FAA Reauthorization/Privatization poses a lot of difficult, detailed questions

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Rep. Larsen, Ranking Minority of the House Aviation Subcommittee, has always raised thoughtful and penetrating questions about Reauthorization and Privatization. The below opinion piece by the US Representative for Snohomish, Skagit and Whatcom counties and all of Island and San Juan counties all in Washington State follows his pattern of looking at the rewriting of the FAA’s authority with perspicacious vision. His thoughts served as a catalyst to think about Reauthorization/Privatization once again.

Here are a few more thoughts (both +s and –s; many at the detail level) about Chairman Shuster’s proposal to spin off the ATO as a federally chartered, non-profit corporation while the remainder of the FAA remains part of the federal government:

+ By all accounts, the FAA Senior Leadership is already challenged (stretched?) by the tasks which they face (UAS, Part 23, SMS, etc.). Moving NextGen’s development to the non-profit ATO should allow the FAA team to focus on the remaining and immense challenges.

  • If the non-profit ATO moves out of the federal government, does it have to self-insure? Historically, the federal judgment fund paid for any liabilities incurred by the Air Traffic Control system. If those dollars are not available, the financials of the non-profit ATO will look very differently.
  • Secondarily, the Department of Justice lawyers, who have defended the FAA, are a valuable source of knowledge about the ATC procedures and foibles. The new ATO will have to replicate that legal talent.
  • There is a long history of precedent about ATC involved accidents; will they apply to the non-profit ATO?

+/- The FAA Air Traffic Safety Office has been the safety regulator of the federal ATO. If the organization moves out of the government, some of the collaboration, which has been between AOV-1 and ATO-1, is likely to diminish. Some say that is a positive change; others will disagree. It will be fascinating to see how conflicts are resolved; no longer will a dispute be resolved by the FAA Administrator. Who would make the safety calls? Will the efficiency of the ATC system be a criterion for the FAA?

+/- A big current issue for the FAA is the implementation of new ATC routes for the NextGen and it has been granted fast track authority under NEPA to install those procedures. The communities have not received these proceedings well. Will the non-profit ATO be subject to NEPA? Or will it, as a private entity, have NO environmental review?

+/- The current FAA employees are represented by unions and the ATO executive deals with both NATCA and PASS. They are prohibited from striking, but are protected by both the MSPB for grievances and Congress over wages. Will Privatization changes these protections from disrupted flights and/or of the employees?

  • The great advances of the FAA in aviation safety have been attributable to the accumulation of data and the analysis of those numbers to create a preventative regime. Those numbers are currently collected by ATO and transferred to the FAA. Will that transfer between a non-profit and a federal organization be subject to immediate public scrutiny?
  • The FAA headquarters provides a number of overhead/support services (budget/accounting, NEPA support, legal, HR, Congressional relations, etc.). A separate ATO will have to replicate those resources and knowledge.

+ The non-profit ATO will have a much better platform from which to implement NextGen—a long term budget, a procurement process which does not go to the “lowest bidder”, etc. At the same time, the federally chartered organization will have to acquire the technical skills to borrow money, to manage its cash flows, to pay bills, to select a winning bid based on price and quality, etc.

Privatization will require a retro review of economic regulatory history, harkening back to the Civil Aeronautics Board’ Domestic Passenger Fare Investigation (DPFI). It was, perhaps, the single most ambitious microeconomic analysis of an industry; scholars, airline executives and a host of consultants brought evidence about every aspect of the fares, costs and financing of the industry’s operations.

The model established standards against which the CAB would assess whether a fare increase would be approved. Fleet size, aircraft configuration, load factors and a large number of other points were defined as measures of industry efficiency. The DPFI’s equation was about as exquisite as any every fashioned by a set of regulatory economists, but as Dr. Kahn would eventually admit, the industry was too dynamic to be replicated in even the most complex set of algorithms. DPFI failed as a means of fare-setting and Deregulation was enacted to let market forces define what airlines charge.

The job of setting a User Fee will be infinitely more complex, if not impossible. Perhaps the most challenging exercise is how to set the basis for assessing a user fee—does every flight incur exactly the same cost or do the schedule flights massive departures/arrivals at the same time at the airports with greatest demand compel the ATO to increase the physical assets and human resources needed to meet peak demand? Does a user fee for each flight bear fully allocated costs or does the fee vary based on the conditions. The GA/BA associations fear that a uniform fee will be selected by the non-profit ATO Board in a way which favors the airlines’ preferred answer.

Fees will have to be set for future periods. Ideally, the selection of that term is necessary to match these revenues with the expenses for that period. Once that period is determined, the user fee for that time will be set based on forecasts of the total flights/flying time over that horizon.

At the same time a lot of short term variables impact the realities of airline, GA, BA and military flying. Spikes in fuel prices dramatically affect the level of general aviation flights and can decrease the schedules of the airlines. So if the number of operations decreased, the projected collection of user fees will not be met. This revenue shortage will have real impact on a “privatized” FAA.

Other variables which will cause havoc in setting user fees include changes in the economy (both plus and minus), international events (terrorism, global health hazards, restrictive safety/economic/political actions) and other unpredictable influences. With these perturbations the predicted aviation activity will fall or rise with concomitant impacts on the non-profit ATO’s revenue flows.

User fee variations will occur over time; the DPFI lessons indicate that the numbers are not predictable. A period in which user fee collections were well below expectations will force the increase in the next period to recapture the shortfall. A major correction upward could result in the raising of airline fares which could harm passenger demand or air freight movements.

Non-profit ATO will have to acquire very able economists and will have to create a predictable, stable and fair mechanism to set user fees in a complicated, multi-segmented aviation sector and one which is subject to a number of seemingly random exogenous variables. The prospects for getting the numbers right are not good if the history of the DPFI is relevant.

The months and days between now and the end of the previous FAA Authorization will be a time for this Congress to answer these difficult questions. Be sure to follow the discussion.

ARTICLE: FAA reauthorization poses opportunities for U.S. aviation leadership and growth

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