[Senate Hearing 108-]
[From the U.S. Government Publishing Office]



 
  DEPARTMENTS OF TRANSPORTATION, TREASURY AND GENERAL GOVERNMENT, AND 
          RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2005

                              ----------                              


                        THURSDAY, APRIL 22, 2004

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10:02 a.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Richard C. Shelby (chairman) 
presiding.
    Present: Senators Shelby, Stevens, Murray, and Dorgan.

                      DEPARTMENT OF TRANSPORTATION

                    Federal Aviation Administration

STATEMENT OF MARION C. BLAKEY, ADMINISTRATOR
    Senator Shelby. The subcommittee will come to order. Today 
we welcome Ms. Marion Blakey, the Administrator of the Federal 
Aviation Administration, and Mr. Ken Mead, the Inspector 
General of the Department of Transportation. I thank you both 
for being here this morning. I look forward to our discussion.
    Madam Administrator, your agency and the aviation industry 
are to be commended for operating the safest aviation system in 
the world. The 3-year average for fatal commercial accidents is 
at an all-time low.
    Obviously no mission is more important than the Federal 
Aviation Administration and we should strive to improve upon 
this impressive safety record. I look forward to hearing from 
our witnesses what additional steps can be taken to improve the 
safety of our airways.
    The FAA and the aviation industry face other challenges, as 
well. Our current fiscal constraints require us to make choices 
between priorities and programs. We are at a critical juncture 
in the modernization and operation of our air traffic control 
system. After almost a decade of vigorously growing budgets, we 
are faced this year with a budget request and a budget 
environment that would seem to indicate that tough choices will 
have to be made at the FAA.
    Mr. Mead's written statement points out that FAA has not 
been accustomed to operating within a budget-constrained 
environment and that changing the organizational culture to 
accept budget constraints will be a challenge. Yet when I look 
at the FAA budget request I am struck that the choices made in 
this budget request are remarkably similar to the choices of 
the past. The agency's operations account grows by 5 percent 
while funding for facilities and new air traffic control 
equipment is squeezed. When other Federal agencies are facing 
1.5 percent growth, I find it astonishing that a request for 5 
percent growth is viewed as constrained.
    Madam Administrator, you are to be commended again for your 
commitment to slow the growth rate in the FAA's operational 
costs and in your efforts at personnel reform. Clearly we have 
a long way to go to bring the FAA's operational cost growth 
into line with the budget realities that we are likely to face 
for the next several years. While you have all the legal 
authority to implement virtually any reform you can imagine, 
true personnel reform is elusive and remains exceptionally 
difficult at the FAA.

                            PAY PERFORMANCE

    Your effort to link pay and performance is a step in the 
right direction. I note that you have had mixed success in 
tying pay raises to meeting performance goals. It is ironic 
that the controllers did not participate in this linkage 
between raises and performances last year, even though one of 
the three organizational goals that FAA missed was air traffic 
control operational errors.
    Administrator Blakey, tying pay to performance is 
appropriate, I believe, and overdue. While your action last 
year was only a step on a path toward linking pay and 
performance, I commend you for taking this necessary first 
step. I look forward to hearing what further steps you plan to 
make.
    I also want to mention your efforts to restructure air 
traffic services and research and acquisition offices into a 
performance-based organization called the Air Traffic 
Organization. If this structure is properly implemented, it 
will instill personal accountability throughout the FAA. On the 
other hand, if the ATO is implemented incorrectly, it will only 
add another layer of bureaucratic structure to an already 
dysfunctional organization.

                      PROBLEMS WITH MODERNIZATION

    I believe that we must improve FAA's workforce productivity 
if we are to achieve any type of meaningful budgetary savings. 
A major contributor to improving productivity should come 
through making the right investments in modernization of the 
National Airspace System. Yet when I review the facilities and 
equipment budget, I am disappointed that this is where the cuts 
to the FAA budget have been taken. I am concerned that the 
lion's share of the remaining facilities and equipment funding 
is poured into the same money pits that consumes a 
disproportionate amount of our capital funding, including the 
Wide Area Augmentation System (WAAS) and Advanced Technologies 
and Oceanic Procedures (ATOP).
    Further, I am increasingly concerned with the En Route 
Automation Modernization procurement to replace the aging Host 
system. The funding profile for ERAM is unrealistically 
aggressive; the program structure is unnecessarily complex; and 
the procurement strategy virtually guarantees substantial cost 
growth, schedule slippage, and questionable outcomes. I am 
interested in hearing from the Inspector General, his 
suggestions for minimizing the risk associated with this 
program.
    We may be coming to the realization that the FAA is not 
capable of developing realistic cost estimates and schedules 
for major acquisition and development programs. We may also 
need to determine what steps to take to protect the taxpayer 
from what the Inspector General characterizes as historical 
``cost growth, schedule slips, and shortfalls in performance.''
    What concerns me most about the statement is the 
implication that cost growth, schedule slippage, and 
performance shortfalls are expected and seem to have become 
part of the FAA culture. The FAA's failure to cost-effectively 
modernize and redesign the National Airspace System is only 
matched in spending and failure by the IRS's on-going failed 
attempts to modernize its computer system.

                             FLIGHT DELAYS

    The Bureau of Transportation Statistics recently published 
its monthly analysis of airline on-time statistics and causes 
of flight delays. The 6-month analysis shows that almost half 
of flight delays are caused by insufficient infrastructure or 
failures of the National Airspace System itself. I believe this 
data underscores the primary issue facing the FAA in this 
budget request: are we making the right decisions to address 
constraints in the system, enhance safety, and improve 
efficiency, or are we failing to question our assumptions and 
merely following the same programs, procurements and pitfalls 
that the FAA has slavishly adhered to in prior budgets? It is 
an important question to ask and an even more important 
question to honestly answer. I hope we can get some of these 
answers here today.
    Senator Murray.

                   STATEMENT OF SENATOR PATTY MURRAY

    Senator Murray. Thank you, Mr. Chairman. I am glad you have 
called this meeting this morning to focus specifically on the 
needs and challenges facing the Federal Aviation 
Administration.
    The President's budget for fiscal year 2005 proposes to 
effectively freeze overall funding for the Transportation 
Department at the level of $58.7 billion. However, within that 
proposed freeze are selected increases and corresponding cuts. 
The largest single cut of any agency within the Transportation 
Department is roughly the $400 million that President Bush 
wants to cut from the FAA's efforts to modernize our air 
traffic control system. Frankly, I was dismayed when I learned 
of the President's planned retrenchment in aviation investment.
    As a long-standing member of this subcommittee, I know well 
that there have been several problems that have beset the FAA's 
efforts to modernize the equipment that keeps the National 
Airspace System operating each day. As the Inspector General 
will tell us this morning, certain programs continue to 
encounter significant cost overruns and schedule delays.
    But in my mind, the solution to these problems is not the 
wholesale disinvestment that is proposed by the President. 
While a lot of attention has been focused on the $400 million 
cut proposed for 2005, a little known fact is that President 
Bush's multi-year budget anticipates even further cuts will be 
made in the FAA's procurement budget in the future. For 2006, 
the Bush Administration intends to cut air traffic control 
modernization by an additional $61 million. Taken together, 
under the President's proposal total funding for air traffic 
control modernization over the 4-year period covered by the 
Vision-100 Aviation Authorization Bill that the President just 
signed a few months ago would be more than $2.3 billion less 
than the level authorized in that bill.
    What is even more perplexing is that the Bush budget 
proposes that modernization funding stay almost $2 billion 
below the level that President Bush himself proposed in his own 
Aviation Reauthorization Bill. Finally, under the Bush budget, 
funding for aviation modernization would be almost $1.3 billion 
lower than the level we would achieve if we just froze 
modernization funding at the current level.
    This is truly harsh treatment. It seems no sooner did the 
President sign the Vision-100 bill than he turned his back on 
it. His wholesale retrenchment will mean that the flying public 
will have to wait even longer to see the woefully outdated Air 
Traffic Control System brought up to modern standards.
    My principal concern with the President's decision to 
disinvest in aviation is what it means for the future of 
aviation and America's leadership in aviation. After leading 
the world in aviation for its first 100 years, I have to wonder 
whether the President is now creating an opportunity for 
Europeans or others to control the next 100 years. When you 
look at many of the modernization projects that have been 
eliminated from the budget to accommodate the President's 
proposed cuts, many of them were designed to bring the cutting 
edge of technology into our air traffic control system to make 
our aviation system safer and more efficient.
    Just last week I had the opportunity of visiting the Air 
Traffic Management enterprise at the Boeing Company in my home 
State of Washington. They are making great strides in 
developing plans for the next generation, satellite-based air 
traffic control regime. These are the kinds of initiatives in 
which we must continue to invest if we are to stay ahead of our 
foreign competitors and lead the way in aviation. Leadership 
means having a plan that addresses the future, not just a plan 
to survive day to day with inadequate staff and outdated 
equipment.
    One case in point is the situation we find ourselves in 
with our air traffic controllers. Today the number of air 
traffic controllers at our 24 en route centers is 747 
controllers--10 percent less than the level called for under 
the FAA's own staffing standard. Some of these facilities are 
currently staffed as much as 30 percent below the level called 
for under the FAA's staffing standard.
    The Inspector General will testify to us that the FAA is 
going to need to take great care in planning for what is 
expected to be a wave of controller retirements potentially 
bringing the number of available air traffic controllers for 
these facilities to an even lower level. The FAA needs the kind 
of resources to implement a plan that is focused on the future 
to ensure that as air traffic continues to grow there will be a 
steady stream of fully trained controllers to manage our air 
space so that our system can continue to be the safest in the 
world.

                          AIRCRAFT MAINTENANCE

    Another case in point is the area of aircraft maintenance. 
The Inspector General will testify that the FAA has real 
deficiencies in its inspection oversight of maintenance 
activities that were formerly executed by the air carriers 
themselves but are now commonly contracted out to third 
parties. On January 8 of last year, a US Airways Express plane 
crashed while taking off at Charlotte, North Carolina, 
resulting in 21 fatalities. The NTSB's investigation of this 
crash revealed that the cause was partially related to 
defective maintenance by a third-party contractor.
    We need to have an FAA that is sufficiently focused on the 
future so that its inspectors are ahead of the industry trends, 
not playing catch-up.
    Mr. Chairman, we have an obligation to keep this agency 
focused on the future, even if the President's budget wants to 
focus them solely on survival from day-to-day. I hope this 
subcommittee will not allow our Nation to lose its leadership 
in aviation and undermine the progress we have made in ensuring 
that our aviation system remains the safest in the world.
    Thank you very much, Mr. Chairman.
    Senator Shelby. Senator Dorgan.

                  STATEMENT OF SENATOR BYRON L. DORGAN

    Senator Dorgan. Mr. Chairman, thank you. I am sorry I was 
delayed. My understanding is that we have not yet had the 
statement by the witnesses; is that correct?
    Senator Shelby. We have not. This is the opening statements 
of Senators.
    Senator Dorgan. I will be very brief. I do have some 
questions for the FAA Administrator.
    This is obviously a big job. We are threatened in this 
country with the prospect of terrorists that want to kill 
innocent Americans and we know that they have used airplanes to 
do that. The FAA has had a big job even notwithstanding 
terrorism but add terrorism to the issue and it is significant.
    I think the airline industry has had plenty of struggles in 
recent years and our country and our economy depends on a 
commercial airline network that works and that is safe and 
provides reliable transportation. We have gone through a series 
of things over many years of crowding and delays and passenger 
issues and then the terrorist attacks and the shutdown of that 
industry, so I think Administrator Blakey has her plate full 
and I appreciate the work she does.
    I do want to say this. I am concerned again about the 
recommendation in the President's budget to cut funding for 
essential air services by half, more than half, in fact. I 
think it is a serious mistake. I remain concerned about the 
prospect of contracting out or privatization of certain air 
traffic control functions, and I will talk about that with the 
Administrator.
    Mr. Mead, thank you for the continuing work you do. You 
have been, I think, very important to the work that we have 
done on the Commerce Committee on many issues and important to 
the work in the Appropriations Committee, so thank you very 
much for being here, as well.
    I will then hear the testimony and then ask questions, Mr. 
Chairman.

            PREPARED STATEMENT OF SENATOR RICHARD J. DURBIN

    Senator Shelby. Thank you, Senator Dorgan. Senator Durbin 
has submitted a prepared statement which will also be included 
in the record.
    [The statement follows:]
            Prepared Statement of Senator Richard J. Durbin
    Chairman Shelby, Senator Murray, thank you for holding this 
important hearing today on the fiscal year 2005 budget for the Federal 
Aviation Adminstration (FAA).
    I'd like to begin by welcoming FAA Administrator Marion Blakey and 
Inspector General Ken Mead back to the committee for today's hearing. I 
look forward to your testimony.
    This morning, I'd like to briefly touch on a few issues of 
importance to my home State of Illinois.
    Administrator Blakey, I want to thank you and the Federal Aviation 
Administration (FAA) for your continuing support of the Chicago O'Hare 
modernization project. I'm told the City of Chicago and the FAA are 
working well together and that a project office has been opened and a 
time line established. As you know, this project remains a high 
priority for me and it is vitally important to our national aviation 
system.
    It's my understanding that the FAA will begin the Environmental 
Impact Statement (EIS) process in February 2005 and will endeavor to 
have a signed EIS Record of Decision by September 2005. I hope this 
project will remain on schedule. I encourage both the FAA and the City 
of Chicago to keep working together to develop the roadmap for this 
project. The positive impact that O'Hare modernization will have on the 
region and the national aviation system is simply too important to 
delay.
    The O'Hare modernization project is the long-term solution to 
chronic congestion and delays at the airport. However, in the interim 
we need to pursue operational changes--better and more efficient 
technology and procedures as well as flight operations.
    Yesterday, Secretary Mineta announced an additional 2.5 percent 
voluntary flight reduction by both American and United Airlines at 
Chicago O'Hare during peak travel times. This follows a 5 percent 
voluntary flight reduction in January, designed to help relieve 
aviation congestion and flight delays at the ``World's Busiest 
Airport.'' I was pleased to join you and the Secretary in pushing for a 
temporary, voluntary reduction of flights during the peak hours at 
O'Hare.
    However, I want to ensure that these flight reductions do not 
disproportionately affect smaller communities, like Downstate Illinois. 
I look forward to reviewing the data on this initiative and working 
with you and the airlines.
    Finally, I would like to ask you to look into two Chicago Airport 
System projects that were included in the fiscal year 2004 Omnibus 
Appropriations conference report (Transportation-Treasury title), at my 
request. First, $4 million for various improvements at Midway Airport 
related to capacity expansion. And $1.5 million for CAT II/III 
instrumentation for Runways 27L and 27R at O'Hare. It is my 
understanding that this funding has not yet been released by the FAA. I 
hope you can help resolve any outstanding issues on these projects 
within the FAA in the near future.
    Thank you, Mr. Chairman.

    Senator Shelby. Both of your written statements will be 
made part of the hearing record in their entireties. You may 
proceed as you wish. We will start with you, Ms. Blakey.

                     STATEMENT OF MARION C. BLAKEY

    Ms. Blakey. Thank you, Chairman Shelby. And I do 
appreciate, Senator Murray, all of the leadership that the 
Senate is exercising in this area, and I do want to thank you, 
Senator Dorgan, for all of your attention to aviation. We have 
had some good conversations, and it has been very helpful from 
my standpoint.
    It is a pleasure to appear before you today to represent 
the men and the women of the Federal Aviation Administration. I 
am also proud to be following Secretary Mineta, who I know 
appeared before you last month.
    Let me take a moment if I could, also, to recognize our 
Inspector General. Ken Mead and his staff have worked very 
closely with us over the last year and we do appreciate their 
work to help us address a number of difficult issues. We also 
appreciate their commitment to helping us improve the way we do 
business.
    Last year I testified before this committee for the first 
time as the Administrator of the FAA. I told you then that I 
had witnessed the best the agency has to offer, operating the 
best aviation system in the world safely and efficiently; major 
advances in modernization, capacity and, of course, safety. But 
I also told you that the FAA has not achieved its full 
potential. It had not become the performance-based organization 
that it could be, that Congress intended it to be, and I said 
we could do better.

                              FLIGHT PLAN

    I am happy to say that we are doing better, Mr. Chairman. 
In the past year we have made changes that will fundamentally 
alter the way the agency operates. First, we began tracking 
goals, programs and spending through our Flight Plan, the 
agency's blueprint for action through 2008. For the first time 
in FAA history, our business plan is tied directly to our 
budget. The Flight Plan is making the FAA more businesslike, 
more performance-driven, more customer-centered, and more 
accountable.
    And for the first time, each FAA organization now has its 
own individual business plan that is linked to the Flight Plan, 
costed out, and built into a performance tracking system that 
our senior management regularly reviews. In fact, we get 
together, all of us, once a month to look at this to see how we 
are doing--are we hitting our numbers or not? And we post this 
on the FAA website so everyone can see the status of our 
reviews.
    The chart next to me shows you the kind of information that 
we are making publicly available. It is a very simple, very 
accessible, red, yellow, and green system. It shows how we are 
doing on things like decreasing runway incursions, increasing 
our airport arrival efficiency rate, and bringing in our 
critical acquisitions on schedule and on budget, as I 
understand this committee has concern about.
    We list all 30 targets in the Flight Plan and you can see 
the progress we are making on them. For example, if you are on 
the website and you click on that top red bar there, what you 
are going to see is our general aviation accident data. And, as 
you can see, we are currently in danger of missing our target 
in this area. At the same time, we are well on our way to 
meeting our goal on another one of the bars up there, of 
reducing the most serious operational errors by 15 percent, 
thanks to the very hard work of our controllers. You can see 
the details of it again on this kind of chart. We are providing 
this information to anyone who needs it.

                        AIR TRAFFIC ORGANIZATION

    Just this past year we launched a new Air Traffic 
Organization to eliminate bureaucratic stovepipes and provide 
more cost-efficient services for our customers. We hired our 
Chief Operating Officer from the private sector. This had been 
a major goal from a congressional standpoint and certainly one 
we shared. I would therefore like to introduce Russ Chew, our 
new COO, behind us. Russ is really building the tactical engine 
that is going to help us become more bottom-line-focused.

                     CHIEF FINANCIAL OFFICER (CFO)

    Just weeks ago we hired a new Chief Financial Officer (CFO) 
and I would like to introduce Ramesh Punwani, who is the former 
CFO of Travelocity, TWA, and Pan Am, so we have wonderful 
experience that we are drawing on.
    Across the agency we are implementing the tools that will 
allow us to operate more like a business. We have cost 
accounting in two of our lines of business and several support 
organizations. By the end of this fiscal year the remaining 
lines of businesses for the FAA will have cost accounting up 
and running.

                            COST ACCOUNTING

    Now as an example of cost accounting, I think you will find 
this interesting. The chart next to me shows a breakdown of the 
FAA's hourly cost of providing en route services to individual 
aircraft. We have not been able to do this before. It is 
currently $139 per hour. With this data, the FAA can now 
understand the cost of providing services and identify better 
ways to drive those costs down.
    On the other chart we have broken down the cost by 
facilities, again en route services, and while there are very 
legitimate differences between facilities, you can learn a lot 
by looking at those that are operating at a lower cost per 
flight hour. So again this illustrates what we are trying to 
do.
    Mr. Chairman, cost control is a priority, and I assure you 
we are working on reducing the increases in those operating 
costs that you talked about.

                           AIR TRAFFIC MOU'S

    Now in response to concerns regarding the air traffic 
control memoranda of understanding, we have implemented a 
strict new internal process of reviewing all labor agreements. 
We are also working to improve our performance-based pay 
systems by strengthening our employees' incentives to perform.

                          PAY-FOR-PERFORMANCE

    Within the last year we increased the percentage of our 
employees under pay-for-performance from 35 percent of the 
workforce to 75 percent of the workforce. Our sick leave, 
workers comp, overtime costs, yes, the FAA's costs are among 
the highest in government and we are aggressively working to 
manage those costs.

                                 SAFETY

    While we are striving to control our costs and operate more 
like a business, safety always remains the FAA's top priority. 
I am pleased to announce that the Nation's commercial fatal 
accident rate is at an all-time low--.022 fatal accidents per 
100,000 departures. This chart, I think, really tells an 
amazing story. Admittedly, .022 is a difficult number to 
comprehend, so what does it mean? I thought one of the best 
examples of this was articulated by Dr. Arnold Barnett, who is 
Professor of Management Science at MIT. He puts it this way. 
Pick a random flight every day. You will fly 21,000 years 
before you are involved with a fatal crash.
    This year we made good progress in bringing new technology 
on line that will improve safety. Just take, for example, 
required navigation performance or RNP, a revolutionary 
approach that will move the United States from a ground-based 
navigation system to one located within the aircraft itself. 
Saves time, avoids delays for the traveling public, improves 
safety, and improves the environment. What is not to like? And 
because the equipment is already located on board many of our 
aircraft, it saves the airlines, the government, and the 
traveling public money.

                            REPAIR STATIONS

    In addition to improving safety through modernization, we 
are sharpening our focus on airline maintenance. Again that was 
a focus of Senator Murray's discussion this morning. We are 
looking very hard at repair stations, both here and abroad. We 
have enhanced our new oversight programs for stations that 
perform out-sourced maintenance work. In January, in fact, we 
implemented sweeping revisions to repair station rules. It 
gives us more surveillance authority, tougher standards for 
contract maintenance, and mandates FAA-approved training 
programs for these workers.

                                CAPACITY

    Finally let me turn to capacity. Our budget requests $3.9 
billion to expand capacity and improve mobility within the 
Nation's aviation system. As we return to full capacity, we are 
taking immediate and direct steps to avert a repeat of the 
delay-ridden summer of 2000. We remember it all too well. We 
forecast a return to pre-
9/11 traffic levels by 2006.
    Less than a month ago we convened a Growth Without Gridlock 
Conference that Russ Chew and his team put together that was a 
first-of-its-kind meeting of industry, decision-makers and 
government to see what we could do. Together, this group agreed 
to new procedures, including express lanes. Those essentially 
give us a way of streamlining our structure in the sky. We also 
agreed to a policy that would impose minor delays at strategic 
airports occasionally in order to avert massive delays across 
the Nation.
    So I am confident that these kinds of efforts are going to 
lay an important foundation to greater capacity without 
diminished efficiency.

                           PREPARED STATEMENT

    So in closing, let me just emphasize we are working hard to 
manage the FAA. We are changing the agency structure, with a 
major shift to customer service and performance-focused 
organization.
    So with that, thank you, and I look forward to your 
questions.
    [The statement follows:]
                 Prepared Statement of Marion C. Blakey
    Mr. Chairman, Senator Murray, and the distinguished members of this 
committee, thank you for the opportunity to be here this afternoon. I'm 
pleased to be following Secretary Mineta's appearance before you last 
month and proud to be here representing the men and women of the 
Federal Aviation Administration, which operates an aviation system that 
is second to none in safety, complexity, and system efficiency.
    Your message to the FAA last year was both clear and direct: The 
FAA needs to operate more like a bottom-line business. We need to pay 
greater attention to delivering high performance and cost-efficient 
programs, and we need to show where we can save and redirect resources 
to higher priorities.
    These are very tough economic times for aviation, and we must 
exercise care and caution with the taxpayer's dollar. In the past year, 
the FAA has implemented several changes that will streamline our 
operations, much in the same way a private sector corporation would 
respond to a changing economy. From the way we deploy equipment to the 
way we compensate our employees, we are working to make better use of 
the monies appropriated to us. While we still have a ways to go, in the 
past year, we achieved 75 percent of our performance goals, including 
on-time arrival, exposure to noise, airport daily arrival capacity, and 
airport arrival efficiency rate. The agency also is on track to meet 
our performance goal of an 80 percent reduction in fatal commercial 
accidents by 2008. The 3-year average for fatal commercial accidents is 
at an all-time low.
                    the faa's flight plan, 2004-2008
    Step one for the agency was to put in place a strategy for setting 
goals and achieving them. We call it our ``Flight Plan,'' modeled after 
the specific routes a pilot follows from takeoff to touchdown. It is 
the FAA's business plan--a blueprint for action through 2008. What's 
more, for the first time in the history of the FAA, the plan is tied 
directly to our budget. The leadership of the Secretary of 
Transportation has made this possible. Mr. Mineta has provided the 
Department of Transportation and this agency with a strategic direction 
that has translated into results for the taxpayer.
    The Flight Plan commits the FAA to four broad goals: increased 
safety, greater capacity, increased U.S. international leadership, and 
organizational excellence. The plan will make the FAA more business-
like, more performance-based, more customer-centered, and more 
accountable. It is dynamic, adaptable, and cost-driven.
    For the first time, as part of our Flight Plan, each FAA 
organization now has its own individual business plan. Each of these 
plans is linked to the Flight Plan, costed out, and tied to the budget. 
Our business plan goals have been built into a performance-based 
tracking system that we post to the FAA web site. It lists each of the 
goals, performance targets, who's responsible, and the status of each. 
Using this data, the senior management team conducts a monthly half-day 
review of agency performance. This effort represents a first for the 
FAA and is proving itself to be time well spent and money well 
invested. When associated with other cost and performance data, this 
information lets us see, clearly and precisely, the true cost of a 
program. All the FAA lines of business are also implementing cost 
accounting tools and practices.
                                 safety
    Secretary Mineta has made it clear: there is no effort more 
important to the Department of Transportation than improving safety, 
and our budget reflects that commitment. Out of a total request of 
$13.97 billion, almost two-thirds--about $8.8 billion--is dedicated to 
improving or maintaining the safety of aviation. The Flight Plan lays 
out an aggressive safety agenda. It supports further progress on 
reducing the commercial and general aviation fatal accident rate and on 
reducing the numbers of runway incursions, operational errors, and 
HAZMAT incidents. It also establishes five new safety goals: reducing 
accidents in Alaska; decreasing cabin injuries from turbulence; 
preventing commercial space launch accidents; completing implementation 
of a safety management system; and developing a single, composite 
safety index. The overarching goal is to measure and achieve the lowest 
possible accident rate, while constantly enhancing safety.
    Already this year, we have made headway by bringing new technology 
online. We are implementing a revolutionary new technology: required 
navigational performance (RNP). Pilots and controllers use ``RNP'' in 
areas where terrain can make it difficult or impossible to locate 
traditional navigational aids, such as an instrument landing system. In 
Juneau, Alaska, an unforgiving landscape and brutal weather conditions 
make arrivals difficult. RNP enables Alaska Airlines to make smoother 
arrivals. According to Alaska Airlines, this saves them $3 million per 
year. I have had the privilege of flying an RNP approach into Juneau 
firsthand. Controllers and pilots agree: RNP works.
    From a technological standpoint, RNP combines the precision 
information from satellite, airborne, and ground-based navigational 
equipment into new procedures that enable the pilot to touch down at a 
precise point on the runway. Its use allows for lower minima, enabling 
pilots to land at airports that would previously have been unavailable 
in bad weather. Much like computer software, there is no RNP to hold in 
your hands, but its benefits are without question. RNP enhances safety. 
It saves time and avoids delays for the traveling public. This will 
help improve the environment. Because the equipment is already onboard 
the aircraft, additional savings will be realized as well.
    We remain equally committed to reducing the number of accidents 
overall, not just those where fatalities or injuries occur. We 
successfully installed the Airport Movement Area Safety System at 34 
airports. ASDE-X is a similar success story. Designed to increase 
airport safety by enhancing controller awareness, this surveillance 
system detects potential conflicts on runways and taxiways. It depicts 
aircraft and vehicle position with location information overlaid on a 
color map showing the area. The first operational site was commissioned 
last fall. Almost two dozen will be delivered by the end of 2005.
    Our budget request includes $243 million to continue the Enroute 
Automation Modernization, or ERAM. This is a critical program that 
replaces obsolete hardware and software of the main host computer 
system that is the backbone of en route operations. This level of 
funding is vital to accomplishing our baseline schedule. I'm happy to 
report that ERAM is progressing well. For example, one of the 
precursors to deploying ERAM just went operational on February 25, more 
than one month ahead of schedule. Another major milestone--the first 
major software deliverable--was completed on time in December. However, 
we do not underestimate the magnitude of this undertaking. But we have 
the right team, the right approach, and a single-minded focus to bring 
this program in on time and within budget.
    In February, FAA alerted the airlines and aircraft manufacturers to 
the possibility of an equipment change based on the FAA's consideration 
of new regulations, whose object would be to reduce fuel tank 
explosions. Years before, prospects seemed dim for a cost-effective 
solution. Experts said it couldn't be done, but an FAA researcher 
devised an inexpensive process to prevent fuel tank explosions. The 
process replaces the oxygen inside the empty fuel tank with nitrogen, 
an inert gas that will not explode. Statistics and research show that 
this, combined with our efforts to remove ignition sources, will pretty 
much close the book on fuel tank explosions for the U.S. fleet. Boeing 
already is moving ahead to implement this technology aboard its 
airliners, although the FAA is several months away from making a 
decision on proposing new regulation.
    We're also successful in deploying equipment to decrease the 
effects of bad weather on aviation. Controllers, managers, and airlines 
use our integrated terminal weather system--ITWS--for real-time 
situational weather information that not only reduces weather-induced 
delays and diversions, but also avoids wind shear. We already have 
installed this system at Atlanta, Miami, Kansas City, Houston, St. 
Louis, Chicago and Washington, DC. ITWS is currently being rebaselined; 
we will provide you with our fiscal year 2005 plans for deploying 
additional systems soon.
    In addition, we are sharpening our focus on airline maintenance. 
The FAA relies on almost 3,400 inspectors, 20 percent more than were 
onboard at the time of the ValuJet accident, to ensure airlines meet 
safety obligations. Over the last few years, we trained our inspectors 
to work smarter in response to industry changes. We continue to 
emphasize risk assessment and trend analysis to identify lapses. This 
approach targets our surveillance to where it produces the greatest 
safety benefit. Staying out in front of the cause--prevention--is still 
the best way to stop an accident.
    We're focusing on repair stations, both here and abroad. We're 
enhancing new oversight programs for stations that perform 
``outsourced'' maintenance work. In January, we implemented sweeping 
revisions to repair station rules. This gives us more surveillance 
authority, tougher standards for contract maintenance, and mandates 
FAA-approved training programs for workers.
                                capacity
    While safety is our primary concern, we're also committed to 
expanding capacity throughout the aviation system--both in the air and 
on the ground. The budget requests $3.9 billion to expand capacity and 
improve mobility within the Nation's aviation system. This request 
supports expansion of capacity on the ground with new runways, as well 
as the continued deployment of new technologies for increasing the 
efficiency of the existing system.
    We forecast a return to pre-9/11 traffic levels by 2006, and we are 
taking steps to be ready. 2003 was a banner year for new runways--at 
Houston, Miami, Denver, and Orlando--four of our busiest airports. In 
each case, we reduced congestion problems at the specific location, as 
well as providing relief to the overall system. We are well aware that 
new runways are important at smaller airports, too. That's why our 
reauthorization legislation gives small airports more flexibility for 
capital improvements.
    Our Flight Plan commits us to improving overall capacity at the 
Nation's top 35 airports by 30 percent, over a 10-year period; 
redesigning the airspace of eight major metropolitan areas (New York, 
Philadelphia, Washington/Baltimore, Boston, San Francisco, Chicago, 
Atlanta, and Los Angeles Basin); addressing environmental issues; 
improving traffic efficiencies; and reducing airline delays. As you 
know, if any of our major airports are suffering from congestion, the 
whole system can be dramatically affected. Airport expansion and 
enhancements are extremely challenging. But when it comes to finding a 
solution, nothing can be ruled out--even building new airports.
    As we increase capacity, we must ensure environmental 
responsibility. The budget requests $571.6 million to support 
environmental stewardship for noise mitigation, fuel efficiency 
enhancements, and a comprehensive approach to addressing both noise and 
emissions.
    We continue to have success with the traffic management advisor--a 
system that is designed to optimize the flow of high-altitude aircraft 
into busy airports. It's operational at eight sites and has increased 
the capacity at these airports by as much as 5 percent. We plan to 
install this software at Chicago next year with the expectation that it 
will increase capacity there by at least 2 percent.
    The Standard Terminal Automation Replacement System (STARS) 
provides controllers with standardized color displays and supporting 
processors to display radar targets for control of the terminal 
airspace. It replaces several generations of the existing terminal 
automation systems. STARS' most significant feature is its open 
architecture, enabling it to expand and adapt to new functional 
requirements, and changing system configurations due to airspace 
changes and runway modifications. Its unique fusion tracking allows it 
to receive inputs from 16 locations to depict aircraft location more 
precisely. It also represents a substantive increase in security and 
redundancy over the existing terminal systems. STARS will be the 
backbone for the next generation of safety and capacity tools. STARS is 
operational at 19 FAA TRACON facilities and 13 DOD air traffic control 
facilities. Our fiscal year 2005 plan for STARS will be provided to you 
shortly, as we are currently undergoing a baseline review.
    The Flight Plan charts our course to 2008. Beyond that, the 
Operational Evolution Plan, our current 10-year rolling plan, sets out 
the aviation community's strategy to increase capacity by 31 percent by 
2010.
    Looking further into the future, the aviation community needs to 
develop a shared vision for aviation. That's why we launched a joint 
planning and development office--called the JPDO. It is formulating a 
plan for the evolution of aviation between now and 2025. The joint 
planning and development office is housed in the FAA and comprised of 
members from the Department of Transportation (DOT), NASA, the White 
House Office of Science and Technology Policy, and the Departments of 
Commerce, Defense, and Homeland Security. For the first time, we will 
put in place a unified national plan to meet the aviation needs of U.S. 
businesses, consumers, and the military.
    Aviation is critical to the growth of the U.S. economy. This work 
will lay an important foundation for the future. For example, some 51 
million international visitors come to the United States every year, 
making a contribution of more than $100 billion to the economy. Since 
the tourism and aerospace industries generate about 10 percent of the 
U.S. gross domestic product, we're preparing for both an increasing 
number of domestic users and the opportunities of an ever-expanding 
global sky.
           international leadership and global harmonization
    The third goal in our Flight Plan is international leadership. The 
United States must lead aviation into the second century of flight, as 
it did in the first. Today, the FAA has operational responsibility for 
approximately half of the world's air traffic, certifies nearly three-
quarters of the world's large jet aircraft, and provides assistance on 
improving aviation systems to more than 100 countries. However, we must 
become even more globally focused to ensure that U.S. citizens can 
travel safely around the world, while being a catalyst for the smooth 
flow of safety and capacity enhancing technology around the world. The 
budget requests $45.2 million to support international leadership and 
global connectivity.
    Several weeks ago, I returned from a trip to Beijing, Hong Kong, 
and Tokyo. Chinese aviation is thriving. The United States remains 
China's largest export market, taking over one-third of China's 
exports. According to forecasts, China, over the next 20 years, will 
buy more transport category aircraft than any other country. By 2020, 
China's air traffic operations will be second only to our own. In terms 
of sheer numbers, China will be an important component of the expanding 
global aviation system. Our goal is to work with Chinese aviation 
officials to implement a system that is safe, efficient, and 
interoperable with Western technology. The FAA already is laying the 
groundwork to assist China's aviation system in supporting the 2008 
Olympic games.
    It is clear that the FAA needs to have a central role in advancing 
the international leadership of the United States in aviation, and not 
just in Asia. The numbers and the activity point to the need for a 
globally regulated sky, and we are working to shape that destiny. I 
have had the unique privilege of signing bilateral aviation safety 
agreements with key aviation partners in Asia and Latin America, 
literally within weeks of each other. These agreements are good for all 
of us--for passengers, for government, and for the aviation industry.
                       organizational excellence
    The fourth goal is at the heart of the entire plan: to fulfill our 
mission, the FAA must become a world-class organization. The people of 
the FAA are the key to achieving this goal. We are committed to finding 
and eliminating barriers to equity and opportunity. We believe that 
fairness and diversity fortify our strength. Furthermore, we must give 
our people the tools and resources they need to overcome the challenges 
we face and to become more accountable and cost efficient. In turn, our 
employee compensation and salary increases should be performance-based, 
allowing the agency to pay for results and reward success.
    In simple terms, our objectives are: to have stronger FAA 
leadership, to meet our organizational goals, to control costs while 
delivering quality customer service, and to make decisions based on 
reliable data. The budget requests $428 million for organizational 
excellence initiatives.
    We can't be more accountable, cost efficient, and customer service 
oriented unless we continue to change our way of doing business. The 
FAA launched a new Air Traffic Organization (ATO) late last year. Our 
previous organizational structure followed typical bureaucratic 
stovepipes that often stymied progress. To overcome this, we hired a 
chief operating officer who comes from the private sector, where 
success is predicated on efficient organizational structures. This 
group, known as the ATO, is taking its first steps toward becoming a 
bottom-line-focused, results-driven service organization. One thing is 
certain: the air traffic organization is the tactical engine that will 
help us achieve the near-term goals of our Flight Plan and, eventually, 
lead the FAA to a new way of doing business.
    This is a real change in the agency's operating philosophy. We are 
organizing around what we produce for our customers. We have 10 
operating service units that will be responsible for not only 
operations, but also for implementing new technology and capabilities 
within their own business unit. The ATO is making changes across the 
board. We recently hired a new vice president of safety. This position 
provides day-to-day focus on safety from within the air traffic 
organization. We also have created an office located outside the new 
organization to provide independent air traffic safety oversight.
    I am very excited about the possibilities that this new 
organization holds for us in streamlining our operations and being more 
accountable and productive. I will keep the committee apprised of its 
activities and progress.
    Like our counterparts in the private sector, we are determining how 
best to utilize our human capital in the years to come. Our people are 
our greatest resource, and the safety of the NAS, our greatest 
priority. We have several challenges on the way to achieving 
organizational excellence, one of which is the impending controller 
retirements. As required by law, we have initiated a rulemaking to 
consider waiver requests by individual controllers who want to work 
beyond the current mandatory retirement age of 56. This rulemaking has 
potentially significant personnel, budgetary, and other issues, so 
although we have accelerated the process, it is not yet completed.
    In addition, we are looking for other ways to become more 
efficient. Specifically, we are investigating ways to right-size our 
facilities. We are working to make our training programs more efficient 
in order to reduce the time it takes to train new controllers. 
Additional steps may need to be taken, and I will keep the committee 
apprised of our actions.
    I'm also pleased to note that FAA employees are, overall, adapting 
well to the changes that are being made in the FAA and aviation, in 
general. Our latest employee attitude survey shows a 71 percent job 
satisfaction approval rating. That's an increase of 3 percent.
    My initial impression is that while these survey numbers are moving 
in the right direction, we still have a lot of work to do. As in past 
surveys, employee ratings in several key areas are high, but in other 
key categories, such as trust in upper management, accountability of 
the organization, and communications, the numbers are not where they 
should be. At this time, each line of business and staff office is 
working to identify action plans that we must undertake to further 
improve our scores in these areas. We are also looking at administering 
the survey more frequently, as well as capitalizing on the success of 
the private sector employee survey instruments and action planning used 
by some of our external aviation partners.
                              cost control
    One of our major objectives in the Flight Plan is cost control. As 
you have requested, we are working on reducing our operating costs, 
which have increased by 22 percent over the last 5 years. We are taking 
the following steps to be more cost efficient:
  --In response to your concerns regarding the proliferation of 
        memoranda of understandings (MOU's), last year, we implemented 
        a strict new internal process for reviewing all labor 
        agreements. We also renegotiated a number of costly pay rules 
        and MOU's with the National Air Traffic Controllers Association 
        (NATCA), as part of the controller's contract extension. We now 
        conduct an assessment of the budget impact and legal 
        implications of labor side agreements before we sign. We also 
        established an automated database for memoranda of 
        understanding that will allow us to track and analyze those 
        agreements.
  --We are committed to negotiating pay-for-performance with our unions 
        until 100 percent of our workforce is under the system, and we 
        are actively working to control the growth of our labor costs. 
        Currently, 75 percent of the workforce is under a pay-for-
        performance system. We have a very well compensated work 
        force--and deservedly so. They strive every day to achieve the 
        highest level of safety and service for the American people. At 
        the same time, we know we cannot sustain the growth in our 
        operating costs, and we are addressing it. We recently 
        negotiated an extension of the NATCA contract that links a 
        portion of pay increases to controller performance. Discussions 
        with the Professional Airways Systems Specialists (PASS) are 
        continuing. The NATCA multi-unit, a group of administrative 
        employees represented by NATCA independent of air traffic 
        controllers, has been at impasse for some time.
  --Although FAA's Office of Worker's Compensation Program (OWCP) bill 
        has increased at a rate well below that of the rest of 
        government over the last several years, at a cost of $90 
        million, this program continues to be a major issue for us. We 
        have undertaken several initiatives that have begun to reduce 
        costs, and we plan to devote additional resources to the 
        program. A major OWCP issue facing not only the FAA, but also 
        the entire Federal Government is the right of beneficiaries to 
        stay on OWCP rolls well beyond normal retirement age. Forty-two 
        percent of former FAA employees on the OWCP rolls are 60 years 
        of age or older. Even more significantly, these individuals 
        account for almost 70 percent of the FAA's chargeback costs to 
        the Department of Labor (DOL), totaling well over $60 million!
  --The agency's transition to a new financial management system, 
        DELPHI, remains under way. Bringing the system online has 
        proved to be a challenge. Slowly but steadily, the agency is 
        working to reduce the number of outstanding vouchers and 
        overdue vendor payments that were delayed during the transition 
        to the new system. Importantly, the agency received a clean 
        audit opinion on our financial statements for the third 
        consecutive year.
  --We also are working diligently to implement the administration's 
        call for cost-effective business operations. An FAA study of 
        automated flight service stations is being conducted to compare 
        the cost of performing the function by Federal employees to the 
        cost of contracting it out. The study, initiated under the A-76 
        program, is designed to ensure that automated flight service 
        stations operate in the most cost-effective manner without 
        compromising safety or service. Our goal is to get the best 
        deal for the taxpayer, while focusing on the services required 
        for safe and efficient flight. The taxpayer stands to realize 
        substantial savings because of reduced annual operating costs, 
        which stand at $502 million in fiscal year 2003. The FAA enters 
        the process with an open mind and a commitment to make sure the 
        process is fair.
  --The FAA is consolidating many of our personnel and accounting 
        functions to streamline the numbers of offices performing 
        duplicative functions. Much of our accounting operation will be 
        centrally located in Oklahoma City.
  --The agency has implemented cost accounting in two lines of business 
        and several support organizations. We will implement cost 
        accounting in the remaining lines of business later this year. 
        The Office of the Inspector General has raised several concerns 
        with our labor distribution system, CRU-X, and we are refining 
        it to account more accurately for the distribution of labor 
        costs. The Inspector General raised justifiable concerns about 
        an ``automatic sign off'' feature in CRU-X that would, in 
        essence, punch an individual's time card without actually being 
        certain of when he or she stopped working. The Inspector 
        General also raised concerns about the ability for the system 
        to track all types of official time--such as breaks or when 
        conducting official union business.
                               conclusion
    In closing, let me emphasize that we are taking decisive steps to 
manage the agency, its programs, and its expenditures. We are changing 
the agency's structure with a major shift to a performance-based 
organization, making hard, tough choices with our funding. We are 
implementing cost accounting. We're operating more like a business. We 
will continue to work on increasing the capacity of the system as it 
returns to pre-9/11 levels. With that, I thank you for your time and 
welcome the opportunity to discuss these issues in greater detail.

    Senator Shelby. Thank you.
    Mr. Mead.

                    Office of the Inspector General

STATEMENT OF KEN MEAD, INSPECTOR GENERAL
    Mr. Mead. Thank you, Mr. Chairman, Senator.
    I want to point out first that I think the feeling is 
mutual with regard to the IG relationship with the FAA. The 
management at FAA is clearly, unambiguously improving, in my 
opinion, and the rigor of cost control, which is important in 
these times, is clearly evident.
    And as for you, I appreciate the kind words. It almost 
seems to me like yesterday that I can recall testifying before 
you. I can recall some of the exact questions and observations 
you made just 2 weeks after 9/11, first in that extraordinary 
joint House and Senate appropriations hearings and then the 
Senate Secure Conference facility. It is etched in my mind.
    The CBO has estimated that the deficit is going to be about 
$477 billion this year. In 2001, FAA estimated that the trust 
fund revenues next year would be about $14 billion. That number 
has come down. It is now projected to be about $11 billion. So 
their budget request of $14 billion is about $3 billion more 
than the trust fund is going to bring in.
    As the Administrator has said, a major focus for FAA this 
coming year must be the control of costs. And as you noted, 
Senator Shelby, in our statement we say that historically FAA 
is not used to living in this type of environment.
    I would like to make just a number of points here but the 
first I would like to highlight is that FAA has got to be in a 
position for rebounding air traffic. Domestic traffic levels 
still fall short of the peak experienced in 2000, but there is 
no question that traffic is rebounding.

                         PASSENGER ENPLANEMENTS

    Some data points as a frame of reference here. In February 
2004, the number of passenger enplanements is down 12 percent 
from February of 2000. That represents a 5 percent growth over 
enplanements last year. And I think this is an interesting 
statistic, that in 13 of the 31 largest airports, including 
some of those that experienced serious delays in 2000, the 
number of scheduled flights in March 2004 is actually exceeding 
the number of scheduled flights in March of 2000. But at 11 of 
those 13 airports, the number of available seats scheduled is 
still lagging behind the number offered in March 2000. One 
reason that the operations in the air traffic control system 
can be up but the number of passengers still down is the huge 
growth in the use of regional jets. Since this time in 2000, 
the number of regional jet flights has increased by 134 
percent. That is a pretty astonishing figure.
    Airports that bear watching include Chicago O'Hare. As you 
could tell from the papers this morning, the Secretary and the 
FAA took some additional actions yesterday. I would watch 
Atlanta, and the three New York metropolitan airports. At those 
five airports, arrival delays during the first 2 months of 2004 
ranged from between 20 and 35 percent of scheduled flights and 
the delays were generally 50 minutes or more, which is not 
dissimilar from where we were in 2000.
    Another watch item I would like to put on your RADAR screen 
is Dulles Airport. The launch of Independence Air by former 
United Airlines regional carrier Atlantic Coastal Airlines will 
increase Dulles traffic this summer to historically high 
levels. You can probably expect at least a 50 percent increase 
in traffic there. That is going to place additional demands on 
the air traffic control system, to say nothing of the already 
taxed security checkpoints there.

                                 SAFETY

    Safety. It has already been mentioned that the January 2003 
Air Midwest crash in Charlotte was the only fatal commercial 
accident in the past 2 years. I do think that record is almost 
remarkable. I can report that FAA has made progress again this 
year in reducing runway incursions. Those are potential 
collisions on the ground. Actually it is 3 years running that 
those numbers are down, but at 324 this past year, that number 
is still much too high.
    Operational errors where controllers allow planes to come 
too close together in the air, that remains a significant 
safety risk. They continue to increase--over 1,000 of them in 
2003, with an average of about one very serious error every 7 
days. So those must come down.
    On maintenance, there has been, as Senator Murray pointed 
out, a gravitation of maintenance from in-house to out-sourced. 
There are domestic repair stations and there are foreign repair 
stations. We did issue a report last year on it that contained 
a series of recommendations. The FAA has agreed with them all 
and is proceeding to implement them.
    The budget. Operating costs are mostly salaries and at $7.8 
billion, those costs are the largest portions of the FAA's 
budget. They continue to increase but not as markedly as they 
had been in these last several years and I attribute that to 
Administrator Blakey and her team.

                                 MOU'S

    We reported last year that FAA and NATCA had entered into 
sidebar agreements called memoranda of understanding. Sometimes 
FAA management did not even know about these and they had no 
real inventory of them and there were a number that were costly 
and rather wasteful.
    Just one example. One memorandum of understanding allowed 
controllers that were getting transferred to receive their pay 
increase by as much as $45,000 before moving and sometimes they 
would get that money a year ahead of time. Well, this past year 
FAA and the controllers union have rescinded or modified a 
large number of those memoranda of understanding. There are a 
couple that I think still need attention but there has been a 
lot of progress this year.
    Getting big reductions in FAA's operating costs is tough, 
Mr. Chairman, and that is because FAA has a very high salary 
base and much of that salary base is covered by contract.

                         CONTROLLER RETIREMENTS

    A cost driver this subcommittee needs to be aware of, 
though, is a bubble of pending controller retirements. You have 
in front of you two hand-outs and I would like to focus on the 
first one. The hand-out that we provided indicates that FAA's 
estimate is that about 7,000 controllers will leave the agency 
over the next decade. As you can see from the chart, it begins 
to hit big-time in 2006 and increases steadily from then on up 
through 2012.
    Now whether FAA is going to have to replace all these 
controllers on a one-for-one basis is going to depend on a 
variety of factors like the number of facilities and how many 
people they need at each facility and initiatives that FAA 
undertakes in its hiring and training process.
    Well, we just completed an audit of FAA's process for 
replacing and training controllers. I think it is with FAA for 
comment and we will be issuing it soon. We see some 
opportunities here.
    First, I do not think FAA has a good handle on where the 
vacancies are going to occur and when you are talking about 
hiring people in these numbers, you really have to know where 
they occur, because you have 300 facilities in the system. And 
there is also a need for getting some solid, good estimates of 
where they are going to occur and how many and when.
    When we visited FAA facilities we found that they were all 
over the map in how they were counting. While they all had 
estimates of attrition, they differed. For example, one only 
counted mandatory retirements. That is when you get to age 56. 
Another used only transfers and excluded retirements and 
another included all types of attrition, so they need to 
calculate their estimates on a common basis.

                              OJT TRAINING

    We also found that there were some huge differences in how 
FAA facilities handle on-the-job training of new controllers. 
They do not keep data on such things as the time and cost 
required to complete OJT and we tried to calculate it at some 
sample facilities and what we found was pretty astonishing. The 
average time to train a new controller is about 3 years but we 
found in some instances it would go up to almost 7 years.

                            COST ACCOUNTING

    Cost accounting. Administrator Blakey is correct that they 
have made progress at the agency on cost accounting but I am 
really disappointed with the lack of progress in fielding a 
labor distribution system plan for air traffic control. Until 
you have that in place, it is going to be almost a crap shoot 
to figure out where you are going to need controllers and when. 
So I am hoping that we see some progress this next year on 
that.

                            CAPITAL ACCOUNT

    I will go to the capital account that both the chairman and 
Senator Murray referred to. Last year we did analyze 20 
projects and found schedule slips of up to 7 years. Fourteen 
projects experienced cost growth of over $4.3 billion. That 
number is an interesting number because it exceeds by more than 
100 percent the annual appropriation for this account. FAA is 
aware of this. We have seen some very positive signs as the 
Administrator and her team are focused on addressing problems. 
FAA has a lot on its plate with the existing acquisitions, plus 
they're starting some new ones.
    I would like to speak to the half-billion-dollar reduction 
for a moment. It is not fair to say that the projects that were 
cut lack merit but it is fair to say that the projects that 
were cut did face some fundamental issues, like not having a 
realistic cost estimate. And I do not mean just off by a little 
bit; I mean by in some cases $100 million. In other cases there 
were serious miscalculations about the benefits.

                          ACQUISITION PROGRAM

    There are two things on the overall acquisition program 
that FAA needs to do. The first is too many expensive projects 
do not have reliable cost and schedule estimates, and I am 
talking about huge swings. I know FAA is working on that but 
until you get some reliable cost and schedule baselines you are 
going to have a very difficult time figuring out what the game 
plan is going to be for the future.
    And second, stay away from these long-term cost-plus 
contracts. By long-term I am not talking about just a couple of 
years. I am saying sometimes a decade-long contract where you 
enter into it and you say it is cost-plus, which is where the 
contractor basically can bill the government and it is open-
ended. ERAM, as you mentioned, Senator Shelby, which is the 
brain for controlling the high altitude air traffic, is one 
such new system.

                                AIRPORTS

    Airports. I would like to close on a couple of points on 
airports. First is revenue diversion. Revenue diversion is 
illegal in most cases. Congress put in some caveats and 
grandfather clauses and so forth but overall, revenue diversion 
is illegal and what revenues diversion is is that money that is 
going to the airport, that the airport generates, is not 
supposed to go to the city or the State, except to pay for 
reimbursement for the services that are provided. We are 
finding too much revenue diversion out there. I think FAA could 
step up its efforts to provide some oversight.

                           PREPARED STATEMENT

    Second is you have had some big plus-ups in the airport 
account. It has gone from $1.5 billion, I think, to almost $3.5 
billion. In addition, you authorized an increase in the 
passenger facility charge, increased that to about $4.50. That 
is yielding about $2 billion a year. Those funds are directed 
by law toward airport-related projects, such as new runways. 
However, FAA also incurs costs to support many airport 
projects. Well, you are going to have to get money from 
somewhere to provide the nav aids, the air traffic equipment, 
and things of that nature that have to support those capacity 
enhancements. I see this as a looming issue as to where you are 
going to get the money to pay for those, particularly as FAA's 
capital account gets squeezed more and more, because that is 
the account where the money has historically come from.
    Thank you, Mr. Chairman.
    [The statement follows:]
                     Prepared Statement of Ken Mead
    We appreciate the opportunity to testify today as the subcommittee 
begins deliberations on the fiscal year 2005 appropriations for the 
Federal Aviation Administration (FAA). This year, we are facing an 
austere budgetary environment, one that will likely continue for at 
least the next several years. The Congressional Budget Office estimates 
that the Federal deficit will be $477 billion this year.
    Within this context, FAA must also be positioned for a rebound in 
air traffic. Domestic traffic levels still fall short of the peaks 
experienced in 2000, but there is no question that traffic is 
rebounding. In February 2004, the number of revenue passenger 
enplanements (35.1 million) was down 12 percent from February 2000, but 
this represents a 5 percent growth over enplanements in February 2003 
(33.3 million).
    While systemwide operations in February 2004 were slightly down 
from February 2000, the story is very different on an airport-by-
airport basis. In 13 of the 31 largest airports, including some of 
those that experienced serious delays in 2000, the number of scheduled 
flights in March 2004 actually exceeded the number of scheduled flights 
in March 2000. However, in 11 of those 13 airports the number of 
available seats scheduled still lagged behind the number of available 
seats offered in March 2000. This is an indication, at least in part, 
of how network carriers are using regional jets in the place of narrow-
body jets to connect traffic to the network hubs.
    It is unlikely that the situation will reach the level of 
widespread system failures we experienced in the summer of 2000, but it 
is possible that some airports could experience disruptions in service. 
Airports that bear watching include Chicago O'Hare, Atlanta, and the 
three New York metropolitan airports. At these five airports, arrival 
delays during the first 2 months of 2004 ranged between 20 and 35 
percent of scheduled flights.
    The FAA and the Department have been working with the industry to 
identify potential solutions to delays that might occur this summer 
such as creating high-altitude express lanes and voluntary schedule 
reductions. At Chicago O'Hare, arrival delays during March 2004 
represented a 74 percent increase over delays in the same period in 
2003 but down from triple digit increases during the period between 
November and January.
    One situation that bears watching, in particular, is the expected 
service growth at Washington's Dulles airport. In June, when 
Independence Air is launched by former regional carrier Atlantic Coast 
Airlines as a new low-cost carrier, traffic at Dulles will increase 
significantly. Some estimates put that increase at over 50 percent by 
this summer. In addition to airside congestion, there are concerns with 
airport terminal services, including the resources needed to process a 
significantly increased number of passengers through security 
checkpoints.
    While air traffic levels continue to show improvement from the 
sharp declines of 2001, there still remains a substantial decline in 
projected Aviation Trust Fund revenues. In 2001, FAA estimated that 
Trust Fund revenues in 2005 would be about $14.5 billion. That estimate 
has now been reduced to $11.1 billion.\1\ FAA's fiscal year 2005 budget 
request of $14 billion exceeds those revenues by nearly $3 billion.
---------------------------------------------------------------------------
    \1\ Even though air traffic operations are rebounding, Aviation 
Trust Fund revenues have not returned to previous levels partially 
because of lower enplanements, lower air fares, and more point-to-point 
service operations, all of which affect the amount of tax revenue 
collected. 


    Clearly, a major focus for FAA this coming year, and for some time 
to come, must be controlling costs. FAA has not been accustomed to 
operating within this type of environment, and changing the 
organizational culture to reflect that focus will be a challenge. This 
past year, we have seen positive signs of leadership and commitment on 
the part of Administrator Blakey and her staff to address FAA's costs. 
For instance, there has been notable progress this past year in reining 
in FAA's unabated cost growth in its operations account. Progress is 
also being made toward restructuring the Air Traffic Organization into 
a performance-based organization. However, much more remains to be done 
to bring FAA's costs under control. Actions such as:
  --developing realistic cost and schedule baselines for major 
        acquisitions,
  --avoiding long-term cost-plus contracts,
  --improving contract oversight,
  --implementing a cost accounting and labor distribution system, and
  --identifying ways to increase workforce productivity
will be key to effectively manage the Agency's budget, and this will be 
the focus of our testimony today.
                                 safety
    It is important to note that the U.S. aviation industry continues 
to be the safest in the world. The January 2003 Air Midwest crash in 
Charlotte was the only fatal commercial accident in the United States 
in the past 2 years. This past year, FAA has made progress in reducing 
runway incursions (potential collisions on the ground), but operational 
errors (when controllers allow planes to come too close together in the 
air) continue to increase. In fiscal year 2003, runway incursions 
decreased 4 percent to 324, while operational errors increased 12 
percent to 1,186, with an average of 3 operational errors each day and 
1 serious error (those rated as high risk) every 7 days.
    Additionally, a significant challenge for FAA will be to adjust its 
safety oversight to emerging trends in the aviation industry, such as 
outsourcing maintenance. While major air carriers outsourced 37 percent 
of their aircraft maintenance in 1996, the amount spent on outsourced 
maintenance increased to 47 percent of maintenance costs in 2002.
                            operating costs
    FAA is requesting $7.849 billion for its fiscal year 2005 operating 
budget, which is about $370 million above the fiscal year 2004 enacted 
amount of $7.479 billion. Operating costs represent the largest portion 
of FAA's fiscal year 2005 total budget, over 56 percent, whereas FAA's 
airports and capital accounts represent 25 percent and 18 percent, 
respectively. This past year Administrator Blakey and her staff have 
made notable progress in beginning the process of reining in FAA's 
history of operating cost growth.
    Last year we reported that FAA and the National Air Traffic 
Controllers Association (NATCA) had entered into numerous sidebar 
agreements or Memoranda of Understanding (MOU's). Many of those MOU's 
had significant cost and/or operational impacts on the Agency, but we 
found that FAA had no controls over the process.
    This past year, FAA developed new policies and procedures that, if 
properly implemented, should significantly improve controls over MOU's. 
As part of an agreement to extend the controllers' collective 
bargaining agreement for another 2 years, FAA and NATCA also rescinded 
or modified many of the most costly MOU's. For example, FAA and NATCA 
rescinded an MOU that allowed controllers transferring to larger 
consolidated facilities to begin earning the higher salaries associated 
with their new positions substantially in advance of their transfer or 
taking on new duties.
    However, one costly MOU that we identified last year was not 
renegotiated. This MOU concerns ``Controller Incentive Pay'' (CIP), 
which provides controllers at 110 locations with an additional cost-of-
living adjustment of between 1 and 10 percent, which is in addition to 
Government-wide locality pay. In fiscal year 2003, this additional 
cost-of-living adjustment cost FAA about $35.6 million.
    FAA also made progress in linking pay and performance--a key tenet 
of FAA's personnel reform efforts. As part of the 2-year extension of 
the controllers' agreement, FAA and NATCA agreed to tie a portion of 
controllers' salary increases to meeting four national performance 
metrics, which include goals for reducing operational errors and runway 
incursions. It is important to note, however, that the performance 
increase represents a very small percentage of the controllers' total 
annual pay increase. For each goal reached, controllers will receive a 
pay increase of 0.2 percent. However, even if none of the performance 
goals are met, controllers will still receive an average increase of 
about 4.9 percent this year because of contractual requirements.
    Achieving substantial reductions in operating costs represents a 
tremendous challenge because salaries and benefits make up 
approximately 73 percent of FAA's operating budget. Because FAA's 
salary base is relatively fixed, it is unlikely that significant 
reductions in operating cost growth can be achieved in the near term 
without substantial improvements in the Agency's workforce 
productivity.
    Initiatives such as new air traffic systems, technological 
improvements, efforts to redesign the National Airspace System, and 
consolidating locations all have the potential to significantly improve 
productivity. In the past, FAA has embarked on similar initiatives on a 
limited basis but was unable to demonstrate any credible gains in 
productivity partially because FAA did not have systems to accurately 
capture reliable cost and workforce-related data.
    Accurate cost and workforce data are particularly critical in light 
of the anticipated wave of controller retirements. FAA currently 
estimates that about 7,000 controllers could leave the Agency over the 
next decade. Whether FAA will need to replace all of them on a one-for-
one basis depends on many factors, including future air traffic levels, 
new technologies, and initiatives that FAA undertakes in its hiring and 
training process. However, it is clear that as a result of the 
anticipated increases in attrition, FAA will begin hiring and training 
controllers at levels the Agency has not experienced since the early 
1980's.
    A substantial challenge for FAA will be to hire and train new 
controllers within a tightly constrained operating budget. FAA has 
recently made significant progress in this area by renegotiating 
several pay rules with NATCA that previously allowed some newly hired 
controllers to earn base salaries in excess of $79,000 while in 
training. The renegotiated rules now allow FAA to set newly hired 
controllers' salaries at levels that are more commensurate with an 
entry-level position (from $25,000 to $52,000), which should help FAA 
avoid higher costs as it begins hiring and training greater numbers of 
new controllers.
    We have just completed an audit of this issue and will be issuing a 
report next month. We found that this is an area where management 
attention is needed to better prepare for the expected increase in 
retirements. For example, FAA has national estimates of expected 
attrition within the controller workforce, but those estimates do not 
take into account where vacancies will occur.
    While most locations we visited had estimates of attrition over the 
next 2 years, they included different information in developing those 
estimates. One facility only projected mandatory retirements, another 
projected attrition for transfers but not retirements, and another 
provided estimates on all types of attrition (i.e., retirements, 
transfers, hardships, resignations, and removals).
    In addition, FAA does not keep national statistics on the 
controller on-the-job training (OJT) process, which is the longest 
portion of controller training. At the locations we visited, we found 
that the overall time required for newly hired controllers to become 
certified averaged 3.1 years, but in some cases it took as long as 7 
years. To effectively manage the OJT process as hiring increases, FAA 
will need data such as the time and costs required to complete OJT, the 
number of training failures, and any delays in the process to benchmark 
against and improve the time and costs associated with OJT.
    The expected increase in controller attrition reinforces the need 
for FAA to have its cost accounting and labor distribution systems in 
place and operating effectively. This past year, FAA has made some 
progress with its cost accounting system, but there has been very 
little progress in fielding the labor distribution system planned for 
air traffic employees. That system is critical for managing the 
expected wave of controller retirements. FAA is aware of this need and 
the Chief Operating Officer for the Air Traffic Organization has 
committed to putting both of these systems in place.
                           major acquisitions
    FAA modernization projects have historically experienced 
considerable cost growth, schedule slips, and shortfalls in 
performance. In the current budget environment, cost growth and 
schedule slippages experienced in the past are no longer affordable or 
sustainable. Cost and schedule problems with ongoing modernization 
efforts have serious consequences because they result in postponed 
benefits, the crowding out of other modernization projects, costly 
interim systems, or a reduction in the number of units procured. In the 
past, the severity of these problems has been masked by the size of a 
modernization account that either grew or stayed constant.
    We note that FAA has made downward adjustments in its fiscal year 
2005 request for a number of modernization projects. These projects 
have merit but they face fundamental problems with respect to 
misjudging technological maturity, unexpected cost growth, or concerns 
about how to move forward in a cost-effective way.
  --The Local Area Augmentation System (LAAS) is a new precision 
        approach and landing system. In December 2002, we reported that 
        expectations for the cost, schedule, and performance of the new 
        system needed to be reset because the new landing system was 
        not as mature as FAA expected. Category I LAAS was planned for 
        2006, and more demanding Category II/III performance is now a 
        research and development effort with uncertain completion 
        dates. After assessing contractor progress, FAA believes that 
        it will take considerably longer, as much as 21 months, to 
        complete just the first phase of LAAS.
  --Controller-Pilot Data Link Communications (CPDLC) is a new way for 
        controllers and pilots to share information that is analogous 
        to wireless email. FAA is deferring plans for CPDLC because of 
        concerns: (1) about how quickly users would equip with new 
        avionics; (2) that the approved program baseline of $167 
        million was materially understated and no longer valid; and, 
        (3) about the impact on the operations account, which is 
        already overburdened.
  --Next Generation Air-to-Ground Communications System (NEXCOM) is an 
        effort to replace aging analog radios and foster the transition 
        to digital communications. The first segment of NEXCOM (new 
        radios and new ground infrastructure for digital 
        communications) was expected to cost $986 million. However, the 
        full cost of implementing NEXCOM throughout the National 
        Airspace System was uncertain, but later segments were 
        estimated to cost $3.2 billion. In addition, NEXCOM was 
        controversial with airlines because of FAA's preferred 
        technology. While FAA will move forward with replacing older 
        radios, it has postponed making decisions about NEXCOM ground 
        system development.
    While we see positive signs that the Administrator and her team are 
addressing fundamental problems with major acquisitions, additional 
steps are needed.
  --Developing reliable cost and schedule estimates.--Last year, we 
        reported that despite the benefits of acquisition reform 
        granted in 1996, cost growth and scheduled slips in 
        modernization efforts are all too common. For example, we 
        analyzed 20 major acquisition projects and found that 14 of 
        these projects experienced cost growth of over $4.3 billion 
        (from $6.8 billion to $11.1 billion), which represents 
        considerably more than the FAA's annual appropriation for 
        modernizing the National Airspace System.
      For example, the cost of the Standard Terminal Automation 
        Replacement System (STARS), which will supply new controller 
        displays and related computer equipment for FAA's terminal 
        facilities, has nearly doubled from $940 million to $1.69 
        billion.
      FAA has already obligated $1.1 billion through fiscal year 2003 
        and has installed 20 STARS systems, of which 19 are 
        operational. The Agency is currently reviewing its deployment 
        plans. We reported in September 2003 that STARS is not the same 
        program that was planned 8 years ago. The program has shifted 
        from a commercial off-the-shelf procurement to one that has 
        required more than $500 million in development costs. Moreover, 
        because of cost growth and a schedule slip to fiscal year 2012, 
        the benefits that supported the initial acquisition are no 
        longer valid.
      The Fiscal Year 2004 Appropriations Conference Report directs our 
        office to review and validate the Agency's revised STARS 
        lifecycle cost estimates. We are encouraged that FAA has made 
        recent changes in the STARS program. To control cost growth, 
        FAA has developed a phased approach to STARS that will use a 
        fixed price contract and consider contractor performance before 
        moving to the next phase. Last Tuesday, FAA approved the first 
        phase limiting STARS to 50 locations. FAA is also developing a 
        business case to complete its terminal modernization program. 
        When FAA has completed its business case, we will review and 
        validate the cost estimates.
  --Avoiding long-term cost-plus contracts.--Our work on the cost, 
        schedule, and performance problems of 20 major FAA acquisitions 
        illustrates why the Agency needs to avoid entering into long-
        term cost-plus contracts before Agency requirements and user 
        needs are fully understood. Cost growth associated with 
        additional development work and changing requirements for both 
        STARS and the Wide Area Augmentation System was absorbed fully 
        by the government and ultimately the taxpayer.
      FAA is now undertaking a large and complex automation effort 
        through a long term, cost-plus contract called the En Route 
        Automation Modernization (ERAM) program, which FAA estimates 
        will cost about $2 billion between now and 2011. FAA expects to 
        spend over $200 million annually on the project beginning in 
        fiscal year 2005. ERAM is designed to replace the Host Computer 
        System, the central nervous system for facilities that manage 
        high-altitude traffic.
      One significant exception to programs with major cost overruns 
        with cost-plus contracts is the Advanced Technologies and 
        Oceanic Procedures program (ATOP), an effort to modernize FAA 
        facilities that manage air traffic over the Atlantic and 
        Pacific Oceans. Because FAA has relied on what is largely a 
        fixed price contract and kept requirements stable, the costs 
        associated with additional software development and correcting 
        software problems discovered during testing, until recently, 
        have been absorbed by the contractor.
      Due to software development problems and pending delays, FAA 
        modified the contract and increased its value by $11 million in 
        an effort to maintain the Agency's schedule for deploying the 
        new system to Oakland by the end of June. This is a modest 
        adjustment compared to what we have seen with other 
        modernization projects that relied on cost-plus contracts.
      While the $11 million can be accommodated in the current ATOP 
        cost baseline, the critical issue is what happens between now 
        and February 2005. This time frame is important because the 
        recent contract modification limits the contractor's 
        responsibility for paying to fix software problems FAA finds in 
        ATOP after February 28, 2005. FAA expects to complete work on 
        the initial version of ATOP software (required for Oakland) 
        shortly and plans to test the more advanced version of ATOP 
        software by the end of this year. Given the change in the 
        contract and tight time frames, it will be critical for FAA to 
        identify all software problems before February 28, 2005.
  --Improving contract management.--Last year, we reported that FAA's 
        management of cost-reimbursable contracts was deficient, lacked 
        accountability, and did not adequately protect against waste 
        and abuse. Our audits have found that FAA officials did not: 
        (1) obtain audits of billions of dollars in expenditures on 
        cost-reimbursable contracts; (2) ensure reliable government 
        cost estimates were prepared and used in evaluating contracts; 
        and, (3) properly account for billing and expenditures to 
        prevent overpayments. For example, our current audit work has 
        identified that FAA officials did not obtain audits of 17 cost-
        reimbursable contracts with a total value of $6.7 billion.
      In January 2004, when we rendered our opinion on the Department's 
        financial statements, we identified these deficiencies as a 
        material weakness, and FAA is implementing a detailed action 
        plan to correct the deficiencies. We are working with FAA to 
        ensure that these actions are fully implemented. We do want to 
        note that FAA achieved a ``clean'' opinion on its fiscal year 
        2003 financial statements.
                                airports
    Finally, funding for the airport improvement programs (AIP) has 
seen substantial increases over the past several years. FAA's AIP 
account has increased from $1.5 billion in 1996 to $3.5 billion in 
2005. This is on top of passenger facility charges (PFCs) that airports 
collect (up to $4.50 per passenger) that FAA estimates will generate 
over $2 billion in fees in 2004. FAA projections suggest that a similar 
amount will be collected in 2005.
    The increased amounts of AIP funding and PFC collections are 
directed by law toward airport-related projects, such as new runways. 
However, FAA also incurs costs to its other accounts in order to 
support many of the airport projects. For example, FAA's Facilities and 
Equipment (F&E) and Operations accounts bear the cost of air traffic 
related projects, such as new weather or instrument landing systems and 
the redesign of airspace to support new runways.
    An emerging issue for FAA's budget is whether or not airport funds 
should be used to support some air traffic control related projects. In 
its budget request, FAA observes that new systems once considered 
beneficial to FAA air traffic operations have evolved to provide 
significant benefits to airport operators and users. FAA's budget 
submission identifies several systems that should be considered for AIP 
funding instead of funding from the F&E account.
    Although AIP funds can be used for this purpose, the change would 
represent a shift in the allocation of budgetary resources. FAA 
estimates that this would impact the AIP account in fiscal year 2005 by 
about $30 million, but this number could grow as more capacity projects 
come on line. Accordingly, FAA needs to identify and quantify all the 
specific systems that will be needed to support new infrastructure 
projects and then identify the funding sources that will be used to pay 
for them.
    A longstanding problem that we continue to address through our work 
is diversion of airport revenues by airport sponsors or owners. We have 
been reviewing revenue diversions for over 13 years. Between 1991 and 
2000, our audits disclosed over $344 million in diverted revenue. Last 
year, we reported on revenue diversions at five large airports, 
including one airport whose sponsor, a local government agency, 
diverted about $40 million to projects not related to the airport.
    Our work shows that FAA's oversight of revenue diversions is 
limited. In the past, FAA has maintained that it did not have the 
resources to devote to this issue. We recently met with the Associate 
Administrator for Airports and members of her staff to discuss FAA's 
specific plans to increase the Agency's oversight of revenue 
diversions. We plan to meet next month to review progress and discuss 
how we can coordinate efforts. These are steps in the right direction; 
the key now is follow-through.
                         aviation safety issues
    In terms of safety, FAA and U.S. air carriers have maintained a 
remarkable safety record. The January 2003 Air Midwest crash in 
Charlotte was the only fatal commercial accident in the past 2 years. 
However, operational errors pose a significant safety risk, with an 
average of three operational errors per day and one serious error 
(those rated as high risk) every 7 days. In fiscal year 2003, the 
number of operational errors increased 12 percent to 1,186, or 125 more 
than the number of incidents that occurred in fiscal year 2002. 
Additionally, while runway incursions have continued to decline for a 
second year in a row, there is still an average of nearly 1 runway 
incursion per day and an average of 1 serious runway incursion every 11 
days (those incursions that barely avoided or had significant potential 
for a collision).


    As shown in the following table, while the total number of runway 
incursions has decreased, during the first 6 months of fiscal year 
2004, the most serious runway incursions have increased. Also, the 
total number of operational errors continue to increase, even though 
the most serious, or high severity, operational errors decreased during 
this same time period.

              RUNWAY INCURSIONS AND OPERATIONAL ERRORS--OCTOBER 1, 2003 THROUGH MARCH 31, 2004 \1\
----------------------------------------------------------------------------------------------------------------
                                                       Total Incidents               Most Serious Incidents
                                             -------------------------------------------------------------------
                                                Fiscal     Fiscal     Percent     Fiscal     Fiscal     Percent
                                              Year 2003  Year 2004    Change    Year 2003  Year 2004    Change
----------------------------------------------------------------------------------------------------------------
Runway Incursions...........................        165        157         (5)         13         18         38
Operational Errors..........................        495        511          3          27         21        (22)
----------------------------------------------------------------------------------------------------------------
Fiscal year 2004 information is preliminary as all incidents may not have received a final severity rating.
  Serious incidents for runway incursions include category A and B incidents. Serious incidents for operational
  errors include high-severity incidents.

    This past year, we also reported that improvements are needed in 
FAA's oversight of a growing trend toward air carrier use of outsourced 
maintenance facilities. While major air carriers outsourced 37 percent 
of their aircraft maintenance expense in 1996, the amount spent on 
outsourced maintenance increased to 47 percent of maintenance costs in 
2002. Yet, over 90 percent of FAA's inspections are still focused on 
in-house maintenance, leaving contract repair stations inadequately 
reviewed. In response to our audit, FAA agreed to develop a new process 
to identify repair stations that air carriers use to perform safety-
critical repairs and target inspector resources to those facilities.
                abating a trend of operating cost growth
    FAA is requesting $7.849 billion for its fiscal year 2005 operating 
budget, which is about $370 million above the fiscal year 2004 enacted 
amount of $7.479 billion. Operating costs represent the largest portion 
of FAA's fiscal year 2005 total budget, over 56 percent, whereas FAA's 
airports and capital accounts represent 25 percent and 18 percent 
respectively. As shown in the following graph, FAA's operating costs 
have been increasing substantially over the past 9 years.


    This past year Administrator Blakey and her staff have made notable 
progress in beginning the process of reining in FAA's history of 
operating cost growth. Several areas stand out in particular.
  --MOU's.--Last year, we reported that FAA and the National Air 
        Traffic Controllers Association (NATCA) had entered into 
        numerous sidebar agreements or Memoranda of Understanding 
        (MOU's). Many of those MOU's had significant cost and/or 
        operational impacts to the Agency, but we found that FAA had 
        virtually no controls over the process. This past year, FAA 
        developed new policies and procedures that, if properly 
        implemented, should significantly improve controls over MOU's. 
        As part of an agreement to extend the controllers' collective 
        bargaining agreement for another 2 years, FAA and NATCA also 
        rescinded or modified many of the most costly MOU's. For 
        example:
    --FAA and NATCA rescinded an MOU that allowed controllers 
            transferring to larger consolidated facilities to begin 
            earning the higher salaries associated with their new 
            positions substantially in advance of their transfer or 
            taking on new duties. At one location, controllers received 
            their full salary increases 1 year in advance of their 
            transfer (in some cases going from an annual salary of 
            around $55,000 to over $99,000). During that time, they 
            remained in their old location, controlling the same 
            airspace, and performing the same duties. At three 
            locations alone, we found FAA incurred over $2.2 million in 
            unnecessary one-time costs as a result of this MOU.
    --FAA and NATCA also renegotiated another MOU for a new free flight 
            tool that originally gave each controller two $250 cash 
            awards and a time-off award of 24 hours for meeting certain 
            training milestones on the new system. The MOU contained no 
            distinction of awards for individual contributions other 
            than coming to work and attending training. At six 
            facilities alone, this MOU resulted in FAA incurring 
            approximately $1.3 million in individual cash awards and 
            62,500 hours in time off, which is the equivalent of 
            approximately 30 full-time positions.
      However, one costly MOU that we identified last year was not 
        renegotiated. This MOU concerns ``Controller Incentive Pay'' 
        (CIP), which provides controllers at 110 locations with an 
        additional cost-of-living adjustment of between 1 and 10 
        percent, in addition to Government-wide locality pay. For 
        example, like all other Federal and FAA employees in the 
        Washington Metropolitan area, controllers receive 14.63 percent 
        in Government-wide locality pay (for Calendar Year 2004). 
        However, as a result of this MOU:
    --Controllers at Dulles International also receive 4.6 percent in 
            CIP;
    --Controllers at Reagan National also receive 3.3 percent in CIP;
    --Controllers at Andrews Air Force Base also receive 5.9 percent in 
            CIP; and
    --Controllers at Baltimore Washington International also receive 
            1.7 percent in CIP.
      In fiscal year 2003, this additional cost-of-living adjustment 
        cost FAA about $35.6 million.
  --Flight Service Stations.--Another area of progress this past year 
        is FAA's A-76 study of its flight services functions, which 
        provide general aviation pilots with aeronautical information 
        and services such as weather briefings, flight planning 
        assistance, and aeronautical notices. In December 2001, we 
        issued a report showing that FAA could save approximately $500 
        million over 7 years by consolidating its automated flight 
        service stations in conjunction with deployment of new flight 
        services software. In response, FAA began an A-76 study to 
        determine if flight services should be retained within the 
        government or contracted out.
      FAA has made strides in the process this past year. FAA plans to 
        review proposals from several contractors, as well as the 
        government's ``More Efficient Organization'' proposal, within 
        the next several months and believes it will be ready to make a 
        final determination by March 2005. A key challenge will be 
        completing those actions under what are already tight 
        timeframes. Keeping this process on track is important because 
        the potential for cost savings is significant. FAA is requiring 
        a 22 percent cost savings, or about $478 million, over 5 years 
        as a selection factor for determining if a proposal will be 
        considered.
  --Pay for Performance.--FAA also made progress in linking pay and 
        performance--a key tenet of FAA's personnel reform efforts. As 
        part of the 2-year extension of the controllers' agreement, FAA 
        and NATCA agreed to tie a portion of controllers' salary 
        increases to meeting four national performance metrics: (1) a 
        reduction in the number of operational errors; (2) a reduction 
        in the number of runway incursions; (3) improvements in arrival 
        efficiency rates; and (4) improvements in on-time performance.
      This now means that 78 percent of FAA's workforce will be on a 
        pay-for-performance plan, up from 36 percent last year at this 
        time. It is important to note, however, that in the case of 
        controllers, the performance increase represents a very small 
        percentage of their total annual pay increase. For each goal 
        reached, controllers will receive a pay increase of 0.2 percent 
        However, even if none of the performance goals are met, 
        controllers will still receive an average increase of 4.9 
        percent this year because of contractual requirements.
      Other FAA employees who are on other pay systems will receive 
        different pay increases. For example, non-bargaining unit 
        employees on the Agency's ``core compensation plan'' will 
        receive a 4.5 percent average pay increase. However, those 
        employees are still eligible to receive a performance increase, 
        which averages about 0.6 percent, based on an individual's job 
        performance and not on specific goals as in the case of 
        controllers.
  --FAA Review of Overtime and Sick Leave Usage.--In the past, our 
        office received several hotline complaints alleging that FAA 
        employees at five large facilities were abusing credit hours 
        and manipulating work schedules to increase overtime. When we 
        made FAA aware of the allegations, the Agency took little or no 
        action. Recently, however, we met with senior FAA officials who 
        briefed us on measures taken to identify and address the 
        allegations at two of the cited locations. According to FAA 
        managers, the actions taken during the previous fiscal year 
        have resulted in a $4 million reduction in personnel costs and 
        a 19 percent reduction in overtime costs. These actions appear 
        to be steps in the right direction, but it is unclear what 
        measures have been taken at the other FAA facilities identified 
        in the hotlines. Accordingly, we are initiating a review of the 
        measures planned and taken at each location cited in the 
        hotline complaints and will be issuing a report within the next 
        few months.
    Mr. Chairman, the actions taken by the Administrator and her staff 
this past year are encouraging. However, it is important to keep in 
mind that achieving significant reductions in operating costs 
represents a tremendous challenge. This is because salaries and 
benefits make up approximately 73 percent of FAA's operating budget or 
about $5.7 billion in fiscal year 2005.
    FAA's operating costs are further compounded by the fact that FAA 
has a very high average salary base. For example, last year, the 
average base salary for all FAA employees was over $87,000. We estimate 
that this year, the average base salary for controllers, FAA's largest 
workforce, will be about $111,000,\2\ which is exclusive of premium 
pay. Against FAA's high salary base, pay increases (which are a 
percentage of base pay) result in large dollar increases to FAA's 
operating costs. For example, FAA's fiscal year 2005 budget request of 
$7.8 billion for operations is a total increase of about $370 million 
over fiscal year 2004 appropriations. However, FAA estimates that 
approximately $200 million of the $370 million will be consumed by pay 
increases alone.
---------------------------------------------------------------------------
    \2\ Based on a 4.9 percent average increase, which does not take 
into account possible additional increases for meeting performance 
goals.
---------------------------------------------------------------------------
    Because FAA's salary base is relatively fixed, it is unlikely that 
significant reductions in operating cost growth can be achieved without 
substantial improvements in the Agency's workforce productivity. 
Initiatives such as new air traffic systems, technological 
improvements, efforts to redesign the National Airspace System, and 
consolidating locations all have the potential to significantly improve 
productivity. In the past, FAA has embarked on similar initiatives on a 
limited basis, but it was unable to demonstrate any credible gains in 
productivity partially because FAA did not have systems to accurately 
capture reliable cost and workforce-related data.
    Expected Increases in Controller Attrition.--A significant issue 
for FAA is the expected increase in controller attrition. Attrition in 
FAA's air traffic controller workforce is expected to rise sharply in 
upcoming years as controllers hired after the 1981 Professional Air 
Traffic Controllers Organization controllers' strike become eligible 
for retirement. FAA currently estimates that nearly 7,100 controllers 
could leave the Agency over the next 9 years (Fiscal Years 2004-2012). 
In contrast, FAA has only experienced total attrition of about 2,100 
controllers over the past 8 years (Fiscal Years 1996-2003).
    Whether FAA will need to replace all 7,100 controllers on a one-
for-one basis depends on many factors, including future air traffic 
levels, new technologies, and long-term initiatives that FAA 
undertakes. However, it is clear that as a result of the anticipated 
increases in attrition, FAA will begin hiring and training controllers 
at levels that the Agency has not experienced since the early 1980's.


    We have just completed an audit of FAA's process for placing and 
training air traffic controllers and will be issuing a report next 
month. We found that this is an area where additional management 
attention is needed. For example:
  --FAA has national estimates of expected attrition within the 
        controller workforce, but those estimates do not take into 
        account where vacancies will occur. It is almost certain that 
        many will be at some of the busiest and most critical 
        facilities within the National Airspace System.
  --While most locations we visited had estimates of attrition over the 
        next 2 years, they included different information in developing 
        those estimates. One facility only projected mandatory 
        retirements, another projected attrition for transfers but not 
        retirements, and another provided estimates on all types of 
        attrition (i.e., retirements, transfers, hardships, 
        resignations, and removals).
  --In addition, FAA does not currently have a selection process for 
        determining if newly hired controllers have the knowledge, 
        skills, and abilities to complete training and become certified 
        at the facility level of their assigned location.
  --FAA does not keep national statistics on the controller on-the-job 
        training (OJT) process, which is the longest portion of 
        controller training. At the locations we visited, we found the 
        overall time required for newly hired controllers to become 
        certified averaged 3.1 years but in some cases took as long as 
        7 years. To effectively manage the OJT process as hiring 
        increases, FAA will need data such as the time and costs 
        required to complete OJT, the number of training failures, and 
        delays in the process to benchmark against and improve the time 
        and costs associated with OJT.
    A substantial challenge for FAA will be to hire and train new 
controllers within a tightly constrained operating budget. FAA has 
recently made significant progress in this area by renegotiating 
several pay rules with NATCA that previously allowed some newly hired 
controllers to earn base salaries in excess of $79,000 while in 
training. The renegotiated rules now allow FAA to set newly hired 
controllers' salaries at levels that are more commensurate with an 
entry-level position (from $25,000 to $52,000), which should help FAA 
avoid higher costs as it begins hiring and training greater numbers of 
new controllers.
    One point worth noting, Mr. Chairman, is that new controllers will 
generally have lower base salaries than the retiring controllers they 
replace. Over time, this could help reduce FAA's average base salary 
and, in turn, help reduce FAA's operating cost growth. However, if FAA 
does not place new controllers where and when they are needed, the 
potential reductions in base salaries will be offset by lower 
productivity as a result of placing too many or too few controllers at 
individual facilities.
    To effectively manage the expected increase in controller 
attrition, FAA needs accurate cost and workforce data, which 
underscores the urgency of getting the Agency's cost accounting and 
labor distribution systems in place and operating effectively. The 
Chief Operating Officer for the Air Traffic Organization has committed 
to putting both of these systems in place. This past year, FAA has made 
some progress with its cost accounting system, but there has been very 
little progress in fielding the labor distribution system planned for 
air traffic employees. That system is critical for managing the 
expected wave of controller retirements.
  --Cost Accounting.--In 2003, FAA's cost accounting system was 
        partially operational in two of FAA's five lines of business. 
        FAA produced limited cost accounting information for the Air 
        Traffic Services line of business, a major component of the new 
        Air Traffic Organization, and for the Commercial Space 
        Transportation line of business. FAA made progress during the 
        year by assigning some overhead costs properly, but much more 
        needs to done. For example, FAA is unable to assign about $1.3 
        billion of costs to individual facilities. Until these costs 
        can be assigned, managers will lack the information they need 
        to determine the true cost of facility operations.
  --Labor Distribution.--CRU-X is the labor distribution system FAA 
        chose to track hours worked by air traffic employees. As 
        designed, CRU-X could have provided credible workforce data for 
        addressing concerns about controller staffing, related overtime 
        expenditures, and help determine how many controllers are 
        needed and where. However, CRU-X has not been deployed as 
        designed because of a September 2002 agreement between FAA and 
        NATCA that limited the system's capability to gather data 
        regarding workforce productivity. Specifically, the agreement 
        eliminated (1) requirements for controllers to sign in and out 
        of the system when arriving or leaving work, and (2) tracking 
        time spent by employees performing collateral duties.
      In February 2004, FAA provided NATCA with substantive changes 
        planned for the system and began negotiations with the union in 
        March. FAA and NATCA need to complete actions to resolve 
        internal control deficiencies with CRU-X and implement the 
        system as quickly as possible so the Agency and union have 
        objective data to determine how many controllers are needed and 
        where.
  bringing fiscal discipline and accountability to faa modernization 
                                efforts
    FAA is requesting $2.5 billion for the Facilities and Equipment 
account for fiscal year 2005. This represents a reduction of over $350 
million from last year's appropriated level of $2.86 billion and nearly 
$500 million less than the authorized level. Historically, FAA's 
modernization projects have experienced considerable cost growth, 
schedule slips, and shortfalls in performance.
    In the current budget environment, cost growth and schedule 
slippages experienced in the past are no longer affordable or 
sustainable. As the following chart shows, only 56 percent of FAA's 
$2.5 billion budget request for Facilities and Equipment is for 
developing and acquiring air traffic control modernization projects. 
The remaining funds are for salaries, FAA facilities, and mission 
support.


    Cost and schedule problems with ongoing modernization efforts have 
serious consequences because they result in postponed benefits (in 
terms of safety and capacity), the crowding out of other modernization 
projects, costly interim systems, or a reduction in units procured. In 
the past, the severity of these problems has been masked by the size of 
a modernization budget that either grew or stayed constant.
    Adjustments to FAA Modernization Projects.--FAA has reduced or 
eliminated funding in its fiscal year 2005 request for a number of 
modernization projects, including, the Local Area Augmentation System, 
Controller-Pilot Data Link Communications, and the Next Generation Air 
to Ground Communications System. These efforts were longer-term in 
nature and called for airspace users to purchase and install new 
avionics. Funding reductions also reflect an emphasis on near-term FAA 
infrastructure projects.
    These projects have merit but they face problems irrespective of 
funding that needed to be addressed with respect to misjudging 
technological maturity, unexpected cost growth, or concerns about how 
to move forward.
  --The Local Area Augmentation System (LAAS) is a new precision 
        landing and approach system. It was expected to cost $696 
        million and to be deployed in 2006, 4 years later than 
        originally planned. FAA is not requesting funds for LAAS in 
        fiscal year 2005 and will use funds from fiscal year 2004 to 
        continue work on the new system. In December 2002, we reported 
        that expectations with respect to cost, schedule, and 
        performance needed to be reset because the new landing system 
        was not as mature as FAA expected.\3\ Category I LAAS was 
        planned for 2006 and the more demanding CAT II/III LAAS is now 
        a research and development effort with uncertain completion 
        dates.\4\
---------------------------------------------------------------------------
    \3\ FAA Needs to Reset Expectations for LAAS Because Considerable 
Work Is Required Before It Can Be Deployed for Operational Use (AV-
2003-006, December 16, 2002).
    \4\ CAT I precision approach has a 200 foot ceiling/decision height 
and visibility of \1/2\ mile. CAT II precision approach has a 100 foot 
ceiling/decision height and visibility of \1/4\ mile. CAT III precision 
approach and landing has a decision height and visibility of less than 
100 feet down to the airport surface.
---------------------------------------------------------------------------
      Considerably more development work is required for LAAS than FAA 
        expected just a year ago. The key issue is how to ensure the 
        system will work as safely as intended. After assessing 
        contractor progress, FAA estimated that it could take up to 21 
        months and an additional $37 million for the contractor to 
        recover and complete just the first phase for LAAS.
  --Next Generation Air-to-Ground Communications System (NEXCOM) is an 
        effort to replace aging analog radios and foster the transition 
        to digital communications. The first segment of NEXCOM (new 
        radios and new ground infrastructure for digital 
        communications) was expected to cost $986 million. FAA is 
        requesting $31 million for NEXCOM in fiscal year 2005, $54 
        million less than last year's appropriated level of $85 
        million. FAA will move forward with replacing older radios (the 
        least complex element of the NEXCOM effort) but has postponed 
        making decisions about NEXCOM ground system development and is 
        re-evaluating its approach for modernizing the air to ground 
        communications. The full cost of implementing NEXCOM throughout 
        the NAS was uncertain but later segments were estimated to cost 
        $3.2 billion. Also, NEXCOM has been controversial with the 
        airlines because of FAA's preferred technology.
      FAA's decision to postpone decisions about NEXCOM gives the 
        Agency opportunities to develop a cost-effective approach for 
        meeting the air-to-ground communications needs of the National 
        Airspace System. While FAA replaces older radios, the Agency 
        needs to needs to determine how it will: (1) sustain existing 
        communications infrastructure; (2) address frequency congestion 
        problems in the short term; and, (3) meet the communications 
        needs of FAA and airspace users in the most cost-effective way.
  --Controller-Pilot Data Link Communications (CPDLC) is a new way for 
        controllers and pilots to share information that is analogous 
        to wireless email and considered an enabling technology for 
        Free Flight. FAA began using CPDLC at Miami Center in October 
        2002 and planned to deploy the system to other facilities that 
        manage high altitude traffic at a cost of $167 million. FAA 
        deferred these plans for expanding CPDLC last year. The 
        Conference report for the fiscal year 2004 Appropriations Act 
        directed our office to look into, among other things, the 
        circumstances leading to termination of the CPDLC program and 
        what control could have been put in place to avoid a program 
        failure of this type.
      We found that a number of factors contributed to FAA's decision, 
        including concerns about how quickly users would equip with new 
        avionics and the fact the approved program baseline of $167 
        million was no longer valid. FAA estimates that it would cost 
        $236.5 million for eight locations--an increase of $69 million 
        for fewer than half the locations initially planned.
      Another factor was the impact on the operations account, which is 
        already overburdened. CPDLC would have added $63 million in 
        cost to the operations account for, among other things, 
        controller training and overtime (for just eight locations), 
        and $20 million annually for the cost of data link messages. We 
        are continuing our work on CPDLC and will report back to this 
        committee later this year.
      We see positive signs that the Administrator and her team are 
        addressing problems with major acquisitions. However, there 
        should be no mistake that FAA's efforts are in the early stages 
        and a number of fundamental steps are needed. They include:
    --Developing reliable cost and schedule estimates,
    --Avoiding long-term cost-plus contracts, and
    --Establishing controls to prevent waste and abuse.
    Developing Reliable Cost and Schedule Estimates.--Last year, we 
reported that despite the benefits of acquisition reform granted in 
1996, cost growth and scheduled slips in modernization efforts are all 
too common. For example, we analyzed 20 major acquisition projects and 
found that 14 of these projects experienced cost growth of over $4.3 
billion (from $6.8 billion to $11.1 billion), which represents 
considerably more than the FAA's annual appropriation for modernizing 
the National Airspace System. Also, 13 of the 20 projects accounted for 
delays ranging from 1 to 7 years. FAA recognizes these problems and the 
Agency's strategic plan--Flight Plan 2004-2008--establishes a 
performance target so that 80 percent of critical acquisitions are both 
on schedule and within 10 percent of budget. This is an important step.
    A number of key modernization projects that have been delayed still 
do not have reliable cost and schedule baselines. Without better 
information, FAA cannot effectively plan, manage the modernization 
portfolio, or determine what is affordable. The following table 
provides information on selected acquisitions that do not have reliable 
cost and schedule baselines.

                          FOUR KEY PROJECTS NEEDING UPDATED COST AND SCHEDULE BASELINES
                                              [Dollars in Millions]
----------------------------------------------------------------------------------------------------------------
                                     Estimated Program                   Implementation Schedule
                                           Costs         Percent -------------------------------------- Schedule
             Program              ----------------------   Cost                                           Delay
                                    Original   Current    Growth       Original           Current         Years
----------------------------------------------------------------------------------------------------------------
Wide Area Augmentation System....     $892.4  \1\ $2,92      227  1998-2001........  2003-TBD \2\.....         5
                                                    2.4
Standard Terminal Automation           940.2    1.690.2       80  1998-2005........  2002-2012 \2\....         7
 Replacement System.
Airport Surveillance Radar-11....      743.3    1,040.0     39.9  2000-2005........  2003-2013........         8
Integrated Terminal Weather            276.1      283.7        3  2002-2003........  2003-2008........         5
 System.
----------------------------------------------------------------------------------------------------------------
\1\ This includes the cost to acquire geostationary satellites.
\2\ Costs and schedules are under review.

    Mr. Chairman, I would like to discuss three of these projects.
  --Standard Terminal Automation Replacement System (STARS) will supply 
        new controller displays and related computer equipment for 
        FAA's terminal facilities. FAA's official STARS acquisition 
        cost estimate has nearly doubled from $940 million to $1.69 
        billion.
      FAA has already obligated $1.1 billion through fiscal year 2003 
        but has only installed 20 systems, of which 19 are operational. 
        The Agency is currently reviewing its deployment plans. We 
        reported in September 2003 that STARS is not the same program 
        that was planned 8 years ago. The program has shifted from a 
        commercial off-the-shelf procurement to one that has required 
        more than $500 million in development costs. Moreover, because 
        of cost growth and a schedule slip to fiscal year 2012, the 
        benefits that supported the initial acquisition are no longer 
        valid. \5\ Due to STARS delays, FAA deployed Common Automated 
        Radar Terminal System (Common ARTS) hardware and software to 
        141 terminal facilities over the past 5 years.
---------------------------------------------------------------------------
    \5\ FAA Needs to Reevaluate STARS Costs and Consider Other 
Alternatives, AV-2003-058, September 9, 2003.
---------------------------------------------------------------------------
      In our 2003 report, we recommended that FAA select the most cost-
        effective and affordable strategy to complete terminal 
        modernization by augmenting STARS deployment with Common ARTS. 
        We estimated that implementing this approach would allow FAA to 
        put at least $220 million to better use. To date, the Agency 
        has not ruled out keeping some Common ARTS as an alternative if 
        STARS proves to be unaffordable or does not perform as 
        expected.
      FAA officials maintain that STARS has important capabilities, 
        such as ``Sensor Fusion,'' which is designed to merge data from 
        multiple radars on controllers' displays. However, FAA 
        continues to experience problems with the Sensor Fusion 
        software. We have not yet seen sufficient evidence to justify 
        FAA's conclusion that the capabilities of STARS are far 
        superior to the capabilities of Common ARTS, and both systems 
        are certified for use in the National Airspace System.
      The fiscal year 2004 Appropriations Conference Report directs our 
        office to review and validate the Agency's revised STARS 
        lifecycle cost estimates. We are encouraged that FAA has made 
        recent changes in the STARS program. To control cost growth, 
        FAA has developed a phased approach to STARS that will use a 
        fixed price contract and consider contractor performance before 
        moving to the next phase. Last Tuesday, FAA approved the first 
        phase, limiting STARS to 50 locations. FAA is also developing a 
        business case to complete its terminal modernization program. 
        When FAA has completed its business case, we will review and 
        validate the cost estimates.
  --The Wide Area Augmentation System (WAAS) is a new satellite-based 
        navigation system to enhance all phases of flight. The program 
        has a long history of uncertainty regarding how much the system 
        will cost, when it will be delivered, and what benefits can be 
        obtained. Limited WAAS services became available in July 2003, 
        but additional work is needed to expand WAAS coverage through 
        additional ground stations. FAA has obligated over $800 million 
        on WAAS and expects to spend $100 million on the new system in 
        fiscal year 2005.
      WAAS was expected to provide Category I performance to the 
        majority of the Nation's airports but will provide something 
        less when the system is deployed. Based on our discussions with 
        FAA, the subcommittee should expect to see a reduction in 
        overall WAAS baseline costs in the $300 to $400 million range 
        to reflect the fact that Agency will not pursue Category I 
        performance.
  --The Integrated Terminal Weather System (ITWS) provides air traffic 
        managers with a 20-minute forecast of weather conditions near 
        airports and can help the National Airspace System recover from 
        periods of bad weather. FAA initially planned to complete 
        deployment of 38 systems by 2003 at a cost of about $276 
        million, but production costs increased significantly from 
        $360,000 to $1 million per system. According to FAA officials, 
        the Agency now plans to establish new cost and schedule 
        parameters this April, and accelerate an ITWS enhancement (the 
        Convective Weather Forecast product) in response to our 
        December 2002 report.
    Avoiding Long-Term Cost-Plus Contracts.--Our work on the cost, 
schedule, and performance problems of 20 major FAA acquisitions 
illustrates why the Agency needs to avoid entering into long-term cost-
plus contracts before Agency requirements and user needs are fully 
understood. Cost growth associated with additional development work and 
changing requirements for both STARS and WAAS was absorbed fully by the 
government. In the future, FAA needs to use a more incremental approach 
to complex long-term efforts until the scope of work and development 
are clearly defined and rely more on fixed price contracts.
    FAA is now undertaking a large and complex automation effort 
through a long term, cost-plus contract called the En Route Automation 
Modernization (ERAM) program, which FAA estimates will cost about $2 
billion between now and 2011. FAA expects to spend over $240 million 
annually on the project beginning in fiscal year 2005. ERAM is designed 
to replace the Host Computer System, the central nervous system for 
facilities that manage high altitude traffic. The fiscal year 2004 
Appropriations Conference Report directs our office to look at 
executability of the program and identify program risks, including 
security.
    The following chart illustrates planned funding for ERAM and as 
well as funding profiles for STARS and WAAS, two projects that have 
been delayed for years and do not have reliable cost estimates.\6\ Any 
cost increases with these programs will have a cascading effect on 
other efforts and limit FAA's flexibility to begin new projects.
---------------------------------------------------------------------------
    \6\ STARS and WAAS funding profiles are currently under review by 
FAA.


    ERAM is the largest and most complex automation effort FAA has 
embarked on since the Advanced Automation System. We anticipate 
completing our first review of this complex program this year. At this 
stage, we see key ERAM program risks as: (1) an aggressive schedule; 
(2) complex software development and integration; and, (3) successfully 
managing a long-term cost-plus contract that is already valued at close 
to $1 billion. As FAA moves closer to the production phases of ERAM, 
the Agency should seek opportunities to use fixed-price contracting 
mechanisms.
    One significant exception to programs with major cost overruns is 
the Advanced Technologies and Oceanic Procedures program (ATOP), an 
effort to modernize FAA facilities that manage air traffic over the 
Atlantic and Pacific Oceans. \7\ This effort has experienced some 
serious and unexpected software development and testing problems. 
Problems are traceable to the fact that the contractor relied on non-
development software that could not meet FAA requirements.
---------------------------------------------------------------------------
    \7\ For additional details on ATOP, see Status Report on FAA's 
Advanced Technologies and Oceanic Procedures (report number AV-2004-
037, March 31, 2004).
---------------------------------------------------------------------------
    In June 2001, FAA awarded a $217 million contract for ATOP to 
provide oceanic air traffic systems. Since the contract was awarded, 
the contractor has experienced problems with software development and 
testing. As a result, the first phase of testing, known as factory 
acceptance testing, was completed 12 months behind schedule. In October 
2003, FAA began operational testing to determine whether the new 
automation system would perform as intended. This testing uncovered 
further software problems that forced FAA to halt testing of ATOP's air 
traffic management functions. FAA subsequently resumed and completed 
that round of testing and begin site acceptance testing in April 2004.
    FAA has relied on what is largely a fixed price contract and kept 
requirements stable. Consequently, the costs associated with additional 
software development and correcting software problems discovered during 
testing have been absorbed by the contractor--not the government. 
However, due to the software problems and pending delays, FAA decided 
to modify the contract in an effort to maintain the schedule to install 
the system in Oakland. The modification will expand the use of cost-
plus contract elements (including time and materials) and increase the 
value of the contract by approximately $11 million.
    While this $11 million adjustment is modest and can be accommodated 
in the current ATOP cost baseline, the critical issue is what happens 
between now and February 2005. This time frame is important because the 
recent contract modification limits the contractor's responsibility for 
paying to fix software problems FAA finds in ATOP after February 28, 
2005. According to FAA, after work on the initial version of ATOP 
software (required for Oakland) is complete, the Agency will test the 
more advanced version at its Atlantic City Technical Center by the end 
of this year. Given the change in the contract and tight time frames, 
it will be critical for FAA to identify all software problems before 
February 28, 2005.
    We will continue to monitor progress with ATOP. The Conference 
report accompanying the Appropriations Bill for fiscal year 2004 
directed our office to compare FAA's pursuit of oceanic automation 
capabilities to the experiences of NAVCanada and other oceanic air 
traffic service providers. We intend to begin work on this later this 
year.
    Improving Contract Management.--Last year, we reported that FAA's 
management of cost-reimbursable contracts was deficient, lacked 
accountability, and did not adequately protect against waste and abuse. 
Our audits have found that FAA officials did not: (1) obtain audits of 
billions of dollars in expenditures on cost-reimbursable contracts; (2) 
ensure reliable government cost estimates were prepared and used in 
evaluating contracts; and (3) properly account for billing and 
expenditures to prevent overpayments.
    For example, our current audit work has identified that FAA 
officials did not obtain audits of 17 cost reimbursable contracts with 
a total value of $6.7 billion. In addition, we reported that FAA 
officials did not ensure that contractor employees were qualified to do 
the work. For example, a contractor employee charged approximately 
$255,000 as a senior systems engineer, even though that individual had 
only a Bachelors of Arts Degree in Psychology, and his past work 
history indicated no experience in engineering.
    When we rendered our opinion on the Department's financial 
statements we identified these deficiencies as a material weakness, and 
FAA has developed and begun implementation of a detailed action plan to 
correct the deficiencies. For example, FAA has made progress in 
reducing the backlog of 459 completed contracts by closing out 279 
contracts valued at $2.55 billion. In addition, FAA is providing 
adequate funding to perform cost-incurred audits of contract 
expenditures. Congress provided $3 million in fiscal year 2004 funds 
for this purpose, and FAA is establishing procedures to ensure the 
funds are applied effectively by focusing on larger contracts.
    FAA is also establishing a centralized control in FAA headquarters 
to track the status of all completed and ongoing cost reimbursable 
contracts in order to meet Congressional direction to audit 100 percent 
of contracts over $100 million and 15 percent of contracts less than 
$100 million. We are working with FAA to ensure that these plans are 
implemented.
                         airport funding issues
    Funding for the airport improvement programs (AIP) has seen 
substantial increases over the past several years. FAA's AIP account 
has increased from $1.5 billion in 1996 to $3.5 billion in 2005. This 
is on top of passenger facility charges (PFCs) that airports collect. 
The maximum amount allowed has increased from $3.00 to $4.50 per 
passenger, and FAA estimates that PFCs will generate over $2 billion in 
fees in 2004. FAA projections suggest that a similar amount will be 
collected in 2005.
    The following chart illustrates funding levels for FAA's airports, 
operations, and facilities and equipment accounts from fiscal year 1996 
through fiscal year 2005. It shows that AIP is taking up an increasing 
share of FAA's overall budget. For example, in fiscal year 1996 AIP 
made up 18 percent of FAA's total budget whereas in fiscal year 2005 
AIP represents 25 percent of the Agency's total budget.


    Emerging Issue for AIP.--The increased amounts of AIP funding and 
PFC collections are directed by law toward airport-related projects, 
such as new runways. However, FAA also incurs costs to its other 
accounts in order to support many of the airport projects. For example, 
FAA's Facilities and Equipment (F&E) and Operations accounts bear the 
cost of air traffic related projects such as new weather or instrument 
landing systems and redesigning airspace in order to support new 
runways.
    An emerging issue for FAA's budget is whether or not airport funds 
should be used to support some air traffic control related projects. In 
its budget request, FAA observes that new systems once considered 
beneficial to FAA air traffic operations have evolved to provide 
significant benefits to airport operators and users. FAA's budget 
submission identifies several systems that should be considered for AIP 
funding instead of funding from the F&E account.
    Although AIP funds can be used for this purpose, the change would 
represent a shift in the allocation of budgetary resources. FAA 
estimates that this would affect the AIP account in fiscal year 2005 by 
about $30 million but this number could grow as more capacity projects 
come on line. Accordingly, FAA needs to identify and quantify all the 
specific systems that will be needed to support new infrastructure 
projects and then identify the funding sources that will be used to pay 
for them.
    Revenue Diversions.--A longstanding problem that we continue to 
address through our work is diversion of airport revenues by airport 
sponsors or owners and a lack of effective FAA oversight. It is a 
matter of law that all airports receiving Federal assistance use 
airport revenues for the capital or operating costs of an airport. Any 
other use of airport revenue is considered a ``revenue diversion.'' 
Examples of common revenue diversions include charges to the airport 
for property or services that were not provided, indirect costs such as 
promotional activities that were improperly allocated to the airport, 
and payments of less than fair market value for use of airport 
property.
    We have been reviewing revenue diversions for over 13 years. 
Between 1991 and 2000, our audits disclosed over $344 million in 
diverted revenue. Last year, we reported on revenue diversions at five 
large airports, including one airport whose sponsor, a local government 
agency, diverted about $40 million to other projects not related to the 
airport. We also just completed an audit at San Francisco International 
last month which disclosed about $12 million in diverted revenue. 
Additionally, we have begun reviews regarding potential revenue 
diversion and contracting irregularities at Los Angeles International 
Airport.
    Our work shows that FAA's oversight of revenue diversions is 
limited. In the past, FAA has maintained that it did not have the 
resources to devote to this issue. We recently met with the Associate 
Administrator for Airports and members of her staff to discuss FAA's 
specific plans to increase the Agency's oversight of revenue 
diversions. We plan to meet next month to review progress and discuss 
how we can coordinate efforts. Clearly, these are steps in the right 
direction, but the key now is follow-through.
             being positioned for a rebound in air traffic
    Mr. Chairman, our testimony this morning has focused primarily on 
cost issues within FAA's budget. However, an important issue for this 
subcommittee is the fact that air traffic levels are beginning to 
rebound. While domestic traffic levels still fall short of the peaks 
experienced in 2000, there is no question that traffic is rebounding. 
In February 2004, the number of revenue passenger enplanements (35.1 
million) was down 12 percent from February 2000, but this represents a 
5 percent growth over enplanements in February 2003 (33.3 million). 
While this is good news for the airlines, the increased traffic levels 
are bringing pressure to bear on our Nation's airports, air traffic 
control systems, and the traveling public.


    Aircraft operations have also increased significantly since 
September 2001. In February 2004, domestic operations handled by Air 
Route Traffic Control Centers were less than 1 percent below the 
operations handled in February 2000. The 3.63 million February 2004 
operations represented nearly 11 percent growth over operations handled 
in February 2003.


    While systemwide operations in February 2004 were slightly down 
from February 2000, the story is very different on an airport-by-
airport basis. In 13 of the 31 largest airports, including some of 
those that experienced serious delays in 2000, the number of scheduled 
flights in March 2004 actually exceeded the number of scheduled flights 
in March 2000. For example, at Denver International, the number of 
flights scheduled for March 2004 exceeded March 2000 schedules by 10 
percent and at Chicago O'Hare, scheduled flights in March exceeded 2000 
levels by 9 percent.
    In 11 of the 13 airports where March 2004 scheduled flights 
exceeded March 2000 levels, the number of available seats scheduled 
still lagged behind the number of available seats offered in March 
2000. This is an indication, at least in part, of how network carriers 
are using regional jets in the place of narrow-body jets to connect 
traffic to the network hubs.
    For example, in Cincinnati, a major Delta hub, scheduled flights in 
March 2004 were 11.5 percent higher than in March 2000, while available 
seats were down 7.7 percent. During this same period, regional jets, as 
a percentage of all aircraft operations in Cincinnati, grew from 53.8 
percent to 72.3 percent. Overall, the number of flights scheduled to be 
operated by regional jets in March 2004 was 134 percent greater than in 
March 2000.
    The growth in aircraft operations, especially at some of what have 
historically been our Nation's busiest airports creates a situation 
that merits careful monitoring. Although systemwide arrival delays in 
January and February 2004 were still 22 percent below those experienced 
in the first 2 months of 2000, the number is up 33 percent from the 
same period in 2003.
    In some individual markets, the growth is particularly pronounced. 
At Chicago O'Hare, arrival delays during the month of March 2004 
represented a 74 percent increase over delays during the same period in 
2003, down from the 90 percent increase during the first 2 months of 
2004. At Dallas-Fort Worth, arrival delays in January and February 
combined were up 80 percent over the same period in 2003.


    The Department and FAA are aware of this growth in delays and the 
potential near-term affects on the quality of air transportation 
service if the growth goes unchecked. The subcommittee should also 
follow the situation closely. It is unlikely that the situation will 
reach the level of widespread system failures we experienced in the 
summer of 2000, but it is possible that some airports could experience 
disruptions in service. The FAA and the Department have been working 
with the industry to identify potential solutions to delay problems 
that might occur this summer such as high-altitude express lanes and 
voluntary schedule reductions.
    One situation that bears watching, in particular, is the expected 
service growth at Washington's Dulles Airport. In June, when 
Independence Air is launched by former regional carrier Atlantic Coast 
Airlines as a new low-fare carrier, traffic at Dulles will increase 
significantly. Executives at Independence Air anticipate operating 
between 200 and 300 daily departures primarily between Dulles and East 
Coast destinations.
    Assuming that United does not reduce service in any of the markets 
it had previously served using Atlantic Coast Airlines as a regional 
partner--and it has made no indications that it plans to do so--daily 
aircraft operations at Dulles could increase by more than 50 percent 
this summer. In addition to airside congestion, there are concerns with 
airport terminal services, including the resources needed to process a 
significantly increased number of passengers through security 
checkpoints.
    That concludes my statement,\8\ Mr. Chairman. I would be pleased to 
address any questions you or other members of the subcommittee might 
have.
---------------------------------------------------------------------------
    \8\ This testimony was conducted in accordance with Government 
Auditing Standards prescribed by the Comptroller General of the United 
States. The work supporting this testimony was based on prior and 
ongoing audits conducted by the Office of Inspector General. We updated 
material to reflect current conditions or to reflect fiscal year 2005 
budget requests as necessary.
---------------------------------------------------------------------------
                                 ______
                                 
  attachment 1.--related office of inspector general reviews 1998-2004
Operations
    Using CRU-X to Capture Official Time Spent on Representational 
Activities--AV-2004-033, February 13, 2004
    FAA's Management of Memorandums of Understanding with the National 
Air Traffic Controllers Association--AV-2003-059, September 12, 2003
    Safety, Cost and Operational Metrics of the Federal Aviation 
Administration's Visual Flight Rule Towers--AV-2003-057, September 4, 
2003
    FAA's Oversight of Workers' Compensation Claims in Air Traffic 
Services--AV-2003-011, January 17, 2003
    FAA's National Airspace System Implementation Support Contract--AV-
2003-002, November 15, 2002
    FAA's Air Traffic Services' Policy of Granting Time Off Work to 
Settle Grievances--CC-2002-048, December 14, 2001
    Subcontracting Issues of the Contract Tower Program--AV-2002-068, 
December 14, 2001
    Automated Flight Service Stations: Significant Benefits Could be 
Realized by Consolidating AFSS Sites in Conjunction with Deployment of 
OASIS--AV-2002-064, December 7, 2001
    Compensation Issues Concerning Air Traffic Managers, Supervisors, 
and Specialists--AV-2001-064, June 15, 2001
    Technical Support Services Contract: Better Management Oversight 
and Sound Business Practices Are Needed--2000-127, September 28, 2000
    Contract Towers: Observations on FAA's Study of Expanding the 
Program--AV-2000-079, April 12, 2000
    Staffing: Supervisory Reductions will Require Enhancements in FAA's 
Controller-in-Charge Policy--AV-1999-020, November 16, 1998
    Personnel Reform: Recent Actions Represent Progress but Further 
Effort is Needed to Achieve Comprehensive Change--AV-1998-214, 
September 30, 1998
    Liaison and Familiarization Training--AV-1998-170, August 3, 1998
Acquisition and Modernization
    FAA's Advanced Technologies and Oceanic Procedures--AV-2004-037, 
March 31, 2004
    FAA Needs to Reevaluate STARS Costs and Consider Other 
Alternatives--AV-2003-058, September 10, 2003
    Status of FAA's Major Acquisitions--AV-2003-045, June 27, 2003
    Integrated Terminal Weather System: Important Decisions Must Be 
Made on the Deployment Strategy--AV-2003-009, December 20, 2002
    FAA's Progress in Developing and Deploying the Local Area 
Augmentation System--AV-2003-006, December 18, 2002
    Follow-up Memo to FAA on STARS Acquisition--CC-2002-087, June 3, 
2002
    Letter Response to Senator Richard Shelby on FAA's Advanced 
Technologies and Oceanic Procedures (ATOP)--CC-2001-210, April 12, 2002
    Status Report on the Standard Terminal Automation Replacement 
System--AV-2001-067, July 3, 2001
    Efforts to Develop and Deploy the Standard Terminal Automation 
Replacement System--AV-2001-048, March 30, 2001
Aviation Safety
    Review of Air Carriers' Use of Aircraft Repair Stations--AV-2003-
047, July 8, 2003
    Operational Errors and Runway Incursions--AV-2003-040, April 3, 
2003
    Air Transportation Oversight System (ATOS)--AV-2002-088, April 8, 
2002
    Oversight of FAA's Aircraft Maintenance, Continuing Analysis, and 
Surveillance Systems--AV-2002-066, December 12, 2001
    Further Delays in Implementing Occupational Safety and Health 
Standards for Flight Attendants Are Likely--AV-2001-102, September 26, 
2001
    Despite Significant Management Focus, Further Actions Are Needed To 
Reduce Runway Incursions--AV-2001-066, June 26, 2001
Airports
    Revenue Diversions at San Francisco International Airport--SC-2004-
038, March 31, 2004
    Oversight of Airport Revenue--AV-2003-030, March 20, 2003
    These reports can be reviewed on the OIG website at http://
www.oig.dot.gov.

    Senator Shelby. Senator Stevens, do you have an opening 
statement?
    Senator Stevens. I apologize for being late. There are too 
many other meetings, but I am happy to see the witnesses here 
today and I will have some questions when the time comes.
    Senator Shelby. Thank you.
    Senator Murray. Mr. Chairman, before you go to questions I 
just want to recognize that our National Teacher of the Year 
has joined us in the audience today, Dennis Griner from Palouse 
High School in Palouse, Washington, and we are proud to see you 
here today.
    Senator Shelby. Thank you, Senator Murray.

                                 SAFETY

    Safety is, and I believe must always remain, FAA's top 
priority. Madam Administrator, I know how serious your 
commitment to improving aviation safety is. What are your top 
safety priorities for fiscal year 2005? You are doing well, but 
you want to do better.
    Ms. Blakey. You are absolutely right. One of the things 
that we are most committed to is working with our carriers, the 
airline industry, to develop a safety system approach that 
means we are all looking at risk factors. That we are all 
looking at the way we should manage together that potential 
risk, and not wait till an accident or incident happens, but 
really getting in front of it.
    Senator Shelby. What is your biggest safety concern?
    Ms. Blakey. Well, I think right now what we would like to 
do is marry up data and marry up information in a way that we 
have never done before. For example, we have two systems out 
there that are great. One is called Arrival Sequencing Program 
(ASP), which gives pilots, dispatchers, all of those who are 
operating the system a way to voluntarily say something went 
wrong here. They can do it without penalty and that gives us 
again access to information we would not have from their 
perspective. You know, a dispatcher who says later on, I 
probably should not have done that--a little too close to scud-
running; a pilot who says yes, I probably did make an error 
there that is worth taking note.
    We also have a way now, a program called Flight Operational 
Quality Assurance (FOQA), which takes data, routine data off 
the flight data recorder and lets us analyze that and see what 
the machine is doing, see what is happening. We think we need 
to marry that kind of information together and as an industry 
and as the FAA, really work to make sure that we are inspecting 
the right things, analyzing the right things, making training 
changes, and doing air traffic control procedures better. All 
of this will help.

                        FAA'S OPERATIONS ACCOUNT

    Senator Shelby. The FAA's operations account has witnessed 
significant increases over the years. Could both of you 
identify the major cost drivers of the Operations 
appropriation? First, Ms. Blakey.

                            PERSONNEL COSTS

    Ms. Blakey. Mr. Chairman, I think the Inspector General has 
it right. There is no question about the fact that the major 
cost driver is our personnel costs. After all, that is what the 
FAA is about. It is an operating agency and about 80 percent of 
that operations cost goes to personnel. Also there are a lot of 
contractual obligations that limit the flexibility we have in 
controlling costs. I would also say that the way we have gone 
about modernization has increased capacity and added additional 
personnel requirements. It was not done to drive down 
operations costs. It was done with an eye to increasing 
capacity in the system, with more nav aids, with more 
technology, which means more things to maintain and more people 
to operate them. All of that has, as we have overlaid better 
and better programs, increased safety, but that takes people 
and certainly that has driven the costs up, as well.

                                 MOU'S

    Senator Shelby. Last year it became clear that FAA's 
oversight of MOU's was seriously inadequate. The situation has 
been well documented by the Inspector General, Mr. Mead. While 
MOU's often serve useful purposes, they also have cost 
implications. In the 2004 Appropriations Act, Congress required 
the FAA to establish a central database on all MOU's. Has this 
been accomplished? And what was the total budgetary impact of 
the MOU's and what processes of control have been put in place?
    Do you want to answer that first, Mr. Mead?
    Mr. Mead. Well, we are not at an end state yet. I cannot 
say exactly what the total budgetary impact is but I would put 
the figure probably that the steps they have taken may have 
avoided costs something on the order of $50 million. They have 
a much better handle on having an inventory of these and they 
have put the brakes on entering into new ones, at least ones 
where the Administrator would not even know about them.
    I think there are one or two more out there. One that I 
think is particularly interesting is all Federal employees get 
locality pay and the controllers entered into a memorandum of 
understanding with FAA so they get something called controller 
incentive pay, which is on top of that at 110 locations. That 
one item is running FAA something on the neighborhood of $25 to 
$30 million per year. They have a very generous pay package.
    Senator Shelby. What is your recommendation to get control 
of the process?
    Mr. Mead. I think FAA is doing the right things and has the 
right things. I think right now I would have no additional 
recommendations except that they continue doing what they are 
doing on the memoranda of understandings.
    The issue on the growth in the operations account, you can 
expect it to continue. It will not be as marked as it has been 
in the past but it is still going to continue because you have 
such a high salary base there. If you give a 4 percent or 5 
percent pay increase on a salary base of, say, somebody who is 
getting $135,000, that is a lot more every year compounded than 
adding 5 percent every year on top of a salary base of $75,000 
or $80,000.
    Senator Shelby. It adds up.
    Mr. Mead. Yes, sir, it does.

                            MODERNIZING NAS

    Senator Shelby. The FAA has a poor track record of 
modernizing the National Airspace System. The GAO and 
Transportation Inspector General have published many reports on 
projects that are late, overbudget, and cannot deliver as 
promised. Madam Administrator, what are you doing to address 
this long-standing problem?
    Ms. Blakey. Well, I will tell you. As we have analyzed 
this, I think we need to take a very different approach and 
that is what our COO Russ Chew, and the entire group that is 
managing these accounts is committed to. What I think has been 
a really tremendous mistake in the past is the FAA took the 
approach that somehow you could predict the cost of systems 
that were going to be deployed over 10 years going where no one 
had gone before. It is one thing if you are asked to talk about 
a capital investment where you are pulling commercial off-the-
shelf technology. You then would know how many, and know 
exactly where systems are going.
    That was not the case with the FAA. We are talking about 
what essentially were research programs, but the FAA committed 
to figures in the baseline that would go out as many as a dozen 
years. The question of how long it would take to get the 
fundamental technology down, then what it was going to cost in 
a prototype stage to actually build it and deploy it was not 
addressed. Where should it really go? All the while you have 
changing traffic patterns and a whole field operation out 
there.
    Here is what we are going to do. We are going to call 
research ``research''. We are going to chunk these projects, if 
you will, into much smaller stages where we commit to the 
initial R&D as much as possible under firm, fixed-price 
contracts. We will try our best to hold to that fixed price. We 
will also do it in stages. We will, therefore, be making the 
financial investments in stages so that we do not get in over 
our head. We can continue to analyze the benefits, and as 
circumstances change over 10 years, we are able to say ``wait a 
minute'', let us not put all the things in facilities that we 
had planned. We really can fine-tune modernization over time, 
and I think get much better value for taxpayer dollars.
    This is what we are doing with the STARS program, one of 
our major programs that we feel we have to take a very 
different approach.
    Senator Shelby. Mr. Mead.
    Mr. Mead. Yes, I think the most important thing in these 
contracts where we do not know where we are buying and some of 
these are concepts, to go into a 10-year contract and say the 
pricing mechanism will be just bill me whatever it takes, with 
no cap--we should not be doing that. It should scare this 
committee. It scares me.
    Senator Shelby. It does scare us. That is why I keep asking 
this line of questioning.
    Mr. Mead. Every one of the programs that is in trouble 
falls into that pattern where it has been that type of 
contract.
    Senator Shelby. How are we going to deal with it? You are 
the Inspector General; we are the appropriators. We are working 
with you and the Administrator to make sure this money is spent 
well for the right purpose.
    Mr. Mead. I think you should insist on more fixed-price 
contracts coming out of FAA. I think you would see some rapid 
improvements. That single move, I think, would change a lot. 
And what the Administrator says, too, about research and 
development should be called research and development.
    Senator Shelby. It should be called what it is, should it 
not?
    Mr. Mead. We should call it like it is, yes, sir.

                              FIXED PRICE

    Ms. Blakey. Mr. Chairman, let me also add on the firm, 
fixed price, I think the Inspector General and I agree on this 
in concept. What I would say, though, is that we cannot expect 
a corporate entity of any sort to assume all the risk without 
dramatically increasing what they are willing to commit to on a 
firm, fixed price, which goes back to let us take it in small 
stages; let us go where we can all see what this is likely to 
cost. Do not ask them to commit to something where they are 
assuming enormous risk or where they are putting in huge costs.
    Senator Shelby. Well, you have to be specific in what you 
want. Or, if you do not know what you want or what you are 
trying to improve, how can you contract for it, other than 
learning as you go through a cost-plus acquisition. We cannot 
always afford that. I do not believe that is the way to operate 
the FAA, do you?
    Ms. Blakey. I do not, either. And one of the things that we 
have done in some of our capital programs is we have all 
accepted what we and our customers want. It is fine to say we 
want a system with certain capabilities but the question of how 
do you get the technology to do that--we have not always been 
realistic about how difficult that was going to be. And 
frankly, in some of the areas where we have cut back on the F&E 
programs, technology was the problem.
    Mr. Mead. I have noticed over the years they pretend that 
they know what they are buying and you will have the vendors 
come in and say yes, it is off the shelf; we are going to get 
it off-the-shelf; we know what you want. But then when you look 
down into the details of the contract, it is kind of open-
ended; it is cost-plus. That is a sure give away nine times out 
of ten.
    Senator Shelby. That is suicide for the appropriators, too, 
because if we do not know what things are going to cost, how do 
we watch the money?
    Senator Murray.

                                  F&E

    Senator Murray. Thank you, Mr. Chairman.
    Ms. Blakey, the budget request for the FAA's Facilities and 
Equipment account is nearly $400 million below last year's 
level and represents the largest cut in the entire Department 
of Transportation budget. In fact, when you look at the Bush 
Administration's multi-year budget, it says that the funding 
for air traffic control modernization will be $2 billion lower 
than the amount authorized in the Vision-100 bill.
    When Secretary Mineta came before our subcommittee a couple 
of weeks ago, he explained those cuts by saying there was a 
need to reevaluate those programs from a priority perspective. 
Since your 2005 budget reduced by more than 50 percent programs 
that were designed to prevent runway incursions and improve 
air-to-ground communications, should we assume that those goals 
are no longer a priority for the FAA?

                          SAFETY AND CAPACITY

    Ms. Blakey. No, those goals are absolutely in place. We are 
going to work very hard to make certain that we address our 
overall safety goals and capacity. I would tell you that this 
budget supports our safety and capacity goals. It is something 
that we are going to as we move forward to make certain that we 
support core programs that are delivered in those areas. This 
budget does that.
    It is true we are not in expansive times. Looking at the 
Aviation Trust Fund and looking at other constraints, we are 
dealing with an industry that is not able to equip like we had 
at one point hoped and expected. Things have changed. But the 
commitments that we have made in our capital account go to 
capitalizing on those programs, which at this point, the 
research and development is done. We are at the implementation 
stage. We do need to move ahead with them. And those programs 
that really are R&D, they are not ready for implementation and 
the huge costs that go with implementation. That is what we 
have tried to recognize here.
    Senator Murray. Just last week the FAA's air traffic 
control infrastructure experienced a power outage in Los 
Angeles and a computer crash in Kansas. In Los Angeles, they 
said that it took nearly 3 hours to get all the communication 
systems back on line. Eighty flights were delayed. Two 
airplanes violated FAA's safety standards by flying too close 
together. And in Kansas, FAA technicians in the operations 
control center and the field were left unable to electronically 
communicate with each other for almost 12 hours. Can you assure 
us that this is not a preview of what we can expect to see with 
the $400 million cut to the air traffic control modernization 
budget?

                           NETWORK OF SYSTEMS

    Ms. Blakey. You know, the FAA does a remarkably good job at 
keeping on line a huge network of systems. So every now and 
then something occurs and the news media made a good bit out of 
something that actually was not as severe as the papers 
characterized it in terms of Los Angeles. It does catch 
people's attention.
    But I would have to tell you that our ongoing ability to 
maintain and support our existing systems and network is a very 
high priority, and it is something that you will continue to 
see reflected in our budget.
    Senator Murray. Mr. Mead, do you see any linkage between 
the overall funding level for modernization of the ATC system 
and the frequency of system crashes and other ATC outages like 
I just mentioned?
    Mr. Mead. No, I do not think I do. That is because if you 
look back about 3 or 4 years, these outages were much more 
frequent. We were reading about them almost every week and they 
were all over the country. Actually the trend line shows that 
they are getting better. But when they happen you wonder why 
did they happen and how can we get the recovery back as quickly 
as possible?

                         MAINTENANCE WORKFORCE

    I would say that the maintenance workforce at FAA and how 
you are going to provide maintenance, I think that is an area 
that bears watching because the way the operations account is 
structured, much of the growth in it is going to cover the air 
traffic controllers, not much will go to maintenance 
technicians. Your salaries in that area have a crowd-out 
influence on other elements of that account and the maintenance 
technicians are one other element of the account.
    Ms. Blakey. One thing I would say about this, and this 
really is a compliment to the vision of this committee and the 
Congress in general. The investments you have made in 
modernization have paid off in this area. We have seen a very 
significantly improved picture because the equipment is newer 
and much more reliable. It can be handled in many cases by 
remote maintenance, scheduled maintenance, which is obviously 
much more efficient than having to send folks out in the middle 
of the night on something that is a last-minute emergency. That 
really has made a very big difference, the fact that it is much 
more reliable, much more situationally situated where we can do 
it and do it well. So I think that we have to realize that the 
picture has changed. We are very committed to training our 
maintenance workforce not only for the challenges we have right 
now, but also to look at specific situations to make sure what 
happened here, what we are going to do to fix it to make sure 
it does not happen the next time. The second thing is we need 
to train people more for the upcoming systems, which are much 
more software-intensive, so that we have people who are well 
situated for the equipment of the future.
    Senator Murray. Well, let me ask about maintenance, because 
on March 1 a Federal arbitrator ruled that the FAA has not met 
the minimum staffing levels needed for the agency's air traffic 
control maintenance functions based on the agreement that was 
reached in fiscal year 2000 between the FAA and the union that 
represents the airway facilities technicians. The arbitrator 
ruled that the FAA must immediately take action to raise the 
total number of technical employees to a minimum staffing level 
of 6,100. How was this allowed to happen and when was the last 
time the FAA met that staffing level of 6,100?
    Senator Stevens. Who made that ruling?
    Senator Murray. A Federal arbitrator.
    Ms. Blakey. This has been a longstanding difference of view 
between ourselves and PASS, our union. So we really do see that 
figure differently. We believe we have been meeting that 6,100. 
It all goes to a question of how you count some of our 
personnel and centers, and we believe they should be counted in 
that figure. That said, we are looking at the situation now as 
to whether we should appeal this or whether we should take 
steps to increase the numbers there. This is a very recent 
ruling.
    Senator Murray. It was March 1. So can you give us a time 
line of when you expect to move forward on that?
    Ms. Blakey. I would be very happy to get back to you. I 
have not consulted with the folks who are actually working that 
arbitration, so let me find out and I will get back to you.
    [The information follows:]

    Timeline to move forward on the March 1 ruling on staffing for air 
traffic control maintenance functions based on the fiscal year 2000 
FAA/PASS agreement.--The FAA has appealed the arbitration award that 
interpreted an agreement between FAA and PASS on systems maintenance 
staffing levels. The primary issue in the dispute was what specific 
positions should be counted towards the agreed on staffing number. FAA 
believes that the award is inconsistent with the Federal Service Labor-
Management Relations Statute that governs labor relations in the 
Federal Government. The appeal acts as a stay of the award until the 
Federal Labor Relations Authority (FLRA) issues a decision on the 
appeal. There is no fixed time for FLRA to issue a decision. The FAA 
will comply with whatever decision the FLRA issues. In the meantime, 
the FAA will continue to monitor maintenance staffing levels in 
accordance with resource constraints and operational needs.

                         CONTROLLER RETIREMENTS

    Senator Murray. The issue of controller retirements is not 
a new one. I was dismayed last year when our conference 
committee was required to accept the House's proposal to reject 
the FAA's request for 328 more controllers. While the 
conference report did not provide the requested funding to grow 
the existing number of controllers, it certainly assumed that 
there would be money to hire replacements for the usual number 
of controllers that leave or retire over the course of a year.
    Ms. Blakey, as I mentioned in my opening statement, the 
number of air traffic controllers at our 24 en route centers is 
747 controllers or 10 percent below the level called for under 
the FAA's own staffing standard. That shortfall has worsened by 
almost 100 controllers in just the last year. In fact, all but 
four of the FAA's en route centers are below the staffing 
standard and some are below by as much as 30 percent. Is your 
agency promptly hiring enough controllers to replace the ones 
that are retiring or leaving the system?
    Ms. Blakey. The picture on the number of controllers FAA 
has in terms of our staffing needs is complicated. It is 
important to know at the beginning that in point of fact, when 
you take our controller workforce as a whole, we are well above 
our staffing standard. Currently I can give you the figures. We 
have on board 15,428 controllers. The staffing standard calls 
for 15,136. The question is are they in the right places? We 
are talking about our centers. It is true that only one of our 
centers--and the way the staffing standard operates, it says 
that you should have a set number within plus or minus 10 
percent, so there is a fair latitude there and that is because 
it is hard--they differ a lot--to get it exact. We are looking 
at some of the centers where we believe we need to address 
that. Oakland is one, for example. Oakland, though, is 
complicated because it has historically been hard to staff. It 
is not where a lot of people have wanted to go for a variety of 
reasons. So some of these have issues that are not so much a 
question of resources; they are a question of trying to figure 
out how we bring people in who both want to be there and who 
qualify to be there. Now another indicator, besides these 
staffing standards, which are sort of mathematical formulas, if 
you will, about how many people we need----
    Senator Murray. So you do not think those are good 
standards?
    Ms. Blakey. They are a standard. Another way to look at it, 
though, is how is your overtime doing? Are you running 
excessive overtime? We are not running excessive overtime in 
our centers. So if you look at that as a measure you say well, 
they are obviously operating fairly well with the existing 
numbers of people they have on board.
    I met with our facility representatives for NATCA about a 
week ago in Redondo Beach with the leadership of all the 
centers from a union standpoint and asked, ``what do you see?'' 
And one of the things they pointed out was let us take a look 
at the folks who are talking to air traffic, talking to 
airlines. We have a lot of folks in the centers who are doing 
other kinds of things. So we need to look at both right-sizing 
and duties. How are we doing? But I take your point that in 
some of our centers we should increase the staffing and we are 
working to do that.
    Senator Murray. Mr. Mead, do you care to comment on this?
    Mr. Mead. I think it is fair to say that FAA probably needs 
to start hiring some number of controllers in anticipation of 
this bubble, so I think you have a point there. At the same 
time, these staffing standards--Congress or FAA directed the 
National Academy of Sciences some years ago to take a look at 
the staffing standards and the National Academy of Sciences did 
not have a lot of favorable things to say about the application 
of these standards down to the facility level.
    So when you have a number of 15,000-odd controllers 
nationally, the real issue is where do you need them? Because 
you have 300 different places. We do not have one building 
where we send 15,000 controllers. That is why I think this is a 
problem that FAA shares with the controllers union. I think FAA 
needs to take a look at how long it is taking for their on-the-
job training. I think they have to drill down to figure out 
where they think these vacancies are going to occur.
    I think the controllers union, for its part, needs to agree 
to participate in a labor distribution system so you can tell 
why do we have these disparities between similar facilities 
with comparable traffic levels? How many hours is it reasonable 
to expect the controllers to spend on scope? So I think it is 
kind of a community problem here and we need to get on with 
solving it.

                         CONTROLLER RETIREMENTS

    Ms. Blakey. Senator Murray, you had also mentioned the 
retirement bubble and your disappointment that we had not--and 
as you know, in last year's budget we asked for additional 
positions and the Congress as a whole said no, do some other 
things. Congress asked us to look at the age 56 retirement 
requirement, develop guidelines for waivers, and look at 
training. But a big part of the push was right-sizing our 
facilities, not having these significant shifts between 
overstaffing and understaffing. So we are trying to do that.
    The Inspector General mentioned the retirement bubble. We 
agree that this bubble is coming up. I did bring a chart with 
me that shows the FAA's predictions of retirements accompanied 
by what actually happened that year. You will see that so far 
we are spot on. I think that the Inspector General is correct 
in saying we would like to have a lot more granularity at 
each----
    Senator Murray. Spot on? I am a little worried at where 
that graph is going.
    Ms. Blakey. Well, as I say, there is no question about the 
fact that there is a significant retirement wave coming up. 
That said, we believe we are accurately predicting this wave. 
At this point we do think that one of the things we need, at 
the facility level, is to determine a more granular picture of 
who is retiring and when. But it is not easy to do, as you can 
appreciate.
    Senator Murray. What is the training time for those?
    Ms. Blakey. It differs. Two-and-a-half, in some cases up to 
about 5 years. It should not be running more than 5 years. But 
you also are able to bring in what we call developmental 
controllers, who can be productive and work much earlier than 
the 2\1/2\-year mark. That is for a fully certified controller 
on all the positions at the facility.
    Mr. Mead. The concern is that as those bars increase and 
you have more people in the system, more controllers that you 
just hire, if I hire a controller today, send him to school, 
gets out of school, that controller is not going to be 
controlling air traffic, so you are going to have a lot of 
trainees around the system. So the granularity point that the 
Administrator points to about these disparities between 
facilities cuts this way, too, that that granularity has to 
figure out how many can we afford to have in training because 
you cannot equally weight a trainee with a full performance 
level controller.
    Senator Murray. My time is up, Mr. Chairman. Thank you very 
much.
    Senator Shelby. Senator Stevens.
    Senator Stevens. Thank you very much. First let me thank 
you, Administrator, for working with us on the Adak runway. It 
really has been necessary to have a transition there with the 
State ownership and the operational capability of that area has 
been enhanced by your willingness to maintain the runway lights 
during the transition period. I do thank you for that.

                         LASER RUNWAY LIGHTING

    I would like to ask if you would ask your people to give us 
an update on the laser runway lighting proposal that is before 
you. I know it is still in some test phase but I do not know if 
most people understand that we have over 1,000 commercial 
runways, some that you have a function on and mostly State and 
just local support. But beyond that, we have a whole system of 
private runways, people landing on their homesteads or in terms 
of float planes, landing on lakes.
    We have an enormous landing problem. That laser designation 
for safe use is something that holds great promise to us to cut 
costs considerably with regard to those and I would urge you to 
see what we can do to accelerate the application of that.
    [The information follows:]

    A demonstration of the use of yellow lasers to highlight hold lines 
was conducted in November 2002 at Ted Stevens Anchorage International 
Airport. Using eye safe lasers, a single holding position line was 
illuminated for 2 weeks. Tilt switches prevented the laser projectors 
from projecting above the ground; no direct exposure was possible from 
the ground-based projection system.
    The second (longer term) demonstration is planned for September 
2004 in Fairbanks, Alaska. Improved solid-state yellow lasers will be 
used to illuminate a problem intersection on the Fairbanks Airport 
where snow and ice cover the painted hold line over half the year. The 
lasers that will be used in the Fairbanks demonstration have been 
viewed by the FAA Administrator in a demonstration during her August 
2003 trip to Alaska and have been reviewed by the FAA Radiological 
Officer in September 2003. Further review will include the Society of 
Automotive Engineers G-10T Committee that creates recommendations for 
limiting the use of lasers in airport environments.
    If the second demonstration proves operationally successful, the 
laser technology will need to meet the requirements of FAA regulations 
and Certification as well as FAA airports to ensure proper National 
Airspace integration and eligibility for Airport Improvement Program 
funding. Final review of physiological safety will be provided by the 
FAA Civil Aerospace Medical Institute. Their concurrence is a necessary 
element in the decision on suitability.

    Senator Stevens. Secondly, though, I want to congratulate 
the two of you, Mr. Mead and Ms. Blakey. I note that there's a 
little more indication of contemporaneous review and comment in 
your department. I have always believed that the staff of the 
Inspector General has a responsibility for preventing problems, 
as well as critiquing the results of problems, and you sound 
like you have a little bit more communication than you have had 
in the past and we applaud that. I do hope that it continues to 
develop because this is a good problem.

                        CAREER STAFFING PROBLEM

    I would like to show you sometime the chart for the Library 
of Congress. You think you have problems; this is a problem for 
the whole government and it comes about because of people 
deciding to make a career out of government. As the pay 
increased and as retirement benefits increased, as the health 
care increased, more people are staying in government now than 
ever before for longer periods of time. As a consequence, this 
is a national problem, not just yours.
    It requires some real help, Mr. Mead, from the inspector 
generals to start looking at how we can utilize some of the 
funds that are available.
    And Ms. Blakey, I do believe inspector generals can step 
out of the box a little bit. They do not have the long-term and 
political responsibility that you might have but they have the 
capability with their staffs to try to see around corners and 
see how collisions could be avoided. As I said, I applaud you. 
It seems like you are doing more of that, from the 
conversations I have heard.

                      TRAINING OF NEW CONTROLLERS

    I do want to ask you a little bit about this problem of 
dealing with the movement of new people into full controller 
status. It seems to me that that has got to be accelerated. 
Have you looked at that, Mr. Mead? How do you accelerate the 
time in which a person is really qualified to take the position 
of the well qualified controllers that are going to leave?
    Mr. Mead. We looked at this. You will remember, Senator 
Stevens, some years ago FAA's academy in Oklahoma City used to 
have--they say if you look to your left, look to your right, 
two of you will not be there; you will not pass. And FAA 
corrected that.
    Senator Stevens. That is what they said when I went to law 
school.
    Mr. Mead. Same here.
    Senator Stevens. They were right.
    Mr. Mead. I think we need to take a look at that. We are 
about to issue a report. FAA has it and I think you are quite 
right about the extent that we communicate but----
    Senator Stevens. We tried in Alaska to reach down into the 
university and have the universities start training these 
people and as they came through their college training, they 
were prepared to move in and be ahead of those who might have 
just walked off the street and said I would like to be an air 
traffic controller.
    I think we have a duty to reach down into the educational 
process across government and say we want some of these 
institutions to start training people more specifically for the 
work that they may be able to fulfill for the government. If we 
do not do something, you cannot train them post-college and 
meet the goals of that chart or the Library of Congress or, for 
that matter, take a look at the military departments. They 
probably have the worst one of all right now.
    Mr. Mead. FAA is using the university system. They used to 
never use it. I do think you are right on target. I do not 
recall whether you were in the room at the time of the 
statistic I mentioned. It takes an average of 3 years after 
they get out of school before they are at the full performance, 
fully certified level and we found some instances, Senator 
Stevens, where it took up to 7 years.
    Senator Stevens. I just read that. It is on page 7 of your 
report. I understand what you are saying but I do not think the 
solution is to critique it as it is happening. I think we have 
to find a solution in advance of the problem and it has to be--
maybe we should create--right after World War II we created 
special schools. We authorized people to form special schools 
for training of our professions and various jobs for 
government. Have we got enough capability in the colleges to do 
this? Have you examined into that? How many colleges are 
willing to participate?
    Mr. Mead. No, we have not.
    Ms. Blakey. We have quite a few and certainly when I was in 
Anchorage I was very impressed by the university's simulation 
lab they had for air traffic controllers. I thought that was a 
great thing, that they are actually beginning training that is 
going to certainly feed into our system.
    Senator Stevens. Have you seen our interdisciplinary 
training, Mr. Mead, in Alaska? Have you seen what we are doing?
    Mr. Mead. No, I have not.
    Senator Stevens. We do not have taxis outside of the two or 
three major cities. We do not have buses. We do not have 
trains, only one train. We have fewer highways in the whole 
State of Alaska, which is one-fifth the size of the United 
States, than King County, Washington has. But we depend on 
airplanes and we are using our system as sort of an incubator 
for new ideas to deal with that need. We are always going to be 
dependent upon airplanes because the Congress in its wisdom 
withdrew a lot of Alaska this way and that way. We cannot have 
north and south roads. We cannot have east-west roads. We are 
linked to aviation forever. So I would urge you to come up. As 
a matter of fact, I might take you fishing if you want to come 
up.
    Mr. Mead. I will take you up on that.
    Senator Stevens. Ms. Blakey is a damn good fisherman. She 
finds occasion to come up at the right time of the year, which 
is a very intelligent use of the taxpayers' money as far as I 
am concerned.
    Mr. Mead. I will take you up on that, sir.
    Senator Stevens. Well, I congratulate you very much and I 
appreciate that this is a sea change, even for you. I remember 
sitting here when you were mostly critical. I like the fact 
that you are now mostly analytical--where we are going and what 
is causing the problems as we proceed along this path. That is 
a good partnership you have there, Ms. Blakey. You are part of 
it, too, and I congratulate you very much.
    Thank you, Mr. Chairman.

                    REVIEW OF BUSINESS CASE ANALYSIS

    Senator Shelby. Thank you, Chairman Stevens.
    Madam Administrator, as a major acquisition program 
experiences cost growth or schedule delays or capability 
reduction, does your agency review and update the business case 
analysis and how often?
    Ms. Blakey. We do. We have a variety of mechanisms in which 
we do a close analysis, in fact, of our major acquisition 
programs. I can tell you that----
    Senator Shelby. How do you validate the assumptions and 
conclusions in these analyses? What method do you use? Is the 
Inspector General aware of them?
    Ms. Blakey. I think he is aware of a lot of them. I will 
tell you, we have relied very significantly on some independent 
analysis that has certainly helped us out. For example, on our 
baselining of our STARS program and what we can expect there, 
we asked Mitre to take a look at all of the cost assumptions, 
to really go through the business case and to provide us with 
an independent analysis because we felt that was important. We 
are going to be doing more of that as time goes on because I 
think it does help to have someone who is not as connected with 
these programs and who has frankly more financial and economic 
horsepower to do it.
    But we do have a Joint Resources Council that meets and has 
to approve these. I am told when there is any significant 
variance off of the projected schedule, and the projected cost. 
We are monitoring that--it depends on what level you are 
talking about--on a weekly to monthly basis and anything that 
begins to deviate immediately throws up a major red flag. It 
does not always fix it when we see the red flag, but we know at 
that point we have a problem.
    Senator Shelby. Was the process you are referring to 
applied uniformly to determine whether to continue funding 
programs with major problems--that is, WAAS, STARS, ATOP, and 
so forth?
    Ms. Blakey. I cannot speak historically because, as you 
know, I have been at the FAA----
    Senator Shelby. Could you get back with us on that?
    Ms. Blakey. I would be happy to and I certainly will give 
you more detail on exactly how we are applying this for the 
current programs.
    [The information follows:]

    Yes. The FAA has incorporated a series of management control 
processes and tools to improve reporting and evaluation of costs, 
schedule, and technical performance for major acquisition programs. 
Internal processes used to monitor acquisition programs and inform 
senior management include:
    Monthly reporting by program offices of baseline status and 
variance using an automated desktop tool called Simplified Program 
Information Reporting and Evaluation (SPIRE).
    Monthly reporting to the Air Traffic Services Board on cost, 
schedule, requirements stability, and earned value status.
    Quarterly reporting to the Joint Resource Council (JRC) members on 
the status of all baselined programs.
    Administrator notification whenever variances to baseline 
parameters exceed 10 percent.
    Semi-annual acquisition reviews to examine programs progress and 
issues towards completion of acquisition goals including cost, 
schedule, and performance. May be held more or less frequently as 
needed.
    Public Law 104-264 gave the FAA Administrator the authority to 
terminate any acquisition program that breaches a baseline element by 
more that 50 percent. If the Administrator determines to continue the 
program, this determination must be provided to Congress. Public Law 
104-264 also authorized the FAA Administrator to consider terminating 
any acquisition program that breaches it cost, schedule, or performance 
baseline by more than 10 percent.

    Mr. Mead. A problem has developed here and I could use 
STARS as an example. It has been a fiction for some time, 
probably for nearly 3 years running, where the costs of this 
program were represented to be around $1.69 billion. People 
inside FAA knew that that figure was not realistic for what the 
program was supposed to do and time marched on. A big change 
from this time last year is that FAA is putting a can opener on 
all these major programs. I think STARS was one of the first 
because that is some decisions that need to be made on in the 
very near future. So it takes a while but I can assure you that 
there is a recognition inside FAA that this list of programs, 
that the baseline estimates need to be revisited and that 
process is ongoing. I am very encouraged.

                  OCEANIC AIR TRAFFIC CONTRACTOR COST

    Senator Shelby. Administrator Blakey, in 2001 the FAA 
awarded a fixed-price contract of $218 million to develop a 
replacement system to control oceanic air traffic. As a result 
of the contract, the contractors had to bear software 
development cost overruns. This has been touted as a new 
approach for managing contracts at the FAA.
    I have learned that FAA recently agreed to pay the 
contractor $11 million for work it was already contractually 
bound to perform and FAA agreed that taxpayers would bear all 
future cost overruns after February 2005. How do you justify 
this $11 million for work that the contractor was already 
obligated to perform?
    Ms. Blakey. Well, this is exactly the dilemma you get into 
with a fixed-price contract because the contractor in this 
regard, Lockheed-Martin, had sunk considerable costs for 
unanticipated problems in terms of software development and 
technology development. Again you are going where no one has 
gone, and they bore a lot of those costs. It is very critical 
that we field our oceanic technology in the very near future. 
In fact, we expect to see our system in Oakland go live in 
June.
    We could not let those schedules just go way out because 
the contractor was in the red and no longer making money and 
the schedules were slipping. It is in the taxpayers' best 
interest to address the issues and the problems. We felt it was 
equitable to go ahead and fund, in this case another $11 
million, on the contract to bring it in in a timely fashion and 
get service going.
    There are competing providers out there for oceanic air 
traffic. We believe we are doing an excellent job and have the 
best system, but we need to field that system.
    Mr. Mead. Mr. Chairman----
    Senator Shelby. Do you agree with that?
    Mr. Mead. Largely. If it stops at $10 million, that 
certainly is dwarfed by some of these $900 million increases in 
these other programs. So if it stops there, I think that is 
fairly modest and we could almost----
    Senator Shelby. It is still a lot of money to us.
    Mr. Mead. It is. The big date to watch is February 28 
because after February 28, 2005, FAA has basically agreed to 
pay for any problems that are identified. So they had better 
make sure they identify all the problems before February 28, 
2005 or that $11 million figure will go up.
    Senator Shelby. It could be a huge underwriting mistake.
    Mr. Mead. That is right.

                           LABOR DISTRIBUTION

    Senator Shelby. Regarding labor distribution, CRU-X was 
supposed to be a system that would allow FAA to accrue credible 
workforce data about controller staffing, overtime cost, and 
workload issues. Madam Administrator, why has not this system 
been employed as designed and why was the functionality of it 
limited?
    Ms. Blakey. The system initially was developed in a very 
collaborative fashion with our workforce and with NATCA. We do 
believe that the functionality that it has is going to be very 
useful to the FAA. There has been a dispute over the specific 
detail that the system collects in terms of the duties and 
hours that are being spent on them, and we have been in 
negotiations with NATCA over this. We would like to bring those 
negotiations to an end. We would like to fill all of the 
functionality of the system. We are working very hard to do it. 
This is a matter, though, that is subject to negotiation with 
our union, and we are working through it at this point.
    Senator Shelby. Mr. Mead.
    Mr. Mead. I have a suggestion for you. What the 
Administrator says is correct but these negotiations have 
dragged on and on and on. Senator Murray pointed out how 
important----
    Senator Shelby. Negotiations generally bring more costs, do 
they not?
    Mr. Mead. Yes, they do. Senator Murray pointed out the 
controller retirement bubble. This is the part that controllers 
need to help us with because this will give you a sense of 
where they need the people and why you have disparities between 
facilities that handle similarly complex levels of traffic.
    The suggestion I have is that we make any increases in 
staff to be done on the condition that we get a labor 
distribution system in place because that will be a central 
issue for us for the next 8 or 9 years. You are going to be 
facing increases in the controller workforce and you are going 
to want to know where and when they are needed and a system 
like this would help measurably in that task.

                             ACCOUNTABILITY

    Senator Shelby. Bringing more accountability to FAA is a 
top priority of this committee--it has to be--and we are 
pleased to see that the FAA now has a chief operating officer 
whom you introduced, Mr. Russ Chew. The transition to a 
performance-based organization called the Air Traffic 
Organization, while it is not complete, may also be a step 
forward if implemented correctly. It has to be implemented 
correctly. What additional steps are you taking to bring more 
accountability to FAA? And how long will it take to change the 
agency's culture? First you, Ms. Blakey, and then Mr. Mead.
    Ms. Blakey. Well, I will tell you. I think that culture 
change is a multi-year activity. It will not happen overnight, 
but I am pleased to say that Russ Chew and his team are moving 
with remarkable speed. They have already worked to flatten our 
management layers so that we bring headquarters much closer to 
the field and have much fewer people in that interface of our 
management bureaucracy.
    They have also instituted an activity value analysis, which 
I think is going to be remarkably interesting. I look forward 
to sharing the results with this committee because essentially 
what we are doing is having Booz Allen Hamilton help us go out 
and analyze what exactly are the services we are producing at 
the individual levels of the organization and are they 
important? Are they being well done? Do our customers value 
them? And as a result of that, we will be able to determine 
much better what are the activities that we can do without, 
what are areas that we should be doing more of, and therefore 
have our resources, both personnel and others, devoted to where 
we are getting the value. So that process is ongoing. We expect 
to have the first results of it by June. We will certainly be 
looking at that as a way to make this work more efficiently.
    Senator Shelby. Mr. Mead.
    Mr. Mead. I think there are already some early signs that 
the direction is changing in making the ATO a performance-based 
organization. I think the proof will be in the pudding and it 
is probably 2 or 3 years down the road. I think at this time 
next year----
    Senator Shelby. Two or 3 years will be here before we know 
it, though.
    Mr. Mead. Yes, sir, it will be.
    Senator Shelby. I know from being on this committee.
    Mr. Mead. I think the big barometers right now are how we 
handle the workforce issues involving the air traffic 
controller retirements, STARS, getting our terminal 
modernization on the right track, and this big acquisition they 
are just starting called ERAM.
    Another big-ticket item, although compared to billion-
dollar systems is not that big financially, is that oceanic air 
traffic control system. Some big dates are coming up this year 
on that in June. It is supposed to be in Oakland. That program 
is already late. I think they are paying a lot of attention to 
it. So it takes a while to turn around the ship. I will 
withhold judgment until I see the pudding.

                             FLIGHT DELAYS

    Senator Shelby. You know, the summer months are coming on 
us fast here. The air traffic is probably going to rebound as 
people start traveling more; we hope so. What are the top three 
or four actions that you are taking that will help meet the 
growing demand for air travel and prevent gridlock during the 
busy summer travel season?
    Ms. Blakey. Well, certainly we have been looking at the 
question of what we can do very immediately to relieve 
congestion. The conference I mentioned in March really was a 
ground-breaking activity where we asked everyone to sit down in 
the same room and say now look, for the good of the system, not 
just a single airport or parochial interest of an airline, how 
can we make the system work more efficiently? And we came out 
with a number of procedural changes which we have already begun 
implementing in the way we are looking at the upper level air 
space and the way we are establishing express lanes.
    The agreement is that if we are experiencing 90 minutes or 
more in taxi-out and hold at airports, we can start flushing 
those airports and asking others to hold back. Let us get the 
delay out of wherever we have it so that it does not overwhelm, 
not only the passengers in those places that are congested, but 
also begin to ripple through the entire system.
    Just yesterday Secretary Mineta and I took specific steps 
to deal with O'Hare, which I do not have to tell this 
subcommittee O'Hare has a huge effect on the system. We had 
realized back in the fall that the scheduling at O'Hare was 
beyond the capacity of the airport. You know, 2 pounds in a 1-
pound bag does not work. Therefore, we began in the winter, 
early part of this year to talk with the two airlines which are 
the primary airlines at O'Hare, American and United, about 
drawing down their schedule. They drew it down 5 percent in the 
critical hours between 1 p.m. and 8 p.m. We tried to see if 
that was going to be enough during the month of March. It 
proved that it was not enough. We still were experiencing 
significant delays at O'Hare and again this ripples through the 
whole system. You know, if O'Hare sneezes everybody gets a 
cold. So we then asked again that the airlines look at their 
schedules and yes, just yesterday the Secretary and I announced 
an agreement that each airline is going to take down their 
schedule further, American and United, another 2.5 percent at 
O'Hare.
    Now this is not something we like. We certainly would 
prefer that the market work and not have to put any 
constraints, but these are voluntary measures. We are very much 
looking at this to make sure that we are doing everything 
possible to address schedules and delays.
    Senator Shelby. Mr. Mead.
    Mr. Mead. We all remember the summer of 2000. Everybody 
talks about the summer of 2000. That is a reference to the 
worst gridlock year. I think we all remember that. Two big 
things are different, maybe three things are different now. 
There are more runways out there.
    In the summer of 2000 and the aftermath there was extreme 
reluctance for the regulatory authorities to put the brakes on 
airline scheduling practices. You remember we had all kinds of 
examples where you had more aircraft leaving at a specific time 
of day than could possibly leave and Chicago O'Hare was one of 
the poster children for that. I think that the Secretary and 
the Administrator have shown a willingness to tackle that 
issue.
    Secondly, one of the things that we learned from the summer 
of 2000 was the need for the airlines and FAA to talk to each 
other on a daily basis, in the morning, about what things were 
looking like that day from the standpoint of weather or flight 
patterns, and so forth. So that is different.
    Another fact that I think is a little bit scary that we 
have not had a lot of experience with is the regional jet 
growth, which carry less passengers. As traffic rebounds and--
--
    Senator Shelby. Less traffic and fewer passengers.
    Mr. Mead. Yes, and I mentioned Dulles. I think we see some 
danger signs at Dulles for this summer. I mean it is a huge 
growth balloon if you believe the airlines about what is going 
to happen and I think right now is the time to start planning 
for that.
    Senator Shelby. Senator Murray, thanks for your patience.

                                 SAFETY

    Senator Murray. Thank you, Mr. Chairman.
    Mr. Mead, in the area of safety, a continuing concern is 
the fact that the aviation industry is out-sourcing an 
increasing percentage of their aircraft maintenance work. In 
fact, almost half of their maintenance costs were out-sourced 
in 2002. The US Airways Express crash in Charlotte last year I 
think is a tragic example of what happens when there are 
performance deficiencies on the part of third-party maintenance 
contractors.
    When your office looked into this issue last year you 
reported that the FAA's inspection efforts were primarily 
focused on in-house maintenance programs. The FAA agreed to 
develop a program to target inspector resources toward the out-
sourced facilities. In your view how well is the FAA now 
targeting those facilities?
    Mr. Mead. We need to do a follow-up effort. Let me give you 
a good answer to that question. I can tell you what I have been 
told is that they are in the process of implementing our 
recommendations. For example, the problem you alluded to was 
where United Airlines' principal inspector would not know much 
about what was going on at the repair stations and there is all 
this maintenance being done at this repair station and the 
repair station person would not know what was going on inside 
of United Airlines, just to use the one airline as an example.
    FAA is piloting a process with one airline--I think it is 
Delta--where the principal maintenance inspector for Delta is 
expected to be on top of all of their maintenance. That is, I 
think, the essential design of their program. I think FAA is 
impressed with the results of that and wants to consider 
expanding it to the other carriers. I think that is the current 
status.
    On the foreign repair stations, FAA agreed that they needed 
to step up their oversight there. You will recall that the 
problem we identified there was FAA would certificate the 
repair station but not necessarily know--they would delegate a 
lot of the oversight responsibility. We have not followed up to 
check to see how that was implemented. Maybe the Administrator 
is more current than I am on that.
    Senator Murray. Ms. Blakey.
    Ms. Blakey. Well, certainly we have just instituted, in 
fact, new rules, new regulations governing repair stations 
across the board, both foreign and domestic. We have evened out 
much more so the requirements that we are placing on foreign 
repair stations are equivalent to those in the United States 
except that they must be recertificated every 1 to 2 years. So 
I think at this point from that standpoint we are working very 
hard to make sure that those requirements, for example for FAA-
certified training, et cetera, will be carried through.
    The second thing is we are adapting our own oversight, just 
as the Inspector General pointed out, and we are working with 
the carriers so that they see the integration of oversight of 
repair work----
    Senator Murray. Can you give us any specific examples?
    Ms. Blakey. I can probably do that better in a written 
response to the committee if you would like, just to give you 
more detail on that.
    Senator Murray. All right.
    Ms. Blakey. But Mr. Mead is correct. We are very encouraged 
by the fact that the inspectors should look at this as a unit 
for a carrier, not as we look at these repair stations who are 
doing six carriers and over here we are only focusing on what 
Delta does in-house.
    Mr. Mead. I think just a footnote to this, I think the 
domestic situation is easier to fix than the foreign situation. 
In the foreign situation, we found cases where the FAA person 
that was supposed to certificate was presented with materials 
that were in a foreign language that he or she did not 
understand. So the problems in foreign repair stations and the 
FAA oversight I think are of a different type and maybe a bit 
deeper.
    Senator Murray. Well, if both of you could follow up with 
the committee in response to that, I would appreciate it. It 
remains a significant concern.
    [The information follows:]

    The FAA has taken numerous actions to address changes in repair 
station oversight. Many of these actions address concerns raised by the 
OIG in the Air Carriers Use of Repair Stations audit published in June 
2003.
    In October 2003, FAA formed working groups to respond specifically 
to the OIG report. This working group will:
  --Identify repair stations that perform safety critical repairs for 
        air carriers;
  --Improve databases to capture results of foreign aviation authority 
        inspections;
  --Develop new comprehensive repair station oversight organizations 
        and concepts to oversee aviation article repairs from start to 
        finish.
    FAA increased the sampling inspections performed by FAA inspectors 
for inspections performed by foreign aviation authorities on FAA 
requirements.
    Implemented the final Part 145 rule on Repair Stations (January 
2004).
    In collaboration with Duncan Aviation and TIMCO, the FAA is 
initiating a prototype program to develop new oversight systems and 
techniques to oversee large, complex repair stations. This system will:
  --Standardize FAA oversight of repair stations located in multiple 
        FAA regions;
  --Increase the quality of surveillance by assigning a dedicated team 
        of inspectors experienced and knowledgeable in the practices 
        and procedure of the repair station;
  --Increase the quality of surveillance by allowing inspectors to 
        retarget their oversight to areas of risk.
    On going efforts in changing foreign and domestic repair station 
oversight:
  --Enhance the FAA inspector repair station certification and 
        surveillance course and give priority to inspectors assigned 
        oversight responsibilities for repair stations. (Must be done 
        to comply with the requirement of new rule).--June 2004.
  --Develop a repair station prototype program that incorporates a 
        certificate management team structure to enhance oversight of 
        large repair stations or companies that own multiple repair 
        stations and satellite repair stations.--October 2004.
  --Develop and publish a notice of proposed rulemaking that revises 
        the rating system, adds a quality assurance requirement, and 
        further clarifies rule language.--October 2004.
  --Develop the 145 Surveillance and Evaluation Program by revising the 
        Surveillance and Evaluation Assessment Tool to target 
        identified risks and incorporates the system safety approach 
        into repair station oversight.--October 2006.
    The fiscal year 2004 activities are focused on developing new 
processes and procedures to identify risks and target FAA inspector 
resources to resolve those risks. The completion of these activities 
and implementation of the new programs will not be accomplished until 
the fiscal year 2007 timeframe.

    Senator Murray. Ms. Blakey, as you will recall, the only 
reason the conference report on the FAA bill was allowed to 
pass the Senate and go to the President was because you 
provided a letter to the Senate Commerce Committee promising 
that you would not contract out any additional air traffic 
control functions to the private sector during fiscal year 
2004. This could very well become a contentious issue for our 
bill this year if we do not have a similar commitment from you 
for fiscal year 2005. Are you prepared to submit to this 
subcommittee at this time that the FAA will not be contracting 
out any current air traffic control jobs during 2005?
    Ms. Blakey. You know, the letter that you are referring to 
was one that was prompted, as you say, by what, to me, was a 
surprisingly intense debate over this issue of contracting out, 
out-sourcing, privatization, all sorts of things being batted 
about. And it did prove important to have the debate set aside 
and be able to get what was a very important 4-year 
reauthorization bill completed.
    I think it is a very different thing, though, if you are 
suggesting that on an annual basis the FAA Administrator should 
provide a guarantee that there would not be any kind of out-
sourcing for the following year. Historically, since the FAA 
has been here, that has never been done. It has never been 
necessary, and I do not understand that there is a necessity 
for it now. And the reason I say that is I have already said 
and I have said repeatedly that on the issue of our contract 
towers that we have no intention of converting further towers 
any time in the foreseeable future. There are no plans on the 
table. I have no additional A-76 plans for studies right now. 
We do, however, have an important A-76 study under way, which 
this subcommittee is very well aware of, focusing on our flight 
service stations. As you know, we have the Inspector General's 
report and recommendation and that of others. We have looked at 
the question of can this be done by the private sector. And, in 
point of fact, everything points to the fact that this is an 
important area to have looked at from the standpoint of ``Can 
private or public sector accomplish this best?''
    No matter whether our own employees, who are bidding in 
this process, no matter whether they win or whether others win, 
we know that we will have very considerable cost savings to the 
taxpayers, about a half billion dollars over a 5-year period. 
We also know we will have better service at the end of this. So 
that is important and we expect to award that contract in 
fiscal year 2005.
    So I mention those things by way of saying that it would 
seem both unnecessary and an impediment to the kind of 
flexibility that may be important down the road if all of a 
sudden there becomes some annual expectation that guarantees 
have to be provided.

                                 SEATAC

    Senator Murray. I do know what the annual expectation is. I 
can just tell you it will be an issue this year.
    Let me turn to another topic. Ms. Blakey, your testimony 
does mention that last year was what you called a banner year 
for new runways. It will not surprise you when I tell you it 
was not a banner year for SeaTac International Airport's third 
runway project. Unfortunately, as you well know, SeaTac is kind 
of the poster child project for the need to streamline the 
environmental review process for new runways. And, as you know, 
we have been trying to complete construction of the third 
runway I think it is for my entire life but it has only been 16 
years.
    The added costs for complying with those environmental 
rules for the construction of that runway, as well as the 
associated cost of delays for a great deal of time now, have 
grown by almost $200 million just in the last 4 years. As you 
can well imagine, this has put an incredible amount of pressure 
on the ability of the airport authority to finance the 
completion of that project. The Port of Seattle, as you know, 
is currently pursuing an amendment to the airport's existing 
Federal commitment to ensure that there is adequate financing 
to meet all of those new environmental costs. Do you believe it 
is reasonable for us to pursue an additional Federal commitment 
for this project, given the fact that these added costs are 
associated with the need to comply with Federal environmental 
laws?
    Ms. Blakey. Although I have not been as long on this 
project as you have, I do share your frustration about it. We 
see the third runway at SeaTac as being a very important part 
of the national aviation system. So successful completion of 
that runway is a big goal for all of us. No question about it.
    What we are doing right now, because I think this is the 
most intelligent thing from our standpoint, is we have hired 
again an independent contractor to look at the financials that 
SeaTac has provided. As you know, they came in only a month or 
so ago, but we are trying to get through this very quickly. It 
is a very complicated analysis, but we need to understand a 
variety of the cost justification there, as well as things like 
what will that do for the cost per enplaned passenger, what 
will be the impact on the airlines, et cetera?
    What I can definitely tell you is that we are committed to 
working through that. We will be as supportive of SeaTac as is 
possible, with the understanding that this is an unprecedented 
request. A request of this magnitude and taking up the Federal 
share to the degree this would, it certainly raises policy 
issues as well as understanding the financial needs.
    Senator Murray. Well, I appreciate that very much and want 
to work with you on that. Do you have any sense of the time 
line that we will be getting a response back?
    Ms. Blakey. Boy, I would like this get this done by 
sometime in June. I will keep you posted, if I might.
    Senator Murray. Thank you very much.
    Ms. Blakey. And by the way, congratulations on the 
commissioning of the tower. I know that is coming up on the 
24th and cutting that ribbon will be great.
    [The information follows:]

    The FAA timeline to reach a decision on the SeaTac application to 
increase the LOI by $198.1 million follows:
    March 8, 2004.--Application received.
    May 19, 2004.--FAA receives the independent financial analysis from 
Reed & Associates, LLC.
    May 30, 2004.--Complete agency financial analysis and review of the 
application.
    Mid-June 2004.--Final agency decision on the application.

    Senator Murray. Good. One other question, Mr. Chairman, and 
I know we have a vote coming up.
    Ms. Blakey, in my opening statement I talked about how 
essential it is that the United States maintain its 
international leadership in aviation for the second century of 
flight. Part of my dismay over the proposal to cut $400 million 
from your procurement budget is that it will slow down our 
ability to modernize the current air traffic control system. 
Beyond just replacing the aging equipment that your agency is 
operating on today, we have to be thinking about the next 
generation of air traffic control equipment and begin planning 
for deployment of that system.

       GLOBAL COMMUNICATION, NAVIGATION, AND SURVEILLANCE SYSTEMS

    As you know, for the past couple of years, I have secured 
about $45 million for the Global Communication, Navigation and 
Surveillance Systems program and I am very pleased that the 
first phase of that contract was awarded to the Air Traffic 
Management division at Boeing. And I really want to commend you 
for extending their contract so they can stay on the job until 
you have awarded the phase two contract portion of that. What 
can you tell this committee about the accomplishments of that 
initiative to date?
    Ms. Blakey. Well, I think in terms of satellite navigation 
and the way we see our system developing over time, certainly 
the program has given us important information about how 
satellite navigation can function, particularly in areas like 
the Gulf where you really do not have radar control and you 
have therefore big challenges involved. It also points in the 
direction of what we will do from the standpoint of digital 
communications, what we will do from the standpoint of looking 
at investments internationally because we do see this as being 
the wave of the future. So we are still both analyzing the 
results and, of course, looking at what is proposed for the 
next stage as a part of a contract extension. I think the 
results so far have certainly been promising.
    Senator Murray. Is there any doubt in your mind that the 
next generation of air traffic control will be satellite-based?
    Ms. Blakey. No. It certainly will be heavily satellite-
based; let me put it that way. And we are very much of the view 
that our standing internationally is going to depend on 
continuing U.S. leadership in that regard.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Murray. Well, we want to be there.
    Thank you very much, both of you, and thank you, Mr. 
Chairman.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]
       Questions Submitted to the Federal Aviation Administration
            Questions Submitted by Senator Richard C. Shelby
                         faa acquisition policy
    Question. Earlier in the hearing, I asked if FAA reviews and 
updates accordingly the business case analysis if a major acquisition 
program experiences cost growth or schedule delays, or capacity 
reductions. How does the FAA validate the assumptions and conclusions 
in such analyses?
    Answer. Under the FAA's acquisition policy, the program office is 
responsible for preparing cost, schedule and performance estimates for 
review when these commitments change. Before approval by the Joint 
Resources Council, the Office of Operations Planning and Finance is 
responsible for business case analysis, and reviews the revised 
estimates. The reviews include an audit of the estimates and 
examination of the underlying ground rules, assumptions and models. 
Reviewers determine differences between revised estimates and previous 
estimates. The reviewers use historical results from similar FAA 
programs, other government programs, and industry to validate the 
estimates. In some instances, the reviewing division may develop their 
own estimates for comparison purposes. Risk assessments are usually 
performed. Together with program office analysts, the reviewers ensure 
that estimates are adjusted to account for risks, risk mitigation 
strategies and uncertainties. An opinion is made available for 
consideration during Joint Resources Council deliberations and 
decisions.
    Question. What process does the FAA use to determine whether to 
accelerate, maintain, decelerate or terminate an ongoing program?
    Answer. FAA acquisition policy requires cost, schedule and 
performance baselines for each major acquisition program at the time of 
initial program approval by the Joint Resources Council. If baselines 
are breeched, revised baselines are subject to review and approval by 
the Joint Resources Council, revisiting the rationale for continuing 
the program and the terms under which the program may proceed. The 
Administrator reviews programs that exceed their baseline by more than 
10 percent.
    Under the Air Traffic Organization (ATO), performance is defined in 
terms of service delivery targets and published in the FAA Flight Plan 
and upcoming ATO Business Plan. Decisions to accelerate, maintain, 
decelerate or terminate an ongoing program will be based on its 
contribution to meeting service delivery targets and business 
objectives, such as targets for reduced operating costs. The ATO 
reviews the costs and benefits of programs to ensure there is an 
economic return on the capital investment.
              advanced technologies and oceanic procedures
    Question. When and at what cost can we expect to have fully 
functional ATOP systems replace the obsolete technology in Anchorage, 
New York, and Oakland Centers?
    Answer. The approved acquisition program baseline for the Advanced 
Technologies and Oceanic Procedures (ATOP) system calls for Build 1 to 
achieve Initial Operational Capability (IOC) at Oakland Center in June 
2004 (which occurred on June 30), at New York Center in March 2005, and 
Build 2 IOC at Anchorage Center in March 2006, with the final ATOP 
system IOC in 2008. The FAA is working toward a more aggressive 
schedule with contract incentives to deliver Build 1 IOC at New York 
Center in December 2004 and Build 2 at Anchorage Center in May 2005. 
Build 1 delivers a fully operational ATOP system with integrated 
decision making tools, enabling ``off-the-glass'' operations and 
providing the flexibility needed to entertain more requests for in-
flight altitude changes. Build 2 delivers integrated radar data 
processing functionality and the enhanced conflict probe required to 
reduce aircraft separation from 100 nautical miles to 30 nautical 
miles. The total Facilities and Equipment cost of the program is $548.2 
million.
            standard terminal automation replacement system
    Question. It seems as if the Standard Terminal Automated 
Replacement System (STARS) procurement is through the most difficult 
phase of the procurement cycle and your testimony indicates that the 
anticipated resources for this program will decline in the coming 
years. How do you compare the relative risk remaining in the program 
compared to other major FAA programs such as WAAS, ASR-11, or ERAM?
    Answer. The STARS program has completed core baseline development 
and is well into the production, deployment, and sustainment phase. As 
of May 26, 2004, 21 STARS sites are fully operational in the National 
Airspace System, along with 15 separately funded systems operating at 
DOD military (Air Force, Army, and Navy) installations worldwide. All 
operational STARS systems have exceeded their requirements for system 
reliability and availability.
    The remaining STARS risks are primarily programmatic and budgetary. 
The FAA Joint Resources Council (JRC) recently approved STARS for full 
production and deployment to the remaining 31 of its 50 most critical 
terminal locations as part of Phase I of the Terminal Automation 
Modernization Program.
    When compared to Wide Area Augmentation System (WAAS), Airport 
Surveillance Radar--Model 11 (ASR-11), and En Route Automation 
Modernization (ERAM), STARS is in the lower risk phase of the standard 
program life cycle. The life cycle starts with high risk during the 
development phase, decreases through deployment, is at lowest risk 
during the years of sustainment, and eventually increases during the 
end of life phase prior to replacement. STARS is deploying full 
production configuration systems and sustaining those systems. ERAM is 
in the higher risk area of development while WAAS and ASR-11 are 
nearing the end of development.
                       global positioning system
    Question. It is my understanding that the Department of Defense 
appears to be increasing their requirement for Global Positioning 
System (GPS) IIF satellites. I am told that L5 signal coverage is on 
the horizon and that GPS accuracy will get even better than it already 
is. Given the difficulty that everyone anticipates for WAAS equipage, 
the accuracy improvement of the GPS system, and the success that GPS 
already enjoys in the general aviation and commercial fleets, I'm 
wondering what benefits we derive from continuing to pour more 
resources into WAAS when most, if not all, of the capability that WAAS 
offers is likely to be offered by this next generation of GPS 
satellites. Would we be better off focusing on how to leverage GPS in 
our Required Navigation Performance, or RNP, efforts and by taking 
advantage of the installed base of GPS receivers?
    Answer. The Department of Defense is adding an additional civil 
frequency called L5 to the next generation of GPS satellites. This 
frequency will provide additional capability for all users of GPS and 
will enhance accuracy. WAAS presently achieves an accuracy of 1.5 to 2 
meters.
    WAAS receivers for aviation use are currently available by a 
limited number of manufacturers and we expect that over the next year 
this number will grow significantly. GPS provides significant benefits 
for pilots, and today many are taking advantage of the capabilities of 
GPS. However, GPS alone, even with the L5 signal, does not meet all the 
needs for our customers. Specifically, GPS alone does not meet aviation 
safety requirements to virtually never fail to warn pilots of 
misleading information and to be available all the time. Meeting these 
requirements improves safety while enhancing capacity within the 
National Airspace System (NAS). For this to occur, capability beyond 
GPS alone is needed, and WAAS meets this need. The WAAS will utilize 
the GPS L1 and L5 frequency to enable pilots to fly precision 
approaches to Category I levels. Precision approach utilizing WAAS will 
be fully compatible with the FAA Required Navigation Performance. The 
WAAS program has recently undergone program re-planning to leverage the 
investment the Department of Defense is making to modernize GPS when it 
adds the L5 frequency.
    There are three issues regarding the modernization of GPS by adding 
L5 that need to be addressed. The first is the schedule of when L5 will 
be available. Although the first L5 satellite is scheduled for launch 
in 2006, it will not begin broadcasting the L5 signal until 2009. In 
addition, in order to utilize the capability of the GPS constellation, 
many satellites with L5 must be operating. Based on the current 
schedule, it is possible that L5, with acceptable availability of its 
signal, will not be available until 2015 or later. WAAS is providing 
service to customers now. With the additional L5 frequency provided by 
GPS, WAAS capabilities will improve. The second issue is that even when 
modernization is completed, there may not be a sufficient number of 
satellites available to provide precision approach capability to all 
users, at all locations in the NAS. Analysis shows that the modernized 
GPS will still need to be augmented to provide service to all users, at 
all needed locations, at all times. The third issue is that current GPS 
receivers are not capable of receiving and processing the L5 signal. 
New equipment or upgrades to existing equipment will be necessary to 
receive and process the L5 signals.
    FAA is committed to working with our customers to enable RNP 
capability. WAAS allows more aircraft to achieve the most stringent RNP 
by providing high capability RNP-capable receivers at modest costs 
available to all users. GPS alone cannot meet the most stringent RNP 
capabilities.
                         controller retirements
    Question. How the controller workforce changes over the next 
several years will be a critical issue for the FAA. FAA has reduced 
staffing levels for air traffic controllers from 15,613 in fiscal year 
2003 to 15,333 in fiscal years 2004 and 2005. And, FAA is not 
requesting additional controllers in fiscal year 2005. What is your 
plan for addressing the retirement surge?
    Answer. Controller retirements are a critical issue for FAA. We are 
in the process of developing a plan to prepare the agency. We are also 
developing a plan to address controller retirements, as required by 
Vision-100, which will be submitted to Congress at the end of calendar 
year 2004.
                         controllers-in-charge
    Question. What are you doing about the practice of air traffic 
controllers acting as controllers-in-charge and the rising number of 
operational errors occurring under their watch?
    Answer. To date we have not identified any direct correlation 
between the use of air traffic controllers acting as controllers-in-
charge (CIC) and the number of operational errors. Following any 
operational error, the FAA conducts a detailed review of the 
circumstances surrounding the error to identify causal factors. The 
current data indicates that approximately 23 percent of the errors 
reported for fiscal year 2004 occurred while CIC's were on duty in 
comparison to approximately 21 percent during fiscal year 2003.
    The agency is moving forward with plans to bring the supervisory 
level up to 1,726 by the end of fiscal year 2004.
                            contract towers
    Question. The subcommittee supports the FAA contract tower program 
as a way to provide cost-effective ATC services in a proven and safe 
manner at over 200 smaller airports across the country. Without this 
program, many of these smaller communities would lose the significant 
safety benefits a tower provides. Can you tell us the plans to spend 
the $80.3 million provided by Congress in fiscal year 2004 for the 
baseline program and your projections for funding the program in fiscal 
year 2005?
    Answer. In fiscal year 2004, the FAA will maintain 219 contract 
towers and provide funding for 10 new starts. For fiscal year 2005, 
$79.2 million is included in the President's budget request to run 
contract towers.
                         balancing investments
    Question. FAA modernization plans have suffered from a number of 
redirections over the past several years. The U.S. aerospace industry 
continues to make early investments in the technologies supporting 
these plans with returns on these investments delayed or eliminated 
when the FAA's plans change. What is the FAA doing to ensure that 
future modernization plans are clearly defined, achievable, and 
supported by the aviation community?
    Answer. Modernization efforts with links to avionics investments 
are heavily dependent on high levels of equipage to achieve customer 
benefits. When the benefits are overwhelming, such as with domestic 
reduced vertical separation minima (DRVSM), a rule can be made and a 
date certain for implementation set. When the modernization effort 
depends on voluntary equipage, the economic ability for a predominate 
portion of the fleet to equip to achieve additional flight efficiencies 
or economies is a major factor in achieving the modernization benefit. 
Since investments that include voluntary equipage are more uncertain, 
the FAA continually works with the aviation community through its 
Federal advisory committees (in particular, RTCA) to coordinate FAA and 
community investments, and to identify initial applications and target 
locations for which the benefit is overwhelming and the investment 
clear.
    Question. As the airline industry and the economy recover from the 
September 11 terrorist attacks, airspace and airport capacity will once 
again become a significant concern. While it's reasonable to expect 
that some of the recent and pending system improvements will support 
the demand for the next couple of years, more significant technology 
insertion will be needed to ensure unconstrained aviation growth for 
the future. Near term spending on key technologies like LAAS, CPDLC, 
and ADS-B appears insufficient to ensure these technologies will be 
ready to deploy when they're needed. How are you balancing your 
investments between near-term, mid-term, and long-term modernization 
initiatives?
    Answer. Balancing near-term, mid-term and long-term modernization 
initiatives is based on providing services that have the greatest value 
for our customers according to schedules that are mutually compatible. 
As an example, the Operational Evolution Plan includes modernization 
investments that produce significant value for our customers over the 
next several years.
    Longer-term investments will provide a higher capacity, flexible 
infrastructure to accommodate new operational concepts that will be 
needed to meet future traffic growth. In many cases, longer-term 
services may require significant development before new concepts and 
systems can be implemented.
    In today's business environment, aircraft equipage schedules have 
been delayed or canceled due to the number of cash-limited airlines. 
Also, practical limits exist in the rate and number of major changes 
that can be accommodated in operational facilities.
    Finally, modernization investments need to be balanced against 
investments needed to safely and reliably provide existing services.
    All of these factors are considered in consultation with our 
customers as our investments are balanced and reflected in the National 
Airspace System Architecture and our Capital Investment Plan.
         harmonization of u.s. and european modernization plans
    Question. The United States has long been regarded as the global 
leader in aviation. Close cooperation between U.S. industry and the FAA 
has resulted in the aircraft and ATC technologies that shaped the first 
century of flight. In recent years, Europe has focused their efforts to 
modernize their aviation infrastructure. Projects like Galileo and the 
Single European Sky are positioning Europe to define the technologies 
that will shape the next century. What steps are you taking to 
harmonize U.S. and European modernization plans, ensuring U.S. 
interests are appropriately represented in future aviation solutions?
    Answer. FAA continues to engage in bilateral, regional, and 
multilateral support activities to promote the improvement of safety 
worldwide, including the implementation of U.S. safety technologies, 
system safety concepts, and air traffic management procedures and 
practices as the foundation for global aviation safety standards. FAA 
international leadership is one of the four main goals included in the 
FAA Flight Plan for 2004-2008, and as such, will continue to be a top 
FAA priority.
    FAA accomplishes this mainly through its participation in, and 
support of the International Civil Aviation Organization (ICAO) and its 
numerous technical panels, regional implementation groups, and higher-
level policy meetings. Within these activities, FAA works very 
diligently to develop and obtain approval of global standards and 
recommended practices (SARPs), and guidance materials based primarily 
on U.S. systems and solutions to ensure that new globally adopted 
procedures and technologies will not be detrimental to the collective 
interests of the U.S. civil and military government, industry, and user 
communities.
    Within the global aviation community, the United States and Europe, 
from the service provider perspective, are viewed as the two major air 
navigation service providers in the world that can ultimately determine 
the success or ineffectiveness of new technology, procedures and air 
traffic concepts. As such, cooperation between the FAA and its European 
counterparts has been viewed as imperative to the creation of truly 
seamless air transportation system. The FAA and EUROCONTROL have been 
cooperating for years through a Memorandum of Cooperation (MOC) and 
related technical annex agreements that outline our joint cooperation 
on air traffic management (ATM) research on new technologies and 
concepts, strategic ATM system analysis, harmonization of ATM 
enhancement programs and plans, ATM development and operation, and 
safety management and regulation. Between our respective support to 
ICAO global programs and our bilateral cooperative projects under the 
stated MOC, the FAA and EUROCONTROL continue to successfully harmonize 
and align related programs, to the extent practicable to ensure 
interoperability of air transportation systems and procedures between 
the United States, Europe, and neighboring airspace.
    Through our ongoing cooperative relationships with the EUROCONTROL 
and European States, FAA is keeping abreast of the new Single European 
Sky Initiative (SESI) to be able to assess any aspects of the program 
that may be detrimental to United States policies or initiatives.
    One of the most visible areas of U.S. and European cooperation is 
in satellite navigation system implementation. Since the release in 
1996 of the United States Presidential Decision Directive (PDD) 
promoting the proliferation and use of the U.S. GPS and its civil wide 
and local area augmentations, the FAA has been encouraging its 
international counterparts, as individual States and as regional 
communities, to approve the use of the basic GPS signal for use in 
certain oceanic, en route, and non-precision approach operations. As a 
result, we have seen the number of States approving the operational use 
of GPS double since 1998.
    For the last couple of years, the FAA has supported the U.S. 
Department of State's ongoing negotiations with the European Commission 
(EC) on overall operating principles of the planned European Galileo 
satellite constellation and its full interoperability with the already 
established and globally accepted U.S. GPS. As a result of this U.S. 
initiative, a joint statement was signed on February 25, 2004 between 
the EC and the United States stating that both parties were able to 
reach agreement on most of the overall principles of GPS/Galileo 
cooperation, and both parties will continue to work diligently to 
resolve the few remaining outstanding issues which concern primarily 
some legal and procedural aspects. This cooperation should minimize the 
negative implications to United States GPS interests worldwide (civil 
government, military, industry, and user community) as a result of the 
potential future implementation of the European Galileo satellite 
system.
    On a more technical level, FAA has been managing a satellite based 
augmentation system (SBAS) technical interoperability working group 
since 1996 with participation by Europe and Japan to collectively 
ensure that technical interoperability issues are solved prior to the 
operational implementation of the United States (WAAS), European 
(EGNOS), or Japanese (MSAS) systems. FAA is also providing support to 
regional projects in South America and Southeast Asia to implement GPS 
augmentation system prototype capabilities. Successful results from 
these projects will influence the adoption of U.S. GPS and augmentation 
systems that will ultimately increase international flight safety for 
the U.S. aviation community.
                              glass beads
    Question. On March 6, 2001, the Engineering and Specifications 
Division, FAA, requested the Office of Aviation Research to analyze 
glass beads ``to determine if the new Visibead or Megalux bead are a 
viable alternative to the 1.9 or 1.5 IOR glass beads.'' (Project Number 
2000-589.) The FAA issued a Final Report in early 2003 that found the 
Visibead and Megalux bead to be acceptable. Given the cost savings 
associated with the use of these glass beads, why has the FAA waited 
over 12 months to certify the use of these glass beads as required for 
airport managers/engineers to use Visibead and Megalux beads on airport 
runways?
    Answer. The referenced study confirmed the acceptability of 
existing reflective glass beads and the newer Visibead and Megalux 
reflective glass beads, as well as newer formulations of water-borne 
paints. A draft change to the FAA paint specification has been 
initiated. In the meantime, an airport may ask for FAA approval on a 
project basis. The revised specification will contain generic language 
that both manufacturers of the newer glass beads can meet along with 
paint application rates specific to these newer beads. With the 
addition of these beads, three reflective media options will be 
available to an airport. In order of increasing initial cost, they are:
    1. Type I beads, commonly referred to as ``highway-grade'' beads.
    2. Type IV beads, the nomenclature used to refer to the Visibead 
and Megalux beads.
    3. Type III beads, commonly referred as ``airport-grade'' beads.
    Question. Can you assure the subcommittee that the FAA will certify 
the use of these glass beads on airport runways before the end of the 
current fiscal year?
    Answer. A new paint specification will be issued prior to the end 
of the fiscal year. It contains generic language that will allow 
contractors to use Visibead and Megalux reflective glass beads.
                       reliable cost information
    Question. There has been much discussion about the transition to 
the air traffic organization and the need to get good, reliable cost 
information. It is my understanding, however, that this information is 
not available, and it will take some time to do so. How long will it 
take to get this information?
    Answer. Since the FAA switched to the new Department of 
Transportation financial system (DELPHI) in November 2003, we have been 
working on reconciling and cleaning up the financial information for 
all organizations, including the ATO. In addition, we have been working 
to interface this new financial information into our Cost Accounting 
System (CAS). We plan to re-establish the CAS interface and begin 
producing cost reports with the first 8 months of fiscal year 2004 data 
in August 2004 and all fiscal year 2004 data in October 2004. We expect 
to get back to routine monthly CAS reporting in November 2004 with 
fiscal year 2005 data.
    Question. What stands in your way?
    Answer. This fiscal year, the FAA implemented new financial 
(DELPHI) and procurement (PRISM) systems. These systems were necessary 
for the FAA to address long-standing weaknesses in these areas. 
Improving these systems is the foundation on which we can implement a 
more business-like approach to running the agency. As with any major 
system changes, there were backlogs and interface problems that have 
taken several months to resolve. One of the interface problems we 
experienced is between DELPHI and the existing Cost Accounting System.
    Our first priority was to ensure that DELPHI provides accurate and 
timely financial information. DELPHI data must be accurate for cost 
accounting data to be accurate. We dedicated significant resources to 
clearing up DELPHI and PRISM backlogs through June 2004. In July 2004, 
we changed our focus to cleaning up some remaining issues with DELPHI 
data in support of the clean audit effort and to improving financial 
and acquisition business processes.
    Our second priority is to complete the DELPHI interface that 
supports the Cost Accounting System. We completed testing the interface 
in March 2004 and will complete the processing of the first 9 months of 
fiscal year 2004 cost accounting data in early September 2004. All 
fiscal year 2004 cost data will be processed by late October 2004. In 
fiscal year 2005, we plan to return to monthly processing of the cost 
accounting data. We also continue to improve our labor distribution 
reporting for our Air Traffic Organization.
                                 ______
                                 
              Questions Submitted by Senator Sam Brownback
                  center weather service units (cwsu)
    Question. I understand you are in the process of modernizing the 
FAA's air traffic operations and that updating and improving the Center 
Weather Service Units (CWSU) is part of that plan. I see many positive 
things in this plan that will enhance safety such as improved training, 
standardization among units, and instituting 24-hour operations. 
However, some of my constituents who are members of the National 
Weather Service (NWS) Employees Organization are concerned that a 
portion of this plan would no longer require a CWSU meteorologist at 
each of the 21 Air Route Traffic Control Centers (ARTCC). Would this 
plan leave some air traffic controller and management personnel without 
immediate, on-site meteorologist assistance? If so, how would this 
impact safety?
    Answer. There are several different configurations for 
restructuring the CWSU under consideration. The FAA and the NWS are 
collaborating to come up with a configuration and placement of 
personnel that will improve safety. Further, we intend to take full 
advantage of revolutionary improvements in communications technology 
that have been developed since the CWSUs were first put in place more 
than 25 years ago (1978).
    We recognize the concept of ``on-site meteorological assistance'' 
as essential for the safe, efficient management of air traffic. 
Frankly, that is why the NTSB has also been concerned that weather 
support be available at TRACON facilities and airport traffic control 
towers--as well as at the CWSUs--at all times when significant weather 
is forecast.
    Partly in response to these NTSB recommendations, we intend to 
design a system where all FAA field facilities get on-site weather 
assistance on a 24-hour basis, 7 days a week. The foundation of modern 
weather services is electronic and automated, rather than human. We 
recognize the impossibility of putting a meteorologist into every field 
facility of the FAA: air route traffic control centers (ARTCC), 
TRACONs, ATCTs and flight watch facilities of the automated flight 
service stations.
    Thus, I can assure you that the improvements that we are planning 
for the CWSU will not leave air traffic controller and management 
personnel without immediate, on-site meteorological assistance. As an 
example, the service they now receive from the on-site meteorologist 
will improve immediately by 50 percent simply by operating 24 hours a 
day, rather than the present two shifts a day. However, this does imply 
the assistance that all facilities receive (including the ARTCCs) will 
be electronic and automated. This design is not only economical, but 
will be a great improvement in services compared with current level of 
operations.
    Of course we are planning several sites where human weather support 
is always available 24 hours a day in case human intervention or 
consulting on critical weather problems is needed. However, their 
support will cover a regional domain, rather than just meeting local 
needs. This is the most economical use of trained meteorologists. 
Further, the NWS has proposed to train and reward these forecasters 
consistent with their larger responsibilities.
    We recognize the employees union of the NWS, the National Weather 
Service Employees Organization, is concerned about changes. The NWS is 
a full partner in these plans.
                            general aviation
    Question. General aviation is very important to Kansas, given the 
presence of airplane manufacturers, avionics manufacturers, and the 
6,000 pilots across the State. What steps are being taken to ensure 
that general aviation pilots have access to the latest technology?
    Answer. The FAA has worked in partnership with the general aviation 
(GA) industry to promulgate standards and guidance material to ensure 
that GA pilots have access to the latest technology.
    The FAA recently published Technical Standard Order (TSO) C-145 and 
C-146 for WAAS for the Global Positioning System (GPS). This TSO allows 
avionics companies, such as Garmin and Honeywell, to self-certify WAAS 
equipment for installation in the GA fleet.
    The FAA's Wichita Aircraft Certification Office has recently 
approved several new technology projects for use in the GA fleet. Both 
projects are navigation equipment and flight deck weather display 
applications.
    The FAA has also published guidance material in the form of an 
Advisory Circular (AC) that considerably simplifies the requirements 
for GPS equipment installation. Due to the wealth of experience gained 
by FAA and industry in installing GPS equipment, this AC removes many 
of the burdensome requirements formerly associated with a GPS 
installation. The FAA has worked with avionics companies to streamline 
installation requirements for many GA operators.
    Question. For example, the President's budget calls for GPS landing 
systems nationwide--a move that would greatly improve the safety of 
flying in difficult weather conditions. With precision satellite 
signals now available, how is the implementation of this system 
progressing?
    Answer. The FAA commissioned WAAS in 2003. The WAAS system provides 
greatly improved accuracy, integrity and continuity for aircraft during 
precision approach operations.
    The FAA published TSO C-145 and C-146 as minimum design standards 
for WAAS avionics. The FAA evaluated the potential of the new GPS L5 
signals and has approved a new WAAS acquisition program baseline that 
exploits these signals to improve the reliability of operations in the 
presence of interference and severe atmospheric conditions. It 
introduces a new Category I precision approach capability.
    The FAA has also chartered the Required Navigation Performance 
(RNP) program. The program is a combined effort of Air Traffic, Flight 
Standards, and Aircraft Certification. The RNP program exploits the 
navigation capability of present aircraft to use precision approaches 
at many airports.
                                 ______
                                 
              Questions Submitted by Senator Patty Murray
              advanced technologies and oceanic procedures
    Question. Ms. Blakey, the Inspector General's status report points 
out that the FAA's operating cost estimates for Advanced Technologies 
and Oceanic Procedures (ATOP) are almost 3 years old and that there are 
remaining challenges associated with controller and technician training 
and acceptance of the technology. Do you agree with the Inspector 
General's assessment of the cost and schedule of the ATOP program?
    Answer. The Inspector General's status report points out that the 
FAA's operating cost estimates for ATOP are almost 3 years old and that 
there are remaining challenges associated with controller and 
technician training and acceptance of the technology. The FAA is 
currently revalidating its operating cost estimates. Both controllers 
and maintenance technicians have also been involved in numerous 
validation and testing activities, and have been deeply involved in the 
development and review of the vendor's training materials. ATOP 
training is ongoing and to this point has received positive feedback 
from the user community.
    Question. What can you tell us about the comfort level of the 
controller workforce in using this system?
    Answer. Controller and maintenance personnel were members of the 
ATOP evaluation team prior to contract award and have been heavily 
involved in the program for the last 4 years, from design to on-site 
operations. The site product teams have also been involved in numerous 
validation and testing activities.
    The ATOP Build 1 system test program successfully used a systematic 
approach to evaluate the ATOP system under a range of simulated and 
live operational conditions that were representative of those found at 
the Oceanic facilities. System test was conducted through a semi-
structured exercise that permitted field participants to perform 
typical and non-typical assessments and evaluations to determine the 
operational suitability of the ATOP system.
    The field believes that the ATOP system is operationally suitable 
contingent on the resolution of the issues documented. All issues are 
tagged according to their specified completion timeframes (e.g., by 
Site Acceptance Test (SAT), Field Familiarization (FF), First Course 
Conduct (FCC), and Initial Operating Capability (IOC). The ATOP team 
continues to verify software fixes, conduct regression testing, and 
monitor system changes and the resulting impacts to operational 
suitability. Any issues that may emerge or re-emerge in subsequent 
testing or validation activities will be evaluated for their 
operational impact.
    Question. As for training, have the training materials been fully 
developed and will you have to expedite the training process to meet 
the June deployment date in Oakland?
    Answer. Training materials have been fully developed for both 
controllers and maintenance technicians. Both groups' personnel have 
been deeply involved in the development and review of all training 
materials. The first training course is now underway for maintenance 
technicians and has received positive feedback. ATOP went live in 
Oakland on June 30, 2004.
                           revenue diversion
    Question. The Inspector General's office has put a spotlight on the 
issue of airport revenue diversion with your recent report on San 
Francisco International Airport and your current review of potential 
revenue diversion at Los Angeles International Airport. Mr. Mead's 
testimony suggests that the FAA is not exercising adequate oversight in 
this area. Ms. Blakey, what additional steps is the FAA taking to make 
sure that airport revenues are not being diverted to other activities?
    Answer. Unlawful revenue diversion generally occurs when an airport 
sponsor, usually a city or county, overcharges its airport for 
services, thereby diverting revenue from airport use. Revenue diversion 
is more likely to be a problem at larger airports and at city- or 
county-owned airports rather than independent airport authorities.
    FAA has a number of different ways to detect unlawful revenue 
diversion. First, the agency reviews the annual financial reports that 
all commercial use airports are required to file with the FAA as a 
result of the 1994 FAA Reauthorization Act. Second, we review the 
findings of audits of airport revenue under the Single Audit Act, and 
have issued new guidance to the field offices to ensure they correctly 
analyze those findings. Third, FAA receives complaints of revenue 
diversion filed by companies and individuals doing business with an 
airport. Fourth, when the Office of the Inspector General (OIG) reports 
audit findings of unlawful revenue diversion by an airport operator, 
the agency investigates and requires corrective action to resolve the 
findings.
    When we identify a potential unlawful revenue diversion, we contact 
the airport and require an explanation. When we conclude that airport 
revenue has been improperly used, we require the diverted revenue to be 
refunded to the airport with interest.
    Recently, in coordination with the OIG, we have taken the 
additional steps of identifying airports at higher risk of revenue 
diversion and focusing spot checks on financial transactions at those 
airports.
                   baseline review of waas and stars
    Question. Ms. Blakey, last year, Chairman Shelby asked you to name 
the three modernization projects that were most important to the future 
of the aviation system. Two of the programs you named, STARS and WAAS, 
are being rebaselined. When can we expect to see the details of your 
request for STARS and WAAS?
    Answer. STARS--FAA has modified its strategy for Terminal 
Automation Modernization into a three-phased approach, starting with 
the most critical Terminal Radar Approach Controls (TRACONs.) This 
approach breaks large, complex terminal modernization acquisitions into 
phases that mitigate Government, vendor, and deployment costs and 
risks. This three-phased acquisition approach allows FAA to select a 
``best value'' system and pace the automation system replacements and 
upgrades to fit within the FAA's capital investment program and meet 
critical National Airspace System requirements.
    Terminal Automation Modernization was re-baselined on April 20, 
2004. We have just recently provided the details for fiscal year 2005 
to the subcommittees. In the re-baseline, Terminal Automation is 
requesting $113.9 million for Facilities and Equipment in fiscal year 
2005 for Phase 1 of the modernization program.
    The terminal automation baseline, approved by the Joint Resource 
Council (JRC), is for the Full Production and Deployment to the 
remaining 31 of its 50 most critical Terminal locations (Phase 1). In 
accordance with Congressional direction, the option to Phase 1 
(Chicago's Common ARTS IIIE and the two Common ARTS IIEs) will only be 
implemented after the Department of Transportation (DOT) Inspector 
General (IG) reviews and validates the life cycle costs and performs 
other relevant analysis. Phases 2 and 3 will be priced and presented 
separately at JRCs in future years. For the follow-on phases, FAA is 
developing a business case considering STARS and all other viable 
terminal modernization alternatives and will provide comparative cost/
benefit data to the DOT IG for their review before awarding a contract 
for Phase 2 or 3.
    Since FAA is the acquisition lead for the joint DOT and DOD STARS 
program, in accordance with Title 31, USC 1535, the Economy Act of 
1932, rebaselining the FAA portion of the STARS program directly 
affects deployment of STARS at DOD sites within the Continental United 
States (CONUS) and outside the CONUS. The goal of the agreement is to 
avoid Departmental duplications of independent acquisitions, life 
cycles, and system-unique training of air traffic controllers and 
technicians. A joint DOT and DOD platform avoids duplicate civil and 
military development and sustainment expenditures.
    WAAS was re-baselined on May 3, 2004. We recently provided the 
details of the request for fiscal year 2005 to the subcommittees. In 
the re-baseline, WAAS is requesting $100.03 million for Facilities and 
Equipment in fiscal year 2005.
    Question. How, if any, have the plans and capabilities of these two 
systems changed from last year?
    Answer. STARS--The Terminal Automation Modernization plan has 
changed to a multiple-phased approach, starting with the most critical 
TRACONs. This reflects the FAA's changing processes and philosophies to 
demonstrate a consistent and continuous business approach. A key 
element of this approach breaks large, complex modernization 
acquisitions (i.e., STARS) into phases that mitigate Government, 
vendor, and deployment costs and risks. This three-phased acquisition 
approach allows the FAA to select a ``best value'' system and will also 
use mostly fixed-price arrangements as opposed to cost-plus contracts. 
The FAA Joint Resources Council approved STARS for full production and 
deployment to its 50 most critical terminal locations (Phase 1) on 
April 20, 2004.
    The STARS national baseline continues to evolve to meet National 
Airspace System requirements. Additional functionalities have been 
added to incorporate site-specific local patches, NTSB and Homeland 
Security enhancements, mirror Common ARTS developments, and satisfy DOD 
requirements for their worldwide operation. For all follow on phases 
and systems (Common ARTS IIIE and STARS), additional capabilities will 
be added for in later phases. Each phase will be priced and presented 
separately at future JRCs.
    WAAS will provide full Category One precision approach capability 
when it is completed. It will do this by using the new capabilities of 
the GPS satellite constellation when they become available. WAAS is now 
providing a near Category One capability over most of the United 
States. WAAS will be incrementally improved between now and 2008 to add 
additional ground hardware and system software to provide this near 
Category One capability over the entire continental United States and 
Alaska at all times. When the modernized GPS provides sufficient 
numbers of new satellites with the L5 signal capability, WAAS ground 
receivers and system software will be modified to use it. WAAS will 
then provide full Category One capability.
                          the new seatac tower
    Question. Ms. Blakey, as you are aware, we are about to commission 
a brand new air traffic control tower at Seattle-Tacoma International 
Airport. Certain offices of the FAA are now maintaining that your 
agency located this tower in the wrong location. How was it that the 
FAA built a brand new air traffic control tower, but put it in a less-
than-ideal location?
    Answer. The Seattle Air Traffic Control Tower (ATCT) siting study 
was completed in April 1997. The final location and height 
recommendation was based on meeting the FAA's existing siting criteria 
standards. These include providing a clear and unobstructed view of all 
controlled aircraft movement surfaces, adequate depth perception and 
perspective, and minimum desired look down angle to provide a clear 
line of site to furthest operational areas. In addition, an analysis 
was performed to understand the impact of applying Terminal Instrument 
Approach Procedures (TERPS) that were current at the time to determine 
any impacts to the IFR capabilities of the airport. The potential 
impact created by the height of the new ATCT on Runway 16L during 
periods of poor weather (CAT II/III operations) was raised during the 
siting process. When the TERPS analysis indicated that the decision 
height (DH) for CAT I operations on runway 16L would be raised, a 
determination was made by the FAA that the criteria at the time allowed 
for CAT II/III operations with a CAT I Decision Height in excess of the 
standard.
    The new ATCT was designed and sited at the preferred location at 
the lowest optimum height. After construction on the new ATCT was 
substantially complete (end of 2002), the FAA revised its procedures 
and no longer permitted CAT II/III operations when the landing minimums 
for CAT I approach have been raised.
    Because the new ATCT was almost complete, we established a cross-
organizational working group to determine mitigation strategies. The 
team has been working on developing strategies that will provide the 
safe operation of the CAT I approach procedures while meeting the 
planned capacity of the airport. These potential strategies include 
radar-monitored final approach aid, redirecting slower speed category 
aircraft, advanced avionics, policy changes, special procedures and 
improved radar surveillance systems. FAA is currently conducting 
modeling and analysis to evaluate the feasibility and determine the 
full impact of implementing the preferred mitigation strategy. The 
analysis was completed in June 2004. A report of the study's outcomes 
will be published in August.
    Question. The Port of Seattle is still waiting to hear how the FAA 
plans to address this concern about the location of the tower. Is there 
any risk that the FAA's remedy for this situation could result in there 
being a diminished number of takeoffs or landings allowed by any types 
of aircraft at SeaTac International?
    Answer. In August 2003, the FAA Northwest Mountain Regional 
Management Team chartered a cross-organizational regional working group 
to develop a proposal that mitigates the ATCT height, ensures an 
equivalent level of safety, and meets the planned capacity at SeaTac.
    The working group evaluated eleven potential mitigation strategies 
and ranked them with regard to the potential of ensuring an equivalent 
level of safety, maintaining current and planned capacity at SeaTac, 
and the feasibility of effecting the strategy. The strategies include 
radar-monitored final approach aid, redirecting slower speed category 
aircraft, advanced avionics, policy changes, special procedures, and 
improved radar surveillance systems.
    The FAA Flight Technologies and Procedures Division is conducting 
modeling and analysis to evaluate the feasibility and to determine the 
full impact of implementing the mitigation proposals. This analysis is 
expected to be completed this month, and should allow for 
implementation of a strategy well in advance of the September 2006 date 
when Runway 16L is scheduled to become an ``all weather'' runway.
                 joint planning and development office
    Question. I believe that the subcommittee is now prepared to 
approve your reprogramming request to launch the Joint Planning and 
Development Office (JPDO). I support this initiative and the 
interagency efforts that are supposed to be brought together by DOD, 
NASA, the White House and the Departments of Commerce, Defense and 
Homeland Security. Are you at all concerned that you will not gain the 
level of cooperation from the other Federal agencies that you need in 
order for the JPDO to fulfill its mandate?
    Answer. The subject of our Air Transportation System is no longer 
solely an FAA interest. All six members of the JPDO recognize the need 
for close cooperation in this area. We have formed the JPDO and have 
representatives and principals, from all six members actively engaged 
in JPDO activities and working to develop the first edition of the 
national plan. This year's plan will provide the foundation for the 
following years' plans. We are also developing an MOU that will further 
define responsibilities and resources necessary to make the JPDO 
successful.
    Question. I understand your budget is allocating only $5 million a 
year to this initiative. Do you think that level of funding will 
demonstrate a strong enough commitment on the part of the FAA to bring 
all of the other agencies to the table in a meaningful way to develop 
the next generation of our aviation infrastructure?
    Answer. Basic financial support for the JPDO in fiscal year 2004 
came from both FAA and NASA. The FAA contribution was $4.4 million and 
NASA's was $5.38 million. Other members of the office contributed 
employees and some contractors. The fiscal year 2005 FAA budget will 
allow the office to hire 3 FTE and expand our work to begin limited 
integration. The office will rely on NASA to support the needed 
research for the program. Several interested groups, including our own 
Executive Advisory Committee, have recommended that we rapidly expand 
our systems integration activity. We are now studying this 
recommendation. If we decide that it is necessary to move more quickly 
in the systems integration area, it will cause us to modify our 
request.
    The FAA continues to strongly support the formulation of a national 
plan for the next generation air transportation system. The $5 million 
is for the support of the JPDO office itself. The national plan will 
encompass significant resources throughout the participating 
organizations of the Department of Transportation (FAA), Defense, 
Homeland Security, Commerce, and NASA.
             termination of long-term procurement projects
    Question. Ms. Blakey, when you look at the projects that you have 
shelved because of the need to cut $400 million out of your procurement 
budget, they appear to be those projects that were scheduled for 
deployment in the more distant future. However, they also represent 
some of the most critical projects necessary for taking the technology 
of our air traffic control system to the next level. For example, your 
agency is pulling the plug on its so-called Data Link Communications 
System, where aircraft sends a stream of data to air traffic 
controllers so that all that information does not need to be 
communicated by voice. This subcommittee has made significant 
investments in your Free Flight initiative and, by your agency's own 
admission, the full deployment of data link is essential to getting the 
maximum utility out of your Free Flight initiative. Part of the 
rationale that you have given as to why we can set these projects aside 
is because the financially strapped airlines are not yet in a position 
to equip their aircraft with this most up-to-date equipment. Isn't it 
true, however, that the FAA has not customarily waited to modernize the 
system until the airlines are ready, willing and enthusiastic about 
deploying new equipment?
    Answer. The FAA has always considered our partners in the airlines 
when making major investment decisions, particularly those that require 
reciprocal equipage on their part in order to achieve real operational 
improvements. When there is a commitment to equip on their part, the 
FAA has moved out smartly to invest in the ground infrastructure and 
procedure development side. A case in point is Domestic Reduced 
Vertical Separation Minimum (DRVSM). Alternatively, when an equipage 
commitment from the airlines is less firm, the FAA has adopted a 
rational ``go slow'' approach wherein the FAA has developed the 
technology and fielded it in a limited number of locations. In cases 
where the airlines need to defer investments, it is prudent for FAA to 
do the same. Two cases in point are Controller-Pilot Data Link 
Communications (CPDLC) and the Local Area Augmentation System (LAAS).
    Question. Is not there a real risk that we will dramatically slow 
the advancements that we make in modernizing our air traffic control 
system if we wait and wait and wait until the airlines say that they 
are ready to make the investment?
    Answer. Capital investments that do not achieve improvements in 
operational efficiency due to airline non-equipage simply increase the 
FAA's costs without improving performance. In business terms, there is 
no return on the investment. Such investments should be eliminated. On 
the other hand, investments that modernize our system, but do not 
require airline equipage (e.g., ERAM and Terminal Modernization) will 
continue because they will achieve operational efficiencies and 
performance.
                          rulemaking authority
    Question. Your agency has the authority to require safety 
improvements to aircraft when you believe that they are beneficial for 
safety and the most efficient use of the air space. Have you given up 
on using that tool to advance improvements in our aviation system?
    Answer. The FAA has rulemaking authority. The FAA ranks each 
proposed rule in terms of its safety effect. The FAA then does a cost-
benefit analysis to make sure the proposed rule is worth its cost, 
which is ultimately borne by the flying public.
    A recent example of the FAA's use of rulemaking authority to 
require safety improvements to the aircraft is the insulation 
flammability rule which was issued on July 14, 2003, which is designed 
to reduce the flammability of aircraft insulation (and thereby prevent 
the spread of fire). This rule requires manufacturers of new airplanes 
that enter service after a phase-in period to equip them with 
insulation that passes improved flammability test and requires air 
carriers, operating under Part 121, to use insulation meeting the new 
flame propagation requirements when they replace insulation.
                     security at the auburn tracon
    Question. In the age of heightened security, it has become even 
more important that we make sure that our air traffic control 
facilities have sufficient security measures in place. It was reported 
a few weeks ago that the TRACON facility in Auburn, Washington that is 
about to be completed would not be provided security guards even though 
the FAA built a guardhouse at the facility. Ms. Blakey, can you explain 
to us why you decided to forego security at this particular air traffic 
facility in Auburn?
    Answer. FAA considers a number of factors when determining security 
requirements for its facilities. These include employee population, 
physical size, and the criticality of the facility to the National 
Airspace System. When developing security requirements for an 
individual facility, these factors plus an evaluation of local area 
risk and geography are used.
    When the Seattle Terminal Radar Approach Control (TRACON) facility 
was designed and built, guards were required by FAA policy. Since then, 
FAA has migrated away from using guards at this type of facility. The 
main reason is our analysis of the security risks to these facilities, 
as well as the maturing of other aspects of FAA's Facility Security 
Management Program. In short, FAA determined that sufficient safeguards 
exist at facilities of this type, making a guard force unnecessary. 
Existing security measures at the Seattle facility include an extensive 
camera system that monitors key areas, and a secure access system for 
the property and building. In addition, the facility meets the 
security-required setbacks and has security fencing.
    The policy change that removed the requirement for guards was put 
into effect in August 2003. We now reserve guard use at TRACON 
facilities that are significantly larger than the Seattle TRACON.
    Even though the national policy shifted, with designs completed and 
construction underway, it was prudent to continue with the planned 
security measures. The guardhouse will provide us with future 
flexibility without incurring additional cost. We will provide guard 
services if the TRACON meets the established criteria for such measures 
in the future.
                                 ______
                                 
                Questions Submitted by Senator Herb Kohl
                                 loran
    Question. In recent years, this subcommittee has provided nearly 
$120 million to the FAA and the Coast Guard to modernize the LORAN 
infrastructure through an existing Memorandum of Agreement between the 
agencies and DOT that was last updated in 2003. This work continues to 
be one of my important priorities. Repeated technical and economic 
studies by government, academics, industry and others provide 
convincing evidence of the need for and benefits of LORAN as a cost-
effective national asset to back up satellite navigation technology. 
Numerous infrastructure safety and efficiency improvement projects have 
already been completed and many other projects necessary to complete 
the modernization effort are already underway. LORAN is United States 
technology that is among the most widely used radio navigation systems 
worldwide and, aside from satellite technology, it is the only other 
multi-modal navigation system available to meet our national 
transportation system safety and security objectives. Over the past 
several years, DOT has promised to formulate a policy dealing with the 
long-term future of LORAN. What is the status of such a policy?
    Answer. The FAA, in conjunction with Coast Guard, academic, and 
industry team members, delivered a technical report to DOT on March 31, 
2004. This report evaluated whether LORAN could satisfy the current 
non-precision approach (NPA), harbor entrance approach (HEA), and 
timing and frequency requirements, and its capability to mitigate the 
impact of GPS outage on GPS position, navigation, and time 
applications. Similarly, the Volpe National Transportation System 
Center delivered their independent LORAN Benefit/Cost analysis to DOT 
on the same date. The administration will make a policy decision on 
LORAN following review of these reports.
    Question. What is the FAA doing to ensure the continuation of a 
modern and secure LORAN system?
    Answer. The FAA has utilized the funding provided by the 
subcommittee to significantly modernize the LORAN system 
infrastructure. Working closely with the United States Coast Guard, the 
three aging tube transmitters have been replaced with modern, state-of-
the-art solid state transmitters, new timing and frequency equipment 
has been installed, and each LORAN station has been supplied with three 
new cesium clocks. LORAN stations have also installed uninterruptible 
power supplies to preclude even momentary outages during power outages. 
The FAA has also conducted significant research in modern LORAN 
receiver technology and has developed prototypes for aviation and 
maritime users and for other potential markets. It should be noted that 
the administration does not support funding for LORAN in DOT. Funding 
for LORAN should be provided to the Coast Guard since it is primarily a 
maritime system.
                   faa policy on airspace violations
    Question. On January 15, a pilot of a small Cherokee airplane took 
a 4-hour flight that took him through the approach path of Philadelphia 
International Airport, buzzed commercial airliners and the Philadelphia 
Naval Shipyard, and came within a quarter-mile of the cooling towers of 
the Limerick nuclear power plant. When the small plane finally landed, 
the pilot's blood alcohol level measured 0.15. While the pilot could 
face charges of risking a catastrophe and reckless endangerment, the 
incident also highlighted an important deficiency in the FAA's ability 
to deal with such situations. While air traffic controllers and 
supervisors followed required protocol, it's clear that the current 
system is lacking in terms of both prevention and enforcement of 
airspace violations. What is the FAA policy on dealing with airspace 
violations?
    Answer. The FAA's policy is to administer enforcement action on 
airspace violations. The FAA takes seriously the willful violation of 
Federal Aviation regulations. The range of enforcement sanctions can 
include warning letters, fines or certificate action, such as 
revocation. In the case mentioned, the pilot's license was revoked 
within 7 days of the incident.
    Question. What would the FAA need in order to develop a quicker 
response system, one that could account for any such airspace 
violations in the future?
    Answer. Aircraft that are flying in Visual Flight Rules (VFR) mode 
are required to display a beacon code of ``1200,'' however, aircraft 
flying outside of controlled airspace (i.e., outside the Philadelphia 
International Airport Class B), have no requirement for the pilot to 
talk to air traffic controllers or file a flight plan. This VFR mode 
allows pilots a great deal of freedom in operating their aircraft, 
while reducing the burden on the National Airspace System of 
identifying and talking to every aircraft. On a clear weather day, VFR 
aircraft can be counted in the hundreds, especially in large 
metropolitan areas of the country. It would be an overwhelming burden 
on air traffic controllers to identify and separate these aircraft from 
one another.
    When the identity of an aircraft is known and the air traffic 
controller has the ability to talk to that aircraft, the pilot is given 
instructions to avoid a restricted area. When a violation has occurred, 
the pilot is advised of the error and instructed to call the 
appropriate FAA facility for a briefing and follow-up with the Flight 
Standards District Office (FSDO), which can take place immediately or 
several hours after the incident.
    In the January incident, air traffic controllers were able to 
observe the aircraft's target on the radar scope for a portion of its 
flight, but never communicated with the pilot; many attempts to contact 
the pilot on ``Guard frequency 121.5'' were unsuccessful. To prevent 
situations like this, it would be necessary to change the rules for 
flying in VFR conditions by requiring two-way communications with air 
traffic controllers, discrete beacon code assignment, and mandatory 
filing of flight plans. The NAS is not capable of handling these 
capabilities at this time.
    Question. Would you agree that we should strengthen Federal law as 
it applies to airspace violations?
    Answer. The FAA does not believe that any changes to Federal law 
are necessary to address airspace violations. The current sanctions 
that we have available, i.e., suspending or revoking pilot certificates 
and imposing civil penalties, have proven to be sufficient. The agency 
rarely sees reckless violations of the sort committed by the pilot in 
Philadelphia. That pilot's certificate was revoked on an emergency 
basis. In addition, he was charged with State criminal violations for 
his conduct.
                                 ______
                                 
            Questions Submitted by Senator Richard J. Durbin
                  chicago o'hare international airport
    Question. How do you expect to proceed on addressing aviation 
congestion and flight delays at Chicago O'Hare International Airport in 
addition to the temporary, voluntary flight reductions during peak 
hours? When will data on the flight reductions be available?
    Answer. In Vision-100, Congress gave the FAA a number of new tools 
to use when demand exceeds capacity at an airport. Under Section 422, 
the FAA can schedule delay reduction meetings, under Section 423, we 
can engage in collaborative decision making.
    United Airlines, Inc. (UAL) and American Airlines, Inc. (AAL), 
agreed to an order cutting peak hour operations by 7.5 percent--5 
percent in March and 2.5 percent starting in June. The Department of 
Transportation and the FAA deferred convening a schedule-reduction 
meeting under Section 422, in order to allow the operational limits to 
take effect and assess the impact on congestion and delay. The orders 
currently expire on October 31, 2004.
    To augment these reductions, on June 13, 2004, FAA adopted new air 
traffic procedures for use under certain runway combinations at O'Hare 
that increases capacity and efficiency, especially for departing 
flights, by several operations each hour when conditions permit. The 
FAA is currently monitoring the results of the recent changes in 
schedules and procedures. We will analyze the operation under various 
weather conditions over the coming weeks before determining whether 
additional action is required.
    The total daily flight reduction as a result of the 7.5 percent 
reduction by UAL and AAL has been 91 total flights during the most 
congested hours of 12 noon until 8 p.m. Many of these flights have been 
shifted to other hours. These are all short-term methods, with the 
long-term goal of addressing congestion by gaining additional capacity 
at the airport and throughout the National Airspace System. This 
administration is committed to addressing aviation congestion in both 
the short and long term and working with the carriers and local 
authorities.
    Question. Can you explain the time line, including the EIS, for the 
O'Hare modernization project?
    Answer. The City of Chicago is proposing a substantial 
reconfiguration of O'Hare International Airport under an initiative 
called the O'Hare Modernization Program (OMP). The city submitted a 
draft Airport Layout Plan (ALP) depicting the OMP proposal to FAA in 
December 2002 and a Master Plan document in February 2004. FAA comments 
on the ALP were provided to the city in mid-2003. Based on those 
comments, the city presented a revised ALP to FAA in October 2003. The 
FAA is also reviewing the Master Plan and preparing an Environmental 
Impact Statement (EIS) regarding the OMP proposal. Ultimately, the FAA 
must issue a favorable EIS Record of Decision and subsequently approve 
the ALP before the City of Chicago can begin construction.
    The ALP and Master Plan review are ongoing at this time, and the 
EIS process is underway. On April 15, 2004, the FAA issued a letter to 
the City of Chicago outlining FAA's projected EIS schedule. The 
projected schedule reflects availability of a Draft EIS in February 
2005 and an EIS Record of Decision in September 2005.
    The EIS schedule was developed after extensive coordination between 
the FAA, its EIS contractor, and all involved subcontractors. The FAA 
sees the projected EIS schedule as an aggressive but achievable 
schedule, with significant effort having been devoted to streamlining 
the EIS process while simultaneously assuring the thoroughness and 
integrity of the process. FAA's efforts in regard to process 
streamlining include the development of written agreements with other 
involved government agencies that will yield efficiencies in our 
collective effort to complete an environmental assessment of the OMP 
proposal.
    The City of Chicago projects the commissioning of its first new 
runway approximately 30 months after receipt of FAA approval. 
Approximately 2 years thereafter, the city projects the commissioning 
of its second new runway as well as the extension of one of O'Hare's 
existing runways. In total, the city projects a 10-year time frame for 
full implementation of the OMP. Throughout this period, substantial FAA 
work will be required to support the numerous National Airspace System 
changes necessitated by the OMP. The FAA is currently engaged in 
planning work associated with these NAS changes so as to be prepared 
for implementing the changes should the OMP be approved.
                   chicago midway and o'hare airports
    Question. I would like to ask you to look into two Chicago Airport 
System projects that were included in the fiscal year 2004 Omnibus 
Appropriations conference report (Transportation-Treasury title), at my 
request. First, $4 million for various improvements at Midway Airport 
related to capacity expansion. And second $1.5 million for CAT II/III 
instrumentation for Runway 27L and Runway 27R at O'Hare. It is my 
understanding that the FAA has not yet released funding. Please explain 
any outstanding issues within the FAA related to these projects and 
give me an estimate as to when the funding will be released?
    Answer. Regarding the $4 million for airport improvements at 
Midway, the airport originally desired to use the Airport Improvement 
Program discretionary funds to help finance expansion of passenger 
screening capacity in the terminal. Terminal work of this kind cannot 
be funded with discretionary funding. Working with the airport, FAA has 
identified other projects of high priority for the airport and FAA that 
can be financed with discretionary funds. We are in the process of 
increasing the airport's existing Letter of Intent by $4 million to 
include these items. We expect to notify Congress of our intention to 
issue the grant for these funds within 30 calendar days following 
completion of all environmental documentation.
    The upgrade of Runway 27L and Runway 27R at Chicago O'Hare is an 
on-going FAA project with $4 million of fiscal year 2003 funding 
already obligated on the National Construction Contract to do the work. 
The FAA is currently conducting the environmental assessment and 
engineering design. The ILSs and ALSF-2s have been purchased. The $1.5 
million in fiscal year 2004 funding completes the estimated $5.5 
million project. FAA plans to obligate the remaining funds by October 
2004 to start construction activities.
                                 ______
                                 
       Questions Submitted to the Office of the Inspector General
            Questions Submitted by Senator Richard C. Shelby
    Question. What do you believe is the most significant safety 
concern facing FAA?
    Answer. As air traffic operations increase and the demand for air 
travel rebounds, there are two safety indicators to watch--runway 
incursions (potential collisions on the ground) and operational errors 
(when air traffic controllers allow planes to come too close together 
in the air). Runway incursions and operational errors pose a 
significant safety risk. We have seen some progress on runway 
incursions, with the number of incidents decreasing in fiscal year 2003 
and continuing to decline during the first 8 months of fiscal year 
2004; however, the most serious runway incursions increased. In 
addition, operational errors increased in fiscal year 2003 with an 
average of three operational errors each day and one serious error 
(those rated as high risk) every 7 days. Although operational errors 
decreased marginally during the first 8 months of fiscal year 2004, 
they are still much too high.
    In addition, while FAA and U.S. air carriers have maintained a 
remarkable safety record, a significant emerging issue for FAA will be 
to adjust its safety oversight to changing trends in the aviation 
industry. For example, in response to record-breaking monetary losses, 
major air carriers are making unprecedented changes, such as 
outsourcing more of their aircraft maintenance. While major air 
carriers outsourced 37 percent of their aircraft maintenance expense in 
1996, the amount spent on outsourced maintenance increased to 50 
percent in 2003.
    Another trend FAA will need to monitor is the growth of low-cost 
and regional air carriers. While network air carriers have been losing 
money and restructuring their operations, low-cost air carriers have 
experienced phenomenal growth and have increased their market share of 
passengers from 17 to 22 percent. This trend is projected to continue 
with FAA forecasting that low-cost and regional air carriers will 
account for more than 50 percent of the passenger market share in 2015.
    Question. What progress is the FAA making on addressing the long-
standing problems in its procurement process? Has procurement authority 
that Congress gave the FAA improved or hindered the FAA's ability to 
deliver capital programs?
    Answer. First, with respect to acquisition reform, Congress gave 
FAA two powerful tools in 1996 by granting relief from Federal 
personnel and procurement rules, both of which the agency believed were 
hindering its ability to modernize the National Airspace System. FAA 
has not taken full advantage of this flexibility. Our work shows 
procurement reform at FAA has produced mixed results. While contracts 
are awarded faster, there has been little bottom line impact on cost 
and schedule problems with major acquisitions. For example, last year 
we analyzed 20 major acquisitions and found that 14 of these projects 
experienced cost growth of over $4.3 billion, which represents 
considerably more than 1 years' annual appropriation for modernizing 
the National Airspace System.
    Administrator Blakey and her team are well aware of the problems 
with major acquisitions, such as entering into long-term cost plus 
contracts before requirements are understood, unreliable cost and 
schedule baselines, and poor contract management, that have led to 
significant cost growth and schedule slips. FAA now has a chief 
operating officer and is transitioning to a performance-based 
organization for air traffic, and plans to change how the agency 
procures new air traffic control equipment. The key will be follow-
through.
    Question. When and at what cost do you expect the FAA to have fully 
functional ATOP systems replace the obsolete technology in Anchorage, 
New York, and Oakland Centers?
    Answer. FAA's schedule calls for completing the installation of the 
last ATOP facility, Anchorage, in March, 2006. FAA's cost estimate to 
develop and field ATOP is $548 million (from the Facilities and 
Equipment Account) with an additional $1.06 billion to maintain and 
operate the system over its useful life (which is paid for through the 
Operations Account).
    ATOP is approaching a key milestone at the end of June 2004--
completing site testing at Oakland. If FAA can successfully complete 
site tests, necessary training, and satisfy any last minute needs of 
Oakland users, agency officials believe that the program will probably 
move forward within its cost and schedule goals and deploy ATOP as 
planned to New York (March 2005) and Anchorage (March 2006). However, 
if Oakland experiences significant delays to the current schedule, or 
unforeseen defects are uncovered, the entire ATOP program will be 
vulnerable to additional cost growth and schedule delays.
    Question. It seems as if the STARS procurement is through the most 
difficult phase of the procurement cycle and your testimony indicates 
that the anticipated resources for this program will decline in the 
coming years.
    How do you compare the relative risk remaining in the program 
compared to other major FAA programs such as WAAS, ASR-11, or ERAM?
    Answer. Unfortunately, STARS is not past the point where 
procurement no longer presents difficult issues, and it is unclear what 
budgetary resources FAA will need to finish terminal modernization. 
Questions continue to persist about how much STARS will cost to 
complete and what capability it will actually provide. As described 
below, all four of these programs contain significant risk with respect 
to cost, schedule, and performance.
    FAA has changed its terminal modernization strategy significantly. 
As a result, the cost assumptions that drove STARS are no longer valid. 
For example, the STARS 1996 baseline estimated a cost of $940 million 
for 172 sites with a completion date of 2005. Due to cost and schedule 
concerns, FAA recently limited approval to 50 sites at a cost of $1.45 
billion. However, the total cost and timeframe for completing the 
entire terminal modernization program remains uncertain. Beyond 50 
sites, FAA estimates STARS funding (assuming a full STARS solution) 
will peak at $270 million in 2008. This funding estimate is only a 
placeholder until FAA decides in 2005 how it will complete terminal 
modernization and how much it will cost overall.
    WAAS, like STARS, has experienced considerable cost growth and 
schedule slips and was pursued under a cost-plus contract. FAA believes 
much of the developmental risk is behind WAAS but, unlike STARS, 
airspace users must equip with new avionics to obtain benefits. Now, 
the risks for WAAS focus on (1) effectively managing a contract for 
obtaining geostationary satellites (to broadcast the WAAS signal), (2) 
how quickly airspace users will equip with WAAS avionics, and (3) 
developing and publishing procedures for pilots to use WAAS approaches 
to airports.
    Since we testified before the subcommittee, we learned that FAA 
intends to pursue Category I performance for WAAS in the 2007 timeframe 
to take advantage of the Department of Defense's plan to modernize the 
GPS constellation (with a second civil frequency). This presents a 
number of issues that must be resolved. For example, there is a great 
deal of uncertainty about how quickly the Department of Defense will 
modernize GPS and what will happen with the Local Area Augmentation 
System (a precision landing system for Category I, II, and III that 
recently slipped back into development). Unresolved issues also focus 
on concerns about user equipage and procedure development. As a result, 
consideration should be given to withholding funds for the pursuit of 
Category I until these issues have been resolved.
    In comparison to STARS, the ASR-11 program faces lower performance 
and cost risks. This is because the ASR-11 needs little additional 
development work to deploy to its remaining sites. However, the program 
does face cost risks in two areas. Because development was delayed, 
procurements have been pushed into the future. This has caused prior 
cost estimates to grow. Also, the contract, which is administered by 
the Department of Defense, will expire before FAA will finish procuring 
all of the needed sites. If the Department of Defense terminates the 
contract or does not extend the production timeframe, FAA will not have 
a contract in place to complete the program. In either case, new, and 
probably higher, costs will have to be negotiated with Raytheon.
    At this time, it is difficult to compare the relative risks of 
STARS to the $2.1 billion ERAM effort because it is too early to 
determine if FAA can manage ERAM risks. In contrast to STARS, which has 
been underway for 8 years, ERAM is just getting started, and major 
design and development issues are not settled. FAA is less than 18 
months into an ERAM program that will span over 7 years. FAA plans to 
rely on a phased approach to deliver hardware and software with reduced 
risk. Cost control will be essential because ERAM is being purchased 
through a cost-plus contract but the contract (currently worth $1.2 
billion) is not fully definitized. We plan to issue a report on ERAM 
this year.
    Question. Do you believe that FAA is prepared to address a 
potential retirement surge of air traffic controllers in 2007?
    Answer. FAA is just beginning to address a likely surge in 
controller retirements over the next several years. In our opinion, 
there are three key issues the Agency needs to focus on in order to 
effectively address the expected increases in attrition. Those are:
  --developing better attrition estimates by location;
  --assessing newly hired controllers' abilities before they are placed 
        at facilities; and
  --determining ways to reduce the time and costs associated with 
        controller on-the-job training while still achieving results.
    FAA has agreed with the recommendations in our June 2004 report and 
is taking steps to address them; the key now will be follow-through. An 
important milestone is December 2004 when FAA plans to release a 
detailed human capital plan for addressing controller retirements as 
required under FAA's Reauthorization--Vision-100.
    Question. The subcommittee remains concerned over the use of air 
traffic controllers acting as controllers-in-charge and the rising 
number of operational errors under their watch. Mr. Mead, you testified 
last year that there is a statistical correlation between operational 
errors and the controller-in-charge program.
    What conclusions can you draw from the data a year later?
    Answer. Since we testified in 2003, the number of operational 
errors that occurred while a controller-in-charge (CIC) was supervising 
an area has continued to increase. In fiscal year 2003, operational 
errors that occurred while a CIC was supervising an area increased 43 
percent to 248 from about 174 in fiscal year 2002. Further, during the 
first 8 months of fiscal year 2004, preliminary data indicates that 
operational errors that occurred while a CIC was supervising an area 
increased slightly to 161 compared to 155 during the same period in 
fiscal year 2003. In our April 2003 report we recommended that FAA 
conduct detailed evaluations of those facilities that have significant 
increases in operational errors while CICs are on duty to determine the 
cause of the increases. FAA agreed with our recommendation and 
committed to conduct detailed reviews of operational errors to identify 
causal factors. This analysis will include monitoring the impact the 
expanded CIC program has on operational errors. FAA stated that if the 
CIC actions result in an operational error, steps will be taken to 
ensure that only qualified controllers are performing CIC duties. We 
will continue to monitor this important matter.
                is the faa's oceanic program in trouble?
    Question. Mr. Mead, at the end of March, your office released a 
status report on your agency's ongoing review of the FAA's Advanced 
Technologies and Oceanic Procedures (ATOP) program. Your review 
uncovered serious software problems with ATOP and noted that the FAA 
may have shifted some of the risk of additional cost growth from the 
contractor to the government. This was one project where the FAA seemed 
to have had costs under control because they had a firm fixed contract.
    Why in your view, did the FAA add $11 million to this contract if 
the government had the contractor under a firm fixed contract?
    Answer. Facing growing risks that ATOP would not meet its June 
schedule for starting operations at Oakland Center, FAA decided to add 
$11 million to the fixed-price contract to meet ATOP's schedule. This 
allowed the contractor to focus additional resources to fix software 
development problems at the government's expense. The contractor had 
staff working on a later and more advanced software version of ATOP 
even though the first software version was experiencing problems. In 
essence, the modification allowed FAA to shift resources to help get 
the basic ATOP system to Oakland as planned.
    Question. Mr. Mead, are you concerned that the FAA will continue to 
expose the government to higher costs in this program even though this 
project is under a firm fixed contract?
    Answer. Although the increase of $11 million is modest when 
compared to increases we have seen with other programs, we are 
concerned FAA has shifted the risk of additional cost growth from the 
contractor to the government. The critical issue is what happens with 
ATOP between now and February 2005. This timeframe is important because 
the recent contract modification limits the contractor's responsibility 
for paying to fix software problems FAA finds in ATOP after February 
28, 2005. According to FAA, after work on the initial version of ATOP 
software (required for Oakland) is completed, the Agency will test the 
more advanced version at its Atlantic City Technical Center by the end 
of this year. After February 2005, FAA must pay to fix software 
problems that are found. Given the change in the contract and the tight 
timeframe, it will be critical for FAA to identify all software 
problems before that date.
    Question. Given the problems to date, how confident are you that 
this program will continue to stay on schedule and within budget?
    Answer. FAA built additional time into the ATOP schedule to handle 
unanticipated problems, but most of this schedule reserve was consumed 
resolving problems discovered during factory acceptance testing 
(completed in July 2003), which took much longer than anticipated. FAA 
is fast approaching another key program milestone for ATOP that will 
determine if it will stay on track. If ATOP can successfully pass site 
acceptance tests at Oakland in June 2004, FAA's ability to stay within 
schedule and budget will be strengthened.
    Question. Mr. Mead, do you have any concerns that the FAA might 
rush to deploy the Oakland system before the FAA workforce is fully 
prepared to operate and maintain the system?
    Answer. While we do not believe that FAA will deploy an air traffic 
control system to Oakland that the workforce could not safely operate 
and maintain, we are concerned that the ATOP program has become 
schedule driven. As we saw with STARS, as the pressure builds to meet 
the scheduled milestone, FAA might defer needed work just to stay on 
schedule. For example, FAA said it would install the nationally 
deployable version of STARS at Philadelphia in November 2002, but the 
agency made a number of trade-offs to meet the schedule. FAA estimates 
now show that 2 more years and $59 million are needed to complete the 
development of a STARS system that can be deployed nationally. After 
FAA deploys ATOP to Oakland, and once the system is fully operational, 
the agency needs to communicate to the Congress and other key 
stakeholders any trade-offs or deferments made to maintain schedule.
                       airport revenue diversion
    Question. Mr. Mead, your office has put a spotlight on the issue of 
airport revenue diversion with your recent report on San Francisco 
International Airport and your current review of potential revenue 
diversion at Los Angeles International Airport. Your testimony suggests 
that the FAA is not exercising adequate oversight in this area.
    How rampant is the problem of airport revenue diversion?
    Answer. The problem of airport revenue diversion has been 
extensive. Between 1991 and 2000, our audits disclosed over $344 
million in diverted revenue. The problem, however, has not subsided. 
Last year, we reported on revenue diversions at five large airports, 
including one airport whose sponsor, a local government agency, 
diverted about $40 million to other projects not related to the 
airport. We also just completed an audit at San Francisco International 
last month which disclosed about $12 million in diverted revenue.
    Our work shows that FAA's oversight of revenue diversions is 
limited. In the past, FAA has maintained that it did not have the 
resources to devote to this issue. We met with the Associate 
Administrator for Airports and members of her staff in May 2004 to 
discuss FAA's specific plans to increase the agency's oversight of 
revenue diversions. FAA is currently working on a plan that is designed 
to identify airports with the highest risk of diverting revenue. We 
recently provided the agency with our methodology for determining 
whether or not airport revenues have been diverted. We will continue to 
monitor this issue and work with FAA.
             explanation for increase in operational errors
    Question. Mr. Mead, according to your testimony, in fiscal year 
2003 the number of operational errors increased 12 percent.
    To what extent do you believe this spike in operational errors is 
attributable to the vacant positions that the FAA has at many of its 
air traffic control facilities?
    Answer. We have not performed work to determine if there is a 
correlation between air traffic control staffing and operational 
errors. However, it is important to note that although fairly accurate 
at the national level, FAA's staffing standards for each field location 
are not precise. The National Academy of Sciences reviewed FAA's 
staffing standards in 1997 and found that they cannot be used to 
provide highly accurate estimates of requirements for individual 
facilities. We have seen, however, indications that staffing workload 
can increase operational errors. Our analysis found that as air traffic 
operations decreased nationwide, operational errors decreased. 
Conversely, as operations increase nationwide, more opportunities 
existed for operational errors to occur.
    Question. A small part of the pay raise that would be granted to 
air traffic controllers is dependent on a reduction in operational 
errors and yet operational errors have increased.
    Mr. Mead, what are the reasons that you believe that operational 
errors have increased, and what is your assessment of FAA's efforts to 
reduce them?
    Answer. As we noted in our April 2003 report there are a number of 
factors that contribute to the cause of operational errors and whether 
FAA is successful at reducing these incidents. Specifically, we found 
that (1) FAA needed to provide stronger national oversight of regions 
and facilities that were not making progress in reducing operational 
errors, (2) FAA procedures did not require training when controllers 
had multiple operational errors or for controllers who had errors that 
posed a moderate or high safety risk, and (3) FAA's expanded 
controller-in-charge program may have had a negative impact on 
operational errors. While FAA has made some progress in reducing these 
incidents during the first 8 months of fiscal year 2004, operational 
errors are still too high with three operational errors occurring each 
day and one severe error every 9 days.
    In response to our report, FAA established a permanent national 
program manager for quality assurance responsible for the overseeing 
regional and facility efforts to reduce operational errors. Under FAA's 
new Air Traffic Organization structure, this manager (Director of 
Safety Evaluations) reports directly to FAA's Vice-President for 
Safety. This group plans to conduct 161 air traffic facility safety 
evaluations during fiscal year 2004, including no-notice reviews.
    FAA also revised its training requirement so that controllers with 
multiple operational errors can be trained. However, FAA did not 
mandate that controllers who make operational errors that posed a 
moderate or high safety risk receive training. Finally, FAA agreed with 
our recommendation to monitor the impact of the CIC Program at the 
national level.
            is there adequate security at the auburn tracon?
    Question. In this age of heightened security, it has become even 
more important that we make sure that our air traffic control 
facilities have sufficient security measures in place. It was reported 
a few weeks ago that the TRACON facility in Auburn, Washington that is 
about to be completed will not be provided security guards even though 
the FAA built a guardhouse at the facility.
    Mr. Mead, do you have any views on the overall security of the air 
traffic control facilities?
    Answer. Security is important for all DOT personnel and equipment; 
this is especially true for critical facilities such as FAA air traffic 
control facilities. We are aware of reports that air traffic 
controllers moving into the new TRACON in Washington will not have 
armed security guards, because there will not be a sufficient number of 
employees at the facility to justify security guards based on FAA 
regulations. The new TRACON contains a guardhouse specifically built so 
two guards could monitor the 16 remote-controlled cameras and other 
security equipment. We plan to begin an audit this fall, which will 
assess FAA's Internal Security Program and whether FAA is ensuring 
adequate protection of FAA property, personnel, and operations against 
criminal and terrorist acts.

                         CONCLUSION OF HEARINGS

    Senator Shelby. I want to thank both of you on behalf of 
the subcommittee for the work you are putting in and we hope 
you are going to continue down that right road that you are 
going. Thank you.
    The subcommittee is recessed.
    [Whereupon, at 11:45 a.m., Thursday, April 22, the hearings 
were concluded, and the subcommittee was recessed, to reconvene 
subject to the call of the Chair.]
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