In this issue:
- Bush Executive Order Clears the Way for Outsourcing and Corporatization
- Oceanic Modernization: What Price “Not Invented Here”?
- NATS Hopes to Pull Out of Downdraft with New Partners
- Reinventing a Piece of FAA
- Notable and Quotable
President George W. Bush signed an amendment to Executive Order No. 13180 on June 6, 2002. It revises the first sentence ex-President Clinton’s December 2000 executive order which calls on FAA to turn air traffic control into a performance-based organization. The President removed the “inherently governmental” wording that had been inserted, over the objections of some White House staff, at the urging of FAA Administrator Jane Garvey and NATCA president John Carr.
Those words carry specific meaning within the federal government. Activities that are “inherently governmental” may not be outsourced to private firms or divested to nonprofit, federally chartered corporations. Hence, Bush’s new order removes a strong argument from NATCA’s ongoing litigation to overturn the highly successful Contract Tower program, under which 217 small-airport towers are run by private firms, at one-third the cost of similar FAA towers.
But an even larger implication is that the way is clear for the Bush Administration to proceed with plans for more sweeping ATC reform. The Clinton-era performance-based organization approach, now called the Air Traffic Organization, has gone nowhere. Nobody has been willing to take the job of chief operating officer (despite the salary being raised to $400Knearly three times as much as the COO’s boss, the FAA Administrator). Under Garvey, the agency has spent 18 months designing the ATO, but has balked at giving it a lot of autonomy. And one close observer tells us the design “makes no sense; they are forming business units around the teams that buy new hardware and not those that deliver the service to the customer.”
Aviation Daily (5-22-02) reports that the “Bush administration [is] preparing to unveil its own proposal for the future shape of FAA” this summer. House Aviation Subcommittee chairman John Mica has announced that he intends to hold at least one hearing on restructuring FAA, tentatively set for July 19. And a major goal of the restructuring, says the Daily, “is the creation of a separate organization that would be in charge of ATC.”
On April 10, Inspector General Ken Mead reported to Congress on problems with FAA’s ongoing efforts to modernize its oceanic air traffic control. The agency has spent $233 million on this goal since 1995, but flights in US-controlled Atlantic and Pacific airspace are still monitored via old-fashioned HF voice radio and paper flight strips. Throwing in the towel on previous efforts, in June 2001 FAA awarded a $217 million contract to Lockheed Martin for the Advanced Technologies and Oceanic Procedures (ATOP) system, to be installed at Oakland, Anchorage, and New York. Privatized Nav Canada, which was busy implementing its own automated oceanic system called GAATS, declined to bid originally, but made an unsolicited proposal in May 2001, just a month before the contract award. That bid reportedly was for around $115 million (including estimates of adaptation and integration costs). That offer was rejected.
The Inspector General’s team visited Nav Canada in October 2001 and reported that “GAATS did meet most of the core capabilities required by FAA,” but that changes would be required to integrate it into FAA’s systems, which Nav Canada acknowledges. The IG report also highlights “challenges” facing Lockheed Martin and its Canadian subcontractor, Adacel, in meeting the April 2003 delivery schedule for the first installation at Oakland. “The bulk of the work to meet these challenges still lies ahead, which is a significant risk to deploying the new oceanic system on time.”
Meanwhile, the latest version of GAATS entered service on the North Atlantic this springand is getting glowing reviews from airline users. It incorporates both ADS (to provide regular GPS-based position updates, creating a radar-like display for controllerspreviously unheard-of in oceanic ATC) and data link (CPDLC), two key ingredients of FANS (Future Air Navigation Services). The UK’s privatized NATS has decided to license GAATS Version 21 from Nav Canada for the UK’s oeanic modernization effort. It’s too bad the FAA hasn’t gone down this lower-cost, lower-risk path.
Note: for more on GAATS, see the Wall Street Journal‘s May 9, 2002 article, “How Canada Gets Jets Across the Sea.”
Partially privatized NATS, the UK’s ATC provider, has been especially hard-hit by the decline in lucrative North Atlantic traffic since 9/11. Figures released in May showed that although NATS’overall traffic levels for the first four months of 2002 were down only 4 percent, oceanic traffic was still 11 percent lower than in the first four months of 2001. The projected 18-month period of reduced revenues threatens to wreak havoc with NATS’ recently announced 10-year, one billion pound modernization plan. That’s why the company has appealed to the UK’s CAA for relief from the price-cap regime imposed when NATS was privatized last summer. That framework, a variant of the “RPI minus X” formula used with other UK utilities and airports, calls for annual decreases in ATC charges over the first five years of the company’s existence. NATS asked instead for five percent annual increasesbut that request was rejected in May. The CAA held out the prospect of more modest rate relief, but only if NATS can strengthen its finances.
Since NATS is owned 46 percent by the Airline Group and 49 percent by the government (with employees holding the balance), the government has said that if the Airline Group can find 50 million pounds in new equity investment, the government will match that sum. Thus, the past few months have seen discussions with several outside parties, most notably Serco (a global firm specializing in outsourcing government functions) and BAA, the privatized UK airport operator. NATS unions vigorously objected to Serco, which dropped out in May, leaving BAA as the leading contender. At press time, BAA was reportedly close to finalizing the deal.
NATS has also been discussing joint ventures with the corporatized provider of Ireland’s ATC services, the Irish Aviation Authority. The premise behind this is that the EU’s Single European Sky initiative will lead to significant restructuring of ATC in Europe, creating advantages for commercial ATC providers. This is also part of BAA’s rationale for investing in NATS, since BAA is already involved in airport privatization on a global scale, and there are obvious synergies between airports and air traffic control.
One of the few bright spots within FAA has been the revamping and rejuvenation of its Logistics Center in Oklahoma City, a successful accomplishment of the Clinton Administration’s reinventing government effort. Under the inspired leadership of Norman Bowles, the Center has been restructured to look and operate like a private company, with six divisions based on its major products and services. Of particular relevance to potential ATC reform, one of the most important factors in the Center’s revitalization has been its switch to a direct user fee model. Instead of receiving its annual budget from Congress, the Center now sells its services to its customers, who purchase the parts and services they need. Even salaries have to be covered from the Center’s user-fee revenues.
The whole story is told very well in the current issue of Government Executive magazine. You can read the article by clicking on the following: www.govexec.com/features/0602/0602s6.htm.
“As to the failure of the FAA, I think it’s largely the failure of the way it’s organized as a government agency. What’s needed is privatization or at least corporatizationan independent agency, able to raise its own capital, not limited by the congressional budget process or civil service requirements. An agency, cooperatively owned by industry, with real incentives to meet demand, and expand capacity, and price intelligently.”
-Alfred Kahn, father of airline deregulation, IEEE Spectrum, January 2002, p. 54.
Note: In case you were wondering, there was no issue of ATC Reform Newsletter in May; we were too busy completing a policy brief on airport baggage inspection and launching a policy study on toll truckways.