It’s time to corporatize air traffic control (the right way)

House Transportation and Infrastructure Committee Chairman Bill Shuster will shortly release draft legislation to convert our nation’s air traffic control system to a non-profit corporation that would be regulated at arm’s length by the Federal Aviation Administration (FAA), which currently operates the system. This is not a radical proposal. The Clinton Administration tried to “corporatize” U.S. air traffic control in 1995, at which time only four countries had gone down that policy path; now, some 60 countries have done so. Moreover, U.S. air traffic controllers, whose opposition doomed corporatization in the past, now appear to support it as one way to ensure stable funding for critical capital investments. (The controllers union got religion in 2013, when a government shutdown—the prospect of which we face once again—forced the FAA to furlough controllers and safety inspectors.) However, key Democrats are not on board, the Obama Administration has yet to take a position, and support persists for a jawdroppingly flawed variant on corporatization. It would be a shame to miss the opportunity to strike a blow for both the efficiency and the safety of our aviation infrastructure.

Rationale for corporatization of air traffic control

The air traffic control system is a network of radar, navigation aids and some 30,000 controllers and engineers whose job it is to keep planes at a safe distance from one another and to guide them along an efficient flight path. In addition to operating the air traffic control system, the FAA regulates the safety of all aspects of civil aviation, including the air traffic control system itself. Corporatization of the system makes sense for two reasons.

First, air traffic control is not an inherently governmental function. Granted, air traffic control is a natural monopoly, and—like airline operations and aircraft maintenance—it must be regulated for safety. However, the provision of air traffic control services is purely operational: it involves the delivery of a complex but routine service through the equivalent of a production line. As such, it does not require the kind of policy judgments and tradeoffs that only a governmental entity can make.

By contrast, the regulatory side of the FAA is inherently governmental. The FAA regulates how closely planes can be spaced and the minimum weather conditions necessary for the use of certain landing approach procedures. As with the safety oversight provided by the Federal Railroad Administration and the National Highway Traffic Safety Administration, these determinations require policy judgments and tradeoffs that are at the heart of what it means to be a government agency.

Historically, the provision of air traffic control and the regulation of aviation safety were seen as so closely linked that the former was assumed to be inherently governmental—and inherently linked to the latter. We now know that is not the case, as evidenced by the dozens of countries that have moved air traffic control outside of their respective civil aviation regulatory agencies. In fact, safety experts worldwide maintain that the air traffic control regulator should be independent of the operation it regulates so as to avoid any conflict of interest. The International Civil Aviation Organization, whose principles are the basis for aviation safety regulation throughout the world, has since 2002 directed member countries to achieve such independence, and the European Union requires it by law. The United States is one of the only advanced industrial countries in which air traffic control is still both operated and regulated by the same agency.

Precisely because air traffic control is not inherently governmental, our current approach to governance and funding of the system is highly problematic, which is the second reason to corporatize it. Simply stated, air traffic control is a 24/7, technology-intensive, service “business” trapped inside of a regulatory agency that is constrained by federal procurement and budget rules, burdened by a flawed financing system, and micro-managed by Congress and the Office of Management and Budget.

Blue-ribbon commissions have detailed this structural mismatch between the nature of air traffic control and the way the federal government manages it. Because the FAA relies on appropriated funds, the agency has historically viewed Congress rather than aircraft operators as its customer. And because Congress holds the purse, FAA decisions on everything from investment to facilities are fair game for political interference. As one example, Members opposed to the loss of jobs in their district have long blocked large-scale consolidation of the FAA’s aging and inefficient facilities—a step that would save hundreds of millions of dollars a year. The federal budget process is another millstone around the FAA’s neck: because the federal government lacks a capital budget, the FAA cannot borrow against its annual receipts to fund the long-term investments needed to maintain and upgrade the capital-intensive air traffic control system.

This structural mismatch manifests itself most clearly in the chronic problems that plague FAA efforts to adopt new technology. When the FAA undertook air traffic control modernization in 1981, it estimated that the work would cost $12 billion and take a decade to complete. Thirty-four years and $56 billion later, the FAA still has not been able to achieve large-scale modernization; most of that money has gone to replace and upgrade existing equipment, yielding only incremental improvements in capacity and safety. The FAA’s reliance on antiquated technology contributes to flight delays, another chronic problem, which cost passengers and airlines $33 billion in 2007. Yet a third problem is the rising unit cost of service provided by the air traffic control system: despite Moore’s Law, that cost was flat from 1984 to 1997, and it has increased by 71 percent since 1997.

Two Valid Options and a Non-Starter

Stakeholders have engaged in an extensive debate about alternative approaches to governance that would allow the air traffic control system to operate like a business, subject to arm’s length regulation by the (residual) FAA, while preventing any abuse of its monopoly power. While a few stakeholders favor the status quo, most support one (or either) of two options: a government corporation, such as Airways New Zealand or Germany’s DFS (Deutsche Flugsicherung), and a private, non-profit corporation governed by a stakeholder board, as illustrated by Canada’s air traffic services provider, Nav Canada. (A for-profit approach to air traffic control, which the UK employs, lacks any support here.)

Rep. Shuster’s proposal is modeled after Nav Canada, and I am on record as favoring that option as well. Similar in structure to the user cooperatives seen in other sectors in the United States (e.g., agriculture, insurance and utilities), Nav Canada achieves an elegant alignment of economic incentives. Since the users manage the system, self-interest drives them to keep costs low and to invest in capital at the optimal level despite the lack of competition. The government corporation approach to the provision of air traffic control works well in other countries, where such entities are politically insulated. In this country, by contrast, government corporations have politically appointed boards and their business decisions (e.g., the efforts by the U.S. Postal Service to close excess facilities) are subject to continued “oversight” and intervention. Such intervention would limit the ability of a U.S. government corporation to match the performance of an Airways New Zealand or DFS. (See link to my April post comparing the two approaches.)

In recent months, a third option has surfaced that would corporatize the safety regulation of air traffic control along with the operation of the system. One version of the option would corporatize the entire FAA. Advocates argue that regulators and operators need to be working more closely together to institute the next-generation, satellite-based approach to air traffic management. By their argument, the structural separation that other corporatization options seek to achieve would set back the cause of NextGen, and some hint that it could impede safety.

This is a stunningly bad option. (The most generous explanation is that it represents frustration with the slow pace of FAA regulatory processes, which face their own challenges. Less generously, it may reflect some FAA officials’ desire to protect turf.) First, it would corporatize a function that is inherently governmental. Imagine the reaction if a senior policymaker proposed turning the Food and Drug Administration (FDA) or the Nuclear Regulatory Commission (NRC) into a government corporation. Second, by design it would keep air traffic operators and regulators in the same organization, contrary to the widely recognized principle that regulators should be independent from the activity they are regulating. Congress has repeatedly honored that principle, for example, by replacing the Atomic Energy Commission with the Department of Energy and the NRC.

Conclusion

Corporatization of the air traffic control system, done right, is a policy idea whose time has come. The air traffic controllers are calling for structural change, the airline industry is largely on board, and Rep. Shuster is the biggest champion of reform since Vice President Al Gore. Stakeholders can and should debate the form that reform takes (recognizing that corporatization of an inherently governmental function is a non-starter). But they should not fail to act while the proverbial policy window is open.