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Reason Foundation

Airport Policy and Security News #89

Major airports offer to give up federal grants, Pocket knives on planes, Airglades Airport moves toward privatization, Industry fights contract tower shutdown, Airport privatization news from Europe

Robert Poole
April 8, 2013

In this issue:

Major Airports Propose Cutting the Cord

The majority of the 29 U.S. large-hub airports have offered to give up their federal airport grant funding in exchange for removal of the federal cap on local passenger facility charges (PFCs). The proposal is made in a letter dated April 5th to the chairs of the Senate and House Budget Committees from 15 major operators of 20 large hubs.

The letter estimates that shifting from federal Airport Improvement Program (AIP) grants to local self-help would reduce AIP spending by $4.2 billion over 10 years. That number would be larger in later years, because the proposal assumes that certain airports would receive the remainder of existing multi-year grants under Letters of Intent (LOIs). If all 29 large hubs joined with the 20 already on board, annual savings would grow to $500 million per year by FY 2018.

Left for Congress to decide would be what to do with the savings. If current aviation excise taxes remain unchanged, the eventual $500 million per year could be shifted to the currently under-funded NextGen system, on which airports and airlines alike are depending for future performance improvements. Or the savings could be used to reduce the fraction of FAA's budget that currently comes from the federal general fund. Since the $619 million FAA budget cut imposed by the sequester is now built into the Congressional Budget Office baseline for the next decade, savings of $400-500 million per year in FAA's budget should be welcome.

Historically, airlines have opposed the creation of the PFC program as well as proposed increases in the federal cap on airport-imposed PFCs. However, since large hubs in particular need the largest amounts of investment to expand and improve their terminals and runways, airlines and their passengers will end up paying for these investments one way or another—via landing fees, space rentals, ticket taxes, or PFCs. Airline pioneer Bob Crandall, long-time CEO and Chairman of American Airlines, suggested in a February speech that airlines should rethink their opposition to airport self-help via PFCs, endorsing in principle what the large airports are now formally proposing.  As Crandall said in that speech, "If the alternative to larger PFCs is higher landing fees and space rentals, the airlines may well find the trade-off to be the best choice of a bad lot" to ensure adequate investment in the new era of restricted federal funding.

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Pocket Knives on Planes a Ridiculous Controversy

The day the TSA announced its new policy to allow small pocket knives on planes, I was interviewed on a Los Angeles radio talk show, along with an official of the flight attendants' union. At the time, I viewed the alarm over this policy change as a flash in the pan, over which cooler heads would soon prevail. But I failed to reckon with the desire of members of Congress to get on TV and rile up the uninformed out there in the bewilderedness.

Let's start with the basics. Until creation of the TSA in late 2001, large numbers of people routinely flew with a Swiss Army knife or equivalent in a pocket or handbag. When you are stuck in a hotel room without anything resembling a tool, there are countless uses for these ingenious devices (as I was reminded in February in my hotel room in Madrid, trying to jury-rig an ad-hoc AC adapter for my laptop with only a pair of nail scissors and wire from a cheap earphone).

The potential security risk from any kind of sharp object on board an airliner is the threat to injure or kill a passenger or crew-member as a way to gain access to the cockpit. Sorry folks, but that no longer works. And it's a very good bet that would-be terrorists know it, since no such attempt has been made anywhere since 9/11. Besides, any serious killer could do equal damage with any number of items already legal to bring on board: nail scissors, knitting needles, screwdrivers up to 7" long, ballpoint pens, and also non-sharp objects such as scarves. Anyone who reads thrillers or murder mysteries—or who's served as a murder trial juror—knows countless ways that fatal harm can be inflicted other than with a pocket knife. As John Stossel would say, "Give me a break!"

TSA Administrator John Pistole correctly points out that with cockpits protected, the threat screeners are supposed to be focused on today is improvised explosives. That's the reason for shoe-removal, laptop-removal, restrictions on liquids, and body scanners. And to his credit, Pistole has begun implementing a risk-based approach to this process, by figuring out ways to exempt very low-risk passengers from those onerous provisions.

TSA is on solid ground in easing up on pocket knives, since this policy is what ICAO has long recommended and is standard practice in Europe. In addition, despite flight attendants' concerns, the GAO has found there have been zero in-flight incidents involving a knitting needle or a small knife.

Nevertheless, thanks to a well-orchestrated effort by the flight attendants' union, there is growing support in Congress for a "No Knives Act" authored by Rep. Ed Markey (D, MA). And as of several weeks ago, about a hundred members of Congress had signed a letter to Pistole, circulated by Rep. Michael Grimm (R, NY), Eric Swalwell (D, CA), and Bennie Thompson (D, MS), urging him not to implement the policy change on the scheduled April 25 date without "consulting key stakeholders."

I hope frequent flyers will make their own views known, via blog posts, letters to editors, and contacting their representatives in Congress. It's time to stand up for risk-based aviation security policy, rather than pandering to the politics of emotionalism.

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Airglades Airport Moving Toward Privatization

Last May I wrote about the other holder of a slot in the federal Airport Privatization Pilot Program, tiny Airglades Airport in Hendry County, the poorest county in Florida. The concept put forward by the group seeking to privatize Airglades is to convert it into a cargo reliever airport for Miami International, specializing in (1) perishables from Central and South America, and (2) aircraft maintenance, overhaul, and modifications. I included some cautions raised by then-MIA Director Jose Abreu, but closed by wishing the promoters well and noting that they are planning to risk their own money, not that of taxpayers, and that it would be great if they succeed.

In the 11 months since then, the folks at Airglades International Airport, LLC have kept me posted, and in my judgment, they are making very tangible progress. AIA itself is a joint venture of a group of individuals called Florida Cargo Fresh, plus two major Florida agribusinesses, US Sugar and Hilliard Brothers, whose vast operations are neighbors of the airport in question. This gives the joint venture more clout than I'd realized. Last year they got unanimous approval from the Hendry County commissioners for their draft agreement to manage the airport, which was then submitted to both FAA and Florida DOT for review. They also proposed and got enacted a bill in the legislature allowing a county to sell an airport being privatized via the federal Pilot Program.

AIA also seems to be doing excellent networking with key stakeholders in the perishable cargo industry, such as the Florida Perishables Trade Coalition and the Florida Customs Brokers & Freight Forwarders. They've also had discussions with the Port of Miami and Port Everglades (Ft. Lauderdale) about handling ocean-borne perishables. They have also crafted tentative plans to bring in both jet fuel and diesel fuel (for a new truck stop) by rail from Port Everglades. And they've had meetings with FAA both in DC and on-site in Florida, and seem to have made a good impression.

AIA also came very close to signing up an initial anchor tenant: Commercial Jet, which operates a large aircraft modification and maintenance complex at MIA. Due to ramp limitations there, C-Jet has been looking at Airglades as a new site, as they get ready to begin new programs converting CRJ-200s and MD-80s to cargo aircraft. But on April 5th, C-Jet announced its initial expansion will be at Dothan, AL, where hangars and apron space already exist. The company did hold out the prospect of still locating some operations at Airglades once the revamped airport is in operation.

While perishable air cargo (fruits, vegetables, flowers) from South America today overwhelmingly arrives in the United States via MIA, it is a relatively small fraction of total air cargo operations there—about 16 freighters per day. MIA is surrounded by developed urban land, and is highly unlikely to be able to add to its 3,200-acre footprint. By contrast, the planned AIA would be 2,800 acres of master-planned cargo airport. The need for a cargo reliever airport for MIA was documented in a Florida Chamber of Commerce/Florida DOT Trade & Logistics Study in 2011.

One of Jose Abreu's cautions still strikes me as a potential obstacle: whether there will be enough backhaul cargo to fill the freighters returning from Florida to South America. AIA is working on this, and they sent me a list showing that seven of the top eight import countries are also among the eight top export countries. But there is still the question of how the export cargo to fill the perishables freighters gets to Airglades, 90 miles north of MIA on US 27. How much of that cargo originates north of there and could unload 90 miles short of MIA and how much originates in the Miami urbanized area? MIA will always provide a vast array of air cargo choices to Latin America, as belly cargo on passenger planes and on numerous all-cargo planes.

That said, Airglades represents a bold entrepreneurial venture that is clearly making progress and gaining credibility. If its proponents succeed in developing the airport as a significant cargo reliever, this will be an impressive demonstration of some of the original aims of the Airport Privatization Pilot Program: to stimulate new investment in airports and add capacity where it is needed.

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Contract Tower Shutdown Postponed

I really thought Congress would act at the last minute to give FAA greater budget flexibility, but they didn't. But just as aviation was braced for the closure of 149 contract towers between April 7th and May 5th, the FAA announced a stay of execution. This was apparently in response to a lawsuit filed on April 4th by the Contract Tower Association, an affiliate of AAAE. They have retained Pillsbury Winthrop Shaw Pittman in DC for this litigation on the matter. Representing them is former FAA Chief Counsel Kenneth P. Quinn. In his April 2nd emergency request for an administrative stay of the closures, Quinn asserted that the planned closures are "arbitrary and capricious" and in violation of the FAA Act, the Administrative Procedures Act, and the National Environmental Policy Act. The letter says the nothing in the sequester law "mandates this draconian outcome." FAA took no action, so AAAE and USCTA filed suit on April 4th. The next day the agency announced a delay of tower closures till June 15th.

Some state governments (e.g., Texas) and some local governments are making plans to provide interim funding to keep some of those towers open, so the actual number that will close is uncertain. But what is especially galling is that the contract towers, though mostly small, are the most cost-effective towers in the country, costing only one-fourth as much—yes, not one-fourth less but only 25% as much—as comparable FAA-run towers, according to the latest study by the DOT Inspector General's office. So the savings from closing these particular towers are miniscule.

Even so, there will be impacts. A new study by masFlight, an aviation numbers-cruncher, found that 55 of the 149 affected airports have scheduled passenger and cargo service. Data for March 2013, compiled by masFlight, identified 10,600 weekly flights with filed flight plans at those 149 airports—6,500 business aviation flights, 2,600 charter and fractional flights, and 1,500 scheduled airline flights. When you divide by seven to get daily flights, and divide by 149 to get the daily average per airport, the result is only 10.1 per day at the average of these airports. Obviously, some are considerably higher than that, while others are less. What concerns me most is the uncontrolled mix of high-powered and numerous small piston planes, especially in bad weather.

There is also a renewed attempt in Congress to provide legislative relief, to give FAA greater ability to shift funds around so as to protect air traffic control Operations from losing 10% of its budget between now and Sept 30th, the end of FY 2013. Sen. Jerry Moran (R, KS) and Sen. Richard Blumenthal (D, CT) plan to introduce a free-standing bill when Congress returns from its two-week recess.

The bottom-line conclusion being drawn by many aviation professionals is that the current funding and governance model for air traffic control in this country is broken—and needs to be replaced. This kind of political cut in the ATC budget could not happen in most other developed countries—like our neighbor, Canada, but also Australia, New Zealand, France, Germany, the U.K., and about 50 others. Over the past 20 years, they have all insulated their ATC systems from the national government budget and the perils of politically imposed budget cuts. Financially self-supporting ATC systems exist in all those countries. We have a lot of experience to draw from in crafting a U.S. version.

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Airport Privatization News from Europe

The information below (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

The Greek government has ruminated over organizing an IPO on its stake in Athens Airport (55%) and leasing its regional airports for some years now. The former scenario remains an elusive objective but the latter is real and happening right now. The modus operandi for the concessions is as follows. The 21 regional airports will be split into two groups to be leased to private investors for a period of 30-35 years, according to plans presented by the Development Minister and state privatization fund (TAIPED). The plans generally cover airports on mainland Greece, the Ionian islands and Crete to comprise one group, and others on the Aegean islands.

This move may come as a surprise given that the country is reeling from a succession of austerity measures that have left many people literally on the breadline. In exchange for a second loan in 2011 Greece promised to introduce even more austerity measures during 2013-15. However, the seemingly inexhaustible austerity cuts are lengthening Greece's economic recession and depressing tax revenues, a vicious circle. Consequently, tourism has taken a dive (who wants to take the chance of the Euro becoming valueless during their vacation?), and few Greeks can afford to travel anywhere. The disaster that is nearby (Greek) Cyprus hasn't helped either.

But the government has little choice. The "Troika" of the EU, European Central Bank and IMF insisted on public sector sell-offs like this, just as it did in Ireland, Portugal and Spain. At least the Greek government will gain some comfort from the surprisingly fruitful disposal of the Portuguese airports to France's Vinci (although Spain still dithers over its own privatization program, and Ireland has merely hived off Shannon Airport to a corporatized state agency).

The main attraction for investors is Thessaloniki Airport, which serves the country's second city and has a healthy traffic mix, and selective island airports such as Rhodes, Corfu and Heraklion (Crete) where there is a broad vacation mix and a variety of airline types to serve them. These airports are known to be profitable but hardly any of the others are. Many of the smaller island airports represent idyllic vacation locations (e.g. Santorini) but do not have critical mass, and it is difficult to see how they could achieve it.  The most daunting statistic is that, collectively, the airports need €240 million to bring them up to standard. Consequently, the word on the street is that they will be worth no more than €40 million, which probably wouldn't pay back this week's installment on the bailout loan.

Cardiff Airport returns to the public sector. Cardiff Airport, which serves the principality of Wales in the UK, has been bought by the Welsh government for £52 million. It has been losing money for the last two years as traffic halved in the face of tough competition from nearby Bristol Airport in England, and it is not immediately clear just how that valuation was calculated. The government has been unhappy for some time about the performance of the private sector owner, both in terms of route retention/development and also investment. The airport was acquired in 1995 (for £38 million) by TBI, a local Welsh property developer that later went on to acquire the U.S. company Airport Group International (AGI) in 1999 and become a global operator before it was, itself, taken over in 2004 by a consortium of AENA (10%) and Abertis (90%), both of Spain.

As majority shareholder, Abertis has come under increasing pressure from its own majority shareholder, ACS, to get rid of the airports division in favor of the more lucrative toll roads and telecommunications divisions. Only last month TBI was forcibly ejected from Bolivia where the government renationalized three airports operated by SABSA, a throwback to the AGI era and which had always been a troublesome venture. It seems as if Abertis is open to any offers on its airports. It doesn't care much; as it says, this Cardiff disposal is the equivalent of just 0.1% of the total value of its assets.

The transaction doesn't say much that is positive about airport valuations, even though they have been going up. Allowing for the investment it had made at Cardiff, Abertis made nothing out of an airport its constituent parts had operated for 18 years. And £52 million is nothing to the £145 million sale price of the similarly sized Leeds Bradford Airport from public to private sector in 2006 at the height of the economic boom. 

But there is a sting in the tail. Why does the Welsh Government want the airport back? Is it only because of a perceived lack of investment and management competence? There is an influential Cardiff-based think tank working in the wings to attempt to reposition the South Wales urban region, which has a population of around two million – two thirds of the entire country- in the same way successful English regions like Greater Manchester have. In order to do that it needs a functioning international airport and the plan is for a new Severnside Airport (after the River Severn), which would also serve Bristol and which would be built on the Welsh side of the border. The benefit would be that passengers might pay a lower rate of air passenger duty if the Welsh Assembly can negotiate one (as has happened in Northern Ireland). That would make it attractive to English air travelers from quite a large area.

Severnside Airport is to be proposed formally to the Davies Commission, which is investigating UK airport capacity for the first time since a 2003 White Paper (with cross-party support), and which will report initially at the end of this year. Taking that into account, regaining control of a possible competitor is more understandable as a reason for buying the airport. For the moment a private sector operator whose plans were nothing like as ambitious as Severnside Airport has been bought off. That sector would be invited to return in the future, but more likely in a PPP format.

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Upcoming Conference

Global Airports PPP Conference, the 3rd Annual AAAE/LeighFisher Airport PPP Conference, June 2-4, Westin Georgetown, Washington, DC. (Robert Poole speaking) Details at: www.events.aaae.org/sites/130604/index.cfm

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News Notes

No Furloughs Planned by TSA. In contrast with the FAA, which is reducing its Operations budget 10% (from April through September) primarily via unpaid furloughs, the Transportation Security Administration announced on March 13th that it does not plan any furloughs of its 47,000 screeners. But it does expect longer checkpoint lines due to a hiring freeze and a lack of money for overtime. TSA is also cutting bonuses and some kinds of training.

Major Toll Operator Buys Rome Airports. Italy's largest developer/operator of toll roads, Atlantia, has reached an agreement to acquire Gemina, the owner of Aeroportos de Roma (AdR), the operator of Rome's two airports, Ciampino and Fiumicino. Privatized AdR holds a concession for the two airports that expires in 2044. Atlantia will pay $1.33 billion for the shares of Gemina that it does not already own. Gemina had previously announced plans to invest $4.1 billion in improving the airports, primarily at Fiumicino.

Chicago Gets 16 Responses to Midway RFQ. Sixteen teams submitted their qualifications, by the Feb. 22 due date, to bid for the proposed 40-year lease of Chicago Midway Airport. Among them were global airport investors Global Infrastructure Partners and Industry Funds Management. Chicago CFO Lois Scott plans to issue a draft RFP to a short-list of potential bidders within the next three months and to request binding bids in the third quarter of 2013. The city is being advised by Credit Suisse, Deloitte & Touche, Mayer Brown, M.R Beal & Co., and various local firms. At least 90% of the lease proceeds, by state law, must be spent on debt reduction and/infrastructure investment.

Mica Aims to Devolve Airport Screening. Rep. John Mica (R, FL), who chaired the House Aviation Subcommittee when legislation creating the TSA was drafted in 2001, says he will introduce legislation to take the TSA out of the business of airport screening. Instead, airports would contract with TSA-certified screening companies, as is common in Europe. In Canada, the agency set up after 9/11 to improve aviation security, CATSA, obtains all airport screening in that country from private screening companies. As the new chairman of a subcommittee of the House Oversight & Government Reform Committee, Mica has new-found authority over TSA and intends to use it.

Gov. Christie OK's Port Authority Takeover of Atlantic City Airport. The Port Authority of New York & New Jersey will add another airport to its portfolio this summer by taking over the management and operations of state-owned Atlantic City International. The board of the South Jersey Transportation Authority voted on March 20th to authorize negotiation of an agreement with the Port Authority by July 1st, and Gov. Chris Christie approved the deal. The airport has only one scheduled carrier, Spirit, operating 27 flights a day, far less than its 10-gate terminal can handle.

Airport Privatization Highlighted in New Report. Reason Foundation has released the aviation section of its annual report on privatization and public-private partnerships. It covers recent developments in airport privatization, airport security, and air traffic control commercialization. Go to: http://reason.org/news/show/apr-2013-airport-privatization.

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Quotable Quotes

"Our proposal would allow Congress to eventually eliminate AIP grant funding for large hub airports and participating medium hub airports, with the exemptions previously noted. Instead of tax dollars flowing to Washington and back to our airports as AIP grants, the simpler solution we propose would cease nearly all AIP funding to our airports, and instead allow our airports to charge a locally determined and FAA-reviewed user fee as necessary to pay for the costs of providing and improving facilities."
—Letter to Senate and House Budget Committee Chairs, signed by CEOs of 15 major airport providers, April 5, 2013

"It makes sense for TSA agents to be looking for bombs that could bring down a plane, not scouring luggage for penknives. The agency is not and cannot be in the business of protecting every passenger and crewmember from every conceivable threat. If it tried, it would have to ban a lot more than knives, and its effort would cost far more money, gobble up more of passengers' already overbooked airport time, or both. Instead, government resources and travelers' time should be spent with a sense of priority. Airplanes pose unique dangers that justify the frustration that comes with airport screening. Terrorists have committed mass murder by using planes as weapons: forcing them to crash and blowing them up in midair. In the post-Sept. 11 era of reinforced cockpit doors, savvy passengers, a more-robust air marshal program, and flight attendants trained in self-defense, allowing penknives onto planes would not result in such tragedies."
—Editorial, "The New Rules on Knives Are Safe and Reasonable," The Washington Post, March 13, 2013

 "Last month robbers dressed as police officers boarded an airplane in Brussels and nabbed $50 million in diamonds. The break-in was a snap: the criminals cut a hole in the airport security fence and drove through it. America has the technology to monitor intruders at and even beyond an airport's edge, but too many airports are behind the curve. . . . Our concentrated focus on terminal security has orphaned equally important needs at the edge of airports."
—Norm Mineta, quoted in Paul Lowe, "Airport Perimeters Vulnerable, Says Former DOT Secretary," AIN Online, April 3, 2013

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


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