Corporatize Air Traffic Control: A Democrat's Case

On Wednesday, the House Transportation Committee will consider Chairman Bill Shuster's bill to transfer the air traffic control system from the Federal Aviation Administration to a non-profit corporation that the FAA would regulate at arm's length. Key House Democrats oppose what they view as "privatization."

This is not a battle that Democrats should wage. President Clinton tried to shift air traffic control to a government corporation two decades ago — part of a long-running FAA-reform effort I participated in as a special assistant to the president for economic policy — and 60 countries have corporatized their systems since 1987. Even U.S. air traffic controllers, who rejected similar proposals in the past, support the Shuster bill.

Air traffic control is not an inherently governmental function, as the actions of those 60 countries demonstrate. Although keeping planes safely separated is a complex and critical task, it is a purely operational process that follows well-established rules. Like running an airline or manufacturing a Boeing 787, air traffic management can be performed effectively by a non-governmental entity as long as it is subject to oversight by FAA safety regulators, whose job of setting and enforcing the rules is inherently governmental.

Because the air traffic control system is a business-like operation, the federal government is poorly suited to running it. Commissions have studied the FAA in depth, and there is a broad consensus on the problem. Air traffic management is a 24/7, technology-intensive service "business" trapped in a regulatory agency that is constrained by federal budget rules, burdened by a flawed funding mechanism, and micromanaged by Congress and the Office of Management and Budget.

To paraphrase James Carville, "It's the incentives, stupid." Because it relies on appropriated funds, the FAA views Congress rather than aircraft operators — and the traveling public — as its customer, and Congress intervenes in decisions large and small. For example, members concerned about the loss of jobs in their district have long blocked FAA plans to consolidate aging and inefficient facilities that would save hundreds of millions of dollars a year.

 The FAA's funding mechanism compounds the governance problem. Air traffic control is paid for largely through an ad valorem ticket tax on passengers rather than a cost-based charge on aircraft operators, whose scheduling decisions and operational practices determine the workload on the system. This indirect funding mechanism distorts aircraft operators' decisions and lessens the FAA's incentive to respond to the needs of its real customers.

The budget process is another major constraint. Because the federal government lacks a capital budget, the FAA cannot borrow against annual receipts to fund long-term investments in new technology.

These problems are most evident in the FAA's long-running struggle to deploy new technology that would improve efficiency and make air travel safer. When it undertook to modernize the air traffic control system in 1981, the FAA estimated that the work would cost $12 billion and take a decade to complete. Thirty-five years and $56 billion later, many controllers still keep track of aircraft using paper strips. Outdated technology limits the capacity of the system, contributing to all-too-common flight delays and helping to explain why the FAA's cost per unit of service has gone up by more than 70 percent since 1997.

Corporatization of air traffic control makes sense for another reason: safety. Historically, civil aviation authorities in most countries both operated and regulated air traffic control, leading to potential conflicts of interest. Safety experts, including the International Civil Aviation Organization, have long called for the two functions to be separated to prevent such conflict — a major reason that so many countries have moved air traffic control to an independent (corporate) entity. The United States is one of the few advanced countries in which air traffic control continues to be operated and regulated by the same agency.

Because air traffic control is a natural monopoly, most countries transfer it to a government corporation, which provides commercial flexibility while avoiding the potential for monopoly abuse. Although this approach works well elsewhere, where such entities are politically insulated, in this country, government corporations such as Amtrak and the U.S. Postal Service have politically appointed boards, and their decisions are subject to continued "oversight."

Rep. Shuster's bill adopts an alternative approach — a private, non-profit corporation modeled after Canada's highly respected provider of air traffic services, Nav Canada. Similar to user cooperatives in the utility sector, Nav Canada is run by its major stakeholders, whose self-interest drives them to keep costs low. Its user charges are one-third lower than the ticket tax they replaced in 1998, while the system is handling 50 percent more aircraft with 30 percent fewer employees. Nav Canada has fully modernized its equipment and now sells its hardware and software to other providers.

 Opponents of the House bill include groups who benefit from flaws in the existing system — business jet owners, who are subsidized by the current charging scheme; Delta Air Lines, whose efficient Atlanta hub provides a competitive advantage because of capacity constraints elsewhere; and congressional appropriators, who control the allocation of revenue generated by (distortive) aviation taxes. Their ill-founded criticism of the bill only reinforces the need for reform.

The opposing camp also includes Democrats on the Transportation Committee who, while not defending the current system, resist removing it from the federal government, seemingly on principle. Last fall, Rep. Peter DeFazio, the ranking member, proposed to move the entire FAA into a government corporation — a fundamentally flawed option that would corporatize even the inherently governmental parts of the FAA.

Democrats should not treat this as a principled fight over "privatization." Controllers support the Shuster bill because they like Canada's user co-op approach to air traffic management, which rewards productivity and involves controllers intimately in the technology modernization process. Aircraft operators and consumers also benefit. Had Nav Canada existed in 1995, I suspect that it, rather than New Zealand's government corporation — the best model at the time — would have been the prototype for the Clinton administration's corporatization proposal. With the problems that prompted that proposal having gotten only worse over the last 20 years, an idea that made sense then should be even more compelling now.

Dorothy Robyn was a special assistant to the president for economic policy from 1993 to 2001; her responsibilities included aviation policy.