Testimony of Ken Mead at Senate Budget Committee hearing

February 3, 2000

Mr. Chairmen and Members of the Full Committee and Subcommittee:

We appreciate the opportunity to discuss "Modernizing the Federal Aviation Administration: Challenges and Solutions."

FAA oversees the largest, busiest, and safest air transportation system in the world. FAA also is responsible for operating air traffic control, which is the nerve center of the Nation’s air transportation system. Until Monday night, the safety record for the last two years was remarkable. This is a credit to FAA and all segments of the aviation community. At the same time, FAA and the aviation community are facing a number of challenges. The demand for air travel has doubled since 1980 and is expected to continue to grow through 2015. Unfortunately, with the growth in demand has come growth in delays, and consumer dissatisfaction with airline service is high. In the last 5 years, delays have increased by over 50 percent.

Against this backdrop, FAA’s air traffic control modernization efforts and airport capacity have not kept pace with the demand for air travel. These are legitimate concerns and they are not new. Congressional hearings dating back to the mid-1980’s focused on the same subjects. As there were then, there are now proposals to restructure FAA’s air traffic functions to perform more like a commercial business and to provide additional funding for air traffic control modernization and airport improvement programs.

Today, I would like to make three points.

First, there is no air traffic system in the world as large and complex as that of the United States. It is safe, but actions are needed to make it more efficient. Any proposal to restructure FAA or have air traffic control run by a commercial type organization must be carefully examined. Furthermore, the oversight of aviation safety should not be transferred outside the Department of Transportation. This is an inherently governmental function for which the traveling public deserves the highest level of independent scrutiny and assurances.

If the Congress should choose to make any major changes to FAA’s structure or commercialize air traffic control services, we would urge great caution. Having first-hand experience in a limited air traffic control environment is essential before any expansive changes are considered. FAA’s oceanic air traffic control could provide this experience. Oceanic services are operationally distinct from domestic services and there would be limited impact on small carriers, general aviation, and air taxis. It is an area where the United States could solicit lessons learned from other countries that have already taken steps to commercialize air traffic control operations.

Second, Congress has already provided FAA with the tools necessary to modernize the National Airspace System and obtain the necessary skills to operate effectively. In 1995, Congress exempted FAA from Federal procurement and personnel rules. After

4 years, there has been some progress, but overall, these reforms have had limited impact on bottom line results.

To its credit, FAA has adopted a "build a little, test a little" approach to its acquisitions and has made progress in reducing the time to award contracts under acquisition reform. In addition, FAA has deployed systems such as the Display System Replacement (new color displays for en route controllers) on time and within budget. However, cost and schedule problems persist with key modernization projects, such as efforts to install new computer systems in the terminal environment and move toward satellite-based navigation.

FAA has also had some success with personnel reform in that managers have been able to hire qualified candidates faster than under the Federal personnel system. By far, however, the most visible result of personnel reform to date has been the new compensation agreement with its controllers, which has improved management-labor relations. However, this agreement also has led to sharp increases in the agency’s operations costs, principally salaries, which now constrain funding for air traffic control modernization and airport development. It is a fact that the United States invested more in Fiscal Year (FY) 1992 in modernization than it will in FY 2000. But at the same time, operations costs increased almost 40 percent from $4.4 billion to an estimated $6.0 billion.

Exemptions from Federal rules may facilitate success, but management accountability, strong contractor oversight, effective cost controls, and a sound cost accounting system are the essential ingredients to modernize and effectively manage the air traffic control system.

Finally, several proposals have surfaced over the past year to finance FAA, all of which had one common thread -- to increase the amount of funds available for FAA operations and air traffic control modernization efforts. Based on FAA's estimates, by 2004 its total budget requirements will be over $12 billion or 20 percent greater than in FY 2000. FAA faces significant risks in meeting its operations costs (primarily salaries) without crowding out capital investments. The means for financing these requirements is a major issue that the Department, Congress, and aviation users continue to debate.

There are investment opportunities that will significantly decrease airline costs, provide better and safer service to the flying public, and reduce FAA’s operating costs. These include data link communications, collaborative decision-making systems, and efforts to reduce runway incursions, a major area of safety risk, but additional funding alone will not get the desired results. For example, FAA must control its operating costs, do a better job of negotiating contracts for large software-intensive efforts that include appropriate measures to withhold payments if progress is not satisfactory, and implement a sound cost accounting system.

FAA originally planned for its cost accounting system to be fully implemented by October 1, 1998, but has yet to implement the system. FAA recently delayed the completion schedule until some time in FY 2002 because of Operations funding constraints. This decision should be reversed. FAA needs a reliable cost accounting system sooner, not later. Any business that fails to track and control its costs would most likely go into bankruptcy.

In addition to implementing a cost accounting system, FAA needs to develop a strategic business plan -- a key tool for any successful business. The plan should provide key corporate strategies and operating plans over the next several years, and describe the timing and impact of those strategies. The plan should outline agency strategies for investing in future technologies, as well as how the agency will control the rising costs of operations and bring about productivity enhancements.

There are a number of proposals under discussion regarding restructuring FAA to operate and perform more like a business. However, we want to make clear that there are no circumstances we can envision in which the Department of Transportation’s role in oversight of aviation safety should be transferred outside the Federal Government. Safety oversight is an inherently governmental function for which the citizens of the country expect and deserve the highest level of independent scrutiny and assurances. But this does not mean we should not try to find ways to deliver air traffic control services and implement new technologies more efficiently and effectively. However, in light of the size, complexity, and safety record of FAA, any proposal to restructure or have air traffic control run by a commercial type organization must be very carefully examined.

There are primarily three concerns with proposals that would spin off air traffic control (ATC), air traffic controllers, and ATC infrastructure development and investment to a commercial enterprise, while simultaneously retaining safety oversight within FAA. These concerns include: (l) how a commercial enterprise would balance safety against costs and ensure that decisions come down on the side of safety; (2)  whether a commercial enterprise would have the incentive to initiate research and development in cutting-edge technologies; and (3) whether a commercial operation could adequately protect and respond to the needs of all stakeholders, including passengers, in our diverse aviation system. FAA’s stakeholders include over 194,000 general aviation aircraft, more than 5,000 public use airports, and over 12,000 small carriers and air taxis.

Numerous other countries, including Canada, Germany, Australia, and New Zealand, have assigned their ATC system, once provided by government, to entities having administrative and often financial autonomy. Canada transferred its civil air navigation services to NAV CANADA in November 1996, and some have cited it as a role model for FAA to follow. We greatly appreciate the information NAV CANADA has shared with us on their experiences in commercializing air traffic services. The experiences of NAV CANADA and other countries are instructive, but it is difficult to use their experiences as a conclusive point of reference because our air traffic control system is so much larger, diverse, and complex. Several differences are shown on the following chart.