Airport Policy and Security News #87

Airport Policy News

Airport Policy and Security News #87

Chicago privatizing Midway, TSA failing at risk-based policies, Saving airports from federal budget cutbacks, TSA unions reverse Sacramento outsourcing, Airport privatization news from Europe

In this issue:

Chicago Midway Privatization Process Under Way

After receiving approval to proceed from the Federal Aviation Administration, the City of Chicago last month posted online its Request for Qualifications for a long-term lease of Midway Airport under the federal Airport Privatization Pilot Program. Interested bidders, submitting their qualifications in accordance with the RFQ’s requirements, have until Feb 22nd to respond. In this typical process for a long-term public-private partnership, the City will likely select a short-list of the most qualified teams, and the subsequent Request for Proposals will be sent only to those on the short list. This process saves the City time and effort, since it will only have to review proposals from the best-qualified teams. It also is in the bidders’ interest, since preparing proposals is costly and only makes sense for teams with a decent probability of winning.

Compared with the previous Midway procurement under former Mayor Richard Daley, this proposed lease would be “fewer than 40 years” (which is the term of the lease for San Juan International). Instead of the lease payments being made in a single lump sum, up front, the City will expect an initial payment plus a share of each year’s airport revenue. The winning bidder must also agree to abide by a Travelers’ Bill of Rights drafted by the City. And to enhance transparency, Mayor Rahm Emanuel has created a Midway Advisory Panel, made up of members of the City Council plus business, labor, and civic leaders. The Panel will select a financial advisor to review all aspects of the process and the resulting deal structure.

Sen. Dick Durbin (D, IL) has injected himself into the Midway privatization process. On Jan. 29th, he sent a letter to DOT Secretary Ray LaHood, seeking to condition federal approval of the transaction on the return to the federal government of $378 million in federal airport grant funds that have been provided to Midway since 1982. In the letter, Durbin asserted the following: “The federal government has borrowed heavily to make investments in Midway and other airports across the country.” That claim is flat wrong. The federal grants were made by the Airport Improvement Program. AIP’s grant money comes exclusively from the Aviation Trust Fund, whose only sources of funding are aviation user taxes paid by passengers, airlines, and other users of airports and airways. Durbin might have a case if general fund money had been used for AIP, since the federal budget has been in deficit nearly every year since 1982 and has therefore had to borrow trillions of dollars. But not one penny of AIP funds comes from the general fund.

Durbin’s letter implies that the Secretary of Transportation has the power to require repayment of previous federal grants as a condition of FAA approval of the airport’s lease. Wrong again. The Airport Privatization Pilot Program is a law, duly enacted by the Congress in 1996. Its purpose is to exempt a limited number of airport privatization transactions from a number of federal restrictions that would ordinarily apply, such as the repayment of previous federal grants and a prohibition on taking any airport revenue into a citys budget. Sen. Durbin presumably knows this, because in 2011 he tried to enact anti-privatization legislation that would impose several burdens on such transactions, including a requirement to repay previous federal grants-but that legislation went nowhere.

Does anyone else find it strange that a Democratic Senator from Illinois is trying to impose a burden on a plan being pursued by the Democratic Mayor of that state’s largest city?

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TSA Still Failing at Risk-Based Policies

Last fall TSA began testing a new approach called “managed inclusion” at several airports. It combines two flawed programs-behavior detection and canine explosive teams-to randomly select passengers prior to normal security screening. If the dogs fail to “alert” due to detecting explosives on the passenger, he or she is allowed to use the PreCheck lane, despite not being enrolled in the program.

This new initiative appears designed to accomplish three objectives, none of which can be shown to increase airport security. One, readily admitted by TSA, is to fill empty spaces in the PreCheck lanes, since that program is still far too restrictive in who is allowed to apply. Second is to find new things to do for its ever-expanding behavior detection officer program, despite the total absence of scientific justification. And third is to continue expanding its canine program, which a new GAO report faults for not keeping track of effectiveness, not assigning canine teams based on risk levels, and failure even to comply with monthly training requirements. (GAO-13-239, January 31, 2013)

TSA continues to give lip service to risk-based policy, but there is little or no evidence that it decides what programs to use and where to deploy its resources based on serious risk analysis or benefit/cost analysis. Take, for example, the policy objective of preventing another 9/11-type takeover of the cockpit of a passenger airliner. A detailed analysis of alternatives by Mark Stewart and John Mueller that I reported on in the January 2012 issue of this newsletter found that the Federal Air Marshal (FAM) program has an enormous cost for very little security benefit. By contrast, the Federal Flight Deck Officer (FFDO) program, under which cockpit crew are trained to use and carry firearms, costs a small fraction of what FAM costs but protects a far larger fraction of the fleet. Also highly cost-effective would be the installation of secondary barriers to protect the cockpit areas when the door must be opened in flight (e.g., so crew can use the lavatory). To be sure, Congress decides the relative appropriations for FAM and FFDO, but surely TSA could affect that allocation by urging Congress to rethink it, based on solid analysis.

Another provocative look at the lack of analytical basis for current TSA policy draws on the kind of statistical analysis and benefit/cost analysis used in the medical field. “Screening Tests for Terrorism,” by G. Stuart Mendenhall and Mark Schmidhofer, appears in the Winter 2012-2013 issue of Regulation magazine. They apply statistical analysis to TSA’s behavior detection program (pre-canines) and find that “if somebody flunks a behavior detection [interview], he or she has a one in 1.5 million chance of being an actual terrorist.” They also compare the potential effectiveness of behavior detection to the known detection record of polygraphs; here they find that “If the TSA’s short-term behavior detection program has the specificity of a full polygraph [test], under the most favorable assumptions, and if the [BDO] interviewers correctly catch 100% of true terrorists, the chance of a flagged person actually being a terrorist is one in 115 million.”

There’s a lot more in this provocative article, but let me close with one of the authors’ summary conclusions. “As a country, for every dollar that we ineffectually spend to fight terrorism, we take away a dollar from what might be more effective efforts [in that endeavor], as well as domestic programs such as the construction and repair . . . of infrastructure, funding of education or research, or paying down prior U.S. obligations.”

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Saving Airports from Federal Budget Cuts

With the sequester looming on March 1st, the Federal Aviation Administration, like all non-defense discretionary programs, faces a 5.9% budget cut. And given the ongoing fiscal insolvency of the federal government, this is likely just the first of a series of cutbacks in federal spending. Some in the airport community are complacent, since federal airport grants under the Airport Improvement Program (AIP), because they come from the Aviation Trust Fund, are exempt from the sequester. But that does not mean AIP itself is immune from budget cuts. The Administration’s FY 2013 budget request calls for just $2.4 billion in AIP new budget authority, compared with $3.5 billion in FY 2011 and 2012. AIP outlays are listed as $3.6 billion (down from $3.8 billion), but that apparently reflects a $1.2 billion draw-down from the shrinking balance in the Trust Fund.

Consequently, I’m not surprised to see a growing number of large U.S. airports getting behind a proposal to give up their AIP funding in exchange for removal of the federal cap on their local passenger facility charge (PFC). In the January issue of CIP Report, the online journal of the Center for Infrastructure Protection at George Mason University, former FAA chief counsel Gregory S. Walden makes a strong case for this trade-off (“Grant-Free Airport Infrastructure Project Funding-The Time Has Arrived”). For example, he writes, if the 29 large hub airports give up AIP grants, the grant program could be reduced by $400 million per year. Both the Simpson-Bowles Commission and the Obama Administration have recommended applying this idea to both large and medium hub airports (65 total), which would save $1.1-1.2 billion per year. That money could be used to offset the 5.9% cuts in FAA’s Facilities & Equipment and Operations accounts, thereby averting either major cutbacks in NextGen funding for air traffic control modernization or the closure of large numbers of small airport control towers.

The current federal cap of $4.50 per passenger (set in 2000) means that the PFC’s real (inflation-adjusted) purchasing power has declined by nearly half since then. Walden recommends removal of the cap, rather than simply increasing it to a higher amount. That’s how the system operates in Canada-each airport sets the passenger charge needed to finance its major capital projects, thereby keeping those projects out of the rate base on which airline rates and charges are based. So although U.S. airlines have historically opposed PFCs, they might come to see this proposal as less-bad than airlines themselves being the main funding source for new runway and terminal projects via landing fees and space rentals.

Moreover, Walden makes an argument that I think is long overdue for the airport community to make. Although airlines portray even a $1 increase in an airport’s PFC as reducing demand for air travel, they have had no hesitation to add numerous ancillary fees to their basic ticket prices in recent years, typically averaging $10 to $20 per passenger. So increased airline charges don’t depress demand but increased airport charges do? In addition, when an airline shifts costs of baggage handling from the ticket price (subject to the 7.5% ticket tax) to a separate baggage fee (exempt from the ticket tax), the airline itself is reducing its contribution to the Aviation Trust Fund, thereby reducing the amount available for investment in airports and air traffic control.

Rethinking federal airport grant funding ought to appeal to the fiscal conservatives in Congress, many of whom want to reduce the size and scope of federal funding. Perhaps the March 1 sequester will prove to be the catalyst for this kind of change.

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TSA Unions Overturn Sacramento Outsourcing Decision

Last month, the Sacramento County Board of Supervisors voted 4 to 1 to withdraw its 2012 application to the TSA to opt out of TSA-provided screening in favor of a TSA-selected security contractor. This is the first time such a decision has been reversed since Congress last year directed the TSA to resume accepting applications for its Screening Partnership Program (SPP).

How it happened is a case study in union lobbying. The case for switching screening providers had been championed by airport director Hardy Acree, under whose leadership Sacramento carried out a $1 billion airport expansion. Last summer Acree announced his retirement, effective Dec 15, 2012. That deprived the airport of its most knowledgeable advocate of outsourced screening, opening the way for a serious union campaign to undo the change before it could be implemented. One of the issues Acree had stressed was more flexible scheduling of screeners, to match on-duty screener numbers to passenger numbers throughout the day and evening. That kind of scheduling flexibility was among the factors cited in the House Transportation & Infrastructure Committee’s detailed 2011 comparison of contract screening at SFO and TSA screening at LAX.

While no details are available, it appears that the screeners’ union at Sacramento (AFGE) worked with the airport’s Federal Security Director, Kimberly Siro, to agree to scheduling changes to help undercut the case for outsourcing. AFGE also relied on the shortcomings of GAO’s 2012 report on screening, which I criticized in the December 2012 issue for (1) failing to even mention the SFO vs. LAX study, and (2) failing to report the evidence of better screener performance based on previous GAO and DOT Inspector General reports. This allowed the union to claim that GAO found “no data indicating that privatization works better.”

In the Washington Post article on the Sacramento decision (Jan. 9, 2013), union spokespersons were quoted making several false or misleading statements in celebrating their victory. They very likely made these same points in their lobbying of individual county supervisors. Since other airports seeking to outsource screening may come up against similar claims, they should be aware of how to counter them. In addition to the “no evidence that privatization works better” claim, discussed above, the other claims included:

  • Claim: By outsourcing screening Sacramento would “abandon its public servants in favor of corporations with only profit in mind.” Fact: TSA-certified employees of TSA-certified screening companies are public servants in every meaningful sense of the word. And screening contractors can only make a profit by providing effective and cost-effective screening.
  • Claim: Outsourced screening is “unaccountable to the American people.” Fact: If anything, arm’s-length TSA regulation of TSA-certified companies provides greater accountability than self-regulation by TSA of its own workforce.
  • Claim: “It was a contract workforce that gave us 9/11.” Fact: That is an outrageous lie, since there was no screening failure on Sept. 11, 2001. The failures were in (a) the U.S. intelligence agencies which failed to connect the dots about the 9/11 terrorists and (b) the Federal Aviation Administration, whose policies at that time allowed box cutters on board aircraft.

There will be legislative proposals this year in both the House (Rep. Mike Rogers, R, AL) and the Senate (Sen. Rand Paul, R, KY) to expand contract screening. It looks as if we can expect all-out AFGE lobbying against these measures, as well as efforts to repeat the union’s success in Sacramento.

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Airport Development, Financing, and Privatization News from Europe

The information in this article (which is believed to be correct at the time of writing) and comment is by David J. Bentley of Big Pond Aviation, Manchester, UK.

If the concession to operate Portugal’s airports was the big story in Europe last month then the sale of London Stansted Airport to Manchester Airports Group (MAG) certainly is this month. It has been a long time coming (multiple judicial appeals against the enforced sale were made by Heathrow Airport Holdings, formerly BAA) but the end result was the expected one.

MAG was always the favourite. Its core property, Manchester Airport (MAN) is much the same size and scope as Stansted, and MAN has the fairly recent experience of constructing and implementing a second runway. MAN sustains a healthier traffic mix than does Stansted and can probably teach it a thing or two. MAN has been growing all through 2012 (approximately 5%, good for the UK) while Stansted has literally only just turned the corner these last two months after three years of negative growth. MAG is a big friend of Ryanair and employs its one-time Route Development Director as Chief Commercial Officer. Stansted is Ryanair’s biggest base but the airline whines about it incessantly. There is a growing sense that the Davies Report, scheduled for 2015, will identify Stansted as at least one of the Southeast England airports where future growth – possibly in the form of a second runway there – should be permitted. What’s more, London Mayor Boris Johnson seems to be backing away from his big new Thames estuary airport proposal in favor of expanding Stansted.

Even if MAG was the favourite, it was up against some strong competition in this transaction. But there was no proposal from Global Infrastructure Partners (GIP), the successful bidder for Gatwick (2009) and Edinburgh (2012) airports – both also ex-BAA – partly because even placing a bid might have shifted GIP into an alleged “monopoly” category where it assuredly would not like to be. In any case it has enough on its plate with Gatwick and Edinburgh and appears now to be more interested in foraging abroad.

The bids were mostly in the region of £1 billion, but the final transaction price was £1.5 billion. This seems rather a lot when the bigger Gatwick went for much the same amount three years ago. This figure represents a 3.6 point increase in the respective EBITDA multiples compared with Gatwick (from 12x to 15.6x), though against that must be weighed the recent earnings multiple for Edinburgh (16.7x) and Portugal’s ANA (15x); an average of 15.8. My conclusion is (a) Stansted was not overpriced but (b) MAG was very keen to get its hands on it.

It is interesting how the major UK airports are now divided up, with BAA/Heathrow Holdings operating Heathrow (as it says on the tin), but also Southampton, Glasgow and Aberdeen airports. The firm is expected to seek to offload some or all of the latter three and to become just Heathrow Airport before long. For now it handles about 81 million passengers per annum (ppa) in total. BAA is not the force it once was: MAG and GIP between them now handle 88 million ppa, MAG at four airports and GIP at two. Eighty-eight million is about one quarter of all UK passengers (all figures based on 2011 traffic totals). Heathrow Holdings has the country’s biggest airport, GIP the second biggest and MAG the third and fourth as well as the country’s biggest cargo airport (East Midlands). All the remainder (about 40) are also-rans. For once there is a genuine oligopoly but the smaller airport operators, who own airfields that almost uniformly are not doing very well at all, must feel left out in the cold.

In fact, if you take into account this week’s announcement about the route to be taken by the much-vaunted HS2 high-speed rail line and add it to this developing airport scenario, it soon becomes clear that the coalition government has identified some parts of the country as winners and most parts as losers. The rail line will connect London (a perennial winner) and Birmingham in the first phase, then split in a Y shape to Manchester and Leeds respectively, later. Birmingham is a faded, jaded post-industrial city but it will benefit from the rail line, and its airport (owned by a strange mix of municipalities and pension funds) could conceivably take some responsibility as an alternative airport for London, which will be only 40 minutes away on the fast train. Manchester, another post-industrial city but one which reinvented itself far better than any of the others and became the favorite of governments, gets two HS2 stations, one in the city center and one at its airport, which will also be the site of Britain’s first airport city. Leeds may not be familiar to non-UK readers, and its private equity-owned airport is fairly irrelevant in the overall scheme of things, but it is a significant location for financial and legal firms.

So that is how the UK (minus Scotland, which may leave) will be divided up by critical transport routes from 2024 onwards. Those cities on the inside are London, Birmingham, Manchester, and Leeds. The majority of economic activity will take place in the triangle between these places, which includes some other, peripheral cities. On the outside, hung out to dry, will be vital places like Liverpool, Newcastle, Hull, Bristol, Cardiff and Plymouth with slow trains and moribund airports. In the case of Plymouth its airport, which served one of the more densely populated parts of England, is already deceased.

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Electric Taxiing Getting Closer

Three different approaches are under development to eliminate airport taxiing using an airliner’s engines. Two of the concepts involve generating electricity from the aircraft’s auxiliary power unit (APU)-a small gas turbine engine-to drive motors attached either to the nose gear or the main landing wheels. And the third involves an electric-powered tractor affixed to the nose gear and steered by the pilot during taxi.

Two competing systems are being developed to power the main landing wheels, one by Safran/Honeywell and the other by L-3 Communications/Crane Aerospace. The former is aiming for certification on A320s sometime in 2013, while the latter, called GreenTaxi, is planning operational tests this year. The nose-wheel approach, by Wheel Tug/Parker Aerospace, is also aiming for 2013 certification. Despite the extra weight of the motors (220 lb. for each main gear or 300 lb. for the nose gear), all three companies promise net savings due to much less fuel needed for the APU during taxi, compared with taxiing using the aircraft’s engine(s).

TaxiBot, the semi-robotic tractor, is a project of Israel Aerospace Industries and TLD France. The pilot will steer the tractor from the ramp to the runway threshold, at which point the tractor must either return to the terminal or move to the other end of the runway to attach to a plane that has just landed. The tractor will be operated by a driver for those portions of its operation when it is not towing a plane. IAI’s initial testing is on A320s, but the company is also developing a larger version for wide-bodies. Lufthansa will be testing three TaxiBots with 737s this year, with certification expected by year-end and regular operations starting in 2014. The wide-body version is aimed for entry into service by 2016.

While all four approaches reduce fuel use and emissions during taxiing, my bet is on WheelTug, at least for narrow-bodies, since it is the lightest weight of the landing gear systems and also reduces airport costs by eliminating tractors. TaxiBot adds no weight to the aircraft, but requires more-costly tractors that still require paid drivers. It will be interesting to see which approaches do best in the marketplace.

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News Notes

US Airports Need $14.3 Billion per Year. A new study by Airports Council International-North America estimates the need for airport capital investment at $14.3 billion per year, totaling $71.3 billion between now and 2017. Of the total, 54% is for new facilities to meet projected growth in passengers and freight and another 43% for maintenance and rehabilitation of existing infrastructure. The $71.3 billion is actually 11% less than the total estimated in the previous Airport Capital Development Needs Study in 2011, due to slower economic growth and airline consolidation.

San Juan Privatization Bonds Rated Investment-Grade. Moody’s Investors Services has given a provisional investment-grade rating to $350 million in airport revenue bonds as part of the financing of the lease of Luis Munoz Marin International Airport by the Aerostar Airports Holding group. Final FAA approval of the lease deal is imminent, and will be followed by financial closing.

New Group Urges NYC Airport Upgrades. New York developer Joseph Sitt, founder of Thor Equities, has launched an advocacy group to focus attention on the poor condition of JFK, LGA, and EWR, the region’s three major airports. Sitt has contributed $1 million to the new Global Gateway Alliance and is looking for an executive director with aviation experience. Patrick Foye, executive director of the Port Authority, which operates all three airports, acknowledged that many of the airport facilities are “aging and in need of significant capital infrastructure investment,” and said he looks forward to working with the group.

Increased Investment for Rome’s Airports. Gemina, the investor-owned company that owns Aeroporti de Roma (ADR) has just announced plans to increase its capital investment in Rome’s two airports by one-third, to $4.2 billion over the next 10 years. Gemina is also in merger talks with global toll road owner/operator Atlantia to form a multimodal infrastructure company.

Minute Suites Planned for Chicago O’Hare. Travelers staying overnight at ORD, or just needing a few quiet hours between flights, will soon have a new option. Minute Suites plans to open its fourth short-stay facility this year at that airport. For $30 per hour or $120 overnight, travelers get a room with a daybed sofa, workstation, HDTV, and personal computer with internet access. Existing Minute Suites locations are at ATL and PHL, with the DFW facility close to opening.

JetBlue to Offer Faster Pre-Security Lanes. Nearly all major airlines offer shorter security lines to elite members of their frequent flyer programs. But JetBlue has announced a new version: offering access to such lines to any passenger for a $10 fee at 40 airports it serves. Customers paying for the “Even More Speed” li nes will have access to branded JetBlue lines at O’Hare, Boston, Ft. Lauderdale, Newark, and Kennedy, where the airline has a large presence. At other airports, it has worked out agreements to use existing premium-traveler lines. This program does not grant participants expedited TSA screening; that is available only to participants in the PreCheck and Global Entry programs.

Port Authority to Study Acquiring Atlantic City Airport. Pursuant to 2007 legislation which allows the Port Authority of New York & New Jersey to acquire additional airports in the region, the agency has selected a company to study the question. QED Airport & Aviation Consultants, of Amelia Island, FL, will analyze the legal financial, environmental, and business effects of taking over Atlantic City International Airport. The budget for the study was not announced but the Port Authority board voted last September to spend up to $3 million on this issue.

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Quotable Quotes

“Forty years ago, [JFK was] rated the No. 1 airport. We’re now rated last, 26 out of 26 major airports in the world. That’s a mind-boggling statistic-from first to worst.”
-Joseph Sitt, quoted in “New Group Target’s NYC’s ‘Embarrassing’ Airports,” Andrew J. Hawkins, Crain’s New York Business, Jan. 4, 2003

“For TSA agents, opt-outs [from body-scanning] are a pain. They have to explain the pat-down procedure, put on a pair of blue latex gloves, get moved from their duty station, and, worst of all, there’s a pretty good chance the traveler will object to the manual screening in some way. When that happens, a supervisor must be summoned and possibly the airport police, since TSA agents have no law enforcement authority. It can get really messy. For the TSA as an institution, opt-outs are an easily identifiable group of contrarians who do inconvenient things like vote for candidates who push for more agency oversight, write to their congressional representative when they fail to hold the TSA accountable for its failures, and demand common-sense security instead of the circus we have today, more than a decade after the 9/11 attacks. Punishing these passengers makes sense on an institutional level, so it’s no surprise that supervisors would look the other way while agents threaten, intimidate, and humiliate the opt-outs, if not encourage it.”
-Christopher Elliott, “3 Troubling Ways the TSA Punishes Passengers Who Opt Out,” Travel Blogs, Huffington Post, Jan. 9, 2013

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