Once again the aviation industry faces disruptions to the National Aviation System (NAS) because of public policy failure. This time it is sequestration, the indiscriminate cuts to discretionary spending that are resulting in furloughs of key federal personnel and contributing to service reductions in air traffic control, security, and customs and border protection services. It is merely the latest unfortunate chapter in a decade-long story of policy instability. What is new, however, is until now there have not been any tangible industry-wide efforts to address the issues generating these crises.
The place to start is to acknowledge that these types of disruptions are embarrassing, destructive and threaten the future of aviation, an industry that is a leading driver of U.S. economic growth, exports and job creation. It was just under two years ago when the July 2011 partial shutdown of the Federal Aviation Administration (FAA) delayed vital services and cost the Airport and Airway Trust Fund (AATF) $400 million. If the current sequestration process remains in effect through April it will:
- Close more than 200 air traffic control towers;
- Reduce air traffic services at the largest gateway airports such as New York and Chicago;
- Cause longer lines for domestic and international travelers; and
- Place a financial burden on the government and private-sector men and women who serve and depend on the industry.
The fallout from sequestration proves our industry has become too susceptible to day-to-day politics. The members of the FAA Management Advisory Council (MAC)—a group appointed by the Secretary of Transportation and representing all segments of aviation—examined these issues over the last two years and concluded that fixing the problem requires the industry to work with the FAA to establish a firm policy, funding and governance foundation. The industry members of the MAC unanimously agree that all entities involved must work together to strike a better balance between our parochial issues and system needs.
MAC finds reforms should accomplish the following goals:
- Updating and simplifying aviation policies,
- Providing long-term financial stability to the FAA and aviation programs, and
- Reforming the governance structure so the FAA can both meet its public goals and deliver its services in a more efficient and effective manner.
Promoting Policy Changes
Aviation policy—not significantly changed for more than 15 years—is dramatically out-of-touch with an industry that just survived its most tumultuous period since its inception. The tumult included the terrorist acts of 9/11, SARS, the financial crash, wildly volatile and increasing fuel prices (now the largest expense category of a low-margin industry), and the resulting cycle of bankruptcies and consolidation.
What has emerged is an industry that has become more global, with three alliances now controlling a dominant share of international and connecting traffic. In the United States, this consolidation comes at a price—its three largest carriers are no longer the leading players in these alliances, and it is the only region of the world that has experienced an absolute reduction of capacity since the new century. The fallout has been considerable for many U.S. airports. The largest airports have seen an 11 percent reduction in seat capacity since 2000, while smaller classes of airports have lost at least 25 percent of their air service on average. While U.S. airlines have followed the RyanAir model and “unbundled” their tickets in order to increase profitability, that same practice tilts the competitive playing field among airlines with different business models and, by reducing the taxable base of tickets, costs the FAA valuable revenues. And in general aviation, record fuel prices have reduced flight hours and parked planes. Added to this challenging mix are the higher costs and lack of the accountability for security and custom services.
Focus on Funding
When it takes 23 short-term extensions of FAA authority before H.R. 658 (a four-year status quo FAA reauthorization bill) finally passes; when we have continuing resolutions dribbling out FAA appropriations in days, weeks or months; and when Washington’s political brinksmanship almost immediately translates into service disruptions throughout the NAS, it is time to acknowledge that a funding problem exists.
The AATF was designed as a vehicle to provide a long-term and predictable revenue stream to the FAA, enabling capital investments in air traffic control and airports as well as offsetting a portion of FAA operations spending. By providing a source of industry funding through excise taxes and fees, it was a sensible and elegant workaround to the lack of a federal capital budget and the annual appropriations process. The problem today is that the AATF has become a pay-as-you-go account (with less than a month’s reserve) that is fully susceptible to the vicissitudes of both the cyclical aviation industry and Washington politics. While taxpayers historically made up the difference between AATF revenues and the proposed FAA budget (normally between 15 to 30 percent of the FAA budget) that too has become unreliable in this age of fiscal constraint.
A top industry priority should be to return to a funding system that is stable, reliable and removed as much as possible from politics. This may even require the industry to wean itself off taxpayer dollars entirely (except for military operations) and support the parts of the system that cannot recover their costs. Such a step requires careful consideration and attention to FAA’s spending and methods of revenue collection.
Guiding Governance
The FAA performs many roles, including setting priorities for the NAS, overseeing system safety, investing in infrastructure and delivering services. It is for this reason that the AATF’s schedule of taxes and fees were designed—passengers and shippers who use the system’s resources should pay at least a portion of the revenues necessary for it to exist and grow.
But today all of the FAA’s roles are conflated when it comes to FAA governance. Congress rightly sets public goals for the system, provides resources through the AATF and taxpayer funding, and oversees FAA’s execution of laws. However, Congress also gets into more dubious matters such as how services are delivered, even to a level where it decides what air traffic facilities the FAA is permitted to open or close.
That is perhaps the greatest distinction between the FAA and its counterpart agencies around the world; our FAA is not treated as a service provider performing what is essentially a commercial service—the provision of air traffic control—but as a provider of federal jobs and community support. This micromanagement, together with the excessive number of legislative mandates and reports that constrain and distract FAA leadership, needs to be curtailed and accompanied by a process of codification to simplify and streamline its legislative authorities. One way of achieving this goal is to put together a publically accountable board of directors for the FAA, made up of industry stakeholders, which would oversee federal investments and the strategic direction of FAA’s leadership but leave the tactical delivery of services to the FAA.
In the next few weeks, the organization will release four reform principles that will specifically address each of these challenges. While MAC does not expect these ideas will immediately resonate with and convince all parts of the industry, it is hoped the MAC agenda will begin a dialogue that leads to the industry coming together to fix its collective problems.
BIO: Stephen D. Van Beek has more than 25 years of experience as a senior executive, policy analyst and transportation professional. He currently serves as executive director of policy and strategy for LeighFisher, a global transportation management consultant focusing on the delivery of financial advisory, planning and operations solutions. Ven Beek advises airport and transport clients and coordinates policy and business strategy across the consulting firm’s lines of business. Current projects include strategic planning and policy analysis, multimodal planning, transportation funding, and finance, as well as federal laws/regulations/policy.
