Aviation Policy News: Bailout Terms for Airlines and How COVID-19 Will Change the Airline Industry
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Aviation Policy Newsletter

Aviation Policy News: Bailout Terms for Airlines and How COVID-19 Will Change the Airline Industry

Plus: Why airports are faring much better than airlines during the pandemic, thinking bigger about remote/digital towers, and more.

 In this issue:

Airlines After the Pandemic

In the end, after an all-out, weeks-long campaign against the government getting warrants in exchange for providing grants and loans, the country’s 10 largest carriers caved in this week. Treasury Secretary Steven Mnuchin gave taxpayers at least some possible return on the package of low-interest, unsecured loans and outright grants provided for in the $2.2 trillion CARES legislation. Warrants grant the Treasury Department the right to a certain number of (non-voting) shares that it could eventually sell at a higher price once the airline in question recovers. The precedent for this is the airline bailout package in the wake of the 9/11 terrorist attacks. As the airlines recovered, the government ended up netting a $130 million profit for  taxpayers.

An aviation financial analyst whom I know points out that Delta has a pretty solid balance sheet, while American’s looks the weakest. In contrast with airports that finance much of their capital investment via long-term revenue bonds (and whose bondholders insist on reserve funds and conservative financial management), airlines are increasingly “asset light” with few tangible assets (many planes are leased rather than owned, for example). The Wall Street Journal reports that “airlines are running out of assets against which they can borrow.” It cites a recent $1 billion loan that American secured via “a second mortgage on its New York to London Heathrow route,” and the story’s headline that airlines are now negotiating the sale of large batches of frequent-flyer miles to their credit-card partners. On the other hand, United last month obtained a large one-year loan with aircraft and other assets as collateral.

A factor that is rightly dismaying to the airlines is a condition written into the bailout law that airlines accepting grants and loans must continue serving “all points” in their networks through Sept. 30th. This is ludicrous; many regionals and low-cost carriers offer seasonal service, which does not mesh with this requirement. Airlines serving tourist destinations such as Hawaii and the Caribbean have virtually no passengers wanting to go to places where the resorts are closed. This kind of micro-management, while politically predictable, is an inherent drawback of government trying to maintain an unrealistic status quo.

Which brings us to the subject hardly anyone dares to mention: bankruptcy. In his recent piece in The Daily Dish arguing against the government obtaining warrants, analyst Douglas Holtz-Eakin worried that if airlines rejected the federal bailout money rather than granting warrants, “The alternative would be to file for bankruptcy, which would be a disaster.” Well, that would a disaster for shareholders and creditors of an airline that had been so poorly managed that it would file for liquidation under Chapter 7. That did happen to some legacy carriers that could not cope with the transition to a competitive U.S. airline market unleashed by deregulation. But the industry survived the demise of Eastern and Pan Am, to say nothing of Braniff and National. The more likely alternative is that the weakest current airlines might have to file for reorganization under Chapter 11. Most of today’s major carriers have been through that process at least once before and should have learned their lessons about prudent management. Apparently some didn’t.

Earlier this month, McKinsey released an assessment of the global impact of the coronavirus pandemic, estimating that the impact on global aviation will be five to six times as bad as the impact of the 9/11 terrorist attacks. The report estimated that domestic air travel could return to normal levels after nine months, but international travel might not return to normal for 18 months.

What will probably emerge is a post-pandemic airline industry that has fewer zombie airlines (such as Alitalia and South African) and survivors that have figured out how to manage their finances and business plans to cope with major economic downturns every 15 years or so. One policy change that would help is to liberalize or eliminate government policies that limit foreign ownership—25 percent maximum in the United States and 49 percent maximum in the European Union. No such rules encumber other global industries, and broader access to capital should make for a financially stronger set of airlines.

Governments in some countries are erecting roadblocks to a leaner, more-efficient industry by considering nationalization as opposed to just temporary bailouts—e.g., France, Finland, Italy, Portugal, and South Africa. By going back to political management of inefficient carriers, these governments will impede the recovery of a robust airline industry. By contrast, the governments of Israel and the U.K. are taking a more hard-nosed approach, insisting that before any kind of state aid, their airlines exhaust every possible source of private financing.

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Airports Are Faring Much Better Than Airlines

Airports are equally at-risk as airlines due to the collapse in air travel. But airports are far more conservatively managed than airlines, and therefore are in less need of large-scale government bailouts. But that didn’t stop U.S. airports from lobbying for bailout aid—or Congress from providing it. The CARES legislation authorized $10 billion to be paid to airports of all sizes (including general aviation airports) with hardly any restrictions on how it may be spent. The only significant condition is to continue to employ, through Dec. 31, at least 90 percent of current staff (with a few hardship exceptions, at the discretion of the Secretary of Transportation).

By contrast, Canada’s assistance is far more modest. Its federal government is waiving the lease payments required of the 21 biggest airports (still owned by the feds but operated by local airport authorities) through the end of the year. That amounts to $334 million in savings for those airports. And the Canadian Airports Council is asking for modest longer-term relief, such as allowing arriving passengers to make duty-free purchases.

Most of the large airports in Europe have either been privatized or corporatized (incorporated as commercial entities with only government shareholders). As such, they have greater access to the capital markets than U.S. airports. That may explain why U.K. Chancellor Rishi Sunak told the industry late last month to explore all liquidity options with shareholders and lenders before coming to the government. In Spain, AENA (the world’s second-largest airport company, by revenue) has secured $1.1 billion in commercial loans, with terms of from one to four years. Corporatized Schiphol Airport Group has sold $822 million worth of “green” bonds, with a 2 percent coupon rate—and the offering was several times over-subscribed. Investor-owned London City Airport, which serves mostly business travelers and routinely closes for part of each weekend, on March 25 announced a shut-down through the end of April as its least-bad way to cope.

In a recent report on U.S. airports, rating agency Moody’s judged airports as among the highest-risk infrastructure for revenue loss due to the pandemic. Fitch Ratings is modeling a two-year recovery for U.S. airports, with air travel recovered to 95 percent of previous levels in 2021, after major declines in the second and third quarters of this year. Fitch estimates that the larger U.S. airports it rates have an average of 500 days of cash on hand and a debt service coverage ratio of an impressive 1.8. Hence, while it has changed its near-term outlook for those airports to negative, it has not reduced their bond ratings.

Obviously, even with the $10 billion federal bailout, U.S. airports are making cuts where they can. While existing construction projects (e.g., terminal expansions at DEN, LAX, MCO) are continuing, proposed projects such as DFW’s sixth terminal and SFO’s $1 billion Terminal 3 West are now on hold, and the former’s size and timing will be rethought in light of reduced air travel demand.

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ANSPs Are Coping with Air Travel Collapse

Air navigation service providers are facing a difficult situation. As Martin Rolfe, the CEO of NATS in the U.K. explained to Aviation Daily’s Tony Osborne, “To deliver an air traffic service, all the systems have to be there ready and maintained, so even if you only have a few flights, you still need 90 percent of the infrastructure.” And he noted that since it takes up to three years to train a controller, it would be foolish to let them go or let their skills atrophy. Two things that can be put on hold are the technology program and the training academy. NATS’ current plan assumes flights resuming to 50 percent by year-end and 75 percent of normal by sometime in 2021.

Both NATS and Airways New Zealand are considering reducing or ceasing air traffic control services at some regional airports that currently have very little or no airline service. Normal visual flight rules (VFR) would apply at those airports until airline service ramps back up. In New Zealand, this prospect had already led to significant local pushback.

In Europe overall, some cost relief for airlines has been arranged by Eurocontrol, which provides high-level air traffic control (ATC) services for one flight information region via its Maastricht Upper Airspace Control Center (MUAC) but also bills and collects en-route ATC fees across Europe on behalf of each country’s air navigation service provider (ANSP). Early this month Eurocontrol’s 41 member governments approved a plan to defer $1.2 billion of ATC fees, with February charges deferred to November and March-April-May charges deferred to 2021. While this gives airlines short-term cost savings, it deprives ANSPs of much-needed revenues. The 41 member countries a week later approved Eurocontrol obtaining a $1.38 billion loan, which will be used for short-term compensation of the ANSPs. Eurocontrol will repay the loan once it receives the deferred payments from airlines next year.

Back in the U.S., the FAA, as part of the federal government, has remained fully funded, but its controllers and technicians are threatened by the coronavirus. The Wall Street Journal’s Andy Pasztor last week reported that nearly half of the 22 en-route centers have had to cope with infected employees, as have another 26 control towers and TRACONs. FAA, working with controllers’ union NATCA and technicians’ union PASS, has reorganized staffing plans. Controllers and technicians now operate in small teams that work the same schedule for five days in a row. That way, if one member of a team gets infected, only the other members are potentially exposed. This is a major change in scheduling, and the unions are to be commended for quickly embracing this important and potentially life-saving alternative.

Other examples of innovative solutions were reported by Hugo Martin in the Los Angeles Times on April 13. Airports with more than one tower (DFW, ORD) are using only one, and reserving the other as a backup in case the first one has to be decontaminated. At Orlando International, the Delta ramp tower was used temporarily when the FAA control tower had to be cleaned. And at LAX, the old tower (now used for office space) has been designated as a backup for the new tower that opened in 1996.

This suggests to me that FAA might want to consider adding remote/digital tower capabilities at major airports, to operate as contingency towers (and perhaps eventually replace the traditional tower). A small but growing number of overseas airports now have, or are planning, such contingency towers.

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Remote/Digital Towers: Thinking Bigger

The world’s first remote towers were for small airports where the conventional tower cost too much or for others that did not yet have a tower. But as showcased in the latest issue of Air Traffic Management, the latest trend in what are now being called remote/digital towers is thinking bigger.

David Hughes provides an update on the growing size and planned capacity of remote tower centers in Europe. The ANSPs of Sweden and Norway have led the way on this, planning from the outset for remote tower centers (RTCs) from which multiple airports are controlled. Sweden’s LFV was the first mover, with its initial RTC at Sundsvall, which now controls traffic at three small airports. But together with Saab, LFV is now developing a much larger RTC at Stockholm’s Arlanda Airport, with the capacity to handle 24 airports. The first four airports have already been designated.

Norway’s Avinor is expanding its original RTC at Bodo to handle 15 small airports, most of them above the Arctic Circle. Its current plan is that all 15 will be operational by 2022. Avinor is responsible for 44 airports altogether and plans to serve 36 of them remotely. It is using the Ninox RT platform developed by Kongsberg and Indra Navia. It will offer transfers to the RTC for controllers at the remote airports, and points to more interesting work and better-equipped facilities at the RTC. Among the new features are displays that provide both visual and infrared surveillance, permitting a fused display of both, at the controller’s option. Avinor CEO Dag Falk-Petersen told Hughes that,

“The old towers had started to expire, and something had to be done. We therefore had a choice, whether to invest in upgrading the old physical towers or create a future that will serve our country well. Remote towers mark the beginning of a new era. We are making a quantum leap into the future.”

Germany’s DFS is also expanding its initial RTC. Located in Leipzig and already controlling traffic at Saarbrucken, it is scheduled to add Dresden and Erfurt this year, and now plans to add control of three more airports to that RTC. The Leipzig center has been developed by Frequentis, and the experience led to the development of Frequentis DFS Aerosense, aimed at being a global remote/digital tower provider. In a separate article in Air Traffic Management, Aerosense’s managing directors, Christian Weiss and Katrin Scheidgen, suggest three paths forward for remote/digital towers: the RTC to replace conventional towers at small airports, the virtual tower for enhanced capability and contingency at large airports, and the supplemental virtual tower for apron control, blind-spot coverage, etc.

Two other recent developments are worthy of note. Denmark’s Naviair has recently contracted with Frequentis DFS Aerosense to develop a remote tower center at the country’s second-largest airport, with the capacity to control traffic at smaller airports. And Canadian digital tower provider Searidge Technologies has formed a partnership with Aireon to integrate space-based ADS-B data into its digital/remote tower systems. Searidge contingency tower demonstrations have taken place at Hong Kong, Singapore, and London Heathrow airports.

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Whatever Happened to ADS-B/In?

Since the first of this year, all aircraft operating in controlled airspace in the United States must be equipped with ADS-B/Out. That system is essentially an upgraded transponder that broadcasts a large packet of information about the flight once per second. That information is received by a nationwide network of ADS-B ground stations, which send it to FAA air traffic facilities. It is also picked up by receivers on the constellation of Iridium satellites which, among other functions, host ADS-B transceivers provided by Aireon. Those transceivers relay the information to ground stations of ANSPs that subscribe to Aireon’s services, using it to keep track of aircraft over the oceans, in polar regions, and over mountainous areas where there are neither radars nor ADS-B ground stations.

All well and good, but the original ADS-B concept included a way for the ADS-B traffic information to also be received and displayed in cockpits, to give pilots increased awareness of other traffic. That is called ADS-B/In, but it seems to no longer be part of FAA’s ongoing NextGen modernization. Last decade I wrote about US Airways equipping some of its airliners with an ADS-B system provided by ACSS that was being tested as a way to enable one US plane to closely follow another as they approached a major hub such as PHL. Fedex also equipped a number of freighters so they could do merging and spacing as they approached its hub at Memphis. But those experiments stopped years ago, and the equipment was removed from those aircraft. What happened?

I tracked down a 2012 report from the FAA’s ADS-B/In Aviation Rulemaking Committee (ARC) which provides some clues. It cites a funding decision made by the agency’s 2012 Joint Research Council that “adds uncertainty and delay to establishing the business case for key ADS-B/In applications.” The ARC remained supportive of ADS-B/In as a future part of NextGen, but recommended not proceeding with any sort of equipage rule until more work had been done, with better funding, to establish the business case—i.e., which specific applications to be used where. It called for further work on five potential applications with the greatest potential for a real business case:

  • Flight-deck-based interval management/spacing;
  • Cockpit displayed traffic information to assist with visual separation;
  • Flight-deck-based interval management/defined interval;
  • Interval management-oceanic; and,
  • Interval management for closely-spaced parallel runways.

Some good news was reported by Aviation Week’s Bill Carey in the March 23-April 5 issue. It turns out that American Airlines (which merged with US Airways in 2013) resumed working with ACSS in 2016 to develop improved versions of the original ADS-B/In equipment. CRSS’s new SafeRoute+ software is designed as an upgrade to the software that runs the collision-alert system TCAS that is required on all airliners. And it uses the existing multi-function display instead of requiring a costly modification of the instrument panel. American has ordered the system on 100 new A321neo aircraft that are now starting to be delivered. FAA has certified the system for this aircraft type.

American and ACSS will collaborate to flight-test cockpit displays of traffic information to be used to maintain spacing between lead and following aircraft (cockpit-assisted visual separation—CAVS). And because all airliners broadcast ADS-B/Out signals, this will work if a SafeRoute+ equipped AA flight follows any other airliner. The flight tests will take place managed by Albuquerque Center, and will also include Interval Management and Enhanced Airborne Traffic Situational Awareness.

It turns out that Airbus has been equipping new planes with its own Airborne Traffic Situational Awareness (ATSAW) system for a number of years. It has delivered 229 equipped A320s, 80 A330s, and 155 A350s. I doubt if any of this is in use yet in Europe, since not all airliners there are equipped even with ADS-B/Out.

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News Notes

Privatization of Paris Airports On Hold
Various news sources report that the French government is not proceeding with the planned privatization of its 51 percent of Aeroports de Paris, the world’s largest airport company by revenue. While Infrastructure Investor says the plan has been scrapped, other sources say the reduced near-term outlook for air travel means investors’ valuation of the 51 percent stake would not meet the government’s objectives in 2020, which means the sale might still occur in a future year.

World’s First Control Tower Celebrates 100th Anniversary
In 1920, an Aerodrome Control Tower was inaugurated at London Croydon Airport. The structure, built onto the airport’s terminal building, housed Civil Aviation Traffic Officers equipped with radios, paper maps, and weather information. While it’s nice to recognize history, it’s dismaying that ANSPs in many countries are still building new conventional towers, despite the superior capabilities and lower costs of 21st-century remote/virtual towers.

FAA Unveils New Supersonic Noise Standards
On March 30, FAA issued a notice of proposed rulemaking (NPRM) on draft noise certification regulations for new supersonic aircraft. With at least three U.S. companies developing prototypes, certification standards are a step forward. However, the proposed rules would apply only to aircraft with a maximum takeoff weight of 150,000 lbs. and a maximum cruise speed of Mach 1.8. Unfortunately, while that would include Aerion’s AS2 supersonic business jet, it excludes Boom Supersonic’s larger Overture aircraft, sized for up to 75 passengers and speeds up to Mach 2.2. FAA has said that when larger and faster planes are farther along, it will issue noise certification requirements for them, as well. Also, the regulations in the current NPRM apply only to takeoff and landing noise; they do not address supersonic cruise over land, which is still prohibited for non-military aircraft.

Stewart Airport Being Operated by Private Company
The Port Authority of New York & New Jersey last fall announced that Future Stewart Partners has been contracted to operate and manage Stewart International Airport for 10 years, beginning January 1, 2020. FSP is a joint venture of Groupe ADP and AvPORTS, which manages a number of other U.S. airports under contract. FSP’s responsibilities also include upgrading the airport’s retail concessions and developing additional airline service.

Anti-Drone Working Group Organized in Europe
EUROCAE, the E.U.’s civil aviation equipment organization, has launched Working Group-115 to develop common standards for anti-drone systems to protect airports. RTCA, the U.S. aviation standards group, has created committee SC-238 for the same purpose, and will share information with WG-115. Indra will chair WG-115. Also part of that working group is a new joint venture of Frequentis and HENSOLDT, which are working together on the German counter-drone project FALKE, which includes DFS (the ANSP), Lufthansa, and Hamburg Airport.

Ending Great Hall Deal Costs DEN $183.6 Million
Last month Denver International Airport announced the settlement of its termination of Great Hall Partners’ 34-year, $1.8 billion design/build/finance/operate/maintain P3 concession to rebuild the landside Great Hall at the airport. In closed-door meetings with the city council, airport CEO Kim Day took most of the blame for the failure, saying that the airport’s own feasibility study was flawed, the contract was poorly constructed, she and her team took too long to make decisions, and the team was inexperienced with this type of contract. Details here.

Are States Prepared for the Drone Industry?
A new report from the Mercatus Center at George Mason University evaluates all 50 states based on a 100-point scoring system, with 30 points given for laws permitting the lease of airspace corridors, 25 points for an avigation easement law, 20 points for an aviation advisory committee, 15 points for the estimated number of drone industry jobs, and 10 points for a law vesting low-altitude air rights with land-owners. The top scoring state is North Dakota. The report card, by Brent Skorup and Connor Haaland, is available here.

Arizona Supreme Court OK’s Phoenix Uber/Lyft Charges
In a unanimous decision on April 2, Arizona’s highest court upheld Phoenix Sky Harbor’s new $4 pickup and drop-off fee for ride-hailing companies. The state’s attorney general had challenged the fees as violating a 2018 constitutional amendment that banned new fees on services, but the airport argued that the fees are a permissible user charge for firms to do business with the airport.

NASA Plans Electric Aircraft Flight Demonstrations
The air and space agency is planning a competitive Electrified Powertrain Flight Demonstration program. To begin next year, it will invite companies to demonstrate in flight prototypes of electric or hybrid-electric aircraft. The project is focused on powertrains in the 1 megawatt category, so the flight demonstrators will all be small aircraft, such as Ampaire’s hybrid-electric conversion of a Cessna 337 Skymaster.

California Attorney General Files Suit Against Minor Airport Expansion
In a troubling case, California Attorney General Xavier Becerra has sued the FAA and San Bernardino International Airport over the planned development of an air cargo warehouse at the airport by Hillwood Enterprises. The tenant is rumored to be Amazon. The suit alleges that FAA improperly concluded that the project would have no significant environmental impact, despite the additional truck trips it would attract to the airport. (Note: if customers in the area keep ordering from Amazon, the planes have to land somewhere, and the trucks have to deliver the stuff.)

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Quotable Quotes

“It is vital for governments, lawmakers, and industry leaders to recognize that aviation will need help getting through such a destructive upheaval. But in some cases, the optics will invite legitimate criticism. For example, Boeing has returned nearly $50 billion to shareholders over the past five years while investing far less. Now it wants taxpayers to cough up tens of billions for a bailout? U.S. airlines are no better. They have sent 96 percent of free cash flow to shareholders over the last five years. And what about those airlines in Europe that should have been allowed to die long ago? Will they use this crisis as leverage for yet another government rescue?”
—Editorial, “This Too Shall Pass,” Aviation Week, March 23-April 5, 2020

“I see the need to get money to those workers who will be unemployed. . . . But the Fed’s current policy would appear to be a generalized bailout of investors, even those whose positions were known to be risky. And the U.S. Congress has, in great haste and frantic horse-trading, passed legislation that commits taxpayers to writing down hundreds of billions of dollars of ‘loans’ to businesses large and small. Moreover, the legislation would appear to make more than half of American workers better off being unemployed than they would have been working.”
—Niall Ferguson, “Don’t Count on a Quick Global Resurrection,” The Times (London), April 12, 2020

“If the airports are clever, they will aim for an expanded role. If, for example, the airspace surrounding each airport, and the tower, was in the relevant airport’s control, it could offer services to the airline groups, or perhaps to only one of them, to arrange arrivals and departures in accordance with that group’s requirements. That would un-unify en-route and terrestrial slots. It may lead to revisions of charging, too. The surviving airlines will be big enough to demand network-level, network-focused infrastructure. The shareholders, who will also sit on the boards of many airports and ANSPs, might see the logic of that and get a liability off their books. This is not business as usual.”
—Andrew Charlton, “The Shape of Things to Come?” Aviation Intelligence Reporter, April 2020

“By testing, deploying, and scaling space-based ADS-B data, ASECNA has become a strategic leader among African ANSPs, bringing the Single African Air Transport Market (SAATM) closer to reality. In just two years, it has transformed from an organization limited by costly capital infrastructure to a champion of real-time, space-based systems for a whole region, leading the way for a completely integrated African airspace.”
—Louis Bakienon, “Creating a Seamless African Sky,” Air Traffic Management, Issue 1, 2020

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