Bloomberg News

Private Air-Traffic System Can Soar: Peter Orszag

September 21, 2011

(Corrects second paragraph to delete reference to reduced flight time.)

Sept. 21 (Bloomberg) -- Without a doubt, GPS, the satellite-based navigation system that has revolutionized travel by car and truck, even by foot, could do the same for commercial air traffic.

President Barack Obama has proposed stepping up government investment in NextGen, a GPS-based air-traffic-control technology that will allow planes to fly closer to one another than they can with human and radar help alone and to follow more direct flight paths. The system is expected to reduce delays by more than a third, saving billions of dollars for airline companies and for the traveling public. This would mean consuming less jet fuel, so carbon emissions would be lower, too. The change would even improve safety by making us less dependent on sleep-deprived controllers.

So it’s a step in the right direction. Unfortunately, though, the NextGen system is being rolled out in stages, and it isn’t expected to be fully operational in U.S. airports and aircraft until 2020. Even that slow timetable assumes that the Federal Aviation Administration, the agency overseeing the project, receives the necessary funding from Congress and can meet all its deadlines.

Nonprofit Solution

We shouldn’t have to wait so long. There is a way to move faster, one that would probably also help the NextGen system work more smoothly once it’s in place: Take responsibility for implementing the new GPS system, and for air-traffic control altogether, away from the FAA and assign it to a private, nonprofit organization. (Disclosure: Aerospace clients I work with at Citigroup Inc. would benefit from faster implementation of NextGen.)

Almost two dozen other countries have already assigned air- traffic control to either government-owned corporations, nonprofits or other organizations outside of government, and the results have generally been encouraging. As the U.S. Government Accountability Office concluded in a 2005 review, these operators have maintained or even improved air safety, while they have lowered costs and boosted efficiency by investing in new technology.

NAV Canada, for example, is a nonprofit corporation that provides air-traffic control, along with weather reports, flight information and other services. Its revenue comes from fees charged to airlines for this work. Its safety record is excellent. And, compared with the FAA, it tends to be more responsive to innovation and better able to make improvements in technology, investing in the needs of its user airlines.

For example, NAV Canada has developed a touch-screen flight data and display system, called NAVCANstrips, which automates controllers’ work flow and reduces their need to communicate with one another verbally. It integrates tower flight data with information about departures, arrivals and planes en route, as well as radar, weather and the status of runways. This system was developed by controllers themselves, and NAV Canada has sold it to the U.K., Denmark and other countries. (It’s also being used at Sheppard Air Force Base in Texas.)

The public air-traffic-control system we have in the U.S. began as part of the federal government’s role in air mail, starting in the early 20th century, through the U.S. Postal Service (an agency that should also be moved out of the government, but that’s a different topic). By the 1920s, the government was licensing pilots and issuing certificates of airworthiness for planes.

FAA History

In the late 1930s, Congress explicitly assigned the Civil Aeronautics Authority (the predecessor of the FAA) the job of managing air-traffic control. That was more than 70 years ago, even before the use of radar in civil aviation. Today, air traffic increasingly relies on rapidly evolving technology, and the FAA has, for decades, struggled to keep up.

As late as the 1970s, U.S. air-traffic control was still using light beacons to guide planes at night. As a 2006 review of the agency, by Clinton Oster of Indiana University, concluded, “Concerns about being able to upgrade and expand the air traffic control system to accommodate anticipated growth in air traffic have been almost continual since the early 1960s.”

In 2004, an expert panel convened by the National Academy of Sciences likewise concluded that the FAA lacks the technical expertise needed to build and manage complex air-traffic systems.

An important reason the FAA has had trouble keeping up with technology is that its funding has been unstable and uncertain. Its money comes from two sources, an annual appropriation from Congress, and revenue from the passenger tax. The amount that comes from Congress is always at risk of being reduced, especially when money is tight. And the passenger tax, for its part, is misaligned with the costs of air-traffic control.

The tax is assessed on airlines’ total receipts from ticket sales, but what determines the amount of funding needed is not the number of passengers or the price paid per passenger (which combined determine ticket revenue), but rather the number of flights coming in and out of airports. And that is not directly reflected in the passenger count because it varies depending on size of aircraft and how full the flights are.

User Pays

A better approach would be for users to pay the whole bill, and for the fees to be imposed based on the number of takeoffs and landings. This would ensure that those who use the air- traffic-control system pay for it, and it would keep funding outside the political process.

To be sure, there are downsides to a user-based revenue model. For example, NAV Canada experienced financial difficulties after the Sept. 11 attacks, when travel declined, diminishing its revenue base. In response, the agency raised user rates, froze employee wages and took other steps to improve its financial health. By 2005, NAV Canada’s finances had stabilized.

Perhaps the biggest objection to shifting air-traffic responsibilities to a nonprofit comes from the National Air Traffic Controllers Association. It asserts that private management would create tension between safety and profits -- even though the Canadian agency has an outstanding safety record. Other union concerns could be at least partially mitigated by including protections for controllers in the legislation that would move air-traffic control out of the FAA. For example, in NAV Canada, the unions nominate two members of the board of directors. The Canadian agency also extended pre- existing job security provisions and reached a new collective- bargaining agreement with employees.

This isn’t to say all government functions would be best turned over to private operators. There are some jobs that, over the past two decades, the U.S. has unwisely moved out of government control. In the 1990s, for example, despite some strong objections within the Clinton administration, the government turned over to private operators the U.S. Enrichment Corp., which has the job of enriching nuclear fuel.

The regulation of airline safety and operation should remain the business of the government, as it would pose too many conflicts of interest to have the airlines regulate themselves. But as other countries have shown, air-traffic control can be split off into a nongovernmental entity even while the government retains regulatory oversight of air travel. NAV Canada, especially, provides a model the U.S. would be smart to follow.

(Peter Orszag is vice chairman of global banking at Citigroup Inc. and a former director of the Office of Management and Budget in the Obama administration. The opinions expressed are his own.)

--Editors: Mary Duenwald, David Henry

Click on “Send Comment” in sidebar display to send a letter to the editor.

To contact the writer of this article: Peter Orszag at orszagbloomberg@gmail.com.

To contact the editor responsible for this article: Mary Duenwald at mduenwald@bloomberg.net.


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