In this issue:
- The future of outsourced airport screening
- Second try for San Diego's Brown Field
- TSA slow to expand trusted traveler
- Startup airlines test new business models
- Airport privatization news from Europe
- News Notes
Last month I wrote about how TSA seems to be stonewalling on language in the 2012 FAA reauthorization bill that was intended to require the agency to resume complying with the 2001 law (which created TSA) that allows all US airports to opt out of TSA-provided screening. Although the agency has accepted applications from six new airports since the new law was passed in February 2012, it has yet to select a contractor and finalize an agreement with any of them. And it has also held off on rebidding expired screening contracts at San Francisco and Kansas City.
So I was taken aback by a July 5 headline in Homeland Security Today reading, "IG: TSA Fixes Problems in Hiring Private Screeners." The article was a brief summary of a report from the DHS Office of Inspector General (OIG-13-99) released June 20th, "Transportation Security Administration's Screening Partnership Program." The IG's office did the report at the request of Sens. Roy Blunt (R, MO) and Bob Corker (R, TN). Blunt's letter was, well, blunt, saying that "TSA has never fully embraced the SPP" and "has recently taken a series of actions and made a number of decisions which have been detrimental to the SPP," citing "TSA's arbitrary rejection of airport 'opt-out' requests and onerous requirements on airports who wish to participate in the SPP." He asked the IG to investigate "whether TSA acted outside its own regulations and procedures" or "taken any actions that exceed its statutory authority," etc.
Unfortunately, the IG auditors interpreted this request quite narrowly, so their report focuses on process rather than substance. And in fact, TSA has been developing a convoluted process to review an airport's application, assess whether or not it should be allowed to enter SPP and present that analysis to the Administrator. Prior to the Administrator's decision, the agency's Program Management Office must estimate the cost of using private screeners at the airport and the Office of Security Operations must estimate the cost of using federal (TSA) screeners there. If the Administrator approves, the Office of Acquisition initiates the procurement process that includes solicitation, evaluation, selection, and contract award. According to the audit, each procurement process is unique, with TSA selecting the evaluation factors to be used, developing a source selection plan, establishing the evaluation standards, holding a pre-proposal conference, and doing visits and site surveys.
The focus of the IG audit is not how convoluted and time-consuming this process is but rather on how well TSA documents it and whether its cost comparisons are valid—a point on which TSA has been criticized for years by the GAO and others. And indeed, the audit uncovered several recent cases of under-estimating TSA screening costs and over-estimating contract screening costs. But because the cost-comparison process is still being worked on, none of the recent applications have been analyzed based on it, and the IG takes TSA's word that the standards for cost comparison will be finalized sometime in 2013.
What the Senators should have asked for is an assessment of whether the TSA should be in charge of deciding whether airports can participate in SPP and whether TSA itself should be running the procurement process and selecting the contractor. An alternative approach is explored in "Overhauling U.S. Airport Security Screening," a new Reason Foundation policy brief by my transportation colleague Shirley Ybarra (http://reason.org/news/show/overhauling-us-airport-security-scr). It notes that the original 2001 legislation grants all US airports the right to opt out of TSA-provided screening and sets out the requirements the for contractors to become TSA-certified. If Congress really intends all airports to have this opportunity, the alternative way forward is to let each airport issue its own RFP, to which only TSA-certified contractors may respond, and the outcome of which TSA must approve before it can be finalized.
The Reason paper also raises the broader question of the conflict of interest built into the 2001 legislation, under which TSA is both the regulator of aviation security and the provider of airport screening—i.e., when it comes to most aspects of airport security, TSA regulates at arm's length, but when it comes to screening (except at SPP airports), it regulates itself. A large table in the report shows that none of the principal airports in Europe have such a situation. Nearly all use approved screening contractors, though a few use police or other government agencies—but not the national aviation security regulator. The same holds true for Canada, where all airport screening is outsourced.
The paper also summarizes the cost comparison between contract screening at SFO and TSA screening at LAX done in 2011 by the House Transportation & Infrastructure Committee. It's high time GAO reviewed those findings as a follow-up to its previous work on comparative costs of TSA and contract screening. And it's pretty clear that the reforms included in the 2012 FAA bill are not doing the job they were intended to do. Congress clearly needs to revisit this issue.
More than 10 years ago, in 2001, a several-year effort to privatize a general aviation airport in southern San Diego was terminated, when the city council failed to renew its development agreement with Diversified Asset Management Group. The company's plan to lease the sleepy GA airport and turn it into a major cargo hub, relieving congested Lindbergh Field, fell victim to opposition from private pilots and nearby residents. The failed privatization effort held one of the early slots in the federal Airport Privatization Pilot Program.
But a new, and better thought-out, Brown Field project is now under way to "privatize without really privatizing," and therefore without requiring exemptions from federal grant restrictions that the Pilot Program was enacted to facilitate. The new effort is primarily focused on improving Brown Field's aviation infrastructure (to the tune of $108 million) and carrying out airport-compatible real-estate development on the property. The objective is to create a "first-tier aviation-based business park."
Those words come from a presentation given by Richard Sax, president of Premier Jet, who is the driving force behind the new plan for Brown Field. When Sax talks about an aviation-based business park, he knows whereof he speaks, since his company has developed a smaller version at McClellan-Palomar Airport in Carlsbad, north of San Diego. They built 60,000 sq. ft. of Class A office space above hangars, so as to bring businesses that own and operate business jets to the airport.
In his presentation at last month's AAAE/LeighFisher Associates airport privatization and public-private partnerships conference in Washington, DC, Sax unveiled his Brown Field plan. The airport has two runways on over 800 acres, offering ample room for aviation business park development. He told attendees that the company did a 25-year aviation projection for the FAA to demonstrate how the airport could accommodate increased flight activity along with significant business development. Plans include a new FBO facility, a separate helicopter FBO, 10 hangars, and office space. The company is not seeking city or federal funding, but is seeking additional private investors. They have a long-term lease for non-aviation portions of airport land, and will sublease parcels to other developers. Another panel member suggested that this model is analogous to the highly successful Alliance Airport and business park in Fort Worth, in which the government owns the runways and aviation facilities and a major private developer has been responsible for developing and marketing the extensive business park operations located on and adjacent to airport land.
It's good news that the FAA is supportive of this public-private partnership, based on the success of both Alliance and of Premier Jet's project at McClellan-Palomar. Thus far, the city is also on board, and I am not aware of any significant GA or airport neighbor opposition.
There's a bit of good news about TSA's PreCheck program that offers expedited airport screening for those who qualify. First, Virgin America joined the program early last month, bringing to six the number of participating US airlines. (Come on, Southwest and JetBlue: get with the program!) And TSA reported that by the end of May it had screened 10 million air travelers through PreCheck lanes. However, that is a long way from several announced goals for the program, which have envisioned as many as one-quarter of each day's passengers eventually qualifying for expedited screening as "trusted travelers."
Besides automatically enrolling the growing number of Global Entry members in PreCheck, TSA's main expansion initiative has been to engage the private sector to screen applicants on a commercial basis, presumably in exchange for a fee of some sort. In January TSA issued a Request for Information, asking interested firms to submit "white papers" outlining their ideas for such a service, with proposals due April 1st; each had to be sponsored by one or more airports. The companies were led to believe that those with the best proposals would be notified within 30 days, but that did not happen. One industry source told me that three or four firms did get called in for discussions prior to Memorial Day. But since then there has been no further word from TSA on the future of the program.
Speculation about this snail's-pace progress for an initiative clearly desired by TSA Administrator John Pistole includes two potential causes. One theory is that delay is due to many personnel changes at TSA in recent months, including a vacancy in the position in charge of this effort. Another theory is that sister DHS agency Customs & Border Protection is pursuing its own expansion plan, Global Entry Lite (which would require no passport and potentially not the current criminal history background check) and therefore may see TSA's effort as competition. On the other hand, several media reports have used the term "Global Entry Lite" to describe TSA's private-sector initiative, so it's not clear whose program goes by that name.
I must also admit to some degree of worry about the security implications of these efforts to expand the set of trusted travelers. To be sure, I agree that the vast majority of air travelers are not a danger to aviation, and should not be treated as if they were. But to be sure of that in individual cases would seem to require the same kind of vetting that is routinely applied to airport employees who need regular access to secure areas: a criminal history background check and a biometric ID card (to prove that the person presenting himself or herself is actually the person previously cleared). It may be that some sophisticated algorithms developed in the private sector can be as reliable as the background checks currently used for airport workers and Global Entry members, but that must be demonstrated, not merely asserted. And whatever kind of vetting is adopted must be repeated periodically, not done only once for all time.
Let's hope the TSA gets its act together on this sooner rather than later.
In previous issues, I have written about the success of Porter Airlines in Canada and the start-up problems of California Pacific in San Diego County. There is news about both, but I'm also intrigued with two start-ups that have come to light over the past several months.
One is Lakeshore Express, which is competing with Delta and Southwest in the Midwest. Since 2011 it has been offering limited service between northern Michigan resort areas (serving Pellston) and both Chicago Midway and Oakland County airport in the Detroit suburbs. And last month it announced new service between Midway and Oakland County. The airline is using Saab 340 turboprops and offering first-class legroom, free drinks, and no bag fees—at fares lower than Southwest's fares between Midway and Detroit Metro (and lower than Delta between Detroit Metro and Pellston). Moreover, it is operating out of the general aviation terminal at Midway, as well as GA terminals at Pellston and Oakland County, so passengers have no TSA hassles.
A very different business model has been launched by Surf Air in California. It is offering frequent business travelers "all-you-can-fly" service among a limited set of cities for a flat fee of $1,650 per month. Its first service, launched last month, links Burbank with San Carlos in Silicon Valley, with Monterey and Santa Barbara to be added this summer. Its target market is CEOs and entrepreneurs affluent enough to pay for this kind of service but not affluent enough to purchase fractional shares in a business jet or to buy a company plane. Service is provided on turboprop Pilatus PC-12 aircraft seating six passengers. Like Lakeshore Express, it is using GA terminals, thereby avoiding TSA hassles. CEO Wade Eyerly says they have identified 53 different short-haul routes around the United States where they think the business model will work.
Still on the drawing board, but making progress, is the more-ambitious California Pacific, which aims to provide short/medium-haul service from Carlsbad (in affluent northern San Diego County) to destinations such as San Jose, Sacramento, Las Vegas, Phoenix, and Cabo San Lucas—but as a full-fledged scheduled airline (under Part 121). The airport currently has only commuter service to and from Los Angeles. California Pacific plans to use Embraer E-170 twinjets, seating 80+ passengers. With a runway of just under 5,000 feet, the Carlsbad airport could also support the larger Embraer E-190 family, seating up to 100 passengers. California Pacific has had a long and difficult quest for FAA certification under Part 121, which is far more demanding than what is required for much smaller operators such as Lakeshore and Surf Air., but does seem to making progress on this, under a new CEO.
And Porter, the successful operator of medium-haul service using 70-passenger Q400 turboprops from its base at Billy Bishop Airport adjacent to downtown Toronto, has proposed a major change in its business model in recent months. With the development of the new C-series 110-125 passenger twinjets by Bombardier, Porter hopes to gain approval to operate them from Billy Bishop. That will require two things: approval to lengthen the island airport's runway from 4,000 ft. to around 5,000 ft. (which will be controversial) and demonstrating that the CS-100 jets will actually have a noise footprint comparable to the Q400. Neither is a sure thing, but if those hurdles can be overcome, the new jet's 1,500 nm range could mean new Porter routes as far west as Winnipeg and as far south as Florida. But competitors Air Canada and WestJet have both said that if Porter gains approval for jets at Billy Bishop, they will aim to do likewise. In the interim, WestJet has begun acquiring Q400 turboprops of its own.
The information in this article (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
Eurocontrol released its fourth "Challenges of Growth" study, which looks ahead to the state of air transport in 2035. It said, "Growth is expected to return, with the most likely scenario showing by 2035 . . . that traffic in Europe will pick up again significantly with an increase in the number of flights to 14.4 million, which is 50% higher than in 2012. This predicted growth is slower than that forecast five years ago, as well as having been delayed for several years." The organisation projects an increase in airport capacity by 2035 of only 17% as opposed to the 38% growth by 2030 it projected in 2008. With less capacity expansion, Eurocontrol stated: "In the most likely scenario, 1.9 million flights in 2035 would not be accommodated – i.e. 12 % of total demand. This scenario would also see more than 20 airports operating at 80% or more of capacity for six or more hours per day, compared to just three such airports in 2012. This would drive [air traffic flow] delay up to around 5-6 minutes, taking it from a minor or intermittent to a permanent, major contributor of delay, [compared with] the current 2014 EU target for en-route [ATC] delay [of] only 0.5 minutes per flight."
The airport capacity crunch is expected to be felt most acutely in Turkey, the UK, the Netherlands, Bulgaria, Hungary, Germany, Poland and Italy. The estimated cost to airlines and airports will be in excess of €40 billion of lost revenues and €5 billion in congestion costs per annum by 2035. The wider economic impact of insufficient airport capacity is estimated to cost Europe €230 billion in lost GDP by 2035.
Airport sale and lease transactions are still thin on the ground but these are some that have put their head over the parapet recently:
France has sold a 9.5% stake in Aeroports de Paris (AdP) to Predica, the life insurance subsidiary of Credit Agricole Assurances (4.81%) and to Vinci SA (4.69%). The sale raised €738 million, leaving the French state as majority owner in AdP with a 50.6% holding. The agreement calls for Predica and Vinci to keep the AdP shares for at least 12 months and not to increase their individual stakes in the airport operator beyond 8% for at least five years. Credit Agricole, the largest retail banking group in France, has been quite heavily involved in aircraft financing but otherwise is an air transport industry newcomer. Vinci has made great efforts to kick-start its sleeping airport concessions division – taking over Airports of Portugal last year to add to its portfolio of small secondary-level managed airports in France and has coveted a larger stake in AdP since 2006. It also has its eye on the delayed privatization of the sub-primary airports in France such as those at Bordeaux, Toulouse and Marseille.
Italy's Civil Aviation Authority is formulating its strategies on privatizing the Palermo and Catania airports in Sicily. The Province of Palermo is keen to retain a share in that instance.
Germany's Rhineland-Palatinate state is considering selling a majority stake in loss-making Frankfurt Hahn Airport. Rhineland-Palatinate owns 82.5% of the airport, with Hesse state owning the remaining 17.5%, since Fraport walked away three years ago. The government said the potential sale would require the continued operation of the airport and its associated infrastructure, noting that more than 3,000 employees are directly employed on the airport site, with around 11,000 secondary jobs. Hahn is dominated by Ryanair (currently 95% of seat capacity) though it does have a fairly solid cargo traffic base.
Poland's Modlin Airport, which opened in July last year but closed to jets in December because of holes in the runway before re-opening on July 3rd, may be sold wholly or partly by the government. In the interim, low cost flights (Ryanair and Wizz Air) have been diverted to Warsaw's Chopin Airport. The sale rationale is confusing. The provincial governor spoke of seeking a private investor for a partial sale, but with the runway reopened they are thinking of offering the entire company up for sale. With a runway that takes the best part of nine months to repair (and with neither Ryanair nor Wizz Air looking for a quick return) the best offer they are likely to get is for the entire airport for a fraction of their price.
Netherlands' Twente Airport will reportedly open for commercial operations in 2016, after Reggeborgh (an investment firm) and Aviapartner (a Belgian airport handling firm) purchased a 49-year concession for the former military airport's operation. The airport will receive €10 million of government funding support. Ryanair among others has shown interest in commencing service to the airport.
Slovenia will launch in September a sale process for 15 companies which will include its largest airport, at Ljubljana (the capital), and its national carrier, Adria Airways. The Slovenian economy is around 50% controlled by the state and is in serious trouble with many economic analysts expecting it to be the next to require an EU bailout. The processes will take two to three quarters to complete but are opposed by the governing coalition's second-largest party. Ljubljana Airport underwent a partial IPO in 2003, the smallest by far of the 15 European airports or airport groups so far to have done so.
In the UK, Exeter International Airport's majority stakeholder, the construction company Balfour Beatty, managed to sell its stake in the airport to Patriot Aerospace (the Rigby Group), which subsequently relieved Balfour Beatty of its other airport holdings, namely 95% of Blackpool Airport, and (London)Derry Airport in Northern Ireland. Balfour Beatty had purchased 60% of Exeter Airport from Devon County Council for £60 million in 2007, but recently wrote down its stake from £12 million to zero, stating "while underlying trading has not deteriorated, we believe that the timing for recovery of passenger numbers has gone further out, particularly in the light of the imposition of increased air passenger duty (APD) rates." APD is killing British aviation like a slow-acting poison and Balfour Beatty had seen the light, albeit belatedly. Flybe, the airline that is Exeter Airport's biggest client (and which is based there) is in trouble. It recently sold off all its slots at Gatwick Airport because it could no longer afford to operate there. Flybe controls no less than 93% of seat capacity and 89% of movements at Exeter. If it were to fail, all that would be left is the tiny Skybus airline that flies to the Isles of Scilly, and a few charters. That would be unsustainable. The English West Country is a graveyard for airport operators. Plymouth Airport closed down in December 2011 leaving that city as probably the largest in the country without an airport and with a lousy rail service to boot. Attracting inward investment must be a nightmare. Newquay Airport in Devon is struggling as well.
In Spain, AENA, the state operator and still the largest by passenger numbers anywhere in the world, is heading slowly back towards another attempt at partial privatization. But the government of the Canary Islands is not prepared to wait any longer and has demanded the Islands' airports should be privatised if the regional government is not given a say in their management by AENA. The latter's privatization could be delayed to spring 2014, as the Development Ministry feels this could allow for more potential investors to prepare bids for participation.
Global Entry Expanding Rapidly. Customs and Border Protection's Global Entry program reached its five-year anniversary in June with the opening of three more enrollment offices: at Albuquerque and Tampa airports and in downtown Washington, DC. That brings the total to nearly 40, all but four of which are at airports. Global Entry now has 1.5 million members, with applications coming in at more than 50,000 a month. One reason for the rapid growth is that members are automatically enrolled in TSA's PreCheck program, regardless of their status in airline frequent flyer programs.
All Backscatter Body Scanners Removed, Says TSA. On May 30th the TSA announced that it had met its June 1 deadline to remove all 250 backscatter X-ray machines from checkpoints at US airports. All 250 were removed at the expense of manufacturer Rapiscan. There are over 700 millimeter wave body scanners in place at about 165 airports, with the remaining 300 or so airports using walk-through metal detectors instead.
Peotone Airport PPP Bill Enacted. The Illinois legislature finalized a bill last month authorizing the state to develop the proposed third Chicago airport in Peotone as a long-term public-private partnership. SB 20 envisions a 75-year design-build-finance-operate-maintain concession with an investor-owned company to develop and operate the airport, for which Illinois DOT has been acquiring land. Peotone is about 40 miles south of the downtown Chicago Loop, and the airport site is adjacent to the planned Illiana Expressway, currently under development by the DOTs of Illinois and Indiana.
Reverse Privatization in Bahamas. The Bahamas government on July 1st took over the Grand Bahama International Airport and its control tower, which had been owned and operated for nearly 50 years by the Grand Bahama Airport Company, a subsidiary of Hutchison Whampoa of Hong Kong. That company retains ownership of Freeport Harbour Company and Freeport Container Port. The Ministry of Transport is setting up an airport authority for Grand Bahama, and is in the process of creating a Civil Aviation Authority as the aviation regulator. A new airport authority is also being set up for the Marsh Harbor Airport on Abaco.
Gittens Says USA Out of Step on Airport Funding. The head of Airports Council International, Angela Gittens, criticized the current US airport funding system in a May 20th speech at the Aero Club of Washington. She said the government needs to end its "micromanagement" of airport finance and emulate airport policy overseas where airports "have more flexibility and freedom to finance their expansion." Overseas, most large airports depend heavily on per-passenger charges similar to the U.S. passenger facility charge (PFC), but typically in the range of $20-25 per passenger, in many cases generating a larger share of airport funding than landing fees
Gary Gets Eight Responses to PPP Request. The Gary/Chicago International Airport Authority received eight responses to its request for interest and qualifications for PPP development of the airport. The responses varied considerably, with many emphasizing real estate development over passenger and/or cargo service. The Authority hopes to issue a Request for Proposals to a subset of firms by the end of July, with responses due by the end of August, a highly ambitious schedule.
New Airline Competition at Stansted. New airport owner Manchester Airport Group has signed an agreement with low-cost carrier EasyJet to double its passenger volume over the next five years. That will mean new competition for Ryanair, which accounts for about 75% of seat capacity at Stansted currently. Aviation Daily reports that MAG "is seeking to lessen its dependence on Ryanair to increase overall traffic at the airport by encouraging other carriers to expand there."
Canada Selects Winner for Nunavut Airport Upgrade. A consortium that includes Bouygues Building Canada and Winnipeg Airports Authority has been selected over two other bidders for a $303 million design-build-finance-operate-maintain project to upgrade the Iqaluit International Airport in the northern territory of Nunavut. The airport is the only means of access to the region, which lacks roadways. The project will provide a new terminal and upgraded ramps and runway. Construction will begin in 2014 with a planned 2017 completion date.
New Airport Databases. The CAPA – Centre for Aviation will shortly release a new suite of online airport related databases, comprising Airport Construction, Development & Cap Ex; Ownership & Privatisation; Charges & Benchmarking; Route Analysis; Traffic; Rankings; and Fares. The first two sections (Construction and Ownership) have been compiled in conjunction with Big Pond Aviation. For more information contact David Bentley at email@example.com.