Airport Policy and Security Newsletter #47

TSA's unchecked power, private airport in Branson, the future of registered traveler

In this issue:

  • Mission Creep at TSA
  • Branson’s Radical Rethink of Airport Business Model
  • The Collapse of Clear
  • Follow-Up on Gatwick Airport Privatization
  • GA Airport Lease
  • News Notes
  • Quotable Quote

Mission Creep at the TSA

Two recent court cases have shined a spotlight on very troubling mission creep at the Transportation Security Administration, as pointed out in an excellent Wall Street Journal piece by Scott McCartney (July 2, 2009). Before discussing them, let me provide some context.

In general, law enforcement people cannot search you or your car or your house because you just might be doing something illegal. They either need a warrant or some kind of probable cause during an interaction with you. In responding to the attacks of Sept. 11, 2001, Congress decided that the threat of terrorism to aviation was sufficiently high to justify a narrow exception to that long-established principle. Because the threat was judged (correctly or not) sufficiently great, the newly created TSA was authorized to inspect the luggage of every single air traveler on commercial planes and to require every one of them to pass through a metal detector, as a condition of being allowed to reach the boarding area for flights. That’s a major departure from over 200 years of constitutional principle and legal practice.

But recently the TSA has begun moving beyond those limits. In one case, a passenger at Columbus, Ohio was selected for secondary screening because he’d purchased his ticket just before departure. He had a valid ID, had no weapons or other prohibited items in his luggage, and did not set off the metal detector.  Despite the trace-detection swabbing of his carry-on turning up nothing, the officer opened his bag and found envelopes with cash and other envelopes with fake passports. On that basis, he was arrested. On appeal, U.S. District Court Judge Algenon Marbley ruled that TSA’s action violated the passenger’s Fourth Amendment right against unreasonable search and seizure. Prior cases, he said, clearly established that airport security searches are limited to detecting weapons and explosives.

The other case has not yet gone to trial. In this one, an officer of a political organization that evolved from the Ron Paul presidential campaign was detained by TSA at the St. Louis airport because he was carrying a lockbox with $4,700 in cash from the sale of T-shirts, bumper strips, and other political materials. Instead of answering their questions about the cash, he asked them the grounds on which they thought they could require him to answer such questions. He recorded the encounter on his iPhone, and on the basis of that recording, the ACLU has filed suit against Homeland Security Secretary Janet Napolitano. “Whether as a matter of formal policy or widespread practice, TSA now operates on the belief that airport security screening provides a convenient opportunity to fish for evidence of criminal conduct far removed from the agency’s mandate of ensuring flight safety,” says the ACLU.

It looks very much as if this is not a matter of rogue agents, but instead reflects genuine mission creep at TSA. The agency’s recent emphasis on “physical and behavioral screening” was defended by acting TSA Administrator Gale Rossides in congressional testimony just a few weeks ago. And the U.S. Attorney’s Office in Columbus has announced that it will appeal Judge Marbley’s decision.

Congress created the TSA to protect passengers and planes “against an act of criminal violence or aircraft piracy,” and it prohibited passengers from carrying a “weapon, explosive, or incendiary” onto a plane. It said nothing about cash or fake passports, nor did it give TSA the authority to act as police officers. It’s time for Congress to rein in its creation, before it does permanent damage to American liberty.

Branson, Missouri’s New Private Airport

In issue No. 36 (June 2008) I wrote about the successful financing and construction of a brand new airport to serve the country music tourist destination of Branson, MO. The airport opened on schedule this May, with two initial airline customers (AirTran and Sun Country). Because the airport was developed with private capital and no federal grants, it has far more commercial freedom than other airports, since it is not constrained by federal airport grant assurances. (It obviously must comply with all FAA and TSA safety and security requirements.)

So how different is Branson Airport LLC’s business model? An article in the June 2009 issue of Airport Business provides an in-depth look. As has already been fairly widely reported, in the absence of grant agreements, the airport can offer time-limited exclusives to the first airline that establishes service on a route to and from Branson. Instead of charging landing fees, it charges airlines a per-passenger fee that applies to all services—including ground handling. Hence, the airport company is has a financial incentive to expand the number of passengers, and to make sure they have a positive experience. So even though the airport has given an exclusive to Enterprise Rent-a-Car, it has an interest in making sure Enterprise does not charge monopoly rates.

Branson Airport LLC may be the first and only airport in America that paid for its own runway, control tower, instrument landing system, and everything else normally provided either by the FAA or funded largely with Airport Improvement Program grants. The tower is operated by Midwest ATC. The airport company has also created and operates its own fixed-base operator, Branson Jet Center FBO, offering fuel service, deicing, a GA terminal, and hangar space for private plane operators.

How did Branson Airport LLC put the funding together? The company raised a total of $155 million to build the airport. Of that sum, $115 million came from tax-exempt revenue bonds and $40 billion is equity put in by the founders. In order to issue tax-exempt bonds, the company needed a governmental issuer. So it made a deal with Taney County, giving it title to the airport’s land. The county created a transportation development district which issued the bonds and leased the property to the airport company for 50 years. (Had U.S. tax laws been more favorable to private infrastructure, the company would not have had to make this trade-off in order to get lower-cost financing.) One factor that makes the bonds more attractive to investors is an additional revenue stream besides what the company takes in from airlines, passenger retail sales, and its FBO: it has a 30-year deal with the city (which lives on tourism) under which the city pays the airport company $8.24 for every passenger it brings in. To the extent that the airport expands the tourism market, the city will benefit from increased sales tax revenue.

Creating a new airport from scratch is never easy, and places where the Branson model could be adapted may not be plentiful. But Branson Airport LLC is pioneering a dramatic new model of airport development.

Collapse of Clear: What Future for Registered Traveler?

Last month, shortly after the June issue of this newsletter reported passage of a House measure to turn the Registered Traveler program into the risk-based security program that Congress intended it to be, I was shocked to get an email announcing the shut-down of its business. (And this was only a few weeks after I’d renewed my membership for two years!). Evidently, the House action (not yet matched by the Senate) came too late to alter the economics of the business for Clear parent Verified Identity Pass. As the provider of RT services at 18 airports, it had large staffing expenses spread over not enough paying customers. Both new members and renewals were suffering, due to (1) the inability of Clear and other RT providers to offer hassle-free passage through screening checkpoints, and (2) the near-doubling of its membership fee level. For most potential customers, the value proposition just wasn’t there.

I’ve written at length over the last several years about how RT was intended to be a way of permitting the TSA to focus its screening resources on travelers who might actually be a threat to aviation security. As a recent report from the Congressional Research Service explained,
 “Within weeks of the 9/11 attacks, the DOT’s Airport Security Rapid Response Team included among its recommendations the urgent need to establish a nationwide program for voluntarily submitting information for vetting passengers who would be issued ‘smart’ credentials, to expedite processing of the vast majority of travelers, thus allowing aviation security resources to be focused most effectively, an idea that became known as the ‘trusted traveler’ concept. The recommendation was reflected in statutory language and was included in the Aviation and Transportation Security Act.”  (“Airport Passenger Screening: Background and Issues for Congress,” Congressional Research Service, April 23, 2009.)

But as we know, although the TSA initially performed a perfunctory background check on RT applicants, it never submitted their fingerprints to the FBI for the standard criminal history background check used to grant airport employees access to secure areas at airports. It eventually dropped even its perfunctory check, arbitrarily redefining Registered Traveler as an identification program, not a security program.

So what happens now? Most of the recent media coverage has been a lot of hand-waving about protecting the personal data on about 250,000 Clear members until it can be safely deleted from Lockheed Martin’s central data system. But deleting the data would be hugely premature. If the Senate concurs with the House language in requiring TSA to convert RT to its original purpose as a risk-based security program, that customer database will be a highly valuable asset. Aviation Daily reported on July 1st that Verified Identity Pass was working with secured creditors to assess whether any other companies might be interested in taking over the business. As long as the data are secure in Lockheed Martin’s hands, there is no need for haste. Let’s see if Congress can get RT back on track before deciding the fate of the data.

Reading the Tea Leaves on Gatwick Privatization

When I last reported on the pending sale of BAA’s London Gatwick Airport, BAA had received three bids, the amounts of which were not disclosed but which were rumored to be lower than the airport’s Regulated Asset Base of £1.6 billion ($2.4 billion). What follows comes from several published sources, but much of what they report is informed speculation and/or from unnamed sources.

The Financial Times on May 13th reported that the Lysander consortium, led by Citi Infrastructure Investors (and including Vancouver Airport Services, which had bid with Citi for Chicago Midway Airport) had been dropped, reportedly because its bid (generally estimated at £1.2 billion) was too low. A Citi spokesperson was quoted as objecting because their bid was the only one that was fully funded. A second bidder was later rejected, as well.

A May 25 report from TheDeal.com said that the word on the street was that Citi wanted a second shot, contending that BAA had been biased against it because of two previous deal failures—Midway and the Pennsylvania Turnpike. While the latter was purely political (the legislature failed to approve the needed enabling legislation to permit the Turnpike to be leased, and the Abertis/Citi consortium eventually withdrew their offer), the former was “an unfortunate combination of bad timing and miscalculation on Citi’s part,” said TheDeal.com. Citing unnamed sources, it claimed that the $2.5 billion deal structure for Midway included 40% equity (from Citi, John Hancock, and Vancouver Airport), $700-800 million in debt, and the balance from co-investors that included a Dutch pension fund, an Australian pension fund, and the Alaska State Pension Fund. It was the failure to secure these co-investors that led to the deal’s collapse, according to this report. The pension funds balked at the likely fall in value of the airport between summer 2008 when the bid was prepared and the early-2009 date for financial closing.

The most recent speculations are in a July 3rd article by David Bentley in Airport Business Daily . It cites a number of recent setbacks for the current Labor government—the failure on July 1st of the East Coast rail line, the postponement due to market conditions of a part-privatization of the Royal Mail, and the “survival mode” of the government after a recent drubbing in the elections for the European Parliament. The Royal Mail postponement, Bentley points out, strengthens BAA’s argument that now is not a good time to sell Gatwick, which BAA claims is worth less than half as much as two years ago. As it is, BAA has appealed to the Competition Commission, and the hearing on its appeal is set for October 19th. If it can prevail, on market-conditions grounds, then the remaining bid could be thrown out and a new auction held, perhaps in 2010.

So Citi Infrastructure Investors (which has yet to find a good investment for the estimated $4 billion that it has raised since 2007) and the others may get another shot at Gatwick.

FAA Approves Oceanside Airport Lease

On June 11th, 2009, the FAA approved a 50-year lease of the 50-acre general aviation airport in coastal Oceanside, California. The lessee is Airport Property Ventures, a startup company founded by several former airport managers. APV sees a great future in revamping money-losing GA airports, in effect turning sow’s ears into silk purses.

Under the deal APV reached with the City of Oceanside, the company will pay a flat monthly lease payment plus 40% of net income on all new development. The lease almost came unstuck, when the FAA viewed it as “privatization,” meaning the city would have to apply under the provisions of the Airport Privatization Pilot Program. But according to an article in North County Times, “The parties tweaked the language to get the agency’s consent” for treating it as a simple lease.

The principals of Airport Property Ventures are Jack Driscoll and Lydia Kennard, both former directors of Los Angeles World Airports, and Robert Clifford, a co-founder of American Airports Corporation, an operator of GA airports. In an interview in the January 2009 issue of Airport Business, Driscoll explained APV’s business approach. GA airports are typically a kind of stepchild to the city or county government that owns and runs them. “They are losing propositions for many of these cities.” But because they have received federal grants for many years, they have to remain in service as airports.

APV and its investors see potential in more-intensive development of often-underutilized GA airport land. “We want to maximize the aviation piece of it,” Driscoll said, and if there is excess property, work with the FAA to get permission to develop the rest commercially. And in those cases, rather than leasing that land to an outside developer, APV will develop it themselves.

While contract management of GA airports is not a new idea, it has not caught on as much as I’d thought it would when I first came across it 20+ years ago. I still think it has a lot of potential, and I’m glad to see another promising firm enter the field.

News Notes

Airport Privatization Update
Last December, in Issue No. 40, I wrote about World Airport Privatisation 2008 by David Bentley, the most comprehensive report on this subject in a long time. With the troubled credit market conditions of the last six months (including the collapse of the Midway Airport lease), Bentley decided it was time for an update. His new report, Airport Privatisation Update 2009 has just been released, offering 48 pages on a field that “is not yet down and out.” It’s available for US$100 from DJB Associates (www.djbassociates.webs.com).

MANPADS Defense in Israel
The Israeli government has decided to equip all commercial airliners based in that country with anti-missile defense systems of the directed infrared countermeasures (DIRCM) variety. The Ministry of Transport awarded a $76 million contract to Elbit Systems for a commercial version of the Elbit system used on military helicopters. Similar systems, made by Northrop Grumman and BAE Systems, have been tested on U.S. airliners. This might well be a prudent measure in Israel, considering the threats faced by that country. I don’t see it as setting a precedent for such equipage in this country.

Follow-up on Costs of New York Air Congestion
In the June issue I wrote about the excellent study from the Partnership for New York City, quantifying the cost of airport and airspace congestion and delays. In 2008 the cost to travelers, airlines, and shipping companies was estimated at $2.6 billion. Not included in the report was information on the size of the regional economy, to provide some context for this number. In response to my query, Merrill Pond of PFNYC tells me that the most recent figure they could find is $1.12 trillion, for 2006. So the congestion cost amounts to 0.2% of the regional economy--not as big an impact as you might expect, despite it being in the billions. The report also estimated the cost to users and to the regional economy from 2008 through 2025; that total is $95.6 billion, or an average of $5.6 billion per year or 0.43%. That’s hardly a trivial impact.

Low-Cost Carrier (LCC) Airport Near Paris?
AP reported (June 27, 2009) that low-cost carriers Ryanair and Wizz Air have expressed interest in plans to turn Airport Vatry, 100 miles east of Paris, into a hub serving LCCs. The airport, currently focused on air cargo, is near Reims, which is served by a TGV rail line offering 39-minute trips to Paris. Now dubbing itself “Paris Vatry,” the airport hopes to turn itself into a French analog of London Stansted, which primarily serves LCCs.

Aerobahn Serving Airlines at JFK
The Sensis Corp. Aerobahn system that I reported on last October after it was installed at JFK International in New York is now serving passenger and cargo airlines, as well as the airport operator, the Port Authority of New York and New Jersey. Aerobahn combines airline flight schedule information with real-time data from the airport’s ASDE-X ground surveillance system (which keeps track of aircraft location on the airfield). The aim is to reduce taxi times and surface delays, in addition to the usual ASDE-X function of increasing safety by preventing “runway incursions.”

Quotable Quotes

“[We have] decided to build everything, own everything, and operate like a business, without the restrictions and limitations that exist at other airports. I certainly believe there are things that can be learned from this project that can be applied to other airports. When this project proves itself, many municipalities will have to look at this model; and airlines will be interested in it as well. We strongly believe in the success of this model, and believe we are going to prove to the world that a private entity can run an airport, run it well, and be profitable at the same time.”
--Jeff Bourk, Executive Director, Branson Airport LLC, in Brad McAllister, “A Different Airport Model,” Airport Business, June 2009.

“Despite various efforts to improve checkpoint efficiency and reduce passenger wait times, checkpoint lines remain vulnerable terrorist targets for bombings, shootings, or the potential release of chemical or biological agents because they often consist of large congregations of individuals in the ‘non-sterile’ portion of the airport terminal, that is prior to screening for possible threat items. Inefficiencies at screening checkpoints that result in long screening queues and congestion in airport terminals introduce unique vulnerabilities.”
--Bart Elias, “Airport Passenger Screening: Background and Issues for Congress,” Congressional Research Service, April 23, 2009.

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





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