Air Traffic Operations
The Federal Aviation Administration Needs to Address Major Air Traffic Operating Cost Control Changes Gao ID: GAO-05-724 June 23, 2005Dating 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?
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long-standing, cost-saving recommendations including consolidating facilities for greater efficiencies, replacing outdated costly equipment, and investing in new technology to enhance workforce productivity.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.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-05-724, Air Traffic Operations: The Federal Aviation Administration Needs to Address Major Air Traffic Operating Cost Control Changes
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Report to Congressional Requesters:
June 2005:
Air Traffic Operations:
The Federal Aviation Administration Needs to Address Major Air Traffic
Operating Cost Control Challenges:
GAO-05-724:
GAO Highlights:
Highlights of GAO-05-724, a report to congressional requesters:
Why GAO Did This Study:
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?
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:
[See PDF for image]
[End of figure]
What GAO Recommends:
GAO recommends that the FAA and ATO develop a cost control and savings
strategy based on rigorous cost benefit analyses. Such analyses should
determine the optimal structure for providing ATO services to different
user groups while ensuring against adverse impacts on 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. FAA and ATO officials
agreed to consider our recommendation and said they are currently
preparing such analyses.
www.gao.gov/cgi-bin/getrpt?GAO-05-724.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact JayEtta Z. Hecker at
(202) 512-2834 or heckerj@gao.gov.
[End of section]
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:
Appendixes:
Appendix I: GAO Review of ATO's Efforts to Control Operating Costs:
Appendix II: Scope and Methodology:
Appendix III: Description of FAA and ATO Cost-Saving Initiatives:
ATO Initiatives:
Appendix IV: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: ATO Operating Expense and Revenue Forecasts, Fiscal Years 2006
through 2010:
Table 2: ATO's Current Operating Cost Saving Initiatives:
Figures:
Figure 1: Changes in Airline Operating Expenses Compared to Changes in
FAA Operating Costs, 1998-2004 (constant 2000 dollars, indexed to 100):
Figure 2: Share of Operating Expenses and Uncommitted Balance, Airport
and Airways Trust Fund, Fiscal Years 1996 through 2006:
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:
Letter 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 operations[Footnote 1] and established
cost control as a major focus. The committee asked us to review actions
FAA is 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.[Footnote 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 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 Acquisitions[Footnote 3] 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.[Footnote 4]
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).[Footnote 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.
Figure 1: Changes in Airline Operating Expenses Compared to Changes in
FAA Operating Costs, 1998-2004 (constant 2000 dollars, indexed to 100):
[See PDF for image]
[End of figure]
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.[Footnote 6] Table 1 shows ATO's
operating expense and revenue forecasts for fiscal years 2006 through
2010.
Table 1: ATO Operating Expense and Revenue Forecasts, Fiscal Years 2006
through 2010:
Dollars in thousands.
Operations: Expenses;
2006: $6,566,305;
2007: $7,078,901;
2008: $7,434,061;
2009: $7,787,647;
2010: $8,181,686;
Growth: 24.6%.
Operations: Revenues;
2006: $6,566,305;
2007: $6,647,286;
2008: $6,657,232;
2009: $6,640,655;
2010: $6,538,707;
Growth: -0.4%.
Operations: Potential shortfall;
2006: $0;
2007: $431,615;
2008: $776,829;
2009: $1,146,992;
2010: $1,642,979.
Operations: Cumulative shortfall;
2006: $0;
2007: $431,615;
2008: $1,208,444;
2009: $2,355,436;
2010: $3,998,415.
Source: ATO.
[End of table]
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.[Footnote 7] Therefore, ATO projects a
cumulative operating budget deficit of about $4.0 billion.[Footnote 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.
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:
[See PDF for image]
Note: Amounts for fiscal years 2005 and 2006 are estimates.
[End of figure]
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.[Footnote 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.[Footnote 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).[Footnote
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.
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:
Initiative: Contract out flight service operations;
Estimated costs saved through fiscal year 2010: $241 million.
Initiative: Telecommunications upgrade;
Estimated costs saved through fiscal year 2010: (None until after
2010).
Initiative: Better sick leave management;
Estimated costs saved through fiscal year 2010: $59 million*.
Initiative: Cut night shift operations at selected towers;
Estimated costs saved through fiscal year 2010: $34 million*.
Initiative: Bottoms-up budgeting;
Estimated costs saved through fiscal year 2010: N/A.
Initiative: Control unit cost of services;
Estimated costs saved through fiscal year 2010: N/A.
Initiative: Revise air traffic control facility staffing standards;
Estimated costs saved through fiscal year 2010: N/A.
Initiative: Activity value analysis of headquarters offices;
Estimated costs saved through fiscal year 2010: N/A.
Initiative: Labor tracking system upgrade;
Estimated costs saved through fiscal year 2010: N/A.
Initiative: Downgrade selected towers;
Estimated costs saved through fiscal year 2010: N/A.
Initiative: Use part-time controllers;
Estimated costs saved through fiscal year 2010: 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.
[End of table]
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 assessment[Footnote 12] of FAA by Coopers & Lybrand. The
other was a report[Footnote 13] 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.
* 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)[Footnote 14]
recently recommended that FAA develop a plan for reducing the number of
Terminal Radar Approach Control (TRACON)[Footnote 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.
* 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).
* 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.
* 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.
* 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.
* 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,[Footnote 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,[Footnote 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 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 Executive Action:
To ensure that it is providing air traffic control services in the most
cost-effective manner while addressing looming financial shortfalls, we
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 [Hyperlink, http://www.gao.gov].
If you have any questions about this report, please contact me at (202)
512-2834 or heckerj@gao.gov. 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.
Signed by:
JayEtta Z. Hecker:
Director, Physical Infrastructure Issues:
[End of section]
Appendixes:
Appendix I: GAO Review of ATO's Efforts to Control Operating Costs:
[See PDF for images]
[End of slide presentation]
[End of section]
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.[Footnote 18] 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 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.
[End of section]
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-per-flight-hour target. ATO will hold
individual facilities accountable for 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.
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
JayEtta Z. Hecker, (202) 512-2834 or [Hyperlink, heckerj@gao.gov]:
Staff Acknowledgments:
In addition to the individual named above, other key contributors to
this report were Richard Calhoon, Daniel Concepcion, David Lichtenfeld,
and Steven C. Martin.
(544092):
FOOTNOTES
[1] In 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.
[2] This growth rate reflects growth after the effects of inflation are
removed.
[3] These included FAA's Office of Research and Acquisitions and Free
Flight Program Office.
[4] Vision 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.
[5] The 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).
[6] These 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.
[7] Available 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.
[8] Over 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.
[9] GAO, Airport and Airway Trust Fund: Preliminary Observations on
Past, Present, and Future, GAO-05-657T (Washington, D.C.: May 4, 2005).
[10] The 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 10-year contract to
Lockheed Martin to take over the operation of 58 of these facilities.
[11] Estimates from FAA.
[12] Coopers & Lybrand, L.L.P., Federal Aviation Administration
Independent Financial Assessment (Feb. 28, 1997).
[13] National Civil Aviation Review Commission, Avoiding Aviation
Gridlock and Reducing the Accident Rate (December 1997).
[14] In 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.
[15] Controllers 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.
[16] Next 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.
[17] In 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.
[18] Because 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.
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