Airport Policy and Security Newsletter #43

Airport Policy News

Airport Policy and Security Newsletter #43

Topics include: inspecting cargo; slot auction problems; misguided bizjet security regs; airport privatization in a soft market; and other news.

In this issue:

Full Cargo Screening Mandate Will Be Tough to Attain

Last summer, in Issue No. 37, I reported on the mandate imposed by the 9/11 Commission Act of 2007 that all “belly cargo” carried on passenger planes be physically screened by August 2010. I pointed out the estimated $4.5 billion equipment cost, plus the need to do most such inspections somewhere other than the airport, for reasons of space and timeliness.

The initial, relatively easy, deadline was to screen 50% of such cargo by February 2009. The Transportation Security Administration claims to have met this deadline, as airlines and freight forwarders concentrated their initial efforts on cargo carried on narrow-body planes. For the most part, such relatively small boxes can be put through the kinds of explosive detection system (EDS) machines used for checked luggage. The much harder problem is cargo carried on wide-body jets, on shrink-wrapped pallets or in large cargo containers. Neither shippers nor freight forwarders nor airlines want to have to unpack those pallets and containers and screen each individual box, which would be very costly and time-consuming. But so far TSA has not certified any technologies to screen whole pallets and containers-even though such technologies exist and are in use overseas.

There is progress to report, both in the technology area and in the logistics of getting such cargo inspected. Under TSA’s Certified Cargo Screening Program (CSSP), shippers and freight forwarders can develop certified facilities for cargo scanning, with a secure chain of command to deliver scanned cargo to the airlines for loading. Last month TSA announced that it had certified 129 cargo screening operations under CSSP, mostly off-airport forwarders. It also announced that Mercury Air Cargo (based at LAX) had become the first independent facility (which accepts unscreened cargo from shippers and small forwarders) to be certified. Most of the others certified thus far are themselves large freight forwarders.

Technology vendor Rapiscan is negotiating with a number of airports to offer on-airport, turnkey cargo scanning centers. Its business model incorporates two approaches. At airports with a dominant carrier, it would develop the center in cooperation with that airline. At airports with many carriers, it plans to develop a common-use facility. The company offers two machines capable of scanning multiple-item pallets weighing up to 6,600 lbs. Competitors L-3 Communications and Smiths Detection also offer pallet-screening systems. Some L-3 scanners are now in use at Heathrow’s Terminal 5, and in Amsterdam and Bangkok. TSA is still testing pallet-screening systems, however, and none has been certified for use in this country, as of this writing.

The global downturn in air cargo-in excess of a 20% decrease in December 2008 compared with the previous December-may ease the transition to 100% scanning, simply by decreasing the volume that must be coped with. Still, even if one or more pallet-scanning systems wins TSA certification by August of this year, it will be a big challenge to get such systems installed and in operation at thousands of sites by August 2010. It would not surprise me to have Homeland Security Secretary Janet Napolitano tell Congress by year-end that the deadline cannot be met-just as she told Congress last month that the 2012 deadline for scanning of all seaborne containers bound for the United States cannot be met.

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Whatever Happened to Slot Auctions?

In the absence of its Bush administration leaders, the Federal Aviation Administration seems to be backing off on its attempt to impose slot auctions on the congested New York-area airports. Earlier this month, the FAA asked the U.S. Court of Appeals for the DC circuit to hold in abeyance planned briefings on the airline lawsuit challenging the slot auctions, “until FAA determines whether [the proposed] rules should be withdrawn.”

While I have long argued that market-based allocation of scarce airport capacity is far better than administrative allocation, my strong preference is for runway congestion pricing rather than slot auctions (see my “Congestion Pricing for the New York Airports,” Runway pricing is well-understood as being an airport owner/operator’s prerogative, both in the guidelines of the International Civil Aviation Organization (ICAO) and, more recently, in the U.S. DOT’s airport rates and charges policy. And while economists maintain that, in theory, either pricing or auctions should ultimately have the same impact, there are several practical reasons to prefer pricing.

First, runway pricing requires no new legislation, and any federal legislation on either pricing or auctions would be certain to contain numerous exemptions and regulations that would undercut its effectiveness. Second, pricing would clearly apply to foreign as well as domestic carriers, while there is significant legal history suggesting that foreign carriers might be exempted from auctions, raising level-playing-field issues with U.S.-based airlines that compete with foreign airlines. Third, runway pricing is a local option, consistent with the principle that airports are business enterprises that should make their own decisions about how to manage their capacity and service levels. (Despite the opposition of the Port Authority of New York & New Jersey to runway congestion pricing, I would not be surprised to see one or more other large, congested airports move in this direction once economic recovery leads to renewed airport congestion.)

Moreover, the history of slot allocation overseas is one of the legacy carriers using that system to protect their turf, at the expense of low-cost carriers (i.e., competition) and airline passengers generally. The legacy carrier organization, IATA, promotes its “Worldwide Scheduling Guidelines,” under which a congested airport assigns its slots to incumbents, and only the occasional new slots that become available are subject to auction in a secondary market. Many economists have described this approach as cartelization, and I think they are correct. An illustration of cartel-like behavior under this system is provided by the current situation in Europe. The Association of European [Legacy] Airlines is lobbying in support of a proposal from the European Commission that would allow incumbent airlines to cut back on scheduled flights (due to the slow economy) but hang onto the slots that would be freed up thereby, suspending the normal “use it or lose it” rules. The CEO of low-cost carrier easyJet said this would “allow inefficient, poorly run airlines to hoard valuable landing slots rather than allowing unused slots to be returned to the many European airlines that are ready, willing, and able to operate them.” He’s right.

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Large (GA) Aircraft Security Program Taking Flak

Last October, in Issue No. 39, I wrote that the TSA’s proposed Large Aircraft Security Program “looks like overkill.” You’ll recall that this program would subject business jets and turboprops weighing 12,500 lbs. or more to a security regime similar to that imposed on airlines-flight crew criminal history checks, passengers checked against TSA watch list, a new mandate on operators to prevent passengers from carrying prohibited items, and periodic audits to ascertain compliance. It would also impose new security requirements on many airports serving general aviation.

The reaction from the general aviation (GA) community has been understandably fierce. A number of members of Congress have expressed support for these concerns, notably the chairman of the House Committee on Homeland Security, Rep. Bennie Thompson (D, MS). His March 2, 2009 letter to TSA makes a number of good points, including the need for “a risk-based methodology and assessment specifically developed for general aviation aircraft and their passengers,” the first time I’ve heard a member of Congress speaking up in favor of risk-based approaches.

While I am in general agreement with these criticisms, I think some GA defenders have gone overboard in claiming that the threat from GA planes is essentially zero. First, it’s pretty obvious that “large” business jets such as the Boeing Business Jet (a 737 variant) or a Gulfstream V could become flying bombs comparable in impact to the airliners that hit the World Trade Center-especially if their cabins were loaded with fuel or other explosives. Even very light aircraft have been used recently by terrorists. In Sri Lanka, suicide attacks were carried out last month by Tamil Tiger terrorists using 1,600 lb. Z-143 light single-engine piston planes, packed with less than 500 lbs. of explosives. A proper risk assessment would take those capabilities into account.

But on the anti-TSA side of the ledger, there is also the question of how enforceable the regulations would be. The TSA Notice of Proposed Rule-Making would apply new airport security regulations to 315 commercial airports that serve private planes. But there are about 5,000 GA-only airports in this country, many of them accessible to business jets or turboprops. Moreover, a recent Government Accountability Office report (“Aviation Security: Status of Transportation Security Inspector Workforce”) found that the agency is chronically behind in recruiting inspectors and determined that “TSA does not have a reasonable basis for determining the workforce needed to achieve [its] inspection goals.” It also found that these inspectors only spend one-third of their time actually conducting inspections. (GAO-09-123R).

So I’m happy to concur with my friends in the GA community in suggesting that TSA take these proposed regulations back to the drawing board for a serious risk-based assessment.

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More Airport Privatizations Proposed, in a Soft Market

Last month, officials of the governments that own two more U.S. airports-Kansas City International and Connecticut’s Bradley International-suggested they be considered for privatization, presumably under the FAA’s Airport Privatization Pilot Program. But while city and state governments are in financial distress, making it attractive to cash-in their airports, the airport industry is in a slump due to the global recession. Moreover, the global credit crunch means financing such deals is more challenging than it was a year ago.

In Kansas City, Mayor Mark Funkhouser, formerly the city auditor, was the driving force behind a flurry of reports in late February about a possible airport lease. Several city council members were quoted as looking favorably on the idea. The city’s well-respected airport director, Mark Van Loh, told the Kansas City Star that “We haven’t really found any negatives” in the idea, and that the city should apply for one of the three remaining slots in the pilot program within the next month or so, to avoid being pre-empted by other cities. But in early March, Aviation Daily reported that the council’s transportation committee was putting the idea on hold “out of concern that the issue leaves too many unanswered questions in these uncertain times,” and that the committee does not want to rush into such a major decision.

In Connecticut, the state owns Bradley International, and it was Republican state legislators who suggested privatization, to help with the state’s large budget deficit. Two bills have been introduced, one by Minority Leader John McKinney to study the privatization of Bradley and the other by Rep. William Hamzy to permit the state to privatize Bradley and the other five state-owned airports. In this case, Transportation Commissioner Joseph Marie opposes the privatization, telling the Hartford Courant that attempts elsewhere have been unsuccessful (whatever that’s supposed to mean).

These new proposals come at a difficult time for both sellers/lessors and buyers/lessees due to the combination of an aviation slowdown and the debt market crisis. Aviation Week (Feb. 16, 2009) reports that airports privatized in 2006-07 were going for multiples of up to 30 times earnings, but that currently multiples of 7 to 12 are more likely, according to aviation economist David Bentley. That makes airports relative bargains for would-be acquirers like Fraport and various infrastructure investment funds-assuming they can find debt financing for a chunk of the transaction price.

An investment banker with experience in airport privatizations told me this week that a year and a half ago, such deals could be financed at a debt/equity ratio of 75/25. Today, however, 50/50 is more like it, with some deals requiring an even larger fraction of equity. On the other hand, banker ABN Amro managing director Justin Symonds notes that most airports that are tracked by rating agencies remain investment grade, and that both government-run and privatized airports have been able to refinance debt recently. Thus, potential purchasers of London Gatwick and possibly other BAA airports ought to be able to finance those deals, though more expensively than a year or two ago.

I am also hearing from reliable sources that the $2.5 billion Midway Airport deal is still expected to reach financial close within the next month or so. Assuming that prediction is on the mark, that will be good news not only for Chicago but for others interested in privatizing their airports.

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News Notes

TSA’s Employee Screening Pilot Progam? Back in November 2008, industry publications told us that TSA would have a final report out by year-end on the results of its pilot program to test 100% employee screening of airport employees (and several alternatives). As I write this, it’s mid-March, and no such report has appeared, nor is there any mention of it on the TSA website. Aviation Daily‘s Nov. 24, 2008 preview was tantalizing, quoting then-Administrator Kip Hawley as saying, “We also found that you can have excellent systems that do not require you to screen everyone just at perimeter,” and that this involves “a risk management trade-off” that future administrations and Congress will have to deal with. So where is this report?

Branson Airport Lands Another Airline. Privately developed Branson Airport (in country music town Branson, MO), which has no FAA grant agreements and is therefore able to offer airlines exclusive deals on service to particular cities, has signed up a second airline. Sun Country airlines will serve Minneapolis-St. Paul from Branson, initially three times a week, from the date the new airport opens May 11th. That makes three exclusive cities announced thus far, since AirTran will be serving Atlanta and Milwaukee from Branson. The airport expects to announce another destination before the end of March.

Low-Cost Surface Radar System Unveiled. You may have wondered, as I have, what was going to be done to reduce runway incursions at the small and medium size airports that are not slated to get the highly effective (but expensive) ASDE-X system that keeps track of everything on airport runways, ramps, and taxiways. In 2007, the FAA issued a “Runway Safety Call to Action,” asking for proposals for lower-cost systems for smaller airports. And in January it issued the first contract for such a system, to Thales ATM. Theirs is a radar-based system that costs about $500,000 (compared with $5-10 million for ASDE-X). Since it is a radar-only system, it’s not as effective as ASDE-X, and provides alerts only to controllers, not pilots. But it’s still big improvement over the status quo. The FAA plans to award several contracts to other vendors, as well, and will field-test the competing systems.

Advice to TSA, from WSJ’s Scott McCartney. I was glad to see two of my reform ideas prominently featured in the Wall Street Journal‘s “The Middle Seat” column for Feb. 17, 2009. In offering his advice on how the Obama administration could reform the TSA, he picked up on my suggestion for turning Registered Traveler into a security program, as it was originally intended to be. That could be done by doing the same FBI criminal history background check on RT applicants as is routinely done for airport employees (who have at least as much access to airliners as passengers do). My other suggestion, seconded by former FAA security chief Billie Vincent, was to scale back the costly air marshals program, which is a highly non-cost-effective use of limited TSA resources. Security expert Bruce Schneier suggested a return to pre-9/11 levels of screening, using the money saved to improve intelligence, investigations, and emergency response.

Correction re Improved Airport Concessions. In last month’s issue, I credited BAA with having revolutionized airport concessions by introducing competing brand-name retailers and street-pricing. That brought a very informative response from Skip Conrad of Oakland (CA) Airport. He pointed out that the “real pioneers” were corporatized airports Frankfurt and Amsterdam, with movie theaters, porn shops, etc. as early as the 1970s. Here in the United States, Conrad (as a consultant) introduced “market-based pricing” in several airport concession programs in the 1980s, including San Francisco, San, Jose, Denver, and Newark. And at Newark in 1986, his RFP for concessions included a brand-name requirement. The late Rich Griesbach brought local restaurants into Dulles and National airports in Washington, as Skip did at SFO in the 1980s. I’m happy to set the record straight on these innovations in airport concessions.

TSA Extending Expedited Entry for Flight Crews. The TSA announced earlier this month that its CrewPASS pilot program, which allows cockpit crews to bypass regular passenger screening checkpoints, will be extended beyond its original March 17 end-date; the program will now run until July 17. TSA will also begin testing a biometric component of the pass, as recommended by the Air Line Pilots Association.

Forbes Compares Fares by Departure Airports. The March 16, 2009 issue of Forbes includes a table listing the six most costly and six least costly commercial airports to fly out of in the United States, based on average fare per mile flown (using data from The most costly is Cincinnati (a Delta fortress hub) at 48 cents per mile. Least costly is Southwest Florida International Airport in Fort Myers, at just 16 cents per mile. The full list is at

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Quotable Quote

“There is a range of business models that’s moving this industry to control more of the property and the process, because they have to have the vision and the authority to carry out that vision, since the other thing that’s going on in the world is liberalization. What we call deregulation is now happening on the international side where increasingly, instead of a bilateral, there’s Open Skies or liberalization. So instead of the various countries getting together and deciding where airplanes will fly, airlines decide where airplanes will fly. So it’s up to the airports to try and attract and retain air service for their community. There’s not a governmental entity doing that for you anymore. Now the market is doing it. That’s prompted various competitive behaviors. Airports now conduct passenger surveys; they have to listen to their customers; put in different features; take responsibility for processes that maybe someone else should have responsibility for. As long as it affects the attractiveness of that airport to either a carrier and/or passengers, it’s something that the airport has to be mindful of.”
–Angela Gittens, Director General, Airports Council International, “Of Airports, Business Models,” Airport Business, November/December 2008.

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