As major U.S. carriers suffer, so too does the FAA's budget

 - February 1, 2007, 9:53 AM

Last month, FAA COO Russell Chew told a standing-room-only audience at the annual conference of the U.S. Air Traffic Control Association that a widening gap between the falling income and rising expenses of the agency’s Air Traffic Organization (ATO) could reach a cumulative $8.2 billion over the next five years and he said the FAA must take positive actions to close this gap.

One side of the problem arises from reduced passenger tax income going into the federal Aviation Trust Fund, which provides 85 percent of the FAA’s budget, with general taxation providing the 15-percent balance. Since 9/11, two things have altered the level of this income. First, of course, was the dramatic drop in passenger boardings, although these have slowly recovered and, in many cases, now exceed pre-9/11 levels.

But the second, and continuing, effect comes from the nationwide increase in low-cost-carrier operations and the associated fare-cutting steps by the major airlines to stay competitive. Chew cited one example: before Southwest Airlines arrived on the scene, a typical fare out of Providence, R.I., was $291. Today, the fare on the same segment is $137–a 53-percent reduction. Averaged across the country, there was a 31-percent drop in passenger tax income to the Trust Fund in fiscal year 2003, compared with the previous year.

And the other, equally if not more serious, side of the cost equation is the effect on system capacity of the rapidly increasing number of regional jets. While passenger numbers are essentially back to pre-9/11 levels, many airlines now are carrying them at lower fares in much smaller, but much more numerous, aircraft than their earlier DC-9s and 727/737s. As a result, the FAA’s declining income is combined with a need to provide more ATC and other services.

Chew showed that since 9/11, the number of regional jets had doubled by this year, and is forecast to double again by 2015, when the number of all other airline jets will have increased by only one-third. By 2015, he noted, total system demand is forecast to be 22 percent higher than that in 2000. (Patrick Graham, executive director of the Savannah/Hilton Head International Airport, described the effect of the RJ revolution. In 2000, he noted, there were slightly fewer than 3,000 daily RJ departures from all U.S. airports. By this year, this number had already grown to more than 8,000.)

Chew did not overlook corporate aviation in his calculations, predicting that more than 7,700 new business jets, too, will be delivered between last year and 2013.
Relative to today, the income forecast for 2009 for the ATO is expected to decline below the current budget by 21 percent, while the costs associated with handling the greater demand, accompanied by more system complexity, will increase above the current spending level by a similar amount. The $8.2 billion mentioned, consisting of $5 billion for operations, such as personnel, maintenance and so on, and $3.2 billion for capital equipment, is how much the ATO would require between now and 2009 to fill this progressively widening gap, should no changes be made in the organization’s plan for the next five years.

Clearly, therefore, there is belt-tightening to be done. In past years, the FAA often overspent its budgets, as other government agencies frequently do. But the ATO was specifically chartered as a performance-based organization, to be run on commercial business-like lines, and large deficits–especially over long periods–are not part of its charter.

Financing Air Traffic Control
Chew detailed several areas within the FAA and the ATO that together would yield modest improvements, but he emphasized that the aviation community “must work together to balance priorities and find acceptable solutions.” Chew views the community as a triangle, whose three corners represent the customers (the system users); the owners (Congress, representing taxpayers); and the employees (the ATO’s staff, including its labor unions). To achieve his stated goals, Chew called for three more actions: a lowering of funding expectations, tough trade-off and decision-making and the exploration of bold and innovative approaches.
Chew avoided mentioning which specific areas or programs might be affected by
his initiatives, but since his audience was composed primarily of ATC industry representatives, speculation was rife after his presentation.

ATO officials suggested that RNP implementation, along with WAAS, will receive higher priority, with ADS-B continuing to expand in Alaska, but more slowly in the lower 48. Upgrades of deteriorating fixed facilities, including towers, radar sites, Tracons and ARTCCs–whose average ages run from 16 to 40 years–will also likely be accelerated.

Conversely, the planned expansion of the Stars Tracon radar display system now appears questionable, and the $1 billion to $2 billion next-generation ERAM ATC computer network is forecast to be reduced in scope or implemented over a longer period. As WAAS modernization proceeds, decommissioning of less-used NDBs and VORs is expected, but LAAS, CPDLC and the Nexcom VHF communications system appear to be regarded as all but dead.