FAA readies for budget crunch

 - October 3, 2006, 11:13 AM

If there’s one thing that FAA COO Russell Chew has going for him as he faces $8.3 billion in budget losses by 2009, it’s that he has lots of people on the sidelines giving him advice. In addition to aviation’s usual alphabet organizations, the four heavy hitters that have recently come forward have been the Government Accountability Office (GAO), the FAA’s Management Advisory Council (MAC), the Department of Transportation’s Inspector General (DOT-IG) and a GAO-selected group of independent experts with extensive knowledge of FAA affairs.

As head of the FAA’s Air Traffic Organization (ATO), Chew has pointed out that the forecast reductions in income–from the Aviation Trust Fund, coupled with increasing demands for more services from an expanding aircraft population–are projected to put the ATO in the red.

This was not supposed to happen after Congress, spurred by the FAA’s lengthy history of poor management, program delays and cost overruns, established the ATO to transform the agency’s ATC operations into a more businesslike, “performance-based” entity, free of many of the trappings of government bureaucracy.

Unfortunately, Congress somehow overlooked the fact that it was also transferring to the new organization the heavy financial burden resulting from the previous history of mismanagement.

An April GAO report pointed out that in 1981 the FAA embarked on a 10-year modernization program to replace and upgrade facilities and equipment across the National Airspace System (NAS). Fifteen years later, in 1995, the GAO was forced to classify the whole venture as high-risk, due to “systemic management problems, organizational culture, cost growth, schedule slippage and performance shortfalls.”

Today, the ATO is burdened with two major projects–WAAS and the Stars radar controllers’ displays–that were launched in 1994 and 1996 with target total costs of $892 and $940 million, respectively. These programs have grown to more than $3.3 billion and $2.7 billion today, with associated delay completions of 12 and seven years beyond the contractors’ (and the FAA’s) promised deliveries in 2001 and 2005.

And those are simply the worst two of a list of other, only slightly less egregious, projects launched before the formation of the ATO, most of which, including WAAS and Stars, were “cost-plus” contracts, where any work required beyond the originally agreed amount came entirely at the tax-payers’ expense. The GAO has criticized this practice vehemently, instead urging manufacturers to commit to fixed-price contracts in the future and absorb any cost overruns emanating from “lowball” bids.

Heading in the Right Direction

The GAO was encouraged by the ATO’s intent to involve all stakeholders, such as operators, operations and technical personnel, finance specialists, planners and others before future procurements. The previous lack of these disciplines had created many contract disasters. Also, the GAO commended the ATO for shelving projects that had high costs but little likelihood of wide acceptance, such as Nexcom VHF, LAAS and controller/pilot datalink communications (CPDLC).

The GAO also approved of the ATO’s adoption of an acquisition management system, as well as its formation of collaborative teams of technical experts and ATC system users and Chew’s reduction of management layers in his organization from 11 to seven. Additionally, the GAO regarded the contracting out of services–such as the Flight Service Stations–as a “significant step” toward cost reduction and one that could be “selectively expanded.”

However, the GAO criticized the ATO for reviewing financial progress of various projects against their current completion cost commitments. The practice has the distorting effect of making, say, the currently projected nearly $3 billion cost of the Stars project seem “on budget” if no further cost increases are forecast, while completely ignoring its original contract promise of less than $1 billion. But further work seems inevitable: Boston controllers last month reported reliability problems with Stars, including losing airplanes at critical times.

The DOT IG’s comments in April were similar to the GAO’s and noted that “the cost of current systems has experienced so much cost growth that there is little room for the FAA to both pay for current systems and simultaneously take on new initiatives.”

The IG shared the GAO’s concerns about the continuously escalating costs of the Stars program, noting, “Due to program delays, Stars components being purchased today are now facing obsolescence, even though they were modern in 1996. For example, recently purchased Stars computers contain refurbished (i.e. used) computer processors.” As a result, the FAA plans to begin “modernizing” the system next year–long before deliveries are complete–under a $597 million project.

The IG stated that the FAA should revalidate the capabilities and benefits that each major program is expected to provide the NAS, determine the cash flow requirements for those that can be justified and report its results to Congress.

The IG also expressed concern about the FAA’s “ambitious” $2.1 billion en route automation modernization (ERAM) program, which is forecast to replace the current NAS-wide ATC Host computer system by 2009. By 2007, the IG reported, the FAA will be spending $30 million per month on ERAM alone, under a “long term cost-plus contract that places the majority of the risk with the government.”

The IG also pinpointed a number of smaller contracts where FAA monitoring was lacking. In one case, within a few days of retiring from a $109,000 position with the FAA in 2003, an individual was returned to the agency by a contractor who charged the FAA $206,000 per year to do the same work. In another case, an “information engineer” was provided to the agency by a contractor at $63 per hour, although his duties were actually those of a timekeeper.

Preparing for Agency Budget Cuts

The little-known FAA Management Advisory Council was more concerned about Congressional and White House cuts to the FAA budget. While, for example, continued modernization of the ATC system is essential to cope with predicted traffic increases, the agency’s FY05 facilities and equipment budget request of $2.99 billion was reduced to $2.52 billion.

The FAA requires $2 billion just to keep the current infrastructure operating. In this situation, the agency would be unable to benefit from system improvements gained under its operational evolution plan, and the MAC predicted that delays would return slowly to 2000 levels.

The MAC suggested that the FAA could achieve major cost savings by using new communications technology to significantly reduce the number of FAA regions, ARTCCs and Tracons, a position shared by the Air Transport Association, which last month proposed that the current 20 ARTCCs could be consolidated into three. (In 2001, Boeing’s Air Traffic Management analysts stated that with modern communications, the NAS could be controlled from just one large ARTCC in the Midwest, with a smaller backup facility in the eastern U.S.)

While such consolidation concepts would be incendiary among controllers, the MAC urged the FAA to take a firm line in its contract renewal negotiations with their union next month to “regain managerial control over basic operational issues at air traffic control facilities.”

The panel of experts the GAO assembled included senior U.S. and foreign representatives from government, private ATC providers, industry, academia and other disciplines, as well as former FAA executives, with the aim of gathering independent views of the FAA’s modernization plans. Their comments covered the FAA’s well known cultural inertia; the structure of the ATO management; the agency’s serious lack of engineering expertise; and the restrictions of the FAA’s current funding structure.

Altering Agency Culture

Cultural inertia manifested itself in resistance to change, particularly within middle management, coupled with a lack of accountability when projects went wrong. And on management structure, one expert noted that other than Chew’s appointment as COO, all but two other senior staff remained. This contrasts with private industry practice in general and with corporatized ATC providers in particular, where major top-level changes, to bring in fresh thinking, are the norm. The lack of engineering and, particularly, software expertise meant that contractor technical, cost and delivery promises, however optimistic, could rarely be challenged.

The panel felt that the FAA’s funding streams were both inadequate and outdated and must be changed if the agency is to meet the needs of a dynamic and rapidly growing clientele. There was common recognition that political considerations, such as local jobs or industrial support in a Congressman’s constituency, can often override FAA operational priorities, with funds sometimes “earmarked” during the Congressional review of the agency’s annual budget for projects that neither the FAA nor the user community wants.

Too often, the need to stretch major capital programs over many annual budget cycles meant that equipment was out of date when finally fielded. However, some U.S. panel members doubted whether it was possible to change this process.

Is the FAA, and particularly the ATO, paying attention to these voices? All indications are that the ATO is turning slowly in a positive direction, although some industry observers regard this movement as more akin to turning a large ship than an airplane.

Chew is obviously working on these various issues, and has certainly introduced many reforms, including cutting such non-essential projects as LAAS, Nexcom and CPDLC, eliminating the FAA’s “stovepipe” system development process–under which separate groups worked independently, often at cross purposes–and he has brought more rigor into the contracting and program technical oversight process.

The GAO, Inspector General, the MAC and the expert panel all commended the outsourcing of the Flight Service Stations, with estimated savings of $2.2 billion, as a major cost-reduction initiative. (Currently, the FSS program appears threatened, but informed observers feel that it will not eventually be canceled.) And the agency is taking steps to lessen the impact of the anticipated 12,000 controller retirements over the next five years by raising the mandatory retirement age from 56 to 61.

Nevertheless, it is clear that the FAA is facing a serious cash crunch over the next four years and that some basic changes in its way of doing business are essential. Also, the overseas successes of the various forms of ATC privatization are slowly permeating through the U.S. aviation community.

But probably the biggest obstacle to real reform remains the entrenched Congressional control of the FAA’s budget, and the political, rather than aviation, advantage all that implies. Wresting control from Congress will be an uphill struggle, and no one is prepared to forecast its outcome.