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Reason Foundation

Airport Policy and Security News #84

Global gateways, PreCheck problems, Regional jets, Backscatter scanners, Risk-based cargo policies, and more

Robert Poole
November 5, 2012

In this issue:

Better-Funded Global Gateways

The Brookings Institution made a big splash last week, by calling attention to the large cross-subsidies built into federal Airport Improvement Program grant funding—and calling for targeting a larger share of it to “global gateway” airports such as Kennedy, Newark, Miami, and Los Angeles.

“Global Gateways: International Aviation in Metropolitan America” was researched and written by analysts Adie Tomer, Robert Puentes, and Zachary Neaf. It does a good job of number-crunching, using data from the DOT’s Bureau of Transportation Statistics and a Global Demand Dataset developed by Sabre. They are able to show that just 17 U.S. gateway airports handle 73% of all international passengers starting or ending their trip in the United States, as well as 97% of all international transfer passengers. Yet the principal federal program to assist airports with capital spending on runways and terminals—AIP—is heavily skewed toward smaller airports.

This may be news to Brookings, but it should be no news to those doing aviation policy. In my first Reason Foundation study on airport privatization, released in January 1990, I compared 1987 enplanements at the 50 largest US airports with (a) the amount of ticket tax revenue each one generated in 1987, and (b) the amount of AIP entitlement grants it received. Most of those in the top 50 got back between 11% and 25% of the money their passengers paid in ticket taxes. More recent data from the Airports Council International shows the following comparison between share of passengers and share of AIP grants:

Category

2009 Passengers

2009 AIP Grants

Large hub

70%

12%

Medium hub

19%

19%

Small hub

  8%

14%

Non hub

  3%

20%

Commercial service

  0%

  2%

Reliever/GA

  0%

21%

State block

n.a.

  8%

System planning

n.a.

  4%

 I repeat that this extensive cross-subsidy of smaller airports is not news, nor is it an “unintended consequence.” Congress designed the grant system to do just this—it’s a feature, not a bug. So rather than wasting political capital trying to shift more of AIP to larger airports, in my view a far better approach would be to take passenger airports out of the grant system altogether. Commercial airports are not some kind of “infant industry” needing government support; they are businesses that can and should be self-supporting.

Last year a group of large hub operators told the congressional Super Committee (on deficit reduction) that they would be willing to give up AIP entitlement grants if Congress would lift the cap on Passenger Facility Charges (PFCs) from today’s $4.50 to at least $7.50. In a position paper accompanying their letter, they estimated that if all large and medium hubs did that, the 10-year AIP savings would be $3.4 billion. And if all 65 large and medium hubs also gave up discretionary AIP grants, the savings would be around $11 billion—$1.1 billion per year.

I would go even further, by removing the federal cap on airport PFCs altogether, and letting commercial airports raise their own funds that way, with AIP reserved only for non-commercial airports. Since the four commercial categories (large hubs, medium, small, and non-hubs) account for 65% of total AIP spending, eliminating 65% of AIP’s current $3.37 billion budget would save $2.19 billion per year. At a time when Congress is facing a “fiscal cliff” and desperately in need of spending cuts, here is one that could be made without reducing needed airport investment at all—as long as Congress gives airports full PFC decision authority.

And by the way, Canadian airports have exactly that. They work with their airline customers to decide on per-passenger charges sufficient to finance their capital investment programs.

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Australian Airport Investors Surface in Europe

Copenhagen Airport agreed to sell its 49% stake in the UK’s Newcastle International Airport to a fund managed by Australia’s AMP Capital Investors, previously only an investor in Australian airports. The transaction forms part of Copenhagen Airports' plan to focus on the development and operation of airports in Copenhagen (the international airport at Kastrup and the general aviation facility at Roskilde, which could be expanded to handle LCCs and charter flights). The L6 group of local governments that own 51% of Newcastle airport will retain their equity, for now.

At the same time Newcastle Airport has completed its £320 million refinancing project. Ballooning debt had been the initial driver of the sale procedure, but more recently had threatened the sale of the privately-held equity. Financing will be provided by a syndicate of five banks led by Royal Bank of Scotland. Under the plan, the local authorities (L6) of South Tyneside, Newcastle, Sunderland, Gateshead, Northumberland and Durham will make further investments in the airport totaling £68 million.

AMP’s move is representative of a resurgence of interest in European airports by Australasian funds and finance houses. While Macquarie Airports, which once had one of the largest private airport portfolios in the world, may have retrenched back to its Australian base (becoming Sydney Airport Holdings in the interim), Macquarie Bank’s various funds remain active. The Macquarie European Infrastructure Fund is reported to be a bidder for London Stansted Airport while Industry Funds Management, an investment manager with over $34 billion in funds under its control, has arrived on the scene all of a sudden with current bids again for Stansted (with Manchester Airports Group, in which it will take a 35% stake) and for ANA Airports of Portugal (with Fraport, operator of Frankfurt International and, inter alia, Lima’s Jorge Chavez airports). Australia’s Future (pension) Fund is already an investor, in London Gatwick Airport Ltd, where it holds 17.23% of the equity, the second largest amount after the US/UK GIP fund, which is the operator there.

Creeping back in on the sidelines is New Zealand’s HRL Morrison and its investment fund Infratil, working together with the New Zealand Superannuation Fund, with a late tilt at London Stansted that only just made the first round deadline. You would have thought Morrison had had enough of airport investment and operation. None of its European investments have been successful. The 90% it owned of Germany’s Luebeck Airport (near Hamburg) was sold back to local municipalities three years ago (now the airport is again for sale to the private sector and has apparently attracted six bids). Infratil still owns and operates the faltering Glasgow Prestwick and Kent Manston airports in the UK, but both are for sale with little apparent interest being shown. Morrison’s trump card is that Infratil is the majority shareholder and operator of the much more successful Wellington Airport in New Zealand—its only other airport asset—which does of course serve a capital city, like Stansted does. (Morrison/Infratil’s primary interest is in power supply and bus operation, if you’re interested).

Stansted and ANA are the two big transactions anywhere just now. In fact they are the only two. Puerto Rico hasn’t been rubber stamped yet. You can’t really count the second tranche of Brazilian privatizations until the government decides exactly what they will consist of, and there are serious rumblings about the lack of genuine private sector investment that was permitted in the first tranche, which was dominated by Brazilian pension funds, and the high prices paid.

This is the complement of Stansted and ANA bidders as far as I know, though it's all still a bit vague:

London Stansted:

ANA, Portugal:

This information (which is believed to be correct at the time of writing) and comment is by David J Bentley of Big Pond Aviation, Manchester, UK. www.bigpondaviation.com

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Problems and Progress with PreCheck

TSA’s fledgling trusted traveler program is under new critical scrutiny, as a frequent flyer website (flyertalk.com) has posted instructions on how to read the barcode on a PreCheck member’s boarding pass so you can know in advance if you will get expedited screening for that flight. The advantage to the passenger, of course, is not having to build in a large amount of buffer time for an unpredictably long wait in the regular screening line. But the advantage to would-be terrorists is that a team of frequent-flyer terrorists who have been accepted into PreCheck could sign up for a flight and then compare boarding passes to see which ones would get expedited screening that might let them get through with dangerous items.

While that may sound a bit far-fetched, it illustrates a flaw in PreCheck that I pointed out from the outset. The only “background check” involved is a check of the applicant’s flying record as an upper-level member of an airline’s frequent flyer program (plus the same comparison against terrorism watch lists that applies to all passengers). In addition, there is no biometric identifier, to ensure that the person showing up at the airport with the encoded boarding pass is the same person whose frequent-flyer record was reviewed. Not having those two features saves money (either the TSA or the applicant, if a fee was charged), which made it easy to set up the program with the airlines’ cooperation. But it does not provide the same degree of security as do Customs & Border Protection’s several trusted traveler programs (e.g., Global Entry), which do require both a background check and a biometric card, for which applicants must pay a fee.

The original trusted traveler concept advocated by transportation security people (including me) back in 2001 called for a criminal history background check, the same as applies to all airport workers who have access to secure areas, plus a biometric ID card. That’s what Congress thought they would get when they authorized the newly created TSA to offer a trusted traveler program, in the original late-2001 legislation creating the agency. And that is what the founder of the original CLEAR program, thought he was creating. That company went to considerable expense to market the program, taking background information from applicants and requiring both an iris scan and fingerprints for their biometric ID card. But the TSA, under several Administrators, refused to allow the applicants’ information to be submitted to the FBI for the background check. And on that basis, TSA refused to provide expedited screening for CLEAR members. And since CLEAR could not offer that, it went bankrupt because not enough members considered just getting front-of-the-line treatment worth the $199 annual fee.

The successor company, which bought the rights to the name and membership list, has been in operation more than a year, but has signed up only five airports: DFW, Denver, Orlando, San Francisco, and Westchester County. TSA still refuses to provide background checks, so the new Clear can still offer only front-of-line treatment with no relief from the standard checkpoint rigamarole. Competitor FlexPass offers a similar service at Jacksonville and Tallahassee. Both still must struggle with the value proposition, since neither can give paid members expedited screening.

Last month TSA Administrator John Pistole, on whose watch PreCheck began, told Bloomberg Businessweek that it plans to test using a private vendor to expand PreCheck. According to the article by John Hughes (Oct. 26th), “Consumers who aren’t part of an airline frequent-flier program would be able to pay a vendor a fee to undergo a security check based on criteria set by the agency.” I hope that means companies like Clear and Flex, who have already invested in the biometrics that should be part of any trusted traveler program. If TSA is to reach its goal of dramatically increasing the fraction of daily air travelers able to bypass regular screening, something like this is the only way I can see of doing so. The existing PreCheck will be doing well to reach 2% of daily passengers by next year, which is hardly enough to make a dent in the enormous space and huge waiting time experienced every day in airports across the country.

Footnote: An article by Marc Weber Tobias on Forbes.com (Nov. 1st) says that members of Global Entry can participate in PreCheck simply by ensuring that the PASS ID number from their Global Entry card is included in the “known traveler” field on the reservation form. That number will then be encoded in the boarding pass’s bar code and will supposedly guarantee that you get accepted into the PreCheck lane more or less every time.

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New Life for Regional Jets?

Several months ago I wrote about the dismay of many officials of small towns and their airports about the impending phase-out of 50-seat regional jets by regional airlines. Many observers have wondered whether these jets, most of which have many potential years of useful life, will spend the rest of their days parked in a desert boneyard.

Perhaps not, if a proposal from Miami-based Aeronautical Engineers, Inc. (AEI) gains traction. The company announced last month that it has entered into an agreement with Bombardier to explore market interest in converting CRJ200 regional jets to cargo planes. AEI estimates that a converted CRJ200 would have a maximum freight payload of 6.7 tonnes. It would have a main deck cargo door 94” wide and 77” high, along with an Ancra cargo loading system capable of handling pallets, containers, or bulk material.

There are turboprop cargo planes in this size range, and the CRJs would be faster but more expensive to operate due to their fuel consumption (which is why they are being phased out by regional airlines). So it’s an open question how much of a market there will be for this proposed regional freighter.

Still, those who know their aviation history will remember that Federal Express got its start with a plane smaller than this. Founder Fred Smith’s first cargo aircraft was the Falcon 20, a Dassault business jet that was modified with a large cargo door by Little Rock Airmotive. The little jet was a success, which Fedex soon outgrew as its business expanded.

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Dumping Backscatter Body-Scanners on Smaller Airports

Since the media took notice of the TSA’s ongoing replacement of backscatter body-scanners at major airports with millimeter-wave scanners, several reporters have asked my opinion of this change.

There are several good reasons to prefer millimeter-wave scanners. First, they do not use ionizing radiation like backscatter X-ray machines, so there is no known medical danger from being scanned by one. I pointed out to several reporters that backscatter scanners are now banned at European Union airports, and the last of them that were in service, at Manchester Airport, were replaced last month with millimeter-wave machines. Second, of course, the latter now come equipped with software that creates a kind of stick figure of the person being scanned, with notations of any suspicious areas. That alleviates many people’s privacy concerns about body scanners.

From an aviation perspective, there are several big advantages. Millimeter wave scanners have considerably higher throughput, and require fewer people to operate. By reducing the length of screening lines, that reduces the square footage of airport space required for the checkpoint, as well as reducing the time passengers must spend in line.

But all those differences apply equally well to smaller, less-busy airports. Yet that’s where TSA is shipping the backscatter body-scanners. Those airports will need larger checkpoint areas, their lines will be longer, and their passengers less happy about their airport experience. They will also have greater privacy and medical concerns.

In my view, a more fully risk-based screening system would not use body-scanners for primary screening. They would be used only for higher-risk passengers, plus a small number of randomly selected regular passengers. That would further reduce the size of checkpoints and the length of lines, while avoiding nearly all the privacy and radiation concerns nationwide. But we will probably have to wait for the Checkpoint of the Future (see News Notes) to get to something like that system.

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Risk-Based Cargo Policies Advancing

TSA and sister agency Customs and Border Protection are making progress with their risk-based approach to air cargo. Congress several years ago gave TSA two deadlines for air cargo screening. All cargo on domestic flights was to be screened by August 2010, with cargo arriving on international flights to be 100% screened by August 2012.

What exactly does “screened” mean? Some in Congress thought they were mandating that every piece of cargo be physically inspected at the airport of origin, prior to being loaded on the plane—just as they insist for passengers. But TSA managed to implement a risk-based approach for domestic cargo, mostly by beefing up the security of the supply chain between the point of the cargo’s origin and its arrival at the airport. Its main program to accomplish this was the Certified Cargo Screening Program, in which both cargo originators (e.g., pharmaceutical companies) and freight forwarders could be certified as operating secure supply chains between themselves and the airport. CSSP was the key to achieving the domestic “screening” deadline of August 2010.

For air cargo originating overseas, doing something similar posed a much greater challenge, since neither TSA nor CPB can order other governments to establish comparably secure supply chains. Together with CPB, TSA created a pilot program called Air Cargo Advance Screening (ACAS), with American and Delta as the lead passenger airlines and the four largest air cargo carriers—Fedex, UPS, DHL, and TNT--as full participants. A parallel program—National Cargo Security Program--has worked out country-specific efforts to certify other countries’ supply chain security procedures as functionally equivalent to our CSSP. Last month the Department of Homeland Security (parent of CPB and TSA) announced an expansion of ACAS to willing express couriers, passenger airlines, cargo airlines, and freight forwarders. Those accepted will not have to break down cargo pallets or containers for last-minute inspection at the airport.

You will notice that the August 2012 “deadline” is now past; TSA is working toward its self-announced deadline of Dec. 3, 2012. Congress, pre-occupied with re-election and the looming fiscal cliff, has not objected. And DHS’s risk-based approach has recently been blessed by none other than ICAO. At a meeting in Montreal in September, ICAO security people and the Global Air Cargo Advisory Group (representing airlines, freight forwarders, shippers, and air cargo carriers) agreed on principles for a risk-based approach to dealing with air cargo security. As Andrew Charlton of Aviation Intelligence Reporter described the outcome in its October issue:

“The principles are policy-driven and outcome-based. They include adopting an entire supply chain approach. Once cargo is screened it is to be kept sterile so there is no need for re-screening at any intermediate points. Consequently, consistent oversight and quality control of security screening is fundamental. There is a need to trust your neighbor. For it to happen, there needs to be international coordination and capacity development.”

I agree with Charlton that this mature, risk-based approach is most welcome.

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News Notes

Second Runway for Gatwick? Relatively new owner Global Infrastructure Partners is doing a feasibility study of adding a second runway to growth-constrained London Gatwick Airport. The study will include economic feasibility, economic impacts, environmental impacts (noise and air quality), and ground access, according to Reuters. CEO Stewart Wingate contends that adding a runway at Gatwick would have “significantly lower environmental impact whilst adding significantly more capacity” than the addition of a third runway at London Heathrow. Due to a long-standing local agreement, Gatwick is not allowed to add a second runway before 2019.

Majority Stake in Milan Airports Shareholders of SEA, operator of Milan’s Malpensa and Linate airports, have agreed to list the company on the Italian stock market by 2014. Majority ownership currently is held by 14 public-sector bodies, including the city of Milan with 54.8%; 29.8% is held by private investors. Under the plan, new shares will be issued and Milan’s holding will decrease to below 50%; it expects to sell 14.56% of its current holding.

ICAO Embraces Checkpoint of the Future At its High-Level Conference on Aviation Security in Montreal during September, the International Civil Aviation Organization adopted a recommended model for airport security that is quite similar to IATA’s Checkpoint of the Future. Like the latter, it is risk-based and includes a trusted traveler component, biometric matching of passengers with travel documents, and collection of passenger information for immigrations and customs. The plan was endorsed by many industry and government bodies, including the governments of China and the United States.

PreCheck Opened to NEXUS Members TSA last month announced that members of the U.S./Canada NEXUS program, which provides expedited cross-border passage to members who have undergone a background check, will be eligible to make use of PreCheck lanes. The new policy goes into effect on Nov. 15th.

EAS Would Be Cut by Sequestration Figures from the Office of Management & Budget show that if sequestration takes place as of January 2nd, the Essential Air Services subsidy program for small communities would be cut by $16 million (out of its budget of $190 million). According to OMB, EAS would receive $12 million less from the Aviation Trust Fund and $4 million less from the overflight fees paid by foreign airlines.

TRB Webinar on Airport Governance The Transportation Research Board is putting on a webinar on November 14th dealing with airport privatization, governance, and ownership issues. It draws on recent research from the Airport Cooperative Research Program, including ACRP Report 66 on airport privatization and two legal research digests, one on airport governance and ownership and the other on state airport authorizing legislation. There is no charge, and further information may be obtained from Reggie Gillum at TRB: rgillum@nas.edu.

Ukraine Plans Airport Concession The infrastructure ministry of Ukraine is seeking a contractor for a concession to expand and modernize Terminal D at the international airport in Kiev, a project estimated to cost $121 million. The aim is to transform the airport into an international hub. The concession will be procured under a PPP law enacted in 2010.

BAA Name Change Last month BAA announced that with the mandated sale of Stansted airport, it will drop the name BAA. CEO Colin Matthews said that after having sold Edinburgh, Gatwick, and Stansted, “The BAA name no longer fits. We do not represent all British airports; we are not a public authority; and practically speaking the company is no longer a group, as Heathrow will account for 95% of the business.” BAA (SP) Limited has changed its name to Heathrow (SP) Limited.

Corrections to October Issue The link provided last issue to the House Homeland Security Committee report should have been: http://homeland.house.gov/sites/homeland.house.gov/files/092012_TSA_Reform_Report.pdf.

Also, in the story about New York airport slots and runway pricing, a former official from the Office of the Secretary of Transportation reminded me that OST did not “give up [on pursuing a slot auction system] due to opposition from most of the airlines and from the Port Authority.” Rather, the airlines sued and the matter was in litigation when the Bush Administration ended. The Obama Administration then dropped the idea of auctions as too controversial.

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Quotable Quotes

“It is time for a new approach to meeting America’s next-generation aviation security needs, one that dodges the influence of politics and bureaucracies, and relies instead on the resources and objectivity of independent researchers operating from a clean slate. This would enable the government to confront the need for cost-risk trades that agencies and Congress find so difficult to acknowledge and present to the public. . . . Several nongovernmental research institutions could be selected to independently design an optimal aviation security system, beginning not with the four decades of accumulated security measures currently in place, but starting instead from scratch. The competing models would be reviewed and the best ideas or combinations of ideas would be put forward. Even if the results turn out to resemble what is already in place, the investigative process would at least offer some comfort that we are pretty close to getting it right.”
—Brian Michael Jenkins, RAND Corp., “TSA Procedures Need to Be Remade from Scratch,” US News & World Report, Sept. 28, 2012

“Companies in many other industries around the world benefit from the free flow of capital. Indeed, arguments for continuing to block the U.S. airline industry from realizing similar benefits are weak and parochial. It is high time for Congress to stand up to unions and put U.S. airlines on an equal footing with other industries in their ability to attract investment.”
Madhu Unnikrishnan, “Why Protect U.S. Airlines from Investment?” Aviation Week, Oct. 15, 2012

“With few exceptions, our [airport] perimeters are not secured. It’s something that has not been addressed at all. We go through this inconvenience as a public, and just look outside the window and it’s open. It’s like locking up the doors and leaving the windows open.”
—Rep. William Keating (D, MA), quoted in Steve Bennish, “How Secure Is the Dayton Airport?” Dayton Daily News, Sept. 11, 2012

“Airports should be allowed to decide whether they want to use the private sector instead of the federal government to conduct screening. By infusing private-sector ingenuity into the passenger screening process, we can improve security and the travel experience.”
—Rep. Mike D. Rogers (R, AL), “A Smarter, Leaner Approach to Homeland Security,” Washington Times, Oct. 25, 2012

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


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