ANALYSIS: Trump Budget Proposes Privatisation; Essential Air services

• MIAMI — President Donald Trump presented a plan to privatize America’s air traffic control system (ATC) yesterday as part of a budget proposal for discretionary spending in the fiscal year 2018. A previous initiative, endorsed by most of the airlines in the United States, died in Congress last year but has been resuscitated with the advent of a new presidential administration.

Under the plan, which is part of a multi-year reauthorization proposal for the Federal Aviation Administration (FAA) and a fiscal shift that cuts 13% or $16.2 billion from the budget of the US Department of Transportation (DOT), oversight of the ATC system would shift to a private, nonprofit corporation that would over time take over complete administration.

These would mirror ATC privatization efforts in many other countries including Australia and Canada.

THIS WOULD NOT REPRESENT A SHIFT TO GREEDY CORPORATIONS SACRIFICING SAFETY FOR PROFIT

The immediate criticism that usually arises whenever a government agency is marked for privatization is the notion that greedy corporate bosses will sacrifice safety or other public interest for the sake of profits. But as a nonprofit corporation, the new air traffic control organization would not fit into that category.

Instead, its proponents claim that shifting to a private administration of ATC would allow the ATC system to get the best of both worlds, private administration and corporate principles to boost efficiency to keep down costs, but no profit motive and sufficient government involvement to prevent bad safety tradeoffs.

The idea of privatizing ATC is also not a new one. Australia, New Zealand, Germany, and Switzerland have all had privatized ATC systems for more than two decades now, and in all four cases, the tale of the tape has been that ATC privatization is an unabashedly good thing.

Safety in all four countries improved after privatization, three of the four countries saw an increase in operating efficiencies, three of the four saw a reduction in costs, and all four countries made faster progress on upgrading their ATC systems with modern equipment.

The slow roll-out of the Next Generation Air Transportation System (NextGen) in the US has been one of the biggest gripes for airlines with current aviation policy.

DELTA LEADS THE CHARGE AGAINST PRIVATIZATION

It’s no surprise then that pretty much all of the major US carriers endorse privatization of ATC, save for Delta Air Lines, which believes that the increased prices from private ATC systems would offset any benefits from upgraded infrastructure.

Moreover, Delta believes that a privatized model would have no way of functionally addressing perhaps the biggest ATC issue facing the US today, namely the crowded airspace in the Northeast US in the so-called BosWash corridor stretching from Boston Logan International Airport to Washington Dulles.

Outside of weather events and growing congestion at Los Angeles and San Francisco International Airports in California, the BosWash corridor is the primary culprit for most of the periods when the ATC system is overburdened.

Moreover, the record of cost increases after more recent ATC privatizations might be a cause for concern. Delta cites figures claiming that fees increased by a whopping 59% in Canada and by 30% in the UK after privatization, and worries that a similar rise might occur in the US market.

However, while Canada is by far the closest peer country in terms of geography, it also has large swathes of empty land where ATC coverage has to be maintained despite not many flights paying in via fees and having a more difficult terrain to manage due to wintry weather. It is not clear that Canada’s experience is entirely instructive for what the US will face after privatizing its ATC.

NEXTGEN ROLLOUT AND STAFFING ARE THE BIGGEST DRIVERS BEHIND PRIVATIZATION

On the flip side, NextGen implementation has been relatively slow and held up constantly by the budgetary process despite the denials by FAA Administrator Michael Huerta. A private organization with its own funding structure via fees would undoubtedly have more leeway to roll out the nearly $23 billion in cost savings while moving in the implementation timeline from the currently planned 2025.

Private organizations are almost always more efficient at administering large-scale development projects than governmental organizations are, and the FAA is a particular source of sloth.

The other goal of privatization would be to adopt a more rational staffing model, as, despite reforms in this area, the country continues to be understaffed with air traffic controllers. In fact, unlike previous legal turmoil with the ATC system (the 1981 firing of the nation’s ATC staff by Ronald Reagan most notably), in this case, the primary national air traffic controllers union actually supports privatization wholeheartedly.

That should make opponents of privatized ATC feel better (as there will likely not be any cut in staffing or decrease in standards), but it also signals that the costs savings from this privatization will perhaps be more limited than its proponents claim.

ESSENTIAL AIR SERVICE MAY GET THE BOOT, WHICH IS BOTH A GOOD THING AND A BAD THING

The other major policy shift in the president’s budget was a proposed $175 million cut to the Essential Air Service (EAS) program, which funds and subsidizes flights to and from small communities across the United States. The justification for EAS is a complicated question, as there are genuinely some communities, particularly in Alaska and Hawaii, that need EAS service to maintain their link to the outside world.

But at the same time, many of the routes subsidized by EAS are poorly patronized, with load factors below 50% and subsidies per passenger of more than $200 (in some case more than $500). What adds insult to injury is the fact that many of these EAS airports are actually within an hour’s drive of non-subsidized airports where equivalent or greater service is available.

At the same time, some of the communities (particularly in Alaska) do have a legitimate case for air service being a truly essential commodity. And there are a series of airlines, most notably Cape Air, Boutique Air, and Southern Express Airways that have built their businesses around serving EAS routes with 9 seat jets.

Those airlines will likely have to evolve to survive or shift to relying on state and local subsidies. So our preference would be to reform and pare back EAS, as opposed to cutting it entirely. But the EAS program in its current form has lots of specific senators and representatives backing it, and that gives it much more staying power than it would otherwise have.

This budget still has to be passed by Congress and that process may well preserve the EAS in its current form.

- Airways Magazine