Airport Policy and Security Newsletter #77

Airports short-changed by FAA reauthorization, Airport privatization news from Europe, Congress backs screening opt-out

In this issue:

Airports Short-Changed by FAA Reauthorization

After 23 short-term extensions since the previous FAA authorization expired on Sept. 30, 2007, Congress last month finally agreed on a four-year bill. Unfortunately, despite the need for increased airport investment, the bill failed to come through for airports.

Reflecting the new era of fiscal stress that will affect the entire federal budget for several decades, the bill essentially freezes all four FAA accounts, including both Facilities & Equipment (ATC modernization) and the Airport Improvement Program. AIP is budgeted at $3.35 billion per year, which is actually a $165 million reduction from previous years’ level. And despite years of airport lobbying, Congress failed to increase the federal cap on the amount individual airports can charge passengers in the form of a Passenger Facility Charge (PFC). The current cap, of $4.50 per passenger, was set in 2000, and thanks to inflation since then, has shrunk in buying power to only $2.38, according to the Airports Council International-North America.

Airports argued, correctly, that the PFC is a locally determined charge, the proceeds of which are dedicated to specific capital improvements at the airport in question. In the last six months the larger airports expressed willingness to give up their AIP entitlement grants in exchange for the freedom to set their own PFC level, as Canadian airports and nearly all privatized airports worldwide can do. But Congress apparently still views PFCs as if they were “federal taxes”—as opposed to being precisely the kind of local self-help alternative to federal tax-and-grant programs like AIP that fiscal conservatives claim to support.

This distinction matters a great deal, due to the new fiscal realities facing the federal government. Over the past decade, the fraction of FAA’s budget coming from the federal general fund has soared, from about 11% in FY 2002 to over 30% in FY 2011. (And if the Administration’s dead-on-arrival FY 2012 budget proposal had been implemented, that percentage would have been 44%.) The plain and simple reality is that there will be little or no general-fund money available for transportation infrastructure investment in coming years. So as long as Congress is unwilling to increase federal aviation user taxes, federal investment in airports and ATC modernization will decrease, as the general fund is no longer available to bail out the Aviation Trust Fund (which is fed by the aviation user tax revenues).

In a January 2012 report (GAO-12-122), the Government Accountability Office analyzed Aviation Trust Fund revenues and spending over the past 11 years. GAO found that revenues fell short of projections in 9 of the 11 years, with a total shortfall of $9.3 billion over that period. Because Congress typically based annual FAA appropriations on those faulty projections, spending exceeded revenues most years, which reduced the Trust Fund’s end-of-year uncommitted balance from over $7 billion in FY 2001 to less than $0.5 billion in fiscal years 2009 and 2010. The Treasury took over revenue forecasting from the FAA in FY 2011, but GAO notes that it is too soon to tell if this will lead to more-accurate forecasts. GAO also estimates the impact of several possible alternative rules for deciding on Trust Fund spending amounts, aimed at maintaining a larger reserve at the end of each fiscal year. Needless to say, the short-term impact of shifting to any such rule would be reduced annual capital spending.

Against this backdrop, the airports’ “Moses Initiative”—to liberate airports from dependence on AIP grants in exchange for the freedom to self-fund via locally determined PFCs—looks to me like the only realistic way to ensure adequate capital investment in our nation’s airports.

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RNP and Airport Noise Exposure

Noise litigation is probably the greatest obstacle to airport expansion, especially when it involves the large land acquisitions typically needed to add runway capacity. Thanks to the complexities of U.S. legal procedures, battles over such projects can easily take a decade or more (as in the Ft. Lauderdale example I wrote about in December, which dragged on for 18 years).

Having grown up in an airline family, living less than two miles from Miami International Airport, I can appreciate both the economic benefits of continued growth in air travel and the plight of airport neighbors. On the latter, it’s important to distinguish between two situations. People who move near an airport pay less for housing because of the noise exposure, so most economists would agree that they don’t deserve compensation for that noise impact: they already get it via lower housing costs. However, when a new runway exposes previously tranquil neighborhoods to serious noise, those people do suffer harm and deserve compensation.

These thoughts are relevant to an issue that is already arousing concern of some people living near busy airports, due to the kind of airspace redesign being enabled by area navigation (RNAV) and the even more precise navigation made possible by Required Navigation Performance (RNP) technology. One commentator in an online aviation group recently presented the following example:

“We are studying a case at a southern hub airport where RNAV routes were instituted nearly two years ago. . . . In one specific case, a homeowner (along with a list of aggrieved neighbors) who lives about 12 miles from the airport had an RNAV departure route established directly over his location. The volume of overflights at that location jumped from a handful (less than 20) to a constant stream of departing aircraft numbering between 300 and 400 overflights per day. Other locations presumably obtained complete relief from unwanted overflights. . . . The route was established without any environmental overview, i.e., via a Categorical Exclusion [from the National Environmental Policy Act—NEPA].”

This kind of problem will become increasingly common as NextGen proceeds, developing RNP procedures that concentrate arrivals and departures into very narrow corridors that reduce noise exposure for the large majority of residents, but increase it considerably for those under the new paths. It’s analogous to what happens when a runway is added, exposing a whole new set of unwilling neighborhoods to increased noise and reduced property values. So we face a dilemma here. Do we just say the “greatest good for the greatest number” should prevail, and it’s just tough that some people end up as losers? Or do we figure out some way to compensate them?

A reader in the New York metro area alerted me to a provision in the new FAA reauthorization that establishes in federal law that changes in navigation procedures near airports due to performance-based navigation (RNAV and RNP) must be given a Categorical Exclusion, “unless the [FAA] Administrator determines that extraordinary circumstances exist with respect to the procedure.” While I’m sure Congress intended this as removing an obstacle to NextGen implementation, my guess is that it will invite litigation arguing for just about every such case to be defined as extraordinary. If that occurs, we are back to square one, with the benefits of RNP being deferred by years of litigation.

This situation (as well as the ongoing problems of noise exposure due to new runways) cries out for fresh thinking that will compensate victims of large new noise impacts while not preventing the large economic gains from both RNP and airport expansion. As one such approach, I commend to your attention a paper I recently came across: “The Price of Silence: Tradeable Noise Permits and Airports.” The authors are Thierry Brechet and Pierre Picard of the Catholic University of Louvain, in Belgium. You can download the paper at http://ssrn.com/abstract=1010621.

Their concept calls for residents near airports (or under arrival and departure tracks) to be organized into zones, based either on neighborhoods or municipalities, and assigned the property rights to noise exposure. In each zone, a representative agent acts on behalf of the residents, authorized to submit their proposed price for the permits for a certain number of aircraft per day to overfly that zone. Since (especially with RNP) there would be a number of alternative possible flight tracks, competition among zones would prevent monopoly pricing of overflights. In the paper, the authors assume that those buying the permits would be airlines, but I think the model is also workable if the buyer is the airport or even the air navigation service provider (ANSP). The auctioning of permits would take place periodically, to account for changes in flight activity over time.

A number of additional complexities and possible short-term, medium-term, and long-term impacts are discussed in the paper, some of them with math that is a bit beyond me. If you read the paper, don’t get bogged down by the equations; focus instead on how workable the model might be if we applied it in real-world situations. This may not be “the” answer to the noise impact problem, but it’s certainly an idea worth considering.

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Perimeter Security Still a Weak Link

On March 2nd, a lone motorist in a Jeep SUV smashed through an unmanned gate in the fence surrounding Philadelphia International Airport, then drove on two runways at up to 100 mph, before being apprehended by police and charged with both driving under the influence and reckless endangerment. Airport and TSA officials both issued statements declaring that the airport perimeter meets all federal standards and that the speedy arrest of the driver showed that “the system works.”

All I can say is that this case illustrates once again that TSA continues to misallocate its resources, devoting nearly all its attention and budget to preventing access to planes via the front door (the passenger terminal) and practically nothing to securing the back door (access control to the tarmac, access to the airfield via the airport perimeter).

To be sure, TSA’s primary operational role is to carry out passenger and baggage screening; its other operational roles are enormous wastes of money, with essentially nothing to show for their cost. (I refer here to the expanding force of Behavior Detection Officers roaming airport terminals and the Federal Air Marshals—neither of which has ever nabbed a single would-be terrorist.) All the rest of TSA’s aviation security responsibilities are regulatory.

I am definitely not suggesting that TSA itself patrol airport perimeters or buy fancier equipment to protect them. That would compound the original mistake made by Congress (at the behest of the Senate) in 2001, when it gave TSA its current split personality as both aviation safety regulator and operator of portions of airport security. But TSA’s overwhelming focus on screening operations certainly seems to have distracted it from making sure, as a regulator, that airports adequately secure the back-door portions of the airport. According to Rep. Bill Keating (D, MA), there have been more than 1,300 known breaches of airport perimeters since 9/11. In a March 4th statement, Rep. Keating noted that both former DHS Secretary Tom Ridge and former vice-chair of the 9/11 Commission Lee Hamilton last fall told the House Homeland Security Committee that perimeter security is an overlooked but critically important security issue.

I am also not suggesting that cost should be no object. The January/February 2012 issue of Airports International carried a full-page article on an elaborate perimeter security system being installed at Singapore’s Changi airport. It uses a perimeter intrusion detection system based on “Fiber Bragg Grating” sensors embedded in a fiber-optic cable in the perimeter fencing. Any type of intrusion generates a color-coded signal (linked to the type of intrusion) to alert the monitoring station. No cost information is provided in the article, however. A U.S. security consultant who helps design perimeter security systems points out that intrusion detection is just part of the equation; you still need an appropriate response team and all the cost and management problems that come along with that (how many people, how deployed, how to keep them occupied during long periods with no intrusions, etc.).

There are probably no easy answers or quick-fix solutions for perimeter security. But shifting to a regulatory-only TSA and devolving single-point responsibility to the airport level would make an integrated approach to airport security far more likely.

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Airport Privatization News from Europe

The conclusion of long-term lease/modernisation deals on three Brazilian airports has left European airport companies chomping at the bit for the next round—despite the very high first-round bids. Round two will include the two Rio airports and Belo Horizonte (third largest city). Seasoned European operators such as Fraport and Zurich Airport were among  the round-one bidders, losing out to Argentina’s Corporacion America, France’s EGIS, which has most of its experience in Africa, and – not so surprisingly – South Africa’s ACSA, which has the recent experience of handling air traffic at the 2010 Soccer World Cup, just the ticket for Brazil. Fraport, regarded as perhaps the most experienced of global airport operators just now, expressed what can best be described as diplomatic surprise at not making the cut. Also hovering in the wings are Spain’s Ferrovial and India’s GMR Infrastructure, which operates airports in India, the Maldives and Turkey but which stepped back from the first round while it acquainted itself better with the Brazilian socio-economic scene. Meanwhile state airports agency Infraero, which probably has some redundant executives following the first round deals, declared itself ready and willing to go into the foreign airport management business itself.

Scotland's Edinburgh Airport reports it has four bidders left in its auction, with owner Ferrovial reportedly whittling down the original six ahead of accepting final offers in early April 2012. Global Infrastructure Partners (GIP) which part-owns London Gatwick and City airports, JPMorgan Chase, and consortia led by Carlyle Group and 3i have reportedly made it to the second round. Meanwhile Ryanair will axe five services this summer in what appears to be a barefaced positioning to renegotiate terms with Edinburgh’s new owner and has again raised the prospect of operating from RAF Leuchars, a military base, instead of Edinburgh. On the face of it GIP has the advantage, being the only bidder known to have significant operational experience, which the regulator likes. The transaction is expected to generate between £450 million and £700 million at an earnings multiple hovering around 10X, which is a slightly lower multiple than other transactions that have taken place since 2008. Some of the regular bidders stayed away from this transaction. One reason may be uncertainty as to what would happen should Scotland gain independence from the UK, which could take place as soon as 2014.

After years of denial, England’s Manchester Airports Group (MAG), a city-owned entity that is the UK’s second largest operator, is seeking an equity investor for a specific purpose: to help it bid for another airport, probably London Stansted. It is not clear why a high value operation (which Manchester Airport is, even if some of the others in the group aren’t) wants to sell a stake so it can buy one in a relatively low quality airport. MAG’s most recent attempt to buy another airport was in 2009 when it went after London Gatwick in tandem with one Canadian and one British pension fund, but lost out to GIP.

Finally, the Bulgarian government is trying hard to sell off secondary level airports without success. It plans to prepare a new procedure for granting Plovdiv (second city) Airport under concession. The previous concession-granting procedure for the construction of a cargo zone at the airport was terminated due to the lack of interest on the part of investors. A similar lack of interest is also reportedly expected in the tenders for the concessions at Ruse and Gorna Oryahovica airports. Currently two Bulgarian airports are privatized under concession agreements—at the coastal resorts Burgas and Varna, both by Twin Star, a consortium led by Germany’s Fraport.

—The above information (which is believed to be correct) and comment were provided by David J Bentley of Big Pond Aviation, Manchester, UK. www.bigpondaviation.com.

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Congress Backs Airport Screening Opt-Out; TSA Balks

Finally, more than a year after TSA Administrator John Pistole abruptly terminated any additional airports joining the Screening Partnership Program (SPP) and rejected all pending applications, Congress has put some muscle where its mouth has been. In the FAA reauthorization bill signed by the President early last month, Congress underscored the importance of SPP being available to all airports, as per the original 2001 Aviation & Transportation Security Act. To reinforce that point with TSA, it now requires that agency to provide details on any opt-out application that it denies, explaining the reasons for such denial to the airport in question and to the relevant congressional committees.

In response, Administrator Pistole told Bloomberg News that the agency would prepare for a substantial number of applications, even though he thinks it won’t save any money. That statement led to the ridiculous Bloomberg headline “TSA Preparing for Private Screeners that Won’t Save U.S. Money,” which ignores the findings of a well-done study by the House Transportation & Infrastructure Committee last June suggesting savings in the vicinity of 42%, as I reported last month. The savings, based on a comparison of private screening at SFO and TSA screening at LAX, stem from several factors, including much lower turnover of private screeners and a more flexible workforce of full-time and part-time screeners.

Unfortunately, the ink was barely dry on the new legislation when TSA gave some indication that airports wanting to opt out may still have difficulties. CNN reported on Feb. 2nd that TSA turned down two pending airport requests to take part in SPP while approving one. Both Mooney Airport in Montana and Orlando Sanford in Florida (in Rep. John Mica’s district) were denied access to the program, because they “failed to demonstrate an operational, security, or cost advantage that provides a clear and substantial benefit over federalized screening operations.” Those criteria are not in the 2001 ATSA legislation; they are the creation of Pistole and his TSA team. Moreover, insisting that the airport demonstrate a cost savings in advance is very difficult, since the airport itself is unable to issue an RFP and select the most responsive and cost-effective TSA-approved company. Instead, the way TSA has always managed the process, the airport applies to TSA for permission and if TSA deigns to grant it, TSA itself selects (by a process known only to itself) the security firm it deems the best fit for that airport.

The airport that was approved is West Yellowstone in Montana. That airport is only open about half the year, and so under TSA screening, the agency flies in a team of its screeners each spring, puts them up in local lodging, and flies them home again in the autumn. Hence, if the airport hires qualified locals to do the screening, the cost will be about half, once travel and lodging costs are eliminated. If that is the model for what TSA will accept, then Congress has passed another piece of nothing legislation.

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Upcoming Conferences

2nd Annual AAAE/LeighFisher Airport Privatization Conference: What’s An Airport Worth?, April 15-17, Miami, FL: Hyatt Regency Miami. Details at: http://events.aaae.org/sites/120308/index.cfm. (Robert Poole speaking)

84th Annual AAAE Conference, April 29-May 2, Phoenix, AZ; Sheraton Phoenix Downtown. Details at: http://events.aaae.org/sites/120501 (Shirley Ybarra speaking)

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News Notes

Budget Proposal Cuts Cockpit Security. The Administration’s FY 2013 budget proposal would cut in half the budget for armed cockpit crewmembers (the Federal Flight Deck Officers program). Under the proposal, FFDO would get only $12.5 million next year, compared with the current $25 million. At the same time, the proposal would also marginally reduce the budget for the Federal Air Marshal Service (FAMS), cutting 3.8% of its $966 million budget. Since the cost-effectiveness of FFDO is far higher than that of FAMS, this set of proposals would be a step backwards if implemented.

New Terminals on the Way at LGA and EWR. Some relief is on the horizon for air travelers at two of the three major New York area airports. The Port Authority has received 15 responses to its Request for Information on how to design, build, and pay for a $3.6 billion replacement for LaGuardia’s overcrowded Central Terminal Building. And the agency is now preparing a comparable RFI for replacing Terminal A at Newark. Some form of public-private partnership is a possibility in both cases.

Only One Bidder for Gwinnett County Airport. Propeller Airports Briscoe Field was the only one of three prequalified bidders to submit a proposal in response to Gwinnett County’s Request for Proposals to privatize the general aviation airport. County staff will review the proposal with the assistance of consultant Infrastructure Management Group. The county holds one of the 10 slots in the federal Airport Privatization Pilot Program.

Sydney Airport Reduces Foreign Ownership. Although it has been privatized since 2002, Australia’s largest airport must comply with a provision of the country’s Airports Act of 1996 that would deem it a “Foreign Person” if the maximum foreign shareholding exceeded 40%. Under the foreign ownership policy adopted by its board, whenever foreign ownership reaches 39.5%, the company starts procedures to divest shares held by foreign parties. The airport company recently announced that it had reduced foreign ownership to 34.8% by using those procedures.

Singapore Replacing LCC Terminal. A no-frills terminal at Singapore’s Changi International Airport will be demolished and replaced with a larger facility. Opened in 2006, the terminal was aimed at low-cost carriers, providing a less-costly facility so as to hold down charges to such airlines. However, experience has shown that although the terminal has room to add more gates, it is woefully short of space for shops and restaurants, as well as customs and immigration facilities. In addition, it cannot handle wide-body planes, which were not envisaged as being used by LCCs when the terminal was designed. The replacement, to be open by 2017, is intended to remedy all of those shortcomings.

BAA Appealing Stansted Divestiture. Despite proceeding with the mandated divestiture of its Edinburgh Airport in Scotland, BAA has decided to appeal the Competition Commission’s order that it also divest its Stansted airport serving London.

Aerobahn for More U.S. Airports. U.S. Airways has selected the Saab Sensis Aerobahn surface management system for use at its three major hubs: Charlotte (CLT), Philadelphia (PHL), and Phoenix (PHX). Aerobahn combines airline operational information (flight schedules, arrival/departure gates, etc.) with real-time surveillance information on aircraft and vehicles on the airport surface. Aerobahn was also just selected to provide the surface management system for all of JFK International Airport in New York. To do so, the company will enhance the Aerobahn system already in use at JFK, adding a proprietary departure management system. The Port Authority of New York and New Jersey will also install Aerobahn at LaGuardia and Newark Airports.

Morris and Cason Advising TSA. TSA has announced that Carter Morris of AAAE has been appointed chairman of the agency’s Aviation Security Advisory Committee. ASAC’s vice chairman will be Bill Cason of the Coalition of Airline Pilots Associations. Each heads security policy for his respective organization. ASAC, which dates back to 1989, was recently re-established to advise the agency on aviation security matters. Congratulations to both!

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Quotable Quotes

“Airports understand the serious financial situation our country is in; it is no different than that facing our cities and counties. We are deeply disappointed that Congress chose not to move towards local financing options like the Passenger Facility Charge (PFC), which is a local fee charged by airports to assist them in addressing their capital needs. Allowing local communities the flexibility to meet their safety, security, and passenger needs benefits the entire aviation system.”
—Greg Principato, President, Airports Council International-North America, statement on FAA reauthorization bill, Feb. 1, 2012

“If you do not know how long it’s going to take to get through airport security, you end up playing it safe and leaving your customer’s office early. From a business traveler’s point of view, the major benefit of a well-designed trusted traveler program is to remove the unpredictability of time required for the airport screening process. The TSA program is flawed in this respect. Since you do not know until late in the process whether you will be cleared for expedited screening, you are going to default to the worst-case scenario and arrive way ahead of time. The major security shortcoming with the program is a lack of biometric identification for program members upon arrival at the airport. This oversight allows bad guys to use easily obtainable fake IDs and zip right through security.”
—Kevin Mitchell, Business Travel Coalition, Feb. 8, 2012

“Let’s face it, improving the [slot] system is overdue, in particular to make it more efficient with regard to use of scarce airport capacity. The present rules were developed by incumbent airlines for incumbent airlines. They must become fully transparent, and airports need to be involved, notably through local rules. This is a legitimate request, since the way airport slots are allocated dictates the way our facilities are used, with consequences on our operations and ultimately our business.”
—Olivier Jankovec, Director General, ACI-Europe, quoted in “EC Airports Package,” Airports International, December 2011

“By dint of paying landing charges, the airlines [claim they] already own the slots. This is the I-pay-aeronautical-charges-so-I own-the-slot argument. The analogy is that if you pay rent for an apartment, you actually own it. What is more, you can sell it to whomsoever you think appropriate. Or perhaps you purchase a ticket on an airline, so you own shares in that airline.”
—Andrew Charlton, “Slot Reform: Who Owns What?” Aviation Intelligence Reporter, February 2012

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





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