In this issue:
- Assessing the White House ATC Reform Principles
- Reactions to the White House event
- Airports and ATC reform
- Tax reduction due to ATC corporatization
- A note about overflight fees
- News Notes
- Quotable Quotes
At a gala White House event on June 5th, the Administration made its strongest endorsement yet of converting the FAA’s Air Traffic Organization into a self-supporting ATC corporation, along the general lines of what was narrowly approved last year by the House Transportation & Infrastructure Committee. Chairman Bill Shuster (R, PA), who has championed the idea for several years, also spoke at the event and has said repeatedly that this year’s version will include changes based on feedback received over the past year.
Since both the Shuster and White House proposals have been inspired by the 20+ year success of Nav Canada, it is useful to keep its model in mind as we review the new White House document. First of all, many of the five-page document’s principles are in accord with both the Nav Canada model and what Shuster hinted at in his remarks at the May 17th hearing. These include:
- Arm’s-length separation of ATC service provision from government safety regulation;
- Full cooperation with the Department of Defense, preserving all current FAA and ATO interactions with DoD;
- Making the new corporation a nonprofit entity;
- Consistent with this being a reorganization, not an asset-sale “privatization,” transferring the existing assets to the nonprofit corporation at no charge;
- Making a smooth and fair transition for ATO employees to the corporation; and,
- Ensuring that employees are prohibited from striking, as they are today.
The document is somewhat better than last year’s bill in several areas. First, it calls explicitly for open access to the National Airspace System by new entrants (such as drones and space launch companies) and for guaranteed access to the NAS for rural users and general aviation users. It also calls for a three-year transition period to implement the stakeholder board, recruit and select a CEO and top management, and develop the initial schedule of customer fees and charges. This transition period is also reflected in recent OMB budget documents that show the phase-out of most current federal aviation excise taxes as the new ATC fees are implemented in year 3.
But there are several other points I’m not sure have been fully thought through. One is the short paragraph on noise impacts near airports due to changing flight patterns. This seems to imply that the ATC corporation would have the unilateral ability to change flight patterns, with FAA responsible only for reviewing them on safety grounds. That could be a stumbling block for House Members with large (Metroplex) airports in their districts. A probably minor point is that although the 5-page document calls for the ATC corporation to be nonprofit, it nowhere specifies that it should be authorized to issue its bonds on a tax-exempt basis.
Another problem is the discussion of ATC fees and charges. This long section would exempt from fees only national security, governmental, and public safety users, and that all other users “should pay their fair share.” Strictly speaking, that would imply that business jets would pay the same fees as large airliners—which no air navigation service provider (ANSP) anywhere in the world does. It would also ignore the sensible Nav Canada approach for small GA planes of charging them a single annual charge (like the motor vehicle registration fees we all pay), ranging from C$68 to C$227 per year. ICAO charging principles are used worldwide for air traffic control, and they rely on formulas based on aircraft gross weight and distance flown, with allowance for taking congestion into account. That would be a far better basis for the charging principles than a quixotic quest to make every category of airspace user pay its “fair share.”
But the part that troubles me most is the section on governance, about which I testified last month. The idea begins with a version of the stakeholder board used by Nav Canada and adapted in last year’s T&I Committee bill. It would start off with two seats nominated by major airlines, two seats nominated by large aviation unions (controllers and pilots), one nominated by general and business aviation, one nominated by airports, and two nominated by the federal government. Those eight would select the CEO (as 9th member), and the nine would select four independent board members. Structurally, this is quite similar to the Nav Canada model. It’s an improvement over last year’s bill in having only two out of 13 seats nominated by major airlines and by including a seat nominated by airports. Both changes should somewhat reduce concerns of small cities, rural areas, and general aviation about “dominance by the major airlines.”
However, in a major departure from the stakeholder board concept, those categories would only apply to the three-year transition period and the first year of full operations. After that, the board could select anyone, presumably by majority vote, and that could include far more airline people, for example. Also left out of this section are two key conditions that apply both in Nav Canada and in last year’s bill:
- That no board member may receive any financial compensation from any aviation organization while serving on the board; and,
- That all board members would owe a (legally enforceable) fiduciary duty to the ATC corporation.
Both of those provisions are essential. And future members should continue to be nominated by a carefully balanced group of aviation stakeholders.
In short, the Administration’s five pages provide several new emphases, but also some provisions that are ill-advised and should be rejected for inclusion in the forthcoming bill.
The June 5th White House event focused considerable new attention on the case for ATC corporatization. The Boston Herald, Chicago Tribune, USA Today, Wall Street Journal and Washington Post all published editorials this week in favor of the idea, suggesting that serious people at major media outlets now understand why a government safety regulatory agency funded by tax money is not the best way to provide agile, innovative, and cost-effective ATC services to a growing aviation sector. As USA Today‘s subhead put it, “FAA had its chance. It’s time for a new approach.” All five editorials noted that numerous other countries have removed their ATC providers from their transportation agencies and made them self-supporting from charges for their services. Over the last 40 years of ATC reform proposals, there has never been this level of major media understanding and support.
Of course, advocates of the status quo had a field day putting out their same-old arguments against the idea, whether true or false, as long as they seemed capable of stirring up concerns. NBAA’s front group, Alliance for Aviation Across America, repeated its attacks all based on the false premise that ATC corporatization would mean putting the major airlines in charge of the ATC system—to the detriment of general aviation, small airports and rural states. They even repeated the false claim that the Defense Department opposes the idea, ignoring Defense Secretary Mattis’s letter to Sen. McCain clearly stating the opposite. The bottom-line message, in very large type, was “Write to Congress: Don’t Put Big Airlines in Charge.” I quite agree, and neither the White House nor Chairman Shuster wants to do that.
The piece that disturbed me the most, however, was a nominally objective consumer-advice piece on MarketWatch.com, by Jacob Passy: “How Trump Privatizing Air Traffic Control Will Affect your Airfare.” It started out fairly objectively, but in paragraph 7 outright falsehoods appeared. Citing “a 2016 study by Delta Air Lines,” it claimed that passengers might pay up to 29% more than they currently pay in ticket taxes, because of Delta’s claim that “Canada’s air traffic control fees rose 59% when the country privatized its system”—which is flatly untrue; the charges have come down by about 40% over Nav Canada’s 20 years.
I don’t necessarily blame Passy for this; Delta’s falsehoods (and there are many others in that 2016 “study”) live on via the internet, and I don’t expect a financial markets reporter to be an expert on aviation policy (or a reader of this newsletter, which debunked Delta’s claims in Issue 130, February 2016, available at http://reason.org/newsletters/atcreform). But since Delta has apparently ceased opposing ATC corporatization under new CEO Ed Bastian, I think the company has an obligation to withdraw and disavow falsehoods that were published under the previous CEO.
To help those who haven’t been following ATC reform over the years, I have prepared a new document, “ATC Corporation Frequently Asked Questions.” It includes questions such as:
- Why do advocates call this “corporatization” rather than “privatization”?
- Is corporatization really a “give-away to unions”?
- Wouldn’t the corporation board be dominated by major airlines?
- How can you extrapolate from the experiences of other, much smaller countries?
- Why not let general aviation continue to “pay at the pump”?
And 16 other questions. It’s now online at http://reason.org/news/show/air-traffic-control-faqs.html
Airports Council International–North America CEO Kevin Burke released a statement in response to the White House ATC reform principles. His main message was that “Any plan to reform air traffic control must address the significant infrastructure needs of airports. We cannot modernize one aspect of our aviation system and settle for the status quo in another.” He went on to point out thatjust as shifting air traffic control to direct fees for service would lead to self-sufficiency, airports would also like to become more self-sufficient and (at least the larger ones) less dependent on federal grants and the vagaries of the federal budget process.
Burke is a bit off-base in insisting that an ATC reform bill include better airport financing. But since we all expect the ATC reform to be debated as part of this year’s overall FAA reauthorization bill, it is highly appropriate that the reauthorization bill also promote increased investment and increased self-sufficiency for the nation’s airports. And the best way to do that is for the federal government to either increase or remove altogether the outdated (year-2000) federal cap on local airport Passenger Facility Charges (PFCs). Including this in the bill would make both ATC and airports more resilient and less constrained by the ups and downs of the federal budget process.
But there are also two very sound political reasons for Congress to do this. The first is to further debunk the notion that ATC reform is all about the major airlines getting their way. That is not what a serious stakeholder board would mean, despite the claims of NBAA and its followers, but that damaging meme has been picked up by non-aviation reporters and often presented as true. The airlines as a group staunchly oppose any increase in the federal PFC cap, so if proponents of ATC reform took a position on airport funding that the airlines oppose, it would help to demonstrate that the major airlines are not calling the shots.
The second reason is that there is growing bipartisan support for raising the cap, especially by Rep. Peter DeFazio (D, OR), Ranking Democrat on the House T&I Committee and currently a staunch opponent of ATC corporatization. Yet DeFazio has joined forces with libertarian Republican Tom Massie (R, KY) on a bill that would remove the cap on PFCs and reduce the amount of Airport Improvement Program funding for larger airports, thereby both increasing local airport investment and reducing the size of the federal airport grants program—and hence the amount of federal aviation excise taxes that must remain in place to fund AIP following corporatization.
Back in 2010, the bipartisan Simpson-Bowles Commission recommended that government policy protect infrastructure from future federal budget cuts by making infrastructure as close as possible to 100% support from user taxes and user fees. Both ATC corporatization and PFC flexibility would be valuable steps in that direction.
Over the past year or so, there has been a lot of grandstanding over what the consequences of removing the Air Traffic Organization from the federal government would be for the current raft of aviation excise taxes. Some Members of Congress last year talked about a supposed “funding gap” in the event of corporatization. And last year’s notorious “score” of ATC corporatization by the Congressional Budget Office made the absurd assumption that airspace users would be paying new ATC fees to support the ATC corporation in addition to all the current aviation excise taxes. That was in part because the tax-writing committee in the House did not produce a tax title to accompany the authorizing committee (T&I) plan. One good thing about having a White House committed to ATC corporatization is that the Office of Management & Budget has already laid out the budgetary implications of most of the existing aviation taxes being eliminated once the corporation completes its transition period and implements its users-pay charges.
To clarify the numbers involved, I obtained the following figures on FAA’s expenses and revenues for fiscal year 2016, the most recent year for which we have complete revenue information. Here is what the numbers look like.
|FY 2016 FAA budget summary:|
|Air Traffic Organization (operations and capital)||$11.20 billion|
|Airport Improvement Program (AIP)||3.35 billion|
|FAA safety regulation, etc.||2.00 billion|
|FY 2016 FAA revenue sources:|
|Airline ticket taxes & segment fees||$9.910 billion|
|International passenger taxes||3.396 billion|
|Airline fuel tax||.406 billion|
|Air cargo tax||.476 billion|
|GA turbine fuel tax + fractionals||.192 billion|
|GA avgas tax||.025 billion|
|Total aviation tax revenue||$14.405 billion|
|Balance (general fund)||$2.145 billion|
This is a bit different from the way the FAA budget is usually presented, and in any given year, Congress may or may not appropriate 100% of the aviation tax revenue to the annual FAA budget. Some may be set aside in the Aviation Trust Fund for subsequent years and in other years more dollars may be appropriated from the Trust Fund than its annual revenue. That can make the general-fund portion fluctuate between zero and as much as 30% of the FAA budget.
What the above numbers clearly show, however, is that if the FAA’s non-ATC functions are supported by the general fund (like most federal safety regulatory agencies), then the only aviation tax revenue that would still be needed is $3.4 billion to support AIP at its current level (which Congress would very likely want to do). Subtracting that amount from the $14.405 billion in aviation tax revenues would mean a tax cut (at 2016 levels) of $11 billion. For small-government fiscal conservatives, that would be a significant reduction in the tax burden.
I don’t know how the CBO may choose to “score” ATC corporatization this year, but assuming that the tax-writing committees do their part, in accordance with OMB guidance, there should be no misleading nonsense about corporatization either increasing the budget deficit or costing more than the status quo. And as Jeff Davis of Eno Transportation Weekly pointed out in their April 14th issue, in the event of differing approaches to scoring by CBO and OMB, the latter’s views prevail, based on a 1986 Supreme Court decision.
Alas, the OMB budget projections released last month didn’t get the numbers right. They assumed that all aviation excise taxes would be repealed (as of FY 2021), which ignored that AIP would still be part of FAA and still need to be supported by some kind of remaining aviation excise tax (possibly the segment fee). Second, they assumed spending reductions from taking the ATO out of the budget of only $8.78 billion in 2021, when the ATO budget for 2016 was already $11.2 billion. Somebody at OMB needs to take a much closer look at the FAA and ATO budgets.
Unmentioned in either last year’s House T&I bill or the White House ATC reform principles is the subject of overflight fees. Nearly all countries worldwide charge aircraft operators who fly through their airspace without landing or taking off in that country a fee for transiting their airspace and being guided by their ATC system. And nearly all those overflight fees follow ICAO charging principles, with the rate based on aircraft weight and distance flown.
The United States was a latecomer to this practice, beginning only in 2000 after Congress authorized the fees. Instead of conforming to ICAO charging principles, FAA charges for overflights based solely on miles flown. As of the first of this year, those rates were 58 cents per mile over land and 23 cents per mile over the oceans.
Because FAA is supported by aviation excise taxes rather than ATC fees, Congress did not permit the agency to use the (minuscule) revenue from overflight fees to support its ATC operations. Instead, Congress mandated that overflight fee revenues (all of $108 million in FY 2015) go to pay for a portion of the Essential Air Service (EAS) program that subsidizes flights to small towns, often at a subsidy cost of several hundred dollars per passenger. In FY 2015, the overflight fee revenues covered 41% of the EAS budget, with the rest coming from general revenues.
In creating a U.S. ATC corporation consistent with ICAO principles and global practice, its overflight fees should be based on ICAO weight-distance charging principles, and the revenue should go to the company that is providing the ATC services to these aircraft. If Congress wants to continue providing subsidies for small-town airline service, finding another $108 million in general-fund revenue should not be that much of a challenge.
Unfortunately, the OMB budget documents released in May included a footnote calling for “reform” of EAS by doing just the opposite: making EAS fully supported by overflight fee revenues. That is exactly backwards from what should be done. My plea to Congress: don’t mix an inherently governmental activity (providing subsidies to small airlines) with the inherently commercial function of operating an ATC service business.
Nav Canada Rate Decrease. On May 30th, Nav Canada announced a decrease in its ATC charges averaging 3.9%, for fiscal year 2018. This would, in effect, continue the temporary rate reduction that was implemented for fiscal 2017. The rate cut is made possible due to increased traffic volume, and will go into effect as of Sept. 1, 2017. There have been no increases in Nav Canada rates and charges for 13 years, and reductions have taken place three times during this period.
Another Former DOT Secretary Backs Corporatization. Elizabeth Dole, Secretary of Transportation during much of the Reagan Administration, took part in the White House event on June 5th, joining former Secretaries Jim Burnley and Mary Peters in support of ATC corporatization. With the addition of Dole, that makes five former DOT Secretaries, five former FAA Administrators, and all three former ATO Chief Operating Officers who have supported divesting the ATC system from FAA.
Free Route Airspace in Europe. A May 15th news release from Eurocontrol projects that by 2021, free route airspace will be the norm across Europe. Upgrades to ATC software, beginning in 2008-09 in Portugal, Ireland, and Sweden, are making it possible for equipped aircraft to get direct routings across much of Europe today, rather than being constrained to follow traditional airways. Rui Neiva of the Eno Center reminded me that free route airspace was one of the initial goals of NextGen back in 2003, but has not been heard of in recent reports on NextGen’s progress. (http://www.eurocontrol.int/news/will-there-still-be-airways-sky)
GBAS Progress in Australia. After several years of experiencing the benefits of a GPS landing system at Sydney, Airservices Australia has implemented the same system at its second-busiest airport, Melbourne. The system is Honeywell’s SmartPath ground-based augmentation system, which provides precision approaches for all an airport’s runways with a single system, replacing costly legacy Instrument Landing Systems which are needed at each and every runway end. GBAS is also part of the SESAR program in Europe—but strangely enough, not part of FAA’s NextGen modernization effort.
Scotland Considering Remote Tower Services. State-owned ANSP Highlands and Islands Airport Ltd. (HIAL) is considering a strategic plan to install remote tower equipment at all 11 airports in its territory, served by one remote tower center. As reported by Air Traffic Management, HIAL has issued an RFP for a qualified consultant to undertake a comprehensive scoping study of the concept. One of its objectives is to replace “procedural” ATC with centralized air traffic surveillance. The initial reaction from trade union Prospect is negative.
EasyJet Opts for Fleetwide Wind Data Service. Avtech Sweden has announced an agreement with low-cost carrier EasyJet to equip its entire fleet with the company’s Aventus NowCast capability. The system translates accurate wind information into 4-dimensional flight trajectories that minimize fuel burn. The airline tested the system with its Swiss fleet and documented the fuel savings, leading to the decision to equip its entire fleet.
Charlotte and FAA Building Enormous New Tower. Ignoring the potential of remote towers, which are still not certified in the United States, the FAA and Charlotte Douglas International Airport are under way on a replacement control tower for this important large hub airport. In contrast to the existing tower’s 155-ft. height, the new one will be 370 feet, the second-tallest in the United States. Total project cost is an estimated $112 million, with a projected opening date of 2020.
Amazon Planning ATC Software for Drone Fleet. With plans under way for a large fleet of delivery drones, Amazon last month announced that a new team of software engineers, based at its Prime Air Development Center just outside Paris, will develop a system to manage the traffic of the drone fleet (which presumably will operate below 400 feet, and therefore outside of controlled airspace).
Citizens for On-Time Flights Launched. Citizens for On-Time Flights has been launched to build public support for ATC reform and modernization. The group is seeking members to urge Congress to enact meaningful reform of the ATC system. The group’s website is www.ontimeflights.org. It includes a useful Myths vs. Facts section.
Follow-up on FAA Managers Association. Too late for inclusion in last month’s article about FAAMA coming out against ATC corporatization, I learned that their membership is 1,600, a small fraction of NATCA’s 20,000, including 14,000 controllers at FAA facilities. Also, FAAMA’s piece neglected to mention that during the response to the 9/11 attacks, numerous aircraft were landed by non-governmental controllers at 250 contract towers, in addition to all of those landed in Canada by Nav Canada controllers.
Update on A4A’s Letter to Sen. Thune. Last month’s lead article discussed a long letter that Airlines for America sent to Sen. John Thune (R, SD) taking issue with many FAA claims about its progress on NextGen. That letter is now online, posted at http://airlines.org/wp-content/uploads/2017/05/Thune-NextGen-Letter-FINAL.pdf.
“The current proposal in Congress to modernize air traffic control by taking it out of the hands of the FAA and putting it under an independent not-for-profit organization is by far the most sensible solution. If we want to continue to have the safest air traffic control system in the world, we need to modernize technology and ensure that the system cannot continue to be interrupted by congressional budget impasses. This approach keeps costs down, reduces delays, and enhances safety. Unfortunately, the effort is being stalled by private jet owners and their proxies in Congress. If you fly commercially right now, like 99.9% of us do, you are subsidizing private and corporate jet owners. They have always paid less to cover their costs than commercial airliners, and their fear is that they may finally have to pay their fair share is motivating their opposition. By any measure, that is just plain wrong. Ordinary Americans flying coach should not be subsidizing the wealthiest among us who can afford to purchase their own planes.”
—Chris Ward, former Executive Director, Port Authority of New York & New Jersey, “Air Traffic Control Needs a Tech Overhaul,” New York Daily News, May 25, 2017
“The budget process is another millstone around the ATO’s neck. Because the federal government lacks a capital budget, the FAA cannot borrow against annual receipts to fund long-term investments in new technology and facilities. Nor can it finance promising new capabilities that have the potential to transform the delivery of air traffic control services . . . [for] example, space-based ADS-B. These problems are most evident in the FAA’s long-running struggle to deploy new technology that would improve efficiency and make air travel safer. When it undertook to modernize the air traffic control system in 1981, the FAA estimated the work would cost $12 billion and take a decade to complete. Thirty-six years and more than $56 billion later, many controllers still keep track of aircraft using paper strips. Outdated technology limits the capacity of the system.”
—Dorothy Robyn, testimony before the House Committee on Transportation & Infrastructure, May 17, 2017
“The operational aspect of the ANSP needs to be separated from the state’s safety regulatory function, to avoid conflicts of interest. Like other safety-crucial industries, the state has a duty to its citizens to ensure that safety performance of ANSPs is not compromised. ANSPs need to act like commercial entities. This is best achieved through corporatization or commercialization, where the organization is given greater management and financial authority and encouraged to behave more like a private firm, with good governance. This does not require the organization to be privately owned—nor does it rule it out. Several ownership options exist and are used around the world. The key characteristic is that the organization has sufficient autonomy and flexibility to respond to competition.”
—David McMillan, Chair, ATM Policy Institute, “The Necessity of Liberalizing Our Skies: It’s Time to Talk ATC,” International Airport Review, May 2017
“In our view, new and potentially disruptive technologies (like virtual towers, virtual centers, space-based CNS, etc.) will play an important role in the future service provision of ANSPs. . . . The industry and the ANSPs are creating real and close cooperation under the umbrella of the SESAR program and jointly developing solutions which may reshape our business models. Virtual tower and virtual center concepts will open a new potential market for ANSPs and within 10-15 years may rearrange the market. Some ANSPs will focus on their core business and buy competitive CNS and ATM data processing services from the market. Some other ANSPs—possibly together with industry partners—will sell those services to other ANSPs.”
—Kornel Szepessy, Hungaro Control, “Business Models,” Air Traffic Management, Issue 1, 2017