Aviation Policy News: U.S. airports worth $131 billion, benefits of airline deregulation, and more
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Aviation Policy Newsletter

Aviation Policy News: U.S. airports worth $131 billion, benefits of airline deregulation, and more

Plus: Urban air taxi updates, Europe moving to space-based landing systems, and more.

In this issue:

Major U.S. Airports Are Worth $131 Billion, Think Tank Study Says

American city and county governments (and a few state governments) are sitting on potential gold mines, according to a new policy study by the Reason Foundation. The report estimates the potential market value of 31 large and medium U.S. airports as $131 billion. Among the most valuable are Los Angeles International ($17.8 billion), San Francisco International ($11.9 billion), Dallas/Ft. Worth International ($11.9 billion) and Atlanta’s Hartsfield-Jackson ($9.2 billion). The full study (.pdf) is here.

The study used valuations from the sale and lease of airports worldwide in recent decades to estimate the potential market value of 31 U.S. airports owned by city, county, and state governments. The study suggests that U.S. airport owners consider monetizing the asset value of their airports via long-term public-private partnership (P3) leases, as are increasingly common in Europe, Australia, and Latin America.

In most overseas cases, the lease payments are made up-front, creating a large one-time windfall for the government that owns the airport. The study advises that wise uses of such a windfall would be to invest the proceeds in other needed infrastructure, to pay down debt, or to strengthen under-funded public employee pension systems. In some cases, the net proceeds from a long-term airport lease would be large enough to eliminate a city or county pension system’s unfunded liabilities.

The report also documents the global trend toward private investment and management of airports. The Airports Council International found that 75% of European air travelers are served by airports with majority private-sector investment, as are 66% of passengers in Latin America and the Caribbean. The United States is in last place, at a mere 1% (reflecting the long-term lease of Puerto Rico’s San Juan Airport in 2013).  

The Reason study’s estimates are possibly too conservative. The report’s valuations are based on 20 times earnings before interest, taxation, depreciation, and amortization (EBITDA), a widely-used measure of annual cash flow. But last month, Sydney International Airport, Australia’s largest, received a $17 billion buyout offer based on 26 times EBITDA—and that offer was rejected as too low. This suggests that infrastructure investors are valuing airports for their long-term prospects, despite the effects the COVID-19 pandemic has had on air travel.

The study also reports that the U.S. airport sector is seen by infrastructure investors as a very attractive but largely untapped market. In 2019, when St. Louis sought to long-term lease its major airport, observers were surprised that 18 international teams submitted qualifications and the 11 best-qualified teams made detailed presentations that won support from the airlines serving that airport. (Local politics ended up terminating those plans.)

Congress opened the door in 2018 with the new Airport Investment Partnership Program (AIPP) that permits all major airport owners to enter into long-term leases with private investors and airport companies, using the lease proceeds for other governmental purposes. And the new bipartisan infrastructure bill includes a section on “asset recycling” that would offer planning grants for state and local governments to research and design the procurement process for such long-term public-private partnerships.

U.S. airports, while generally well-run, lag international standards in passenger-friendliness and economic productivity, according to studies cited in the Reason Foundation report. For example, the Skytrax World’s Top 100 Airports 2020 survey includes no U.S. airports in its top 25, but 11 of that top 25 are privatized/P3 airports. U.S. airports also depend more heavily on airline fees and charges, as opposed to non-aviation revenues from retail concessions, parking, rental cars, etc. This may be why airlines have supported recent proposals for airport leases in Chicago, St. Louis, San Juan, and Westchester County, NY.

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Europe Moving Toward Space-Based Augmentation for Landings

GPS provides precise locational information, but the signals available to non-defense users are not accurate enough to provide precision approach and landing guidance, especially for those procedures in limited-visibility conditions. There are currently two different ways to augment civilian GPS signals for this purpose: ground-based and space-based. The less-costly way, with higher capability and security, is ground-based, as I discussed in the June issue of this newsletter (“SFO Is Implementing GBAS. Why Aren’t Other Airports?”) The other option is space-based augmentation, which has recently been decreed by the European Commission to be Europe’s method going forward.

The same dichotomy exists in the United States. Many years ago, the Federal Aviation Administration (FAA) was pursuing both approaches, but when the Ground-Based Augmentation System (GBAS) technology initially proved difficult to adapt to Category 1 approaches (the least stringent of three categories of precision approach), the agency dropped GBAS in favor of what it called Wide-Area Augmentation System (WAAS). FAA paid industry to develop and launch three dedicated WAAS satellites and the service went live in 2003. It supplies data to 38 ground-based reference stations at known locations that feed data to three WAAS master stations that calculate error messages and send them to ground uplink stations that broadcast correction information to aircraft receivers. (If this sounds clunky and costly to you, I agree—but FAA has never revealed the total capital and operating costs of WAAS.) Those receivers are almost entirely in general aviation aircraft, which has created a powerful lobby for the continued support of WAAS and continued FAA shunning of GBAS, despite the latter’s superiority and its being fully certified for Cat. 1 approaches, with Cat. 2 and Cat. 3 certification in the near future. FAA still refuses to fund GBAS, so airports (like Newark Liberty, George Bush Intercontinental/Houston, and San Francisco International) and airlines that want GBAS have to pay for it themselves.

That brings us to the recent European Commission decisions. Rather than launch new satellites as FAA did, the EC awarded contracts recently to upgrade the existing European Geostationary Navigation Overlay Service (EGNOS) to improve its signal accuracy to permit Cat. 2 approaches, and to enable it to use signals from both GPS and Europe’s Galileo. Two additional policies will further undercut GBAS in Europe: (1) requiring all Cat. 1 approaches to be done only using EGNOS by 2030, and (2) requiring every EU airport with an ILS to create an EGNOS approach by 2024. Unlike in the United States, where hardly any airliners are equipped for WAAS, most airliners in Europe “have or soon will have EGNOS capability,” reported Thierry Dubois in Aviation Week (June 15-28, 2020). Both Airbus and Boeing protested these impending developments for a decade (2000-2010), but seem to have given up.

The future of more cost-effective GBAS for U.S. airliners is hard to forecast. On one hand, a growing fraction of U.S. airliners are equipped for GBAS, and more large airports seem likely to follow SFO’s recent decision to install GBAS at its own expense. There is also a new bill in Congress to require FAA to fund GBAS as part of NextGen (see News Notes). On the other hand, U.S. airlines that serve European destinations face new costs to equip those planes with EGNOS, so they may balk at also needing a GBAS interface for them when operating in FAA airspace.

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Airline Deregulation Continues to Democratize Air Travel

A basic premise of the Airline Deregulation Act of 1978 was that removing federal controls on air routes and pricing would bring competition to what had been a cartelized industry. And that competition would serve customers, by expanding service and keeping airfares affordable.

A recent release from the U.S. Department of Transportation’s Bureau of Transportation Statistics (BTS) bears this out. BTS provides both then-current dollar amounts and inflation-adjusted to 2021 dollar figures for average domestic airfares from 1995 through 2021. To summarize the annual data succinctly, while the average fare (in 2021 dollars) in 1995 was $518, the average in 2019 (pre-pandemic) was $364 (30% less) with further declines in 2020 and 2021 (with the latter at a competition-generated $260—50% below 1995. To be sure, there were some ups and downs in between, but the long-term trend is decidedly downward. As the headline on Wall Street Journal air-travel columnist Scott McCartney’s August 11 column modestly put it, “Why Fares Have Barely Budged in 25 Years.”

Critics will be quick to raise concerns about this finding. Sure, base fares are low, but today there are all these optional add-ons (checked baggage, food, premium seating, etc.) that increase the actual cost of an airline trip for many people. True of course, but they are a small fraction of the fare for most air travelers. For example, BTS found that in 2019 baggage fees totaled $5.8 billion, accounting for just 2.9% of operating revenue.

Other critics, including some in Congress, point to what they portray as a shared monopoly of the big four airlines: American, Delta, Southwest, and United. Yet what economists have learned to watch is competition at the margin. There is ample evidence of things like the “Southwest effect”: when that airline enters a market, fares charged by other carriers nearly always decline. Other lower-cost carriers, like Alaska and JetBlue, also provide this kind of competition with the big four. And then there are the ultra-low-cost carriers, especially Allegiant, Frontier, and Spirit. As John Heimlich, chief economist at Airlines for America points out, the share of passengers of the ultra-low-cost carriers (ULCC) increased from 4% in 2009 to 11% in 2019. And as I have written in previous issues of this newsletter, those three carriers plus newcomers like Alevo and Breeze are likely to take additional market share from the legacy carriers.

What makes it possible for this kind of competition to continue keeping airfares affordable? Here are four important factors.

  • First, unlike Europe, only a handful of U.S. airports have slot controls, imposed as a way for government to micromanage demand that exceeds capacity. We (and Europe) could fix that by switching to runway pricing for airports with that problem.
  • Second, airports in many popular locations (e.g., Las Vegas and Orlando) have had the foresight (and space) to expand their capacity to enable new entrants. Orlando has built an entirely new south terminal and was rewarded in July by ULCC Frontier announcing nine new domestic and eight new international routes.
  • A third factor has been the advent of Passenger Facility Charges (PFCs) which have enabled airports to more easily finance terminal expansions that would have been much harder to do when most airports were locked into long-term leases with legacy carriers that gave them veto power over terminal expansions.
  • Finally, changes in gate policies have opened entry, such as Miami International’s 2018 decision to change its gate fees policy from per-use to flat monthly fees. That has opened the door for Frontier and other lower-cost carriers (including Southwest) to enter an airport that had been too costly to use.

One other change was proposed recently by Frontier CEO Barry Biffle at the Routes Americas 2021 conference in June. He urged airports to “stop charging [for landings] by weight and start charging more by movement.” He pointed out that traditional weight-based landing fees encourage smaller jets with fewer passengers, rather than larger jets with more passengers. He might have added that runway pricing along these lines would also reduce congestion, as airlines “up-gauged” from smaller planes to larger ones.

Many years ago I got to know economist Alfred Kahn, widely known as the father of airline deregulation. He gave me copies of reports in which he argued, around the time of deregulation, that merely deregulating airlines would not be sufficient for the large-scale expansion in air travel that deregulation would bring about. He argued for airport pricing and for a businesslike reform of the air traffic control system. Both still make good sense, but thanks to the factors I’ve noted above, we have emerged with robust airline competition anyway.

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Progress and Caution Flags on eVTOL Startups

August has been a big month for the growing array of startup companies hoping to succeed in Urban Air Mobility (UAM) using a new generation of electric-powered vertical take-off and landing (eVTOL) craft. Some August highlights include the following:

  • Joby Aero announced its record-setting 150-mile flight on a single electric charging, as well as completing comparative noise tests, as required for FAA certification which is already under way. Unlike most other eVTOL startups, Joby plans to both produce the aircraft and operate them in commercial service, so it has applied for both an air-carrier operating certificate (AOC) under Part 135 and a Part 23 type certificate for production and sale of its first eVTOL aircraft. In addition, it completed its acquisition by a special-purpose acquisition company (SPAC) and began trading on the New York Stock Exchange.
  • Lilium made two big announcements in August. First, Brazilian airline Azul signed a memorandum of understanding to acquire 220 7-seat Lilium Jets, a prototype of which does not yet exist. Secondly, the company announced that Honeywell will provide the avionics and flight control systems for the Lilium Jet eVTOL.
  • On a less-happy note, Archer countersued Wisk, responding to Wisk’s April lawsuit accusing Archer of stealing the design of its sixth-generation eVTOL. The SPAC taking Archer public in July cut its valuation from $2.7 billion to $1.7 billion.

Meanwhile, more cautionary notes appeared regarding the commercial viability of eVTOLs and Urban Air Mobility as a viable business venture. In a Wall Street Journal “Heard on the Street” column, Jon Sindreu suggested that the most plausible way forward for eVTOL buyers is to displace much of the world’s fleet of 23,000 commercial helicopters, “which are on average 20 years old, noisy, and unsafe.” But he quickly pointed out that the commercial helicopter business is currently valued at $50 billion, a tiny fraction of projections that eVTOLs will become a $1 trillion industry within 20 years. He then went on to examine who rides in existing taxicabs, suggesting that if the air taxi market is the target, smaller vehicles are probably more viable than larger ones.

Porsche Consulting followed up its 2018 market study on eVTOLs with a sober near-term assessment. To overcome various environmental and customer-appeal barriers will take between $20 and $25 billion by 2035, compared with the $5.5 billion raised by the main startups thus far. It still forecasts potential revenues of $21 billion by that date, but investors should be prepared for no returns for at least 10 years. Their report focused on urban air taxis, rather than regional mobility (which is Lilium’s primary target). It suggested that in the first phase of air taxis, “vertical mobility will be a service for special occasions,” but “neither economically nor socially relevant.” (Note: this is how most new technologies start out,)  Broad social acceptance will be the key factor in being able to move on to the second phase, to thousands of vehicles in dozens of cities offering services for daily travel. Another $5-10 billion will be essential to launch this second phase.

Finally, the infrastructure publication Inframation News offered a thoughtful article on August 11 on the infrastructure required for Urban Air Mobility. The short answer: infrastructure investors are not eager to jump in. The only example it found was the deal announced several months ago between REEF Technologies and Oaktree Capital’s Transportation Infrastructure Fund aiming to acquire and refurbish urban parking structures as eVTOL vertiports. The article provides cautionary thoughts from Rex Alexander, former head of aviation infrastructure for Uber and now operating a consultancy serving the helicopter and vertical lift industries. One possible location for eVTOL vertiports, he noted, is regional and local (GA) airports near major cities (such as Los Angeles, Miami, and New York which are being targeted by some eVTOL startups). He thinks “public acceptance will be a monster,” so any would-be air taxi operator needs to get out in front and educate the public that this is not “a new kind of helicopter.”

As I’ve written previously, eVTOL is an exciting new aircraft concept, with many very talented engineers coming up with fresh designs and operating concepts. Still to be determined is whether there are viable business models that will come close to generating the billions of dollars in revenue being projected by these companies and their financial backers.

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News Notes

New Bill Would Make GBAS an FAA Program
A bipartisan bill was introduced in Congress this month that would require FAA to provide grants to America’s 39 busiest airports to install ground-based augmentation systems (GBAS) to supplement aging instrument landing systems (ILSs). HB 3933 is sponsored by two Republican and two Democratic House members. As noted previously in this newsletter, FAA has never included GBAS in its NextGen modernization program, and only a handful of major airports have self-funded this important advanced technology. If passed, the bill would require FAA to develop an implementation plan within 12 months and make grants to airports over the following nine years. It also requires annual progress reports to the relevant congressional committees.

JFK Terminal 6 P3 Back on Track
The Port Authority of New York & New Jersey announced on Aug. 3 that it had reached an agreement with JFK Millennium Partners on the latter’s $3.9 billion project to redevelop the JetBlue Terminal 6. The previously selected P3 consortium includes JetBlue Airways, Vantage Airport Group, and American Triple I. The project will be financed with 80% debt and 20% equity, plus a $130 million investment by the Port Authority. A recent extension of the Port Authority’s lease agreement with New York City enables the PA to enter into a longer-term lease agreement with the consortium, which improves its potential return on investment.

Germany Launches Pilot Drone Traffic System
Germany’s air navigation service provider DFS announced in July that its pilot project to implement drone traffic management (referred to in Europe as U-Space) will be launched for the area encompassing the Port of Hamburg. The project is being paid for by a €1 million grant from the federal government’s infrastructure agency, BMVI. This “U-Space Sandbox” will be carried out by DFS subsidiary Droniq GmbH. Under policies from the European Union Aviation Safety Agency (EASA), drone traffic is to be coordinated by a U-Space Service Provider, which can be a branch of the national ANSP (as Germany is doing) or a separate company.

Alabama Airport Seeks Passenger Terminal P3
The Jack Edwards National Airport serves mostly general aviation tourists to the resort city of Gulf Shores, an hour west by car from Pensacola, FL. Since 95% of the area’s 7 million annual visitors drive to the area, the Gulf Shores Airport Authority hopes that a modern passenger terminal will prompt leisure-oriented airlines to offer air service. The agency issued a request for statements of interest in such a project, and received five serious responses by the August 20 due date. They envision a 40-year term for the terminal P3 project, with commercial airline service planned to begin in April 2022. The airport is transitioning from general aviation to commercial air service. A new control tower is on schedule for commissioning in November 2021.

Avelo to Serve Florida from New Haven
Start-up airline Avelo has announced its first east coast routes, to be operated from its second hub, Tweed New Haven Airport (HVN). They will serve Ft. Lauderdale, Ft. Myers, Orlando, and Tampa Bay, with the first route (Orlando) to launch November 4.  All four routes will begin with less than daily service, and all will use single-class Boeing 737-700 aircraft with 147 seats. Avelo began service from its western hub, Burbank (BUR) in April.

The Boring Company Proposes Airport Tunnels in Austin and San Antonio
The latest news from Elon Musk’s tunnel company is proposals for tunnels linking the downtowns of Austin and San Antonio to their respective airports. KVAN (Austin) reported that the company has met with city officials to discuss a tunnel from downtown to the new Tesla Gigafactory under construction near Austin Bergstrom International Airport. The San Antonio Express-News has reported similar talks in that city between Boring Company and the San Antonio Economic Development Foundation (SATX).

Amazon Air Opens Cargo Hub in Cincinnati
This month saw the opening of Amazon Air’s $1.5 billion air cargo hub at the Cincinnati/Northern Kentucky International Airport (CVG). The 800,000 sq. ft. facility will serve Amazon Air’s growing air cargo fleet, and will employ an estimated 2,000 workers. Kentucky Gov. Andy Beshear said the new hub would put the state at the center of Amazon’s distribution system, and will attract manufacturers, service providers, and tech companies to the state.

Air Force Seeking Contractor for Anti-Drone System
The Air Force Research Laboratory is seeking bidders to develop a fieldable high-power microwave system that can protect air bases by disabling or destroying drone intruders. The solicitation was released July 28, and AFRL hopes to begin the program this fall, with a prototype to enter testing in 2023. The program is named for the Norse god Thor’s hammer, Mjolnir, since it is based on an experimental version called THOR. The program’s goal is a system that can be produced and deployed in large numbers.

Kentucky Seeks Advisor for Airport P3 Project
The state government seeks to develop an “industrial general aviation airport” on the grounds of Bluegrass Station, a military-industrial business park east of Lexington. The project would be to advise the state’s Department of Military Affairs and the state’s Finance & Administration Cabinet on procuring the airport development as a P3 project. It would include a feasibility study, development of an RFI and analysis of responses, and other advice on the potential P3 project.

Hardened Cockpit Doors for Cargo Planes Proposed in House Bill
Reps. Jesus Garcia (D-IL) and Brian Fitzpatrick (R-PA) have proposed a Cargo Flight Deck Security Act, to require the same kind of hardened cockpit doors on cargo aircraft as on passenger airliners. The Air Line Pilots Association (ALPA) points to cases when cargo flights include non-crew cargo personnel who “are frequently onboard cargo flights” without receiving the same level of screening as flight-deck crews.

German Airports Relieved of Tower Costs—at a Price
The German parliament recently passed legislation to have DFS, the country’s ANSP, cover all the costs of control towers, relieving airports of those costs. However, the change eliminated potential competition for control towers from other tower companies, including new remote-tower providers. Meanwhile, DFS’s tower division remains free to offer contract tower services throughout Europe.

OneWeb Launches Space-Based Broadband Service in Alaska, Canada, and U.K.
The smallest of three global companies offering space-based broadband services, OneWeb, has announced that global services will begin later this year in northern regions of the northern hemisphere. Currently, only SpaceX’s Starlink is offering such services, in beta-testing mode. Amazon’s Kuiper system is still being developed. As of July, Aviation Week reported, OneWeb’s constellation is 40% complete, with 254 satellites currently in orbit. Its plan calls for global service to be available by June 2022, when its full 648-satellite fleet is in orbit.

JetBlue Service to London Takes Off
Using its recently acquired slots at London Heathrow (LHR), JetBlue Airways launched its initial service linking LHR with New York’s JFK International. Its second route, between JFK and London Gatwick (LGW) will begin service on September 29. Its aim is to attract business travelers with a less-expensive business class service up front, while attracting price-conscious tourist travelers to its main cabin. New York/London is one of the world’s most profitable airline markets for legacy carriers.

UK Government Competition for Zero-Emission Airport Services
The government’s Jet Zero Council has announced a competition, offering grants to airports to demonstrate projects that could assist in the introduction of battery-electric and hydrogen-powered commercial aircraft. The Zero Emission Flight Infrastructure program has $4.1 million available for grants for such projects, with plans to award at least 12 grants.

New Study on Space Traffic Management and Orbital Debris
A new policy brief from Reason Foundation addresses the growing problem of orbital debris and possible roles for a new U.S. policy on space traffic management in addressing the problem. The paper was researched and written by Senior Fellow Rebecca van Burken, and is available here.

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Quotable Quotes

“The [European] airlines say that if the [use-it-or-use-it] threshold is back to 80%, they will have to do a lot of unnecessary but most certainly pollution-emitting flying. Why? If they do not fly, what is the worst thing that happens? The slots go back into the pool. There is a risk—to those airlines, not to Europe, not to European aviation—that a new entrant will take some of the slots available. If they succeed, more power to them. That is what building back better might look like. If they do not, the legacy carriers lose nothing. They might even trade up at some of the formerly very slot-constrained airports. That too would improve the competitive landscape. This largesse and pandering has gone on too long. For too long now we have let the legacy carriers cry havoc. It is time to let slip the dogs of war, or at least a recovery that is better, and more competitive.”
—Andrew Charlton, “Airlines Support Recycling—at Least When It Comes to Slot Exemptions,” Aviation Intelligence Reporter, July 2021

“ACI Europe also repeated its call for a wider review of EU slot regulation, describing it as ’28 years old and wholly inadequate to today’s market. Planning certainty and the ability to invest have never been more crucial—nor have they ever been harder to achieve,’ [ACI Europe’s] Jankovec said. ‘Ensuring that mechanisms like the EU slot regulation—which should guarantee the optimal use of airport capacity—are fit for purpose should be the highest of priorities. Once the effects of the crisis on aviation have been thoroughly evaluated and lessons learned, we look forward to engaging in a root-and-branch review of the regulation.’”
—Victoria Moores, “European Airports Back Latest EU Slot Waiver,” Aviation Daily, July 27, 2021

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