Category AVIATION &ТНЕ ROLE OF GOVERNMENT

State and local funding is most often used as matching funds in order to receive federal support, although direct funding of maintenance projects is sometimes provided. During the 1990s, state and local funds accounted for 7 percent to 11 percent of airport capital development expenditures.

Funding of Annual Airport Operating Costs and Expenses

Most commercial service airports are self – sustaining5 due to the receipt of rents, passen­ger and shipper expenditures, and business users. Entities doing business at airports as
concessionaires, such as car rental companies, res­taurants, book stores, clothing outlets, and airlines pay rents for the space they occupy and also usu­ally pay a gross receipts tax on the total income they receive from their business at the airport.

Airport Facilities Use Arrangements

Use of airport facilities, buildings, and land is normally arranged under use and lease agree­ments between the airport management and the user. Most of these agreements are between the airport owner and the airlines. These agreements generally fall into three separate categories: residual, compensatory, and hybrid agreements. In addition, the airlines normally pay landing fees based on the gross weight of the landing aircraft.

Residual Use and Lease Agreements

Under this type of agreement, which is more typ­ically found in airport operating practices before deregulation, airlines agree to assume the finan­cial risk of running the airport. Airlines guarantee that the airport will not lose money by agreeing to make up the difference between total cost of operations and the total of non-airline revenue received by the airport.

These types of agreements originated dur­ing the period of regulation when traffic vol­umes were low and the airlines were much more powerful than after deregulation. The trade-off an airport makes when entering into this kind of agreement is two-fold: [18]

These Mil clauses allow the airline to approve or disapprove, or at least delay, specific capital projects, the costs of which would be included in the future charges to the airline.

Some of these capital projects (like con­struction of new gates) could benefit new entrant airlines into the airport, which would be adverse to the interests of the signatory airline. The right to disapprove the project, of course, is anticom­petitive, so that the airline has been placed in a position of unfair advantage over its would – be competitor. These clauses are also against the public interest in having better, bigger, and more efficient airport facilities for use by pas­sengers. Mil clauses, however, do not give the airline approval authority over projects funded by AIP, PFCs, or special facility bonds, and airlines are legally barred from exercising veto rights over PFC-funded projects. Eighty-four percent of residual use and lease agreements have Mil clauses, and the average length of the agreement at large hub airports is 28 years.

As these agreements mature and come up for renegotiation, airports are taking a different approach with carriers. As an example, Dallas/Ft. Worth International recently replaced a 35-year residual use agreement that had been signed in 1974 with the “hybrid” model (discussed below) and limited the contract to a 10-year period. Indianapolis Airport Authority also reached a new 5-year deal with some of its airlines. Atlanta Hartsfield International extended its Delta leases for 7 years in 2010. These shorter-term agree­ments are becoming the norm in the industry. These agreements are not one-way streets favor­ing the airport, however, as negotiations include various concessions to the airlines in some areas, including reduced landing fees.

The event that will forever be known as “September 11,” a terrorist attack on the United

States, occurred on September 11, 2001. It was focused on New York and Washington, D. C., respectively the nation’s financial and govern­mental centers. The perpetrators were mem­bers of a fundamentalist Islamic group called A1 Qaeda, all followers of a militant Islam sect headed by a man called Osama bin Laden, a member of a wealthy Saudi Arabian family.2 Bin Laden maintained training camps for militants in Afghanistan, and kept on the move in mountain­ous areas on the border with Pakistan.

The selection of targets, the World Trade Center in New York, and the Pentagon in Washington, constituted a declaration of war on the institutions and ideals of the free world, and on the free enterprise system that had made possible the unprecedented strides in modern technology that it represented. It is ironic that the tools used by the terrorists to wreck such mas­sive destruction upon that civilization were some of the very tools used to build the system, and which were themselves products of that system, the modern airliner.

American Airlines flight 11 was a Boe­ing 757 (see Figure 35-1) that departed Bos­ton Logan for Los Angeles and was crashed into the north tower of the World Trade Center; United Airlines flight 175 was a Boeing 767 that departed Boston Logan for Los Angeles and was crashed into the south tower of the World Trade Center. (See Figure 35-2.)

American Airlines flight 77 was a Boeing 757 that departed Washington Dulles for Los Angeles and was crashed into the Pentagon in Washing­ton, D. C.; United Airlines flight 93 was a Boeing 757 that departed Newark for San Francisco and crashed into a field in Pennsylvania. United 93 was the only hijacked airplane that failed to reach its target. Enroute to the target, a small group of male passengers attempted to retake control of the airplane by overpowering the terrorists and storm­ing the cockpit. The airplane crashed during the ensuing fight for control. Although all on board died, there were no casualties on the ground or at the point of the terrorists’ target due to this brave action by passengers.

These aircraft were selected by the terror­ists because of their size and because each one was scheduled on a planned transcontinental flight heavily loaded with jet fuel which, when ignited upon impact, created an inferno larger than any that could have been accomplished by any transportable bomb available to the terrorists.

Immediately following the September 11 attack, all aircraft within the United States were grounded by federal order. The fact that the weap­ons used by the terrorists were airplanes caused the government to first ensure that no other air­craft could be used to the same effect. Implemen­tation of the ground stop order was unprecedented in the history of aviation. The mechanism for the

order was a relic of the Cold War and was origi­nally conceived to prevent Soviet bombers from surreptitiously entering the United States while in the radar shadow of inbound commercial airlin­ers. Within hours of the issuance of the ground stop order, all flights within the borders of the United States were on the ground, and all inbound international flights had been turned back from America’s borders. One of these, incidentally, was the Concorde, which was over the middle of the Atlantic Ocean at the time bound for New York. By the afternoon of September 11, FAA radars were eerily empty, reflecting only patrol­ling military fighter aircraft, notably above the skies of the Northeastern United States.

Resumption of flight operations occurred incrementally, beginning with the reposition­ing of commercial aircraft, then resumption of domestic U. S. flag operations, and finally resumption of international flight operations. The federal order grounding all aircraft cost the airline industry over $330 million a day for the duration of the days-long stoppage.

The attacks had a ripple effect on commer­cial losses, including insurance companies, travel
services, the stock market, most commercial transactions and, not least, on the confidence of the world citizen. But of all industry sectors affected, the airlines took the brunt of the blow. The airlines whose airliners were hijacked had to deal with not only the loss of the aircraft and crew, but also with liability issues involving both death and property damage to those passengers on the airplanes and those in harm’s way on the ground. The industry as a whole had to deal with the effect of the grounding, and the conse­quent disruption and loss of revenue while their expenses, including debt service on aircraft, con­tinued unabated.

Congress and the president were quickly convinced that federal intervention was neces­sary to meet the financial needs of the United States air transportation industry. It was also clear that the nation had to address its overall security posture in the face of a new kind of enemy. A series of legislative initiatives was immediately begun in a Congress united in pur­pose. Three significant and complex new laws were passed in an almost unprecedented space of time.

The first of these was the Air Transportation Safety and System Stabilization Act. Enacted 11 days later, on September 22, 2001, it (1) provided compensation to the airlines for direct losses caused by the ground stop order and (2) created a fund to provide loans to qualifying air carriers. The second statute, the Aviation and Transporta­tion Security Act, addressed security upgrades that were needed to strengthen airports and the air transportation system generally. The third, the Homeland Security Act of 2002, created a new Cabinet-level department, the Department of Homeland Security. This statute placed within one executive department responsibility for all planning and procedures deemed necessary to enhance the security of the nation against similar types of threats.

As a result of high-visibility air crashes involv­ing regional airlines, regional airlines staffing and operating practices have recently come under renewed and intensive review. While regional air­lines fly one out of four airline passengers today, they usually do so under the brand of the mainline carrier that conducts the majority of the flight seg­ments. Many, if not most, of the passengers who board the regional carrier aircraft will not be aware that the mainline carrier is not operating the air­craft that they are boarding. They will not realize that pilot hiring requirements, pilot flight experi­ence, pilot training procedures, and pilot pay scales will be very different from mainline carriers, even though the same FAA requirements apply to both types of carriers.18 Regional pilots are paid much less than their counterparts in the mainline carriers, sometimes even less than TSA screeners.

There were six fatal domestic airline acci­dents between 2003 and 2009, all involving regional airlines.19

• Jan. 8, 2003: Air Midwest flight 5481, flying as US Airways Express, crashed in Charlotte, N. C., killing 21. The NTSB investigation cites deficiencies in Air Midwest’s oversight of outsourced maintenance as a contributing cause.

• Oct. 14, 2004: Pinnacle Airlines flight 3701, operating under a code share as Northwest Airlink, crashed in Jefferson City, MO, kill­ing two crew members who were reposition­ing the plane to another airport after routine maintenance. The NTSB cites poor airman­ship, unprofessional behavior, and deviation from standard operating procedures as prob­able causes.

• Oct. 19, 2004: Corporate Airlines flight 5966 crashed in Kirksville, MO, killing 13. NTSB investigators cite pilots’ failure to follow established procedures as a probable cause and pilot fatigue as a contributing cause.

• Dec. 19, 2005: A seaplane, operated by Fly­ing Boat Inc., but flying as Chalks Ocean

Airways flight 101, crashed in Miami, kill­ing 20. The NTSB cites Chalks’ inadequate maintenance program and the FAA’s failed oversight of the airline as probable causes.

• Aug. 27, 2006: Comair flight 5191, operat­ing under a code share as Delta Connection, crashed in Lexington, KY, killing 47 passen­gers and 2 crew members. One crew member survives. The final NTSB report cites pilot performance as the probable cause and non­relevant conversation by crews as a contrib­uting cause.

• Feb. 12, 2009: Continental flight 3407, a Col – gan Air-operated plane flying under a code share as Continental Connection, crashed out­side of Buffalo, N. Y., killing all 49 on board and 1 on the ground. NTSB cites the captain’s inappropriate response to a stall, unprofes­sional pilot behavior, and Colgan Air’s inade­quate procedures for flying in icing conditions as probable causes.

The last accident, Colgan Air flight 3407, was highly publicized in the news media and in aviation circles. The issues raised by this event concerned the adequacy of entry-level flight qualifications of pilots, the airline’s training stan­dards for all pilots, the acceptable level and qual­ity of crew rest, and pilots’ pay levels. The first officer of flight 3407, for instance, was paid a salary of $16,000 per year, lived with her parents in Seattle, Washington, and commuted to her home base at Newark by overnight deadhead­ing, at least partially due to financial constraints. It was said that she also had a part-time job in a coffee shop.

The airplane flown by Colgan Air was painted in Continental’s livery, including Conti­nental’s trademark globe on the tail, and only the fine print on the ticket gave any indication that this was not a Continental operation.

In February 2012, the FAA proposed to sub­stantially increase the qualification requirements for first officers consistent with a mandate in the Airline Safety and Federal Aviation Administra­tion Extension Act of 2010. The proposed rule is entitled “Pilot Certification and Qualification Requirements for Air Carrier Operations.” Among other things, this proposal would require an Air­line Transport Rating for first officers, completion of a new FAA-approved program for the ATP cer­tificate with enhanced training requirements, but contain allowances for reduced minimum flight time to qualify for the ATP rating under certain circumstances, including military training or a four-year baccalaureate degree program.

This rule seems to have stirred some contro­versy, with even the former FAA administrator Randy Babbitt on record as saying he does not think this is the best solution to the problem, cit­ing overall safety statistics. It must also be rec­ognized that the kind of flying that the regionals have to perform is not comparable with that of the mainline carriers. Regionals perform many more takeoffs and landings, thus more instru­ment approaches in IMC, fly at lower altitudes, use shorter and narrower runways at outlying air­ports, and often fly turboprop equipment.

Overall, according to the NTSB, from 2000 to 2009, it was more than twice as safe to fly as it was in the preceding decade, and more than seven times safer than in the 1970s. While these are impressive and reassuring statistics, unan­swered questions implicit in the foregoing illus­trations of regional practices remain.

Warsaw has been amended over its history, and its legal effect has been modified by separate agreements between nations. The original limita­tion of liability set forth in Warsaw was $8,300 per passenger for personal injury or death. This amount was doubled by operation of the Hague Protocol of 1955, effective in 1964. As inflation eroded the value of currencies the world over, the limitations of liability contained in Warsaw became effectively lower and lower. The United States, in 1965, let it be known that it would con­sider withdrawing from Warsaw if liability limits were not raised. This led to a voluntary accord,

known as the Montreal Inter-Carrier Agreement, being signed in 1966 by all major foreign and U. S. carriers serving the United States. Under this agreement, limits of liability were raised to $75,000 per passenger for death or injury. This agreement was not an amendment of Warsaw, but a voluntary acceptance by the airlines of an increase in their potential liability. Any carrier desiring to fly into the United States was required to join the agreement. The Montreal Agreement was followed by a similar agreement between European civil aviation authorities, called the Malta Agreement, which increased those airlines’ liability in such cases on international flights between their nations.

The Montreal Agreement was seen as an interim fix, and the United States contin – . ued efforts to have Warsaw formally amended or replaced. This led to two subsequent formal agreements, the Guadalajara Convention in 1961 and the Guatemala Protocol in 1971, but neither of these was ratified by the United States.

The Montreal Protocols in 1975 dealt with cargo issues arising under Warsaw, provided for increased liability limits and, importantly, elimi­nated the outmoded cargo documentation provi­sions of Warsaw. This step allowed the use of electronic commerce in international cargo trans­actions, eliminating the necessity of providing detailed air waybills and the like. This agreement was ratified by the United States in 1998.

During the first 20 years of the EC, the European Council was unable to come to any consensus as to how to break down the State-sponsored anticompetitive barriers and practices that char­acterized European airlines, even though this was clearly its mandate. The European Com­mission, chafing at the lack of movement in this area, began the “liberalization” process with its Memorandum No. 1 in 1979, which dealt pri­marily with the existence of high tariffs between Member States. The Commission does not have authority to enact binding regulations, but only proposes to the Council, which has that authority. The Commission, therefore, used the “Memoran­dum” vehicle as a gentle prod to the Council.

When the Council had failed to take action by 1984, the Commission published its Memo­randum No. 2. This position paper was an expan­sion of the positions taken in Memorandum No. 1, and contained further, comprehensive pro­posals aimed at breaking down anticompetitive practices in air transportation among the Member States. The paper dealt with the intransigence of Member States in implementing Common Mar­ket unification strategies required by the Treaty of Rome, and emphasized the need for a unified European Community position in view of the effects of deregulation in the United States.

Further, between the Commission’s Memo­randum No. 1 and Memorandum No. 2, the Par­liament brought an action against the Council in the European Court of Justice seeking a declara­tion that the Council had failed in its duty to act in promoting a common transportation policy. While the decision of the Court of Justice was wide-ranging, the decision did agree that the Council had effectively eschewed its responsibil­ities regarding air transport. With the rendering of this opinion of the Court of Justice, the Coun­cil had effectively been chastised by all three of the other EC institutions.

In April 1986, the European Court of Justice rendered its decision in the case of Nouvelles Frontieres.’ This decision removed any remain­ing doubt that air transport was subject to the competition rules of the Treaty of Rome. The court held, in effect, that if the Council failed to act on competition issues, the Commission could issue a “reasoned decision” under Article 89 that would have the effect of putting competition issues into litigation for resolution. This decision constituted an “end run” around the Council, giv­ing the Commission direct means to address the issue of competition in air transport matters.

Strengthened by Nouvelles Frontieres, later in 1986 the Commission sent letters to

10 European airlines alleging that they had vio­lated the anticompetitive provisions of the Treaty of Rome by price fixing, capacity limitations, and various other practices. In due course, nego­tiations between the carriers and the Commission led to the implementation of restrictions of some of these anticompetitive practices for the first time.

After years of stagnation regarding the ques­tion of “liberalization” in the European air transport industry, things were now beginning to happen. The Single European Act,2 an agreement ratified by the Member States in February 1986, and which went into force on July 1, 1987, effectively laid the necessary groundwork for the creation of the European Union. Its intention was finally to create a true internal market in the Community, one in which restrictions on the movement of goods, ser­vices, people, and capital were eliminated. Addi­tionally, by its amendment of the voting procedures used within the European Council (it eliminated single state veto and mandated majority vote), the Council was freed from its preexisting paralysis on a number of issues, including the issue of a com­mon transport policy regarding aviation. No longer could one Member State veto action by the Coun­cil. No longer could minority bickering between nations within the 12-member Council thwart the efforts of the majority toward full integration of Member States and the elimination of frontiers. At last, the Treaty of Rome had teeth.

The work of the IGY led directly to the Antarc­tic Treaty of 1959, which regulates international relations concerning Antarctica. Antarctica is the only continent on earth without a native human population, and none of the continent has been appropriated under claim of right of discovery. The treaty’s main aim is to establish Antarctica as a continent to be used by all nations for peaceful purposes and for cooperative scientific research. Military activity, weapons testing, nuclear test­ing, and radioactive waste disposal are prohibited. The Treaty went into effect on June 23, 1961, and over 40 nations are signatory to it.

The Antarctic Treaty is a singular achieve­ment by the governments on earth, and it stands in stark contrast to the history of nationalistic exploration and colonization that began with the Spanish expeditions led by Columbus in 1492. One of the reasons that Antarctica was never colonized, of course, is the fact that its climate has been inhospitable to long-term human pres­ence. It is obvious that outer space possesses the same characteristics, even more so. The existence of the Antarctic Treaty, then, held out some hope in many quarters of the world that the Space Age might bring a more hopeful future to humankind.

The Space Race Begins

Compounding the frustration of the United States over Sputnik, the Soviets launched a second, and larger, satellite (Sputnik 2) on November 3, 1957. This one carried a live animal, a dog named Laika, into orbit. Laika is believed to have survived only for a few hours due to an inability to properly regulate temperature in the capsule. But the Sovi­ets were obviously making strides in space. The propaganda value to the U. S.S. R. was significant.

On January 31, 1958, the United States finally launched its first earth satellite, Explorer 1. Although smaller than either Sputnik 1 or Sput­nik 2 (Explorer 1 weighed 30.8 pounds compared to 184 pounds for Sputnik 1 and 1,120 pounds for Sputnik 2), it accomplished more than the Sputniks; its mission payload Geiger counter was responsible for the discovery of the Van Allen radiation belts.9

While the launch of Explorer leveled the playing field, it also launched the contest that would preoccupy the world for the next 30 years, the Space Race. The shock of Sputnik also caused the United States to swiftly cre­ate a permanent federal agency dedicated to the exploration of space. All U. S. nonmilitary space activities were placed in the venerable, presti­gious National Advisory Committee on Aero­nautics (NACA).10 In 1958, Congress passed the National Aeronautics and Space Act, which converted NACA into NASA, and charged the agency with the broad mission to plan, direct, and conduct aeronautical and space activities, to involve the nation’s scientific community in its mission, and to disseminate information about its activities.

The stage was now set; the actors (the United States and the Soviet Union) took their places on the stage; the world audience looked on; the only trouble was nobody had a script.

International Launch Services (ILS) has experi­ence dating back to 1995 when it was a partnership between Lockheed Martin and several Russian firms. In 2006, Lockheed Martin transferred its interest to Space Transport, Inc. ILS uses the Proton heavy-lift rocket with a history back to 1965 and a record of 360 launches and a 95 percent reliability record. ILS and the Russian government launch about 12 flights a year, the most active in the indus­try for a single-launcher system. It launches both government and commercial payloads.

Arianespace SA is a French company founded in 1980 and composed of the French space agency CNES and 20 European companies with varying shares of capital stock. Its launcher family is composed of the heavy-lift Ariane 5, medium-lift Soyuz, and the lightweight Vega. All launches are conducted from its spaceport in French Guiana. Soyuz is the world’s longest-operated launcher and joined Arianespace in 2011. Soyuz is used for medium-weight telecommunications, scientific, and earth observation missions. As of 2012, there had been 61 launches of Ariane 5, with 47 consec­utive successful launches. It launches both govern­ment and commercial payloads.

United Launch Alliance (ULA) is a joint venture between Lockheed Martin and the Boe­ing Company. ULA uses the successful Atlas and Delta rocket programs (Evolved Expendable Launch Vehicles) to provide launch services to the United States government, including the Depart­ment of Defense, NASA, and the National Recon­naissance Office. ULA primarily uses the Atlas V (100 percent mission success rate) and Delta IV (used in five configurations from medium to heavy). ULA launches are conducted from Canav­eral Air Force Station, Florida and Vandenberg Air Force Base, California. It launches mostly government payloads (commercial customers have comprised less than 20 percent since 2006).

Sea Launch Co. LLC was established in 1995 as a combination of companies from Nor­way, Russia, Ukraine, and the United States, managed by the Boeing Company. It uses a mobile sea platform to allow equatorial launches of commercial satellites on Zenit 3SL rockets. The equatorial launch capability allows for opti­mum earth positioning for increased payload capacity and reduced costs. Sea Launch reor­ganized under Chapter 11 bankruptcy in 2009, emerging successfully in October 2010. A Russian company, Energia Overseas Limited, is the majority stockholder after reorganization.

Space Exploration Technologies Corpora­tion—Space X, was founded in 2002 by Elon Musk, a successful entrepreneur in completely unrelated technologies, and has successfully developed two launch vehicles, Falcon 1 and Fal­con 9 Heavy Lift, both of which are developed with a goal of being reusable (RLVs). Space X has also developed a space capsule called the Dragon Spacecraft to be used in association with the Falcon rockets.

Space X is a Silicon Valley-style corpora­tion, building most of its components in-house with a paltry 1,800 employees when compared to a competitor like Boeing, with 170,000 employ­ees in 70 countries. Space X is moving ahead under a stiff headwind of resistance from some industry and government officials who had ridiculed the notion that a startup without con­tacts with proven aerospace firms could compete in this very small and specialized market.

Space X first made history in December 2010 when it became the first private company to send a spacecraft into earth orbit and retrieve it successfully. Again, on May 25, 2012, Space X became the first privately held company to suc­cessfully send a cargo payload to the International Space Station. It used its Falcon 9 launcher and its Dragon Spacecraft. Space X is expected to begin making regular runs to supply the ISS. This is a breakthrough into government business, which has been basically controlled by United Launch Alli­ance. It is also in competition with Boeing’s private space capsule in development called the CST-100, said to be launchable on the Atlas 5 rocket. Space X has NASA contracts in the $1.6 billion range.

The Dragon Spacecraft is also being recon­figured to carry up to seven astronauts into orbit. It will be equipped with the NASA Docking Sys­tem for manned flights.

In addition to its government efforts, it has dozens of commercial contracts worth more than $4 billion to launch satellites for various coun­tries and telecommunications companies.

Orbital Sciences Corporation was founded in 1982 and has heavy experience in the missile defense realm and in the manufacturing and launch of satellites for both commercial and military cus­tomers. It has successfully completed milestones in the NASA-run COTS program with its Cygnus Spacecraft and Antares-Taurus II rocket and has NASA contracts in the $ 1.9 billion range. It plans launches using these launch and space vehicles from Wallops Island, Virginia in 2013.

U. S. Spaceports

By June 2012, the following spaceports were approved or active.

U. S. Federal Launch Sites

Cape Canaveral Air Force Station

Vandenberg Air Force Base

List of active Launch Service Providers

• Earth20rbit (E20) http://www. earth2orbit. com/ (PSL V/GSL V)

• Antrix Corporation (PSL V/GSL V)

• Arianespace (Ariane 5/Vega)

• COSMOS International (Kosmos-3M)

• Eurockot (Rockot)

• Great Wall Industial Corporation (Long March)

[citation needed]

• International Launch Services (Proton-M)

• ISC Kosmotras (Dnepr)

• Land Launch (Zenit-2SLB/Zenit-3SLB)

• Mitsubishi Heavy Industries (H-IIA)

• Orbital Sciences Corporation (Minotaur/ pegasus/Taurus)

• Sea Launch (Zenit-3SL)

• SpaceX (Falcon 1/Falcon 9)

• Starsem (Soyuz-FG/Soyuz-2)

• United Launch Alliance (Atlas V/Delta IV)

• Alcantara Cyclone Space (Tsyklon-4)

FIGURE 41-7 Full list of launch service providers.

Edwards Air Force Base Wallops Flight Facility White Sands Missile Range Reagan Test Site

Non-Federal FAA-Licensed Launch Sites

Spaceport Florida-Cape Canaveral Cecil Field Spaceport-Florida Mid-Atlantic Regional Spaceport-Virginia Oklahoma Spaceport Mojave Spaceport-Edwards AFB Spaceport America-White Sands California Spaceport-Vandenberg AFB Kodiak Launch Complex-Alaska Poker Flat Research Range-Alaska Geophysical Institute

Sea Launch Platform-California-Equatorial Pacific Ocean

U.

U. S. commercial launches to GSO are made from either Cape Canaveral Air Force Base or from the platform operated by Sea Launch in the Pacific. Launches to NGSO can occur from any U. S. launch site. The legislatures of the states of Florida and Virginia have passed legislation granting certain tax exemptions for investment in space assets and activities within those states.

Spacecraft Systems and Suborbital Launch Systems

Boeing is in the process of developing a space­craft known as the CTS-100 (Commercial Crew Transportation System) for use with the Atlas V rocket. Boeing says that the spacecraft will be operational by 2015 as a part of a complete trans­portation system, consisting of spacecraft, launch vehicle, ground operations, mission operations, and recovery. It will utilize the Apollo-proven parachute landing system after reentry.

Sierra Nevada is an electronics systems and integration company involved with telemedicine, navigation and guidance systems, space, and other
cutting edge technologies. Its Dream Chaser con­cept of reusable spacecraft is being designed to be launched on the Atlas V rocket for low earth orbit access. It is a lifting body design that will carry up to seven passengers or cargo, can be crewed or autonomous, will feature low gravity reentry (1.5 G) pressures, and will have quick turnaround. The craft is in the aerodynamic testing phase in 2012.

Blue Origin is a startup private aerospace com­pany that has received some funding from NASA under the Commercial Crew Development Program. The company was formed originally to develop means to provide suborbital tourist spaceflights, but has also indicated that it is in development of an orbital space vehicle that can be launched on an Atlas V rocket. It has also contracted with NASA for developmental work on a launch escape system.

Bigelow Aerospace was founded in 1998 for the production of expandable space modules to house space travelers in earth orbit. Due to the cancellation of the Space Shuttle and the lack of any reliable, affordable technology to replace it, the company instituted drastic cutbacks of staff and operations in 2011. It claims technology that
is superior to metallic capsules that will with­stand micrometeor impacts safely.

Wage concessions first appeared as a result of the financial setbacks experienced by Eastern in the middle of the 1970s, before deregulation. East­ern’s unions agreed to a one-year wage freeze in 1975, and in 1976 signed on to a new employee participation plan, known as the Variable

Earnings Program (VEP), under which employ­ees would return 3.5 percent of their wages to the company beginning in 1978 in return for profit sharing.

In 1981, the unions at Braniff agreed to a 10 percent wage reduction, but Braniff went into liquidation shortly thereafter anyway. Pan American unions agreed in October 1981 to a 10 percent wage cut, in return for an employee stock ownership plan and a seat on the board of directors. This was the first time that labor had negotiated a seat on any airline’s board, and of the 13 largest carriers in the United States, it was the only board seat. At United, the pilots gave work rule concessions, agreeing to more flying time and to the crew-size issue. They also gave up some bonus pay provisions.

Concession bargaining appeared to be lim­ited to situations where the financial condition of the airline had been directly impacted by either claimed economic conditions or the effects of deregulation, or both. It also is clear that con­cession bargaining most often resulted in a quid pro quo back to the unions, as well as a “snap back” provision designed to reinstate the wage concession when the carrier was again financially stable.

Concession bargaining included wage reductions, work rule changes, delay or elimi­nation of future wage increases, current wage freezes, and reductions in vacation allowances and fringe benefit reductions. Concession bar­gaining also appears to have been most effec­tive with pilots and flight attendants, but less so with the mechanics. In fact, for many years IAM refused further wage concessions after the Braniff agreement in 1981. The practice of con­cession bargaining continued over the ensuing years.

In April 2003, American employees agreed to $1.8 billion in wage, benefit, and work rules concessions to help the airline avoid bankruptcy. That same month, United employees represented by ALPA, Association of Flight Attendants (AFA), the International Association of Machin­ists and Aerospace Workers (IAM), the Transport Workers Union (TWU), and the Professional Airline Flight Control Association (PAFCA) agreed to $2.2 billion in average yearly savings to avoid liquidation. Through January 2003, US Airways employees agreed to over $1 billion in cuts to avoid liquidation. Of the three air­lines, only American was able to remain out of bankruptcy.

In addition to the anticompetitive constraints of slot and gate access, at LaGuardia and at Ronald Reagan National, there is the additional con­straint of perimeter rules. These restrictions pro­hibit nonstop flights of more than 1,500 miles into and out of LaGuardia11 and nonstop flights of more than 1,250 miles into and out of Reagan National. The purpose of these rules was to pro­mote the use of the new JFK and Dulles (IAD) airports as the long-haul airports for the area when they were built in the 1950s.

The effect of these rules is to restrict entry, particularly in the case of startup airlines with hubs outside of the established perimeter. Under these rules for instance, America West, the sec­ond-largest airline started after deregulation, was precluded from serving these two airports from its Phoenix, Arizona, base of operations.

At the same time, all seven of the largest, estab­lished airlines in the United States could easily serve these airports from one or more of their hubs.

By virtue of two federal statutes,12 DOT was allowed to award 44 new slots to airlines at DCA, 24 of which could be used for flights to cities more than 1,250 miles away. These slots were awarded to airlines serving six cities (Den­ver, Las Vegas, Los Angeles, Phoenix, Salt Lake City, and Seattle). See Figure 31-1.

LaGuardia has one exemption to its perim­eter rule—to and from Denver International.

The continuation of perimeter rule con­straints, especially for LGA, has been roundly criticized as no longer necessary. Under these arguments, the protected airports (JFK and IAD) no longer need development, and the introduc­tion of Stage 3 and Stage 4 aircraft into the fleet has reduced the airports’ noise footprint for all types of jet aircraft such that the restriction on long-range jet aircraft is no longer necessary.

Щ Marketing Strategies-Frequent Flyer Programs

Frequent flyer programs began in the early 1980s as a device to encourage customer loyalty and to entice frequent travelers to use a chosen airline to the exclusion of all other competing airlines. The customers who normally fly the most, and usually at the highest fares, are business travelers whose costs of travel are usually paid by their employ­ers, or accounted for as a business expense. Fre­quent flyer awards are based on miles flown with the airline that go directly to the passenger, not the employer. So far these awards have not been considered taxable. Thus, the frequent flyer has a potential personal and financial incentive to continue to fly with the sponsoring airline, often paying its highest fares. A new entry into one of these markets, whether by a startup or by an established airline, is very difficult.

FIGURE 31-1 Summary of slot exemptions granted by DOT under AIR-21 and Vision 100 as of September 2006.

Under these types of agreements, which are pro­gressively in use at more modern and successful airports, the airline pays only for the facilities and services actually used. The airport assumes the responsibility for meeting the costs of opera­tion like any other owner. One survey reported that 20 percent of these types of agreements have Mil clauses. Compensatory agreements, without Mil clauses, allow the airport full latitude in the use of its funds and allow the incentive to add additional services in the interest of the public and the airport instead of the interests of the incumbent airlines at the airport.

Hybrid Use and Lease Agreements

These agreements typically exclude nonaeronauti­cal uses (restaurants, rental car operations, etc.) from the residual pool, so that an airline’s guaran­tee is limited to the cost of aeronautical operations only. The airport retains earned revenues from its nonaeronautical operations while being guaran­teed a break-even on airfield activities. Seventy – four percent of these agreements contain Mil clauses, the average length of which is 20 years. While these agreements are anticompetitive with respect to capital improvement and expansion projects, they do give the airport the incentive to expand its nonaeronautical sources of income.

■ Gate Leasing Arrangements

Airport gates obviously are a finite commodity and an essential element of both airline service and competition in the airline industry. In com­bination with overriding use agreements, or as separate undertakings with airlines, airports have normally utilized three methods of allocating gate use to airlines serving that airport:

1. Exclusive-use contracts

2. Preferential-use contracts

3. Airport controlled gates