[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 

               AIR TRAFFIC MANAGEMENT IN FOREIGN COUNTRIES

=======================================================================

                                (109-13)

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                                AVIATION

                                 OF THE

                              COMMITTEE ON
                   TRANSPORTATION AND INFRASTRUCTURE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 20, 2005

                               __________

                       Printed for the use of the
             Committee on Transportation and Infrastructure



                               -----------
                        U.S. GOVERNMENT PRINTING OFFICE
21-702PDF                      WASHINGTON : 2006

--------------------------------------------------------------------

For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001



             COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                      DON YOUNG, Alaska, Chairman

THOMAS E. PETRI, Wisconsin, Vice-    JAMES L. OBERSTAR, Minnesota
Chair                                NICK J. RAHALL, II, West Virginia
SHERWOOD L. BOEHLERT, New York       PETER A. DeFAZIO, Oregon
HOWARD COBLE, North Carolina         JERRY F. COSTELLO, Illinois
JOHN J. DUNCAN, Jr., Tennessee       ELEANOR HOLMES NORTON, District of 
WAYNE T. GILCHREST, Maryland         Columbia
JOHN L. MICA, Florida                JERROLD NADLER, New York
PETER HOEKSTRA, Michigan             ROBERT MENENDEZ, New Jersey
VERNON J. EHLERS, Michigan           CORRINE BROWN, Florida
SPENCER BACHUS, Alabama              BOB FILNER, California
STEVEN C. LaTOURETTE, Ohio           EDDIE BERNICE JOHNSON, Texas
SUE W. KELLY, New York               GENE TAYLOR, Mississippi
RICHARD H. BAKER, Louisiana          JUANITA MILLENDER-McDONALD, 
ROBERT W. NEY, Ohio                  California
FRANK A. LoBIONDO, New Jersey        ELIJAH E. CUMMINGS, Maryland
JERRY MORAN, Kansas                  EARL BLUMENAUER, Oregon
GARY G. MILLER, California           ELLEN O. TAUSCHER, California
ROBIN HAYES, North Carolina          BILL PASCRELL, Jr., New Jersey
ROB SIMMONS, Connecticut             LEONARD L. BOSWELL, Iowa
HENRY E. BROWN, Jr., South Carolina  TIM HOLDEN, Pennsylvania
TIMOTHY V. JOHNSON, Illinois         BRIAN BAIRD, Washington
TODD RUSSELL PLATTS, Pennsylvania    SHELLEY BERKLEY, Nevada
SAM GRAVES, Missouri                 JIM MATHESON, Utah
MARK R. KENNEDY, Minnesota           MICHAEL M. HONDA, California
BILL SHUSTER, Pennsylvania           RICK LARSEN, Washington
JOHN BOOZMAN, Arkansas               MICHAEL E. CAPUANO, Massachusetts
JIM GERLACH, Pennsylvania            ANTHONY D. WEINER, New York
MARIO DIAZ-BALART, Florida           JULIA CARSON, Indiana
JON C. PORTER, Nevada                TIMOTHY H. BISHOP, New York
TOM OSBORNE, Nebraska                MICHAEL H. MICHAUD, Maine
KENNY MARCHANT, Texas                LINCOLN DAVIS, Tennessee
MICHAEL E. SODREL, Indiana           BEN CHANDLER, Kentucky
CHARLES W. DENT, Pennsylvania        BRIAN HIGGINS, New York
TED POE, Texas                       RUSS CARNAHAN, Missouri
DAVID G. REICHERT, Washington        ALLYSON Y. SCHWARTZ, Pennsylvania
CONNIE MACK, Florida                 JOHN T. SALAZAR, Colorado
JOHN R. `RANDY' KUHL, Jr., New York
LUIS G. FORTUNO, Puerto Rico
LYNN A. WESTMORELAND, Georgia
CHARLES W. BOUSTANY, Jr., Louisiana
VACANCY

                                  (ii)

?

                        SUBCOMMITTEE ON AVIATION

                    JOHN L. MICA, Florida, Chairman

THOMAS E. PETRI, Wisconsin           JERRY F. COSTELLO, Illinois
HOWARD COBLE, North Carolina         LEONARD L. BOSWELL, Iowa
JOHN J. DUNCAN, Jr., Tennessee       PETER A. DeFAZIO, Oregon
VERNON J. EHLERS, Michigan           ELEANOR HOLMES NORTON, District of 
SPENCER BACHUS, Alabama              Columbia
SUE W. KELLY, New York               CORRINE BROWN, Florida
RICHARD H. BAKER, Louisiana          EDDIE BERNICE JOHNSON, Texas
ROBERT W. NEY, Ohio                  JUANITA MILLENDER-McDONALD, 
FRANK A. LoBIONDO, New Jersey        California
JERRY MORAN, Kansas                  ELLEN O. TAUSCHER, California
ROBIN HAYES, North Carolina          BILL PASCRELL, JR., New Jersey
HENRY E. BROWN, Jr., South Carolina  TIM HOLDEN, Pennsylvania
TIMOTHY V. JOHNSON, Illinois         SHELLEY BERKLEY, Nevada
SAM GRAVES, Missouri                 JIM MATHESON, Utah
MARK R. KENNEDY, Minnesota           MICHAEL M. HONDA, California
JOHN BOOZMAN, Arkansas               RICK LARSEN, Washington
JIM GERLACH, Pennsylvania            MICHAEL E. CAPUANO, Massachusetts
MARIO DIAZ-BALART, Florida           ANTHONY D. WEINER, New York
JON C. PORTER, Nevada                BEN CHANDLER, Kentucky
CHARLES W. DENT, Pennsylvania        RUSS CARNAHAN, Missouri
TED POE, Texas                       JOHN T. SALAZAR, Colorado
JOHN R. `RANDY' KUHL, Jr., New York  NICK J. RAHALL II, West Virginia
Vice-Chair                           BOB FILNER, California
LYNN A. WESTMORELAND, Georgia        JAMES L. OBERSTAR, Minnesota
VACANCY                                (Ex Officio)
DON YOUNG, Alaska
  (Ex Officio)

                                 (iii)

                                CONTENTS

                               TESTIMONY

                                                                   Page
 Crichton, John W., President and Chief Executive Officer, NAV 
  CANADA.........................................................    26
 Dillingham, Gerald, Ph.D, Director, Physical Infrastructure 
  Issues, Government Accountability Office.......................     6
 Kaden, Dieter, Chief Executive Officer and Chairman of the Board 
  of Managing Directors, DFS Deursche Flugsicherung GmbH (German 
  Air Navigation Services).......................................    26

          PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS

Costello, Hon. Jerry F., of Illinois.............................    55
Oberstar, Hon. James L., of Minnesota............................    99

               PREPARED STATEMENTS SUBMITTED BY WITNESSES

 Crichton, John W................................................    40
 Dillingham, Gerald..............................................    57
 Kaden, Dieter...................................................    81

                       SUBMISSIONS FOR THE RECORD

 Dillingham, Gerald, Ph.D, Director, Physical Infrastructure 
  Issues, Government Accountability Office:
  Response to a question from Rep. Mica..........................    20
  Response to a question from Rep. Costello......................    25


              AIR TRAFFIC MANAGEMENT IN FOREIGN COUNTRIES

                              ----------                              


                       Wednesday, April 20, 2005

        House of Representatives, Committee on 
            Transportation andInfrastructure, Subcommittee 
            on Aviation, Washington, D.C.
    The Committee met, pursuant to call, at 10:00 a.m., in room 
2167, Rayburn House Office Building, Hon. John L. Mica 
(chairman of the committee), presiding.
    Mr. Mica. Good morning. I would like to call this hearing 
of the House Aviation Subcommittee to order.
    Today's hearing will focus on air traffic management by 
foreign countries and look at some of the things that other 
countries are doing. We have two panels of witnesses. I have an 
opening statement and the order of business will be to 
recognize other members who have opening statements and then go 
to our two panels.
    This morning the Aviation Subcommittee will review and 
obtain some perspectives on the governance, organizational 
structure, modernization efforts and system funding of 
commercialized international air traffic control providers. 
Before we get started, I want to thank our expert witnesses for 
being with us today. Dr. Gerald Dillingham, from the GAO, has 
done extensive work in looking at this issue and will be a 
tremendous resources for our panel today.
    Also let me thank Mr. John Crichton, from NAV CANADA and 
Mr. Dieter Kaden, from Germany, for taking time from what I 
know are their busy schedules and traveling great distances to 
be with us. We look forward to hearing from both of these 
witnesses on their respective air traffic control efforts.
    The questions surrounding how other countries have 
developed and implemented new air traffic control technologies 
is particularly important as we consider the current financial 
situation and changes to operations and management in our 
Federal Aviation Administration. After spending billions of 
dollars on an annual basis over a number of years, the FAA is 
now at a crossroads as it seeks new cost-effective approaches 
to modernize our Nation's air traffic control system.
    That other countries are doing an air traffic control 
modernization is also important for competitive reasons. It is 
clear that the Europeans intend to be and certainly are fierce 
competitors with respect to aerospace.
    I am concerned that a clear path for the United States to 
move forward with air traffic control modernization does not 
really exist yet. The exact level of funding that will be 
required to meet the anticipated demand for air travel still 
remains unknown. In fact, much of the future now depends on the 
Joint Planning and Development Office that is expected to 
leverage Federal efforts with a view toward a 2025 time frame. 
The hearing before this Subcommittee last week clearly 
highlighted that much work remains to be done to determine 
exactly what the JPDO will do, what level investment will be 
needed and when new systems can be brought online. The hearing 
today is intended to gain insight into how the FAA could 
approach some of the challenges it faces and look at some 
different approaches.
    I will be the first to admit that this is difficult to 
really compare the United States' national aerospace system 
with foreign systems. The United States in fact operates the 
largest and safest air traffic control system in the world. The 
United States has about 60 percent of the world's air traffic 
activity.
    According to the FAA, and as the chart we have got up there 
indicates, if you combine the number of air operations in the 
U.S., Canada, Germany, Britain, Australia and New Zealand, the 
United States accounts for 92.9 percent of those operations or 
159 million operations annually. Second is Canada with 2.5 
percent, Germany is 1.6 percent. We will hear a little bit 
about what they are doing shortly.
    Notwithstanding the size and complexity, there are a number 
of important issues to consider. First, for example, how have 
differences in governance and funding structure impacted 
technology development? Have other air service providers been 
successful in reducing operational costs?
    So that my colleagues on the other side of the aisle, some 
other folks who might be concerned can sleep better tonight, 
let me say I do not believe we can simply adopt someone else's 
entirely different system. But I do believe that it is 
incumbent upon us in our responsibility to look for ways to 
bring efficiencies to the FAA, for that matter, any other 
Federal Government agency.
    Over 30 air traffic control providers have gone to 
commercialized corporate structure over the past 15 years. With 
user fees, they faced very similar challenges like our own 
government-owned and operated system. As revenues fell as a 
result of September 11th, some of those systems have incurred 
debt and I am told some have had to go back to their 
governments for assistance. Today we will hear details about 
how they faced some of these similar challenges.
    As I mentioned last week, we heard from the FAA and DOT on 
their challenges in the areas of operations, finances and 
modernization. In a few short weeks, we will look further into 
issues surrounding the financial conditions of the Aviation 
Trust Fund and discuss our current financing structure and see 
what efficiencies we can adopt.
    Again, let me thank our witnesses for being with us today. 
I look forward to their testimony. I am pleased now to 
recognize our Ranking Member, Mr. Costello.
    Mr. Costello. Mr. Chairman, thank you. Mr. Chairman, I have 
a statement that I will submit for the record and would like to 
make brief comments concerning the hearing at this point.
    Mr. Mica. Without objection, the entire statement will be 
made part of the record.
    Mr. Costello. Mr. Chairman, thank you for calling the 
hearing today. I want to welcome all of our witnesses, Dr. 
Dillingham was of course with us last week at a hearing. I am 
pleased to see that he is here today to talk about the GAO 
report and their findings. I also welcome our friends from 
Canada and Germany as well.
    Let me say from the outset that I strongly oppose any 
suggestion that we should consider privatizing the air traffic 
control system here in the United States. Privatizing the air 
traffic control system here puts the user of the system in a 
position of setting policy and deciding how much money will be 
spent on the system and how the money will be spent. I do not 
believe that Congress should create a relationship between 
airline profitability and ATC spending and other decisions 
affecting safety.
    Mr. Chairman, selling off our ATC infrastructure to a 
corporation that will borrow money to make the improvements 
necessary to sustain it is a bad idea. Some believe that only a 
commercialized service provider with an independent revenue 
stream such as a user fee will have the autonomy and access to 
private capital markets needed to make transformational changes 
within the system.
    I hope as we hear our witnesses testifying here today that 
we will hear about the successes as well as the challenges that 
commercialized foreign service providers have faced. During 
recent airline industry downturns marked by declining traffic, 
some commercialized service providers experienced financial 
hardships that have resulted in debt, fee hikes, government 
funding infusion and capital cuts. I expect to hear testimony 
that some foreign service providers have deployed new 
technologies more quickly and efficiently and effectively than 
the FAA.
    I would just want to remind everyone that these foreign 
countries appear to rely more heavily on commercialized 
equipment off of the shelf technology than the U.S. has. 
However, we must keep in mind that not always taking the 
technology off of the shelf works for the United States because 
of the scale and complexity of the U.S. system versus foreign 
systems.
    In terms of operational scale and air space complexity, 
there is really no comparison between the United States and 
other systems around the world. Comparing the United States 
system to other systems, such as Canada and other countries, is 
comparing apples and oranges. In total, the U.S. represents 
about 60 percent of the world's air traffic activity. The FAA 
reports that there were over 159 million operations in 2004, 13 
times the number of operations of the U.K., New Zealand, 
Canada, Australia, and Germany combined.
    Congressman Oberstar and myself requested actually a 
breakdown from the FAA, an in-depth study comparing the U.S. 
system to foreign systems. I will submit the results of that 
information for the record, so that the American public can see 
for itself and appreciate the scale and complexity of the U.S. 
system versus other systems around the world.
    Mr. Chairman, I agree with you in the statement that you 
just made that it is incumbent upon us, this Subcommittee, our 
full Committee and the Congress, to look for ways to improve 
the efficiency of the FAA. That is one of the reasons why I am 
pleased that you have called this hearing today and I look 
forward to hearing from our witnesses and hearing their 
testimony.
    Mr. Mica. Thank you.
    Do other members have opening statement? Mr. Duncan?
    Mr. Duncan. Mr. Chairman, I do not have a formal opening 
statement. I just thank you for calling this hearing and 
welcome the witnesses.
    We have the best aviation system in the world, as all of us 
know. But we always need to be looking for ways to improve and 
do better, and if we can learn something from somebody else, 
that is a good thing. I am particularly interested in hearing 
what Mr. Dillingham has to say about the statement from the 
witness from Canada, who says we spend about one-half of what 
Transport Canada did and are generating three times the product 
twice as fast. Is that due to better and increased use of new 
technology or is that because of something better in their 
system? I think we can all learn from this hearing, and I thank 
you very much for calling it. Thank you.
    Mr. Mica. Thank you. Ms. Johnson.
    Ms. Johnson. Thank you very much, Mr. Chairman. I want to 
thank you and Ranking Member Costello for holding this 
important and timely hearing this morning, as we continue to 
explore various avenues to assist the FAA tackle existing and 
looming modernization challenges.
    I feel it is important for us to take a look at 
international entities that have enacted successful 
modernization efforts. To ensure that the FAA remains the 
largest and safest air traffic control system in the world, we 
as policy makers have some tough decisions to make in order for 
us to ensure that modernization is realized. The U.S. lacks a 
clearly defined route to move forward with air traffic control 
modernization and time is not on our side. At FAA's annual 
forecast conference last month, the agency predicted that by 
2015 1 billion passengers will board planes domestically each 
year.
    Yet, cost growth and delayed systems acquisitions are 
handicapping the FAA's ability to enhance capacity and 
modernization. Finding additional and creative revenue streams 
also poses a major challenge. The evolution of the low-cost 
carrier has brought about a decline in average ticket prices. 
At the current pace, tax income isn't expected to keep pace 
with passenger traffic. By 2016, the FAA estimates that ticket 
prices per mile flown will have dropped nearly 40 percent from 
2000 levels, further eroding potential income for the 
deployment of major initiatives.
    So the challenges before us are real and we are going to 
have to take a hard look at what we can do to prevent a looming 
gridlock of our Nation's aviation infrastructure. As I close, I 
want to thank our witnesses that have come before us to testify 
this morning, and I look forward to that testimony, as I am 
particularly interested in learning more about their 
utilization of various user fees in expediting systems 
deployment and the use of new systems to reduce operating 
costs.
    I thank you, Mr. Chairman.
    Mr. Mica. Thank you.
    Mr. Hayes.
    Mr. Hayes. Thank you, Mr. Chairman.
    I have a couple quick questions. Could we put that original 
chart back up? Is that easily available?
    Mr. Mica. Yes, we could.
    Mr. Hayes. The question, and I may have missed it, but what 
Mr. Costello said was kind of what I would have thought in 
terms of our operations. But if you, the way I read it the 
first time, we have less operations than England and Canada, am 
I reading that incorrectly? It says we have 159 million U.K. 
has--okay, I am sorry, you made it bigger, I can see now. 
You've got an extra number. That makes more sense.
    Question, how do we define operations versus how do the 
Brits and the Aussies define operations? What's an operation as 
it relates to this chart? Is an operation an IFR flight plan 
that is filed and activated and used and closed?
    Mr. Mica. If there is a difference, we can ask them, but we 
do not have them up yet. We can pose that question.
    Mr. Hayes. You made the print bigger. That answered the 
first question. The other would be very helpful, because it 
does again point out how professional our controllers are and 
the amount of traffic that they do control.
    Thank you, Mr. Chairman. Thank you for holding the hearing.
    Mr. Mica. Thank you.
    Any other comments? Ms. Norton.
    Ms. Norton. Thank you, Mr. Chairman.
    I think this is an important hearing, because I do think we 
have a lot to learn and that in matters of this kind, 
particularly as we see the allied countries have moved to some 
commercialization, knowing about that and seeing how it might 
fit our own operations is a very worthwhile exercise that could 
lead somewhere. Indeed, on the Homeland Security Committee, 
where I sit, I would like to see a hearing that has business 
operations come in and testify before us, because I think some 
of them are more sophisticated about security than the 
Government. They have a very deep, vested interest and bottom 
line that has kept their eye on that matter for some time.
    Of course, I would not suggest privatizing security, even 
though I think we have a lot to learn from them. And I do not 
suggest that you suggest that, Mr. Chairman. Especially post-9/
11, privatizing parts of our air system would raise at least 
some skepticism, I think, among all of us. We know that there 
is no silver bullet to these cost issues.
    I am interested in how commercialized operations have 
somehow been able to do investments, modernization investments, 
and we have not. I mean, I need to know exactly what it is that 
transforming to a commercialized operation enables a system 
comparable to ours to do what it does. I do think that 
Government agencies are always more cumbersome. Those of us who 
believe that there are certain services that it is necessary 
for Government control have a burden to make them as efficient 
as possible, or give them to somebody who can. I am not 
convinced that we have gone through the exercise with FAA.
    And since we are focusing on how they save money and not on 
other aspects of what it took to save money, I am most 
interested to see how these efficiencies, how these economies 
have also helped these systems to maintain the kind of security 
that certainly we would have to think about because of our 
unique position in the world. I think we have something to 
learn here, and perhaps a great deal than we realized. 
Therefore, I very much appreciate this hearing, Mr. Chairman.
    Mr. Mica. I thank the gentlelady.
    Are there other members who wish to comment? Mr. Poe.
    Mr. Poe. Thank you, Mr. Chairman, for having this Committee 
meeting today.
    In Houston, where I live, Intercontinental Airport is a 
major hub for Continental. There are many concerns that we 
have. One of those is the fact that it appears the FAA cannot 
keep up with modernization. Congress appropriated money in 2003 
for a new tracon facility, because ours tends to flood during 
hurricanes. That has yet to be built, even though the land was 
donated by the airport.
    So I am concerned about the FAA's ability to modernize, 
especially with facilities like the tracon, to keep safe 
airways. The idea that we could have a new system, a new 
philosophy, is good.
    I look forward to the testimony of the witnesses to see how 
maybe we can modernize and make our system safer, more 
efficient and all for the benefit of the American traveling 
public.
    So thank you very much, gentlemen, for being here.
    Mr. Mica. Thank you.
    Any other opening comments?
    If not, we will turn to our first witnesses. Before I do 
that, I just want to make a Subcommittee announcement. Actually 
for the whole Transportation Committee, if they are interested. 
At 2:30 today we will have a closed door, classified briefing 
from the Inspector General of DHS and also from GAO on their 
latest findings on the aviation security screening. I think 
you'll find that interesting. There's been a lot of commentary 
in the press lately, prior to the release of that information.
    I encourage members to attend. And if you have a staffer 
who has the clearance, they are certainly welcome, to.
    With that, we will turn to our first witness and panel, 
George Dillingham with GAO. He's been before us before, and we 
thank him for being with us and recognize him at this time.

   TESTIMONY OF GERALD DILLINGHAM, Ph.D, DIRECTOR, PHYSICAL 
    INFRASTRUCTURE ISSUES, GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Dillingham. Thank you, Chairman Mica, Mr. Costello, Mr. 
Duncan, members of the Subcommittee.
    We appreciate the opportunity to testify this morning about 
our ongoing work related to commercialized air navigation 
service providers, also known as ANSPs. Since 1987, 38 nations 
have commercialized their air traffic services. This generally 
means that the responsibility for providing air traffic 
services has shifted from the national government to an 
independent organization.
    These new organizations generally operate as performance-
based organizations and in accordance with traditional private 
sector business practices. In many cases, the countries were 
facing severe fiscal strains and years of under-investment in 
their aviation infrastructure. In some countries, air traffic 
services was one of a number of services, such as rail and 
telecom, that were moved from the national government to the 
private sector.
    Today I am going to discuss how the countries that we 
selected for our study have commercialized their air traffic 
services, and how commercialization has affected those 
services. We are examining commercialization as it occurred in 
Australia, Canada, Germany, New Zealand, and the United 
Kingdom. Although our sample is not designed to allow 
conclusions to be drawn about ANSPs in general, we did select 
countries that illustrate the similarities and differences in 
the size, scope and governance of commercialized ANSPs.
    The bars on this graphic show the relative size of the 
various ANSPs in terms of the number of air traffic controllers 
and total employees. For context, the bar on the far right 
represents the U.S. It shows that the United States has nearly 
twice as many controllers as the five ANSPs combined.
    This snapshot of traffic over North America provides 
another bit of context. The graphic shows both U.S. and 
Canadian air space, with each dot indicating an aircraft. It 
shows that although Canada has a very large air space, the 
traffic is certainly more concentrated in U.S. air space. 
Overall, the U.S. handles at least six times more operational 
traffic than the next largest ANSP in the world.
    With that context, I would like to discuss two dimensions 
of our study; specifically, some of the common characteristics 
of the ANSPs we reviewed and second, some initial observations 
that can be made about commercializing air traffic services. 
With regard to the common characteristics, first, flight safety 
was maintained as an organizational imperative for all ANSPs. 
And in all cases, the responsibility for regulating the safety 
of services remained with the government. Based on our review 
of the information available, the safety performance of all 
five of the ANSPs has remained the same or improved since 
commercialization.
    Another characteristic is that each ANSP operates as a 
business rather than as a government organization, even though 
most are wholly or partially owned by their governments. As the 
graphic shows, three of our samples are government 
corporations, the U.K. is a public-private partnership and 
Canada's ANSP operates as a private, non-share company.
    Furthermore, in operating as a business, each ANSP makes 
its own strategic operational and financial decisions without 
obtaining approval from the central government. Additionally, 
each ANSP generates and manages its own revenues through user 
fees to cover its costs and in some cases, to earn a profit.
    Each is able to borrow funds from private markets and each 
has established financial and accounting systems to support its 
business operations. Each ANSP is largely a monopoly provider 
of air traffic services, but each undergoes some form of 
economic review or follow some guidelines for setting prices.
    In terms of cost savings, each ANSP has taken steps to 
control its operating costs by eliminating some administrative 
and middle management positions or by consolidating facilities. 
With regard to modernization, all five ANSPs have invested in 
technologies and equipment which they say have improved 
productivity, lowered the unit cost of delivering services and 
resulted in fewer and shorter delays.
    With regard to pricing, in at least one case, the ANSP 
charges the airlines less than they were paying in ticket taxes 
under the prior system. On the other hand, some ANSPs have also 
instituted or increased fees for general aviation operators. 
For example, NAV CANADA charges a $72 annual fee and New 
Zealand charges $100 for 50 landings.
    Finally, Mr. Chairman, we have several initial observations 
regarding ANSPs. First, having a contingency fund or other 
mechanism to offset a revenue shortfall can help an ANSP 
weather a decline in air traffic such as that which occurred 
after the 9/11 attacks. Second, because the ANSPs may be 
monopoly providers of air traffic services, economic monitoring 
or regulation by an independent third party can protect users 
and ensure a fair pricing process. Third, addressing the 
concerns of stakeholders, including providing some type of 
permanent forum for communications, is essential to initiate 
and sustain commercial operations.
    Fourth, the inability of some airlines to pay the full cost 
of services to small communities and the ANSP's need to recover 
their costs means that special measures may be necessary to 
protect service to some locations. This is especially the case 
when aviation is the community's only form of transportation or 
there are safety-critical services at issue. Fifth, when a 
government sells its interest in a nation's air traffic control 
system, the system's assets have to be appropriately valued to 
protect taxpayer interests and create a basis for sound 
financial decision making.
    Sixth, if functions such as safety regulation is separated 
from operations, it is important to ensure that the regulator 
can retain and attract sufficient personnel with the skills and 
expertise needed to provide uninterrupted safety oversight. And 
finally, Mr. Chairman, developing baseline safety costs and 
efficiency measures prior to commercialization will allow 
robust comparison of ATC services before and after 
commercialization.
    Thank you, Mr. Chairman.
    Mr. Mica. Thank you. We will have a few questions then we 
will go to other two witnesses.
    In your examination of these other operations that are 
privatized, there certainly is a dramatic difference in scale 
of operation between the United States and any, in fact, all of 
those. Is there anything that you pick out that we can learn or 
take from these other privatized activities that we might 
consider for adoption by FAA that would increase either safety, 
efficiency, management, operation?
    Mr. Dillingham. Mr. Chairman, as we testified before you 
last week, one of the points that we made is that the FAA and 
the ATO seems to be turning around their modernization program. 
In fact, the report that we made to you was quite different 
than what we have been saying to this Committee for the last 10 
or 15 years. The chief operating officer said he thinks he 
needs at two years to put all the systems in place that he 
thinks need to be in place for a performance-based 
organization.
    So I think from our perspective, the business processes and 
the changes that are underway right now are similar business 
processes that are in place in these other countries. And we 
would argue that they need to play themselves out a little bit 
more.
    Mr. Mica. NAV CANADA was probably the most privatized 
operation. One of the things that struck me when I visited 
there and looked at their operations is that their philosophy 
that the regulator and the policy maker be separated from 
operations. With FAA, we have both policy, regulation and 
operations all combined.
    Do you see any potential to divide up, again, policy and 
regulation versus operation?
    Mr. Dillingham. Mr. Chairman, I think a little bit of that 
is currently taking place at FAA, that in fact they have set up 
a separate office of safety, sort of an arm's length from the 
ATO. It is not the same as what we see in the commercial 
systems, where one is government and one is private. But they 
are beginning to put that separation in process, recognizing 
the potential conflict of interest of it being all in one body.
    Mr. Mica. Let me defer to Mr. Costello at this point.
    Mr. Costello. Mr. Chairman, thank you.
    Dr. Dillingham, you would agree that comparing the U.S. 
system to Canada and the other countries that you reviewed is 
comparing apples and oranges.
    Mr. Dillingham. In many ways it is, Mr. Costello. Size, 
complexity, air space, in many ways. But I think some of the 
concepts, the business processes, concepts that have been 
instituted are in fact applicable to the U.S. case.
    Mr. Costello. So you are saying that we can learn from 
these examples and systems elsewhere in the world, but you 
wouldn't necessarily recommend that we duplicate Canada or any 
other country that you examined?
    Mr. Dillingham. No, sir, not at this time.
    Mr. Costello. Okay. I am just kind of amazed at the 
comparison here, the number of operations that we do in the 
United States, the complexity of the operation. I do not know 
if you saw the ad in Roll Call today with the dots that 
appeared up on the screen a minute ago. The number of 
operations here in comparison to Canada, it's amazing to me. My 
staff tells me that the number of operations in Canada last 
year, for instance, we handled more operations in Cleveland 
than the entire country of Canada last year and in 2003.
    So I just want to make certain, and I agree with you in the 
statement that the Chairman has made that we can learn from 
other systems around the world. But you know, I want to make 
certain that everyone understands that we are looking at 
systems that last year handled the traffic that we handled here 
in the United States in Cleveland alone. So it is a complex 
system.
    I have a couple of other just quick questions for you if I 
may. You talk, and I think in your testimony today, both in 
your written testimony and in what you just said, how 
commercializing, turning the system over to a private company 
can achieve the benefits of modernization faster and less cost 
by basically purchasing technology off the shelf. If I am not 
mistaken, in the past we attempted to do that, the FAA did, 
with the STARS program.
    Again, given the complexity and the size of the U.S. 
system, could we, in your opinion, expect to achieve success in 
taking off the shelf technology that is available in other 
countries when in the example of STARS, it didn't work for us 
because of the size of the system and how complex it is? I 
wonder if you would comment.
    Mr. Dillingham. We have read and talked to some of the 
principals from the various other air navigation service 
providers. And they would argue that commercialization has been 
a factor in them being able to modernize more quickly and to do 
other things more quickly.
    We haven't been able, at this point, to verify that, that 
in fact that it was just commercialization. I think we would 
argue that it's a combination of the things that are inherent 
in commercialization as well as the business processes that 
were put in place.
    With specific regard to your question about off the shelf, 
historically the U.S. has had a difficult time simply pulling 
things off the shelf and assuming that they could be readily 
instituted into the system. They have oftentimes run into 
serious problems that have led to schedule delays and cost 
overruns, based on that assumption that they in fact could do 
that. You were correct, and one of the reasons that you stated, 
that the system is so complex that many times, off the shelf 
equipment just won't do.
    Mr. Costello. I wonder if you might comment about, in 
reviewing these systems, how they were affected by economic 
downturns. In other words, if we run into an economy that slows 
down considerably, how it has affected these systems, and is 
there any way to ensure that the funding is stable going 
through an economic downturn.
    Mr. Dillingham. Yes, sir. I believe that every system we 
looked at experienced serious cash flow problems, particularly 
after 9/11 and to some extent because of the SARS incidents. 
Most of the organizations we looked at, or at least many of 
them, had a fund, sort of a rainy day fund that was established 
to take care of economic downturns.
    However, I do not think any of the organizations were 
projecting 15 or 25 percent decrease in traffic. As a result of 
that, some of the ANSPs depleted their rainy day fund. In one 
case, in the U.K, because the organization had been recently 
formed and then 9/11 happened, I think they probably 
experienced the most difficult downturn with regard to having 
revenues come in and had to be recapitalized, including having 
the central government come in as a partner.
    Clearly, one can establish a rainy day fund for those kinds 
of downturns. But again, if you get a downturn such as 9/11, I 
do not think there's any way that one can put away enough money 
to cover something like that. The systems that we have been 
looking at, the various organizations are looking at ways to 
handle that downturn, either by increasing their rainy day fund 
or we have heard suggestions that the airlines want to maintain 
the rainy day fund, rather than pass it on to the ANSP.
    So that is clearly one of the issues that has to be 
addressed. Because as you know, the aviation industry is quite 
cyclical without a 9/11 or a SARS.
    Mr. Costello. Two other questions very quickly. One, can 
you tell us what impact privatizing the air traffic control 
systems has had on small operators and smaller, remote 
communities in your study?
    Mr. Dillingham. Yes, sir. With regard to small operators, I 
think it was generally the case that small operators pay the 
aviation fuel tax, and that was the extent of what they were 
expected to pay in the prior systems. However, in the new 
systems, there have been some flat fees established, taking 
into account the amount of activities that GA requires of the 
air traffic controllers. They found various and sundry ways of 
trying to make that an easy transition for small carriers or 
small operators.
    And in some of the cases, by legislation the air navigation 
service provider is required to provide services in some remote 
areas, in those areas where aviation is the predominant or only 
mode of transportation, similar to the U.S.-Alaska situation, 
for example.
    Mr. Costello. Finally, I wonder if you would discuss a 
little bit, you mention in your testimony the concept of 
location-specific pricing and network pricing. Can you 
elaborate on that a little bit?
    Mr. Dillingham. Mr. Costello, that is something that we are 
looking it. They are two different kinds of ways that fees are 
determined, either to a specific airport or based on the 
network. So it's just two different ways in which fees can in 
fact be determined to be charged.
    Mr. Costello. Mr. Chairman, thank you.
    Mr. Mica. Thank you. Mr. Duncan.
    Mr. Duncan. Thank you, Mr. Chairman.
    Dr. Dillingham, you heard me mention this comment by our 
Canadian witness, that we spend about one half of what 
Transport Canada did and they are generating three times the 
product twice as fast. Are those dramatic improvements just, 
were they primarily because Transport Canada was just doing an 
extremely bad job, or is there something in their system or 
their methodology that has led to those types of improvements?
    Mr. Dillingham. I think Mr. Crichton probably can give a 
better answer. But I will tell you what we learned, that it was 
a combination of the things you mentioned, Mr. Duncan, that 
prior to NAV CANADA coming on board, the business processes 
were not what they needed to be, as well as in terms of human 
capital issues. NAV CANADA was able to reduce its middle 
management and administrative staff, which saved some money. 
They also put in place a process of bringing ATC equipment into 
the system in a quicker fashion. They basically went with what 
does the customer need and what can we deliver under those 
circumstances.
    So it was a combination of things that contributed to the 
changes that NAV CANADA is reporting.
    Mr. Duncan. In our briefing memo, we have been given a 
chart showing that NAV CANADA, with 5,400 employees, handled 6 
million movements. That is a little over 1,000 movements per 
employee. Australia it says with 2,900 employees, handled 
2,723,828 movements. That is a little less than 1,000 movements 
per employee.
    Now, we saw the chart there that said we have 159 million 
movements in the U.S. What is the comparable figure there? I've 
been trying to find out. What is our number of employees 
dedicated to this in the U.S. at this time, do you know?
    Mr. Dillingham. We have approximately 15,000 air traffic 
controllers and the total air traffic organization is about 
35,000 to 38,000 people.
    Mr. Duncan. So the comparable figure then, does anybody 
know, is this chart, is this just employees handling the air 
traffic control or is this all employees? Do we know? Just the 
controllers.
    So about how many movements per year is the average air 
traffic controller handling in this country, do you know?
    Mr. Dillingham. I am not sure about what the average 
controller handles. That would be something I would have to get 
back to you on, Mr. Duncan.
    Mr. Duncan. All right. And then, when these countries have 
gone to these new systems, what have they done in regard to 
their employees? Have they given some type of protection to the 
current employees? And then also, what's happened to salaries? 
Have the salaries gone up as fast as they did before or less 
fast, or have they gone down? I am interested in the employee 
situation.
    Mr. Dillingham. As far as the salary situation is 
concerned, if you will keep in mind that several years prior to 
commercialization, a lot of aviation related funding was 
frozen, including in some cases salaries for controllers and 
for others who were working in the air transportation areas. So 
that when these new companies came in, clearly they were able 
to raise the salaries and, based on the information that we 
were able to obtain, the employees are now saying that they are 
making more now than they would have been making under the old, 
federalized kind of system.
    With regard to protecting employees, I am not entirely 
clear as to how each of them protected employees as such. But 
what I can tell you is that for those organizations that have 
reduced the number of employees, they have been middle 
management, administrative people, and from my knowledge, there 
has been little or no movement in terms of reducing the number 
of air traffic controllers.
    Mr. Duncan. One last question. Are we making improvements, 
have we been making improvements over the last few years 
similar to or comparable to some of these other countries? In 
other words, we have been buying new technology right and left. 
I assume and hope that we are doing more with less now, or we 
are doing more per employee? I guess it goes a little bit back 
to, partially back to that question I asked a while ago. Do you 
know?
    Mr. Dillingham. That is a tough question. I think some of 
the technologies that have been introduced in some of the 
countries are in some ways, people would consider them ahead of 
ours in terms of bringing greater efficiency. But in other 
cases, some of the technologies that are being introduced are 
technologies that we already have and are trying to move to the 
next generation. So it's sort of a mixed bag, Mr. Duncan.
    Mr. Duncan. All right, my time is up. Thank you very much.
    Mr. Mica. Ms. Johnson, I think you're next.
    Ms. Johnson. Thank you, Mr. Chairman.
    Mr. Dillingham, you state that in places where government 
has sold its interest for commercialization, assets have to be 
appropriately valued to protect the taxpayer. Have we found 
that there are enough skilled people attracted to the jobs 
after commercialization or privatization in any country?
    Mr. Dillingham. I think what we were referring to in our 
statement was an instance where a central government sold the 
assets of the air traffic control system to the new 
organization and in the process of that sale, our counterpart 
in that country indicated that they thought the valuation was 
significantly lower than the price that they received. So we 
made that point. It is important that in fact one gets an 
adequate evaluation.
    The other part of your question refers to, in one of the 
countries that we studied, when the national government gave up 
the air traffic control, they sent most of the people that were 
federal employees over to the corporation. The problem that we 
saw was that some of the safety people who were previously into 
the federal system were now over in the new organization. 
Therefore, the federal government, which was still charged with 
safety regulation, did not have enough skilled people to carry 
out their prescribed safety inspections.
    Ms. Johnson. Thank you. Another question. Did you find a 
change in service areas where the smaller airports left in or 
out of a system or were they just the large revenue points?
    Mr. Dillingham. The smaller airports were kept in the 
system oftentimes by legislative means. They were told that 
services will be in fact provided to these areas.
    Ms. Johnson. Thank you. Thank you, Mr. Chairman.
    Mr. Mica. Thank you. Mr. Hayes?
    Mr. Hayes. Thank you, Mr. Chairman.
    Dr. Dillingham, a couple of quick questions. I noticed kind 
of buried in your figures were a reference to other countries 
who supposedly had lowered their overall costs for the air 
carriers by charging general aviation a fee. Of course, I would 
question that. Do you have any thoughts what the present 
thinking at the agency is about charging additional fees to 
general aviation?
    Mr. Dillingham. Do you mean the FAA?
    Mr. Hayes. A user fee, yes.
    Mr. Dillingham. Well, I want to start back from the piece 
in our testimony. I think the piece in our testimony says that 
one result of commercialization is that fees have been lowered. 
Now, I am not sure if we took the next step to say that they 
were able to lower those fees because they began to charge GA. 
Because our understanding is that for the most part, GA is a 
relatively small part of most of the other aviation systems 
besides the United States. We are of course a major player in 
the GA community.
    I do not have any information with regard to FAA's thinking 
about charging user fees either to large commercials or GA 
airplanes.
    Mr. Hayes. Thank you, sir. That was a very good answer. 
There's kind of a movement underway by some of the airlines to 
charge fees to general aviation. Of course, general aviation 
percentage of usage is far, far lower and what you said is 
correct, that it's not going to affect them at all. As soon as 
the airlines are prepared to pay property tax for general 
aviation, then maybe we can carry that discussion on.
    One of the interesting things that comes out of this 
discussion this morning is the complexity of our system 
compared to the other systems, whether it be the amount of 
space in Canada, it just clearly to me at least points out the 
wisdom in continuing to take the system that we have, not 
privatize it, provide the personnel and the equipment to 
provide the service that we provide, which is excellent.
    And one last point, Mr. Chairman, and I will yield back my 
time, as we increase through technology the ability of less 
number of folks to do more, that same increase in technology, 
we need to be aware of, also creates a larger workload for our 
controllers. Because as you look at RVSM, for instance, which 
technologically gives us the ability to move and separate 
traffic, but with closer tolerances, that raises the pressure 
and the stakes and the workload for the controllers. So 
technology does help us, but it also increase the need to have 
that professional work force.
    Thank you, Mr. Chairman. I yield back.
    Mr. Mica. Thank you. Ms. Norton?
    Ms. Norton. Thank you, Mr. Chairman.
    Mr. Dillingham, I appreciate the background that you 
provided when you indicated that we had twice as many air 
controllers and hugely more traffic. The Ranking Member has 
indicated in one of his cities alone, they had more traffic 
than for example in Canada. And I note that in answer to I 
believe a question by a member before me, you indicated that 
there was no reduction in air traffic controllers. So whatever 
we are talking about, the number of controllers is not likely 
to be reduced no matter what we do, given what you have found 
if these efficiencies were not made by reducing air traffic 
controllers.
    I must say to Ms. Johnson, you indicated that small 
communities were told, you will provide services to small 
communities, but my quick read of your GAO report indicated 
one, that there had been consolidation of facilities and two, 
that there had been subsidy of small communities. I do not 
think you can tell a private business, hey, you are going to 
provide services to this part of the country, which of course 
will lose you money. If you're going to do that, somebody is 
going to have to make up for that.
    Do you agree that you couldn't command a business to 
provide service where the service is losing money and that 
somebody would have to pick it up and that what you found was 
consolidation helped to reduce that need, and if that there was 
anybody who stepped in it probably was the government itself to 
enable small communities to continue the service they received 
before?
    Mr. Dillingham. Yes, ma'am, that is true. In fact, as I 
said, the legislation that created some of these corporations 
or commercial exercises actually told them that they had to 
provide the service. In the United States, I am not so sure how 
this would all work out. Because we also have the notion that 
we have a national system and it's part of our national 
infrastructure and should have as much access as possible for 
all the population. So it would be, again, an issue that would 
have to be dealt with in terms of thinking about 
commercialization.
    Ms. Norton. I need to know how the government, you tell us 
and your report tells us that they sold their operation, the 
governments sold their operations or they are owned or 
partially owned. You owned that the government doesn't have to 
approve what these ``private'' corporations do. Now, the 
government, is there a board where the government has 
membership on the board? How does the government maintain its 
legitimate interests in its own traffic control system?
    Mr. Dillingham. For the most part, it's a hands-off for the 
government. The government still maintains the safety oversight 
part of air traffic control. But for the most part, it's hands-
off for the government.
    Ms. Norton. What does that mean, partially owned by the 
government, then?
    Mr. Dillingham. It means that the government may be a share 
owner of the corporation as such.
    Ms. Norton. How much of a share? I am trying to understand, 
whether the government is just like every other shareholder 
with a few shares here, or whether the government is a major 
shareholder. Could you give me some examples of what interests, 
financial interests the government has here that would of 
course allow it to exercise a fair amount of control in that 
way?
    Mr. Dillingham. I think the most prominent example is in 
the U.K., where the U.K. government still owns about 49 percent 
of the air traffic control system.
    Ms. Norton. I just think that is very important. You can 
say that is hands-off if you want to, but in the commercial 
world, if you've got 49 percent of the ownership, you can have 
perhaps more to say than anybody else about what that 
corporation does. Very important piece of information.
    You say on page two of the GAO report something that really 
caught my eye. I am reading, ``Comparisons of performance of 
before and after commercialization are generally not feasible 
because data for assessing performance are typically 
unavailable for the time before commercialization,'' etc. You 
say furthermore, ``Comparisons between or among ANSPs are 
difficult because each ANSP may define its measures of cost, 
safety and performance differently. We did not verify the data 
gathered and reported by the five ANSPs. However, their 
financial information is subject to independent audit.''
    Hey, sounds like to me that there's no basis, there's no 
before and after here, not because of anything you're 
responsible for but because the data, the information to know 
whether improvements in performance or declines in performance 
have taken place is simply unavailable. Certainly it would be 
difficult to make a judgment, given what your report says it eh 
absence of any measures to make a judgment about. That gives me 
some concern. I wonder if it gave you any concern as you looked 
at trying to assess these various systems?
    Mr. Dillingham. Yes, Ms. Norton. That is one of the things 
that we pointed out as a need. If anyone is thinking about 
moving from a government based operation to a private sector 
operation in order to know from before and after, you need to 
have those baseline measures. The situation that we walked into 
was that in many cases, the before data was not available. So 
we were left with, okay, let's talk about what has happened 
since commercialization. And that is sort of what we were left 
with. So we agree with you that information is definitely 
necessary if you want to make those kind of before and after 
comparisons.
    And in some cases, like Australia and New Zealand and to 
some extent NAV CANADA, they have been doing this for about 10 
years now. So we do have sort of that kind of longitudinal 
data, but nothing that goes before they were privatized or 
commercialized.
    Ms. Norton. Thank you very much. Finally, I note that you 
indicate, of course, that there was financial information. Of 
course, we always have that kind of information and it's 
important information. And of course, looking at financial 
information alone, you can always say that something saves you 
some money.
    But if you're talking about an operation that is as vital 
to the security of the country as your air operations, saving 
money is one in a very long list of factors that you would have 
to consider, particularly if you did not know that saving money 
might have had something to do with poor performance, would you 
not agree?
    Mr. Dillingham. Yes, ma'am.
    Ms. Norton. Finally, let me ask you, with the savings that 
were found that allowed better investments in modernization, 
which is of course most intriguing to us, because that also has 
a lot to do with security, can you tell us where the bulk of 
the savings occurred? How were the savings for the most part 
made? It doesn't seem to me you pluck out a few middle managers 
and all of a sudden you get a cheaper system. One, do you 
regard the savings as substantial? And two, would you give me 
the one or perhaps two or three factors that are the cause of 
what savings you found?
    Mr. Dillingham. Well, I will not try to speak for the 
people who are coming up after me. But our information is that 
indeed, it was a combination of consolidation of facilities, 
staff reductions and greater efficiency in passing traffic 
through the system. All of those things taken together were the 
contributing factors for cost savings.
    Ms. Norton. Of course, the greater efficiency in passing 
traffic through the system is hard to evaluate here, given what 
you say on page two about performance before and after. It just 
seems to me, Mr. Dillingham, doing the best you could, there's 
a lot of guesswork involved here, because the absence of data 
which you honestly report on performance, if we could somehow 
break into the cause of these savings, for example, and again, 
you tell me the controllers, have the same number of 
controllers, that is labor-intensive. We know that there is 
some savings from consolidation. That can happen here, maybe 
should happen here. But you know, there are a lot of members of 
this Committee that you would have to drag kicking and 
screaming, but nevertheless.
    And we know that probably there was some subsidy when there 
were operations pulled out of small communities. So of course, 
that wouldn't figure into savings. As I hear you, we would 
somehow have to penetrate what the word efficiencies meant. 
That is very difficult to do, given the absence of performance 
data, even though I think your report is very informative. It 
would appear that that is where the bulk of the savings lie, 
and perhaps looking at these systems over time will allow us, 
as you say, given the longitudinal number of data, to come to 
some notions of how so radical a change could be made. 
Obviously in the smaller systems that are not as subject to 
attack as ours, it may have made a great deal of sense.
    What most intrigues me about your report is that without 
moving to privatization, I would like to at least adopt 
whatever efficiencies you have found in those systems that 
might be transferable to ours notwithstanding privatization.
    Thank you very much, Mr. Chairman.
    Mr. Mica. I thank the gentlelady.
    Do other members have questions? Mr. DeFazio.
    Mr. DeFazio. Thank you, Mr. Chairman. I apologize for being 
late. I had a number of constituents in.
    It is good to see you again, Dr. Dillingham, and discuss 
this important topic. I have a couple of concerns here, and I 
understand some of this has been discussed previously in terms 
of relative efficiency movement, size of system, those sorts of 
things. I concede at the beginning there's only one part of the 
Federal Government worse at acquisition than the Pentagon, and 
that is the FAA. That seems to me to be an area where we should 
be focusing all our major efforts at cost savings and reform 
when you look at the promises and the potential cost of the air 
traffic control system modernized, and where we are today. That 
is the greatest failing. I do not find the failing with the 
personnel, the controllers and the others who are putting up 
with the obsolete technology and trying to do their job and 
doing it more efficiently with, in many cases, a patchwork of 
technology.
    A couple of questions. I am sure you've met Ms. Dunwoody, 
have you not? She's an MP from Britain, have you ever had the 
opportunity to meet her?
    Mr. Dillingham. I haven't had the opportunity.
    Mr. DeFazio. Well, she's delightful. She chairs the 
Transportation Committee of Parliament. I have had the 
opportunity to spend some time with her. She thinks that their 
privatization has not been wonderfully successful. She points 
to a couple of things. She points to the fact that since it is 
traffic-dependent that it had to be bailed out after 9/11 when 
traffic dropped off rather dramatically. There had to be 
another injection of public funds into the system.
    She raises concerns that profit motive could degrade safety 
and I would like you to comment on that. Efficiency targets and 
over-stressing staff can also possibly jeopardize safety. And 
you know, they have really exposed, as she says, their system 
much more to the cycles of the market in terms of the industry 
because of the way it raises revenues. Could you comment on 
those things?
    Mr. Dillingham. Yes, sir. Without a doubt, the U.K. had to 
get an infusion of capital after 9/11. And again, I am not sure 
that that was any different than any other air navigation 
service provider, that those that didn't have
    Mr. DeFazio. Well, excuse me, just one thing, though. We 
didn't have to increase our support of our system, we just 
maintained it as it was.
    Mr. Dillingham. Absolutely, Mr. DeFazio.
    Mr. DeFazio. You said any other system.
    Mr. Dillingham. Any of the five that we looked at basically 
had problems with having enough funds to cover that situation 
of the deep drop-off and the cyclical nature of traffic. One of 
the enduring issues that comes up when people talk about 
commercialization is sacrificing safety for profit. And from 
our work, what we have seen is that that is recognized by those 
countries that haven't commercialized their air traffic 
services and have maintained the safety function with the 
federal government. So that notion is at least addressed, not 
totally, but it's clearly addressed.
    Mr. DeFazio. So do you, in quantifying the productivity or 
total costs, do you attribute the cost of the safety function 
back onto that and say, well, since previously they were 
integrated now they are separated, and the public is totally 
supporting that, do you add in the cost of that when you are 
figuring productivity and cost of the system?
    Mr. Dillingham. We have not done it that way.
    With regard to staff, that is also a concern that we were 
able to get some information about. And in fact, the issue of 
controller fatigue and under-staffing are issues that are 
addressed in the various countries to prevent that from 
reoccurring. It did in fact occur early on, there were some 
problems in some of the countries, but that has been codified, 
and it shouldn't happen any more. If it does, it has to be 
reported to the central safety authority.
    Mr. DeFazio. So the safety authority or some agency of 
those governments has set like work duty time requirements or 
things like that that are strictly enforced?
    Mr. Dillingham. Yes, sir. And if those things are breached, 
a report is made to that authority.
    Mr. DeFazio. Okay. And then what about the exposure to 
market cycles? Given the fact we are about to see the collapse 
of a number of major airlines, well, they've already collapsed 
into bankruptcy, but perhaps whether they will continue or not, 
major changes that are pending in the industry, the industry 
saying it's paying too much now, how would that all work out?
    Mr. Dillingham. Well, as you know, Mr. DeFazio, when there 
are fat times in the aviation industry, nobody has a problem 
paying whatever the cost happens to be. But we are also into 
this cyclical kind of business, as well as those extraordinary 
events that happened over the last three or four years that 
took a hit on all of these ANSPs. I do not think there is any 
way that one could have taken enough money out of the system to 
sort of carry you through at that point in time.
    So that is clearly one of the issues that has to be 
addressed. From our knowledge, most of the systems that we are 
looking at are trying to find a way to cover those cyclical 
downturns in some form or fashion. It is truly an unresolved 
issue. No one thought about it when these things were first 
formed, because you can handle 5, 6, 8 percent perhaps. But 
when you get 20, 25 percent drop, it's a different world.
    Mr. DeFazio. Okay. Great. Thank you very much. My time has 
expired. Thank you.
    Mr. Mica. Thank you. Any other questions for Mr. 
Dillingham?
    Just a couple of quick questions. Did you do a comparison 
of cost per operation? Of course, the United States had many 
more operations, but you have an overall cost of the system 
versus these other costs per operation.
    Mr. Dillingham. No, sir, we did not do any unit cost 
pricing comparisons. We didn't do any comparisons, actually, 
between the United States and these others, or even among
    Mr. Mica. Can you do that? Can you look at that?
    Mr. Dillingham. We can provide that information to you.
    Mr. Mica. That would be interesting.
    [The information follows:] 
    [GRAPHIC] [TIFF OMITTED] T1702.065
    
    [GRAPHIC] [TIFF OMITTED] T1702.066
    
    [GRAPHIC] [TIFF OMITTED] T1702.067
    
    Mr. Mica. The other thing, were any of the controller 
benefits reduced after this privatization? Did you see any of 
the benefits?
    Mr. Dillingham. I do not have any knowledge of that, 
Chairman Mica. When we talked to the controllers, in all the 
places that we talked to, they basically were in favor of this 
commercialization, and in part, they were in favor of it 
because of the wage freeze and other under-investment that had 
taken place.
    Subsequent to that, there is a little angst out there from 
some of the controllers, about their work conditions and the 
like. But we didn't hear any salary issues.
    Mr. Mica. You put a chart up that showed the number of 
controllers to the number of personnel and FAA versus the other 
entities. We had many more people actually doing air traffic 
control work than we had total. The percentage was very, very 
low in the United States compared to the others, is that 
correct?
    Mr. Dillingham. Yes, sir.
    Mr. Mica. Okay. I noticed when I visited NAV CANADA, the 
working conditions for the Canadian air traffic controllers 
were a thousand times better than what I saw when I visit the 
air traffic controllers--did you visit any of the NAV CANADA 
facilities? Are they all privatized?
    Mr. Dillingham. Yes, sir.
    Mr. Mica. Did you see the same thing, or was that just an 
aberration? May they just showed me the nice stuff.
    Mr. Dillingham. I do not know, that could be the case, Mr. 
Mica.
    Mr. Mica. I saw an exercise room, large screen TV place, 
coffee bar, nice facilities. It is a pretty stressful job, but 
what they showed me was more attuned to what the private sector 
offers as amenities to workers as opposed to the, any time you 
walk into a government building, including down the hallway 
here, I get a little bit repulsed by what I see.
    Mr. Dillingham. I have been in many U.S. air traffic 
control facilities, and I have not seen any that fit the 
description that you just gave of the NAV CANADA facility that 
they showed you. And I would assume that not much of that 
exists, since in the last hearing that you had, you heard the 
story about the need for X billions of dollars for facility 
modernization.
    Mr. Mica. I was just stunned at the conditions for their 
air traffic controllers under the private system.
    Mr. DeFazio. Mr. Chairman, just for a second?
    Mr. Mica. Did you go with me? I can't remember.
    Mr. DeFazio. Not on that trip, Mr. Chairman. But I suggest 
maybe we could just not privatize the whole system, but we 
could buy private health club memberships for our air traffic 
controllers.
    Mr. Mica. That sounds like a suggestion that would come 
from your side of the aisle. I appreciate that.
    [Laughter.]
    Mr. Mica. Redundancy of systems. Our system has many 
multipliers of additional traffic. Was there less emphasis on 
redundancy of systems that you observed in any of the other 
privatized or semi-privatized operation?
    Mr. Dillingham. We didn't get into the details of the 
amount of redundancy. But just knowing how air traffic control 
works and has to work and the required safety elements, I would 
be totally surprised if there was not redundancy in both the 
foreign air navigation service providers and clearly, with our 
system.
    Mr. Mica. Any others? Mr. Costello, any last questions?
    Mr. Costello. Dr. Dillingham, in looking at the system in 
Canada, you mentioned a few minutes ago that there is a lack of 
involvement with the government with the air traffic control 
system. I wonder if the lack of involvement or the leadership 
on the part of the government, did you detect any problems in 
the system? In other words, do you think that there should be 
more involvement by the government or not?
    Mr. Dillingham. I think that Canada has chosen to set 
itself up in the way that this corporation is set up. So I am 
not sure that we can comment on that.
    In terms of the people that we talked to while we were 
there, there is a certain amount of angst that we hear from the 
major carrier in Canada with regard to how things are being run 
at this point in time. But it was not the overwhelming message 
that we got from the stakeholders in Canada.
    Mr. Costello. Let me give you a quote from a speech on 
Monday of this week that appeared in Commercial Aviation Today 
for April 19th, 2005. It quoted the CEO of Air Canada, Robert 
Milton. This is what he said to a group of Montreal business 
leaders, part of his speech. He said, ``The damage inflicted by 
the lack of government leadership in the airline industry over 
the past few years will be felt for many years to come.'' There 
are a number of other things
    Mr. Mica. Could I interrupt and add--he also said an 
abysmal lack of governance over air traffic control in 
airports. Are you aware of this and is it true?
    Mr. Costello. That is a part of it. But you have to look at 
the article. It says--I could read it if you'd like me to.
    Mr. Mica. No, no. I wanted to make sure the rottenest, 
meanest part got in there.
    Mr. Costello. Well, it says, the damage inflicted by the 
lack of government leadership. I think it's a serious comment 
and that is why I asked the question. I mean, would you agree, 
he is saying here that the government should be more involved 
in the air traffic control system than what it is, and that the 
damage inflicted by the lack of government involvement will be 
felt. He also goes on to say, and Chairman Mica referred to it, 
he also goes on to say in the speech that to make matters 
worse, there is an abysmal lack of governance over air traffic 
control and airports. I could go on and on.
    Yesterday he said in this speech, on Monday, that the fees 
in Canada are among the highest in the world. So I would just 
one, ask unanimous consent to enter this statement into the 
record and two, to ask you at some point, Dr. Dillingham, to 
look at this article and statement and get back with us with 
your response.
    Mr. Dillingham. Yes, sir.
    [The information follows:] 
    [GRAPHIC] [TIFF OMITTED] T1702.068
    
    Mr. Mica. Without objection, that statement will be 
included in the record. Maybe we could also get our NAV CANADA 
folks to respond.
    Thank you so much for your work and for being with us. We 
will probably see you again soon.
    Mr. Dillingham. Next week.
    Mr. Mica. Thank you.
    Okay, we have got our second panel here, Mr. John Crichton, 
President and Chief Executive Officer of NAV CANADA; and Mr. 
Dieter Kaden, Chief Executive Officer and Chairman of the Board 
of Managing Directors of DFS Deutsche Flugsicherung GmbH, 
German Air Navigation Services.
    So Mr. Kaden and Mr. Crichton, welcome. Mr. Crichton, we 
will hear from you first. President and Chief Executive Officer 
of NAV CANADA. We have stirred it up a bit, and we are anxious 
to hear your testimony.

 TESTIMONY OF JOHN W. CRICHTON, PRESIDENT AND CHIEF EXECUTIVE 
OFFICER, NAV CANADA; AND DIETER KADEN, CHIEF EXECUTIVE OFFICER 
 AND CHAIRMAN OF THE BOARD OF MANAGING DIRECTORS, DFS DEUTSCHE 
      FLUGSICHERUNG GMBH (GERMAN AIR NAVIGATION SERVICES)

    Mr. Crichton. Chairman Mica, Ranking Member Costello, other 
members of this very distinguished Committee, on behalf of NAV 
CANADA's 5,400 employees, I am very pleased to accept the 
invitation to testify here today.
    Our dedicated employees are justifiably proud of what NAV 
CANADA has accomplished since the company began operating the 
Canadian air navigation system in November 1996. On their 
behalf, I appreciate the chance today to describe the 
background of NAV CANADA, our structure and our continuing 
successes improving safety, lowering fees and accelerating air 
traffic modernization.
    At the outset, let me emphasize that we have an excellent 
working relationship with the FAA. We work seamlessly with the 
FAA on a daily basis, safely and efficiently exchanging the 
highest volume of transborder traffic in the world. It is a 
partnership that works very well. No day was the strength of 
our cooperative relationship illustrated more clearly than on 
September 11th, 2001. Working with the FAA and NORAD, we safely 
cleared Canadian skies of more than 1,500 aircraft, including 
hundreds of jumbo jets inbound into the U.S. from Europe and 
Asia.
    Our employees are deeply grateful for the appreciation 
expressed by both President Bush and Secretary Mineta in recent 
speeches. We are very pleased that we were able to stand by the 
U.S. on that fateful day.
    Attached to my testimony, Mr. Chairman, are a number of 
slides that elaborate on several key points. First, NAV CANADA 
is a private corporation that operates on a not-for-profit 
basis. Transport Canada, which prior to November 1996 owned and 
operated Canada's air navigation system, now functions solely 
as our arm's length, independent safety regulator. The Canadian 
government designates three directors to serve on our 15 member 
board. The Federal Government, however, does not fund NAV 
CANADA, nor does it guarantee our debt or function as a 
financial backstop. We are financially self-sufficient in all 
respects.
    NAV CANADA is organized as a non-share capital corporation. 
We have no equity and, accordingly, no need or pressure to 
generate financial returns for shareholders. Instead, our four 
``members''--commercial carriers, the Canadian Government, our 
unions and general aviation--participate in the governance of 
the company by appointing directors in varying numbers. We rely 
on debt financing in the public markets, which is less 
expensive than equity funding.
    In 1998, the Canadian Government repealed the Air 
Transportation Tax that previously funded air navigation 
services provided by Transport Canada. In its place, we phased 
in a service-based fee system developed in consultation with 
customers and approved by the stakeholder board of directors. 
Those fees are designed to recover our costs. For commercial 
carriers, who provide the vast majority of our fee revenue, we 
use a weight and distance formula based on ICAO principles, 
which is essentially the value of service principle, to recover 
all of our costs.
    Safety has improved on NAV CANADA's watch. As measured by 
actual losses of separation, safety is better today than when 
air navigation services were provided by Transport Canada. 
Among the key contributing factors are rigorous safety 
oversight by Transport Canada, which now functions as a 
independent arm's length safety regulator; internal safety 
initiatives we implemented that did not exist previously and 
the deployment of safety enhancing modern technologies.
    Fees have declined. Today, commercial customers pay around 
20 percent less than they would have under the old Air 
Transportation Tax. Prior to September 11th, 2001, fee savings 
were even greater than they are today. However, in the wake of 
September 11th and other air traffic depressing events, such as 
SARS, we were forced to raise fees since cost mitigation 
efforts alone were not sufficient to offset lower movement-
based fee revenue.
    However, with the return of traffic growth, we anticipate 
that we can return to our strategy of managing costs to be less 
than traffic growth so that our customer charges will decline 
over the long term as they were doing prior to 9/11.
    Modernization has accelerated and NAV CANADA has gained 
recognition as a world-class developer and vendor of leading 
edge ATC systems. We have fully implemented numerous modernized 
systems that enhance safety, increase system capacity and 
improve efficiency. There are other, new modernized systems in 
the pipeline. We have made such progress in modernization that 
we are now selling our systems to leading air navigation 
service providers, such as the U.K.'s National Air Traffic 
Services, which purchased both our oceanic and automated tower/
terminal systems.
    NAV CANADA has also dramatically streamlined its capital 
spending and system development processes. We spend about one-
half of Transport Canada did and are generating three times the 
product twice as fast.
    Mr. Chairman, I will just make one comment based on the 
previous discussion. There was quite a lot of discussion about 
traffic volumes and I will have to talk to Gerald afterwards in 
terms of where he got the figures. But the figures that we work 
with, and we do this in conjunction with our counterparts at 
the FAA, the actual movement comparisons between the U.S. and 
Canada is somewhere between 45 and 50 million in the U.S. and 
6.5 million in Canada. Where these other figures came from, I 
am not sure. But certainly somebody should rationalize that for 
you. I just wanted to point that out.
    But I will conclude my remarks, again, Mr. Chairman, by 
thanking you and other members of the Committee, and I will be 
pleased to answer your questions.
    Mr. Mica. Thank you, and we will hear from Mr. Kaden with 
the German Air Navigation Services. Welcome, sir, and you are 
recognized.
    Mr. Kaden. Thank you very much, Chairman Mica and Ranking 
Democratic Member Costello, members of the Subcommittee. First 
of all, I would like to thank you very much for your kind 
invitation and for the opportunity to once again, after 10 
years, give you an overview on DFS, the German air navigation 
services organization. At this time, I will also elaborate on 
the planned privatization of the German organization as well.
    Let me have a short look back. While airlines and major 
airports were operating according to private sector principles, 
the German air navigation services organization was structured 
as a federal authority, like the FAA, for 40 years after 1992. 
Due to this bureaucratic structure, the air navigation services 
in Germany lacked the required flexibility and increasingly 
proved to be a bottleneck within the air transport system.
    Believe it or not, ATC projects continuously experienced 
problems in terms of cost, schedules and performance and the 
organization was thus unable to deliver value for money. An 
organizational culture to encourage collaboration with 
customers was not in place. For these reasons, politicians, the 
ATC associations, as well as all our users, strongly advocated 
the corporatization of the federal authority as early as in the 
1980s in an effort to modernize the nation's air traffic 
management system.
    Parliament then amended the German Constitution and the 
Aviation Act in 1991 to corporatize the air navigation services 
along the lines of which we are operating today. On January 
1st, 1993, DFS began to operate as a corporatized enterprise in 
line with private sector principles as what we call in Germany 
a GmbH.
    What have we achieved? First, the management of air 
navigation services. The Ministry of Transport has the 
regulatory oversight as stipulated by law. The MOT is 
responsible for the legal and functional supervision and plays 
a supervisory role in all issues relating to safety, user 
charges, information and liability. In accordance with the 
Chicago Convention, the MOT is still the authority for 
international agreements as well as for participation in 
supranational and international organizations, such as ICAO.
    The DFS supervisory board, based on the private law, 
consists of six representatives of the owner, the state, and 
six representatives of the employees. The chairman of the 
executive committee is, in the meantime, a former minister of 
transport and now a vice president of an international 
industrial consulting firm. Concerning the organizational 
management setup, we have set up a process structured 
organization with six business units, a group of corporate 
development centers and corporate service centers following the 
key principle: ``structure follows strategy.''
    DFS is financially absolutely autonomous. It finances 
itself mainly by drawing on the capital market program. The 
program amounts to 1 billion Euro. The net financing volume 
after deduction of the financial investment is currently about 
90 million Euro. In addition, DFS disposes back-up credit lines 
between 100 and 200 million Euro.
    The interest rates we are paying are based on the existing 
rating, which up until now has been affirmed as AAA by Standard 
and Poors and Moody's and similar, like NAV CANADA. DFS has not 
received, from 1993 up until today, any Federal subsidies, 
since the initial restructuring. On the contrary, DFS pays the 
government for all ANS related costs, especially the costs of 
the Department in the Ministry of Transport, dealing with ANS 
as well as the fictitious pension costs of those civil servants 
who used to work for the air navigation services, as well as 
tax dividends and amortization of a loan. Revenue in our 
organization stems mainly from user charges for enroute and 
terminal services and of non-core business.
    Concerning safety, our primary corporate objective, which 
is the safety of air traffic, has by no means suffered. On the 
contrary, it improved dramatically. In 1995, we introduced a 
corporate safety strategy which led to the development and 
implementation of our today's safety management system, which 
is in line with international standards and best practices. In 
addition, the Euro controlled safety regulation commission, 
which was established in 1998, adopted several safety 
regulatory requirements on ATM safety management to be 
fulfilled by the member states.
    In 2004, last year our safety management system was 
formally audited by an external company and certified by our 
regulator to be fully compliant with the Euro control safety 
regulatory requirements.
    Efficiency. Our efficiency has, from our point of view, 
significantly increased. Despite the rise in traffic, Europe 
has seen a general reduction in delays caused by air traffic 
flow management measures. This is thanks to capacity increases 
by the air navigation services organizations.
    Certainly one important aspect is that since 1994, we in 
Germany have been able to use the scarce resource ``airspace'' 
in a more flexible and efficient way, because regional military 
air traffic control is entirely integrated into our 
corporation, which is still, from my point of view, a unique 
situation in the world of ANSPs. It is one organization using 
one sky according to the flexible use of airspace.
    DFS in Germany and Europe is synonymous with punctuality. 
Over 96 percent of all flights controlled by DFS reach their 
destination without any ATC related delays. Numerous cost and 
efficiency control measures which have been presented to the 
GAO as well, along with a balanced score cord, have been 
implemented, which could not have been implemented at that time 
as a Federal agency in former times.
    Concerning stakeholder issues and customers, the 
corporatization of the air navigation services in Germany in 
the early 1990s was in line with the political mandate to 
become more productive. To meet our customers' requirement to 
perform efficient air traffic services, DFS has taken far-
reaching action to reorganize the company. This has led to 
optimized airspace structures and enhanced operational 
processes.
    An essential part of the reorganization was in the first 
step up through 1998 the integration of 17 approach control 
units with the 4 area control centers. The follow-up step is 
the consolidation of the control centers by reducing the number 
of these centers by two, transferring Dusseldorf to Langen in 
2002 and Berlin to Bremen in 2006.
    When the center consolidation concept was approved in 1996, 
cost savings of up to over 50 million Euro were envisaged, and 
in the meantime, had really been achieved. Our customers 
benefitted two ways. Firstly, they are able to operate their 
aircraft even more efficiently; and secondly, we pass on our 
cost savings to airspace users. One should have in mind that 
when the former agency was corporatized, our customer knew that 
we would lose government subsidies of up to 100 million Euro 
per year, and this would lead to an initial increase of user 
charges to offset the expenses.
    And their support has paid off. Productivity has increased. 
Between 1993 and 2005, the enroute traffic increased by 175 
percent, whereas the user charges only increased by 0.6. So 
almost flat. For the terminal area, it was in the same period, 
1993 to 2005, air traffic increased by roughly 50 percent, 
whereas user charges were reduced by 37 percent. So it pays 
off.
    A few words about the employees. A project such as the 
corporatization could only be successful with the support of 
motivated employees. For 40 years, German air traffic 
controllers had really been at the lower end of the European 
pay scale. Today, air traffic controllers worldwide are earning 
salaries which are at the top of the scale. In Germany, they 
are able to earn up to 25 percent more in net terms than prior 
to corporatization. However, not all employees in the 
operational services reach the top salary. For the first time 
in the history of the air navigation services, our collective 
agreements with the unions take account of the employee's work 
location, their performance and the workload. Salaries of 
employees in non-operational areas are oriented toward market 
conditions.
    Concerning modernization, the technical modernization, as 
Mr. Dillingham reported, we use state of the art tools, for 
example, the SAP for a structured project management process. 
We built up an R&D unit to evaluate new technologies and 
simulate new systems operations. We established in-house 
capabilities for software development and modernized the entire 
ATM system and the entire CNS technical infrastructure. The 
whole capital expenditure program, which was realized between 
1993 and 2004, amounted to up to over 1.5 billion Euro. This 
corresponds, ladies and gentlemen, really with the 
modernization of almost everything.
    Concerning our organizational setup, apart from these, we 
modernized our entire organization as well. We developed a 
financial investment strategy which is based on the principle 
that all shareholdings or corporations have to provided an 
added value to DFS, and of course consequently to the 
shareholders and the stakeholders. This added value may be 
accomplished in different ways, such as reducing costs for 
support processes, a defined return on investment in the form 
of dividend payments, investment into future markets and 
technologies to secure revenue in the future, just to name a 
few.
    Following this rationale, up to the present day DFS has 
founded a 100 percent subsidiary to hold shares in the EGNOS, 
which is comparable to the GPS and the future system of 
Galileo, the EGNOS operational model. We furthermore founded an 
organization which is responsible for flight calibration. It is 
a joint venture company where shareholders are DFS, 55 percent, 
and the Austrian and Swiss ANSPs hold the rest. We founded a 
European group, AID, with all the necessary information for 
flights, putting it together. This company is located in Spain, 
in Madrid, a joint venture once more with DFS with the Spanish 
organization, AENA, and an Austrian high-tech company.
    With the implementation, which you might pretty sure know 
of, of the Single European Sky drives of the European Union, 
ANSPs in Europe will have to become more competitive in future 
in order to safeguard their future existence in the long run. 
This entrepreneurial approach, ladies and gentlemen, can only 
be achieved by a company where government holds a minority 
stake only. This is based on political principles of the 
government in Germany.
    Since 2004, the German Ministry of Transport has been 
preparing for the privatization of DFS. The relevant government 
decisions were published on the 15th of December last year. The 
key elements in the privatizations are the government wants to 
sell 74.9 percent of DFS, retain 25.1. Air traffic services 
remain still a state task, it's a sovereignty issue. The civil-
military integration of ATC will be maintained. A national 
supervisory authority will be established. And the cost, which 
is very fundamental, for the supervision will be financed by 
user charges.
    Ladies and gentlemen, to sum it up, the corporatization of 
DFS in 1993 has marked the beginning of a new era in the 
history of air navigation services in Germany. We changed the 
entire civil-military airspace structure, reducing the number 
of sectors and increasing their efficiency. We modernized 
almost all CNS and ATM systems. We reorganized our 
organizational structure, changed half of all management in the 
beginning and increased productivity while enhancing the 
safety. We handled a traffic increase of 175 percent while user 
charges increased by 0.6 percent. We changed the corporate 
culture from a Federal authority to a company operating in a 
competitive environment.
    And the driving force, if you would ask me, behind all of 
this is, we want to deliver value for money for the benefit of 
all of our stakeholders. Chairman Mica and Ranking Democratic 
Member Costello, members of the Subcommittee, thank you very 
much for your kind attention. I am happy to answer your 
questions.
    Mr. Mica. Thank you.
    I have a couple of quick questions. First of all, as far as 
your air traffic controllers, are they all members represented 
by unions or some employee representational group, yours?
    Mr. Kaden. Yes, all of them, 100 percent.
    Mr. Mica. And yours?
    Mr. Crichton. Yes.
    Mr. Mica. A hundred percent? Okay. And you said they 
experienced a 25 percent increase in pay. Over what period?
    Mr. Kaden. Over the last almost 10 years.
    Mr. Mica. Okay. What about yours, Mr. Crichton?
    Mr. Crichton. It is about 50 percent over the last eight 
and a half years.
    Mr. Mica. Okay. Is it true that NAV CANADA handles all of 
the TransAtlantic in the northern Atlantic corridor air 
traffic, NAV CANADA?
    Mr. Crichton. A little over 90 percent of the North 
America-Europe traffic passes through
    Mr. Mica. A little over 90 percent?
    Mr. Crichton.--through our oceanic system, yes.
    Mr. Mica. The other question I had is, there was an 
accident some time ago over Germany where a couple of planes 
collided. I think it was over the German territory. Can you 
explain what happened there, and did privatization have any 
contributing responsibility for that?
    Mr. Kaden. No, not at all. It happened in the German 
airspace in 2002, first of July, under the responsibility of a 
delegation of that air navigation service of our Swiss 
colleagues. So it was Sky Guide responsible for that air 
traffic control measures over the Lake of Constance. It was 
based on an agreement between the state of the Federal Republic 
of Germany in the beginning of the 1950s, an agreement with the 
government of Switzerland, where this small region above the 
Lake of Constance is still under the responsibility of 
Switzerland.
    Concerning liability, both of our organizations, Sky Guide 
in Switzerland and DFS in Germany, more or less have an 
assurance in taking care of that from both sides through an 
insurance company.
    Mr. Mica. Thank you. Mr. Costello.
    Mr. Costello. Thank you, Mr. Chairman.
    Mr. Kaden, you mentioned that your controllers have seen 
about a 25 percent increase over a 10 year period, is that 
correct?
    Mr. Kaden. Yes.
    Mr. Costello. Which averages about 2.5 percent a year over 
a 10 year period. I am wondering, as far as benefits are 
concerned, pensions and other things of that nature, how the 
benefits received by the air traffic controllers since DFS took 
over compares to what the benefits were before the takeover.
    Mr. Kaden. One of the major changes indeed was that when we 
took over in 1993, all the employees, one of the reasons were 
that they have to leave the clerical working conditions of the 
former agency, they left that, they moved into a private 
company, based on a private contract which we negotiated with 
the unions at that time. Believe it or not, in the meantime, 
out of our entire organization, it was roughly 5,500 people, 
only roughly 400 did not change. Out of the controllers, we had 
roughly 2,400 including flight data assistants. There were 24 
controllers which remained as clerical services employments. 
And we take care of the full pensions, as to the historic data 
up to the change, and then from the 1st of January 1993 
onwards, we did it on a private base. It is much better than 
the year before.
    Mr. Costello. How did you deal with the downturn of the 
economy after September 11th? Were you forced to increase user 
fees, postpone capital improvements? Did you receive any 
government loans or an infusion of cash?
    Mr. Kaden. The first decision after the downturn of 2001, 
2002 and even the beginning of 2003 was more or less to very 
limited increase our user charges, in agreement with the 
customers, and in agreement with the government. This entire, 
even small increase of the charges affected our equity. We 
created a loss as a company, which at that time were more than 
30 percent of our equity. So we created a private company loss 
based on that downturn.
    From 2003-2004 onward then we increased in one step, once 
more, in small steps the user charges. Then from 2004-2005 and 
onward we are reducing, as I mentioned, once more the ATC 
entire user charges below the level of the downturn phase of 
2001.
    Mr. Costello. Mr. Crichton, same question for you as well 
for NAV CANADA.
    Mr. Crichton. I guess we were the hardest hit of anybody. 
We had 9/11, we had SARS, we had traffic dampening effect of 
the Iraq war, and then we had our biggest customer go into 
chapter 11. So I do not think any other ANS in the world was 
hit as hard as we were over the last three years.
    We had money in reserve, Gerald referred to it as a rainy 
day fund. We used that up first. We did increase our rates in a 
measured way, bearing in mind the industry was suffering at the 
time. We also ran a deficit for two years. We have the 
financial strength to do that, so we did it.
    And we just managed it, we managed expenses and we are back 
on the beach now, we are back into a positive balance in the 
rate stabilization fund, the traffic is back to normal. It was 
a very manageable situation.
    Mr. Costello. And the fee increases, can you give us some 
examples of how you were forced to increase fees by percentage 
or dollar amount?
    Mr. Crichton. At the time 9/11 happened, the fees at that 
time had a 6 percent discount, sort of a rebate, if you will, 
attached to them. We let that rebate lapse at the end of 2001. 
Then over the course of the next two years, we increased fees 
by 12 percent. Prior to that, we had reduced them by 11 
percent.
    If you look at our costs today, on a unit cost basis, on a 
cost per weighted charging unit, put it on the same basis that 
airlines measure their costs for available seat mile, our costs 
in real terms are 15 percent less than they were when we 
started in 1996.
    Mr. Costello. Did you receive an infusion of cash from the 
government at the time, in addition to increasing the fees?
    Mr. Crichton. Zero.
    Mr. Costello. And capital improvements, were you forced to 
either delay or postpone capital improvements?
    Mr. Crichton. We deferred a few things that impacted our 
capital spending by maybe 10 percent, just through deferrals.
    Mr. Costello. Mr. Chairman, I do not have any other 
questions.
    Mr. Kuhl. [Presiding] Gentlemen, I have just a couple of 
questions, do not want to delay your presentation any longer 
than necessary. But I am quite interested, number one because 
of the size differences of the various organizations, 
particularly that of this country compared to yours. I am 
interested to know really what the major, what the biggest 
impediment to the transfer or transition over to 
commercialization was in each one of your operations.
    Mr. Crichton. I think the biggest challenge, and we are 
still dealing with it to a certain extent, is the culture of 
the people. It is taking what previously had been a government 
organization since the very beginning of air traffic control, 
50, 60 years, and turning it into a private business and 
getting people, management and employees alike, to think in a 
performance-based fashion of a business and relating it to what 
they are doing, that we have customers, they pay us for the 
service, we are obligated to provide the service, we are 
obligated to do it in a safe way and an efficient way.
    And just to break that mind set of being a government and 
that we are going to do things differently, we are going to do 
procurement differently, we are going to do R&D differently, 
there is accountability to deliver on time, on budget, and so 
on. That is probably the biggest challenge we deal with. We are 
coping with it successfully in terms of the rest of it. It is 
all the usual business challenges that you will find in any 
business, whether high tech or otherwise. It is simply the 
application of sound management principles to deal with those 
issues.
    Mr. Mica. Mr. Kaden?
    Mr. Kaden. I would fully support that. It was one of my 
major mistakes when I took over the organization in the 
beginning of the 1990s, where I estimated that this cultural 
change, by getting rid of the bureaucratic systems and decision 
making processes and taking over responsibilities and being a 
more customer-driven organization will take time, at least five 
to seven years. After looking back in the meantime now I know 
it sometimes happens, you need a decade or even more for that.
    We are a small organization. When we started, we changed 
almost half of our management. They had to run through an 
assessment center and we changed them. Then we hired a couple 
from the outside. Then in the meantime, based on the pension 
funds of controllers, half of them had really changed and had 
been hired from the outside and trained in our own 
organization. It takes time to exactly change the mind set of 
being a monopoly organization instead of preparing for a 
competitive environment where are a couple of ANSPs are 
developing the future. That is the major challenge.
    One minor point might be that management positions in 
Germany, we are lacking of some ladies.
    Mr. Kuhl. And along the same vein, you both speak, at least 
what I am hearing, as though these transitions have been 
successful. If you were to look at that success, what would you 
say was the most acceptable successful part of the transition 
to the general public in your country?
    Mr. Kaden. I might say that from my point of view, with all 
due respect to my colleagues, it's leadership. You have to 
start from the top. If you are hiring some new management 
people and you have to really put that and push that through to 
the organization. Give them the vision, try to define a mission 
statement and then live it. Try to day by day underline that 
what you are talking, at least the president or CEO of an 
organization, and try to convince the people to do it.
    Mr. Kuhl. Mr. Crichton?
    Mr. Crichton. Mr. Chairman, the motivating factor behind 
the privatization of the Canadian ANS was first and foremost a 
rather decided opinion on the part of the customers, the 
commercial aviation industry, that the system was breaking 
down. They were convinced that leaving it within the government 
framework that over time, things would only get worse and that 
something had to be done, something fundamental had to be done 
to change the equation.
    That is why that was a motivating, driving force behind 
ultimately what was privatization. Before that happened, there 
was a government study participated in by all of the various 
stakeholders in the industry. They looked at six different 
corporate models, three of which were government controlled in 
one form or another. They looked at a fully privatized 
shareholder driven for-profit entity, they looked at ultimately 
the non-share capital that we settled on.
    But there was very much a moment in time there where the 
political will existed, where the customers were lined up, the 
employees were lined up, all the stars aligned and we acted, 
took advantage of that. I do not think we have looked back 
since. It has produced, everybody has been a winner. The 
customers are getting better service, we have virtually 
eliminated the delays in the system. They are paying less than 
they did before. The employees are making more money. There are 
fewer of them, I grant you that, but they are making more 
money. We are well on our way to totally modernizing the 
system.
    And it is a safer system. It is a demonstrably safer 
system. We have a safety regulator now who is actually doing 
safety regulation. One of the amazing things that I discovered 
one day was our controller's union came to me and said, hey, 
Transport Canada just fined one of our controllers in the 
Montreal Tower for doing something wrong. He was instructing 
another controller and should not the company pay the fine. I 
was kind of intrigued by that and I looked into it, because I 
did not think it was fair to fine a guy when he is trying to 
teach somebody, because you have to let them make mistakes.
    I looked into it, so I said to my VP of operations, I said, 
well, what happened in the past when the system was in 
Transport, how did they do it? Oh, they never fined anybody. 
They did not enforce any regulations.
    So we have a safer system and we can prove that we have a 
safer system. But it is a question of--it is a high tech 
business. This is what this is. The ANS is a high tech 
business. It has customers, they have to pay for it. And if 
they have to pay for it, they want to see demonstrable 
efficiency. That is what we try and deliver. We have a board 
where a third of the board is in fact appointed by the 
customers. They hold their feet to the fire to make sure we do.
    Mr. Kuhl. So you do not feel really that there has been 
anything that you have had to give up through this process of 
commercialization, then, relative to productivity, safety, any 
of the other items?
    Mr. Crichton. Oh, absolutely not. Everything has been 
enhanced. I would say the only losers in our experience have 
been the system vendors. I do not think Lockheed and Raytheon 
like me very much, because I do not spend very much money with 
them any more. But everybody else has won.
    Mr. Kuhl. Obviously your experience is very helpful to us 
as we look at our system continuously. I am just curious as to, 
given the size, and perhaps Mr. Crichton, this is a better 
question for you, and the experience that you have had with 
certainly our system, whether or not you think there is any 
transferrable experience to the system as you see it from an 
outside standpoint. I am talking about the U.S. system. I do 
not want to put you on the spot here, but we are obviously 
looking always for ways to improve. I am not saying there are 
any deficiencies, but certainly you may have a different 
perspective on that.
    Mr. Crichton. You are asking me an essentially political 
question, which I always try to avoid. But we are in a 
political body here. That is a decision that each individual 
country has to make. All I can tell you, from the Canadian 
point of view, they bit the political bullet back there in 1996 
and decided this is the way to go. Government does not have to 
do this, government's role should be as the assurer of safety 
and the feeling was that the government should no more run the 
air traffic control system than it should own the airlines or 
the airports. They backed out.
    So when I heard various people earlier today talk about 
differences in traffic volume, that simply means the 
opportunity is bigger. The opportunity for efficiency is 
bigger. That has absolutely nothing to do with running the 
business. Nothing.
    In fact, if I were trying to make money off air traffic 
control, my mouth would water at the opportunity of the 
efficiencies I could produce and the shareholder value that I 
could produce, because it is so much bigger.
    Mr. Kuhl. Okay. Mr. Kaden, did you want to make any comment 
on that?
    Mr. Kaden. One comment, as an additional one, small indeed. 
As Mr. Dillingham mentioned, over 80 percent in the meantime of 
the world's air traffic is in the hands of commercialized, 
corporatized organizations, and we all together founded an 
association which we call the Commercial Civil Air Navigation 
Services Organization. In the meantime, over 40 member 
organizations are really the members of it, and we are happy 
that the FAA decided to become an associate member.
    So with all due respect, as my friend John mentioned, it is 
a political decision to follow up and to benchmark how other 
organizations are doing, at least once more the same type of 
business. We are all together, based on the Chicago Convention. 
We are all together, using the same type of separation 
management.
    We are all together responsible for safety and to do it in 
the best way, based on modernized equipment and based on highly 
motivated people. What are the differences then between the 
United States and, once more, with all due respect, it is not 
the number of operations. It is the way of treating two airways 
safe through a certain airspace. Whether you do it 1 billion, 2 
billion or 45 billion times a year makes no difference. 
Therefore, we very much appreciate that the FAA becomes a 
member of the organization where they can really once more, if 
I may be very provocative, learn from the best.
    Mr. Mica. Mr. Crichton, I just had one other question. I 
think Mr. Costello has another question.
    When you made your transfer over to privatize your 
operation, did you consider selling your systems? I noted in 
your comments that you say you have sold your systems to other 
countries. Was that part of the original plan? If it was, what 
was the motivation for it then, or if it was not, what is the 
motivation for it now?
    Mr. Crichton. To tell you the truth, in the early days no, 
we were too busy trying to do the transition. But as we got 
into the business, we certainly knew in the due diligence 
leading up to the transaction, when we bought the system from 
the government, that we were buying a high tech business that 
depended to a great degree on the successful development and 
implementation of technology. As we got into that and started 
to fix it, because it was very much broken in terms of the way 
it was being run under the government, it occurred to us as we 
looked around like any good business would in the procurement 
world, and we said, well, you know, why should I make something 
here, maybe I should look outside and see if somebody else has 
already invented this, and get rid of all the risk and 
development costs.
    It dawned us at a given point that with some of those 
systems that we had no choice but to develop ourselves, it 
would only make sense to replicate those and license them or 
sell them to others, because we looked out and we saw other 
ANSs around the world basically duplicating the same technology 
at great expense. So why keep re-inventing the wheel over and 
over again. And then we said, what makes it even worse is we 
had the same customers. Why should they pay us to develop 
something then turn around, pay the U.K. to develop something, 
the exact same thing, when we can incur the development costs 
once and everybody is a winner.
    That is what led us to this solution. As it turns out, we 
are just levering off the investments we had to make anyway to 
the mutual benefit of the other ANSs and our common customers.
    Mr. Kuhl. Thank you.
    Mr. Costello.
    Mr. Costello. Mr. Chairman, thank you.
    Mr. Crichton, I have one question then I will give you an 
opportunity to make a comment to the statement attributed to 
Mr. Milton, the chairman and CEO of Air Canada.
    But first, the question of liability. Is liability either 
shared by your company and the government, what is the 
government's responsibility from a standpoint of liability? Are 
you insured for any type of an accident, or did the government 
do some type of hold harmless agreement when they gave you the 
contract?
    Mr. Crichton. We purchase insurance on the market, aviation 
insurance. We actually have the third largest aviation 
liability policy in the world, I think next to Boeing and 
Airbus. We have $2.3 billion U.S. covered right now. That is a 
straight commercial transaction.
    Since 9/11, when the international insurance markets 
canceled their war risk and terrorism insurance for everybody, 
ANSs, airlines, airports, the Canadian government stepped up 
and has provided the aviation industry with an indemnity for 
war risk and terrorism. So we depend on that indemnity the same 
way the airlines and the airports do. But the basic insurance 
is a strictly commercial transaction, the same way the airlines 
do and the aviation insurance markets.
    Mr. Costello. In fairness to you, I would like to give you 
an opportunity to respond, Mr. Milton had some very harsh words 
on Monday of this week when he spoke to a group of Montreal 
business leaders. I quoted earlier quotes attributable to him 
that ``Unfortunately, Canada has become a world leader, not in 
creating an environment where airlines can flourish, but in 
charging some of the world's highest airport fees, security 
fees and other fees and charges. The damage inflicted by the 
lack of government leadership in the airline industry over the 
past few years will be felt for many years to come.''
    Then he goes on to criticize the system further in this 
speech. In fairness to you, I would like to give you an 
opportunity to respond.
    Mr. Crichton. I have not actually seen that speech. I saw a 
press report. But just based on what you quoted, I do not think 
he mentioned the air traffic control system. He was criticizing 
the airport fees.
    Mr. Costello. Actually, this is a statement attributed to 
him and it says, ``To make matters worse, there is an abysmal 
lack of governance over air traffic control and airports,'' 
which seems to imply that he believes that there should be more 
government control or influence both over the air traffic 
control system and the airports.
    Mr. Crichton. In terms of the governance issue, I am a bit 
puzzled, because Mr. Milton appoints two of the directors to 
our board. One of those directors is the former CEO of Air 
Canada. Another director is a former vice president of Air 
Canada. All I can tell you at this point is that I think there 
is some confusion on this issue. But you will never win a fight 
with your customers, so I will leave it at that.
    Mr. Costello. Thank you.
    Thank you, Mr. Chairman, and I thank our witnesses for 
appearing here today.
    Mr. Kuhl. Okay. Well, being that there are no other members 
here to fire up some really difficult questions for you two 
gentlemen, let me tell you how much, on behalf of Chairman Mica 
and the Ranking Subcommittee Chairman Costello and the rest of 
the members who have been in and out how much we really 
appreciate your traveling. We know that you have come from afar 
and we really appreciate your written testimony and the 
testimony you have given us. We know you shortened it up so we 
could get a chance to ask some questions and have some answers 
and some dialogue.
    We appreciate your sharing your experience, certainly, of 
your countries. Obviously it is a huge, complex issue and 
question. Obviously there is a lot involved, and a lot of 
attention being paid to how well you all perform and how well 
we perform here in this country.
    So thank you for coming and sharing your experiences with 
us. Thank you for your testimony.
    [Whereupon, at 12:15 p.m., the subcommittee was adjourned.]
    [GRAPHIC] [TIFF OMITTED] T1702.001
    
    [GRAPHIC] [TIFF OMITTED] T1702.002
    
    [GRAPHIC] [TIFF OMITTED] T1702.003
    
    [GRAPHIC] [TIFF OMITTED] T1702.004
    
    [GRAPHIC] [TIFF OMITTED] T1702.005
    
    [GRAPHIC] [TIFF OMITTED] T1702.006
    
    [GRAPHIC] [TIFF OMITTED] T1702.007
    
    [GRAPHIC] [TIFF OMITTED] T1702.008
    
    [GRAPHIC] [TIFF OMITTED] T1702.009
    
    [GRAPHIC] [TIFF OMITTED] T1702.010
    
    [GRAPHIC] [TIFF OMITTED] T1702.011
    
    [GRAPHIC] [TIFF OMITTED] T1702.012
    
    [GRAPHIC] [TIFF OMITTED] T1702.013
    
    [GRAPHIC] [TIFF OMITTED] T1702.014
    
    [GRAPHIC] [TIFF OMITTED] T1702.015
    
    [GRAPHIC] [TIFF OMITTED] T1702.016
    
    [GRAPHIC] [TIFF OMITTED] T1702.017
    
    [GRAPHIC] [TIFF OMITTED] T1702.018
    
    [GRAPHIC] [TIFF OMITTED] T1702.019
    
    [GRAPHIC] [TIFF OMITTED] T1702.020
    
    [GRAPHIC] [TIFF OMITTED] T1702.021
    
    [GRAPHIC] [TIFF OMITTED] T1702.022
    
    [GRAPHIC] [TIFF OMITTED] T1702.023
    
    [GRAPHIC] [TIFF OMITTED] T1702.024
    
    [GRAPHIC] [TIFF OMITTED] T1702.025
    
    [GRAPHIC] [TIFF OMITTED] T1702.026
    
    [GRAPHIC] [TIFF OMITTED] T1702.027
    
    [GRAPHIC] [TIFF OMITTED] T1702.028
    
    [GRAPHIC] [TIFF OMITTED] T1702.029
    
    [GRAPHIC] [TIFF OMITTED] T1702.030
    
    [GRAPHIC] [TIFF OMITTED] T1702.031
    
    [GRAPHIC] [TIFF OMITTED] T1702.032
    
    [GRAPHIC] [TIFF OMITTED] T1702.033
    
    [GRAPHIC] [TIFF OMITTED] T1702.034
    
    [GRAPHIC] [TIFF OMITTED] T1702.035
    
    [GRAPHIC] [TIFF OMITTED] T1702.036
    
    [GRAPHIC] [TIFF OMITTED] T1702.037
    
    [GRAPHIC] [TIFF OMITTED] T1702.038
    
    [GRAPHIC] [TIFF OMITTED] T1702.039
    
    [GRAPHIC] [TIFF OMITTED] T1702.040
    
    [GRAPHIC] [TIFF OMITTED] T1702.041
    
    [GRAPHIC] [TIFF OMITTED] T1702.042
    
    [GRAPHIC] [TIFF OMITTED] T1702.043
    
    [GRAPHIC] [TIFF OMITTED] T1702.044
    
    [GRAPHIC] [TIFF OMITTED] T1702.045
    
    [GRAPHIC] [TIFF OMITTED] T1702.046
    
    [GRAPHIC] [TIFF OMITTED] T1702.047
    
    [GRAPHIC] [TIFF OMITTED] T1702.048
    
    [GRAPHIC] [TIFF OMITTED] T1702.049
    
    [GRAPHIC] [TIFF OMITTED] T1702.050
    
    [GRAPHIC] [TIFF OMITTED] T1702.051
    
    [GRAPHIC] [TIFF OMITTED] T1702.052
    
    [GRAPHIC] [TIFF OMITTED] T1702.053
    
    [GRAPHIC] [TIFF OMITTED] T1702.054
    
    [GRAPHIC] [TIFF OMITTED] T1702.055
    
    [GRAPHIC] [TIFF OMITTED] T1702.056
    
    [GRAPHIC] [TIFF OMITTED] T1702.057
    
    [GRAPHIC] [TIFF OMITTED] T1702.058
    
    [GRAPHIC] [TIFF OMITTED] T1702.059
    
    [GRAPHIC] [TIFF OMITTED] T1702.060
    
    [GRAPHIC] [TIFF OMITTED] T1702.061
    
    [GRAPHIC] [TIFF OMITTED] T1702.062
    
    [GRAPHIC] [TIFF OMITTED] T1702.063
    
    [GRAPHIC] [TIFF OMITTED] T1702.064
    
                                    
