‘Commercialized’ ATC Would Hike Fees for GA

 - October 2, 2006, 1:57 PM

A “commercialized” ATC system in the U.S. could result in lower charges to airlines for ATC services, but it almost certainly would mean higher fees for general aviation operators, according to a report by the Government Accountability Office (GAO).

Since 1987, some 38 nations have commercialized their air navigation services, shifting the responsibility for providing these services from the national government to an independent air navigation service provider (ANSP). The ANSP, unlike the government, operates as a business and is a performance-based organization, a management unit with strong incentives to manage for results, such as the FAA’s Air Traffic Organization.

In a report requested by several senators, the GAO studied Airservices Australia, Nav Canada, Germany’s Deutsche Flugsicherung, Airways Corporation of New Zealand and the UK’s National Air Traffic Services. But the GAO cautioned that it selected the five ANSPs to illustrate specific characteristics, so the results cannot be generalized to all commercialized ANSPs.

“The five commercialized ANSPs that we selected for review have a number of common characteristics: all five have the safe movement of aircraft as their primary goal and are subject to some external safety regulation by an arm’s-length government regulatory authority,” the GAO said. “All five operate as businesses rather than as government organizations, making and carrying out their own strategic, operational and financial decisions.”

Financing AirNavigation Services

The five are self-financing, assessing fees on users of air navigation services (major airlines, regional airlines and, in some cases, general aviation operators) and, as necessary, borrowing funds from capital markets instead of receiving annual appropriations from the government.

In addition, all five ANSPs have invested in and benefited from new technologies and equipment, which they say have reduced their costs by increasing controllers’ productivity and have produced operating efficiencies such as fewer or shorter delays.

“As a result, some ANSPs have been able to lower the prices they charge the airlines for certain services,” the GAO report said. “However, the ANSPs have also instituted or increased fees for general aviation operators, and some ANSPs have increased or plan to increase the costs of service to small or remote locations.”

Before commercialization, many general aviation operators paid taxes only on fuel. Some countries, such as Canada and New Zealand, have tried to make the costs affordable for small operators by charging a flat fee.

Nav Canada charges GA operators a flat annual fee of $58 for aircraft with an mtow of 4,400 pounds or less. According to AOPA, Airways Corporation of New Zealand charges general aviation operators a fee of $68 for 50 landings. In addition, the New Zealand service provider eliminated the en route charge for light aircraft.

Some governments have provided for air navigation services at small, remote GA and regional airports, viewing such services as a public good. Australia, for example, subsidizes service to some regional areas under the Location-Specific Tower Subsidy Program, and, according to Transport Canada, Nav Canada is legislatively required to maintain service to remote locations in the northern region. In addition, Nav Canada charges the same price for services to remote locations as for services to the rest of the country. The price is based on a formula that considers weight and distance.

The GAO found that commercialized ANSPs must be prepared to mitigate the effects of an economic downturn. Because commercialized ANSPs rely primarily on user fees to cover their costs, an industry downturn presents a fundamental financial risk they must be ready to address. This could be through a reserve fund, cost-cutting measures, user fee increases, additional borrowing, restructuring or some combination of these or other options that will offset the decline in air traffic and the concomitant decline in revenue.

“The industry downturn that began in about 2000 and intensified after the events of Sept. 11, 2001, and the SARS [severe acute respiratory syndrome] outbreak of 2003 brought this lesson home to at least four of the five commercialized ANSPs we selected for review,” the GAO said in its report.

After commercialization and before the downturn, Australia’s Airservices, Germany’s Deutsche Flugsicherung, the UK’s National Air Services and Nav Canada had covered their costs through user fees and borrowing. However, during the downturn, they had to take additional steps to address the revenue losses.

The UK’s air navigation service provider had the greatest debt load and, therefore, was the most vulnerable, but even Nav Canada, with a multimillion-dollar contingency fund, eventually had to take extraordinary measures.

The GAO said it did not compare performance before and after commercialization or across countries. “Such comparisons are generally not feasible because data for assessing performance are typically unavailable for the time before commercialization or the measures have changed in the years following commercialization,” the report noted.

Assessing the Benefits of Commercialization

But AOPA, which has long opposed commercialization of the U.S. ATC system, argued that a simple look at the numbers calls into question the supposed efficiency benefits of commercialization.

“U.S. controllers, based on the number of aircraft operations handled, are roughly three times more efficient than the average of the five ANSPs studied,” said Andy Cebula, AOPA senior v-p of government and technical affairs. “The commercialized ANSPs also average three times as many employees in total (controllers and managers) per aircraft movement.”

AOPA pointed out that the five ATC systems the GAO studied average about 14.5 million aircraft operations a year. The U.S. has nearly 94 million operations a year, and just five of the FAA’s 22 centers handle more traffic than do the five national systems studied combined.