Airport Policy and Security Newsletter #41

Topics include: cost-effectiveness of U.S. airport security; new technology for perimeter security; Jacksonville, Long Beach consider privatization; PFCs and FAA reauthorization; and other news.

In this issue:


Is U.S. Airport Security Cost-Effective?

I have sometimes characterized the U.S. Congress's response to 9/11 as "legislate first, analyze later," though in view of the dearth of analysis in the seven years since enactment of the Aviation & Transportation Security Act (ATSA) of 2001, it's more like "legislate first, analyze never." Fortunately, academic researchers are starting to take a serious look at the value of what Congress has mandated-and the results tend to support my skepticism. Last fall I had the opportunity to develop a discussion paper for the OECD's International Transport Forum, specifically for a December workshop on security, risk, and cost-benefit analysis. In the course of preparing the paper, I discovered an important piece of analysis by Mark Stewart and John Mueller called "A Risk and Cost-Benefit Assessment of U.S. Aviation Security Measures," published in the Journal of Transportation Security, Vol. 1, No. 3 (http://hdl.handle.net/1959.13/28097).

The problem with applying conventional cost-benefit analysis to anti-terrorism measures is how to quantify the benefits. The costs are relatively straightforward, despite some numbers being classified. But the benefits are events that did not happen because of the measure that was implemented. With terrorism events being few and idiosyncratic, it's very hard to come up with defensible quantitative benefit values.

Stewart and Mueller's key insight is to borrow from regulatory analysis the idea of relative cost-effectiveness. U.S. regulatory agencies routinely develop estimates of the number of lives they think are saved per year by their safety regulations, and the annual costs of those regulations are generally straightforward to estimate. (They include a table in their paper showing the huge range of cost/life saved, ranging from a low of $100,000 for FAA's aircraft cabin fire protection standard to a high of $6.78 trillion for EPA's hazardous waste listing for wood preservatives.)

For aviation security, Stewart and Mueller provide a list of 20 measures mandated by ATSA, 14 of which apply at the airport (mostly passenger and bag screening) and six dealing with in-flight security. They assume, consistent with most expert opinion, that in-flight measures such as strengthened cockpit doors and changed procedures have made a big difference in reducing the risk of a 9/11 repeat, so they estimate that those measures account for half of whatever reduction in such attacks has taken place. And on that score, they make the further assumption that in the absence of the ATSA measures, one 9/11 type attack would occur every 10 years (resulting in 3,000 deaths). Hence, the annual benefit is 300 lives saved per year.

They then group the six in-flight measures into three: hardened doors, crew and passenger resistance, and air marshals, and make a starting assumption that each has contributed equally to the in-flight measures' overall 50% of the reduction in attacks; hence, each of the three accounts for 16.67% of the total. But because air marshals are present on only a fraction of flights (they generously assume 10%), the risk reduction due to air marshals alone is 10% of 16.67 or 1.67%. With the average annual cost of hardened doors at $800,000, and the annual cost of air marshals estimated at $180 million, you can see that hardened doors are hugely more cost-effective (in terms of cost/life saved) than air marshals. Stewart and Mueller also do a sensitivity analysis, showing that the same general conclusion is reached for a wide range of assumed numbers.

In my paper, I took their methodology one step further. Using budget numbers showing that about $4.7 billion of TSA's $6.7 billion budget is spend on airport-related security (excluding cargo security), I estimated that the set of 14 airport-related measures has a cost of $31.3 million per life saved, which is 39 times that of hardened cockpit doors. The U.S. DOT, in assessing the cost-effectiveness of transportation safety regulations, uses $3 million per life saved as a benchmark.

This kind of quantification, crude as it may be, supports the seat-of-the-pants judgment of many aviation experts that hardened cockpit doors are the best measure to come out of ATSA-and that most of the passenger and bag screening rigamarole (along with air marshals) is very likely a waste of money. It also over-emphasizes the land-side at the expense of insufficient attention to threats from the airside (see next item).

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New Technology for Airport Perimeter Security

Airports are very large land uses, which means their perimeters are often many miles long. Yet relatively little is being spent to secure that perimeter so as to keep bad guys from gaining access to planes or facilities, compared with the billions spent each year on passenger and bag screening to keep bad things getting from the terminal to the planes. It's like having super locks on the front door, while leaving the back door unlocked.

One new approach is thermal imaging cameras. They have several potentially important advantages. First, they have very long range (up to 26 km., according to manufacturer Axsys Technologies), meaning that a few can cover a large area. They can generate a clear image without illumination, since they are passive devices that capture thermal radiation from various objects, so they can operate day or night. They can also interface with the airport surface detection equipment (ASDE-3 and ASDE-X), to use ASDE signals to help detect humans in the air operations area. Thermal imaging cameras are in operation at JFK Airport, interfaced in this way with ASDE-X. They are also being used at LaGuardia to monitor the location of contract personnel, rather than having human escorts with them all the time. John Cimba of Axsys told Aviation Daily that the costs for the thermal camera system at LGA were $400,000, which he compared with the estimated $3 million c ost of a video camera system sought by Washington National Airport for perimeter protection.

The other promising technology is "intelligent video cameras" linked by a secure wireless network. This approach was developed by the Naval Surface Warfare Center in Panama City, Florida. The "intelligence" consists of software that can differentiate between "normal" and "abnormal" images, and provide an alert in case of the latter. This approach is being considered for the new Panama City-Bay County Airport, currently under construction. Initial tests are being carried out at the existing Panama City airport. No cost figures for this approach to perimeter protection have been release yet, as far as I can determine.

I'm glad to see relatively more attention being paid to this generally weak point in airport security.

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Jacksonville, Long Beach Looking Into Airport Privatization

The new year began with two U.S. new airports added to the list of those looking into privatization. The Long Beach (CA) City Council had a closed session on January 6th to discuss the pros and cons of privatization, the Los Angeles Times reported. According to that report, both J.P. Morgan and Merrill Lynch have expressed interest in a possible lease of the airport, under the federal Airport Privatization Pilot Program.

And a recent interview with John D. Clarke, the CEO of the Jacksonville (FL) Aviation Authority several months before, revealed his interest in partial privatization for that airport. Clarke, who is the incoming chairman of Airports Council International-North America, told Airport Business (October 2008) that he is looking seriously at "taking the operations of Jacksonville International Airport and creating a 25-year master concessionaire operation, where we would allow a private company to come in and manage that airport." The interviewer asked if he means just retail concessions, and Clark replied: "I'm talking about everything except airfield operations. It's not privatization; but it is trying to figure out if we can get a balance between what the private sector seems to do better than what we can do. . . . We don't want to give up any ownership. It would be a master lease agreement. They would do the airline negotiations; we would be the body above that would approve. The private sector would do the capital investments; take over the operation of the terminal, the parking garages, the hotels, the ground transportation."

Seeking further clarification, the interviewer asked, "Is it basically contract management [a la Albany and Burbank]?" and Clark replied, "The difference between this and contract management is that we would not pay them to do it. They would in fact pay us. Just like a concessionaire in the terminal would pay a percentage. We're exploring how that works. The board has put together an ad hoc committee to do all the due diligence." He also noted that the Aviation Authority has an ongoing relationship with privatized Gernan airport company Fraport and has had discussions with Macquarie, as well as the FAA.

While Clark stresses the uniqueness of what Jacksonville is considering-basically leasing the terminal and related land-side portions of the airport-that is not entirely unprecedented. To the south of Jacksonville, the terminals at Orlando Sanford Airport were developed and are operating under a long-term concession model by Abertis, which acquired airport company TBI several years ago. Terminal 4 at JFK International was developed and is operated by a private-sector consortium under a long-term concession agreement. And there have been a number of long-term concessions for new airport terminals in Latin America and the Caribbean.

To the best of my knowledge, leasing only the land-side of the airport would not require going through the provisions and procedures of the federal pilot program, which is mainly about getting exemptions from various FAA grant assurances that relate primarily to the use of revenue derived from landing fees. Both JFK and Orlando Sanford were allowed to proceed with their terminal projects without applying under the pilot program. If I'm correct about this, should Jacksonville proceed with such a plan, it would therefore not use up one of the three remaining slots for commercial airports in the pilot program.

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Passenger Facility Charges and Reauthorization

I don't know about you, but I spend a lot of time in airport terminals, and the differences among them are striking. Those that have either been built or revamped within the last decade or so have enough space in the gate areas to hold the number of passengers that are now common with 80+% load factors; many of the others do not. Newer ones have brand-name retailers offering a wide variety of goods and services, rather than a few generic or monopoly brand-name outlets. Some of the newer ones actually have jetways that work for the lower-to-the-ground regional jets, so you don't have to trudge across rainy or snowy tarmac to get to the plane.

My point is that a lot of airport terminals need work, in addition to the need at a number of key airports for more runway capacity, high-speed turnoffs from runways, etc. In the face of this need for more airport investment, Congress faces a clear choice, when it crafts the legislation-more than a year overdue-to reauthorize the Federal Aviation Administration.

There are two key federal programs that affect airport investment. One is the typical centralized federal tax-and-grant approach represented by the Airport Improvement Program (AIP). About $3 billion per year that comes mostly from the passenger ticket tax gets allocated by Congress in the form of AIP grants; it's very much like federal highway grants, allocated by complex formulas. And like the highway program, there is considerable redistribution and pork involved. Passengers using large hub airports generate 69% of the ticket tax money, but large hubs get only 21% of AIP grants; medium hub passengers generate another 20% of the tax revenue, but medium hubs get only 12% of the grants. For small and non-hub commercial airports it's the other way around: those two categories generate 11% of the revenue but get 33% of the grant money. And "other" passengers (those on air taxis and fractional jets, using general aviation airports) produce just 0.2% of the revenues but those "other" airports get a whopping 35% of the grants. As I said, it's a lot like the highway program.

The other option was designed to help address this problem, especially for large and medium airports. At the beginning of the 1990s, Congress repealed a long-standing prohibition on airport self-help, permitting airports to levy passenger facility charges (PFCs) specifically to fund facilities at the airport in question. Note the contrast with AIP: no centralization, no redistribution, no pork. Basically, this was a step toward deregulation of airports, permitting them to act like the businesses they are in principle, and should be in fact. To be sure, Congress set a cap on PFCs (initially $3, later increased to $4.50), and requires the FAA to approve the specific projects for which an airport levies a PFC. But overall, this partial defederalization has worked very well. After some initial hesitancy, the bond markets got comfortable with airports issuing revenue bonds backed by PFC revenues. And despite perennial airline rhetoric about airports us ing PFCs to build "Taj Mahals," the $65 billion in investments made possible by PFCs have done wonders for airports.

But two factors make it important for Congress to increase the $4.50 cap on PFCs as part of the FAA reauthorization bill. The first is inflation. Since 2000, when that level was enacted, construction cost inflation has been considerable, so $4.50 in 2009 doesn't buy what it did in 2000. Second, nearly all current PFC revenues are committed either for cash outlays on projects already under way or debt service on projects already completed. Tens of billions in further terminal and runway expansions still need to be carried out, mostly at large and medium hubs-but those are the kinds of airports that are short-changed by the way Congress distributes AIP funds.

Many of my conservative and libertarian friends too quickly equate a PFC with a tax, as if it were some kind of general levy that was sent to Washington and frittered away on airports to nowhere. On the contrary, a PFC is a self-help user fee, which you only pay if the airport you use needs to make capital investments that will serve you better, as a passenger. It's the kind of devolution that many of these same people are calling for in the highway program. I hope they will join me in supporting the strengthening of this important funding mechanism.

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News Notes

Branson's Private Airport Landing Airline Partners. The new privately developed airport for Branson, MO will not use any federal Airport Improvement Program (AIP) funds, so it will not be bound by the normal FAA grant assurances. So, as reported here in Issue No. 36, it can offer airlines exclusive rights for service to particular cities. Last month, Branson Airport signed the first such deal, granting AirTran exclusive rights to serve the airport from Atlanta for what is reportedly two years. Aviation Daily (Jan. 6, 2009) reports the company is negotiating a second airline deal. The airport is set to open May 11th, following a two-day air show featuring the USAF Thunderbirds.

NRC Questions Data Mining and Behavior Detection. The National Research Council, the research arm of the national Academy of Sciences, released a 352-page report in October that assesses the scientific validity of two techniques many consider useful in dealing with terrorism. On behavior detection, currently used by the TSA at airports, the report says there is no scientific consensus that the technique is ready to use for detecting complex behaviors such as deception, as opposed to simple distress. And while data mining has useful commercial applications, the NRC researchers said it is questionable whether data mining can detect and pre-empt terrorist attacks. (www.cnn.com/2008/US/10/07/terrorism.behavior).

International Registered Traveler Now at Seven Airports. The only true (risk-based) U.S. registered traveler program-Customs & Border Protection's Global Entry-has expanded from Houston, New York (JFK), and Washington Dulles. It is now also available to travelers re-entering the United States at Atlanta, Chicago O'Hare, Los Angeles, and Miami. Would-be members pay a $100 fee and must pass both a background check and an interview. They may then bypass regular passport control and go to a kiosk where they can scan their passport and biometric ID card. During the trial period at the initial three airports, 1,100 people signed up for Global Entry.

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Quotable Quotes

"The place where we can get the most leverage for our terrorism dollars is at the beginning, working with overseas police to roll up terrorist financing through effective intelligence; and at the end, with emergency response and disaster relief. The stuff in the middle that requires us to guess the plot correctly really is a waste of money."
--Bruce Schneier, quoted in "Man-Made Disaster," by Jeffrey Rosen, The New Republic, Dec. 24, 2008 [Note: that whole article is well worth reading.]

"The importance of operational improvements grows as infrastructure projects become more complex. Macquarie and Ferrovial's co-investment in the UK's Bristol International Airport, for example, involved upgrading signage systems; renewing check-in, baggage reclaim, and catering facilities; rerouting foot traffic; and installing all-weather landing equipment. The investors also rejuvenated the airport's retail offering, strengthened the management and sales teams, and even tweaked the system for booking parking spaces. In the four years after the acquisition, the number of passengers using the airport doubled-as did its EBITDA. . . . It would be unthinkable for an investor with no expertise in the transport sector to make these decisions."
--Robert N. Palter, Jay Walder, and Stian Westlake, "How Investors Can Get More Out of Infrastructure," The McKinsey Quarterly, February 2008. (http://e.mckinseyquarterly.com)

"You are not going to get 100% [cargo scanning overseas for incoming cargo at ports], because you can't make every other country do that. And when people in Congress say 'How dare you say you're not going to do 100%?' I feel like saying, 'Well what do you want me to do? Promise we'll invade every country that doesn't allow us to scan?'"
--Homeland Security Secretary Michael Chertoff, Christian Science Monitor breakfast, Dec. 10, 2008, as reported in Traffic World, Dec. 15, 2008, p. 14

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





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