In this issue:
- Could PFCs replace federal airport grants?
- Two cheers for TSA’s PreCheck
- Why the rise in runway incursions?
- Cargo screening-security theater vs. risk-based approach
- Can privatization fix Brazil’s airports?
- News Notes
- Quotable Quotes
Could PFCs Replace AIP Grants?
Last month I reported that the Airports Council International-North America had urged the deficit-reduction Super Committee to remove the current federal cap on local airport Passenger Facility Charges (PFCs), and that 10 major airports had subsequently told the Super Committee they would be willing to give up AIP entitlement grants in exchange. That group has expanded to 12 major airport operators, responsible for 19 commercial airports including 16 large hub airports. This expanded group sent a new letter to the Super Committee on October 27th, saying they would all agree to give up passenger and cargo AIP entitlement funds in exchange for just an increase in the cap from the current $4.50 to at least $7.50 per enplanement. They estimated the net federal budgetary savings from this change at $1.3 billion over the next 10 years.
While that’s a large total, the annual savings of $130 million/year are not much of a contribution to deficit reduction. In an accompanying position paper, the 12 airport groups estimate that if all large and medium hub airports-as opposed to just the 16 large hubs they themselves operate-made the same agreement, the 10-year AIP savings would be $3.4 billion. And both numbers are net savings, taking into account the current requirement that airports with a $4.50 PFC already give up 75% of their passenger entitlements (and those at $3.00 give up 50%). But the savings could be even larger. If all 65 large and medium hub airports gave up all AIP funds (including discretionary grants), the 10-year savings would be around $11 billion, averaging $1.1 billion per year. Now we’re talking about meaningful deficit-reduction, given that the federal general fund now contributes $5 billion a year to the FAA budget.
But even that pales in comparison with the bolder approach suggested by the U.S. DOT during the Reagan administration. In those days, PFCs had been outlawed by Congress. But in the 1982 FAA reauthorization bill, Congress directed DOT to study the extent to which potentially self-supporting airports could be removed from getting federal airport grants. The resulting report, “The Effects of Airport Defederalization, Final Report,” (DOT-P-36-87-4) was released in February 1987. DOT’s survey of airport managers found that defederalization had fairly strong support: 55% of large hubs, 69% of medium hubs, 56% of small hubs, and 31% of non-hubs. Analysis of the financial statements of 40 selected airports were used to estimate the amount of annual budgets that would need to be replaced by new funding sources for each of the four airport size categories. Those results were converted into hypothetical per-passenger fee amounts, as follows (based on 1985 AIP amounts):
- Large hubs $0.98 per enplanement
- Medium hubs $2.15 ” “
- Small hubs $4.94 ” “
- Non-hubs $8.33 ” “
It would take some work to do a comparable analysis using today’s AIP numbers and currently projected airport capital investment needs. But what was true in the mid-1980s is likely still the case today. AIP for air carrier airports could be replaced with increased PFCs, with the increases inversely proportional to airport size. In FY 2006, those four categories accounted for 65.3% of the AIP total of $3.5 billion. Thus, the one-year savings that year from defederalizing those four airport categories would have been $2.3 billion.
The 1987 DOT report also states the following about the bond market:
“Airports do not now face, nor do they appear to face in the future, difficulty in borrowing from the private capital market to finance improvements. Voluntary or mandatory defederalization would have no perceptible effect on this situation.” Today, after several decades of experience with PFCs, that statement is even more certain than it was 25 years ago.
Two Cheers for TSA’s PreCheck Pilot Program
The TSA has rolled out the test phase of its PreCheck trusted traveler program at American’s hubs at Miami and Dallas/Ft. Worth and Delta’s hubs at Atlanta and Detroit. As an AA Platinum member flying mostly out of MIA, I volunteered and got selected. So far, I’ve used the program twice-and both times I did not have to remove shoes, belt, or jacket, nor did I have to take anything out of my bag (neither laptop nor liquids). A news story last week said that 280,000 frequent flyers like me are now taking part-and the reaction of those going through the special PreCheck lane the times I’ve done this were the same as mine: “This is great!”
Except for one thing. The way PreCheck is currently set up, participants must still wait in the same long lines to get to the TSA document checker, which is the point at which the participant is either directed to the special screening lane or to the regular lanes. That puts the lie to the Aviation Daily headline of Oct. 5, 2011, “TSA Rolls Out Pre-Screening Program to Reduce Wait Times.” Well, OK, it eliminates the few extra minutes that it takes to partially disrobe and unpack, and eliminates the longer dwell time for a body-scan versus the metal detector in the PreCheck lane. But it does nothing to reduce the need to get to the airport just as much ahead of time as before, due to the unpredictable line lengths and hence unpredictable waiting time. That was gist of the spontaneous comments of several of my fellow participants earlier this week.
There is obviously a security need to build in an element of randomness in any trusted traveler program. But that does not require making participants wait in the same long lines as everybody else. Instead, some small fraction of those showing up for the special lane could be singled out, with apologies, and required to go through the regular lane (but still without having to have waited in the long regular line).
The other security flaws in the pilot program are two. First, there is no real background check, only a flight history check. Second, there is no biometric ID card to prove that the person who shows up at the checkpoint is actually the person who was admitted to the program. And that is simply bizarre, since all the other trusted traveler programs operated by TSA’s sister agency-Customs & Border Protection-do include both of those features. Those programs are Global Entry (for frequent international air travelers), NEXUS (for U.S.-Canada frequent border-crossers), SENTRI (for frequent U.S.-Mexico land border crossers), and FAST (for importers, carriers, and commercial drivers). All four programs require both a criminal history background check and a biometric ID card. (Lee J. Nelson, “Threat Assessment,” Thinking Highways, Vol. 6, No. 3, September 2011) The same is true of TSA’s requirement for airport workers who have access to secure areas of the airport. Why should PreCheck be any different?
TSA Administrator John Pistole told members of the Senate Homeland Security & Government Affairs Committee on Nov. 2nd that PreCheck is proving to be popular and is likely to be expanded. That’s good news, but in crafting the successor program, I hope TSA will fix the pilot program’s three flaws by adding a separate line for participants, a real background check, and a biometric ID card. I’d be willing to pay an annual membership fee for that kind of program, and there is good evidence that large numbers of other frequent flyers would do likewise.
Why the Rise in Runway Incursions?
The Government Accountability Office released a report on aviation safety last month that provides much food for thought (GAO-12-24, October 2011, online at www.gao.gov). It focuses on rising trends in both operational errors by controllers and runway incursions. Since this newsletter is about airports, my focus here is on the runway incursion portion of GAO’s assessment.
Runway incursions peaked in 2001, declined through 2004, and then began rising again. By 2007, the FAA began placing new emphasis on decreasing runway incursions, beefing up its Office of Runway Safety within the Air Traffic Organization (ATO), working hard to complete the installation of the advanced-technology ASDE-X airport surface surveillance system at 35 major airports, creating a Runway Safety Council (including both FAA and industry participants), releasing a 2009 National Plan for Runway Safety, etc. Yet as GAO’s analysis makes clear, the rate of runway incursions has continued to increase, and is now nearly as high as the peak in 2001. So GAO set out to determine why this perverse outcome has occurred.
For one thing, GAO determined that the FAA has no formal program to track or oversee safety and incidents in the airport ramp area; nor has it had (until very recently) any tracking or program of runway excursions (i.e., planes going off the runway). While it’s not clear if some incidents of those two sorts have been included in the “runway incursions” data, GAO emphasized that they should definitely be part of FAA’s safety regulatory oversight responsibilities.
GAO’s analysis also includes a positive finding: while the rate of total runway incursions is still trending upwards, the two most serious categories (A and B) are continuing a steady decline since 2001. There were 53 serious incursions at towered airports in 2001 compared with only six in 2010. That is notable progress. GAO also reports that for runway incursions as a whole, pilot deviations account for 65%, pedestrian and ground vehicle deviations 19%, and controller errors only 16%.
As for the mystery of why overall incursions keep increasing even though ASDE-X deployment is now complete, GAO walks the reader through its extensive statistical modeling exercise, using data from 2001 through 2011 for a very large sample of airports, including all 59 that it initially considered busy enough for ASDE-X, which provides a pretty good comparison group of 35 equipped and 24 non-equipped large, busy airports. That modeling clearly shows an increase in reported incursions after installation of ASDE-X. The analysts’ preliminary conclusion, which strikes me as plausible, is that what the incursion data are picking up is much better recording and reporting of such incidents once ASDE-X is operational. It’s also worth noting that in this data set, 97% of all the incursions were of the less-serious (C and D) variety.
When it comes to recommendations, the GAO report emphasizes including ramp areas and runway excursions in FAA runway safety oversight. It also raises the question of whether the Office of Runway Safety is in the right organizational place within FAA. In a 2009 report (AV-2009-045), the DOT Office of Inspector General concluded that this essentially regulatory office does not belong in the ATO (which is, after all, the operator of the ATC system). Rather, it should be part of the FAA’s regular safety regulatory branch, perhaps even reporting directly to the Deputy Administrator. The FAA declined to make this change, and the OIG unfortunately considers this recommendation “closed.” GAO raises this point again, but only as a suggestion.
Cargo Screening: Security Theater vs. a Risk-Based Approach
In October 2010, an air-cargo printer bomb scare originating in Yemen was uncovered by intelligence work before any damage could occur. But that incident ramped up congressional pressure on the TSA to implement “100% screening” of cargo carried on passenger flights. TSA says it met the deadline for domestic flights in August 2010, thanks largely to creating a program by which off-airport firms could be certified as cargo screeners, responsible for delivering screened cargo to airlines at originating airports. The deadline for cargo coming into the United States on international flights was set for August 2012, given the complexities of dealing with hundreds of overseas airports and TSA’s lack of regulatory jurisdiction overseas. However, TSA underestimated these difficulties and set a goal of Dec. 31, 2011.
Consequently, when TSA came to its senses last month and rescinded that date, various members of Congress expressed outrage. “With the marking of the one-year anniversary of an air cargo terrorist plot launched by an al Qaeda terrorist affiliate in Yemen,” exclaimed Rep. Bennie Thompson (D, MS), “TSA should be working steadfastly and aggressively to get international agreements in place to ensure that all cargo loaded on planes bound for the U.S. is screened-as required under law.” But that is exactly what TSA, along with sister agency CBP, has been doing for the past year.
What TSA is trying to bring about is “trusted shipper” arrangements in other countries comparable to what is now working domestically as the Certified Cargo Screening Program. CCSP has approved 508 shippers and 564 freight forwarder firms to screen domestic air cargo. TSA and CPB have cooperated on a pilot program called Air Cargo Advanced Screening, under which the four major express carriers-Fedex, UPS, DHL, and TNT-provide reams of data on their cargo before it is loaded on planes. They have been providing such data since January 2011, focusing primarily on cargo originating in the Middle East and Africa. (Those four carriers account for 75% of incoming air cargo volume.) Another effort, aimed at lower-risk countries thus far, is modeled after the domestic CCSP. Called the National Cargo Security Program, it is aimed at certifying other countries’ cargo screening programs as being the functional equivalent of CCSP. Aviation Week reported in September that four (unnamed) countries have thus far agreed to the NCSP protocols. According to an article in Air Cargo World, one of them is France. Another could well be Canada, which has a Trusted Trader program that is well-respected in the air cargo industry
This kind of approach-getting more information about shipments from high-risk countries and certifying equivalent air-cargo regimes in low-risk countries-is the kind of risk-based approach that makes sense. It is what both CPB and TSA appear to be doing. “Demanding” that those agencies behave as if they had the power to regulate aviation security in other countries will not produce meaningful improvements in security. Instead, it will only produce more security theater.
Can Privatization Fix Brazil’s Airports in Time?
Brazil will host the World Cup soccer tournament in 2014 and the Summer Olympics in 2016. Yet its airports are widely acknowledged to be outdated and lacking sufficient capacity even for the traffic they already have, let alone hugely increased tourist numbers for those two major events. So last year the government announced that rather than depending solely on state airports agency Infraero (formerly run by the military) to upgrade them all, it would seek concessions contracts from private-sector companies to expand and modernize six of them.
Investors grew increasingly frustrated as very little happened during the first half of 2011. But in June, the newly formed Civil Aviation Authority (ANAC) finally launched the program, calling for proposals to develop a new airport in Natal, in the state of Rio Grande do Norte, a project estimated to cost $575 million. In a rapid process, ANAC announced that bids would be due July 12th, with selection based on the size of the up-front concession fee offered. The winning team, selected in August over three others, offered $106 million as an up-front fee, well above the $33 million minimum set by ANAC. The winning Infra-America consortium is a 50/50 joint venture of Brazilian engineering firm Engevix and an Argentine conglomerate, Corporacion America (which operates airports in Argentina and other countries). It must build the new airport within three years and can operate it for 25 years, with a possible five-year extension.
The Natal airport was something of a test case, procured without much in the way of previous studies or well-developed concession rules. In September, ANAC laid out the rules under which the larger projects will be carried out. These will upgrade the two major airports in Sao Paulo, and the principal airport in each of Brasilia, Belo Horizonte, and Rio de Janeiro. Potential investors were dismayed to learn that they would gain only a 51% stake in each airport, with Infraero retaining not only the other 49% but also a veto right over “strategic and relevant issues.” A tender for the Brasilia and Sao Paulo airports is expected in December. Another announcement, in early October, explained that no bidder could gain more than one of the three airports, and that the auction will not take place until May 2012.
This all strikes me as a poorly thought-out approach. According to a Reuters article, “Infraero is widely seen as inefficient, and investors have said they are wary of signing a concession contract with the agency, which was long run by the military.” And that vaguely defined veto power for Infraero creates huge, unquantifiable risk for investors. Finally, the very tight time frame for major make-overs of very large airports does not bode well for smoothly run projects that finish on time. If these projects end up as fiascos, the blame will not be on “privatization” but on a government that failed to do its homework properly.
News Notes
Saudi Arabia Airport Privatization
Saudi Arabia’s General Authority of Civil Aviation has signed a 25-year build-operate-transfer concession agreement for a new terminal at the Medina airport. A consortium headed by the Turkish company TAV Aviation Holding was the winning bidder for the $1.5 billion project. The new terminal will double the airport’s capacity to 8 million passengers per year.
Correction to Article on Airport Funding
In last month’s lead article on airport funding, I cited two estimates of airport capital needs, one from the FAA and the other from Airports Council International-North America, but did not explain the difference between them. The $52 billion figure comes from the FAA’s NIPIAS study, which includes only investments eligible for federal funding from the Airport Improvement Program. By contrast, the ACI-NA estimate of $80 billion comes from that organization’s Capital Needs Survey, which covers all capital needs, whether AIP-eligible or not. Thanks to ACI-NA for pointing this out.
Control Tower Ad: Down but Not Out
The news media made a big to-do out of the Medford, Oregon airport director’s proposal to sell add space on its control tower to an aviation-related business. The city’s planning commission vetoed the proposal in mid-October. But airport director Bern Case says he plans to take the idea to the city council anyway. If approved, the revenue would be the self-supporting airport’s largest source of advertising revenue. And since the airport owns the contract tower, the move apparently does not require FAA approval.
More On-Airport Hotels
Airports located on airport property, either in or directly linked to the terminal(s), used to be rare (e.g., ORD, DFW, MCO, TPA). But there is now a global trend in this direction. On the budget end, there is no-frills Yotel, with 75 sq. ft. rooms at Heathrow, Gatwick, and Schiphol airports, priced as little as $45 for four hours to $90 overnight. At the other end of the spectrum, Hilton last year opened a luxury hotel inside Terminal 3 at Beijing Capital Airport and will soon open others at JFK and Frankfurt. Sheraton did likewise this year inside Milan Malpensa, and plans additional ones in the Detroit and Pittsburgh airports, plus Azerbaijan and Moscow.
South Korea to Offer Discount-Priced Airport Shares
In a new wrinkle in airport privatization, as part of an initial public offering (IPO) of 51% of Incheon Airport, the South Korean government plans to set aside 15% of those shares to be offered at a discount to “low-income earners” in the country. The IPO is expected to raise about $1 billion. The plan is reminiscent of some of former U.K. Prime Minister Margaret Thatcher’s privatizations of state-owned enterprises, which featured marketing efforts targeted at individual investors.
Good Reading on “Resilience” in Homeland Security
Stephen Flynn and Sean Burke authored a thoughtful article, “Brittle Infrastructure, Community Resilience, and National Security” in the July-August 2011 issue of the Transportation Research Board’s TR News. It makes a strong case for devoting a larger portion of transportation security attention and funding to resilience as opposed to prevention-since terrorism events are very rare and being prepared to recover from them is quite cost-effective. A sidebar in the article describes a new TRB report, “Security 101: A Physical Security Primer for Transportation Agencies.” It was produced by the National Cooperative Highway Research Program as NCHRP Report 525.
Congratulations to Editor John Infanger
At its 20th Annual Conference last month in San Diego, ACI-NA presented an award for 25 years of outstanding airport and aviation journalism to John Infanger, editorial director of Airport Business magazine. As a regular reader of this excellent magazine, I’m pleased to add my congratulations.
Airport Lounges for Non-Members
In his Wall Street Journal “The Middle Seat” column several months ago (July 14, 2011), Scott McCartney profiled the small but growing business of airport clubs open to anyone on payment of a fee. Airport Terminal Management, for one, operates several such “lounges for the little guy” at LAX. In some cases, independent lounges are moving into spaces formerly operated by airline clubs, such as the Airspace lounge at BWI Airport in Baltimore. Besides that location, McCartney cites independent lounges at airports in Dallas/Ft. Worth, Green Bay, Miami, New York, Manchester (NH), and Savannah. One is operated by the airport itself: “The Club at RDU,” opened in May at Raleigh-Durham.
Quotable Quotes
“International air transport is a global industry living in a bilateral or regional straitjacket. Tourism, trade, and aviation are the same game, but aviation is played under different, highly restrictive rules. The Economist newspaper, amongst others, recently ran an advertisement for a motor vehicle which read: ‘Designed in America. Built in America. And driven in America.’ That vehicle is a Honda. This is an illustration of just how much international air transport is out of kilter with other sectors in the global economy as regards ownership and control. There is a crying need for impetus towards breakthrough from a regulatory framework which stems back to 1946, before even the beginning of the commercial jet age.”
–Chris Lyle, “Breaking the Surly Bonds of Economic Regulation,” August 2011 (http://macilree.blogspot.com/2011/09/breaking-surly-bonds-of-economic.html)
“What public dialogue there is [about aviation security] tends to deal first with ancillary matters, such as the ‘hassle factor’ for passengers. Largely missing is discussion of how much security is enough and how it can be obtained with the least inconvenience and lowest cost-not to mention acknowledgement that achieving a risk-free aviation security system is impossible. Not only would striving for that goal be cost-prohibitive; such a system would probably be so slow as to make much of passenger air travel and cargo shipping impractical.”
–Editorial, “Straight Talk on Aviation Security,” Aviation Week, Sept. 12, 2011
“The [Federal Flight Deck Officer-a.k.a. armed pilots] program is one of the most successful yet seldom acknowledged components of post-9/11 national aviation security strategy. Volunteer FFDOs provide more than four times the flight coverage of the Federal Air Marshal Service at 4% of the cost. For the outlay entailed in placing two air marshals on a single flight, 440 commercial flights can be protected by FFDOs. However, the program is hampered by a $22 million annual budget-granted in 2002 but not increased since then. In the intervening years, the demand for additional FFDOs and training has increased exponentially. Proper funding is needed to achieve an even greater level of flight security.”
–Marcus Flagg, President, FFDO Association, Aviation Week, Oct. 10, 2011.