In this issue:
- Reactions to the ATC Corporation bill
- Fine-tuning the governance model
- The “union giveaway” canard
- Paying for the ATC assets?
- GAO on transition questions
- Why Democrats should support ATC corporatization
- News Notes
- Quotable Quotes
Reactions to ATC Corporation Bill
“The reports of my death have been greatly exaggerated,” Mark Twain famously said. And so it is with last week’s news about the FAA reauthorization bill passed by the House Transportation & Infrastructure on February 11th. When House leadership and T&I Committee leaders decided last week there was no chance of even the House (let alone the Senate) completing work on the bill by the March 31 expiration date for FAA’s current authorization, they announced the near-term priority of enacting another extension. Opponents of corporatization immediately spun this as abandoning the AIRR Act; I must have counted six headlines to that effect, all of them wrong. Chairman Shuster has said repeatedly that the major change represented by Title II’s conversion of the FAA Air Traffic Organization into the self-supporting ATC Corporation needs to be more fully explained and better understood before it goes to the House floor.
My expertise is not in legislative strategy, but it strikes me as unrealistic for anyone to have expected that a change equal in magnitude to 1978’s airline deregulation could zip through the House and be embraced by the Senate in a matter of weeks. In a thoughtful editorial in its Feb. 15-28 issue, Aviation Week supported separating ATC from safety regulator FAA as being long overdue, but urged lawmakers and aviation stakeholders to “get the details right.” It added the following good advice:
“Probably no measure would win unanimous agreement among all stakeholders. But Congress needs to slow things down if it is to bring as many on board as possible. The risk in not doing so is that opponents could kill the proposal. And then the U.S. would remain an outlier to what has become a global aviation best practice.”
I was also encouraged by the Washington Post‘s thoughtful editorial endorsement of the idea on Feb. 11th, headlined “The Government Should Get Out of the Air Traffic Control Business.” But it, too, cautioned Congress and aviation stakeholders to get the details right. “Much will depend on ensuring that the new air traffic entity avoids the governance flaws that left [Amtrak and the Postal Service] still unduly dependent on Congress.”
It is with these thoughts in mind that this issue of ATC Reform News offers perspectives and suggestions for fine-tuning a worthy and much-needed reform proposal.
Fine-Tuning the Governance Model
As one of four witnesses at the T&I Committee’s February 10th hearing on the AIRR Act, I sat through three and a half hours of pro and con discussion, mostly about the proposed ATC Corporation. A repeated theme by opponents was that the proposal would turn the ATC system over to a board “dominated by the big airlines,” as NBAA’s Ed Bolen claimed. This theme was repeated by many of the Democratic members of the Committee. Even highly respected airline pilot Capt. Chesley Sullenberger told Politico he was worried that the proposal would give “unparalleled power to commercial airlines.”
This assessment misunderstands the Nav Canada governance model which the bill aims to replicate. Those appointed to the board by various stakeholder groups (and by the DOT Secretary, representing the public) will not themselves be employees of any aviation company, union, or trade association. They will be legally required to owe a fiduciary duty to the best interests of the ATC Corporation, not the parochial interest of whoever appointed them. Nav Canada’s board includes several retired airline officials, to be sure, but also people from other industries with significant technical, financial, and managerial knowledge.
That said, this legislation will be shaped by politics. And in politics, optics matter. If it is perceived that the “big airlines” will control four seats on the 11-member (original) or 13-member (as amended) board, that perception could doom the proposal politically. One way to address this problem would be to change who appoints the justified number of members nominated by fee-paying customers. Several Democratic members at the hearing pointed out that regional airlines account for nearly half of daily airline departures. Even though nearly all such carriers have direct contractual relationships with major airlines, their interests in airspace access and other issues are not identical with those of the majors. Cargo carriers also have somewhat different interests. So there could be benefits in having, say, two of the four paying-customer seats appointed by A4A, one by the Regional Airline Association, and one by the Air Cargo Association.
Another key aviation stakeholder that should be considered is the airport community. Airports play a vital role in the system-and in NextGen. In my opinion, they are a more appropriate player to be part of the ATC Corporation’s governing body than technology companies, whose trade association Aerospace Industries Association was added to the stakeholder board nominators during the bill’s mark-up. The corporation’s board should be free to make any trade-offs it wishes about in-house vs. contracted technology development, and that would appear to be in conflict with having an AIA designee on the governing board, as opposed to the Advisory Board. Airports would also be another voice (along with three GA appointees) supportive of full airspace access for small-community airports-also a topic that came up repeatedly during the Feb. 10 hearing.
Another subject raised at the hearing was the Department of Defense. DoD provides ATC services to airlines and other non-military users in portions of the airspace, and the ATO likewise provides some service to military flights. The bill exempts military flights from paying ATC fees, and retains current law on DoD involvement during a declared war or national emergency, but it might be worth considering a DoD seat on the governing board (as opposed to the Advisory Board, as in the current bill).
I think it’s clear that the governance model needs further thought and fine-tuning as the bill moves forward.
Some conservatives have gotten it into their heads that the ATC Corporation proposal must be a bad thing because the controllers’ union, NATCA, has endorsed it. First out of the box on this was The Daily Caller, with a piece headlined “Hot AIRR: Fake Privatization for Air Traffic Controllers.” A more substantive piece followed, by economist Diana Furchtgott-Roth on National Review Online, “Privatize Air Traffic Control? Not If It’s a Union Giveaway.” When Chairman Shuster published a response on NRO, she wrote a follow-up piece, “Air Traffic Control Needs Real Privatization,” repeating some of the same concerns about the bill giving unions increased control over the provision of air traffic control.
The four most important claims in these pieces are as follows:
- No prohibition on ATC Corporation employees engaging in strikes;
- Controllers would set their own pay scales;
- The unions would get a new tool in the form of binding arbitration; and,
- Reforms of any substance could not be achieved without union approval.
Not being an expert on aviation law, I turned to someone who is. David Grizzle was formerly Chief Counsel of FAA and later served as the Chief Operating Officer of its Air Traffic Organization. In a letter responding to Furchtgott-Roth’s second article, Grizzle addressed all four of these points.
On the strikes question, Grizzle points out that the bill makes key portions of Title 5 of the US Code applicable to the new corporation including a provision that makes it an enforceable unfair labor practice for a union to call, participate in, or fail to stop a strike. Management can obtain a court order to stop such a strike, and the union can lose its status as the employees’ representative. Employees would not have any of the strike rights provided to private firms under the National Labor Relations Act.
On pay scales, the bill very sensibly would keep in force any existing union contracts until they expire, at which point the union and management would negotiate a new contract. The Corporation would have opportunities to modernize pay, benefits, work rules, etc.
Binding arbitration already exists for controllers and other FAA unions, so this provision merely retains the status quo; it is not a new tool. Arbitrators are picked from a qualified pool of private-sector professionals, and the unions will not pick two out of three, as alleged.
Finally, union approval of changes is not required. The bill calls for “conferring” and “collaboration” with unions, not granting them veto power. This is a serious intention of building a more collaborative organizational culture, like what has emerged within Nav Canada. And even within the existing FAA, such practices do not constitute veto power, as David Grizzle explains:
“Numerous times when I was Chief Operating Officer, I consulted with unions and my front line management regarding a decision I needed to make, and sometimes I made exactly the opposite decision from what the unions had advocated. But I felt that I was on more solid ground for having sought their insight.”
This would be even more the case in a fresh, new, non-civil-service organizational culture.
Any realistic transition of a large workforce from a government agency to a new kind of organizational structure must preserve existing pay and benefits during the transition period. In a stakeholder-governed co-op structure that seeks to emulate the Nav Canada model, gaining the trust and cooperation of employees on whom service delivery depends makes very good sense. And of course politically, it is also the smart and sensible thing to do.
Conservatives should rejoice that an important labor union agrees that the FAA status quo is unsustainable and that this high-tech, 24/7 service business is more appropriate to a self-funded corporation business model. And that said union is willing to stand up and be counted in favor of this kind of far-reaching reform.
In a joint statement shortly before the Feb. 10th hearing, the T&I Committee’s Ranking Member Peter DeFazio (D, OR) and Aviation Subcommittee Ranking Member Rick Larsen (D, WA) railed against the ATC Corporation proposal on several grounds, including that “It hands over a public asset worth billions of dollars to a private corporation for free.” This point was repeated by a number of Members during the hearing itself.
I think this concern is mistaken, for at least three reasons. First of all, this is not a “privatization” of the ATC system, despite opponents’ characterization of it as that. The day before the transition and the day after, nearly all the same people (except for top management) will be in place doing the same jobs, using the same technology and procedures, in the same facilities. What will differ is the funding and the governance. The ATO is not being sold to the highest bidder from the aerospace industry, nor are its operations being contracted out. The day before the transition, the ATO is part of a federal agency. The day after the transition, it’s a federally chartered nonprofit corporation, charged with carrying out the same vital 24/7 function. This is a reform-in-place, not a “privatization.” There are no shareholders who would profit by acquiring these assets.
Second, the number $53 billion was thrown around a number of times at the hearing, without any documentation of how it was arrived at. It might be conceivable that if you added up all the ATC-related facilities and equipment spending over the last 30 or 40 years, you could come up with that number. But that is neither here nor there: that’s a sunk cost. Given the advanced age of many of the centers, towers, and TRACONs, it is not clear that their depreciated value-in real terms-is much above zero. And except for a few very recent investments, a large fraction of the technology in the system is obsolescent if not obsolete. These problems are one of the key reasons to reform the ATC system, disconnecting it from the federal budget and enabling it to issue long-term revenue bonds for modernization, as airports do.
Third, all those F&E investments have come from the Airports & Airways Trust Fund. The money in that fund comes entirely from aviation user tax collections, not from general taxpayers. Those users are the same ones who will be paying the user fees to the ATC Corporation. If you put any dollar value on the existing assets-say (generously) $10 billion-that becomes an extra cost added to the Corporation’s rate base, needing to be recovered from the new user fees. That’s in addition to the remaining tens of billions of projected NextGen and facility replacement costs over the next two decades. Why would anyone want to do this? Demanding that the users pay a second time for obsolete assets is a kind of poison pill that would make successful ATC modernization that much harder.
In addition, like other corporatized ANSPs, the Air Traffic Corporation will be taking on many liabilities of the ATC system, not just its assets. But unlike the FAA, which is “self-insured” by the American taxpayer, the Corporation will have to purchase liability insurance in the open market. An objective estimate of both assets and liabilities to be taken on by the Corporation could well end up with a negative net worth.
GAO Highlights Transition Questions
The Government Accountability Office released its new report, “Preliminary Observations of Potential Air Traffic Control Restructuring Transition Issues,” (GAO-16-386R) on Feb. 10th, the day of the hearing on the AIRR Act. It had been requested by Ranking Members DeFazio and Larsen, and it appears that they were the only ones at the hearing who knew what was in it. DeFazio held up the report, noted that GAO had consulted 33 (actually 32) experts in preparing it, and implied that it raised many unresolved questions about corporatization.
In fact, as article in Eno Transportation Weekly (Feb 18th) explained, Title II of the AIRR Act anticipates most of these concerns and provides answers, though those answers may not suffice for some critics.
On funding and financing, GAO noted that the new entity would have to develop a system of ATC fees and charges that would recover all the capital and operating costs of the system, as well as deciding which costs would be borne by which users. It noted that a stakeholder board, a la Nav Canada, might obviate the need for external rate regulation-which is the approach taken in the bill, but with an appeal to the DOT Secretary also provided for. GAO also explained that in the aftermath of the collapse in air traffic following the 9/11 attacks, although brand-new NATS ended up needing a bailout, Nav Canada did not. Instead, it temporarily raised its rates and also drew on its reserve fund.
On asset valuation and transfers, GAO acknowledges that there are arguments on either side of whether the assets should be “purchased,” and notes that any such purchase would require higher fees to be paid by system users.
On the separation of safety regulation from ATC operations the report highlights the view of one expert (out of 32) raising concerns about how to separate activities like development of flight standards and another single-expert concern that developing and implementing new ATC procedures might be more difficult if FAA and the ATO were separate organizations. I was disappointed to see two key omissions in this discussion. There was no mention of the large amount of real-world experience to draw upon, given that some 60 countries have carried out this separation over the last two decades. In addition, there was no mention of the FAA-commissioned MITRE Corporation report that found improved safety and satisfaction with the change in six major developed countries that have carried out this separation.
On potential impacts to airspace users, GAO mentions that new user fees for general aviation (GA) operators might lead to less GA flying and that small and rural communities might be negatively affected. But as the Eno newsletter points out, the AIRR Act explicitly exempts GA and non-commercial (i.e. not for-hire) business aviation from any user fees, and that Chairman Shuster interprets the bill as keeping the airspace as a public asset and prevents the Corporation from restricting its use. There was a lot of discussion of this subject during the hearing, and there might be a need for fine-tuning the language to make these provisions explicit.
Finally, on the time needed for transition, GAO found most experts agreeing that the Nav Canada experience (as the world’s second-largest ANSP) provided evidence that a one to two year organizational transition and two years to phase in user fees were reasonable estimates. And Eno notes that the bill provides an overall three-year transition.
In short, GAO pretty well covered the subject, and the bill itself addresses most of the transition issues reasonably well. As both Aviation Week and The Washington Post advised, though, it’s important to get the details right, rather than rushing to get something enacted.
Why Democrats Should Support ATC Corporatization
I’m troubled by the fact that, so far, support and opposition to corporatization of air traffic has divided along party lines, with Republicans for and Democrats against. This goes against most of the history of this idea, in which Democrats have been far and away the leaders in aviation policy reform.
The Airline Deregulation Act of 1978 was championed by the Carter Administration, after its appointee, economist Alfred Kahn, had liberalized airline regulation administratively. Advocacy of the bill was led by the late Sen. Ted Kennedy (D, MA) and his counsel, Stephen G. Breyer (today a Supreme Court Justice).
The Clinton Administration appointed a National Airline Commission in 1992, and its 1993 report recommended a government ATC corporation that could issue revenue bonds. Separately, Vice President Gore’s National Performance Review, charged with reinventing government, singled out the corporatization of ATC in New Zealand (in 1987) as a model the United States should emulate. That led to DOT Secretary Pena creating an Executive Oversight Committee that produced a two-volume Air Traffic Control Corporation Study, released in May 1994. That led to 1995 legislation, introduced by Rep. Norm Mineta and supported by FAA Administrator David Hinson, to create the U.S. Air Traffic Services Corporation. When that bill failed to pass, Clinton and Congress appointed the National Civil Aviation Review Commission, chaired by Norm Mineta. Its 1997 report called for pulling together all the ATC functions within FAA as a “performance based organization,” funded by ATC fees and with the ability to issue revenue bonds.
Dorothy Robyn was the Clinton White House infrastructure expert during the second term. She worked on those issues and became convinced that the Gore assessment was correct-that “Air traffic management is a 24/7 ‘business’ trapped in a regulatory agency that is constrained by federal budget rules, burdened by a flawed funding mechanism, and micromanaged by Congress and the Office of Management & Budget,” as she wrote in an excellent piece that appeared on Feb. 9th on RealClearPolicy, “Corporatize Air Traffic Control: A Democrat’s Case.”
There are many other Democrats in aviation who understand these points, but have not spoken out recently. One who has is Bob Crandall, former CEO and Chairman of American Airlines. When the New York Times published a poorly-researched editorial (Feb. 15th) arguing against ATC “privatization,” Crandall sent them a hard-hitting letter to the editor, which they declined to publish. He posted “Wrong on This One” on his blog, Bob Crandall Thinks . . ., on Feb. 21st and I commend it to your attention. (www.bobcrandallthinks.blogspot.com)
I will close with an excerpt from Dorothy Robyn’s piece, while encouraging you to download and read the whole thing:
“Democrats should not treat this as a principled fight over ‘privatization.’ Controllers support the Shuster bill because they like Canada’s user co-op approach to air traffic management, which rewards productivity and involves controllers intimately in the technology modernization process. Aircraft operators and consumers also benefit. Had Nav Canada existed in 1995, I suspect it, rather than New Zealand’s government corporation-the best model at the time-would have been the prototype for the Clinton Administration’s corporatization proposal. With the problems that prompted that proposal having only gotten worse over the last 20 years, an idea that made sense then should be even more compelling now.”
(www.realclearpolicy.com/blog/2016/02/09/corporatize_air_traffic_control_a_democrats_case_1549.html)
Singapore Signs Up for Space-Based ADS-B. The Civil Aviation Authority of Singapore is the latest air navigation service provider (ANSP) to sign up for space-based ADS-B surveillance being offered by start-up company Aireon. CAAS will be the first ANSP in the Asia-Pacific region to make use of the service, which will be operational in 2018 after the entire new constellation of Iridium-Next satellites is launched during 2016 and 2017. The Singapore FIR extends to a 110-mile radius around the nation.
NATS En-Route Charges, Update. In its 10-page paper on the “costs of privatizing air traffic control,” Delta Airlines claimed that “in the United Kingdom ATC operational costs increased 30 percent,” compared with a six percent increase in U.S. ATC costs. The UK provider, NATS, reports that “from CY 2002 to CY 2016, UK en-route prices have risen by 39%,” but “after taking account of inflation, this represents a real increase of 2% (i.e., virtually unchanged over 14 years).” Meanwhile, as reported by the DOT Inspector General, FAA’s operations budget has increased by 108% between 1996 and 2012.
Crichton Honored by Aviation Week. At its annual Laureate Awards, presented in Washington, DC on March 3rd, Nav Canada’s just-retired CEO John Crichton was one of four awardees in the Commercial Aviation category for “extraordinary achievements and significant, broad-ranging progress in aviation, aerospace, and defense.” Congratulations are in order for this well-deserved award.
Moody’s Upgrades Nav Canada’s Bond Rating. Moody’s Investors Service announced on February 10th that it was increasing Nav Canada’s senior unsecured rating to Aa2 from Aa3. Moody’s also reaffirmed the Aa2 level of the company’s base line credit assessment and its senior secured rating. It said that these actions reflect the company’s “strong operating and financial performance over the past few years. The performance is underpinned by sustained aeronautical traffic growth.” Since 2010, “Nav Canada was able to meet all its obligations (including pension plan related obligations) without any rate increase (there has not been any rate increase in over 11 years).”
Tower Competition Widespread in UK. In December 2015, the UK’s Civil Aviation Authority announced that it expects the UK to become the first country in the European Union with a competitive market in terminal air navigation services (i.e. control towers). UK airports have long been free to either self-provide their control towers or to contract with NATS or other providers. But this market has not, in fact, been very competitive. That seems to be changing, with the emergence last year of Birmingham Airport Air Traffic Ltd. BAATL was the result of that airport’s decision to self-provide tower service, and now that it is fully operational, it plans to seek business elsewhere in the UK-and in Europe.
Southwest Pilots Endorse ATC Corporation Bill. On February 25th, the Southwest Airlines Pilots Association announced its support for the AIRR Act, as approved by the House Transportation & Infrastructure Committee the previous week. The SWAPA statement applauded the measure’s “bold and significant steps to separate the FAA’s air traffic controllers from the federal bureaucracy that has deprived them of the tools to best do their job. Freeing ATC from the FAA will allow the agency to concentrate on its core mission of safety.”
Remote Tower Demonstrations Included in FAA Bill. The AIRR Act calls for the FAA to deploy and oversee remote tower demonstration projects at seven U.S. airports, including one non-hub airport, three non-primary airports with existing control towers, and two airports with contract towers. It also calls for two non-hub airports with remote towers to share a single remote-tower center, if possible, “to assess the benefits and efficiencies of consolidating such facilities.”
Large Remote Tower Implementations Under Way in Europe. Ireland and Norway have major remote tower deployment projects under way. Starting in the second quarter of this year, the Irish Aviation Authority will begin controlling traffic at Cork and Shannon Airports from a new remote tower center at the Dublin tower. Norwegian ANSP Avinor last month announced an expanded plan for a network of remote tower services for many of the 46 airports where it provides towers. The first phase, already under development, calls for 15 facilities to be managed from a new remote tower center in Boda. The first of the new remote towers, and the Boda center, are expected to be commissioned in 2017, according to Airports International.
Cato Institute on Reforming ATC. Cato’s Chris Edwards has released an excellent three-page brief on the case for shifting ATC from the FAA to a self-supporting ANSP model. “Reforming Air Traffic Control” is issue No. 74 of Cato’s Tax & Budget Bulletin, released in February. (www.cato.org/publications/tax-budget-bulletin/reforming-air-traffic-control)
4-D Trajectories Platform Introduced by NATS. In January the UK’s ANSP introduced its new upper-airspace management system, iTEC, at its Prestwick Control Center in Scotland. It will be phased into operation for all Scottish upper airspace by early summer and will enter service at the other NATS center (Swanwick) thereafter. The system, developed collaboratively by NATS and Indra, is designed to be interoperable throughout Europe and to support 4-D trajectory-based operations. It will fully replace the previous system for all NATS upper airspace over a five-year period.
Feedback from Last Issue: ATC Billing System. Reader Grant Wilson at IATA headquarters in Montreal pointed out that in addition to several ATC billing systems that are commercially available, the FAA itself has a billing system in place to handle overflight fees. The new ATC Corporation would continue to charge overflight fees, so one option for its billing would be to expand that system, rather than signing up for one of the commercial services. That would be a decision for its board to make.
Feedback from Last Issue: Controller Staffing. Atlanta Center controller Jim Winton provided numbers to document claims that this vital facility is understaffed, not overstaffed, and that the problem is even worse at the Atlanta TRACON, where 6-day work weeks have become commonplace.
“By removing the [ATC] function from the clutches of government budget restraints and politically-driven appropriators, Nav Canada has been able to rapidly upgrade its technologies and practices and to implement those with considerable success. Meanwhile, the FAA has become the laughingstock of the global air transportation management world for its chronic false starts, delays, missed deadlines, and misunderstandings of what’s actually needed or possible in terms of air traffic control modernization. Meanwhile, ATC inefficiency-and the chronic flight delays that are partly the result of that inefficiency-has gotten significantly worse over the last 20 years despite a near-doubling of federal money spent on it each year.”
-Dan Reed, “Air Traffic Control Privatization Finally Has a Realistic Shot at Being Passed by Congress,” Forbes.com, Feb 5, 2016
“User-funded, user-accountable entities are far more capable of delivering innovation and timely improvements in a cost-effective manner than government agencies. By drawing upon the positive experiences of dozens of nations that have freed their air traffic control enterprises from the stifling grip of bureaucracies, Chairman Shuster’s framework has much greater promise of fulfilling the objectives of NextGen. If this framework is properly developed into legislation and implemented, consumers will experience fewer travel delays, the movement of goods will become more efficient, aircraft will burn less fuel, air safety margins will increase, capacity will expand, responsiveness and transparency will improve, political micromanagement will recede, costs will be easier to control and sustain, and the economy could experience tens of billions of dollars in growth.”
-Pete Sepp (National Taxpayers Union), “An Open Letter to Congress: It’s Time to Modernize Air Traffic Control,” Feb. 9, 2016 [letter co-signed by 12 policy researchers at center-right think tanks, including AEI, CEI, Hudson, NCPA, Reason, R Street, and Taxpayers for Common Sense]
“I object strenuously to characterizing this as giving taxing authority. A tax is something only government can do, and I agree with Mr. Bolen on that point. But let me give you an example. The government owns a utility called the Tennessee Valley Authority. It sends electric bills every month to its customers for the services that they purchase. Similarly, a federally chartered nonprofit air traffic corporation would send bills to its customers for the services that it delivers to them. That is a charge, just like an electricity bill. It is not a tax in any way, shape or form, legally or in any common-sense interpretation. So I think this is really distorting the reality of what is proposed here. It is proposing to create a nonprofit utility, not a taxing agency.”
-Robert Poole, speaking at the House Transportation & Infrastructure Committee hearing, Feb. 10, 2016
“The U.S. needs to re-open the possibility that one site (with a possible back-up) could be the control point for all high-altitude contiguous United States (CONUS) traffic. All the aircraft are on instrument flight rules (IFR) flight plans, which are 4-dimensional trajectories (4DT) so they are in a Trajectory Based Operations (TBO) environment. Aided by an advanced automation platform, the ‘controllers’ monitor aircraft compliance and facilitate handoffs to/from the low-altitude conventional control facilities. The potential in this concept comes from two dimensions; 1) it does not necessarily depend on new avionics on the aircraft and 2) it can radically reduce the number of controllers needed to manage the en-route airspace.”
-Frank L. Frisbie and James H. Cistone, “Controller Productivity by the Numbers,” The Journal of Air Traffic Control, Winter 2015