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WHITE HOUSE REPORT ON AIR TRAFFIC CONTROL REFORM

December 7, 2000

The Federal Aviation Administration (FAA) oversees the largest, busiest and most complex aviation system in the world. As part of its mission, the FAA and its staff of 49,000 operate and maintain our nation's air traffic system system, orchestrating the take-off, landing and routing of 93,000 aircraft a day. The FAA also regulates aviation safety and security, which entails standard-setting for, and oversight of, commercial airlines, private aircraft, aircraft manufacturers and the air traffic system itself.

To the credit of the FAA and other segments of the U.S. aviation community, our nation's safety record for air travel is exceptional. You could fly commercially every day for 22,000 years and not lose your life in an accident. Between July 1997 and June 1999, not a single life was lost in the crash of a scheduled U.S. airliner.

Moreover, the U.S. has achieved this safety record while experiencing the enormous growth in air travel. Since 1978, when airline deregulation ended the federal government's role in setting prices and limiting capacity, daily departures have doubled, and the number of passengers has gone up by 250 percent. Last year, U.S. airlines transported 694 million passengers on 13 million flights.

Yet our air transportation system is not as efficient as it could be. The growing volume of air traffic, spurred in part by the vitality of the economy, is straining the limits of the FAA's air traffic infrastructure as well as key airports' runway capacity. According to the FAA, flight delays have increased by more than 58 percent since 1995, cancellations by 68 percent, contributing to widespread passenger frustration and anger. The Air Transport Association estimates the cost to airlines and passengers at more than $5 billion per year. Moreover, these statistics understate the true costs of aviation congestion, because airlines have progressively "padded" their published schedules to better reflect routine delays: for example, one major carrier schedules 75 minutes for a flight between Washington, D.C. and Newark, even though the trip takes only 37 minutes under optimal conditions.

Moreover, delays are almost certain to increase, primarily because of traffic growth. The FAA predicts a 60 percent increase in the number of passengers and a doubling of cargo volume by 2010, resulting in a 25 percent increase in aircraft operations. Having more planes using the air traffic system will exacerbate the impact of bad weather, because there will be less slack in the system. Another factor that will cause delays to increase is regional jets (RJs), which fly at the same altitude as larger planes but are not as fast. With several hundred RJs coming into the airlines' fleets each year, these popular planes will be a factor in delays.

Although new technology for the air traffic system is not a silver bullet, it can expand somewhat the effective capacity of our nation's airways and runways. For example, most flights today travel on a limited number of congested "airways" -- narrow, often indirect corridors defined by the locations of ground-based radar beacons. Satellite-based navigation and other technologies will allow pilots instead to select their own routings -- a technique known as "free flight." Precision satellite navigation can also relieve congestion upon final approach to airports, by allowing aircraft to make "segmented approaches" from several directions rather than queue up single file. Queues must allow enough separation to ensure that one plane's wake does not create dangerous turbulence for the next plane in line. By avoiding this problem, segmented approaches (and similar alternatives to queuing) can increase the hourly capacity of single-runway airports. New technology can also increase the safety of air travel.

However, the FAA's effort to modernize its air traffic system technology has not kept pace with either the emergence of new hardware or the growing demand for air travel. Despite significant improvements in recent years, some modernization projects are delayed and over-budget. Moreover, in part because of federal budget regarding agency borrowing, the FAA has not always had all of the funds needed for long-term capital investments and research and development.

If flight delays and out-of-date technology are the symptoms, one of the key underlying problems is that the FAA is currently not structured to manage the delivery of a high technology service such as air traffic. The air traffic system operates 24 hours a day, 365 days a year and an entire industry depends on the air traffic system for its every move. Because of its overriding importance to the safety and security of American travelers, air traffic control is an inherently governmental function. Nevertheless, in several key respects the air traffic system has characteristics that make it best managed as a separate unit distinct from the rest of FAA activities.

First, air traffic activities involve delivering a service, not developing government policy. To be sure, air traffic control management (like the manufacture of aircraft or the operation of airlines) must be regulated to ensure safety. But most experts agree that the delivery of air traffic services is a distinct activity, separable from the regulation or oversight of air traffic safety and security.
Second, because air traffic is operational, the mission of an air traffic service provider is clear and its performance is measurable.
Third, the users of the air traffic system -- the "customers" -- are identifiable, and most of the benefits and costs of air traffic services accrue to those who are already paying the costs via excise taxes. By contrast, most government agencies provide for public goods (clean air, safe streets) for which there may be little correlation between taxes paid and the services received by any individual.

Because of the importance of aviation to our nation, the Clinton Administration made reform of the air traffic system an early priority. In 1993, the Vice President's National Performance Review (NPR) recommended that air traffic operations be reorganized into an independent government corporation, allowing the use of many of the tools available to the private sector to provide air traffic services more efficiently and safely. As a follow-on to the NPR recommendation, the Administration proposed legislation to create a not-for-profit U.S. Air Traffic Services Corporation (USATS), to be governed by a board of directors and a chief executive officer and regulated at arm's length by the FAA. Although Congress rejected USATS, it subsequently adopted key building blocks of the Administration's proposal, namely acquisition reform, personnel reform, and management reform. Congress also established a Management Advisory Council (MAC) to the FAA to provide expert advice from major aviation interests on a broad range of issues, including air traffic. Earlier this year, Congress adopted still more elements of the Administration's reform agenda, by establishing the position of Chief Operating Officer for air traffic operations and by creating a five-member Subcommittee to the MAC, which will function much like a corporate board of directors in overseeing the management and budget of air traffic operations.

Under the direction of Jane Garvey, the first Administrator to serve a fixed (five-year) term, the FAA is already using these building blocks to improve the air traffic system operation in important ways:

Collaborative decision making:

To encourage the FAA to treat those who use the air traffic system as the customer, senior FAA officials are making major air traffic decisions in a more collaborative way, following extensive consultation and consensus building. Soon after Administrator Garvey joined the FAA, she convened a task force of industry and labor representatives to consider ways the agency could deliver some of the benefits of free flight to users in the near term. The FAA accepted the task force's recommendations and has made implementation of these tools, collectively known as Free Flight Phase One, one of its highest priorities.

The FAA used this same collaborative approach on an urgent basis in the summer of 1999, after severe weather and other problems led to a dramatic increase in flight delays. Administrator Garvey and other senior FAA officials met with their counterparts in industry and labor to diagnose the problem and agree on concrete fixes. The FAA continued this successful partnership with airlines, pilots and controllers throughout the following fall and winter. The group ultimately produced the FAA's Spring/Summer 2000 Severe Weather Plan, which President Clinton announced last March. Although the amount of air traffic delays during this past summer exceeded that of 1999, the airlines and other participants believe the problem would have been even worse without the Spring/Summer 2000 Plan in place. Thus, they are continuing to refine the plan, use it as a "laboratory" to test new ideas, and make it standard operating procedure year round.

Instilling a performance culture:

If the first crosscutting change -- promoting collaborative decision-making and consensus -- has largely to do with process, the second one -- instilling a performance culture -- involves getting the organization to focus squarely on results for the customer. As noted earlier, in contrast to many federal programs, the air traffic system provides concrete services to identifiable customers, and the cost and quality of these services can be objectively measured. The FAA is putting in place operational and financial systems needed to track and report its performance.

The FAA and air traffic users recently agreed to collect and share data on a wide range of measures, as part of the Spring/Summer 2000 Plan. The FAA is now combining its own air traffic data with airline data from 20 major airports to produce a daily air traffic scorecard. This measures the overall system performance and provides feedback on how well the FAA performed under specific conditions. When the FAA and airlines convene each morning to go over the previous day's activities, they have a common database and a basis for evaluating their efforts.

Reforming acquisition and pursuing incremental modernization:

In 1995, Congress exempted the FAA from federal acquisition rules, largely in response to the escalating costs and schedule delays associated with the agency's air traffic modernization effort. Since then, the FAA's problems with major acquisitions have been less severe, and the agency has made significant progress in reducing the time to award contracts and in deploying key systems on time and within budget. However, serious problems persist with certain technologically challenging systems such as WAAS and STARS.

The FAA's traditional approach to acquisition was development of highly ambitious systems incorporating new technologies that promised a radical improvement over existing capabilities. In response to continued problems with WAAS, STARS, and other major air traffic systems, the FAA has adopted a more incremental approach to modernization. This new approach -- "build a little, test a little" -- reduces the risk of cost and schedule problems, and it ensures that rapidly changing technology gets incorporated into the system. It also means that the FAA can provide improved capabilities to users far sooner.

Pursuing personnel reform:

The 1995 law exempting the FAA from federal personnel rules produced immediate results. The change is visible: the FAA replaced 47,200 pages of personnel laws and regulations with a 42-page document. More substantively, the FAA gained much-needed flexibility in hiring, compensating and utilizing its employees.

Freed from federal personnel rules, the FAA negotiated an agreement with controllers that provides higher compensation in exchange for commitments to increased productivity and job flexibility. A new agreement with air traffic equipment technicians includes performance-based compensation, and non-union employees are now covered by a pay-for-performance system.

Today's Actions:

To accelerate these important efforts, President Clinton today will announce the following actions:

He is issuing an Executive Order directing the FAA to create a performance-based organization (PBO) -- the Air Traffic Organization -- to manage the operation of air traffic services. As a PBO, this organization will have the incentives and tools needed to operate more flexibly and efficiently. It will be located within the FAA and overseen by the FAA Administrator but will be separate from, the FAA's safety and security regulatory and enforcement arms. Although the creation of a PBO is not a panacea it is the right next step towards the development of a 21st century aviation system.
Secretary of Transportation Rodney E. Slater will name five distinguished individuals to the Air Traffic Services Subcommittee of the FAA's Aviation Management Advisory Council. Congress created the five-member ATS Subcommittee in recent legislation. It will function as a board of directors, overseeing the management and budget of the FAA's air traffic control organization and ensuring that it becomes more customer-driven and performance-based. The Subcommittee members (who will not require Senate confirmation) are:
- John J. Cullinane, President, The Cullinane Group
- Nancy Kassebaum, former U.S. Senator from Kansas
- Leon Lynch, International Vice President, United Steelworkers of America
- Sharon Patrick, President and COO, Martha Stewart Living Omnimedia, Inc.
- John W. Snow, Chairman, President and CEO, CSX Corporation
The President is directing the Department of Transportation (DOT) and the FAA to review the statutory and regulatory impediments to the use of airport congestion pricing and other market mechanisms to provide for more efficient use of existing runway capacity and encourage the creation of new capacity. The FAA is already looking at options for congestion management, including market mechanisms, to reduce delay at LaGuardia Airport. DOT and FAA should expand that effort and seek statutory relief where appropriate.

These Executive actions, building upon current flexibilities within the FAA to further improve its effectiveness, are necessary but do not fully provide the financial flexibility to manage its operations. As the Administration said in 1995, the individual reforms of the air traffic control system are interrelated, and "fundamental air traffic reform requires that these changes be made together or the benefit of individual changes will be greatly reduced." Such fundamental financial reform requires additional action by the Congress, in keeping with the recommendations of the Administration and the congressionally created National Civil Aviation Review Commission:

Congress must reform the way air traffic services are financed, by replacing the excise tax on passengers with authorization for the Air Traffic Services PBO to set cost-based charges on commercial users of the air traffic system -- that is, the air carriers that earn revenues from the transportation of people and products and therefore stand to benefit directly from an improved system. (General aviation should continue to pay the fuel tax.) The Air Traffic organization needs to be able to price its services, in order to balance supply and demand in the short run and to know what steps are needed to meet customer demand in the long run.
As soon as the Air Traffic PBO is fully financed by cost-based fees, Congress should allow it to borrow funds from Treasury or on private markets to finance long-term capital investments. Fees would replace direct appropriations for capital and would enable debt financing of needed capital spending.

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