ATC privatization debate stirs the political caldron

 - October 12, 2007, 7:03 AM

Rumor has it the Bush Administration intends to sell off ATC to the highest bidder. As is the case with most rumors, there is a kernel of truth around which a mass of misunderstanding and misinformation has grown.

On Dec. 7, 2000, President Bill Clinton signed Executive Order 13180–Air Traffic Performance-Based Organization. In it, he said, “To further improve the provision
of air traffic services, an inherently governmental function, in ways that increase efficiency, take better advantage of new technologies, accelerate modernization efforts and respond more effectively to the needs of the traveling public, while enhancing the safety, security, and efficiency of the nation’s air transportation system, it is hereby ordered as follows…[the] establishment of the air traffic organization (ATO).”

The order specified that the Secretary of Transportation would establish within the FAA a performance-based organization to be known as the ATO. It further specified that the organization would be composed of those elements of the FAA’s air traffic services and research and acquisition organizations that have direct connection and give support to the provision of day-to-day operational air traffic services. The ATO would be a government entity, yet another layer of bureaucracy, and certainly not a private enterprise. To date, there has been no visible sign of implementing the ATO and many within FAA say, off the record, that few are interested in doing so.

The catalyst for the current ATC-privatization rumor occurred on June 4, 2002, when Executive Order Amendment to Executive Order 13180, Air Traffic Performance-Based Organization, was signed by President George W. Bush. It stated, “The first sentence of… [E.O. 13180] is amended by deleting ‘an inherently governmental function.’” Immediately the rumor surfaced that the Bush Administration wants to sell off ATC.

The FAA has a long history of outsourcing ATC functions. The FAA’s contract tower program started in the 1980s and is going strong with more than 200 small-airport control towers operated by private firms. It would have been impossible to implement such a program if ATC services had been considered inherently governmental. The problem is that NATCA, the controllers’ union, has long been at odds with the FAA over the contract tower issue. Having experienced poor results at trying to organize contract tower employees, NATCA turned to the courts in an attempt to derail the program.

According to Robert Poole, director of transportation studies for the Reason Foundation in Los Angeles, in 1994 to 1995 “the Clinton Administration developed a detailed plan for shifting ATC to a user-fee-supported government corporation to be called U.S. Air Traffic Control Services Corp. (USATS). That plan received the backing of NATCA, which was under different leadership at the time.” The idea, however, was not well received by the industry.

NBAA took offense because there was only one position slated for general aviation on an 11-person USATS board, while commercial aviation would have gotten four. NBAA president Jack Olcott was also concerned about the implications: “General aviation issues aside, we are troubled by the high risk the proposed breakup of the FAA will lead to inefficiencies that will eventually cause higher costs for all users of our nation’s air transportation system.”

Putting NATCA’s current concerns in perspective, Poole said, “NATCA is presenting Bush’s executive order amendment as if it made a radical change in the status of air traffic control. In fact, Bush’s action simply overturned four words of a previous executive order…[that] was the first time ATC had ever been designated ‘inherently governmental.’ Thus, it had that status for a grand total of 18 months.”

While it is no secret that the Bush White House is a major proponent of the competitive-sourcing initiative, the idea originated from the Clinton Administration in the form of the Federal Activities Inventory Reform Act of 1998. The FAIR Act states that, “the head of each executive agency shall submit to the director of the Office of Management and Budget a list of activities performed by federal government sources for the executive agency that, in the judgment of the head of the executive agency, are not inherently governmental functions.” It was the Clinton Administration’s “reinventing government” policy that legislated the idea of opening government functions to the private sector. The Bush amendment reflected the end of a process, not the beginning.

Trent Duffy, a spokesman for the Office of Management and Budget, told AIN, “The DOT chose to have [air traffic control] listed as a commercial activity because the choice of governmental versus commercial is left up to individual agencies with some consultation with the OMB. The DOT chose to change the wording to commercial activity, not the White House.”

According to Duffy, the competitive-sourcing initiative is about getting the best value for taxpayers. He said holding competitions produces savings of up to 30 percent to the federal government by forcing it to become more competitive or to outsource a task to a provider that can do it more efficiently. “Either way, the government saves money in the long run,” he said. “The important thing is the FAIR Act provides agencies with the authority to decide for themselves which functions are inherently governmental and which are commercial. President Bush didn’t declare air traffic controllers were commercial, he just supported the DOT’s recommendation. DOT Secretary Norman Mineta has said the ATC function is commercial, but he has specifically exempted it from the competitive-sourcing initiative.” Duffy further explained, “Generally speaking, VFR-only towers are considered appropriate for public/private competition and IFR towers are being exempted.”

A June 12, 2002 statement issued by the DOT about the amendment  said, “After lobbying by the air traffic control union, President Clinton had language inserted in his executive order suggesting that air traffic control is an ‘inherently governmental function.’ That phrase was deleted in the recent amendment to the executive order. The goal of the deletion is to make clear that the executive order did not inadvertently preclude the continuation of the successful contract tower program.”

Elsewhere in the statement it quoted Mineta, who said, “It is clear that any large-scale privatization of air traffic control would be highly controversial in Congress, and I have no present intention of initiating that debate.” So what exactly is the kernel of truth to the rumor?

According to an FAA  spokesman, “Flight Service Station personnel are classified as ATC controllers. We are initiating a study to see if that service could be done in the private sector cheaper, but it is only a study. There’s no plan of action at this point.”

But while some in the federal government may be shying away from the politically charged “privatization” of air traffic control, other countries have not.
ATC Inc.

David Freud, managing director of UBS Warburg, an advisor to the UK’s newly privatized National Air Traffic Services (NATS), said the idea of privatizing ATC is about increasing the efficiency of the operation. “The large-technology project required to upgrade and make ATC more efficient is better handled by the private sector,” he said. “Historically, when the government is the contractor, manufacturers see it as a ‘deep pocket’ opportunity. If the private sector takes the risk, you won’t get contractors who are counting on an overrun budget being met by the government.”

Resistance to the idea of a privatized ATC is generally in one of two forms. Many suggest that a private company will put profits ahead of safety. Others stress that the government must retain control for security reasons, citing the fact that a single telephone call on 9/11 effectively and instantly shut down the entire airspace over the U.S.

“Of course there is potential for a private company to put profit ahead of anything else,” Freud agreed. “However, that’s the role of the regulator. Privatizing ATC doesn’t give the corporation total control over the function. The company is still tightly regulated by the government in a manner very similar to the airlines. As far as a single telephone call shutting down the national airspace for security reasons, private companies have telephones and chief executives, too. The state is still the legal authority over the organization and it can make a direct order of that kind whether ATC is under public or private ownership. What’s the difference who answers the telephone? The effect would be the same.”

However, NATS has had its share of troubles. Many point out that NATS has failed to prove itself to be a vehicle for containing costs, considering it had to be bailed out by the British government for about two-thirds of the system’s original sale price. A financial restructuring of NATS was completed earlier this year with the approval of its independent regulator, the Civil Aviation Authority. It included a cash injection of £130 million ($209 million), half from the government, which remains NATS’ majority shareholder with a 49-percent stake, and £65 million ($104.5 million) from the British Airports Authority, in return for a 4-percent stake. The airline group’s stake was reduced from 46 percent to 42 percent, but it retains its controlling interest in NATS as a strategic partner. Employees hold 5 percent of the shares.

According to Freud, what happened was that the financial assumptions of the privatizing group were “shredded by September 11.” In addition to the cash infusion, part of the bailout consisted of the loosening of the regulatory requirement for NATS to decrease its fees by 4 percent. It was then given the authority to lower that to 2 percent to help deal with its revenue shortfalls.

“Certainly 9/11 wasn’t the sole reason for the problem, and the airlines who had control of NATS may have been overly optimistic in their projections, but it’s also no secret that many believe NATS overpaid the government for the contract.”

Poole bristles at the term privatization. “What makes more sense is reorganizing and restructuring using current federal employees with a new management system. People don’t seem to understand that the controllers in Canada went home one day as Transport Canada employees and reported for work the next day as Nav Canada employees. In fact, they even came back to an increase in pay,” he explained. “No country has ever fired government air traffic controllers and replaced them with private-corporation controllers.”

Nav Canada is a private corporation that owns and operates Canada’s civil air navigation service. John Morris, a spokesman for Nav Canada, said the company has seven area control centers, one stand-alone terminal control unit, 78 flight service stations, 42 control towers, 41 radar sites and roughly 1,400 ground-based en route and terminal aids to navigation and landing aids. Nav Canada provides air traffic control, flight information services and air navigation and approach aids.

“Twenty-nine countries have shifted ATC from being part of a transport ministry to having a separate corporate identity with a separate revenue stream paid directly to the corporation from user fees,” Poole explained. “Twenty-seven of them are government corporations, but two–Canada and the UK–are wholly or partly private. These organizations have an arms-length regulatory system, meaning the government regulates them but it doesn’t run the day-to-day operations. In point of fact, the global aviation community considers ATC a commercial-service business. In every Western country except the United States, ATC is paid for by fees and charges. The ICAO publishes widely used standards for ATC user charges.”

Poole advocates this year as the year to make the shift in the U.S. “Going all the way to a Nav Canada- type ATC corporation is not likely to be doable this year,” he admitted. “The major airlines were on the verge of supporting such an effort as of summer 2001, but today they are in no position to devote the necessary funds to a major campaign for this objective. But the AIR 21 reauthorization could still put in place some key building blocks this year, probably without an all-out war with the unions. They could separate the ATO from the FAA, setting it up as a separate agency within the DOT. That would put it at arm’s length from the FAA, as safety regulator, and it would make it easier to recruit a real CEO, not the thankless task of the ATO’s chief operating officer within the FAA.”

Poole pointed out the real problems that support such a change. “The most fundamental reason for structural and funding reform is to enable the ATC system to cope with growth,” he said. “The FAA’s current efforts focus on component replacement, to do the old job better. But that is not sufficient to cope with projected growth in flight activity.

“There is also a strong case for refocusing the FAA on safety, which is [agency Administrator] Marion Blakey’s forte,” Poole continued. “The ValuJet and Alaska Airlines crashes raised questions about the adequacy of the FAA’s safety oversight. The FAA had done such a poor job on aviation security that this function was taken from it after 9/11 with very little debate. And from a purely operational perspective, the one-year government budget cycle is poorly suited to major capital-improvement programs like ATC modernization.”