Airport Policy and Security News #101

Airport Policy News

Airport Policy and Security News #101

TSA planning major PreCheck expansion, New competition for one-airport cities, Some progress on private airport screening

In this issue:

Pistole Promises Major Expansion of PreCheck

At the Aspen Institute’s Aspen Security Forum last month (July 24th), TSA Administrator John Pistole reported some of the benefits achieved thus far by the agency’s most visible risk based security initiative, PreCheck. But he also told attendees that a major expansion is in the works, via recruitment by third-party vendors.

Interviewed by Fox News’s Catherine Harris, Pistole said that PreCheck is now in place at just about all the airports where there is enough passenger volume to make it viable and capital and bridge disbursements per mile 118 airports, with over 400 PreCheck lanes in place. Thanks to separating low-risk PreCheck members from the regular lanes (and doing likewise for over 250,000 cabin and cockpit crewmembers), TSA has 7% fewer employees than a year ago. And thanks to the efforts of its recruitment contractor, Morpho Trust, there are now 26 on-airport and 275 off-site locations where travelers can apply for membership in PreCheck. (That is well short of the 41 on-airport sites Morpho had planned to be in operation by mid-year.) Pistole said that as of March, over 400,000 people had been signed up via that program.

In response to Harris’s question about expanded third-party recruitment (a topic I’ve followed in this newsletter), Pistole said that “To really make PreCheck a game-changer for us,” the key will be to go beyond individual sign-ups (the “retail” approach). The planned third-party enrollment effort will use pre-qualified private consortiums to recruit PreCheck members on a “wholesale” basis. They would be able to work with employers and industry to review large numbers of applicants, using each consortium’s TSA-approved algorithms to assess their low-risk status. The consortium would then submit a file of people it has cleared to TSA for final vetting. Asked how soon we can expect this to begin, Pistole hesitated and then replied that he hopes to be announcing something in the not too distant future. You can view Pistole’s interview at the Aspen event on YouTube: https://www.youtube.com/watch?v=hvVAgbyTqeA

New York Times columnist Joe Sharkey interviewed Pistole (Aug. 4th) and reported that on July 24th slightly more than 1 million of that day’s 2.1 million passengers received some form of trusted-traveler expedited screening and capital and bridge disbursements per mile PreCheck, Global Entry, military or other. With the current and planned growth of PreCheck (via third-party enrollment), Pistole said TSA will be cutting back on the number of “random, managed-inclusion” passengers diverted into PreCheck lanes despite not being members. That will be a boon to PreCheck members and a further boost to airport security.

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Possible New Competition in Monopoly-Airport Metro Areas

Of America’s 15 largest metro areas (Metropolitan Statistical Areas), only five are served by a single commercial airport: Atlanta, Detroit, Philadelphia, Riverside/San Bernardino, and Seattle. The largest, New York, is served by six, and Los Angeles/Orange County by four. Baltimore/Washington and Miami have three, and six others are served by two. But efforts are under way in both Atlanta (#9) and Seattle (#15) to add commercial service at existing general aviation airports. Though not, of course, without a fight.

In Seattle, Paine Field in Everett (a northern suburb) serves both general aviation and Boeing’s huge Everett assembly plant. Airport officials have been interested in bringing commercial airline service to Paine Field for several years, and both Alaska and Allegiant have expressed interest in providing such service. A three-year FAA study (released in 2012) found that adding such service would have no significant adverse impact on the surrounding area. But some local residents and public officials differ with that finding, and have a case pending before the Ninth Circuit Court of Appeals. If they win, FAA would have to do a more detailed analysis.

If the project goes ahead, Propeller Airports has offered to build a commercial terminal at Paine Field. It would invest its own funds in creating the terminal and parking facilities, as well as paying rent to Snohomish County, the airport owner. In return, Propellor would seek a return on its investment from various charges to airlines and passengers. Its letter of intent was submitted to the County on June 16th, and has received the endorsement of Everett Mayor Ray Stephanson. The longest runway at Paine Field is 16R/34L at 9,100 feet, providing ample length for the narrow-body jets most likely to be used for commercial service there.

Meanwhile, Propeller continues working with Paulding County in the suburbs of Atlanta, which seeks to attract airline service to its Silver Comet Airport as an alternative to giant Hartsfield-Jackson International Airport, Delta’s largest hub. On June 30th, the county won a unanimous decision in the Georgia Supreme Court that Paulding County’s recent bond issuance for airfield improvements met all legal requirements. The FAA is doing an environmental study on the potential impacts of commercial service at the airport (similar to what it did for Paine Field), and has received “dozens of comments.” The National Park Service expressed concern about the “acoustic environment and soundscapes” at Kennesaw Mountain National Battlefield Park, and the Fish and Wildlife Service asked the FAA to include possible impact to the Cherokee darter, a small fish. City of Atlanta COO Michael Geisler said that commercial service at Paulding’s airport “has the potential to dramatically impact the environmental, airspace, noise, and commercial landscapes in the Atlanta metropolitan area, without any demonstrated need or benefit.”

All the same environmental impacts could be raised and capital and bridge disbursements per mile at several orders of magnitude larger scale and capital and bridge disbursements per mile against Hartsfield-Jackson itself. But more fundamentally, in America’s deregulated aviation system, there is no legal requirement for anyone to demonstrate a “need” for competitive airline service. It is a presumption of the 1978 Airline Deregulation Act that competition is good for air passengers. If Paulding County and Propeller Investments are willing to risk their own funds on providing the facilities needed for a competitor to Hartsfield-Jackson and Delta, there should be no legal obstacle to their doing so.

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Modest Progress on Outsourced Checkpoint Screening

Two more airports have been approved to participate in TSA’s Screening Partnership Program (SPP): Orlando-Sanford and Sarasota, both in Florida. When TSA screeners move out and a TSA-certified contractor moves in this fall, that will bring the total number of SPP airports to 20. Still studying the question is Orlando International, which is awaiting the results of a study it commissioned from McKinsey & Co. on ways to improve the air traveler experience at the airport.

In 2012’s FAA reauthorization law, Congress included requirements that TSA streamline the process under which airports can apply to participate in SPP. But at a July 29th hearing of the House Homeland Security transportation subcommittee, Chairman Richard Hudson (R, NC) expressed dismay at how TSA is implementing the law’s provisions. And he had witnesses to back him up. The legislation requires TSA to approve all applications (consistent with the original 2001 legislation creating TSA and the opt-out provision) unless TSA can show that doing so would decrease security or increase costs. But TSA’s revised process puts the burden of proof on the airport applicant to demonstrate those things.

Moreover, the agency’s latest cost comparison claims to show that there is only a difference of 0.2% between the cost of TSA and contractor screening. While the details of that cost analysis have not been made public, security companies point out that the TSA “cost” excludes various overhead items, in particular retirement benefits which are not included in TSA’s budget because they are handled by the federal Office of Personnel Management. The claim of no cost savings is also belied by the empirical comparison of the cost of TSA screening at LAX and contract screening at SFO, carried out by staff researchers of the House Transportation & Infrastructure Committee in 2011. Those analysts applied the SFO contract cost model to the larger volume of screening at LAX and estimated that switching LAX to contract screening would reduce the annual cost at LAX from $90.7 million to $52 million, a 43% saving.

Yet J. David Cox, president of the American Federation of Government Employees, which represents TSA screeners, claimed in his testimony that SPP screeners “save no taxpayer money. But they are paid less than their federally-employed counterparts and receive inferior benefits.” If Cox and AFGE had any evidence to back up those claims, they would have a solid legal case, since the 2001 law mandates that TSA-approved screening companies pay the same screener wages and benefits as TSA. Yet no such lawsuit has ever been filed.

TSA’s SPP director William Benner listened to complaints about the four-year application process that the Glacier Park, MT airport had to live through, and Kansas City’s four-year contract dispute that has held up renewing that airport’s long-standing SPP contact. He said the agency’s goal is to shorten the approval process to one year: “That is a very aggressive timeline,” he told the subcommittee.

It’s frustrating that the highly competent and well-respected Government Accountability Office has still not done its own, arm’s-length cost comparison and capital and bridge disbursements per mile not just of line-items in TSA’s budget but of its total screening costs, to compare with the cost of SPP contract service. If there are serious methodological flaws in the T& I Committee’s LAX vs. SFO comparison, the aviation security community needs to know about them. But if those results are actually in the right ballpark, the debate on cost savings should be over.

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Global Airport Privatization Wave Continues

The last few months have seen a number of significant airport privatization developments, with large-scale programs announced in Greece and Spain, and a number of privatized terminal projects announced in the Western Hemisphere.

The biggest news was Spain’s mid-June announcement that it will sell to investors 49% of state-owned AENA Aeropuertos, which owns all of the country’s 46 commercial airports and two heliports. The privatization will have two parts, with 28% of the shares offered to investors via an initial public offering and another 21% offered to strategic investors via a competitive bidding process. The sales are expected to take place by November. A new airport regulatory framework will also be established. AENA Aeropuertos, the world’s largest airport group, has been estimated as having a market value of $21 billion.

The Greek government is doing something similar. Its Hellenic Republic Asset Development Fund announced that 37 state-owned regional airports will be privatized under 30-year concessions. Two packages of airports are being offered, each including seven core airports. Inspiratia Infrastructure reported last month that HRADF is currently assessing binding bids, with the assistance of a team of technical and financial advisors that include Citigroup Global Markets and Lufthansa. Greece is also seeking bids to finance, develop, and operate a new $1 billion airport at Heraklion, with a bid deadline of November 11th.

The French government last month announced that it will sell a 49.99% stake in state-owned Toulouse-Blagnac Airport in southwestern France. The national government owns 60% of the airport, with another 25% owned by the Toulouse Chamber of Commerce. There has been talk of similar privatizations of the Lyon and Nice airports.

The only negative privatization news I’ve seen from Europe was the decision by Slovenia’s Prime Minister, shortly before the July 13th elections, to suspend privatization of 15 assets, including the country’s international airport in Ljubljana. The plan had been to offer 75.5% of the airport, and expressions of interest were solicited back in March.

Three Western Hemisphere developments signal no waning of airport privatization on this side of the Atlantic. The Peruvian government has awarded a 40-year concession to the Kunter Wasi consortium to design, finance, build, and operate a replacement airport for tourist city Cuzco. The consortium is a joint venture of Argentina’s Corporacion America and Andino Investment Holdings. The airport is expected to cost $538 million to build, on a greenfield site 29 km from Cuzco, the jumping-off point for tourists to the Inca ruins at Machu Picchu.

Mexico appears to be getting close to going forward with a $9.2 billion replacement for the country’s largest airport, Benito Juarez serving Mexico City. The master plan developed by consulting firm Arup calls for four runways and one terminal with a capacity of 30 million annual passengers, to be completed by 2018. The ultimate plan would have six runways and two terminals, to accommodate 60 million passengers by mid-century. Given the huge cost of the airport, some form of privatization or public-private partnership arrangement is likely.

Finally, the Jamaican government is moving forward with a 30-year concession to modernize its second-largest airport, Norman Manley International, serving the capital city of Kingston. The privatization would follow the model used a decade ago to modernize Sangster International Airport in Montego Bay, the country’s primary tourism airport. Submissions were due July 30th, with the goal of awarding the concession in 2015.

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Airlines Challenging TSA Passenger Fees in Court

Two airline trade groups and capital and bridge disbursements per mile Airlines for America (A4A) and International Air Transport Association (IATA) and capital and bridge disbursements per mile have filed suit in the U.S. Court of Appeals for the D.C. Circuit, arguing that TSA has gone beyond what Congress approved in revising the passenger security fee. They have asked the court to review the TSA’s interpretation of what Congress enacted earlier this year.

What the House and Senate thought they had done was to replace the previous security tax of $2.50 per flight segment (with a maximum of $5.00 for a one-way trip) with $5.60 for each one-way trip, regardless of the number of segments. Sen. Patty Murray (D, WA) who chairs the Senate Budget Committee and Rep. Paul Ryan (R, WI) who chairs the House Budget Committee sent a letter to TSA Administrator John Pistole on May 6th objecting to TSA’s interpretation. The agency’s background material shows that a multi-stop trip could incur as much as $33.60 (representing six one-way trips, if the time between segments exceeds four hours on each of two stops on the outbound and return trips), since the former $10 per trip cap is no longer part of the revised legislation. Whether this is due to sloppy drafting of the legislation or TSA making a revenue-maximizing interpretation of the provision remains to be seen.

But I think passengers and the airlines have a more serious complaint about what Congress itself did in revising the law. Congress routed a large portion of the increased revenue generated by the increased security tax to the federal general fund, for deficit reduction, rather using it to cover a larger fraction of TSA’s costs. That means this is a real tax on airline passengers, rather than a user tax like most of the other taxes imposed on U.S. aviation. There is no good reason to single out air travelers for the purpose of deficit reduction. Money for the general fund should be coming from general taxpayers, not from a single segment of the population.

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Miami Airport City Project a Victim of Politics

In the May 2013 issue of this newsletter, I wrote about an ambitious public-private partnership proposed by Miami International Airport. Called Airport City, its 33 acres would include a business park and hotel, a major Four Diamond hotel with conference center, and a convenience center for employees. Winning bidder Odebrecht USA would invest about $500 million in the project, hoping to generate enough revenues from the multiple uses to pay rent to Miami-Dade County for 40 years and still make a good profit. But as of last month, it looked as if the project was on the way to being abandoned.

The sticking point remains the fact that a sister division of the Brazilian-headquartered company is building a new seaport project in Cuba. That so enraged a portion of Miami’s Cuban-American community that the legislature passed a law to forbid the state and its local governments from contracting with any company doing business in Cuba and capital and bridge disbursements per mile a law that was promptly ruled unconstitutional. But rather than simply abandoning the project (or paying Odebrecht a termination fee), the County government has put Airport City through the death of a thousand cuts over the past year, continually downsizing the project first to nine acres for just one hotel and the shopping center, more recently to just the hotel, and now the Airport Department suggests that it may develop the hotel itself.

Odebrecht USA president Gilberto Neves in early July sent County Commissioners a letter expressing great frustration over this drawn-out process, without any votes on how to resolve the issue. He pointed out that over the past six years, the company has spent $11 million on the project, on the basis of being selected as the winning bidder and a handshake that the deal would proceed. The FAA had approved the original Airport City plan in early 2013, but the County has never submitted the down-sized plan to the agency for review. Neves said the company “may seek reimbursement of its costs and damages.”

In a Viewpoint piece in Miami Today (week of July 17th), Michael Lewis pointed out the harm this long-running circus is doing not just to Odebrecht but to the county government itself: “If the county jerks vendors around, changes its mind, and renegotiates ‘final’ deals, good firms won’t bid. That costs taxpayers money. Prices [will] rise even further as companies that do seek county work assess delays and the possibility that after spending to reach a deal, the county will dump the project. If you bid at all, you’ll seek well above market rates.”

It’s this kind of awful politicization of what should be a business deal that reinforces my view that U.S. airports need to be de-politicized, via corporatization or privatization.

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News Notes

San Juan Airport’s $200 Million Renovations. Somewhat more than a year after its privatization via a 40-year concession agreement, San Juan airport’s new operator, Aerostar Airport Holdings, conducted a media tour last month to showcase the under-way projects to renovate two aging terminals. The $200 million in upgrades will include new automated baggage scanners and extensive new retail stores and restaurants. The first of the modernized terminals is scheduled to open in November 2015 and the second in December. Aerostar is marketing the airport to additional airlines, such as Norwegian Air Shuttle, according to the July 2nd AP story.

CBP Backing Off on Private Pilot Intercepts. After strenuous protests from general aviation groups such as AOPA, as well as a provision in the FY 2015 DHS appropriations bill requiring a detailed review, Customs & Border Protection has announced that the program of stopping and searching private planes and their pilots without a warrant is being revised so as to “not needlessly affront law-abiding pilots.” CBP says it will no longer target GA planes unless there is clear evidence of illegal activity. AOPA has made no official comment on this announcement, apparently waiting to see what actually happens.

Airglades Approved to Manage Florida Airport. The company seeking to privatize the Hendry County Airport in south-central Florida received FAA approval on August 5th to take over managing the airport, effective Sept. 12, 2014. Airglades International Airport, LLC will manage and operate the airport on behalf of its sponsor, Hendry County, while FAA continues to review the draft purchase and sale agreement, as part of the application process under the federal Airport Privatization Pilot Program.

Fraport Moving Into US Airport Retail. Germany’s privatized airport operator Fraport Group has acquired 100% of Airmall USA Holdings. The company operates retail concessions at BOS, BWI, CLE, and PIT. It began as a division of BAA USA, the U.S. arm of privatized BAA plc, former owner/operator of all three privatized London airports. When BAA pulled out of the U.S. market, AMU Holdings acquired the U.S. retail airport operations, which provide 270 retail and restaurant outlets at the four airports, totaling 366,000 sq. ft.

DHS Tests Biometrics for Departing Foreigners. The Department of Homeland Security in late June gave reporters and congressional staffers a look at its mockup airport facility aimed at testing various ways of collecting biometric data from departing tourists from overseas (see last issue’s news story). It will test the use of fingerprint, iris-scan, and facial recognition technologies at the Maryland facility, using various scenario exercises. Still not explained is how DHS will deal with those foreign visitors who either do not return home via air and capital and bridge disbursements per mile or do not return at all. But it turns out the creation of this program was not DHS’s idea: it was mandated by Congress.

GMR Consortium Awarded Damages from Maldives Government. The consortium that had won GMR a 25-year concession agreement to upgrade and operate the Maldives Airport filed suit against the Maldives government after it cancelled the concession. An international arbitrator awarded $4 million in costs to the GMR Infrastructure/Malaysia Airports Holdings joint venture, for the Maldives’ wrongful termination of the concession agreement.

Orlando to Use PFCs for Terminal Expansion. The FAA last month approved Orlando International Airport’s continuation of passenger facility charges (PFCs) to finance the first stage of what could amount to a $1.2 billion expansion. That initial phase will include adding a mile-long people mover and a new parking structure south of the existing terminal, adjacent to the site of a forthcoming intermodal center and a second major terminal. The intermodal center will serve the planned All Aboard Florida passenger rail service from Miami and a planned extension of the new Orlando commuter rail service, as well as rental car and bus services from the planned second terminal.

Generating More Revenue by Satisfying Airport Passengers. A new report from the Transportation Research Board’s Airport Cooperative Research Program carries the title, “Improving Terminal Design to Increase Revenue Generation Related to Customer Satisfaction.” It is ACRP Report 109 and is available on the TRB website: www.trb.org.

Update on Global Entry Renewal. In response to last issue’s article on problems with unexpected Global Entry expiration, a long-time reader in the DC metro area emailed to say that his Global Entry material included a phone number that he called to ask about expiration and renewal. The person he spoke with provided his expiration date and said he would get an email about six months before that date, reminding him to renew.

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Quotable Quotes

“The inane and politically correct security theater of doing everything to everybody to appear to be unbiased and fair is ridiculous, inefficient, very costly, and negatively affects the entire industry. . . . The solution: trust and verify. Find and ID the no-threat passengers and move them out of the queue. The answer is not to look at everyone as a potential security threat, but to look for ‘good’ people, verify their trust status and identity, and remove them from the huge scrutiny group of travelers as rapidly and effectively as possible. This is a huge psychological win-win for everyone.”
-Capt. Matt Sheehy and Capt. Steve Lucky, “Intelligence-Driven Transportation Security,” Blue Line Magazine, November 2013

“Planes fly in and out of Silver Comet Field every day, and any commercial service will constitute a very small percentage of aircraft operations the airport currently handles. Four more take-offs and landings per day will not compromise efficiency or business at Hartsfield-Jackson. Even Hartsfield-Jackson’s former aviation director Louis Miller confirmed this multiple times in this very newspaper. However, having limited low-fare commercial service will stimulate competition, as has been demonstrated in numerous domestic and foreign cities with multiple airports, and that is where Delta’s issue lies. While it’s natural for a company to try to protect its business from competition, how it does it and for what purpose should be scrutinized for all. Competition is the American way. And in the air transportation industry, it is national policy.”
-Robert J. Aaronson, Chairman, Propeller Airports, “Atlanta Needs What Other Major Cities Have,” Atlanta Journal-Constitution, April 14, 2014

“The United States is an oddball in this respect. Most airports in the world are privately run. Why? They generate positive cash flow. It will take time for the United States to actually start privatizing airports, but I believe that is the final direction. I’m not saying airports aren’t run well; they are, but for the most part [aren’t] run like private-sector entities. With everything that resides in the public sector, you’re limited in what you can streamline.”
-Interview with incoming Indianapolis Airport Authority Executive Director Mario Rodriguez, “Industry Insider,” Airport Business, June/July 2014

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Robert Poole is director of transportation policy and Searle Freedom Trust Transportation Fellow at Reason Foundation.