Air Traffic Operations: The Federal Aviation Administration Needs
to Address Major Air Traffic Operating Cost Control Changes
(23-JUN-05, GAO-05-724).
Dating back to 1997, numerous reports have highlighted the need
for the Federal Aviation Administration (FAA) to better control
the growth in its Air Traffic Services operating costs, which
account for about $6.5 billion or over 80 percent of FAA's total
annual operating costs. In February 2004, FAA established the Air
Traffic Organization (ATO) to take over its entire Air Traffic
operations and established cost control as a major focus. GAO was
asked to determine: (1) What is ATO's financial outlook for its
operations? (2) To what extent is ATO taking actions to control
its operating costs? (3) What are some options ATO should
consider in developing its cost control strategy?
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-05-724
ACCNO: A27841
TITLE: Air Traffic Operations: The Federal Aviation
Administration Needs to Address Major Air Traffic Operating Cost
Control Changes
DATE: 06/23/2005
SUBJECT: Air traffic control systems
Cost control
Financial analysis
Financial management
Future budget projections
Internal controls
Strategic planning
Budget deficit
Policy evaluation
General management reviews
Airport and Airway Trust Fund
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GAO-05-724
United States Government Accountability Office
GAO Report to Congressional Requesters
June 2005
AIR TRAFFIC
OPERATIONS
The Federal Aviation Administration Needs to Address Major Air Traffic Operating
Cost Control Challenges
a
GAO-05-724
[IMG]
June 2005
AIR TRAFFIC OPERATIONS
The Federal Aviation Administration Needs to Address Major Air Traffic
Operating Cost Control Challenges
What GAO Found
Unless revenue projections improve significantly or ATO implements
significant cost reduction and control measures, the projected financial
outlook for its operations is bleak. Air Traffic Services operating
expenses experienced real growth of $1.8 billion (43 percent) between
fiscal years 1996 and 2004, and ATO expects its operating expenses to
significantly outpace available funding through fiscal year 2010. As a
result, it projects a cumulative operating budget deficit of nearly $4
billion. Further, the historical growth in operating expenses has
contributed to an increasing reliance on the Airport and Airways Trust
Fund to cover operating costs, and the Trust Fund's balance is expected to
fall to $1.2 billion by the end of fiscal year 2006.
FAA and ATO are currently implementing cost control and savings
initiatives that address about 12 percent of ATO's projected 5-year, $4
billion operating budget shortfall. These initiatives range from
instituting sound business practices, such as improved budgeting and cost
management, to structural changes, such as contracting out operation of
part of the air traffic control system. ATO has been working on a 5-year
business outlook to identify alternatives for closing the funding
shortfall, but the plan has been delayed and its issuance date is
uncertain.
In order to enhance its current cost control efforts, ATO will need to
consider long-standing, cost-saving recommendations including
consolidating facilities for greater efficiencies, replacing outdated
costly equipment, and investing in new technology to enhance workforce
productivity. However, implementing these options will be challenging
because doing so will require that ATO produce a sound business case for
its actions, backed by organizational and political support for actions
needed to control costs. Furthermore, ATO needs to balance its financial
objectives against another goal-implementing new automation concepts in
air traffic control in order to keep up with substantial traffic growth
over the next 20 years.
Projected ATO Operating Budget Shortfall FYs 2006-2010 United States Government
Accountability Office
Contents
Letter
Results in Brief
Background
The Financial Outlook for ATO's Operations Is Bleak
FAA and ATO Cost-Saving Initiatives Will Address Only a Small
Portion of ATO's Funding Gap ATO Will Need to Consider a Wider Range of
Options in Developing
Its Cost Control Strategy Conclusions Recommendation for Executive Action
Agency Comments
1 2 4 5
9
11 15 16 17
Appendixes
Appendix I: GAO Review of ATO's Efforts to Control Operating Costs 19
Appendix II: Scope and Methodology 39
Appendix III: Description of FAA and ATO Cost-Saving Initiatives 41 ATO
Initiatives 41
Appendix IV: GAO Contact and Staff Acknowledgments 43
Tables Table 1: ATO Operating Expense and Revenue Forecasts, Fiscal Years
2006 through 2010 7 Table 2: ATO's Current Operating Cost Saving
Initiatives 10
Figures Figure 1: Changes in Airline Operating Expenses Compared to
Changes in FAA Operating Costs, 1998-2004 (constant
2000 dollars, indexed to 100) 6
Figure 2: Share of Operating Expenses and Uncommitted Balance,
Airport and Airways Trust Fund, Fiscal Years 1996
through 2006 8
Contents
Abbreviations
ADS-B Automatic Dependent Surveillance-Broadcast
ATO Air Traffic Organization
CPDLC Controller/Pilot Data Link Communications
EXCDS Extended Computer Display System
FAA Federal Aviation Administration
JPDO Joint Planning and Development Office
MAC Management Advisory Council
NATCA National Air Traffic Controllers Association
NCARC National Civil Aviation Review Commission
OMB Office of Management and Budget
TRACON Terminal Radar Approach Control
URET User Request Evaluation Tool
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
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copyright holder may be necessary if you wish to reproduce this material
separately.
A
United States Government Accountability Office Washington, D.C. 20548
June 23, 2005
The Honorable Ted Stevens
Chairman
The Honorable Daniel Inouye
Co-Chairman
Committee on Commerce, Science, and Transportation
United States Senate
The Honorable Conrad Burns
Chairman
The Honorable John D. Rockefeller IV
Ranking Minority Member
Subcommittee on Aviation
Committee on Commerce, Science, and Transportation
United States Senate
The Honorable John McCain
United States Senate
Dating back to 1997, numerous reports have highlighted the need for the
Federal Aviation Administration (FAA) to better control the growth in its
operating costs. A focus of many of these reports has been on controlling
the costs of FAA's Air Traffic Services operations, which account for
about
$6.5 billion or over 80 percent of FAA's total annual operating costs.
Since
the issuance of the initial reports, the aviation industry has experienced
a
severe economic downturn, and aviation tax receipts into the Airport and
Airways Trust Fund (the Trust Fund) fell nearly 20 percent between 1999
and 2003. Because the Trust Fund is the source of most of FAA's funding,
and due to the overall condition of the federal budget, FAA faces an
increasingly constrained pool of available funding, which further
emphasizes the need to control its operating costs. Recognizing this
challenge, in February 2004, FAA established the Air Traffic Organization
(ATO) to take over its entire Air Traffic operations1 and established cost
control as a major focus. The committee asked us to review actions FAA is
1In April 2000, Public Law 106-181, known as Air-21, authorized a Chief
Operating Officer for FAA who would be responsible for, among other
things, overseeing day-to-day air traffic control operations, modernizing
the air traffic control system, increasing productivity, and implementing
cost-saving measures. The following December Executive Order 13180
authorized establishment of the Air Traffic Organization, headed by this
Chief Operating Officer.
taking to control its operating costs and identify other measures FAA
should consider to further control or reduce its operating costs. We
focused on three research questions: (1) What is ATO's financial outlook
for its operations? (2) To what extent is ATO taking actions to control
its operating costs? (3) What are some options the ATO should consider in
developing its cost control strategy?
To answer these questions, we obtained and reviewed historical operating
cost data available for fiscal years 1996 through fiscal year 2004 and
ATO's projected operating cost and revenue information from fiscal years
2006 through 2010. We also interviewed ATO and FAA finance and program
officials to identify a current list of initiatives that ATO and FAA are
pursuing and the expected financial benefits of these measures to control
operating costs. We further obtained and analyzed supporting
documentation, if available, to assess the extent to which ATO and FAA
could justify their savings estimates. We identified additional options
for cost control that ATO will need to consider and obtained experts'
opinions on the feasibility and prospects of these measures to achieve
cost savings. These experts included numerous aviation
stakeholders-government researchers, industry consultants and analysts,
aviation system users, union officials, and officials from foreign air
navigation service providers. Several times during the course of our
review ATO senior managers stated that they would shortly be issuing a
5-year business outlook for improving its financial performance and for
achieving cost savings. The plan was initially scheduled for release in
October 2004 but has been delayed numerous times. ATO has still not
published this plan. For more information on our scope and methodology and
the steps we took to ensure data reliability, see appendix II. We
conducted our work from August 2004 through May 2005 in accordance with
generally accepted government auditing standards.
On April 13, 2005, we briefed your committee staff on the results of this
work. This report summarizes the information presented in that briefing.
Appendix I contains the finalized slides from that briefing.
Results in Brief Unless ATO implements significant cost reduction and
control measures or projections of available revenues greatly improve, the
projected financial outlook for its operations is bleak. ATO faces the
prospects of significant operating budget shortfalls and further declines
in the uncommitted balance of the Trust Fund. During the period fiscal
years 1996 through 2004, Air Traffic Services operating expenses
experienced real growth of $1.8
billion, or 43 percent.2 ATO expects its operating expenses to continue to
grow through fiscal year 2010. It also projects that expenses will
significantly outpace available funding during the period, resulting in a
cumulative operating budget deficit of nearly $4 billion. Further, the
historical growth in operating expenses has contributed to an increasing
reliance on the Trust Fund to cover operating costs, and the Trust Fund's
balance is expected to fall to $1.2 billion by the end of fiscal year
2006.
FAA and ATO are currently implementing cost control and savings
initiatives that address about 12 percent of ATO's projected 5-year, $4
billion operating budget shortfall. These initiatives range from
instituting sound business practices, such as improved budgeting and cost
management, to structural changes, such as contracting out operation of
part of the air traffic control system. On the basis of FAA and ATO
financial estimates, we determined that together, these initiatives could
save about $450 million through fiscal year 2010, which is far short of
the amount needed to substantially close the ATO operations funding gap.
ATO has been working on a 5-year business outlook to further address the
funding shortfall, but the plan has been delayed and its issuance date is
uncertain.
In order to enhance its current cost control efforts, ATO will need to
consider a range of long-standing recommendations that offer potentially
significant cost reductions and consider initiatives to increase
productivity. These options include consolidating facilities for greater
efficiencies, replacing outdated costly equipment, and investing in new
technology to enhance workforce productivity. However, implementing these
options will be challenging because doing so will require that ATO produce
a sound business case for its actions, backed by organizational and
political support for actions needed to control costs. Furthermore, ATO
needs to balance its financial objectives against another
goal-implementing new automation concepts in air traffic control in order
to keep up with substantial traffic growth over the next 20 years.
We are recommending that the Secretary of Transportation direct the
Administrator, Federal Aviation Administration, to develop a
comprehensive, strategic long-term cost control and savings strategy. In
doing so, ATO should complete rigorous cost benefit analyses to determine
the optimal structure for providing its services to different user groups
while ensuring against demonstrable adverse impacts on aviation safety. In
2This growth rate reflects growth after the effects of inflation are
removed.
commenting on a draft of this report, the Federal Aviation Administration
agreed to consider our recommendation and stated that it is currently
developing a business outlook to identify and implement both immediate and
future cost saving initiatives.
Background FAA is responsible for managing the national airspace system
and ensuring the safe and efficient movement of air traffic. To help
accomplish this mission, FAA utilizes thousands of employees such as air
traffic controllers and maintenance technicians at various air traffic
control facilities around the country. To fund these positions, FAA
receives an annual Operations appropriation that covers expenses such as
the salaries and benefits of these employees and the administrative and
support costs of providing air traffic control services. The Operations
appropriation is primarily derived from both the General Fund and receipts
into the Airport and Airways Trust Fund. Dating back to 1997, numerous
reports have highlighted the need for the FAA to better control the growth
in its operating costs.
Prior to creation of ATO, FAA's Air Traffic Services organization managed
air traffic operations. Air Traffic Services included about 38,000
employees, such as air traffic controllers and facilities maintenance
technicians, within FAA's Air Traffic and Airways Facilities
organizations. To improve the provision of air traffic services, in 2000,
the Administration issued an executive order that called for a
performance-based air traffic organization, and Congress passed
legislation that established an oversight body and a chief operating
officer. FAA hired a Chief Operating Officer in 2003 and in February 2004,
formed the ATO, merging its former Air Traffic Services and Acquisitions3
offices to manage FAA's air traffic control investments and operations.
Congress also directed the Secretary of Transportation to establish the
multiagency Joint Planning and Development Office (JPDO) to manage work
related to a "next generation" air transportation system to meet air
traffic demands by 2025.4
3These included FAA's Office of Research and Acquisitions and Free Flight
Program Office.
4Vision 100-The Century of Aviation Reauthorization Act, P.L. 108-176,
sec. 709. The JPDO is to operate in conjunction with relevant programs in
the Department of Defense, National Aeronautics and Space Administration,
and the Departments of Commerce and Homeland Security.
The Financial Outlook for ATO's Operations Is Bleak
Historical and projected growth in operating costs, combined with
constrained operating revenues, create a bleak financial outlook for ATO's
operations. ATO inherited an organization with a history of significant
growth in operating costs. Between fiscal years 1996 and 2004, Air Traffic
Services' operating costs grew by nearly $1.8 billion in real terms, from
just under $4.2 to just over $5.9 billion, or 43 percent. Most of this
growth was due to increases in the costs of personnel compensation and
benefits. These costs, which accounted for nearly 80 percent of the Air
Traffic Services' operating costs, grew by $1.4 billion, or 43 percent in
real terms. According to ATO finance officials, a significant factor
underlying this growth was a pay raise provided under a collective
bargaining agreement signed between FAA and the National Air Traffic
Controllers Association (NATCA) in September 1998. Under the agreement,
FAA agreed to $200 million in annual pay raises, to be phased in during
the period fiscal years 1999-2001. Data from ATO finance officials also
indicated that congressionally approved mandatory pay raises, and
increasing benefit costs such as health care and thrift savings plan
contributions, accounted for much of the remaining increases in personnel
costs. In addition to personnel compensation and benefits cost increases,
the remaining $380 million in real cost increases was primarily due to
growth in contract services costs. Costs associated with these
contracts-which covered such items as costs for implementing new
technologies and systems-grew by about 115 percent over the period. By
comparison, when U.S. airlines began confronting the difficult financial
times since 2001, the large legacy and low cost airlines cut their
operating expenses by over $13 billion (in constant 2000 dollars).5 FAA
noted, however, that when legacy airlines shifted some operations to
regional affiliates to save costs, FAA's workload increased. Figure 1
compares the diverging trends in operating costs between the large U.S.
commercial airlines and the FAA.
5The airlines included are those analyzed in GAO's recent reports on the
financial condition of the U.S. commercial airline industry. The legacy
airlines are American, Alaska, Continental, Delta, Northwest, United, and
US Airways. The low-cost airlines are AirTran, America West, ATA,
Frontier, JetBlue, Southwest, and Spirit. For more information on the
operating cost control efforts undertaken by those airlines, see GAO,
Commercial Aviation: Legacy Airlines Must Further Reduce Costs to Restore
Profitability, GAO-04-836 (Washington, D.C.: Aug. 11, 2004).
Figure 1: Changes in Airline Operating Expenses Compared to Changes in FAA
Operating Costs, 1998-2004 (constant 2000 dollars, indexed to 100)
Indexed to 100
1998 1999 2000 2001 2002 2003 2004
Fiscal year
FAA operations costs
Airline operating expenses
Source: GAO analysis of data from BACK Aviation Solutions and FAA.
With respect to future costs, according to ATO's estimates, its operating
costs are expected to continue to increase significantly through fiscal
year 2010, and they are expected to greatly exceed available revenues
during the period.6 Table 1 shows ATO's operating expense and revenue
forecasts for fiscal years 2006 through 2010.
6These are base estimates for ATO's expenses and revenues, and do not
include any adjustments for potential cost savings or cost increases from
planned initiatives.
Table 1: ATO Operating Expense and Revenue Forecasts, Fiscal Years 2006
through 2010
Dollars in thousands Operations 2006 2007 2008 2009 2010 Growth
Expenses $6,566,305 $7,078,901 $7,434,061 $7,787,647 $8,181,686 24.6%
Revenues 6,566,305 6,647,286 6,657,232 6,640,655 6,538,707 -0.4%
Potential
shortfall 0 431,615 776,829 1,146,992 1,642,979
Cumulative
shortfall 0 431,615 1,208,444 2,355,436 3,998,415
Source: ATO.
According to the forecast, if left unchecked, operating expenses are
expected to grow about 25 percent over this period. In addition, available
operating revenues are expected to decrease slightly over the period, and
expenses are projected to exceed revenues during each of the final 4
fiscal years.7 Therefore, ATO projects a cumulative operating budget
deficit of about $4.0 billion.8 Two key assumptions underlying these
estimates are that ATO staffing remains essentially constant and that
available revenues are based on limits imposed by the Office of Management
and Budget (OMB). In December 2004, ATO released its 10-year controller
workforce staffing plan. In that plan, ATO estimated it would experience a
net increase of over 1,200 controllers through fiscal year 2010, expanding
the current controller workforce by over 8 percent to meet projected
system growth needs and ensure that a sufficient number of trained
controllers are available to accommodate forecasted retirements. This base
budget forecast does not account for the operating costs associated with
hiring and training these new controllers. In terms of the revenue
forecasts, assumptions regarding OMB out-year targets are not necessarily
binding, because Congress can choose to appropriate higher levels to meet
ATO's operational requirements. Nevertheless, this forecast highlights the
significant operations budget challenges that lie ahead for ATO.
7Available revenues under the forecast are based on OMB funding targets.
According to ATO officials, they were determined by taking the fiscal year
2006 President's proposed budget for ATO operations and multiplying by OMB
growth factors for fiscal years 2007 through 2010.
8Over the course of our review, ATO's budget deficit forecast changed
substantially. Based on an April 2004 budget forecast, the cumulative
deficit was estimated to be $5.2 billion.
In addition to the operating budget challenges, growth in operating
expenses, combined with reduced airline ticket tax revenues, has
contributed to a precipitous decline in the uncommitted balance of the
Trust Fund. Figure 2 shows the amount of operating expenses funded by the
Trust Fund and its uncommitted balance for fiscal years 1996 through 2006.
Figure 2: Share of Operating Expenses and Uncommitted Balance, Airport and
Airways Trust Fund, Fiscal Years 1996 through 2006
Billions of dollars
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Fiscal year
Trust Fund share of operations
Uncommitted balance Source: GAO analysis of FAA data.
Note: Amounts for fiscal years 2005 and 2006 are estimates.
As the figure shows, the amount of operating costs covered by the Trust
Fund has increased significantly over the period. In fiscal year 1996, the
Trust Fund covered $2.2 billion in operating expenses, and this amount is
projected to reach $6.5 billion for fiscal year 2006. At the same time,
the uncommitted balance of the Trust Fund has declined every year since
fiscal year 2001, and FAA projects it to fall to $1.2 billion by the end
of fiscal year 2006. As we recently reported, beyond fiscal year 2006
there is considerable
uncertainty regarding the status of the Trust Fund.9 For example, we found
that over the next 3 years the Trust Fund is projected to have a positive
uncommitted balance. However, we also found that this financial outlook
depends on key revenue assumptions; if revenue estimates are 10 percent
lower than projected, the balance could reach zero in fiscal year 2006.
Stakeholders also had varying views on the financial outlook of the Trust
Fund. Some project a rebound in air traffic and increased revenues to the
Trust Fund; others forecast continued pressure on the airlines and on
average ticket prices in particular. Lower average ticket prices generally
constrain tax receipts to the trust fund because the main source of
revenue to the Trust Fund is a 7.5 percent tax on each ticket.
FAA and ATO Cost-Saving Initiatives Will Address Only a Small Portion of
ATO's Funding Gap
FAA and ATO finance officials are currently implementing several cost
control and savings initiatives and have identified potential operating
cost savings. These savings amount to just over $450 million and will not
substantially close ATO's cumulative $4.0 billion operations funding gap.
These initiatives range from instituting sound business practices, such as
improved budgeting and cost management, to structural changes, such as
contracting out many of its automated flight service stations.10 (App. III
contains a description for each of these initiatives.) For example, FAA
finance officials are implementing initiatives that could produce savings
of approximately $119 million through fiscal year 2010. While these
initiatives would benefit FAA as a whole, a large share of the benefits
would necessarily help ATO, FAA's largest component. Therefore, for
purposes of this analysis, we assume all these savings could be used to
offset ATO's funding shortfall. Quantifiable 5-year FAA savings include
consolidating the number of accounting offices from 9 to 1 ($8 million);
improving procurement for office supplies, office equipment, mail,
printing, and information technology hardware and software ($58 million);
and improving cell phone contracting ($53 million).11 In addition, FAA has
been upgrading its cost accounting system, which will help ATO facility
managers to monitor costs on a monthly basis by fiscal year 2006.
9GAO, Airport and Airway Trust Fund: Preliminary Observations on Past,
Present, and Future, GAO-05-657T (Washington, D.C.: May 4, 2005).
10The primary role of an automated flight service station is to provide
weather briefing and flight planning services to pilots. On February 1,
2005, FAA announced the award of a 10year contract to Lockheed Martin to
take over the operation of 58 of these facilities.
11Estimates from FAA.
ATO is also implementing several initiatives to reduce operating costs and
has identified $333 million in estimated operating cost savings that could
be realized through fiscal year 2010. Some initiatives, such as
contracting out many of its automated flight service stations, are
specifically designed to reduce the overall operating costs of providing
ATO's services. Many other initiatives, such as driving budget
accountability down to field facilities (bottoms-up budgeting),
controlling unit cost of services, and upgrading labor tracking, may
eventually help ATO control costs through more business-like management of
operations. Currently, ATO officials have been unable to identify the
amount and timing of savings from these initiatives. Furthermore, ATO
expects the major savings associated with some of these initiatives to be
realized only after fiscal year 2010. For example, ATO projects that 80
percent of the estimated $1.2 billion in total operating cost savings from
contracting out flight service operation will not benefit ATO until fiscal
year 2011 or later. In addition, ATO expects almost all of the $790.5
million in savings from a telecommunications upgrade will benefit budgets
after fiscal year 2010. Table 2 lists specific ATO initiatives and
estimated operating cost savings that could be realized by fiscal year
2010.
Table 2: ATO's Current Operating Cost Saving Initiatives
Estimated costs saved through Initiative fiscal year 2010
Contract out flight service operations $241 million
Telecommunications upgrade (None until after 2010)
Better sick leave management $59 million *
Cut night shift operations at selected towers $34 million *
Bottoms-up budgeting N/A
Control unit cost of services N/A
Revise air traffic control facility staffing N/A standards
Activity value analysis of headquarters N/A offices
Labor tracking system upgrade N/A
Downgrade selected towers N/A
Use part-time controllers N/A
* = GAO estimates; ATO believes they may be high.
Source: GAO analysis of FAA and ATO data.
Notes: N/A = not available or unknown.
The combined FAA and ATO cost saving initiatives discussed above are
insufficient to address ATO's 5-year funding gap. Identified savings of
about $450 million could offset about 11 percent of the $4.0 billion
budget shortfall. These initiatives are ATO's first steps toward future
cost savings, and ATO officials stated that they are preparing a 5-year
business outlook to identify alternatives to close the projected funding
gap. However, the plan has been delayed over 6 months while ATO has worked
to attain consensus on major cost-cutting initiatives, and its issuance
date is uncertain.
ATO Will Need to Consider a Wider Range of Options in Developing Its Cost
Control Strategy
Our review of prior studies and our discussions with aviation industry
stakeholders identified several cost control options for ATO to consider.
These included addressing long-standing structural issues as well as
making technology investments in order to enhance productivity. Two 1997
studies recommended cost-cutting measures that FAA could take to address
anticipated funding shortfalls. One study was an independent financial
assessment12 of FAA by Coopers & Lybrand. The other was a report13 by the
National Civil Aviation Review Commission (NCARC). Both studies
recommended actions that FAA could take to save hundreds of millions of
dollars annually and improve its financial condition. FAA has acted on
some recommendations included in those reports, but not on others. Among
the recommendations acted on, FAA discontinued support for the long-range
radar system, thereby saving $50 million per year; created a logistics
center franchise fund, thereby saving $20 million per year; and contracted
out flight service station operations, as discussed before.
Other cost-saving recommendations from the 1997 studies are still open for
ATO to consider. We agree with current stakeholders who say these
recommendations should be included in ATO's cost control strategy,
although ATO will have to overcome organizational barriers and receive
strong political support in order to implement them. Four frequently cited
cost control strategies are described below.
12Coopers & Lybrand, L.L.P., Federal Aviation Administration Independent
Financial Assessment (Feb. 28, 1997).
13National Civil Aviation Review Commission, Avoiding Aviation Gridlock
and Reducing the Accident Rate (December 1997).
o Consolidate major air traffic control facilities. ATO maintains 21 air
traffic control centers, employing about 6,700 controllers, to serve
high-altitude air traffic nationwide. These centers are housed in aging
structures that require substantial maintenance. The 1997 Coopers &
Lybrand report concluded that the number of these centers could be reduced
without a negative impact on air safety. Further, the study found that in
light of maintenance and repair requirements, consolidation appears
economically justifiable, but that such an initiative was considered
unfeasible without strong political support for cost control. It further
found that with increasing budget pressure and resource constraints, FAA
would be forced to reduce costs and should build a business case to
consolidate centers. In our discussions with stakeholders, several
commented that the services performed by center air traffic controllers
could be provided by controllers at a smaller number of facilities-some
experts estimate that six or fewer facilities could be sufficient. Foreign
air navigation service providers have achieved significant operational
savings by consolidating such centers. For example, in the United Kingdom,
the National Air Traffic Services saved the equivalent of nearly $40
million over 2 years by consolidating two operations into one at a new air
navigation services center. ATO officials said they have no plans to
consolidate centers because the concept would require strong political
support that is not yet evident and they have no current financial
estimate of potential savings.
In addition, FAA's Management Advisory Council (MAC) 14 recently
recommended that FAA develop a plan for reducing the number of Terminal
Radar Approach Control (TRACON)15 facilities from their current level of
150 aging and inefficient facilities to around 50 to 60 newer, upgraded
facilities. The MAC concluded that service provided by the current
facilities could be provided far more economically through fewer
facilities with the use of more capable and efficient automation.
14In 1996, Congress authorized the Administrator of the FAA to establish
the MAC. The MAC reviews, comments and makes recommendations on FAA
management, policy, spending, funding, and regulatory matters affecting
the aviation industry. On May 12, 2005, the MAC issued a report that
included suggestions for reducing FAA's costs.
15Controllers working at TRACONS use radar screens to track planes and
manage the arrival and departure of aircraft within a 5-to 50-nautical
mile radius of airports.
o Consolidate regional offices. FAA maintains nine regional offices,
although both 1997 reports said FAA could achieve savings from
consolidating regional offices, which would eliminate duplication and make
the consolidated offices more efficient. Both reports said that FAA had
studied the issue numerous times but had never acted on the results of its
own studies. According to the NCARC report, consolidating nine FAA
regional offices into three could save $400 million over a 5-year period.
Several stakeholders told us this is an issue that FAA should pursue. In
Canada, the air traffic control provider closed most of its regional
administrative offices and centralized corporate functions to its
headquarters, reducing mostly administrative staff by 1,100 (17 percent of
the workforce).
o Decommission legacy infrastructure. ATO maintains thousands of
navigational aids to help guide aircraft to their destinations. According
to the 1997 NCARC and Coopers & Lybrand reports, decommissioning these
navigational aids could result in significant annual savings--$150 million
per year, according to the NCARC report. The reports both concluded that
FAA should expedite the decommissioning and transition to satellite-based
navigation. The reports found that the sooner this transition takes place,
the sooner FAA will be able to reduce its cost for maintaining these
systems. The Coopers & Lybrand report noted that FAA had historically been
reluctant to take this action. ATO officials are just now assessing the
potential to retire these systems. Their current plan calls for modest
equipment retirements over the next 5 years and more substantial
decommissioning over the next 10 to 15 years. According to ATO officials,
the long process is required because general aviation users will continue
to rely on some of these systems until their aircraft are upgraded to
utilize satellite-based navigation. Several stakeholders commented that
responding to the general aviation community on this issue has long been a
roadblock to decommissioning obsolete equipment, and ATO cannot afford to
maintain these systems indefinitely.
o Expand the contract tower program. Although FAA employees staff control
towers at most of the nation's busiest airports, FAA contracts for outside
staff to work at over 200 airports with lower traffic levels. Both the
1997 NCARC and Coopers & Lybrand studies recommended expanding the
contract tower program to achieve savings of $20 million to $30 million
per year. More recently, the DOT Inspector General reported that each
contract tower costs FAA nearly $900,000 less per year than comparable FAA
towers, without compromising flight safety.
Several stakeholders felt that FAA should consider expansion of this
program. However, NATCA is opposed to expanding the program and cites
potential safety concerns. ATO operates 71 low-activity towers, employing
about 900 controllers, that are candidates for inclusion in the program.
ATO officials also said that they are currently assessing the potential to
expand the program but their analysis was not complete.
In addition to addressing these long-standing structural issues, various
experts, including former FAA senior officials and members of FAA's air
traffic research advisory committee, also suggested that ATO more quickly
implement new technologies to increase future productivity and reduce the
unit costs of handling air traffic.
o Near-term enhancements. The most frequently mentioned near-term
enhancements were the User Request Evaluation Tool (URET), Automatic
Dependent Surveillance-Broadcast (ADS-B), Controller/Pilot Data Link
Communications (CPDLC), and Extended Computer Display System (EXCDS). ATO
is in the process of equipping all of its air traffic control centers with
URET, a computer tool that allows controllers to search for flight path
conflicts 20 minutes into the future and helps controllers automatically
design conflict-free alternative flight paths. Although designed for its
safety benefits, ATO officials say this tool may also improve controller
productivity, but they could not quantify this benefit. ATO has also used
demonstration programs to show the feasibility of ADS-B, a new system
designed to provide more accurate and timely surveillance information, and
CPDLC, a digital communications tool for voice and data messages. Finally,
EXCDS, which automates flight data processing, now done manually using
paper strips, was cited as a technology that can reduce the number of
controller positions needed. According to ATO officials, they plan to test
an automated flight information program in selected facilities. To date,
ATO has not been able to identify potential productivity benefits
resulting from any of these technologies. Although their immediate impact
on productivity may be unknown, experts view these tools as key enabling
devices to support future air traffic control automation that will enable
controllers to be more productive.
o Long-term system needs. Many of the experts we spoke with, along with
government air traffic management researchers said that ATO's most
important long-term challenge was to transform its current air traffic
management system in order to meet projected air traffic
demands. They point to a recent JPDO report,16 which projects that future
air traffic movements (i.e., flights) will double or triple within 20
years, particularly if even a small percentage of commercial airline
passengers shift to flying on micro-jets that seat 4 to 6 passengers.
According to these stakeholders, air traffic control will need to rely
much more on computer-based approaches, because it will not be possible to
simply add more human controllers to handle expected traffic volumes. As a
result, ATO will have to make significant investments in new air traffic
management technologies and systems that will fundamentally change the
role of a controller and automate many routine functions of today's
controllers. Currently, researchers at the National Aeronautics and Space
Administration are developing prototypes of future systems that could
eventually allow aircraft to fly with minimal controller involvement.
According to experts and JPDO officials, a key challenge for transforming
the air traffic management system by 2025 will be ensuring that ATO's
capital investment strategy and budgetary resources, as well as those of
other key agencies,17 are sufficient to support JPDO's long-term vision.
Conclusions ATO, created just over 1 year ago, faces two significant and
interrelated challenges: meeting multi-billion dollar projected financial
shortfalls over the next few years and laying the necessary financial and
strategic foundations for fundamental air traffic management reform needed
to meet projected increases in air traffic over the next 20 years.
First, ATO faces declining revenues to the Trust Fund, tight federal
budgets, and significant growth in its operating costs. The combination of
these factors makes it imperative that ATO pursue an aggressive
cost-control and savings strategy. To date, ATO has started to implement
business practices and processes fundamental to addressing its cost
control issues, and it has implemented one major structural cost savings
initiative. However
16Next Generation Air Transportation System Integrated Plan (Dec. 12,
2004). The JPDO is responsible for coordinating the research efforts of
several federal agencies to support the goals of the Next Generation Plan.
17In addition to the Department of Transportation and FAA, JPDO relies on
support from the Departments of Defense, Homeland Security, and Commerce,
plus the National Aeronautics and Space Administration and the Office of
Science and Technology Policy.
necessary, these efforts do little to constrain cost growth and materially
improve its operations funding outlook over the next 5 years. To remedy
some of the key underlying issues that have contributed to this cost
growth, ATO needs to revisit its historic operating structure. In this
cost environment, ATO simply can no longer afford to accept the status quo
and rule out solutions to these problems that independent commissions and
studies have advanced. Obviously, this is a difficult task--one that will
have a direct bearing on thousands of employees. Yet, it is a task that
cannot be ignored. Without confronting these issues, ATO will be unable to
achieve needed cost reductions, ensure long-term cost control
effectiveness, or significantly improve the operating efficiency of air
traffic services. Tackling these complex issues will require ATO to
provide a clear business case for action and to work with stakeholders and
the Congress to achieve results.
Second, in recognition of the doubling or tripling of air traffic that is
projected over the next 20 years, ATO needs to lead the development and
implementation of a fundamentally different system of air traffic
management. Working closely with JPDO, ATO needs to make the strategic
technological investments that will lead to transformation of the current
air traffic management system. FAA and ATO must take effective action to
accommodate the projected growth and provide the United States with a
system that will become significantly more efficient by providing clearer
economic signals throughout the system and enabling automation of routine
air traffic management functions. Experts believe this is the only way ATO
can generate the productivity enhancements sufficient to meet increasing
demands on the system. Developing and implementing this system will
require extremely costly investments. Therefore, it is imperative that ATO
succeed in its cost control programs not only to demonstrate that it is
capable of managing these critical investments, but also to alleviate the
pressure on scarce resources needed for investment in modernization. Most
experts agree that this is the only way ATO can ensure a safe, efficient,
and cost-effective air traffic management system for the twenty-first
century.
Recommendation for To ensure that it is providing air traffic control
services in the most costeffective manner while addressing looming
financial shortfalls, we
Executive Action recommend that the Secretary of Transportation direct the
Administrator, Federal Aviation Administration, to develop a
comprehensive, strategic long-term cost control and savings strategy. In
doing so, ATO should complete rigorous cost benefit analyses to determine
the optimal structure
for providing its services to different user groups while ensuring against
demonstrable adverse impacts on aviation safety. Results of these analyses
should be documented in a publicly available business plan that the ATO
and its key stakeholders can use to build a sound business case for making
the difficult but unavoidable structural changes needed to streamline its
operations.
Agency Comments We provided copies of a draft of this report to the
Department of Transportation for its review and comment. In general, FAA
and ATO officials agreed with the findings and conclusions, and agreed to
consider the recommendation contained in this report. The officials
emphasized that ATO has been working to address its cost control
challenges and that ATO is continuing its efforts to identify and
implement both immediate and future cost savings initiatives. It is
working cooperatively with other FAA offices to refine its estimates of
the future business environment for both costs and revenues. It is
scrutinizing projected operational costs in an effort to ensure that
sufficient resources are both requested and available to meet the
forecasted demand in the National Airspace System and to continue the safe
and efficient operation of the nation's air traffic control system. FAA
and ATO also provided technical comments which we incorporated as
appropriate.
Unless you publicly announce the contents of this report earlier, we plan
no further distribution of this report until 30 days from the date of this
letter. At that time, we will provide copies to relevant congressional
committees and other interested parties; the Secretary of Transportation;
and the Administrator of the Federal Aviation Administration. We will make
copies available to others upon request. In addition, this report will be
available at no charge on the GAO Web site at http://www.gao.gov.
If you have any questions about this report, please contact me at (202)
5122834 or [email protected]. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page
of this report. Individuals making key contributions to this report are
listed in appendix
IV.
JayEtta Z. Hecker Director, Physical Infrastructure Issues
Appendix I
GAO Review of ATO's Efforts to Control Operating Costs
GAO Review of ATO's Efforts to Control Operating Costs
Briefing For Senate Requesters April 13, 2005
1
Appendix I
GAO Review of ATO's Efforts to Control
Operating Costs
o Review objectives
o Summary Results
o ATO Background
o Question 1-ATO Financial Condition
o Question 2-ATO Actions to Address Financial Condition
o Question 3-Options ATO Should Consider
2
Appendix I
GAO Review of ATO's Efforts to Control
Operating Costs
o As agreed, this review focuses on three questions:
o What is the financial outlook for ATO's operations
o To what extent is ATO taking actions to control its operating costs and
improve its financial condition
o What are some options that ATO should consider in developing its cost
control strategy
3
Appendix I
GAO Review of ATO's Efforts to Control
Operating Costs
Summary Results
o ATO's financial condition continues to deteriorate leading to
significant shortfalls in its operating budget and declining trust fund
balances
o Operating expenses grew 43 percent in real terms from FY1996 through
FY2004
o Operating expenses are expected to outpace available revenues through
FY2010, leading to a $4 billion operations funding gap
o The aviation trust fund balance is declining and its future is
uncertain
4
Appendix I
GAO Review of ATO's Efforts to Control
Operating Costs
o FAA and ATO have initiated several cost control measures that, under a
best case scenario, will reduce costs by an estimated $0.45 billion over
the next 5 years
o These initiatives cannot fully address ATO's projected $4 billion
funding gap
o ATO is developing a 5-year business plan for improving financial
performance
o Indications from ATO are that the plan will not completely eliminate
the funding gap
5
Appendix I
GAO Review of ATO's Efforts to Control
Operating Costs
o Absent increased funding, ATO will need to consider longstanding
suggestions that offer potentially significant costreduction or
productivity gains:
o Structural changes could provide more efficient operations
o Decommissioning legacy systems could reduce maintenance costs
o Upgrading technology could achieve short-and long-termproductivity
gains
o Foreign examples show how other countries have alreadyimplemented some
of these concepts
6
Appendix I
GAO Review of ATO's Efforts to Control
Operating Costs
o In December 2000, the President directed FAA to create a
performance-based organization
o In February 2004, FAA created the ATO, and combined the FAA's Research
and Acquisitions, Air Traffic Services, and Free Flight offices into one
performance-based organization
o The primary service of the ATO is to move air traffic safely and
efficiently
o The employees of the ATO are the service providers-the 38,000
controllers, technicians, engineers, and support personnel whose daily
efforts keep the airplanes moving
7
Appendix I
GAO Review of ATO's Efforts to Control
Operating Costs
Appendix I
GAO Review of ATO's Efforts to Control
Operating Costs
Factors Accounting for Operating Cost Growth:
Question 1
o Personnel, compensation, and benefits (PC&B):
o 77 percent of Air Traffic/Airway Facility operating costs
o 43 percent real growth ($1.4 billion) since FY 96 primarily from pay
raises, not new personnel
o For example, Air Traffic and Airway Facility PC&B real costs increased
about $1 billion between fiscal year 1998 and 2003, but they added only 12
net personnel
Billions of 2004 dollars
4.7
4.5
4.3
4.1
3.9
3.7
3.5
3.3
3.1
2.9
2.7
2.5
0.0
1996 1997 1998 1999 2000 2001 2002 2003 2004 Fiscal year
Source: GAO analysis of FAA data.
9
Appendix I
GAO Review of ATO's Efforts to Control
Operating Costs
Appendix I
GAO Review of ATO's Efforts to Control
Operating Costs
Question 1
o FY 1996: $2.2 billion in operating costs covered by the trust fund
o FY 2006: $6.5 billion in operating costs from the trust fund per budget
o Trust fund balance
estimated at $1.2 billion by
the end of FY 2006
o Increased uncertainty about
Trust Fund balance after FY
2007
Billions of dollars 8.0
6.0
4.0
2.0 0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Fiscal year
Uncommitted balance
Sources: Air Transport Association and GAO analysis of FAA data.
Note: Amounts for fiscal years 2005 and 2006 are estimates.
11
Appendix I
GAO Review of ATO's Efforts to Control
Operating Costs
Appendix I
GAO Review of ATO's Efforts to Control
Operating Costs
Appendix I
GAO Review of ATO's Efforts to Control
Operating Costs
Question 2
o ATO can document limited cost reductions that marginally address 5-year
gap
o Contracting out flight service
14
Appendix I
GAO Review of ATO's Efforts to Control
Operating Costs
to Improve Its Financial Condition
Question 2
o ATO is preparing a 5-year business outlook to deal with its funding gap
o The adequacy of ATO's business outlook will hinge on the extent to
which the plan identifies major cost cutting initiatives that it has been
reluctant to pursue
o The outlook has been delayed over 6 months, as ATO has worked to attain
internal consensus on major cost cutting initiatives
o The outlook's issuance date is uncertain
15
Appendix I
GAO Review of ATO's Efforts to Control
Operating Costs
Prior Studies, Stakeholders Suggest
Question 3
o NCARC and Coopers & Lybrand made numerous recommendations with
potential to save hundreds of millions dollars annually, such as
o Consolidate major ATC facilities
o Consolidate regional offices
o Decommission legacy infrastructure (long-range radars, navaids)
o Expand contract tower program
o ATO has studied or implemented several recommendations, and can
document some current or future savings
o Transferring long-range radars to DOD ($50 million/yr)
o Creating Logistics Center franchise fund ($20 million/yr)
o Contracting out Flight Service Stations ($1.2 billion over 10 yrs)
16
Appendix I
GAO Review of ATO's Efforts to Control
Operating Costs
Question 3
o ATO has not implemented other recommendations such as consolidating ATC
facilities, expanding contract towers, and decommissioning legacy
infrastructure
o Current stakeholders say:
o These recommendations are still relevant
o Should be included in ATO's cost control strategy
o ATO must overcome political and organizational barriers
o The time frame for realizing substantial benefits is probablygreater
than 5 years
17
Appendix I
GAO Review of ATO's Efforts to Control
Operating Costs
Experts Suggest That ATO Implement New
Question 3
o Near-term enabling technology enhancements needed:
o Incrementally add technologies to improve productivity (e.g., URET,
ADS-B, CPDLC, and EXCDS)
o ATO has begun implementing some new equipment, but has not yet
determined productivity impacts
o Experts say individual technologies can only offer marginal
improvements, but will help enable future automated system
18
Appendix I
GAO Review of ATO's Efforts to Control
Operating Costs
Experts Believe That Broader Transformation of Air Traffic Management
Needed to Meet Future Demand
Question 3
o Given future traffic projections, experts conclude that ATO must
significantly automate ATC functions to increase capacity and reduce unit
costs
o JPDO projects traffic doubling or tripling in 20 years.
o Traffic at those levels would be impossible to meet by simple,
incremental changes to the current air traffic control system.
o Could allow significant increases in operations with limited increases
in the number of controllers
o While research on different automation concepts is underway, no
national consensus yet exists on what to build or how to fund it.
o JPDO and ATO must coordinate to ensure funding and timely
implementation by 2025 target date
19
Appendix I
GAO Review of ATO's Efforts to Control
Operating Costs
Question 3
o Foreign ATC restructuring efforts have included:
o Administrative consolidation
o Air traffic center consolidation
20
Appendix II
Scope and Methodology
To identify the Air Traffic Organization's (ATO) projected financial
outlook for its operations, we obtained and assessed historical operating
expenditure data to identify trends and causes for operating cost growth.1
We also reviewed ATO's estimates for operating costs and revenues for the
period fiscal years 2006 through 2010 to determine trends in cost and
revenue growth. We utilized this time period because it corresponds with
forecast periods used by ATO. We also used ATO's cost and revenue
estimates to identify whether ATO expects to have sufficient revenues to
cover its operating costs. We supplemented our analyses of ATO's data with
interviews of ATO finance officials to ensure we have interpreted the data
accurately and firmly understood key underlying assumptions. We also
performed various tests of reliability for ATO's historical and projected
cost and revenue data, including comparing the historical operating cost
data with historical operating budget information to see if the trends
were consistent. Along with our use of corroborating evidence, we believe
the data we used were sufficiently reliable.
To determine the extent to which ATO and the Federal Aviation
Administration (FAA) are taking actions to control their operating costs
and improve its financial condition, we conducted interviews and reviewed
supporting documents. We interviewed FAA and ATO managers to identify a
comprehensive list of cost saving initiatives currently under way or
planned for the near future. We also obtained and reviewed supporting
documentation that was available to quantify the amount of savings that
FAA and ATO expect to achieve, and we determined the degree to which ATO
has performed sufficient analyses to justify its expected savings.
To identify options that ATO should consider in developing its cost
control strategy, we reviewed two key 1997 studies that have previously
identified specific cost savings measures that FAA should consider in
controlling its air traffic control operating costs. We compared the items
listed in these studies with those currently under way or planned by ATO
to determine whether there are further opportunities for cost savings. We
also interviewed numerous aviation stakeholders-government researchers,
industry consultants and analysts, aviation system users, union officials,
and officials from foreign air navigation service providers. We also
1Because FAA did not have comprehensive historical data on actual
operating costs, we used historical data on FAA's obligations. An ATO
finance official said that obligation data would approximate actual costs
because most of the obligations were for salaries and benefits, items
which are expensed shortly after FAA incurs the obligation.
Appendix II Scope and Methodology
interviewed air traffic management stakeholders-aviation system users,
industry analysts and consultants, union officials, and government air
traffic researchers-to obtain their perspectives on measures they believe
ATO should consider in attempting to control its operating costs. Finally,
we utilized information that we are currently obtaining for this Committee
on cost control actions that selected foreign air navigation service
providers have previously implemented.
Appendix III
Description of FAA and ATO Cost-Saving Initiatives
FAA Initiatives Consolidating accounting operations: FAA is consolidating
accounting operations activities from all nine FAA accounting offices into
the Office of Financial Operations (Finance Center), located at the Mike
Monroney Aeronautical Center in Oklahoma City, Oklahoma.
Strategic sourcing of administrative supplies and equipment: FAA is
contracting for more cost-effective procurement of office supplies, office
equipment, mail, printing, and information technology hardware and
software.
Improving mobile wireless procurement: FAA is contracting to buy cell
phones and wireless service contracts more efficiently.
ATO Initiatives Contract out operation of automated flight service
stations: ATO awarded a 10-year contract to Lockheed Martin to take over
the services provided by the 58 FAA automated flight service stations in
the continental United States, Puerto Rico, and Hawaii.
Telecommunications upgrade: FAA telecommunications infrastructure services
will replace most FAA-owned and leased telecommunications systems/services
and consolidate their functions under a single service provider. This
program is the primary means for the FAA to acquire telecommunication
services for critical national airspace system operations and mission
support functions through fiscal year 2017.
Better sick leave management: ATO is attempting to reduce sick leave usage
by 8 percent by addressing sick leave abuse.
Cut night shift operations at selected towers: ATO is considering a
reduction in the hours of operation for 42 terminal air traffic control
facilities with low or no midnight to 5:00 a.m. activity.
Bottoms-up budgeting: ATO is developing a new budget process to drive
budget accountability down to individual facilities.
Control Unit Cost of Services: ATO has established unit cost metrics for
its various air traffic control facilities. For example, an ATO control
tower will be responsible for meeting its cost-per-takeoff and landing
target, while a facility controlling high-altitude air traffic will need
to meet its cost-perflight-hour target. ATO will hold individual
facilities accountable for
Appendix III Description of FAA and ATO Cost-Saving Initiatives
meeting their unit cost targets and will also compare facilities to
identify causes of cost variance among facilities.
Revise air traffic control facility staffing standards: ATO is reassessing
its current air traffic controller staffing standards, which help
determine the number of controllers needed at each facility. The objective
of the reassessment is to achieve high-confidence staffing estimates at
the national and facility levels.
Activity value analysis at ATO headquarters offices: The overall goal of
the activity value analysis was to review headquarters operations,
identify the different products and services performed by different
headquarters organizations, and then determine the costs and values of
these products and services. Ultimately, products and services with high
costs and low values would be candidates for elimination.
Labor tracking system upgrade: ATO is implementing a computer-based tool
to record time, attendance, and labor distribution for operational
controllers and supervisors. Use of this tool provides information on
controller time and activity distribution that, in turn, can be used to
determine more efficient controller utilization.
Downgrade selected towers: To account for new traffic patterns, ATO will
reclassify 12 terminal facilities to a lower facility level. ATO expects
to save money as a result of reduced salaries at the downgraded
facilities.
Use of part-time controllers: ATO is assessing the use of part-time
controllers during peak traffic periods.
Appendix IV
GAO Contact and Staff Acknowledgments
GAO Contact JayEtta Z. Hecker, (202) 512-2834 or [email protected]
Staff In addition to the individual named above, other key contributors
to this report were Richard Calhoon, Daniel Concepcion, David Lichtenfeld,
and
Acknowledgments Steven C. Martin.
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