In this issue:
- Registered Traveler Breakthrough
- Airport Parking Privatization
- New York Airport Congestion
- TSA Backs Off on Private Pilots
- New Frontier for U.S. Airports?
- News Notes
- Quotable Quote
Breakthrough for Registered Traveler Program
The bill the House passed earlier this month to reauthorize the Transportation Security Administration contains big news for the Registered Traveler program. If the Senate follows suit, RT could be turned into what it was originally intended to be-a risk-based program that enables TSA to re-focus its screening resources away from lower-risk travelers. That would mean a faster and less-hassle trip through airport security for potentially millions of RT members like me.
As you may remember, in 2001 when Congress enacted the Aviation & Transportation Security Act creating the TSA, it explicitly called for the new agency to establish a “trusted traveler” program to expedite the screening of those passengers who pass a background check and enroll in such a program. As pointed out in the report on the current bill from the House Committee on Homeland Security, “Congress had intended for such trusted traveler programs to be utilized as a risk-management tool.”
When TSA created the Registered Traveler (RT) program, it initially used the information on people’s application forms to do a “security threat assessment” consisting of checking the applicant’s name against a wants & warrants database, an immigration database, and its own terrorism watch list. It never submitted the applicant’s fingerprints to the FBI, however, for a criminal history background check, which is done routinely for those airport employees who must be cleared via this check in order to have unescorted access to secure portions of the airport at which they work. I pointed out this double standard in Issue No. 40 (Nov./Dec. 2008). TSA actually stopped doing even the wants & warrants and immigration checks in 2007, arguing that RT is merely an identity verification program, not a security program, and rescinding the charge it had levied on RT service providers for that minimal background check. Consequently, RT members must still go t hrough the identical checkpoint screening process as ordinary travelers-which saves TSA no resources that it could apply to beefed-up security elsewhere.
What the House measure does is require the TSA, within 120 days, to convert RT into a risk-management tool by reinstating a threat-assessment program for RT applicants, to be supplemented by private-sector background checks carried out by RT providers. But it also gives the TSA an out, if the Assistant Secretary of DHS determines that the revamped RT program cannot be integrated into risk-based security screening operations. A separate provision of the bill requires TSA to develop alternative screening procedures for those RT members who hold Top Secret security clearances, regardless of the agency’s decision regarding general revamping of the program.
One knowledgeable source tells me that the Senate Commerce Committee has in the past been supportive of RT as a risk-based program, so there is a reasonable likelihood of favorable action in the Senate, now that the House bill including the RT provisions has passed the full House. The only change I would recommend the Senate make is to include submitting RT applicants’ fingerprints to the FBI for the same criminal history background check that applies to airport employees.
As of now, RT is in operation at 21 U.S. airports, and the largest operator-Verified Identity Pass–has 260,000 members in its Clear program. Those numbers could soar if RT members could bypass much of the rigamarole at the security checkpoint.
Airport Parking: Next Up for Privatization?
Pittsburgh International Airport (PIT) has a problem. It put close to $500 million into building a new midfield terminal in the 1990s, mostly to serve US Airways, which maintained a large hub there. But after the 9/11 attacks, the airline downsized that hub, and dropped it as a hub altogether by 2004. That has reduced PIT’s enplanements from a peak of 20.7 million in 1997 to just 8.7 million in 2008. But with most of the bonded indebtedness still to pay off, PIT’s airline cost per enplanement last year was $15.80 (compared with only $5.98 in 2000). That makes it one of the most expensive U.S. airports for airlines to serve.
To get PIT out of this trap, Allegheny County executive Dan Onorato is proposing a long-term lease of the airport’s parking facilities to a private operator-13,200 spaces between garages and lots. His aim is to raise $500 million or more, all of it up-front (as in the City of Chicago’s recent leases of parking garages and parking meters). That would enable the Airport Authority to retire its entire $499 million worth of bonds. Debt service on those bonds is running $62 million per year, compared with about $22 million in annual parking revenue. Thus, the Airport Authority would for many years be saving a lot more in debt service expense than it would be losing in parking revenue.
Whether this would be a genuinely good deal depends on several factors. First is how much the lease would actually generate. An article in the Pittsburgh Post-Gazette quotes Merrill Stabile, president of parking operator Grant Oliver Corp., as saying that investment groups have recently paid 15 to 20 times earnings for parking facilities; he estimated parking at PIT could be worth $440 million. Two factors that would influence that value are (1) the length of the lease, and (2) what controls on parking rate increases would be included in the deal. From the airport’s standpoint, a lease term significantly longer than the term of its existing bonds might not be such a good deal.
Globally, there are well-established procedures for assessing the value of long-term privatization deals. Australia, Britain, and Canada all use a process called the Public Sector Comparator (PSC) to compare, quantitatively, the best-case public-sector model with potential private-sector deals. Chicago’s recent 75-year lease of its parking meter system for $1.2 billion was criticized in a report released this month by the city’s Inspector General Office for not having been analyzed via such a procedure. But the IGO report’s alternative calculation (which suggested that the city could have done better) failed to take into account the value of risk transfer to the private operator. In the case of parking facilities, the longer the lease term the greater the risk assumed by the lessee (e.g. that people will still be using cars and needing to park them in 50 or 75 years). And in the case of PIT, there is an obvious trade-off to be made in terms of making th e airport more attractive to airlines by getting its cost per enplanement way down versus giving up parking revenue for N years.
It’s also interesting to note that at the same time that Allegheny County is trying to lease its airport parking, the City of Los Angeles’s airport department is seeking to buy a 21-acre private parking operation directly east of LAX’s Terminal 1. The Park One property is for sale by AMB Properties Corp., and a Los Angeles Times story quotes one realtor as estimating the price could be in excess of $100 million. The facility has 2,720 spaces and is reportedly highly profitable.
New York Airport Congestion
How bad is congestion at the major New York-area airports? That’s the question the Partnership for New York City set out to answer, in a follow-up to the 2006-07 debates over congestion, delays, runway pricing, and slot auctions. It commissioned HDR Decision Economics to research the question, and the result was released in February 2009 as “Grounded: The High Cost of Air Traffic Congestion.” (www.pfnyc.org)
The report, which appears to be competently done, is something of an eye-opener. New York airport congestion has a number of costs, the principal ones of which are estimated as follows:
Lost time to air travelers was $1.7 billion in 2008, and over the period 2008-2025 will likely total more than $50 billion. Airline costs (wasted fuel and excessive crew time) were $834 million in 2008 and will total $25 billion between now and 2025. Freight shippers lost $136 million in 2008, and will lose a total of $4 billion by 2025. Productivity losses to the regional economy were estimated at $21.5 billion over the 2008-2025 period. And additional emissions generated by planes in long lines waiting to take off are estimated to cause harm estimated at $1.7 billion of this time period. That’s a huge price tag, in anybody’s book. So now that we know how bad the impact is, how should those affected deal with this costly congestion?
The introduction of the report created big expectations for me, saying the Partnership “wanted to determine whether investing in expansion of regional airport capacity and upgrading the air traffic control system to reduce flight delays would pay off for the region and the nation.” It follows this by saying that “The findings of this study clearly show that such investment is more than justified by the cost burdens resulting from inefficient and unpredictable passenger and air freight service due to congestion.”
I read on eagerly, hoping to find conclusions and recommendations calling for bold expansion plans-perhaps terminal expansion at LaGuardia to permit larger passenger volumes that would be consistent with “up-gauging” the average passenger capacity of planes using that airport or possibly the 2008 Reason Foundation proposal for adding a closely spaced parallel runway at JFK (www.reason.org/news/show/1002975.html).
Alas, what I got was a set of very modest incremental improvements: improve ground traffic management, speed up the use of RNAV (area navigation) departures, redesign the region’s airspace (already under way by the FAA), implement NextGen capabilities in the ATC system and on airliners, and (a direct result of the previous measure) reduce excess spacing between aircraft on approaches to the airports.
The report also includes a provocative statement that “All travelers, other things being equal, would prefer to arrive at their destinations more quickly, and almost all would be willing to pay something more to make that happen.” Indeed, the cost of passenger delays in the report was estimated using FAA air-traveler value of time figures. But instead of taking this point to its logical conclusion-runway congestion pricing-the report just drops it.
In fact, as George Donohue and Karla Hoffman found when they ran a strategic simulation game in cooperation with the FAA, airlines, and the Port Authority of New York and New Jersey, runway congestion pricing at LaGuardia would lead to significant up-gauging of aircraft there, making better use of its scarce and valuable runway capacity (www.reason.org/news/show/1002846.html). There is good reason to expect the same to be true of JFK and Newark. Runway pricing would not only reduce delays without reducing passenger throughput; it would also generate additional airport revenue that could help pay for terminal and runway expansions in the Port Authority’s airport system.
TSA Backs Off on Private Pilots
For months, the general aviation (GA) community has been complaining, with some justification, about a TSA security directive (SD-8F) that was going to impose burdensome requirements on private pilots using any of 400-odd commercial airports. In order to have unescorted access to the airfield at such airports, they would have to undergo a background check and obtain and wear an ID badge, just like airport employees. And if those badges were airport-specific (as many feared there would be) this would play havoc with the typically unscheduled nature of most GA activity.
In addition to objecting to the burdensome nature of the proposed requirements, the GA organizations also complained that TSA was issuing a new regulation simply by decree, rather than going through the typical federal procedure of publishing a notice of proposed rulemaking (NPRM) in the Federal Register and inviting comments from interested parties.
Recent weeks have brought two important changes, generally welcomed by the GA community. First, TSA issued a revised directive (SD-8G) easing the burden. As long as a private pilot stays near his/her plane or goes to and from the fixed base operator (FBO) office or the airport exit, no badge or background check is required. This will ease the burden on those flying into airports they are not based at. Those who are based at a commercial airport and lease space there (whether in a hangar or simply a tie-down) will need to get a badge for that airport, but this requirement can be waived if the airport provides an alternative acceptable to the TSA, such as an escort program.
The second change is included in the TSA reauthorization bill passed by the House June 4th. One provision of the bill tells TSA that security directives (like SD-8) should be used only in response to emergencies or immediate threats. New regulations on aircraft operators should be introduced using the normal federal rule-making process.
Controlling access to the airfield has generally been one of the weakest links in TSA’s aviation security program. So while I’m glad that they are taking access control more seriously, I think they’ve made some sensible trade-offs in revising these new regulations.
Houston Pursues A New Frontier for U.S. Airport Operators
Few people were surprised when YVR Airport Services Ltd. turned up as part of the consortium that won the bidding for Chicago’s Midway Airport-or that it was part of a consortium bidding for London Gatwick Airport. Vancouver Airport Authority’s airport consulting and privatization division has become fairly well-known in aviation circles.
Much less visible, until recently, has been a similar U.S. company. Houston Airport System Development Corporation (HASDC) is a nonprofit corporation controlled by the city of Houston’s Houston Airport System, operator of the two commercial airports and one GA airport in Houston. It was set up in 1998 in response to a request from Bechtel for advice on a possible airport privatization deal in Mexico. HAS director Rick Vacar was made its managing director, with two outside directors, one appointed by the Port of Houston and the other by the Greater Houston Partnership. Over the years HASDC has done considerable airport consulting and been involved in consortia managing airports under contract, mostly in Latin America.
Last year, with overseas airport privatization opportunities proliferating, HASDC formed a joint venture with Airport Development Corporation, a for-profit company based in Toronto. HASDC has 51% and ADC has 49% of the new entity, ADC&HAS, Inc. The joint venture evolved out of the two having teamed several years earlier to win a long-term (35-year) concession in Quito, Ecuador. Under that deal, the company has been operating the existing Quito airport since 2002, while it builds the $600 million replacement airport at a lower elevation; the new airport is scheduled to open in 2010. The financing of the project has been provided primarily via loans from the Overseas Private Investment Corporation, though ADC put in $80 million in equity. HASDC gets a 25% stake in the concession as “carried interest,” representing its sweat equity in the deal. ADC&HAS has also joined forces with Canadian pension fund OMERS, which has about a decade of experience i n global infrastructure investing. OMERS has committed to provide up to $150 million in equity as the venture’s funding partner for various airport privatization projects.
In a long article in the January 2009 issue of Airport Business, Vacar discussed how the opportunity for Houston airport employees to be detailed to work on HASDC projects enriches their career experience. “People do it for the experience. They get an opportunity to get involved and show their stuff. It makes a big difference in what you get out of people. We’ve had some wonderful successes here.” HASDC president Gary Lantner added, “In the U.S., Denver is the last new airport built; before that, DFW in 1973. Quito is maybe the first time in this generation of airport people for them to be actually involved in a complete new start-up airport. If you’re an airport junkie, Quito is a heck of an opportunity.” (HASDC reimburses the city at 1.8 times an employee’s salary for time spent on HASDC business.)
Rick Vacar stepped down, unexpectedly, as CEO of Houston Airport System on May 15th. Airportbusiness.com reported (May 19th) City Hall sources as saying there had been friction between Mayor Bill White and Vacar. Whatever the reasons, I doubt we’ve seen the last of Vacar, and we can expect great things from ADC&HAS, Inc.
Mechanics Who Can’t Read English
That was the headline on a story on the website of WFAA, Channel 8 in Dallas/Ft. Worth. Byron Harris reported on his investigation of some of the 236 FAA-certified aircraft repair stations in Texas. The May 16, 2009 story claims that “hundreds of the mechanics working in those shops do not speak English and are unable to read repair manuals.” Supervisors, who must be FAA-licensed Airframe and Powerplant (A&P) mechanics, must sign off on the work of non-licensed mechanics. English is the internationally accepted language of aviation, and the story raises serious questions about FAA oversight of repair stations. It also quoted insiders as saying inspectors warn repair stations in advance about inspections, and also cited mechanics being given tests in Spanish, at a facility that the FAA eventually shut down.
Correction re Amtrak Subsidy
In last month’s lead story on potential replacement of short-haul airline service with high-speed rail, I misquoted the net federal subsidy figure for Amtrak service. The correct number, from the 2004 US DOT study, is $186 per thousand passenger-miles. The DOT’s Bureau of Transportation Statistics has not updated its federal subsidy numbers, but a new report from the Heritage Foundation has re-done the analysis, using consistent data for all passenger transport modes covering years from 1990 through 2006. The latest available figure for Amtrak (inter-city passenger rail) is $238 per thousand passenger-miles. That compares with $4.23 for commercial airline service. (www.heritage.org/Research/SmartGrowth/bg2283.cfm)
Airport Privatization in Sweden
As in some other countries, until recently Swedish air traffic control and airports were run by a single government agency, LFV. Now that Sweden has commercialized LFV as the country’s air navigation service provider, it is selling off its airports. First to go was Jonkoping Airport, purchased by the city of Jonkoping. The five other regional airports-Angelholm Helsingborg, Karlstad, Omskoldsvik, Skelleftea, and Sundsvall Haomsand-are to be sold by the end of 2009. The six regional airports combined handled 1.3 million passengers in 2008.
House Bill Would Ban Body Scanning
The TSA reauthorization bill passed by the House in early June would restrict the usage of whole-body image equipment as a replacement for walk-though metal detectors. Responding to privacy complaints, the House voted 310-118 to require the TSA to use the devices only for secondary screening. Therefore, passengers with things like ceramic knives and plastic explosives under their clothing would not be detected when passing through screening checkpoints, unless they had been singled out for secondary screening.
Follow-up on MANPADS
An industry official (who requested that I not use his name) responded to my May issue article on MANPADS making several points. One was that many security officials acknowledge that these shoulder-launched missiles are so small that they cannot realistically be prevented from being smuggled into the country. And if one of those missiles is ever used to attack a U.S. airliner, the political response could be chaotic. He suggested that it would be prudent for the government, therefore, to at least equip several hundred airline aircraft that are enrolled in the Civil Reserve Air Fleet (CRAF) program and are used to ferry troops and cargo to overseas locations. That probably is a prudent measure, and at a cost of about $1 million per plane, would be a trivial addition to the defense budget.
“When we began to think of passengers as our customers too, it had a radical impact on our airports in terms of terminal design, investment strategies, our approach to our business partners, colleague engagement, and innovation. It is undoubtedly the key to our future success and that of our partners.”
–Geoff Muirhead, CEO of Manchester Airports Group, quoted in “Terminal Illness,” by Victoria Moores, Airline Business, June 2009.