Reason Foundation

http://www.reason.org
http://www.reason.org/news/show/air-traffic-control-reform-new-8

Reason Foundation

Air Traffic Control Reform Newsletter #10

Topics include: NATCA's new anti-privatization campaign; a response to Sen. Lautenberg's letter; innovation within FAA; and news notes on ATC corporations.

Robert Poole
January 1, 2003

In this issue:

NATCA's New Anti-Privatization Campaign

The other shoe dropped for the National Air Traffic Controllers Association in December. Six months after President Bush issued an Executive Order rescinding the Clinton Administration's short-lived designation of air traffic control as "inherently governmental," OMB announced that the FAA had, accordingly, included ATC services on its "commercial activities" list. Never mind that ATC was also listed as a Category A function�items which although commercial are "not appropriate for outsourcing." FAA Administrator Marion Blakey sent a letter to all controllers on December 19th explaining these points. But NATCA still went ballistic.

Following a news conference by NATCA president John Carr at Reagan National Airport, the union rolled out a nationwide anti-privatization leafleting campaign at major airports during the holidays. A media campaign, coordinated by PR powerhouse Fleishman-Hillard, led to many newspaper articles. NATCA next drafted an anti-privatization amendment and got Sen. Frank Lautenberg to agree to introduce it as part of the next transportation appropriations bill. But that effort appears to be going nowhere, due to both jurisdictional opposition and loud protests from many of the 219 airports with contract control towers.

So last week, NATCA and Lautenberg tried a new tack. The Senator is circulating among fellow Senators a letter to President Bush attacking the change in ATC's classification and asking that the Executive Order be rescinded, with ATC declared to be inherently governmental. At press time, we hear that Lautenberg has garnered about a dozen signatures. For our comments on this amazing letter, please see the next item.


Reply to Lautenberg's Letter

It's unfortunate that Sen. Lautenberg's office did not use the services of a fact-checker before sending out NATCA's text on air traffic control. That would have saved him the embarrassment of having circulated not merely misleading opinions but outright falsifications of fact. Those are strong words, but read on.

Attempting to show that ATC corporatization overseas is a failure, paragraph five of the letter makes untrue claims about Great Britain, Canada, and Australia. Specifically:

GREAT BRITAIN

Claim: "Since privatization, near misses of crashes or other problems have increased by 20 percent."

Fact: "The UK Airprox Board, which investigates every report by pilots or air traffic controllers, said the number of mid-air incidents fell by three to 195 in 2001. Incidents involving commercial airliners fell 17 percent to 82, making it the safest year on record."�Financial Times, July 12, 2002.

Claim: "The air traffic system's finances have also been mismanaged, to the point where debt service has increased by 80 percent."

Fact: The UK's part-privatized NATS began operations just a few months prior to 9/11, which devastated air traffic on the North Atlantic, its largest source of revenue. With no reserve fund on which to draw, NATS had to rely on more debt than was desirable. Last month a financial restructuring was agreed to, under which both the government (which owns 49 percent of NATS) and the private sector (which owns 46 percent) will each put an additional $100 million of equity into NATS, reducing its debt-equity ratio.

CANADA

Claim: "Canada's privatized system has run up a $145 million deficit just in the past year."

Fact: Nav Canada's audited loss for FY 2002 was $19 million, not $145 million. And it was covered by drawing down its reserve fund.

Claim: "As a result, an assessment will be tacked onto every airline ticket purchased there."

Fact: There are no assessments added to airline tickets for Nav Canada charges. Airlines pay for ATC services like they pay for fuel and other operating expenses. Canada's ticket tax was abolished when ATC was privatized via the creation of Nav Canada�and its ATC fees are lower than the old ticket tax.

AUSTRALIA

Claim: "Australia is also planning to increase fees to pay for its private system"

Fact: "Airlines received an early Christmas present this week with a 3.6 percent cut to en-route air traffic control charges that will save more than $10 million a year."�The Australian, Nov. 29, 2002. Moreover, Airservices Australia is not private; it is a government ATC corporation run on commercial principles.

In addition to these serious factual errors, the letter is highly misleading in several ways. It questions the designation of ATC as being a "commercial" service, which, it says, "suggests that there are options other than complete federal responsibility in the provision of this absolutely critical service." Yes, it certainly does suggest that, because there are.

That isn't just my opinion. It's the considered judgement of a dozen former top FAA officials (including four who served as Administrator). You can read their full statement at www.rppi.org/atcletter.html, but the most relevant sentences are as follows:

"Air traffic control is a 24 hour-a-day, 7 day-a-week high-tech service business. It can and should be operated by a separate corporate entity, paid directly by its customers, and directly accountable to its customers for performance."

Besides these highly knowledgeable officials, consider also the judgements made by the governments of more than two dozen other countries, who—over the past decade—have converted their ATC bureaucracies into separate corporate entities, paid directly by their customers. These include the aforementioned Australia, Britain, and Canada but also Austria, Belgium, Germany, New Zealand, Portugal, South Africa, Spain, and Switzerland.

The letter also follows the standard NATCA line of equating corporatization or privatization with a threat to air safety. In point of fact, one of the reasons so many other countries have commercialized ATC is to improve air safety. The positive benefits for air safety are twofold. First, corporatization separates the provision of ATC services from safety regulation, putting the latter (i.e., the FAA) at arms-length from the service provider, as it is with respect to airlines, airports, aircraft producers, etc. Second, by creating a bondable revenue stream, corporatization generally leads to an accelerated capital investment program, which means the replacement of obsolete technology (including 30-year-old FAA software) with state-of-the-art systems. "Safety" in this connection is a complete red herring.

Since the letter also raises "homeland security" as an issue, let me quote White House Chief of Staff Andy Card. On ABC News last June, Card was asked about the President's Executive Order in this context. He pointed out, with respect to 9/11, that "Canada has a privatized air traffic control system. They worked very effectively with the United States when we said, 'We've got planes in the sky that might be dangerous, put them on the ground,' and it worked very, very well." He went on to add, "We have seen around the world how some functions that used to be historically government have been moved to the private sector, and we don't want to be precluded from taking a look at that."

Finally, the letter also misleadingly portrays the designation of ATC as not "inherently governmental" as a radical change from previous practice. In fact, the radical change was the 11th-hour action by former President Clinton, in his last month in office, in slipping the words "inherently governmental" into his executive order providing for reorganizing ATC as a performance-based organization. That action was taken at NATCA's behest, and over the vehement objections of some of his own White House staff. All the Bush Administration has done is to restore the status-quo ante, by removing those two words via a new executive order.


Innovation within FAA Gets White House Award

Readers of Reason Foundation's 2001 policy study "How to Commercialize Air Traffic Control" may recall our citation of the dramatic reinvention of the FAA's Logistics Center in Oklahoma City. While certainly a team effort, there's no question that the driving force behind this change to a customer-friendly, performance-driven organization was its director, Norman Bowles.

Mr. Bowles received well-deserved recognition in November when the Logistics Center received the first President's Award for Management Excellence for improved financial performance. It was the only civilian federal agency to receive such an award. In a nutshell, by changing its funding base from a centrally provided budget allocation to a fee-for-service basis, Bowles and his team transformed the corporate culture of the Logistics Center. Earlier that month, Bowles presented a paper on the transformation to the annual meeting of the Air Traffic Control Association. It even speculates that comparable changes might occur in the ATC system "if and when the air traffic operations moved to fee-for-service and had to operate on revenues." I was so impressed that I asked him for an electronic copy, which I am including as an attached file. (If you have any trouble opening it, email me and I'll send it directly to you.)


News Notes on ATC Corporations

Three More ATC Systems Make the Transition. The new year started off with two new full members of the Commercial Air Navigation Services Organization (CANSO), the membership organization for fee-supported ATC corporations. The former Norwegian Air Traffic and Airport Management agency became a commercially focused government corporation called AVINOR as of January 1, 2003. It owns and operates the four Norwegian ATC centers as well as 45 airports. About three-quarters of its revenue comes from aeronautical charges, with the remainder coming from other user fees and commercial income. Also joining CANSO is AZANS, the newly corporatized ATC system of Azerbaijan. And one year from now, Hungary's ATC operation will complete its "transformation to a commercial company" known as HungaroControl. More about CANSO can be found at www.canso.org.

New Zealand as Role Model. During his visit to New Zealand before the holidays, CANSO Secretary-General Alexander ter Kuile was interviewed by the Dominion Post in Wellington, the capital city. He put Airways New Zealand in context for the locals, praising its corporate structure, independence from "government minister intervention" in its day-to-day operations, and good relationship with airlines. Mr. ter Kuile called for re-examination of the narrow cost-recovery model used by most ATC corporations, which has prevented them from building reserve funds [as have Airways and Nav Canada] to tide them over during lean years and prevent price fluctuations. He called Airways "an example for the rest of the world."


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


Print This