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Reason Foundation

Airport Policy and Security Newsletter #49

Where airport grants really go, privatizing New Orleans Airport, and airport security and suicide bombers

Robert Poole
September 30, 2009

In this issue:

Where Airport Grants Actually Go

USA Today's recent story by reporter Thomas Frank was described as "the first full accounting of the 28-year-old Airport Improvement Program." According to their analysis, over the years the program has put $15 billion into general aviation (GA) airports that have no scheduled passenger service. And those sums have grown dramatically during the past decade. From $470 million in 1999, the annual amount grew to a record $1.2 billion this year, far outpacing inflation. The story was featured on MSNBC and the Today show, stirring up a firestorm of protest in the GA community, which charged that it was based on a handful of anecdotes (ignoring the interactive national map, on which you can click on any of 3,155 airports and read its number of annual flight operations, number of AIP grants, and cumulative AIP funding: www.usatoday.com/travel/flights/2009-09-16-airport-map_N.htm).

I looked briefly into this issue last winter, finding that there is a large degree of cross-subsidy involved. AIP gets its funding from aviation excise taxes, the largest source of which is airline passengers, via the 7.5% tax on the ticket price plus the $3.60/segment tax. In 2006, for example, 97% of all airline passengers used large, medium, or small hub airports for their travel. But only 46.5% of AIP funding went to those three categories. Another 18.8% went to non-hub airports and a full 34.7% went to "other"-GA and reliever airports.

So it's quite legitimate for airline passengers and taxpayer groups to question the value proposition involved in the taxes they pay on airline tickets. To be sure, as Chip Barclay of the American Association of Airport Executives pointed out in response to the USA Today story, reliever airports in urban areas reduce the extent of congestion that might otherwise exist at hub airports. And certainly airports in small, rural areas can be important for businesses and tourism in those areas. But why should airline passengers-as opposed to local business groups, local taxpayers, and GA airport users-pay the bulk of those small airports' capital costs?

Congress loves AIP, and especially the cross-subsidy nature of it, which allows members to bring home the bacon to their districts, regardless of the benefit/cost ratio of the airport projects. So if data like that gathered by USA Today does not lead to AIP reforms, what hope is there for air travelers whose large and medium hubs have inadequate terminal space and out-of-date runways? Fortunately, Congress allows hub airports to charge per-passenger fees for specific improvement projects. Currently the ceiling on Passenger Facility Charges (PFCs) is $4.50 per enplanement, an amount that has been unchanged since 2000, while construction costs have escalated. The FAA reauthorization bill passed earlier this year by the House would increase that ceiling to $7.00, but there is thus far no comparable provision in the Senate, which is still drafting its bill.

Unlike AIP, which does some good despite being heavily politicized and earmarked, the PFC program is local self-help and a true user fee, in which those who pay are the ones who benefit. The PFC money they pay stays right there at the airport that levies it, and can be used only for specific, FAA-approved improvements to that airport. I'd love to see AIP reformed, but I'm not holding my breath. But the least Congress can do is to give large, medium, and small hub airports permission to raise more funds for much-needed improvements on their own.


Body Cavities and Suicide Bombers

Earlier this month, the Australian Associated Press reported that in a suicide bombing attempt to assassinate the Saudi Deputy Interior Minister Prince Mohammed bin Nayef, an al-Qaeda terrorist hid the bomb in his anal cavity and detonated himself while standing near the official. Fortunately for the latter, only the terrorist was killed in the explosion. But the use of body cavities to bring explosives aboard aircraft is an issue for airport security, worldwide.

A discussion in the Sept. 16th issue of the STRATFOR Global Security & Intelligence Report ("Convergence: The Challenge of Aviation Security,") highlighted this episode as part of an ominous trend in airliner-related terrorism. First came hijackings for ransom, followed by hijackings leading to destroyed planes and sometimes passenger casualties. Then came bombs smuggled aboard in someone else's suitcase (Pan Am over Lockerbie). Only with the 9/11 attacks came suicide bombers taking over planes to use them as guided missiles. But since that tactic is increasingly unlikely to succeed, more recent plots have involved suicide bombers bringing the materials on board to assemble improvised explosive devices (IEDs) during flight. That was the scenario for which several people were just convicted in the U.K. liquid explosives plot; it was also the M.O. of the thwarted Bojinka plot, which intended to destroy multiple flights over the Pacific.

STRATFOR analyst Scott Stewart notes that body cavities are commonly used by people to smuggle drugs and weapons into prisons. And while exploding a small bomb that is still within the terrorist's body cavity seems unlikely to accomplish his intent of bringing down the plane, it does seem like a workable way to bring aboard components for an IED. So the obvious question becomes: what will the TSA and other aviation security organizations do about this threat?

One course would be to ignore the issue as impossibly gross and privacy-invading. But that would be entirely inconsistent with the global campaign to keep liquids (in any serious quantity) off planes, and all the other passenger and carry-on screening mandates. The other course would be to make greater use of body scanning machines-at the very least for everyone selected for "secondary screening." The STRATFOR report claims that "Even advanced body-imaging systems like the newer backscatter and millimeter wave systems being used to screen travelers for weapons are not capable of picking up explosives hidden inside a person's body." However, that's not what I've heard from a former TSA official who says such devices can be modified to do this job.

Sooner or later, this country is going to have to face up to the fact that putting every single air traveler through the third degree every time she takes an airline trip is a foolish policy. When we come to our senses, we will adopt a risk-based policy that does the best it can to separate the sheep from the goats, applying only nominal precautions to regular travelers who pass a voluntary background check and using intelligence data to identify high-risk travelers who need truly thorough screening. Meanwhile, welcome to body scanning, very possibly for everyone.

New Orleans Filing Revives Airport Privatization Program

When the impending privatization of Chicago's Midway Airport fell through earlier this year, some rushed to declare U.S. airport privatization dead. However, the application filed with the FAA by the New Orleans Aviation Board in August-and its approval in September-puts privatization back on the U.S. policy agenda.

The FAA's approval of the 320-page submission sets in motion what is expected to be a year-long process. The airport board expects to issue a request for qualifications (RFQ) before the end of the year, aiming to solicit bids and select a winner by next spring. If they can keep to that timetable, FAA approval could occur by late 2010.

There are several "ifs" involved in this process. The first is whether the New Orleans Aviation Board can duplicate Chicago's success in reaching an agreement with its air carriers on the terms and conditions of a new master lease agreement defining how rates and charges will be assessed. The largest carrier at New Orleans (MSY) is Southwest, the lead carrier that negotiated the agreement accepted by the other airlines at Midway. But Southwest's share at MSY is smaller than Midway, with a pretty good mix of other airlines (including American, Delta/Northwest, United, and USAirways). So the negotiations might be more complex.

Second, of course, is whether-by the time the final application needs to be approved by the FAA-the deal can be financed. The timing for this deal looks better than the unfortunate timing that killed the Midway deal; credit markets are gradually recovering, and should be in better shape than today by the first half of 2010.

But then there is also Congress to contend with. The much-delayed FAA reauthorization process-already two years late as of September 30th-- still has a ways to go. The House has passed its version, and it includes anti-privatization provisions inserted by Rep. Jerry Costello (D, IL). They would increase the airline approval requirement from the current 65% to 75% and would also make privatized airports ineligible for AIP grants (though not exempting their passengers from the ticket tax which funds AIP). No comparable provisions are in the draft Senate bill, which has yet to reach the Senate floor. Ideally, the Senate bill would reduce the airline approval to 50%-plus-one and at least double the number of airports allowed to make use of the Pilot Program (from the current five slots).

TSA Belly-Cargo Rule Accepts Reality

In general, the approaches taken to cargo security in the United States differ in principle from those applying to airport passenger security. In the cargo arena-whether air, land, or seaborne-the general approach is risk-based. Instead of very costly and time-consuming mandates to examine 100% of all cargo, the general practice is to vet those in the supply chain handling cargo from origin to destination (e.g., "known shipper" programs), to use intelligence information to inspect specific cargo items, and to rely on random checks of other cargo as a backup. One presumes that the same legislative bodies that went overboard on passenger/baggage screening following 9/11 had the sense to realize the economic consequences of bringing commerce nearly to a halt, had they insisted on 100% physical inspection of all cargo, all the time.

But a crack in that sensible, risk-based approach to cargo was opened up by the 9/11 Commission several years ago, which recommended that 100% of all cargo carried aboard passenger planes (in the "belly," along with checked luggage) be physically screened. And Congress agreed to close this "loophole," not by relaxing the overkill checked-luggage mandate but by imposing the same mandate on belly cargo. The deadline they set was 50% of all such cargo by February 2009 and 100% by August 2010.

Fortunately, somewhat cooler heads have prevailed in the implementation of this congressional mandate. The TSA's "interim final rule," announced in mid-September, permits the widespread use of supply-chain partners to do the cargo screening. Freight forwarders, distribution centers, and other such firms can apply to become part of the Certified Cargo Screening Program (CCSP), under which they must comply with TSA background checks on employees, use TSA-approved screening technologies, and secure the supply chain from their screening location to the airline that will actually carry the cargo. By thus outsourcing the cargo screening function, the CCSP will avoid huge backlogs at airports, where space is at a premium.

An article in Airports International's July 2009 issue profiled the operations of CCSP participant Commercial Freight Services in Romulus, MI. That company is using two TSA-approved technologies, a desktop-size explosive trace detection system for small packages and a 35-foot long two-dimensional X-ray system for palletized cargo, including the industry-standard LD-3 containers. The trace detection system permits fairly rapid and relatively low-cost checking of parcels. And for cargo that arrives on pallets or containers, it's welcome news that TSA has approved technology that can inspect entire pallets or containers, instead of requiring them to be taken apart for individual-item inspection. (As of the time of the article, the huge Smith's Detection HISCAN unit was the only approved cargo screening system large enough for LD-3s.)

I doubt that a quantitative assessment of the cost-effectiveness of this 100% screening mandate would pass muster as a sound investment. But at least it has not served as an excuse for a huge expansion of TSA's own workforce. Instead, however, it is forcing a large unfunded mandate on segments of the goods-movement industry.

Airports: Competition vs. Monopoly

This past summer European low-cost carrier (LCC) Ryanair demanded that a number of UK airports reduce the fees they charge Ryanair to zero-or it would leave. While some complied, Manchester did not, and Ryanair is making good on its threat. In the September 2009 issue of Aviation Intelligence Reporter, Andrew Charlton cites this as an example of the growing market power of airlines vis-a-vis airports in the deregulated European airline market. Charlton argues that while a few airports that serve as major hubs for legacy airlines do have significant market power, most do not-and that airport policy should face up to this fact.

In a more academic form, that is the substance of the argument put forth in a discussion paper from the OECD/International Transport Forum's Joint Transport Research Centre last year. (www.internationaltransportform.org)  Noted aviation economist David Starkie used the UK airport market to examine the degree of airport competition in that country-and found it to be generally robust, stimulated by the rapid growth of LCCs over the past decade. The paper includes useful tables indicating the extent of LCC operating bases at UK airports, the driving times between adjacent airports, and the general profitability of UK airports, despite (or perhaps because of) the ongoing competition. One key factor leading to greater competitiveness is the market for corporate control of UK airports, the large majority of which have been privatized, generally via outright sale.

Starkie concludes by noting that countries where airport privatization is pending, such as Spain and Portugal, are proceeding as if airports are inherently monopolies which therefore must undergo economic regulation. He laments that "the alternative approach, of restructuring ownership to provide a less concentrated, more competitive industry structure and then allowing competition to drive the industry forward, does not appear on the radar screen." Price controls could discourage investment and lead to airports skimping on quality of service, problems which have materialized at the BAA airports in London and Scotland, which were kept under common ownership (and hence regulation) when they were privatized. Far better, Starkie says, for government airports policy to foster competition wherever possible.News Notes

Update re Registered Traveler

Last issue I wrote about the possibility that the database of members of the Clear and other Registered Traveler programs might be erased, which would preclude the sale of such data to any companies that want to offer a similar service (and which is likely the only tangible asset the bankrupt operator has, to satisfy creditors). I wrote that the TSA was proposing to delete the data but got several emails telling me that this was not the case, and that Aviation Daily had relied on a mistaken claim to that effect in a letter sent to TSA by two House members. I've done some further checking and now have copies of TSA's instructions to the AAAE clearinghouse that manages the database ordering them to delete the data. Fortunately, that action has not taken place-due to the timely intervention of Reps. Bennie Thompson (D, MS) and Peter King (R, NY). 

CrewPass Expanding

The TSA has approved standards for fingerprint ID checking of airline crew members, enabling them to bypass the passenger checkpoints at airports. The CrewPass system (which was developed in 2007 by the Air Line Pilots Association) began as a TSA pilot program in 2008 at Baltimore, Columbus (GA), and Pittsburgh. ARINC developed the technology platform, and TSA and ARINC will be rolling the program out to airports nationwide.

New Newsletter and Consulting Firm

Aviation consultants David Bentley (U.K.) and Martti Raito (Canada) have launched Big Pond Aviation as a research, analysis and consulting firm based on both sides of the Atlantic. In addition to research and consulting, Big Pond has launched a quarterly newsletter. Details on both are available at: www.bigpondaviation.com

World's Best Airport Cell-Phone Lot?

Many U.S. airports, attempting to stop numerous cars illegally parked along airport entrance roads waiting for an arriving passenger to call, have set up cell-phone lots. Unfortunately, many are small, hard to get to, and fairly remote from the terminal. Tampa International has a 350-space lot, on airport property about a mile before you reach the terminal. Two giant message boards provide up-to-date information on arriving flights, and while you wait, there are rest rooms and free wi-fi service. The lot has been open since November 2005. 

Who Writes these Headlines?

A few years ago in this newsletter I wrote about several companies that are helping general aviation airports balance their budgets by automating the process of billing pilots for landing fees. Last month, the weekly "Airports" section of Aviation Daily carried a feature on two of these companies, Passur Aerospace (Landing Fee Management System) and Era (RevenueVue). It was a good story, by veteran Aviation Week reporter Jim Ott. But who on earth penned the headline: "Automated Systems Spy on Operations and Fully Account for Landing Fees"? Meaning GA airports should just wink at people who use their services and refuse to pay? Like shoplifters?

Runway Incursion Systems More Widespread

The high-tech ASDE-X airport surface detection system has recently gone into operation at the 18th and 19th U.S. airports, with the addition of Newark Liberty in August and Boston Logan in September. The system uses a combination of surface movement radar, multilateration, and ADS-B to keep track of all aircraft and vehicles on the airport surface, in all kinds of weather. The FAA's goal is to get ASDE-X into operation at 35 airports by 2011. In addition, the agency has selected four companies to test lower-cost ground surveillance systems (LCGS) at four airports: Long Beach (Sensis Corp.), Manchester, NH (Thales), San Jose (SRA International), and Reno (Northrop Grumman).Quotable Quotes

 "I do think if more U.S. airports were privatized and you had a truly private company looking at the bottom line, then a lot of things that are happening in Europe would happen in American airports. There's no way you can say a city-driven airport has quite the same incentive as a truly privatized airport to drive profit to the bottom line."

--Frank Gray, Concession Planning International, in "International Aspirations: U.S. Airports Lag Far Behind in Concessions Revenue," by Carol Ward, Airport Revenue News, September 2009.

 "In the end, it is impossible to keep all contraband off aircraft. Even in prison systems . . . corrections officials have not been able to prevent contraband from being smuggled into the system. . . .Obviously, efforts to improve technical methods to locate IED components must not be abandoned, but the existing vulnerabilities in airport screening systems demonstrate that emphasis also needs to be placed on finding the bomber and not merely finding the bomb. Finding the bomber will require placing a greater reliance on other methods such as checking names, conducting interviews, and assigning trained security officers to watch for abnormal behavior and suspicious demeanor. It also means that the often overlooked human elements of airport security, including situational awareness, observation, and intuition, need to be emphasized now more than ever."

--Scott Stewart, "Convergence: The Challenge of Aviation Security," STRATFOR Global Intelligence, Sept. 16, 2009 (www.stratfor.com)

 "On the basis of the foregoing evidence, I would argue that a competitive framework is an achievable objective or a national airports policy. It is by no means evident that the industry is inherently a natural monopoly industry and thus requires regulation of prices or financial returns. On the contrary, the UK illustrates the ability of an airports industry to evolve a competitive structure whereby competition is an effective regulator of what the airport can charge the airline. Where there have been problems it is because of the failure to break up the state enterprise, the British Airports Authority, when it was privatized in the mid-1980s so that proximate airports in two UK regions, London and Scotland, continue in common ownership. The lesson to be drawn is clearly apparent."

--David Starkie, in "The Airport Industry in a Competitive Environment: A United Kingdom Perspective," Discussion Paper No. 2008-15, OECD/ITF Joint Transport Research Centre, July 2008.


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


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