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Reason Foundation

Air Traffic Control Reform Newsletter #56

Topics include: controversy over implementing NextGen ATC; FAA safety culture under attack; commercialized ANSPs; getting aircraft owners to equip for NextGen; and other news.

Robert Poole
September 1, 2008

In this issue:


Who Should Implement the NextGen System?

Several House members recently slammed the FAA for the way it has reorganized to begin implementing the NextGen system. Several months ago, the agency created a new position within its Air Traffic Organization (ATO): Senior Vice President for NextGen and Operations Planning. As the person filling this key position, Vickie Cox, told the House Committee on Science and Technology on Sept. 11th, the move "reflects the changing focus of NextGen from purely planning and research to actual implementation and integration of technologies." Henceforth, the Joint Planning & Development Office (JPDO) will focus on long-term (beyond 10 years) R&D and cross-agency coordination, while the new ATO office will handle near-term implementation and mid-term planning.

But House Aviation Subcommittee chairman Jerry Costello (D, IL) was outraged, because Congress was not consulted before the Secretary of Transportation, who chairs JPDO, made this decision. He called this decision a "major mistake" that downgraded the status of JPDO. He said the FAA should have waited for the passage of the FAA reauthorization legislation. The House version of that bill calls for the JPDO to report directly to the FAA Administrator. That bill, as we all know, is now a full year overdue, and Congress just enacted another six-month continuation of the old authorization, since the Senate has still not acted. But aside from the problem of waiting indefinitely for Congress to act, did DOT make the right decision on this?

Costello and other offended members of Congress claim that "there is wide agreement within the aviation community that JPDO should report directly to the FAA Administrator." But that's not what the Government Accountability Office found when it went out and interviewed 24 key aviation stakeholders (GAO-08-1078, September 2008). While that specific question was not asked, much of the interview content dealt with effective management structures for the transition to NextGen. Of those responding on whether JPDO planning documents were useful for making decisions, 19 out of 21 said no. On whether FAA has adequate expertise to make the transition, 10 out of 14 responding said no. And when asked whether the FAA, JPDO, and OEP have the leadership needed for the transition, none said yes. Likewise, none said yes to whether the relationship between FAA and JPDO is adequate for the transition. (Remember, these inte rviews took place prior to FAA's creating the new Senior VP position.)

In my discussions with well-connected people on this issue, I've been told repeatedly that the industry's role in the JPDO has been largely ineffective. Stakeholders do take part in JPDO task forces, but they are not part of the decision-making process. The FAA's Operational Evolution Partnership (OEP) is supposed to be a vehicle for real input on NextGen implementation; its OEP Review Board is chaired by the aforementioned Vickie Cox and JPDO Director Charles Leader. Organized stakeholder input is supposed to be coordinated by RTCA, Inc., functioning as a Federal Advisory Committee composed of nearly all the usual aviation alphabet groups. But there are two big problems with this structure: (1) it must operate by consensus, and (2) its inputs are only advisory. Trying to get consensus among aviation groups including AOPA and ATA is difficult if not impossible. In part, that is because each group knows that it can prevent consensus, and if somehow the FAA ends up taking an action it doesn't like (e.g., mandating ADS-B equipage by 2015 instead of 2020), it can always run to Congress to intervene.

So to some extent, the brouhaha over whom the JPDO reports to is something of a side-show, when the larger governance mechanism is so dysfunctional. By contrast, in Europe's ongoing SESAR organization for ATC transformation, the key aviation stakeholders are a direct part of the decision-making structure (not mere advisors). That means they have incentives to cooperate, even to the point of making deals that keep implementation moving forward. And Europe's governments do not seem intent on stepping in to micromanage the decision-making, either.


Is There A Problem With FAA's Safety Culture?

When it comes to its air safety regulatory functions, the FAA really seems to be taking it on the chin this year. First there were the problems last spring with certain inspectors allowing Southwest and American planes to fly, despite being overdue for safety checks. The contretemps over that led the DOT to appoint an Independent Review Team to take an outside look at how the FAA goes about regulating aviation safety.

Just a week after the IRT released its report, earlier this month, came news of FAA certification engineers complaining that senior management ignored their concerns that the Eclipse 500 very light jet had been rushed through certification before it was ready. At a hearing before the House Aviation Subcommittee last week, DOT Inspector General Calvin Scovel and FAA inspectors provided details on problems with the Eclipse jet during the certification process and described pressure from higher-ups to get it certified on schedule.

In both cases the common concern was over "coziness" between FAA safety regulators and those being regulated. As Aviation Week put it, in a Sept. 22 story, "[In the April incidents], the FAA had been referring to airlines as 'customers,' and Congress warned that passengers should be the agency's only customers, not airlines, not manufacturers. The intimation was that the agency's safety vigilance degraded the closer its collaboration with industry partners." The IRT noted that some of its observations "tend to confirm our fears that sharply conflicting regulatory ideologies not only exist but are allowed to persist within the FAA with little or no attempt to resolve or manage them." Moreover, they noted that such disparities "persist even now, long after the events of this spring provided the agency a rather serious opportunity to reflect on its met hods, style, and regulatory decision-making processes."

I think this problem is real-but none of the media coverage of these problems, either last spring regarding airline inspections or now concerning the Eclipse certification, has identified the underlying cause. It stems from the dual mission of the FAA, as both the air safety regulator and the ATC system operator. Although these functions are nominally separate, thanks to the creation of the ATO to pull together all the ATC functions, the agency still sees itself as one corporate entity, all reporting to one chief executive, the Administrator. In recent years, in a well-intended effort to become more businesslike, the FAA has come to think of the aviation stakeholders as its customers. While that is entirely appropriate for the ATO (it provides a vital service to aircraft operators, which in nearly every other country those operators pay for directly), it is dead wrong for a safety regulator. As Dorothy Robyn wrote in the Brookings paper I highlighted last issue, "Airlines and aerospace firms are the regulatees, not the customers of FAA regulators" (emphasis in original).

Robyn went on to explain: "The goal of 'acting more like a business' is appropriate to the FAA's role as a service provider. In fact, that goal was the motivation behind the creation of the ATO. However, it is not an appropriate goal for the regulatory side of the FAA: although the regulators' performance may well need improvement, they are carrying out an inherently governmental function. . . . There seems to be some genuine confusion among rank-and-file employees about the FAA's mission-predictably so, given the agency's dual and potentially conflicting responsibilities."

I'll close with these additional thoughts from Robyn's excellent paper. "This kind of confusion as to organizational mission is inevitable when the FAA performs two such different and 'inconsistent' functions, and separation of the two functions would add clarity to the missions of both agencies." And that, of course, is what her paper goes on to recommend.


How Many Commercialized ANSPs?

Some people don't realize how widespread the commercialization of ATC has become. When the Civil Air Navigation Services Organization (CANSO) was founded more than a decade ago, its membership consisted of the dozen or so air navigation service providers (ANSPs) that had been commercialized. That term means that such an entity is organizationally separate from the nation's aviation safety regulator and is financially self-supporting from fees and charges paid by its aviation customers. Well-known examples include government corporations such as Airservices Australia and Germany's DFS, not-for-profit corporation NavCanada, and partially airline and airport-owned NATS in the U.K.

In recent years, as CANSO has grown into an important global aviation trade group, its membership has expanded to include ANSPs that are not commercialized. Its current membership of 49 even includes the FAA's ATO, which while striving to be businesslike in its operations, is not organizationally separate from its air safety regulator, not financially self-supporting, and does not even charge fees for its services (except overflights). So when a reporter or researcher asks me how many commercialized ANSPs there are, it's no longer accurate to simply cite the number of CANSO full members.

Recently, however, I received from Eurocontrol a table listing all European ANSPs. One column of the table provides a one-line organizational description. Although it's not entirely clear how each category is defined, my assessment is that the 16 described as state enterprises, the 11 listed as joint stock companies, and the two listed as limited liability companies appear to meet the definition of commercialized ANSPs. That is 29 out of 36 European ANSPs. Of the 18 non-European CANSO members, I count seven that are commercial entities (including Aerothai, Airservices Australia, Airways New Zealand, and Nav Canada). So that makes 36 commercialized air navigation service providers, a pretty substantial total.

Another source is an ICAO working paper for the Conference on the Economics of Airports and Air Navigation Services that took place last week in Montreal. (It is CEANS-WP/18, dated August 25, 2008). Its bar graph showing ownership and/or operation of air navigation services shows 44% of ANSPs as "autonomous," as opposed to "government," "international agency," or "other." The survey was based on 84 reporting states, which suggests that that 37 such ANSPs were identified. The paper also notes that when it comes to the basis for setting ATC charges, "cost-based charges ranked first" in over half of the 84 states.


Solving the Equipage Problem

The most daunting challenge in transforming air traffic control to the NextGen vision is a massive coordination problem. It's not just a case of $20 billion or so investment by the ATO in new equipment, facilities, software, and training. None of that is any good unless airspace users-airlines, business jets, and some portion of general aviation-equip their planes with the necessary avionics to interact with the ATO's new systems and procedures. But getting either cash-strapped airlines or individual aircraft owners to pony up tens or hundreds of thousands of dollars per plane is a major challenge-especially when it is highly uncertain how soon the ATO will actually implement various NextGen capabilities. If the government sets an equipage deadline (as FAA recently proposed for ADS-B/Out), aviation interest groups push for it to be as far as possible in the future (due to those uncertainties), and the typical pattern is for most of them to wait until near the deadline before they take each plane out of service and spend the money on the new gear.

That's a huge problem, because in most cases there will be few if any benefits from a new ATC technology until a critical mass of equipped aircraft are in operation. The problem, then, is how to get that critical mass-sometimes called the "first third" of the users-to make the decision to equip early. As Boeing ATM expert Mike Lewis put it in a paper dealing with this problem, "the critical first 1/3 of users don't equip because they shoulder high risks and early costs, and see no benefits until the last 2/3 begin to follow suit. . . . Financially weak airlines clearly find it in their best interests to delay equipage. Since nearly all airlines are financially weak, all choose to wait, and system innovations are continuously deferred."

Lewis's unpublished 2002 paper (prepared for the Commission on the Future of the U.S. Aerospace Industry) suggests a clever approach to deal with this problem. The government could auction off investment tax credits for specific critical onboard equipment, aimed at getting participation from about one-third of a given fleet. This would be coupled with a mandated installation deadline that applies to all users. The bidding would be via a reverse auction, with competition driving down the value of the tax credit until only the critical number of aircraft (say, 3,000 out of 9,000) were left. Lewis walks the reader through a hypothetical example, which assumes that planes begin receiving operational benefits (i.e., annual cost savings) soon after equipping. He computes the payback period under five different scenarios, showing that (for this example) the payback period might be in the vicinity of 5 to 7 years without the tax credit, but as short as 1.5 years with it. He notes that in today's airline environment, airline finance committees typically need such short payback periods to approve investment decisions.

This is a great thought experiment, and if it could be done, I think it would work. But as Lewis acknowledges, the total resources needed to pay for such tax credits would be quite large, for all NextGen equipage. For the estimated $22.5 billion airline fleet equipage cost (9,000 planes at an average of $2.5 million each), the average annual cost over 10 years would be $2.25 billion. Since the tax credit would apply only to the first 1/3 of the airliners, that cuts it to $750 million per year. And if the auction drives down the price by a third, the cost could be $500 million per year. But that is over and above what the ATO would already be spending on its own equipment, facilities, and training. Thus, this proposal could only be implemented if Congress were to find some additional large source of funding for the tax credits.

Lewis suggests a few, but none seems very likely, in a climate of massive federal bailouts and budget deficits. But while we're doing thought experiments, think about a version of this proposal that could be implemented in any of the numerous countries with self-supporting (commercialized) air navigation service providers. Instead of asking the government to provide a tax credit, the ANSP could offer to first-third aircraft operators discounts on the user fees they would otherwise be paying, for N years after those specific planes were equipped. The rationale is simple: getting over the hump of that critical first third jump-starts the whole equipage process and starts the operational benefits flowing. And that permits air service to grow, thanks to increased airspace capacity, generating more user-fee revenue, and permitting older, costly-to-maintain ground equipment to be retired.

There are many benefits in shifting from annual appropriations of tax money to self-generated revenue from fees for service. Solving the early equipage problem is one of the less-appreciated benefits.


News Notes

Hope for Reducing Aircraft GHG Emissions?. A recent MIT master's thesis investigates the potential of various alternative jet fuels to meet various targets for reduced emission of greenhouse gases (GHGs). Author Hsin Min Wong estimated the life-cycle GHG emissions of potential alternative fuels, from feedstock recovery to production, transportation, and use of the fuels-including ultra-low-sulfur jet fuel, fuel from oil sands and shale, fuel made from coal or natural gas using the Fischer-Tropsch process, and several biofuels. His analysis concluded that only alternatives made from biomass offered significant lifecycle GHG reductions, but only if land-use-change emissions were negligible. Diverting land to grow more food crops for this purpose could increase GHG emissions "to levels several times that of conventional jet fuel." Thus, next-generation biofuels from sources such as algae should be explored. ("Life-cycle Assessment of Greenhouse Gas Emissions from Alternative Jet Fuels,&rdq uo; Hsin Min Wong, MIT Department of Aeronautics and Astronautics, August 2008.)

Interview with Managing the Skies Author Clint Oster. The relatively new general-interest Miller-McCune Magazine recently published an insightful interview with Clinton V. Oster, co-author of a book I recommended earlier this year, Managing the Skies. Oster summarizes, in very clear terms, his case for fundamental reform of our ATC system. Go to www.miller-mccune.com/main/article/183.

New Eurocontrol Report on ATM Cost-Effectiveness. There is a wide variation in performance among Europe's ANSPs. For a number of years now, Eurocontrol's Performance Review Unit has been documenting each entity's performance, using consistently defined measures of performance and cost. The latest edition came out in May 2008, and contains a huge amount of information. Its title is "ATM Cost-Effectiveness (ACE) 2006 Benchmarking Report." Go to www.eurocontrol.int/prc.

Reason Anniversary Celebration. Reason magazine, the flagship publication of Reason Foundation, celebrates its 40th anniversary this year, with a gala event in Los Angeles, Nov. 14-15. "Reason Goes Hollywood" takes place at the historic and glamorous Hollywood Roosevelt Hotel and includes both a conference and a black tie banquet. Details are at www.reason.org/events. Hope to see you there!


Quotable Quotes

"I cannot overemphasize the need to close out the problem statement - that the traditional human-centric air traffic control system has reached the end of its design life and is unable to meet new system capacity, efficiency, and safety requirements. It is time to move on to a different solution, driven by a need to expand growth and leadership in aviation. The future demands that we innovate, automate, and integrate to build a performance-driven, aircraft-centric automation system that results in each National Airspace System element, from passenger to air traffic controller, to pilot, to flight dispatcher being a real-time node on this new aviation network."
--Mike Harrison, Editor, The Journal of Air Traffic Control, Summer 2007, p. 13.

"Our ATC technology is from the Stone Age, stuff you might find in rural Mongolia. Most developed countries have removed their ATC systems from the hands of politicians and placed them with independent agencies directly supported by various airport and airline fees. These systems, consequently, are more up-to-date. Washington politicians, in contrast, refuse to keep their mitts off our ATC system. Amazingly, if we had the most up-to-date technology, we could have almost three times the aircraft flying than we now do. Those ever-worsening delays would no longer exist."
--Steve Forbes, "Grounding Our Airlines," Forbes, Sept. 29, 2008, p. 18.

"The push for a more business-like operation has been underway for the past 20 years, and more strongly in the past 10. During this time there has been a lot of talk about breaking off different parts of the FAA, particularly the ATC function, and running it separately. This has happened in other parts of the world like the U.K., Australia, and New Zealand. Obviously there are differences, because the U.S. system is larger. But why not go to a fully privatized system, and get completely out of the aegis of government? We could still have a system of checks and balances. The purely regulatory and oversight functions can be retained by the government. Many things, like controller hiring, would be more effective under a more business-like model. I've always felt that user fees would be a good way to go. The Aviation Trust Fund has sometimes been available and sometimes not. I don't see a problem with user fu nding, with a good analysis of who's using what services and what's a fair charge to levy."
--Admiral James Busey, FAA Administrator 1989-1991, Aviation Week, Sept. 1, 2008, p. 43.



Robert Poole is Searle Freedom Trust Transportation Fellow and Director of Transportation Policy


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