Category AVIATION &ТНЕ ROLE OF GOVERNMENT

‘he National Airspace System (NAS) is S defined as the network of United States airspace: air navigation facilities, equipment, services, airports, aeronautical charts, rules, regu­lations, procedures, technical information, man­power, and material. The NAS is a product of the evolution of aviation, including the incorporation of technology as it evolved, the establishment of airspace classifications, the promulgation of regulations and procedures, and the development of airports and facilities, all for the purpose of transporting people and cargo as safely and effi­ciently as possible.

The National Airspace System has become inadequate to fulfill its function in air trans­portation. The technology that is used to con­trol movement within the system is basically 1950s technology, largely ground-based radars and navaids, and the ground-based equipment that uses the system is essentially worn out. Congestion and weather externalities cause substantial delays. Fuel conservation cannot be optimized even as the price of fuel surges. Environmental concerns from air transporta­tion operations are not being assuaged. There
is little coordination between airport operations and airborne operations. Further evolution of the same technology will not serve the needs of the NAS and the traveling public in the future. A new technology and a new way of doing things are needed.

3 Vision 100-Century of Aviation
Reauthorization Act of 20031

After many years of anguished discussion con­cerning the state of U. S. air traffic control, FAA equipment problems, and the burgeoning volume of air traffic following economic deregulation of the airlines, Congress passed legislation in 2003 that will, in stages, revamp the way aircraft, passengers, and cargo are moved from airport to airport, and in the process will coordinate airport functions and ground operations with air segments.

This comprehensive and far-reaching statute encompasses many areas of the air transportation system, but most importantly it authorizes the development and implementation of a new and
modernized National Airspace System. Labeled “The Next Generation Air Transportation Sys­tem,” or NextGen, it proposes to transform the air transportation system from one based on ground radars to one based on precision satellite-based navigation, with comprehensive changes in virtu­ally every aspect of movement by air. This under­taking is so vast that it is best described as an evolution of ideas and technologies that are devel­oping even as it is being put in place. The process contemplates a 20-plus year time frame for com­pletion, projected for the year 2025.

NextGen is a transformative change in how we fly. It will change the management and opera­tion of the NAS, while enhancing safety, reduc­ing delays, saving fuel, and reducing adverse environmental impacts. It will integrate satellite navigation with advanced digital communica­tions and it will incorporate the airport environ­ment into the overall planning and functionality of the National Airspace System. It will change the way weather information is provided to pilots, controllers, and airline dispatchers.

Development and implementation of NextGen is a daunting task for many reasons, including: [21] [22] [23] [24] [25]

6, It requires the building of more than 700 new ground stations and facilities around the country to implement the new technology.

?. It requires the promulgation of new rules and procedures, and the publication of new charts and approach plates to use the new system.

8, The system must be integrated on a global basis.

The development and implementation of the new system, therefore, involves every entity that is in the production chain of development and every entity that is affected or will be affected by the implementation of the system, which includes virtually everyone involved in the air transpor­tation community. Collaboration among these stakeholders is being facilitated by several orga­nizations or relationships, including:

1. The Joint Planning and Development Office (JPDO), which was authorized in the stat­ute, and which coordinates among the FAA, NASA, the Departments of Defense, Com­merce, and Homeland Security and which has laid the groundwork and plans for the future vision for NextGen.

2. RTCA, which is a private, not-for-profit corporation that functions as a Federal Advisory Committee and includes some 400 industry and academic organizations from the United States and other coun­tries. RTCA was organized in 1935 as the Radio Technical Commission for Aeronau­tics and develops consensus-based recom­mendations regarding communications, navigation, surveillance, and air traffic management.

3. The NextGen Mid-Term Implementation Task Force, which is a consortium of over 300 representatives of the aviation com­munity who provide recommendations to the FAA as it moves forward on NextGen implementation.

4, The FAA, which is collaborating with the Department of Defense and Homeland Secu­rity to facilitate the entry of unmanned air­craft systems (UAVs) into the NAS.

5, The FAA, which is collaborating with the military, NASA, and NOAA’s National Weather Service to incorporate weather data into the system.

6, The FAA, which is working through ICAO with international partners in Europe, Japan, and Australia to ensure compatibility with global standards.

In November 1944, representatives from 54 countries attended the conference, since known as the Chicago Conference, at the end of which 32 countries signed a convention, the Chicago Convention, 1944, which established the Interna­tional Civil Aviation Organization (ICAO) upon ratification of the convention by the required number of 26 countries. Ratification was accom­plished on April 4, 1947, and at the invitation of the Canadian government, headquarters were established in Montreal. Legally, ICAO became a specialized agency linked to the Economics and Social Council of the United Nations.

The stated purposes of the Convention, to be administered and facilitated by ICAO, included (1) providing for the adoption of Inter­national Standards and Recommended Practices

regulating international navigation, (2) providing recommendations for the installation of naviga­tional facilities by the Contracting States, and (3) suggesting ways for the reduction of customs and immigration formalities. These purposes were to establish the fundamental basis for the safety, efficiency, and regularity of international civil aviation in the years to come.

The EU institutions have also assumed respon­sibility for certain noneconomic issues that have direct bearing on air transport. Included in these issues are:

• Air traffic control

• Noise

• Carrier liability

• Accident investigation

Air Traffic Control

In 1961, the European Economic Community (EEC) was composed of just the original six members. Air traffic control after World War II had been the responsibility of each of their indi­vidual national governments. One of the first attempts at consolidation by the EEC was the coordination of air traffic within their severely restricted airspace. Beginning that year, the EEC created the agency known as Eurocontrol, which took charge of air traffic control over the greater part of Europe.

In 1999, almost 40 years after establishment of the EEC, the European Commission recom­mended changes to Eurocontrol that would bring about a more unified and efficient air traffic con­trol system. By 1999, the organization had grown to 15 Member States, and the EEC had become the substantial sovereign entity known as the Euro­pean Union. One of the recommended changes to the operation of Eurocontrol was the creation of the concept known as “Single European Sky.”

Later in this chapter we will review the his­torical evolution of Eurocontrol, the transition of air traffic control under the Single European Sky concept, and the proposed development of a satellite-based air traffic control system.

Noise Limitations

Reduction of noise levels on and around air­ports worldwide has received much attention. Excellent progress has been made in this area as decibel levels of operating aircraft have progres­sively been reduced and as land use management and other methods of noise reduction have been adopted. Europe’s urban concentrations have made airport noise limitation a critical issue, and the EU has been aggressive in this area. Some EU practices, however, have caused con­sternation to foreign carriers and their govern­ments. It is alleged, for instance, that the EU noise restrictions adopted by the Council have been applied in order to manage and restrict mar­ket access to foreign aircraft manufacturers, nota­bly in the United States (Boeing). The argument is made that such restrictions are actually a form of “protectionism” for Airbus Industrie. These arguments note that EU noise limitations are sig­nificantly more limiting than ICAO standards.

Air Carrier Liability

Until recently, air carrier liability was governed by the terms of the Warsaw Convention of 1929, as modified by subsequent protocols and volun­tary carrier agreements. A complete overhaul of the system was completed in 1999 (the Montreal Convention of 1999), and it entered into force as of November 4, 2003, among ratifying nations.4 In 1997, the European Council adopted regula­tions that defined carrier liability of EU operators, increasing their potential liability (100,000 SDRs). These regulations are mandatory for EU-based operators but non-EU operators may exempt themselves from their operation through tariff clauses if notice to passengers is properly given.

Accident Investigation

In 1994, the Council adopted regulations designed to harmonize accident investigations within the EU, and outside the EU in some circumstances, by providing guidelines and requirements to be observed by Member States. National govern­ments have had responsibility under the Chicago Convention for coordinating investigations of air crashes and incidents for 50 years. The action by the Council standardizes the procedures and requires reports to be filed with the Commission.

The Limited Test Ban Treaty of 1963

Escalating tensions and the growth of nuclear armaments during the 1950s had caused talks between the United States and the U. S.S. R to commence in 1955 over the issue of the test­ing of such weapons. Radiation fallout from atmospheric tests by both sides had accidentally contaminated people and areas far removed from the test sites. Apprehension over the cumulative effect of contamination of the environment and possible genetic damage to the population was shared by most civilized countries.

The United States and the Soviet Union both had actually detonated nuclear devices above the Karman line, the highest at 540 kilometers (335 miles). The effects of these explosions were varied, and their visual effects were quite spectacular, but the destruction of the electronic components of satellites in low earth orbit by electromagnetic pulses was a common result. During the Cuban missile crisis in October 1962, both the United States and the Soviet Union deto­nated several high altitude devices as a show of force. The most significant, destructive effects of nuclear detonations in space occurred during this time, on October 22, 1962, when the Soviets exploded a device at an altitude of 290 kilome­ters. Electromagnetic impulses at ground level in

Kazakhstan fused 570 km of overhead telephone line, started a fire that burned down a power plant, and shut down 1,000 km of buried power cables.

The next year, in 1963, the United States and the Soviet Union agreed to prohibit nuclear weapons tests “or any other explosion” in the atmosphere, under water, or in outer space. The inclusion of outer space in this essentially ter­restrial agreement created a benchmark for future agreement on outer space.

The General Assembly of the United Nations created the Committee on the Peace­ful Uses of Outer Space, COPUOS, in 1959. Although it was not involved in the bilateral Limited Test Ban Treaty of 1963 between the United States and the U. S.S. R., its purpose was to review the scope of international cooperation in peaceful uses of outer space. It has two sub­committees, the Scientific and Technical Sub­committee and the Legal Subcommittee.

COPUOS has been central to the develop­ment of existing international law regarding space. It has, in fact, drafted all international treaties that now exist dealing with outer space, some five in number that were adopted between 1967 and 1979. The Committee was composed of just 24 members when it was created as a permanent body in 1959, which facilitated its work since the Committee is operated on the basis of consensus (agreement), not majority vote. It is now composed of 71 mem­bers. We will now look at the five treaties that have been adopted out of COPUOS.

For many years after the launch of Sputnik, the competitive aspects of the space race between the United States and the U. S.S. R. spurred space advances and development. These were the days of setting new records over the whole spectrum of space activity. These “firsts” included the first human in space, the first woman, the longest human time-period in space, and the first “spacewalk.”

A Brief History

During these early years, the space race included the race to the moon. Both the U. S. and the U. S.S. R. successfully sent unmanned probes to
the moon, but it was the United States, as a result of the Apollo Program, that was to win the race for putting a man on the moon’s surface. Begin­ning with the launch of Apollo 8 on December 21, 1968, Americans left earth’s orbit and ven­tured out into deep space. Apollo 8 and Apollo

10 were limited to lunar orbiting missions; it was not until Apollo 11, on July 21, 1969, that Neil Armstrong became the first human to set foot on the surface of the moon.34

The Apollo Program successfully landed six missions on the surface of the moon. Apollo

11 through Apollo 17 were landing missions to the moon, but due to a life-threatening explosion of an oxygen tank aboard the command mod­ule of Apollo 13, on April 13, 1970 en route to the moon, that lunar landing mission had to be scrapped. Only through superior scientific and engineering skill, and determination by NASA personnel and the onboard crew, with a bit of luck thrown in, was the Apollo 13 crew success­fully retrieved from space to a safe landing. The details of this extraordinary feat are well worth reading.

The Soviet Lunar Program had 20 suc­cessful missions to the moon, including the first flyby, first soft landing on the moon, and the first circumlunar probe to return to earth. Although denied by the Soviet government at the time, the U. S.S. R. had two manned lunar programs in progress in competition with the United States during the 1960s and 1970s. Due to several launch vehicle failures, these programs were can­celed by 1976.

To date (circa 2013), only three coun­tries have placed humans into space utilizing their own launching systems. In addition to the United States and the U. S.S. R., in October 2003, the People’s Republic of China successfully launched its first astronaut into orbit on the Shen – zhou 5 launch vehicle. China has also announced its intention to put astronauts on the moon by 2025. All other countries’ programs, including the European Hermes and the Japanese Hope-X programs, have been canceled.

Human space flight since the Apollo mis­sions has been limited to earth orbit. The Space Shuttle program in the United States has met with both success and failure as discussed above, with two catastrophic flights in Chal­lenger (explosion of the external tank caused by booster rocket failure on launch in 1986 with complete loss of crew) and Columbia (disinte­gration of the orbiter on reentry in 2003 with complete loss of crew). Additionally, the pub­lic and Congressional enthusiasm for human space flight seemed to wane as the space pro­gram became more mundane and as costs for the program came under greater Congressional scrutiny.

Frank Lorenzo next set his sights on Continental Airlines, which had a proud history going back to 1934 as Varney Speed Lines. The airline was renamed Continental Air Lines in 1937, even before the passage of the Civil Aeronautics Act, and before Frank Lorenzo was born. Lorenzo had earlier attempted to interest Robert Six, founder and chief executive of Continental, in a merger with Texas International, to no avail. Six was among the group of original oil-stained visionar­ies who had started it all in the airline business, along with Jack Frye, Eddie Rickenbacker, and Juan Trippe, and he wanted nothing to do with the financial whiz-kid from New York. By 1980, Continental’s all-jet fleet flew routes coast to coast and over the Pacific to the Far East and Australia. But by 1980, the effects of deregula­tion and a long strike by flight attendants had produced a loss of $27 million for the year. An attempted merger with Western Airlines did not succeed, and Continental was at risk.

By 1981, A1 Feldman had replaced Robert Six as CEO. Feldman was also of the old school and was no more interested in hooking up with Lorenzo than Six had been. Before joining Con­tinental, Feldman had successfully turned around Frontier Airlines using traditional business meth­ods. Unable to secure a voluntary merger agree­ment with Feldman, Lorenzo, using the assets of Texas Air, began buying Continental stock in another hostile takeover bid.

Feldman fought the takeover energetically, combining with Continental’s labor forces to present a united front in opposition. Attempts were even made to get financing that would allow the employees to buy into the company through an employee stock ownership plan (ESOP). In spite of these frantic efforts, which included the employees giving up $180 million in projected pay raises, the ESOP failed. Lorenzo ultimately acquired enough company stock through the open market to get voting control. A1 Feldman committed suicide in his office on August 9, 1981.

When Lorenzo took over, a new board of directors was selected, which included Alfred Kahn and John Robson, both former chairmen of the CAB. Because of their roles in bringing about economic deregulation, it could be said that they were both indirectly responsible for the emergence of the voracious Frank Lorenzo as a force in the airline industry. Lorenzo brought in Stephen Wolf from Pan Am as president of Continental. Lorenzo decided to merge Texas International operations and assets with those of Continental, to jettison the Texas Interna­tional name for good, and to move forward as Continental.

As the consolidation proceeded and Loren­zo’s accounting team probed deeper into Con­tinental’s finances, it soon became clear that the company was in much worse shape than Lorenzo had been led to believe. It began to look like Lorenzo might have finally made a fatal miscalculation. If Lorenzo’s investment was to be salvaged, drastic measures were going to be called for.

Phil Bakes, still Lorenzo’s right-hand man, determined that the airline’s main expense challenge was the cost of labor. Pilots aver­aged around $90,000 per year, but flew only about a third of the month. Flight attendants drew $37,500 annually. Mechanics’ wages were $40,000 a year. If Continental was going to survive, labor would have to yield to the com­petitive market consequences of deregulation. Attempts at conciliation between the two sides proved fruitless. The machinists’ union, Inter­national Association of Machinists (IAM), went on strike at Continental in August 1983. On Sep­tember 24, 1983, Continental became the second major airline to file for Chapter 11 protection under the Bankruptcy Act.

Lorenzo turned over operation of the air­line in Chapter 11 to Phil Bakes. A recent deci­sion of the U. S. Supreme Court, National Labor Relations Board v. Bildisco,1 established that labor contracts, to the extent that their provi­sions impaired the claims of other creditors, were not enforceable against the debtor corporation (the airline). This decision opened the way for

Continental to unilaterally abrogate all wage scales and work rules, which it did immediately. In effect, Lorenzo was able to legally cancel all labor contracts that were in force at Continen­tal. He then invited back its employees to work longer hours at half the rate of pay. Those who did not agree were simply out of a job. New hires were made in all areas of the company and, despite the fact that the company was in bank­ruptcy, the pilots’ union called a strike. Through the efforts of Phil Bakes, schedules were largely maintained, additional pilots were brought into the company, fares were lowered to attract more passengers, and gradually the company took on a semblance of normalcy. Two years after Conti­nental entered Chapter 11, it became the first air­line to successfully emerge from bankruptcy and to pay its creditors close to 100 cents on the dol­lar. The restructured and reconfigured airline was now ready to cope with the deregulated world.

There were no unions for cabin attendants work­ing for the airlines prior to the early 1940s. Their roles had been defined early on by passenger ship service, and these attendants were usually males who were termed “stewards” or “pursers.” Dur­ing the 1920s, Pan American World Airways first employed male stewards on their Key West and Miami service to Havana, using 10-passenger Fokker aircraft (see Figure 15-9, p. 144).

Domestically, women came into the airline work force in 1930 when Boeing Air Transport, later United Airlines, hired Ellen Church, a reg­istered nurse. Church was enamored of aviation and had applied unsuccessfully for a pilot’s posi­tion with Boeing Air Transport. Having been rejected as a pilot, she suggested that having a registered nurse on board would help alleviate passengers’ fear of flying in those early days and that she could professionally attend to air sick­ness as well.

Church became the world’s first stewardess on May 15, 1930, in a three-month experiment that ultimately used eight registered nurses on the west coast to Chicago routes. The addition of these nurses was an unqualified success and, within a short time, most airlines in the country also began adding nurses to their flight crews. They were called “stewardesses.”

Stewardesses in the 1930s were required to be unmarried, younger than 25 years old, weigh less than 115 pounds, and be under 5’4” tall. At the time, there was some correlation between these physical requirements and the size of the interior of most passenger planes. In addition to attending to passengers, their duties included fueling the airplanes, hauling baggage, and light cabin maintenance.

In 1953, American Airlines imposed an upper age restriction for continued employment for stewardesses that called for their retirement upon reaching 32 years of age. Their union was able to limit this rule to new hires, exempting current employees. By this time, many airliners had pressurization systems that allowed flights to be conducted at higher altitudes in quite com­fortable conditions, out of most of the weather and turbulence inducing air sickness and fear of earlier times. These aspects of commercial flight were significantly enhanced with the introduction of passenger jets late in the 1950s.

By 1960, the stewardesses were represented by a division of the Air Line Pilots Association known as the Air Line Stewards and Stewardess Association (ALSSA), now an independent union known as the Association of Flight Attendants.2

III fly because it releases my mind from the tyr­anny of petty things. . . . Я

Antoine de Saint-Exupery

ne of the recognized purposes of govern­ment is to protect the “public interest” under its constitutional authority to promote the general welfare. A full and complete definition of the term “public interest” has proven to be elu­sive. The concept of the public interest has, for example, been used to justify both the regulation of the airline industry and its later deregulation. It was invoked to justify the original restrictive regulation of the railroads in 1887 (The Interstate Commerce Act), and later used to justify finan­cial assistance to the same railroads.

The nature of the activity deemed by soci­ety, or the government specifically, to be either in the public interest or against the public interest is often a function of the “times” or of the phi­losophy of the administration that happens to be currently in charge of running the government.

In this chapter we will look at how the government attempts to protect the “public interest,” specifically in the air transportation industry. To do this we will have to review the history of Congressional legislation which makes it unlawful for the private sector or any business
enterprise to prevent or limit competition. These laws are referred to generally as “antitrust” leg­islation, which is in the public interest because competition in the business sector is beneficial to the public, resulting in cheaper and more avail­able products and services.

When this legislation was enacted by the Congress, the aviation industry did not exist. It was enacted primarily to curb abuses by the rail­road industry during the late 19th and early 20th centuries. When the commercial airline industry came along, the courts had to decide whether or how the antitrust statutes would or should be applied to airline transportation.

Once Congress had enacted this type of legislation in the form of statutes, it fell to the executive branch of government to enforce the law. The executive branch does this through its departments and agencies. Jurisdiction over the airlines has bounced around in the executive branch of government, being first exercised by the Department of Commerce, then the agency known as the Civil Aeronautics Board. After deregulation of the airlines in 1978, jurisdiction swung between the newly formed Department of Transportation (DOT) and the Department of Justice (DOJ) and, finally, today, is shared by these two departments and their agencies.

The chronological sequence of statutory law and the agencies that have enforced that law are as follows:

1, The Sherman Antitrust Act

2, The Clayton Antitrust Act

3, The Department of Commerce and its agencies

4, The Civil Aeronautics Board

5, The Department of Transportation

6, The Department of Justice

7, A combination of DOT and DOJ

It would be fair to say that the promise of eco­nomic deregulation of the airlines has been com­promised by continued government operation and control of the remaining two components of the air service industry: airports and air traffic control. Airports are virtually all owned by state and local governments or their subdivisions. Air traffic control is operated by the Federal Avia­tion Administration. Knowledgeable people are asking, “Would the system function at a higher service level if these other two branches of the air service system were also to be economically deregulated?”

Airports and Air Traffic Control:

A Brief History

Airports

Federal subsidization of airports has a long his­tory, as we have seen earlier in this book. Air­ports began in the early days of commercial aviation as local, municipal, state, and even private (Burbank Airport in California) opera­tions. Federal financial participation began as part of the Works Projects Administration and other relief organizations in the 1930s (nota­bly at LaGuardia Airport). After World War II, Congress dived into the airport business with the passage of the Federal Airport Act of 1946 and, while that was a relatively small effort, with it began the acceptance of the principle that air­ports were the primary responsibility of the fed­eral taxpayer.

The federal government also has a long his­tory of levying taxes on the air service industry, beginning with the placing of an excise tax on aviation fuels in 1932 and an excise tax on pas­senger airline tickets in 1941. These revenues were deposited in the General Fund, but in 1970, on the creation of the Airport and Airway Trust Fund (discussed above), revenues received from various sources by the federal government were dedicated to be used for federal aid to airports and for air traffic control and other FA A purposes.

The Federal Aviation Administration is responsible today for the administration of these revenues, which currently amount to some $12 billion annually. Trust fund revenues paid for almost 80 percent of the FAA’s $16.4 billion 2011 budget. The General Fund is still on the hook for the remaining 20 percent.

Airport authorities and their lobbying orga­nizations have attempted to have Congress raise the PFC amount that airlines can charge each passenger, asserting that inflation has eroded the value of the PFC money received by them for airport upgrades, among other things. They have also offered to forego the AIP funds in return for being able to set their own PFC rates. The Con­gress passed the 2012 FAA Reauthorization Act, however, without raising the amount that airports may charge under the PFC program and without disturbing the distribution rationale of the AIP program. This may leave a shortfall in airport funding programs for airport improvement proj­ects going forward. Environmental concerns have brought additional pressures on airport manage­ment practices and funding requirements.

The international community is well out in front of the United States on this issue. Over 32 of the largest 100 foreign airports are now fully or partly privatized, including Athens, Auckland, Brussels, Buenos Aires, Copenha­gen, Dusseldorf, Frankfurt, Johannesburg, Lon­don, Melbourne, Naples, Rome, Sydney, and Vienna. Others are in the process of privatiza­tion, including Hong Kong and Tokyo. Most of these airports are operated under a lease of the entire airport facility to a private operator on a long-term basis, usually 30 years or more. The governmental owner of the airport normally retains ownership of the land and airport facili­ties. The privatization process was begun, of all places, in England with the 1987 privatization of the British Airports Authority, which owns Heathrow and other airports.

Government-owned and managed airports are characterized as risk-averse, passive, and non-innovative. Privatized airports are more will­ing to take new risks, like expansion of facilities and gates. The lack of gates is cited as one of the constraints on new entrant airlines, which is a competitive disincentive. As we have seen, long-term leases with incumbent airlines allow a large degree of control to be lodged with those airlines, another competitive disincentive. Oxford University has conducted recent research into airport management strategies and found that the management approach at privatized airports is significantly more “passenger-friendly” than at government-operated airports.

There are currently some 100 companies worldwide that own or operate airports, finance the privatization of airports, or participate in the design, financing, building, and operation of air­ports and terminals at airports.

The U. S. federal statutory regimen gov­erning airports is a significant disincentive to privatizing airports. Under federal law, airport authorities that have received them must repay federal grants previously received if the airport is sold and, if it is sold, the FAA has said that all monies received in payment for the airport itself must in turn be used for “airport purposes,” rather than placed into the local government’s general fund to be used for other governmental purposes. The other possibility is to lease the airport grounds and facilities, retain title to the airport, and contract out the use of the airport to a qualified operator. These considerations led to the new statute discussed below.

There has been a quiet movement in the United States to convince Congress that priva­tization of the airports is in the ultimate interest of travelers and taxpayers. In 1996, Congress passed the 1996 Airport Privatization Pilot Pro­gram,8 which created five “pilot program slots” that allow up to five airports (but only one large hub airport) to enter into a privatization test pro­gram. This program releases airport owners from the restrictions mentioned above and thus makes feasible the privatization of airports. The law, however, makes mandatory that the airport must secure at least 65 percent approval (by landing weight) from the airlines using the airport.

Progress under this statute has been slow. In fact, the only successful privatization under this program was concluded by Stewart International Airport, located north of New York City, by entering into a 99-year lease with a subsidiary of the British-owned National Express Group. This arrangement lasted only one year when the lease was terminated in 2007 by mutual consent and the operation of the aiiport was taken over by the New York and New Jersey Port Authority, which is not eligible under the privatization statute. This terminated the only successful privatization effort in the U. S. to date.

Applications were made by several other airports. Some of these applications have been withdrawn, while others are going forward, as indicated below. The following airports have made applications: Gwinnett County Briscoe Field in Georgia (application withdrawn June 2012), New Orleans International Airport (appli­cation withdrawn October 2012), Luis Munoz Marin International Airport, San Juan, P. R. (application approved December 2009, Aero – star Airport Holdings selected as operator, July 2012, pending FAA approval, docket number FAA-2009-1144), Hendry County Airglades Airport in Clewiston, FL (application approved October 2012, negotiations ongoing with private operator, docket number FAA-2008-1168), and Niagara Falls International Airport (application withdrawn 2001).

By far the largest airport that has begun the privatization process is Midway Airport in Chicago. This effort has been ongoing for many years and at least one arrangement with a private operator collapsed because of the lack of funding by the City of Chicago. As of July 13, 2012, the City has awarded a new five-year $53.6 million contract for the airport’s operation, but that is subject to FAA approval, so the process contin­ues (docket number FAA-2006-25867).

Box 33-1 The Major Components of the Wendell H. Ford Aviation Snvestment and Reform Act

1, Safety

a. Increases FAA facilities and equipment budget by almost 50 percent for АТС system modernization

b. Increases funds for runways and airport equipment

c. Provides funding for FAA hiring and retention of controllers and inspectors

d. Makes runway incursion prevention devices eligible for AIP funding

2, Competition

a. Funding for new terminals, gates, and taxiways

b. Abolishes slots at O’Hare in 2002; modified by FAA in 2004

c. Abolishes slots at LaGuardia and Kennedy in 2007

d. Creates 24 new slots at Reagan National, 12 of which are to be used for flights within the 1,250-mile perimeter and 12 to be used outside of the perimeter

e. Requires certain large and medium hub airports to submit a competition plan

3, Environment

a. Increases funding for noise abatement

b. Establishes guidelines for air tours over national parks

4, Small Communities

a. Increases funding for non-hub airports

b. Guarantees funding for general aviation airports

c. Doubles the small airport fund

d. Creates an incentive program to help airlines buy regional jets to be used to serve small airports

e. Creates a new funding program to assist small airports in promoting their air services

5, Large Airports

a. Doubles the amount of annual passenger funding for primary airports (those with 10,000 or more passengers per year)

b. Raises the cap on annual funding for large airports from $22 million to $26 million

c. Doubles the funding for cargo airports

d. Raises the cap on Passenger Facility Charges (PFC) by $1.50 (to $4.50) to facilitate airport improve­ments that cannot be funded through the Airport Improvement Plan (AIP). PFCs can only be used to fund airport projects that increase safety and competition or are used for noise abatement

6, FAA Reforms

a. Creates an oversight board (similar to IRS reform legislation)

b. Makes changes in FAA management structure to ensure spending integrity

c. Creates a management board to oversee the АТС modernization program (the DOT is to consult with Congress in board appointments)

Privatization of terminals, as opposed to the entire airport, is a likely continuing trend as Southwest plans its new terminal at Midway and Terminal 4 at JFK continues to be operated by the Dutch Schiphol Group, which also manages Amsterdam’s Schiphol Airport, under contract with the New York and New Jersey Port Author­ity. Delta is expanding Terminal 4 to accommo­date all of its international flights in a new $900 million undertaking.

As a part of the FAA Reauthorization Act of 2012, the Airport Privatization Pilot Act was expanded to allow up to 10 slots for the program, an increase from the original 5 slots. Under the privatization act, commercial service airports may only be leased out to operators, but general aviation airports may be sold. Privatization under this program has been nil to slow.

The only existing privately operated and privately owned commercial service airport in the United States was built in 2009 as Branson Airport by a group of investors known as Bran­son Airport LLC. The airport is located near Branson, Missouri, with the closest commercial service airport 50 miles away near Springfield, MO. Its largest carrier is Air Tran (Southwest is merging its operations with those of Air Tran and has announced that it will take over operations on March 9, 2013), with additional service being offered by Frontier and ExpressJet. One unusual aspect to the private ownership of the airport is that the airport is free to grant exclusive route authority to just one airline. The operators have said that they do not want “suicide fares,” with two or three airlines bashing each other until one or more gives up and stops service. This should be interesting to watch.

The combination of adverse effects due to Sep­tember 11 and its aftermath bore down heavily on the airlines. The domestic air carrier industry was in for five years of negative profitability beginning in 2001. Through 2005, the airlines lost $35.1 billion just for that five-year period. The airlines were also deeply in debt.

Labor

Aside from low passenger traffic counts, the plight of the airlines was complicated by increased labor costs that were the result of protracted negoti­ations with their labor groups from the period
of profitability during the late 1990s. Labor had pushed to make up for some of the concessions that had been granted management to keep the air­lines afloat during the dark days of the early 1990s, and now the cost of those new labor agreements were coming due. Labor costs have traditionally been the largest single expense factor faced by air­lines, historically amounting to some 35 percent of total operating costs. The average airline employee in 2002 made $73,000 a year, including pension and insurance benefits. Because airlines require the services of highly skilled employees, their employ­ees historically are highly paid. Airline wages were 53 percent higher than national averages.

Following September 11 the airlines were forced to reduce their workforces significantly, on average among the 13 largest carriers by 14 percent, although at United the reduction was 20 percent and at US Airways it was an even greater 24 percent. In numbers, there were over

80,0 layoffs immediately. By 2003, that num­ber was 140,000. See Figures 35-7 through 12 and Table 35-1.

Fuel

Fuel prices are inextricably interwoven with overall economic conditions. A close correlation

can be observed between periods of recession and increased energy prices. (See Figure 35-13.) In spite of advances in fuel-efficient aircraft engines (the aircraft fleet in 2002 was twice as fuel effi­cient than 30 years before), fuel prices continued to contribute heavily to the airlines’ financial

woes. During the first 11 months of 2002, jet fuel prices rose 27 percent, and from December 2002 to February 2003, those prices rose an additional 55 percent. Jet fuel prices more than doubled in the one-year period February 2002 to February 2003. Crude oil prices increased by 60 percent in

2004, and in 2005 the airlines’ fuel costs doubled over that in 2003. (See Figure 35-14.)

Southwest Airlines, exhibiting another facet of original thinking, began hedging its fuel costs.9 In 2004, Southwest’s fuel costs were much lower than its competitors’ costs for this reason. South­west continued to demonstrate profitability even under these trying circumstances.