Breaking Through

Few frequent fliers will forget summer 2000. A record 697 million passengers boarded airplanes in the United States that year. In June alone, a third of all departures were delayed or canceled due to bad weather or technical problems. As the $100 billion commercial aviation industry strained under its heavy burden, congested airport terminals and airways provoked an unprecedented tally of consumer complaints. By industry estimates, delays attributable to the nation's overloaded air traffic control system cost the airlines, passengers and shippers a whopping $6.5 billion. § It was the worst travel season in U.S. airline history, according to the Federal Aviation Administration. FAA executives are bracing for a repeat fiasco this summer, when controllers could track as many as 8,000 planes at once on a busy day.

Air traffic is returning to levels not seen since Sept. 10, 2001, and delays are mounting. Nine of the nation's 35 busiest airports already are operating above their pre-9/11 volume. Six more expect to do so by the end of the year. December, January and February offered a peek at the looming gridlock. In those months, more than 20 percent of U.S. flights were late, surpassing each of the preceding nine months. "We all know that the system is roaring back, and we will be prepared," says FAA Administrator Marion Blakey. "The memories of the summer of 2000 are still too vivid for all of us." In 2014, the agency predicts, the U.S. annual air passenger count will top 1 billion. With rapid air traffic growth ahead, safety is a concern.

In a budget pinch and facing a capacity crisis that appears to have sneaked in under the radar, FAA is hurrying to shape itself into a more businesslike organization that can safely satisfy current and future demand. "In the airline business, you succeed or fail by how well you know who your customers are, where they want to go, and how much they are willing to spend to get there," says Russell Chew, the agency's first chief operating officer. "The delivery of air traffic services is no different." Thus FAA is redesigning the nation's airspace so traffic can flow more efficiently in eight major metropolitan areas, and working to increase the on-time performance of scheduled carriers.

But budgets remain austere, limiting FAA's reach. Aviation trust fund revenues-taxes on airlines and fliers that pay for airport improvements and FAA facilities and equipment-are down. The agency is tackling the traffic problem by leaning on industry for short-term solutions that cost little but promise big returns.

For example, FAA persuaded American Airlines and United Airlines to trim 62 flights, or 5 percent, from their combined schedules at Chicago's O'Hare Airport, shortening the average delay by about 30 percent over three weeks in March. Saying the results were positive but not good enough, FAA prodded the two carriers to cut another 29 flights, beginning in June. During the same period in March, the agency, along with 33 airline, industry and government conferees, hastily devised and implemented new procedures to keep airplanes moving nationwide during peak travel times.

Now, when departure delays approach 90 minutes at a major airport, traffic can be stopped briefly at smaller airports nearby to open up "express lanes" in the sky. Blakey called it a "nimble move" in a March news conference. She told reporters they should "expect to see [FAA] react more quickly like this in the future" as the agency adopts strict performance standards. It is putting premiums on more reliable data, stronger leadership and rededicated employees. "Responding to rapid change means nothing less than a complete transformation in the way we manage the delivery of air traffic services," says Chew.

He was running flight operations at American Airlines last June when FAA lured him away to manage the huge federal air traffic control system-including almost 4,000 airports with paved runways, 750 control facilities, more than 15,000 controllers and more than 42,000 pieces of equipment operating around-the-clock-as well as research and acquisitions programs. By most accounts, Chew was a smart choice. A former customer of air traffic services is "uniquely qualified to make some of the hard decisions about allocating limited modernization funding," says Scott Foose, vice president of the Regional Airline Association, which represents the fastest-growing industry segment.

Chew plans to spend his five-year term making FAA a model of efficiency and cost-effectiveness. To that end, he is flattening the organization to bring decision makers closer to points of service. He's consolidating 19 high-level entities for air traffic service, research and acquisitions, and airspace modernization into 10 business units. Eleven management layers are being reduced to six, he says, for simpler, faster decisions and fewer opportunities to rethink old decisions or delay new ones.

Chew says FAA has well-defined goals but no comprehensive financial plan for achieving them. Most of the agency's capital programs are focused on improving services to customers-commercial and private aviation and the military, or doing things for the owners-the taxpaying and traveling public. "We have over 160 capital programs," he says, "and only one is focused on reducing our operating costs." In fact, operating costs have increased 22 percent in the last five years-7 percent in just the past year. Acquisition programs, which total $11.1 billion, have experienced cost growth ranging from 3 percent to 248 percent. "[There is] a thick stack of GAO and IG reports attached to the grim and unsuccessful legacy of FAA [research and development] procurement," says David Evans, editor of the aviation industry newsletter Air Safety Week.

Bottom-Up Review

In its early stages, the ATO is conducting a bottom-up review of air traffic-related activities to see how each one contributes to the services the agency provides. When finished, the so-called activity-value analysis will be become part of FAA's cost accounting and financial performance baselines. The ATO will use the results to set targets for air traffic safety, service, cost and productivity. Another objective is to eliminate "stove-piped" organizations with overlapping functions. In April, FAA officials were sidestepping questions about the possibility of downsizing. Blakey calls the air traffic organization a "tactical engine" that will help FAA achieve near-term goals in its strategic plan and eventually lead the agency to a new way of doing business. "This is a real change in the agency's operating philosophy. We are organizing around what we produce for our customers," she told a hearing of the House Appropriations transportation subcommittee in March.

The ATO consists of 10 corporate-style service and business units, each headed by a vice president, and a separate air traffic safety oversight service. The vice presidents-seven of whom are FAA veterans-are responsible for en route and oceanic services, terminal services, flight services, systems operations, technical operations, safety, communications, operations planning, finance, and acquisition and business services. They review air traffic control performance every morning, and meet every week to make crucial strategic and tactical decisions about operations and finances. They critique performance and management accountability in biweekly staff meetings.

Not everyone likes the setup. Professional Airways Systems Specialists, which represents air traffic control system inspectors and technicians, disputes Chew's claim that management is being streamlined. "All they've done is get rid of assistants to the supervisors. That may reduce numbers, but it does not reduce layers," says PASS President Tom Brantley. The union leader calls Chew an "honorable man" but wishes he would rely less on FAA's management: "They're the ones who have gotten the agency in the predicament it's in." Chew says stricter accountability will be expected from managers as soon as October. With the start of fiscal 2005, a new cost accounting system will be up and running agencywide, and better metrics will become the mainstay of every manager's performance goals. The capital programs integral to each ATO service unit will be tied to producing improved performance, reducing unit operating costs, or both.

Reining in Costs

One of the worst is STARS, the Standard Terminal Automation Replacement System, a program to update 30-year-old air traffic controller and maintenance workstations at 162 sites across the country with color displays, processors and computer software from Raytheon. The original cost estimate has nearly doubled, from $940 million to $1.69 billion. FAA has installed only 19 systems at civilian sites, and 12 of them are fully tested and certified. Blakey says STARS is operational at another 22 Defense Department air traffic control facilities. The audit found that most funds have been spent developing the system, not delivering it. Deployment delays-from 2005 to 2012-forced FAA to spend $240 million for an interim radar terminal system at 140 locations.

More recently, Mead reported an $11 million cost increase for the Advanced Technologies and Oceanic Procedures program to modernize FAA facilities that manage air traffic over the Atlantic, Pacific and Arctic oceans. Serious and unexpected software development and testing problems will bump up the cost of Lockheed Martin's fixed-price contract to $228.9 million, the IG said in a March 31 letter to the House Transportation Subcommittee on Aviation. Although the adjustment is modest, Mead wrote, it raises concerns that FAA is shifting some of the ATOP deployment risk from the contractor to the government.

The agency's $13.97 billion budget request for 2005 will not make it any easier to control costs or meet expectations for efficiency. The request is just 1 percent more than this year's appropriation. About 63 percent, or $8.8 billion, is for safety-reducing aviation accidents, deaths and injuries. Another 28 percent, or $3.9 billion, is to support growth. If the request is approved, FAA will have $370 million more to spend on operations, including reorganization. But to the dismay of industry observers and FAA executives alike, next year's request contains $393 million less for airspace modernization, capacity enhancement, infrastructure improvements and associated technologies.

PASS chief Brantley fears budget cuts will affect safety drastically, but not immediately. "The staffing shortages will occur next year because of it," he says, "and the effect of them won't surface until a couple of years later."

Chew is formulating new budget processes and controls that look beyond what he calls the "incremental budgeting" that is prevalent in so much of government today. The cost accounting system will help FAA determine whether future investments are affordable, stay within budget and create financial headroom for implementing new technology. "It's that kind of innovation we will be pressing our culture to change to-to look for not just the ways to save money by cutting things, but ways to operate more efficiently at reduced costs so we can afford to do bigger and better things," says Chew.

Pay reforms rank high on the list of steps toward cost efficiency. FAA recently renegotiated several costly pay rules with the National Air Traffic Controllers Association as part of the controllers' contract extension, saving up to $100 million. The extension links a portion of pay increases to controller performance, furthering the agency's quest to bring its entire workforce under a pay-for-performance system. FAA and its unions remain at odds over staffing. While welcoming the air traffic organization as a "bold and smart" initiative, NATCA President John Carr says too few controllers are operating the system and FAA is not hiring enough to prepare for a coming wave of retirements.

Back when FAA was predicting a billion passengers by 2010, Chew was among the industry executives who argued that the only solution to congestion was 50 more miles of runway. The terrorist attacks altered the aviation industry's competitive landscape and gave some room to breathe. Now, Chew says, "Miles of runway by itself can't do the trick. So you have to have miles of new roads in the sky, too." Because runways cannot be placed easily where they are needed most-in waterside urban areas such as San Francisco and New York, for example-Chew prefers to focus on producing predictable air traffic operations in all different kinds of weather.

'Chew on This'