In this issue:
- TSA’s new hurdles for contract screening
- Reports paint mixed picture for airport growth
- Cockpit security under threat
- Airport privatization gaining altitude
- New York airports group up and running
- Airport privatization in Europe
- Upcoming Conference
- News Notes
TSA Putting New Hurdles on Road to Screening Opt-Out
Despite Congress more than a year ago directing the TSA to speedily process airport applications to use TSA-certified screening contractors under its Screening Partnership Program (SPP), the agency appears to be stone-walling. Industry sources tell me that even though applications have been approved for six airports, not a single new SPP contract has been awarded by TSA since the 2012 legislation (part of FAA reauthorization last February) was enacted.
In some cases, procurements that were under way have been pulled back, to be re-started at some unnamed future date. That’s the case for a four-airport Montana solicitation begun last October, due to be completed by the end of February 2013. Not a word was heard during March, but finally, on April 17th, contenders received a letter from TSA cancelling the procurement and saying it would be re-started at a later date. Orlando-Sanford’s approved application is still without a contract solicitation and Sarasota-Bradenton application awaits action.
What appears to be happening is that TSA while TSA has adhered to the letter of the law contained in last year’s legislation directing actions on applications, it has come up with a new hurdle for airports and contractors to surmount: a “cost-efficiency” factor. At the April 12th bidder’s conference for re-bidding the SPP contract for San Francisco (SFO), bidders were told that no contract will be awarded unless it meets TSA’s cost-efficiency target. The same provision was added at the last minute to the requirements for re-bidding the Kansas City contract earlier this year.
What this means, exactly, is not yet clear. It appears that TSA has taken language from the SPP provisions of the 2012 FAA bill and used it to create a requirement that no SPP contract will be awarded if the cost to the government would be higher than what it currently costs TSA to provide screening at the airport in question. Taken at face value, that sounds uncontroversial. But as the GAO has pointed out in several reports, TSA still has not fully and accurately reported all its screening costs, and TSA still claims that its own screening costs less than contract screening under SPP.
In its 2008 study (GAO-09-27R), the agency faulted TSA’s cost comparisons for omitting the cost of overlapping TSA administrative staff at SPP airports, and failing to include TSA costs for workers’ comp, general liability insurance, and some retirement costs. Not mentioned in this report, but relevant to accurate cost comparisons, TSA also does not include the cost of using its screener flying squad (the National Deployment Force) to fill in at TSA-screened airports. In March 2011, GAO reported that TSA had “made progress in addressing the limitations related to costs” (GAO-11-375R), but still had work left to do. GAO’s most recent report in December 2012 (GAO-13-208) focused on screener performance at TSA and SPP airports, and did not address whether TSA was finally including all costs in its comparisons of screening.
And as I noted at the time, GAO’s 2012 report ignored a detailed study by the staff of the House Transportation & Infrastructure Committee: a case study of the cost of screening at two major hub airports, both in TSA’s high-risk Category X-Los Angeles and San Francisco. The former has TSA screening and the latter is one of the original pilot program airports using a TSA-approved screening contractor. Even though federal law requires SPP contractors to pay screeners comparable wages and benefits as TSA, the study found that the cost per screener at SFO was 5.3% less than TSA’s cost at LAX. While that may not sound like much, when combined with much higher productivity at SFO (16,113 passengers per screener at SFO vs. 9,765 at LAX, due mostly to a good mix of part-time and full-time screeners at SFO), the overall result would be 42.6% lower screening cost at LAX if the SFO contract model were applied there (see table).
| Cost Saving if LAX Had Contract Screening | |||
| TSA Model | Contract Model | Savings | |
| Cost per FTE Screener | |||
| Salary | $38,480 | $38,480 | $ 0 |
| National Deployment Force | $ 289 | $ 0 | $ 289 |
| Recruiting & Training | $ 2,439 | $ 541 | $1,898 |
| Total Cost per Screener | $41,208 | $39,021 | $2,187 |
| Number of FTE Screeners | 2,200 | 1,333 | 867 |
| Total Screener Cost | $90.66M | $52.02M | $38.64M |
I expect TSA will ignore this report when it promulgates its “cost-efficiency” standard for SPP-but members of Congress with both aviation security and taxpayers in mind should not let them get away with this. House Homeland Security Committee Chair Rep. Mike McCaul (R, TX) has asked GAO to do a new study on SPP airports, to see if using contractors is “more effective and efficient.” I hope his request to GAO requires them to assess the House T&I study, in addition to GAO’s own previous efforts. On the other side of the aisle, the Committee’s Ranking Member, Rep. Bennie Thompson (D, MS) has introduced legislation to “reform” SPP, including restoring TSA’s discretion to veto applications from airports-a power TSA assumed despite language in the 2001 Aviation & Transportation Security Act granting all airports the right to opt out of TSA screening.
A Mixed Picture for U.S. Airport Growth
Two recent reports suggest future airport growth may not be as robust as expected only a decade ago, but within this broad outline there will be definite winners and losers. The FAA forecasts robust growth rates for a number of large airports (but very limited growth for other large hubs), while MIT suggests tougher times ahead for small and medium hubs.
The FAA’s Terminal Area Forecast Summary, FY 2012-2040, was released several months ago. Its detailed forecasts cover the 30 large hubs the agency now designates as “core” airports. The three fastest-growing core airports, as measured by enplaned passengers, are projected to be Kennedy (JFK), Orlando (MCO), and Houston Bush (IAH), each of which is shown with annual growth rates of over 3%. Lowest enplanement growth rates are forecast for Memphis (MEM), LaGuardia (LGA), and Reagan National (DCA). The forecasts are similar for projections of aircraft operations. The table below shows the 14 core airports with the highest and lowest growth rates.
| Enplanements | Rank | Rank | Operations | Rank | Rank | |
| Growth Rate | 2011 | 2040 | Growth Rate | 2011 | 2040 | |
| JFK | 3.37% | 6 | 2 | 2.57% | 13 | 9 |
| MCO | 3.19% | 13 | 7 | 2.79% | 22 | 12 |
| IAH | 3.18% | 9 | 5 | 2.16% | 7 | 3 |
| IAD | 2.79% | 22 | 18 | 1.54% | 19 | 17 |
| MDW | 2.70% | 26 | 24 | 1.89% | 28 | 23 |
| LAS | 2.66% | 10 | 8 | 1.99% | 8 | 6 |
| PHX | 2.60% | 8 | 9 | 2.09% | 9 | 10 |
| . . . . | ||||||
| HNL | 1.75% | 27 | 28 | 0.76% | 27 | 27 |
| BOS | 1.64% | 19 | 21 | 0.78% | 17 | 21 |
| DTW | 1.47% | 17 | 19 | 0.37% | 11 | 19 |
| DEN | 1.44% | 5 | 11 | 1.04% | 4 | 8 |
| DCA | 1.17% | 25 | 29 | 0.25% | 24 | 30 |
| LGA | 1.05% | 20 | 27 | 0.15% | 18 | 26 |
| MEM | 0.11% | 30 | 30 | 0.98 | 21 | 25 |
The picture is considerably bleaker for medium, small, and non-hub airports, according to a May 2013 report from the MIT International Center for Air Transportation (Report No. ICAT-2013-02, “Trends and Market Forces Shaping Small Community Air Service in the United States”). Researchers Michael Wittman and William Swelbar don’t offer an explicit forecast. Rather, they analyze trends in domestic departures over the period 2007-2012, finding that while this figure decreased 8.8% for large hubs, medium hubs had 26.2% fewer departures in 2012, and small hubs 18.2% less. Their assessment of what is happening is that airlines have been implementing “capacity discipline” in order to return to profitability. This involves consolidating services at large hubs, and reducing frequency to those hubs from small and medium hubs (as well as cutting out less-profitable direct flights to small and medium hubs). Another trend is “right-gauging” of service to small and non-hub airports, such as replacing two 50-seat regional jets with one 76-seater.
The MIT capacity-discipline thesis is supported by data in the above FAA table, in which even for high-growth airports, the growth rate of enplanements is nearly always significantly higher than the growth rate of aircraft operations. And I think Wittman and Swelbar are probably correct in their estimate that “small communities will not be able to recover the same level of service in the near term that they received in the capacity expansion era.” But they don’t expect many small airports to lose all air service, either, given the rise of what they call ultra low cost carriers (such as Allegiant and Spirit).
In Issue No. 75 (January 2012), I wrote about a new analysis that compared the cost-effectiveness of several cockpit security measures. That report, by academic researchers Mark Stewart and John Mueller, compared the cost-effectiveness of the Federal Air Marshals program with that of two less-costly measures to protect airliner cockpits: secondary barriers to protect the cockpit when the door must be opened in flight and the Federal Flight Deck Officer Program, under which pilots can volunteer for training and then be authorized to have a gun in the cockpit. Both turned out to be hugely more cost-effective than the FAM program. Unfortunately, these two low-cost but highly effective measures are both under threat.
The Administration’s FY 2014 budget calls for spending $826.5 million on FAMs, a slight decrease from the FY 2013 post-sequester amount of $858 million. But the budget also proposes to eliminate all funding for the FFDO program, which got only $23.4 million last year. By contrast, a TSA budget based on serious analysis would zero out the FAMs and increase the modest sums recently spend on FFDOs. Thus far, there is no indication of what the Senate would do on either program. Transportation Weekly reports that the House budget would cut slightly the Administration’s FAM request, but lists as “unknown” what it would propose for FFDOs.
A different threat has emerged regarding secondary cockpit barriers. Pilots at United Airlines are protesting a recent decision by airline management regarding such barriers on Boeing 787s. At least for United, 787s are produced with secondary cockpit barriers installed as standard equipment. (Since the 787 is a two-aisle aircraft, there is one barrier at the head end of each aisle.) When the 787s were grounded due to the well-known battery problem, United decided to remove the secondary barriers, leading to ongoing protests from pilots and their union, ALPA.
In previous issues, I had praised United as the only U.S. airline to deploy secondary cockpit barriers on its entire fleet of jetliners, starting in 2004. Both Airbus and Boeing now offer such barriers as optional equipment. But the United of 2004 is now the result of the merger of Continental and United, and the CEO is former Continental CEO Jeff Smizek. Pilot sources tell me that it was Smizek himself who made the decision to remove the barriers from the 787s.
I know that in cost-conscious times, airlines have made what seem to an outsider as penny-ante decisions to save very minor amounts of aircraft weight, thereby saving fuel. And removing the secondary cockpit barrier does save a few pounds-the barrier is a kind of slotted gate with horizontal bars. But it seems to me that airlines have their priorities all wrong. They would save a lot more than a modicum of fuel cost if they could get Congress to eliminate (or greatly reduce) the costly, ineffective FAM program-which forces them to give up two first-class seats on each flight that is “protected” by FAMs. Armed pilots and secondary cockpit barriers would be a lot more effective, since they would be in place on most or all flights, compared with the small fraction of flights that actually have FAMs on board.
Airport Privatization Gaining Altitude, says ACI Director General
In her recent speech at the Aero Club of Washington, Angela Gittens-Director General of Airports Council International-presented figures that must have surprised many of those in the audience. According to tabulations by ACI, some 450 commercial airports worldwide now have some form of private-sector participation in their management or ownership. That number includes airports in which investors own a minority stake, some majority-owned by investors, and others managed and operated (but not owned) by investor-owned companies under long-term concession agreements. Gittens also noted that 25 airport companies are listed on stock exchanges, including two in Southeast Asia, three in Mexico, five in China and the rest in Europe and Australasia.
ACI’s database breaks down the 450 airports with private management and/or ownership into 170 in Europe, 138 in Latin America, and 98 in the Asia-Pacific region, with the balance in other regions. In terms of types of private-sector involvement, 251 airports are being operated under long-term concessions (typically of the build-operate-transfer kind), 152 are privately owned (in whole or in part), and 47 are being operated under management contracts.
Gittens also offered some perspectives on the privatization trend. While many governments in recent years have decided that, “under the right economic conditions they can successfully turn to the private sector for the financing and operation of airport infrastructure,” both governments and investors have grown more sophisticated over time. Investors have seen that airports can be reliable earners of revenue, but do not generate “spectacular” returns that short-term investors seek. And governments have also learned to approach privatization deals more cautiously, to ensure adequate investment in capacity and ongoing maintenance, and including provisions for early termination of deals that aren’t working out well.
As a relative latecomer to the airport privatization trend, the United States can take advantage of lessons learned over the past 25 years or so, as well as benefitting from the capital amassed by scores of global infrastructure investment funds and the development of world-class airport companies as potential bidders.
New York Airports Group Up and Running
In the February issue of this newsletter, I welcomed the formation of a group to promote the improvement of the New York City metro area’s major airports. Last month, the group-Global Gateway Alliance-unveiled its initial priorities and announced that Stephen Sigmund, former chief spokesman for the Port Authority of New York and New Jersey-will be the group’s executive director.
The Gateway Alliance’s initial top priorities are the creation of HOV (car-pool) lanes on major airport routes, wi-fi in all terminals at Kennedy (JFK), LaGuardia (LGA), and Newark (EWR), and priority for implementation of NextGen ATC improvements in the New York area (which would reduce congestion nationally as well as at the region’s major airports). Other announced goals include replacement of the aging Central Terminal at LGA, faster and friendlier security screening, increased air cargo volume, more customer service agents in terminals, improved mass transit access to the airports, improved airport roadway circulation and signage, and improved taxi and limousine service. That’s not exactly a short list.
Jeffrey Zupan, senior transportation planner at the Regional Plan Association (RPA), pointed out a glaring omission to this wish list: more runway capacity, especially at JFK (which is projected by the FAA to be the nation’s fastest-growing major hub airport over the next 30 years). RPA did a major study of the feasibility and cost-effectiveness of runway additions at the three airports in 2011, and concluded that such additions were feasible at EWR and JFK.
In addition to seconding Zupan’s recommendation to add runway expansion to the Gateway Alliance’s priority list, let me add two amendments. To pay for the new runways, the airports should adopt runway congestion pricing, which is now legal in the United States thanks to a policy change put through by former DOT Secretary Mary Peters. Second, to improve the performance of the proposed HOV lanes on major airport routes, they should be developed as congestion-priced HOT lanes, which buses would use at no charge and other vehicles (taxicabs, drivers running late, etc.) would use in exchange for a variable toll. This would ensure that these lanes remain uncongested even during peak commuting hours, and the revenues would help to pay for the costs of adding these much-needed lanes.
Airport Development, Financing and Privatization in Europe
The information in the following 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. www.bigpondaviation.com.
Apart from the build-operate-transfer (BOT) concession for the new Istanbul airport (which I’ll deal with another time) the big story during April and May has been the conclusion to Hochtief’s almost desperate search for a buyer for its stake in a clutch of airports in Europe (Athens, Budapest, Dusseldorf, Hamburg and Tirana) plus Sydney in Australia. The Essen-based construction conglomerate wholly-owned none of its airports through the Hochtief Concessions division (which worked closely with Hochtief Airport Capital – claimed to be the world’s first airport-specific investment fund), with the equity varying between 30% at Dusseldorf to 50% at Budapest and Hamburg, but just 12% at Sydney. The latter airport was the jewel in its crown nonetheless, but some of the shine is starting to come off as the Australian economic roller coaster finally comes to an end.
Otherwise, both Hamburg and Dusseldorf airports were strong performers while Tirana Airport, in the capital of Albania, surprised many with its growth. Budapest remained a problem, having lost its national airline (Malev) and having subsequently found itself at the whim of Ryanair, which is now the second biggest carrier there, and Wizz Air, the largest and also an LCC. It has fallen well behind Vienna in the race to be the principal gateway airport for Central and Eastern Europe.
Combined, the Hochtief airports handle approximately 95 million passengers annually. The reason for the sale was to reduce group debt and so that Hochtief (now owned by ACS Infrastructure) could invest more in the operating infrastructure business, including surface transport and energy infrastructure. After a lengthy competitive tender Hochtief’s shares were sold to a subsidiary of the Public Sector Pension Investment Board of Canada (PSP Investments), which looks after the pension plans of the Canadian Mounties and other public employees, for approximately €1.1 billion (US$1.435 billion). Following EU approval, closing is anticipated in the second half of this year.
This is PSP’s first successful venture into the airports sector although it was attracted to the concession process for the Luis Munoz Marin airport in Puerto Rico, later joining a consortium led by Chile’s Agunsa. It is one of six Canadian pension funds currently active in the airport infrastructure sector.
Breaking news as I write (30 May) is that the French government intends to reduce its majority stake in Aeroports de Paris (ADP) in a sale of €700 million (US$908 million) worth of shares (10 million) as it seeks to free up funds to invest elsewhere in an economy mired in recession. The government will retain a majority stake; it currently owns 54.5% of ADP, while the state-sponsored FSI strategic investment fund holds a further 5.6%. A partial IPO of ADP took place in 2006. Since then another construction conglomerate, France’s Vinci, has indicated it would like to buy into ADP, but it has had to be content with some small-scale management contracts at French regional airports. Eventually it moved on and bought Portugal’s ANA Airports last year, but it will doubtless be hopeful that this decision by the French government in respect of ADP might hasten the sale of the larger regional airports like Marseille and Toulouse that it really covets (and which has been delayed for at least five years). The state hopes to complete the sale in the coming weeks and would favor offers from sovereign funds, pension funds and French institutional investors.
Global Airports PPP Conference, the 3rd Annual AAAE/LeighFisher Airport PPP Conference, June 2-4, Westin Georgetown, Washington, DC. (Robert Poole speaking) Details at: www.events.aaae.org/sites/130604/index.cfm
$6.5 Billion Airport for Turkey. The Turkish government has selected the five-company team of Kolin, Mapa, Kaylon, Cengiz, and Limak to finance, develop, and operate a new $6.5 billion airport for Istanbul, under a 25-year BOT concession. It was one of four finalist teams bidding for the huge project, which will be the world’s fourth-largest airport with three runways and 750,000 sq. meters of terminal space. The new airport will be linked to the third Bosphorous Bridge, currently under development.
O’Hare Getting New Customs Kiosks. In a move to speed up processing of international arrivals, U.S. Customs & Border Protection will implement 32 Automated Passport Control self-service kiosks at Chicago’s O’Hare Airport. Arriving passengers will be prompted to answer a series of questions by the kiosk, after which it will print a receipt which the passenger will present to a customs agent, along with his or her passport. The system was initially developed by Vancouver Airport Authority, in conjunction with CBP, for preclearance of U.S.-bound travelers departing from Vancouver. O’Hare will be the first U.S. airport to install the system.
Charlotte Counting on Railroad Yard Revenue. In an interesting example of the airport city concept, Charlotte’s airport is leasing unused airport land to Norfolk Southern to create an intermodal rail yard. The project is under construction and is expected to open late this year. It will not be affected by the possible change in airport ownership from the city to a new airport authority, which is still being debated by the state legislature.
India to Increase Airport Investment, Including PPP development. According to Civil Aviation Minister Ajit Singh, India needs $12 billion in airport investment between now and 2017, to cope with the expansive growth forecast by the International Air Transport Association, among others. Singh told Aviation Daily that the government’s aviation plan for 2012-2017 envisions $9.3 billion of the $12 billion “to come from the private sector for construction of new airports, expansion, and modernization.” IATA recently forecast that India will be the world’s third-largest aviation market by 2020.
New Zealand Airline Wants New Airport Regulation. A draft report from the government’s Commerce Commission estimates that Auckland Airport will earn a return of 8-8.5% during the next five years. But because the Commission’s target is 7.1-8%, Air New Zealand sees the report as grounds for changing the current “light-handed regulation” policy. The Commission itself, in its draft report, says the policy is working well. And Auckland Airport says its benchmarking of charges at comparable airports finds Auckland’s charges are in the middle of the pack.
Gary Airport Loses Only Scheduled Airline. Gary-Chicago International Airport will lose its only scheduled airline service in August, the Chicago Tribune reports. Allegiant Airlines will operate its last flight from the airport on August 10th , pulling out due to low demand for its twice-weekly service to Orlando-Sanford Airport. This does not bode well for the airport’s intended privatization.
Kansai Airport Wins International Award. At its global summit in Leipzig May 23rd, the International Transport Forum presented its 2013 Transport Achievement Award to New Kansai International Airport Company (NKAIC). The company was created last year to merge the management and operation of Kansai International Airport and Osaka International Airport. The company’s funding of a low-cost carrier terminal and price incentives for off-peak landings and take-offs have spurred the development of low-fare competition in Japan. In the process, government subsidies for Kansai International Airport have been reduced to zero, and NKIAC plans to offer concessions for the management of both airports
City Council Approves $4.8 Billion Improvements for LAX. By a vote of 10-3, the Los Angeles City Council on May 1st approved a $4.8 billion plan that will shift the north runway 260 feet further to the north (to facilitate A-380 operations and increase safety), replace Terminals 1, 2, and 3, consolidate rental car facilities, add an automated people mover, and create an airport transit station. The runway relocation faces strong local opposition from airport neighbors, who are promising to litigate.