negotiated changes have been effective at increasing productivity and reducing the agency's operating costs."

On the other hand, it might well document that there have been no productivity gains and no reductions in operating costs. In which case the FAA's reluctance to change Cru-X is quite understandable.


 

Notable and Quotable

The November 2001 issue of Airline Business carries a very readable interview with IATA Director General Pierre Jeanniot. One portion talks about ATC commercialization:

    "Government should step out completely from the operations areas," he argues, including the provision of ATC in that bracket. Jeanniot is an enthusiastic supporter of the UK public-private partnership initiative that saw National Air Traffic Services (NATS) become a commercial company with airlines among its shareholders. Jeanniot himself sits on the board. Already in the present crisis, he detects signs of how attitudes are changing. The old bureaucratic instincts would simply have been to meet the fall in revenues from reduced flying by raising ATC charges, despite the damage it does to the industry. "At NATS the management discussed how to maintain quality while cutting costs, which is exactly what the airlines also have to do," he says.

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





;