In this issue:
- TSA’s temporary screening fixes
- Monopoly contractor vs. PreCheck expansion
- Mixed reaction to airport privatization in Canada
- New approach to PFCs in Congress
- TSA’s new focus on perimeter and access security
- A tale of two leases
- News Notes
- Quotable Quotes
The good news is that there was no airport screening fiasco over the Independence Day weekend last month. The bad news is that TSA, airlines, and airports threw together a mix of mostly one-time fixes that are not sustainable over the long term. As aviation consultant David Swierenga told columnist Justin Bachman, “In my view, it’s a problem waiting to recur. I haven’t seen that they’ve done any substantive changes in their procedures or manpower, so I don’t see that the problem is fixed.”
The bundle of one-time, non-sustainable fixes for the summer include the following:
- More overtime during these several months (July 4th through Labor Day);
- About 600 temporary contract workers hired by airlines to assist with non-screening duties at checkpoints;
- A reported 1,000 part-time screeners converted to full-time, with no indication as to how long this status will last; and,
- Some of TSA’s 2,660 Behavior Detection officers assigned some of the time to screening duties (since Congress merely allowed TSA to do this, rather than mandating that they convert them all to full-time screeners).
The only permanent changes, which will continue to reduce congestion and wait times, are the addition of 600 newly hired screeners (most still in training as of early August) and the planned installation of new, somewhat faster checkpoint carry-on luggage equipment at selected hubs of American, Delta, and United, at their own expense. This equipment is being installed at only a few large airports: Atlanta, Chicago O’Hare, DFW, Los Angeles, Miami, and Newark. The only airport where the new lanes are in operation this summer is Atlanta. And, please note, at airports where the major hub carrier operates from its own concourses (e.g., DFW, LAX, MIA), only those checkpoints will be getting the new gear. If you’re flying other airlines and using the other checkpoints, you’ll be stuck with the old, slower lanes.
Among the major often-congested airports not getting the new equipment are Charlotte, Chicago Midway, Denver, Detroit, Minneapolis/St. Paul, New York LaGuardia, New York JFK, Philadelphia, Phoenix, Seattle, Washington Dulles, and Washington Reagan.
TSA has been reporting amazingly short average wait times at major airports. For example, a Denver Post headline July 19th read “Wait to Clear Security at Denver Airport Hovering Around 10 Minutes, TSA Says.” In researching this article, I checked www.ifly.com, which provides detailed wait times for major airports, broken down by time of day and by checkpoint. Out of 24 time blocks at Denver’s centralized checkpoints, only four were in the 0-10 minute category; all the rest were in the 11-20 minute category. Not exactly “hovering around 10 minutes.” I used the same site to compare wait times at SFO (which has privatized screening) and LAX (with TSA screening). Both are major hubs (designated Category X by TSA), and both have checkpoints for each of a number of terminals. Out of all the time blocks at all the terminals, 32% of LAX’s were in the 0-10 minute category, with the rest at 11-20 minutes. At SFO, 46% were in the 0-10 minute group, the balance at 11-20 minutes.
TSA has never provided data comparing screening wait times at the 22 airports with screening provided by TSA-vetted security firms and comparable airports with TSA screeners. This lack of transparency should not be surprising, since TSA is both the aviation security regulator and by far the largest provider of screening. Not only that, there is a standard clause in TSA contracts with screening companies that forbids the companies from disclosing any data about their performance. I’ve long argued that Congress should separate screening from regulation, to remove TSA’s built-in conflict of interest. But in the interest of greater transparency, the least Congress could do would be to mandate full disclosure of screening performance, vetted for transparency by the Government Accountability Office.
Thanks to the diligent investigative reporting of the Daily Beast‘s Barbara Peterson, the whole air travel community now knows that TSA’s monopoly PreCheck sign-up contractor, Morpho Trust, has been preventing the planned major expansion of PreCheck. (“The TSA Company Suing the Feds and Keeping Airport Lines Clogged,” Barbara Peterson, The Daily Beast, July 1, 2016)
As I have recounted several times in recent years, TSA has struggled since 2013 to implement a third-party recruitment and vetting program under which big-data companies would market PreCheck to large numbers of air travelers, potentially partnering with major employers, trade associations, business parks, etc. Some of the companies proposed totally online enrollment, based on the premise that their pre-screening algorithm would reliably select low-risk candidates without the need for fingerprinting. Sources tell me that TSA had approved one or more such algorithms in previous rounds of testing, but the RFPs to solicit actual bids from pre-qualified companies were withdrawn several times in recent years, due to objections from privacy groups. A revised RFP was finally issued last fall, with the expectation that winning firms would be selected early in 2016 and have their large-scale recruitment efforts under way by summer. Among those widely believed to be planning to bid were AAAE, Clear, and Morpho Trust.
Unfortunately, in January Morpho filed a bid protest with the Government Accountability Office, alleging that TSA’s procurement method was illegal. GAO released its finding on May 16th, rejecting Morpho’s claim as unfounded. But the company then filed suit in federal court—which put the whole procurement on indefinite hold. TSA was given until July 22nd to respond to the suit, and a decision is not expected until October—after which Morpho might appeal.
Morpho evidently wants to have things its way, regardless of the impact on airports and air travelers. While the lawsuit drags on, it is expanding PreCheck enrollment centers under its current monopoly contract with TSA—adding temporary “pop-up” sites at places like Penn Station in New York and the Willis Tower in Chicago. If it wins the suit, its monopoly will remain as TSA’s only PreCheck sign-up contractor. If it loses, it still hopes to be selected as one of the new third-party providers. Heads I win; tails you lose.
TSA Administrator Peter Neffenger told a Senate hearing in June that, despite the lawsuit, “We are in the process of reviewing the submissions to the RFP and expect to award in late 2016.” That may actually happen, if Morpho does not appeal or if its appeal is swiftly denied. Under this optimistic scenario, large-scale PreCheck expansion could get under way early next year, in time for next summer’s peak travel season. But for this one company’s actions, many millions more people would already be using faster and more convenient PreCheck lanes this summer.
Canada’s relatively new Liberal government promised a large increase in infrastructure investment. And its March budget made reference to privatization and long-term public-private partnerships as means to that end. Recently it seems to have embraced the Australian concept of “asset recycling,” under which the government leases or sells major assets (airports, seaports, toll roads, etc.) to investors—and uses the proceeds to invest in needed new infrastructure.
Last month Transport Canada revealed that it is now looking into the possibility of privatizing the country’s major airports, which are owned by the federal government but operated by local nonprofit airport authorities that must pay significant annual lease payments to the government—some $5 billion since 1992 and a projected $12 billion more over the next 40 years. That has led at least one airport authority—Airports de Montreal—to do its own research on airport privatization, as I reported in the March issue of this newsletter. ADM sent a detailed report to the government in April 2015, the conclusion of which was that “the time has come to consider the evolution of the Canadian model toward real privatization, based on corporatization.”
So far, however, ADM seems to be the only major airport looking with favor on the federal government’s policy. The CEOs of Vancouver and Ottawa airports are raising all the knee-jerk concerns one might expect. Craig Richmond of Vancouver Airport Authority warned that under privatization, “You would see cutbacks on maintenance, cleaning; you would see them become much more crowded because of pressures on the management to deliver that return [on investment].” Ottawa airport CEO Mark Laroche said the “unintended consequence” of privatization would be higher fees, and “The cost of flying in Canada is high enough; you cannot ask travelers to pay more.” Thus far, officials of the Greater Toronto Airport Authority have refrained from such rhetoric, perhaps because they have a better understanding of how privatized airports in the rest of the world are governed and managed.
As the Montreal airport’s 2015 study makes clear, given the significant market power that most large airports possess, there is nearly always some form of regulatory oversight to protect airlines and passengers from paying monopoly prices. Second, there are several different models of airport privatization from which to choose. The Annex to ADM’s 2015 study outlines three of them, as follows:
- Outright sale via an initial public offering of 100% of the shares in the airport corporation, dubbed the BAA model as implemented in the U.K.;
- Partial privatization, in which the federal government (and possibly lower levels of government) retains partial share ownership and is represented on the governing board (the German and French model); and,
- Long-term lease/concession, in which the federal government retains ownership but leases the assets and liabilities for 50 to 99 years, under terms spelled out in the concession agreement (the Australian model).
All three models include provisions to protect the public interest, and to the extent that these might limit, for example, runway charges, that impact will be taken into account in how much airport companies, infrastructure investment funds, and pension funds will pay for the enterprise. In addition, one of the benefits of privatization to the airports in question will be getting out from under the onerous lease payments they must now make to the federal government.
Moreover, as Ben Dachis of the C. D. Howe Institute in Toronto wrote in the Financial Post (July 12th), privatized airports worldwide generate higher per-passenger revenues from shopping and dining than traditionally managed airports. And freeing the airports from the current obligation to pay ever-higher rents to the government should refocus their managements’ attention on investments to better serve their customers.
Given the knee-jerk opposition from the Ottawa and Vancouver airport managements, perhaps the wisest course for the Canadian government would be to begin by corporatizing the airports and then allowing each to choose the model that its board feels most comfortable with. This would provide something of a natural experiment to see which model produces which results.
A bill introduced in the House in June, HR 5563, would eliminate the federal cap on passenger facility charges (PFCs), eliminate federal entitlement grants for large hub airports, and cut the size of the Airport Improvement Program (AIP) budget by a corresponding $400 million a year. Called the “Restoring Local Control of Airports Act of 2016,” it was introduced by a trio of conservative members: Rep. David Jolly (R, FL), Rep. Thomas Massie (R, KY), and Rep. Gus Bilirakis (R, FL). The sponsorship is significant, in that historically some of the opposition to PFCs has come from conservatives, who incorrectly viewed PFCs as taxes rather than user fees.
Marc Scribner of the Competitive Enterprise Institute (CEI) produced a blog post providing some context for this PFC proposal (cei.org, June 24th). First, Scribner debunks the claim (typically made by airlines) that PFCs are taxes (or even more misleadingly, “federal taxes”). In fact, there is a long legal history on the differences between a tax and a user fee—basically that a tax is imposed on everyone for general government purposes, while a user fee is paid by those who use and benefit from a specific service, and is used only to pay for that service.
Scribner next provides some historical context. The PFC idea was first developed by the U.S. DOT in the latter years of the Reagan presidency. The first report on the subject in my own files was produced when Jim Burnley was Secretary of Transportation. DOT’s chief scientist at the time, Fred Singer, explained the rationale for PFCs in a 1990 Cato Institute publication as not merely devolving funding authority to airports but also freeing them, at least in part, from financial dependence on incumbent carriers, who would often insist on exclusive-use gate leases in exchange for long-term lease and use agreements. A new local source of revenue would enable airports to expand terminals to make room for new entrants. The first PFC legislation was enacted during the George H. W. Bush Administration in 1990, as part of its proposed National Transportation Policy.
In addition to these conservative bona-fides, PFCs also have the support of transportation researchers at institutions like the Brookings Institution. Its Cliff Winston, along with Northeastern University economist Steve Morrison, estimated that limited airport gate availability suppresses airline competition, costing air travelers about $4.4 billion per year in higher air fares (2005 dollars).
Unfortunately, HR 5563 was not included in the FAA reauthorization bill enacted by Congress last month. It had the support of AAAE, ACI-North America, and the U.S. Travel Association. But since the reauthorization only goes until autumn of next year, there will be plenty of time for it to be introduced and debated in the new Congress.
Security breaches other than in the terminal continue to increase, according to both a new report from the Associated Press and an audit by the Government Accountability Office.
AP released an update of its 2015 report on breaches of large-airport perimeters. The report, based on a survey of airport officials, identified 39 such breaches in 2015, up from 34 in 2013 but the same as the 39 reported in 2014. The top four airports over the period from 2004 through 2015 were San Francisco (41), Las Vegas (30), Philadelphia (30), and Los Angeles (26). AP’s tally for the entire period was 345 breaches, occurring at 31 airports that handle 75% of all U.S. passenger travel.
What AP found disturbing about its findings was not just the number, or the continuation of these occurrences year after year. It was also that some airports have not been disclosing perimeter breaches, and others argue that because the vast majority of the 345 were by amateurs, drunks, or misguided people—not terrorists—they should not be taken seriously as security breaches. But if people can jump an airport fence or walk through an open gate without being stopped—and sometimes get all the way to parked aircraft before being noticed—than that airport has a security problem.
Shortly after the AP report came out, GAO released the unclassified version of its audit of airport perimeter security and access control (GAO-16-632). Their auditors found that the combined total of perimeter and access breaches at all commercial airports had increased from 2,700 in 2013 to 2,900 in 2015. TSA keeps tabs on airport vulnerabilities in these areas primarily by conducting Joint Vulnerability Assessments (JVAs)—an activity performed by an FBI/TSA team. Between 2009 and 2015, JVAs were carried out at 81 airports, mostly the largest ones (Categories X and I). Extending this process to numerous smaller airports, TSA told GAO, was beyond its budgetary resources, but the agency agreed with GAO’s recommendation that it develop a self-assessment tool for smaller airports to use, instead of a JVA.
GAO also faulted TSA for not having updated its comprehensive 2013 Risk Assessment of airport perimeter and access security to take into account changes since then, and TSA agreed to do so.
Atlanta and Charlotte—both large fortress hub airports, with Delta and American, respectively, as their anchor tenants—recently signed new long-term airline lease agreements. Both continue the ongoing trend of such leases being considerably shorter than the pre-deregulation standard of 30 years. But aside from that, the two are quite different.
In Atlanta, Delta continued to throw its weight around, treating the airport as its own. In exchange for agreeing to another 20 years and committing to pay for half of a $6 billion expansion program, Delta got the city government to write into the lease that the city of Atlanta “does not currently plan to and will not own or operate any other airports of any type, as a part of any City airport system.” That pledge bolsters Delta’s several-year battle to prevent first Gwinnett County and now Paulding County from building a passenger terminal at each one’s small airport in hopes of attracting low-cost airlines. As for the $6 billion expansion of ATL, in addition to a new runway (which will help all airport users) the program includes a $900 million international concourse (likely used mostly by DL and its code-share partners) and some additional passenger gates. Whether those gates are exclusive-use to DL has not been disclosed.
By contrast, the new lease at Charlotte Douglas is for a mere 10 years, compared with the expiring 30-year lease. It continues sharing with airline tenants 40% of the profits from concessions and parking, in proportion to their enplanements. And it includes $500 million worth of new projects, including new gates. And those new gates will not be for American’s exclusive use. In fact, the new lease no longer includes a traditional “majority-in-interest” clause, under which incumbent airlines can veto any project that adds terminal and gate space for new entrants. This is good for Charlotte residents who may benefit from new competition by low-cost carriers. Agreeing to it was a statesman-like decision by American.
2016 Annual Privatization Report Online. The Air Transportation chapter of Reason Foundation’s Annual Privatization Report 2016 was posted this week. As in previous years, your editor is the author of this document, which covers airport privatization, air traffic control, and U.S. airport security. Go to http://reason.org/news/show/apr-2016-air-transportation.
LaGuardia Terminal Bonds 10 Times Oversubscribed. Revenue bonds for the $2.6 billion public-private partnership to replace the Central Terminal at LGA experienced demand 10 times as great as the amount of bonds on offer. The long-term concession deal is led by Meridiam, Skanska, and Vantage Airports. It is part of an overall $4 billion revamp that includes new parking structures and roadway changes, with those portions funded by the airport operator, the Port Authority of New York and New Jersey.
PreCheck Provides Increased Security at Lower Cost. A new study by aviation security researchers Mark Stewart and John Mueller finds that in addition to saving passengers time and saving TSA money, the risk-based PreCheck program likely provides a slight additional benefit in risk reduction. The detailed analysis is based on defensible assumptions and careful calculations. (“Risk-Based Passenger Screening: Risk and Economic Assessment of TSA PreCheck—Increased Security at Reduced Cost?” Mark G. Stewart and John Mueller, University of Newcastle, Report No. 283.06.2016, June 2016)
Ontario Airport Transfer Law Approved by Congress. Congress last month approved legislation granting federal approval to the negotiated deal that will transfer Ontario Airport from Los Angeles World Airports to the recently created Ontario International Airport Authority. The new entity will reimburse LAWA via payments of $120 million (from passenger facility charges) over the next decade, while OIAA will assume all current airport debt. LAWA invested nearly $500 million in ONT during the several decades it owned the airport.
GAO Calls for Risk-Based Air Marshal Policies. Based on an 18-month audit of the Federal Air Marshals Service (FAMS), the Government Accountability Office found that FAMS only gives lip service to risk-based decision-making. In its report (GAO-16-582), the auditors proposed ways in which FAMS could incorporate risk into its allocation of marshals between domestic and international flights, in its decisions about geographical focus areas, and in documenting the rationale for its international route deployments. The classified version of this report was released to relevant parties back in February; the sanitized version was released in June.
London City Expansion Approved. The U.K. government on July 27th approved London City Airport’s planned $450 million expansion plans. This will include expanding the terminal, adding a new taxiway, and providing additional aircraft parking room, which the airport company hopes will lead to increasing flights from 70,000 to a permitted 111,000 per year. The airport is now owned largely by Ontario Teachers’ Pension Plan and Borealis Infrastructure, both Canadian public pension funds.
Greek Airport Workers Call Off Strike. A planned five-day strike to protest further airport privatization in Greece late in June was averted at the last minute. After intervention by the Transport Minister, who offered further study of plans to privatize 23 more airports, union OSYPA agreed to call off the strike. Greek unions have a long history of opposing privatization of airports, seaports, and other infrastructure, much of which has been mandated by European bodies as conditions in exchange for bailouts of the Greek government. A previously agreed concession agreement under which Fraport is taking over 14 regional airports is proceeding as planned.
Reagan National Airport to Get $1 Billion Upgrade. To relieve significant overcrowding and improve the passenger experience, the Metropolitan Washington Airport Authority has launched a $1 billion renovation of DCA. It will include adding a new concourse for short-haul/regional flights, relocating security checkpoints to a lower level, and bringing the existing screening/lobby area and its shops and restaurants into the post-security zone. DCA currently handles over 23 million passengers a year, compared with design capacity of 15-16 million.
Belfast Outsources Control Tower Services. Belfast City Airport, in Northern Ireland, has shifted from self-provision of tower services to contract provision. The winning bidder in a three-way competition was NATS, the U.K. air navigation service provider, which already operated the towers at 13 other U.K. airports. Competing bids came from Air Navigation Services and from LFV, the Swedish air navigation service provider. Control towers in the U.K. are an airport responsibility, and they may either self-provide or contract with a certified provider. All existing tower employees at Belfast will join NATS and continue working at the tower.
Companies Bid for Paraguay Airport. Three teams submitted bids for the estimated $149 million upgrade of the airport in Asuncion, Paraguay’s capital city. The teams were led by Vinci, Sacyr, and CEDICOR, respectively. The winning team will acquire a 30-year concession for the airport, and will be responsible for investing in terminal and runway improvements.
Albany Security Proposal Raises Civil Liberties Concerns. Albany County, New York officials stirred up considerable opposition when they proposed to make refusing security screening at Albany Airport a misdemeanor. The proposal was submitted as a bill to the state legislature, but has come under fire from the New York Civil Liberties Union and Muslim groups. The proposed law was intended to apply to those flagged for additional screening who decide to not make the plane trip after all. But the way it is written, it could also apply to anyone who leaves the line even before reaching the metal detector.
Brazil May Sell the Rest of Rio and Sao Paulo Airports. The financially strapped Brazilian government, which partially privatized its major airports several years ago, is taking a fresh look at selling the government’s remaining shareholdings in Santos Dumont Airport in Rio and Congonhas Airport in Sao Paulo. The change is part of the reform agenda of interim President Michel Temer. The government plans a number of asset divestitures as part of its overall debt- and deficit-reduction efforts.
India to Allow Full Foreign Ownership. As part of a broad economic liberalization, the Indian government announced in June that it will permit investors, regardless of nationality, to own 100% of major airports. Last fall this provision was initially approved for brand-new (“greenfield”) airports, but the decision in June extends the policy to existing airports, most of which are in need of serious investment for expansion and modernization.
Delta Refinery Operating at a Loss. For the first half of 2016, Delta Airlines’ much-touted oil refinery in Trainer, PA achieved a $38 million operating loss. The airline purchased the refinery in 2012, on the premise that doing so would guarantee it access to fuel at lower cost. Most economists would have advised against such a deal, on grounds that the price of jet fuel is set in global markets, and Delta would be foregoing revenue if it sold itself oil that it could have sold to others at market value.
Winners Announced for French Airports. The second round of bidding for the French national government’s 60% stake in the Lyon and Nice airports yielded bids from 11 teams by the July 4 deadline. Winning the competition for Nice Cote d’Azur was the team led by Atlantia and EDF Invest, bidding $1.35 billion. And the winner of Lyon-Saint-Expury was the consortium of Vinci/Caisse des Depots/Predica, bidding $593 million.
Newark Slots Yield Winners and Losers. Thanks to the FAA reclassifying Newark (EWR) as a less-congested Level 2 airport (previously Level 3), its former limit of 81 landing/take-off slots per hour will be lifted this fall. And thanks to the Justice Department denying permission for dominant EWR carrier United to acquire 24 more slots there from Delta, the “value” of United’s hoarded slots has fallen. It announced on July12th that it will write off $264 million due to the slot changes. Meanwhile, airlines whose presence at EWR was highly restricted, have begun discussing added service there, including JetBlue, Southwest, and Virgin America. And ultra-low-cost carrier Allegiant recently announced plans to launch service from EWR this fall.
“The agency [TSA] has resolved nothing It just threw an unsustainable amount of human labor at the problem. The demand for security checkpoint services is still up an arguable 7 percent over 2013, just as it was in May. And TSA’s budget is still 10 percent smaller, just as it was six weeks ago.”
—Dan Reed, “Fooled Again! TSA Used Tricks to Cut Holiday Wait Times but Still Hasn’t Rightly Defined the Problem,” Forbes.com, July 7, 2016
“Our adversaries have more or less given up on the notion of grandeur. When before they seemed focused on spectacular attacks on iconic infrastructure, terrorists today seem content to assault everyday locations—cafes in Paris, parties in San Bernardino, and clubs in Orlando. The breakdown in assumptions means that virtually none of our [security] doctrine fits any longer. Pushing the borders out is useless when borders don’t matter. Focusing on preventing significant and high-consequence events is wrong if the targets now are the stuff of common, daily life. And if everything is a potential target, we can’t afford layers of defense. Give our resources, we can barely afford a single layer of questionable effectiveness (like the bouncer at the club or the security guard at the mall).”
—Paul Rosenzweig, “Rethinking the Doctrine of Homeland Security—Reflections on Orlando,” Lawfare, June 29, 2016
“Take the long security screening lines that have become the bane of air travelers everywhere. An ambitious terrorist could easily detonate a bomb in the crowd, killing hundreds and scaring Americans away from air travel—possibly for good. Moving the lines further out of the airport simply recreates the problem elsewhere. And as security measures become more stringent, our freedom to travel is encumbered, though we aren’t any safer than before.”
—Gary Leff, “A Choice Too Far?” Doublethink, Winter 2002 (http://americasfuture.org/a-choice-too-far)
“Only a handful of airports participate [in the Screening Partnership Program], as TSA chooses the security company and micromanages the contract. That isn’t a partnership. Congress could stipulate that an airport manage its own bidding and operations; the government would remain as a safety regulator. Executives at Hartsfield-Jackson in Atlanta and elsewhere have floated dropping TSA, but without Congress that’s about as useful as hiring circus entertainers to distract the disgruntled, as San Diego International tried recently.”
—”The TSA’s Summer of Lines,” editorial, The Wall Street Journal, May 28, 2016