Maybe It’s Time For Privatized ATC

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Once again, it’s the season to talk about fixing the FAA, this time by moving the air traffic function out of the agency and into a separate agency or a privatized corporation of some sort. As we reported, Rep. John Mica has introduced a billin the House of Representatives that would turn ATC into an employee-owned, non-profit company charged with all aspects of air traffic control.

This is by no means a new thing. Several times during the past four decades, privatizing ATC has come up in Congress, only to be shot down by unfavorable political alignments or potent special interests. The topic has been studied to death and now gains momentum anew, buoyed along by six western countries that have pursued some form of it. As participants in aviation, I think it’s important to have an informed opinion about this. There’s no better way to do that than to brew yourself a pot of coffee and curl up with the Eno Transportation Center’s thoroughgoing, balanced analysis of ATC governance. (PDF). It’s 60 pages, but well worth the time to read.

At its heart is the philosophical question of whether air traffic control should be a governmental function. In the U.S., it always has been and with the exception of Australia, Canada, France, Germany, New Zealand and the United Kingdom, it’s a governmental function everywhere else, too. For the record, I believe it should be a governmental function, because unlike privatized turnpikes and roads, for which there are alternative routes, there’s only one ATC. Privatizing it creates an instant monopoly with potentially unconstrained pricing power to support itself, perhaps even if construed as a non-profit. ATC is basic infrastructure upon which an entire economy rests.However … I’m willing to be swayed; privatized ATC could have certain merits.

We’re having the discussion in the first place largely due to the pathetic state of politics in the U.S. Government-run ATC (and the entire FAA) is a mess partly because it’s a constant victim of uncertain funding streams and cumbersome government acquisition rules. To that, I’d add unresponsive, hidebound FAA management which the Congress, itself a dysfunctional institution, has been frequently unable to reign in. (Part 23, Third Class medical and NextGen delays ring a bell?) In one of its possible alternatives, the Eno report broaches the prospect of leaving ATC just as it is, but reforming the funding and oversight. Eno’s dismissal of this is short and none-too-sweet: “This scenario is highly unlikely in the current budget and political environment.” So, let’s just throw out the whole thing and start over.

The FAA is largely funded by direct taxes on passenger tickets, flight segments, international arrival and departure taxes, facility and fuel taxes. That last item is, by far, the smallest piece of the pie and the tax paid on avgas is smaller yet. I wouldn’t be surprised if the FAA spends more on paper clips than it collects on gasoline fuel taxes. And as flying activity declines, so too have those avgas revenues. Moreover, tax receipts and funding vary with airline activity, the economy and the whim of Congress in tossing the FAA bones from the general fund, which lately have been some big bones. But the FAA has to sustain major capital investments from year to year (NextGen is one) without knowing what its funding will be, hence the uncertainty. The budget sequester of 2013 caused all sorts of chaos, not the least of which led directly to me losing my luggage for four days and some controllers seeing their paychecks shrink for longer than that.

One proposed solution isto turn ATC over to a private corporation that could stabilize revenues through a combination of access and user fees and by selling bonds on the commercial markets for long-term funding of capital projects. This is no different than your town floating a bond for a new parking structure or a ballpark. This appears to be what Rep. Mica’s bill proposes to do, although as enabling legislation, it’s too light on details to judge it yet. Various countries have tried versions of this basic idea and since these are covered in the Eno report, I won’t review the details here. Suffice to say the cost to users varies considerably from country to country, for structural, political and managerial reasons.

For example, the report compared flight segment and terminal user fees for an Airbus A319 flying the equivalent route in all six privatized countries to the equivalent tax-derived fees in the U.S. The U.K. was the most expensive, at $1564. New Zealand was the cheapest at $536. Comparing that to the U.S. is a bit of apples and oranges because you have to use average fares, but the U.S. passenger taxes would total about $1250. That’s almost twice what the airline would pay in Canada. Canada? Hmm, keep that in mind for a moment.

Why so high in the U.K? It’s the structural thing I mentioned above. The airspace is more chopped up among agencies and countries and coordinating all of that costs something. I wonder if the U.K. will need to think about that as it contemplates leaving the EU.

As for GA user fees, these are a mixed bag and too complex to cover here in detail. Some countries—New Zealand, for instance—charge all aircraft per-use fees for things like flight plans and IFR services, plus terminal fees. As the Eno report details, these are modest—in the $5 range. Other countries charge per-use and terminal fees based on weight and type of operation. Canada, whose NavCanada privatized ATC is organized as non-profit, has a system that strikes me as at least rational and perhaps best suited to the U.S., although it’s hardly perfect. Light aircraft under 1360 pounds pay nothing; aircraft between 1360 and 4409 pounds pay about $56 (U.S.); heavier aircraft up to 6614 pounds pay $190 and commercial airplanes pay more, although they have the option of flat fees or day fees based on usage. The above fees, by the way, are annual access fees.

I don’t like day fees or per-use fees. Fine for the turnpike, but lousy for GA in this country. I think it would be depressive of any potential to slow GA’s decline, much less find growth. And I’m pretty sure AOPA, NBAA and EAA will feel the same if it comes to that. But a modest, flat access fee as Canada has seems reasonable to me, again, if it comes to that. Would owners squawk about $50 or $60 a year as an access fee? I wouldn’t. By my calculations, it would raise a little more than the fuel tax does now, but would that even approach paying for GA’s costs? I think an annual user fee of up to $100 would be palatable; beyond that, I’m not so sure.

So there. I’ve talked myself into accepting a user fee—a yearly access fee. But its revenue—perhaps $15 to $20 million at most—would be a tiny fraction of the what the FAA needs to operate, so the rest would have to come from airline fees or taxes, just as it does now. (The FAA’s operations and facilities budget is in the range of $12 billion; $20 million is less than 3 percent of what the FAA says it spends on ATC related to piston aircraft.) The FAA has claimed that piston aircraft alone account for 6 percent of ATC costs. Do the math and to break even on those costs, user fees would have to be a lot higher.Also, under the Canadian system, larger aircraft—bizjets—pay more in commercial and day fees. So really, access fees on small-aircraft GA are economically pointless for their impact on the revenue stream. I doubt if a case can be made where GA both pays its way and actually lives to crow about it. I think the industry is just too tender to tolerate high fees and service delivery costs are just too high. According to a PricewaterhouseCoopers analysis commissioned by GAMA, GA is a $219 billion industry with 1.1 million jobs. How would a piddling $20 million in fees balance in erosion of that business? I suspect a dollar in fees would get $5 in reduced economic activity.

But here’s the thing about all this: I have zero confidence that after Congress is done fleshing out Mica’s bill and DOT fills in the rest of it that it will in any way resemble what Canada has. Not to offend your American exceptionalism or anything, but I think Canada is just a few beats better at broad-benefit public policy than the U.S. is. The political sensibilities are just different there. They’ve got single-payer healthcare, for Pete’s sake! As one writer observed, Canadians do Loon Lake, we do Antietam. The same applies to New Zealand and Australia. Not that the Canadian system is perfect either. We hear complaints about it.

And a couple of other things while I’m on the soapbox. This proposed ATO Corp. would have no competition, so it needs a carefully considered governance board with all interests, including GA, well represented. Someone or something has to keep it from invoking monopoly pricing. And God help us if they discover the kind of unbundling the airlines are employing. (“Your fee covers the approach, but landing is extra. Only one free go around.”)

Corporations in the private sector control costs, sometimes rather brutally, with layoffs and rollbacks. They listen to customers, too, or fail to at their own peril. Would that apply to ATO Inc. too? Because if it does, I’d want the FAA to stop wasting taxpayer and pilot dollars on pointless medical certification and apply that to providing efficient ATC services.What happens when ATC Inc.’s management proves little better than the FAA (or worse) and costs run over and schedules crump? Would heads roll? What about profit incentives? Only two ways to get there: cutting services/costs or hiking fees. One thing the Eno report doesn’t analyze is the impact accelerating automation will have on ATC service cost and efficacy, both from the ground and in the cockpit. I don’t think it’s too early to anticipate that.

Last, the right to strike. I’m hardover on this. Unions in the private sector have this right and they should. But in public-sector safety jobs, employee-owned company or not, strike rights should be off the table. And that should be written into the legislation, regardless of what form an employee-owned ATO corporation takes. Any government-induced monopoly “corporation” is not operating in the same business environment as private-sector companies do. We should drop the artifice that a government-sponsored service provider is a “business.” It’s a business like your local police department is a business. A few years ago, the FAA adopted business titles for its ATO managers as if this would somehow relieve the bloat. Another artifice.

I don’t pretend to know where any of this is going. I know where I’d like it to go and I know where I could tolerate it going. But you know the crude joke about doing something in one hand and wishing with the other and which fills first. I’m not bubbling with confidence.

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