Privatization of Air Traffic Control in the Term Paper

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privatization of Air Traffic Control

in the U.S.

Non-profit privatization of ATC

Industry experts position on privatizing the U.S. ATC

Improvement in safety and regulation

New Public Management Orientation in the U.S. Air Traffic Control

Technology up gradation and budgetary constraints

State-owned enterprises (SOEs) are organizations owned and operated by governments. There is a growing consensus amongst economists and governments that governments should not operate commercial organizations as it hampers the efficiency and productivity of the respective enterprise. There is an increased debate within the U.S. And other developed countries in favor of privatizing SOEs. Federal Aviation Administration (FAA) is one of the most important agencies of the U.S. Department of Transportation. FAA has four lines of business that includes:

Airports planning and development

Air Traffic Organization (ATO)

Aviation Safety (AVS)

Commercial Space Transportation (AST)

ATO's main role is air traffic control (ATC). Of late, there is a growing debate that ATC needs to be privatized or run by a non-profit government run board of directors (BoDs) which is independent of FAA. The paper aims to present arguments in favor of privatizing the U.S. ATC.

Rationale

FAA manages the largest and the most complex aviation system in the world. There are four main lines of business that FAA operates. This over stretches FAA's ability and capacity to manage multi-dimensional business lines. However, ATC is a specialized and service-intense business line crucial to flight operations. The recent statistics (such as 58% increment in flight delays since 1995 and 68% increment in flight cancellations) indicate that ATC's efficiency and productivity can be improved by privatizing the entity. The introduction of private companies to deliver part or whole of the air traffic safety services will allow all the stakeholders (pilots, passengers, employees of ATC) to reap the efficiency and productivity related benefits.

Non-profit privatization of ATC

There is much concern regarding the privatization of ATC and transforming air safety control into a commercial activity. Different stakeholders have taken different positions on this issue. A press release by the National Air Traffic Controllers Association (NATCA) reads that privatizing the air traffic control system may damage the aviation system of USA. Profit and cost cutting motives may impact the level of safety presently offered by ATO (NATCA, 2002). Examples of Canada and England were cited by the NATCA press release as examples of countries where privatizing air traffic control remained unsuccessful. The press release fails to highlight the underlying reasons which may hamper safety after privatizing the ATC. It implies that NATCA's position on this issue may reflect conflict of interest as the association composes of air controllers, engineers, and safety related professionals whose jobs or perks may be at stake if ATC is privatized.

A rather unbiased and neutral source to plead the case for privatizing ATC is the Reason Foundation. A detailed analysis was provided by Poole and Butler (2001) in a report published by the Reason Foundation. The report highlights that air traffic control attained its limits in the summer of 1999 and 2000. Runaway incursions and operational errors due to air traffic controllers increased during 1990-2000 decade. Poole and Butler (2001) argue that air traffic control is essentially a commercial service that requires 24 hours a day and seven days a week operations. The report purposes that ATC can be transformed into a self-supporting non-profit entity that is free of FAA operational interference. The report also argues for governance related reorganization of ATC. Fig 1 highlights the three forms of governing structure that air traffic control currently manages. The figure highlights the three developed countries where these forms of ATC are currently in practice.

Fig 1-Forms of ATC Governance

Adapted from: (Poole and Butler, 2001)

The report also highlights the cost-savings achieved by ATC corporations in countries such as Canada and the U.K. The cost savings are then passed on to the commercial airlines by decreasing the airport user fees. A major advantage of the proposed reorganization of ATC into a non-profit corporation will be the establishment of a 15 member corporate board. If FAA adopts the proposed ATC reorganization on the patters of Nav Canada, following would be the board member composition of the U.S. ATO.

a. Four FAA appointed board members

b. One member appointed by the U.S. Business Aircraft Association

c. Two board members appointed by NATCA

d. Three board members appointed by the government

The examples of Thailand and Switzerland are also cited by Poole and Butler (2001) to rationalize that there is a middle way between complete privatization and the current form of Government Corporation.

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The proposed format will ensure that interests of all stakeholders are safeguarded with an improvement of air safety and flight operations. It is pertinent to mention that the report published by the Reason Foundation favors retaining the existing air controllers and technicians. The downsizing shall be gradual and abrupt retrenchment shall be avoided in case that ATO is managed by a non-profit board of governors.

Industry experts position on privatizing the U.S. ATC

The position of air navigation experts on the aspect of the U.S. privatizing its air traffic control is also encouraging. Glen McDougall remained an advisor to the Canadian government on commercialization of the country's air navigation system. McDougall is also credited with heading the ten-country study on air traffic control commercialization. McDougall and Roberts (2008) observe that many countries have privatized the managerial and functional aspects of their country's ATC. This has led to increased regulation and accountability of ATC in these countries. McDougall observes that significant improvement have been achieved by these countries. There is a miniscule increase in the cost of service of privatized ATCs and safety standards have also improved. The authors observe that governance structure and the implementation of multi-stakeholder model have improved the operating environment of ATC.

A report published by the United States Government Accountability Office (GAO) carries an exploratory analysis of commercialization of five air navigation service providers (ANSPs). The reviewed ANSPs belong to Canada, Australia, Germany, United Kingdom, and New Zealand. Dillingham (2005) observes that the five commercialized ANSPs have similar business characteristics. Each of the studied ANSP operates as a business thereby setting its strategic, operational and financial goals. Revenue generation and management is solely achieved by the respective ANSP without having the recourse public funding of their annual budget. Each of the five ANSP being studied had its own financial performance metrics. Three major aspects of the commercialization of these ANSPs has been improvement in efficiency, reduction in operating cost, and improvement in air traffic control operations. Technological up gradation and HR skills management was also implemented by the ANSPs.

It is observed that organizations such as NATCA have criticized the commercialization of ATC on one pretext or the other. NATCA also held the position that profiting from air traffic will become the main objective of a commercialized ATC Corporation. Practically this is not the case with any of the five ANSPs. Neither has retained the profits for a long-term period. All five ANSPs have done either of the following if the operating revenues have surpassed the operating costs.

a. Provide rebate to the user airlines

b. Lower the air space user fees for subsequent years

c. Dividend payout to shareholders

d. Hedge potential losses in the future

It is also observed that new project development and technological up gradation is also carried out from the respective ANSP's own funds. Government appropriations were used before commercialization and this practice continues in the U.S. Capital intense projects of ATC are financed from private capital. A few of the commercialized ANSPs have used debt financing as the mode of financing their capital intense projects. Germany and the U.K are two major European countries that have multi-stakeholder board of directors (BoDs) of their ANSP.

Improvement in safety and regulation

NATCA's historical stance on the issue of privatizing the U.S. ATC is full of contradictions. In an October 2013 press release, the association highlighted the poor condition of ATC after the sequestration of budget and the Federal government's shutdown in October, 2013. The association admits that hiring freezes and a halt in training of existing air traffic controllers has led to flight delays. The association also admits that due to the government's inability to fund the critical infrastructure up gradation, the improvement plan of FAA pertaining to ATC's reformation was out on halt. The admission by NATCA shows that the overall operational and strategic direction of ATC is highly dependent on the Federal government's ability to sponsor the ATC as a non-profit entity. Had the U.S. air traffic control been privatized and commercialized, the ability of ATC as a non-profit corporation would have been better for handling the recession. The report published by GAO also indicates that all five ANSPs have adopted formal safety programs. The example of Airservices Australia is cited whereby the agency uses a surveillance model including incident investigation, trend analysis, internal audit and system review. The New Zealand Civil Aviation Authority (CAA) is a separate agency….....

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