Bloomberg News

GE Among Winners as FAA Bill Speeds Up NextGen Project Deadlines

February 27, 2012

General Electric Co. (GE) and Honeywell International Inc. (HON) are among firms vying for billions of dollars of business as an aviation law passed this month seeks to speed the creation of a new U.S. air-traffic system.

The legislation authorizing spending and setting policy at the Federal Aviation Administration includes provisions that move up deadlines for installing equipment, remove environmental requirements and establish a public-private funding mechanism for the so-called NextGen system.

“It has the potential to accelerate NextGen,” said Richard Efford, assistant vice president for legislative affairs at the Aerospace Industries Association.

The law not only pushes the FAA, it also creates incentives for companies to spend on the satellite-based system to track aircraft, Efford said in a phone interview. The Arlington, Virginia-based trade group has 154 members, including Boeing Co. (BA) and Lockheed Martin Corp. (LMT)

While air traffic represents a relatively small portion of those companies’ sales, growth in NextGen spending may help counter planned cuts in defense contracts, said Richard Whittington, an analyst at Drexel Hamilton LLC in New York.

“This is going to be an important area,” Whittington said in a phone interview.

President Barack Obama signed the FAA Modernization and Reform Act of 2012 into law on Feb. 14. The 375-page measure contains dozens of provisions ranging from rules on carrying musical instruments on airliners to using radar to track birds near airports.

NextGen Provisions

The legislation includes 25 separate sections addressing NextGen, the program the FAA predicts will cost government and industry as much as $42 billion by 2025 as the country shifts to a more precise GPS-based system of tracking aircraft.

The technology allows planes to fly more precise tracks through the sky, improves communication and gives air-traffic controllers better information about where aircraft are located. That should let planes fly more-efficient routes, according to the FAA.

The bill will speed introduction of the technology, bolstering sales of new planes and cockpit electronics and helping Honeywell’s aerospace division, said Chris Benich, the firm’s vice president for aerospace regulatory affairs.

The company may also benefit directly from a requirement for the FAA to develop a plan by the end of this year on how to install systems at the 35 largest commercial airports that would guide planes to runways in poor weather using GPS-based signals instead of the current instrument landing systems.

Guiding to Runways

Honeywell, based in Morris Township, New Jersey, has received FAA certification for such a device, known as the Ground-Based Augmentation System, according to the company’s website.

“It’s helping the broader industry and it helps Honeywell, in some cases directly,” Benich said in a phone interview.

Another area addressed in the bill is the inefficient routes most aircraft take to and from airports.

Aircraft flying into 46 small and mid-sized commercial U.S. airports would save 12.9 million gallons of fuel a year with more direct routes, GE’s aviation division estimated. That translates to a savings for airlines of more than $38 million with jet fuel selling for more than $3 a gallon in recent months, according to data compiled by Bloomberg.

Frustrated Airlines

Airlines have been frustrated by the FAA’s pace in developing new routes, Tom Hendricks, vice president of operations and safety for Airlines for America, said in an interview. The Washington-based trade group’s members include Alaska Air Group Inc. (ALK) and Southwest Airlines Co. (LUV)

The law directs the FAA to complete the routes by June 30, 2015, at the 35 largest airports. Similar routes must be put in place at 35 mid-sized airports by 2016, according to the law.

The FAA also must create a program to use non-government companies, such as GE and Boeing’s Jeppesen subsidiary, to create some routes.

“When you consider the value that these procedures can contribute, our view has been that we need to get started on this work and to use all resources,” Steve Fulton, a technical fellow at GE Aviation Systems (0126986D), said in a phone interview.

Because many flight paths are required for each airport, thousands will have to be created across the country, Mark Van Tine, Jeppesen’s president, said in a phone interview. The law doesn’t set aside money to pay for companies to create new routes.

The FAA says it has created 1,072 such approaches to date.

Environmental Reviews, Noise

The law also creates a “categorical exclusion” from environmental reviews for new flight paths, if they reduce fuel and noise.

Anti-noise activists are concerned that provision will allow new jet routes across the U.S. with little or no review, Robert Belzer, president of the New Jersey Coalition Against Aircraft Noise, said in a phone interview.

“We think we are going to get a bunch of categorical exclusions for these NextGen procedures,” Belzer said.

The law also requires that by 2020 jets flying in congested areas, such as the airports around New York, be equipped with electronics that allow pilots to see where nearby planes are located. The FAA had no such requirement under its NextGen plan before the bill was signed into law.

NextGen will require airlines to purchase from $14 billion to $20 billion in radio beacons, flat-panel cockpit displays and other electronics by 2025, according to FAA estimates.

Before investing, carriers want to be assured that they will receive benefits from the new system, said Hendricks, of Airlines for America.

A new funding mechanism, allowing the Transportation Department to guarantee loans to pay for the devices, was created under the bill.

NEXA Capital Partners LLC, a closely held firm in Washington, has set up a fund to loan money for NextGen equipment, according to a statement on its website. NEXA Capital plans to provide $1.5 billion in financing.

To contact the reporter on this story: Alan Levin in Washington at

To contact the editor responsible for this story: Bernard Kohn at

The Good Business Issue
blog comments powered by Disqus