The following guest post was submitted by Vaughn Cordle, managing partner and chief analyst for the investment research fand analytical support firm AirlineForecasts, LLC, after Secretary LaHood named the members of the Aviation Advisory Committee and laid out the panel's objectives:

Vaughn Cordle, CFA / May 13, 2010

More information can be found at: http://www.dot.gov/faac/index.html

Looks like a great group, and the objectives of the Commission appear to be perfectly politically correct! Obama should be happy.

Labor has a seat at the table, which is good. As they say in Washington, if you are not at the table, you are on the menu. A fair question to ask is how much influence unions have in Washington and whether their views will prevail in the final report of the commission.

Balancing competitiveness and viability will be the toughest nut to crack for the group.

Our recent industry structure work provides an analytical framework for figuring out the right concentration or number of airlines that would allow the industry to break even on capital costs over a full business cycle. This is how viability should be defined and a full business cycle provides the time horizon that matters most.

A "world class" workforce means different things to the consumer, shareholder, and unions. I find this somewhat amusing since the voice of the labor will be loud given the current political slant in Washington. World class implies the best-trained and highest compensated employees accompanied by the best work rules. This "objective" is not consistent with an industry that is so fragmented (too many airlines). Without further consolidation, the industry cannot satisfy the labor, let alone the most important stakeholder - the shareholder.

Viability also means that the business provides the required rate of return for the investors in the business. Without that required return, the shareholders withdraw their enthusiasm and dump the stock, which in turn drives up the cost of debt and the odds of bankruptcy.

In the final analysis, the industry cannot produce a world-class workforce - whatever that means - given the nature of its destructive fare competition, which is a function of a market concentration that is too low. The solution, of course, is less competition and fewer airlines. This will not be viewed favorably by consumer advocates who understand that fares will increase with higher concentration. However, a strong case can be made that the consumer has captured almost all of the value produced by the industry over the last decade - $70 billion in losses. Labor and fuel account for 50% of the costs.

I had an interesting debate about mergers with one of the Commission members, Berkeley's Professor Severin Borenstein, this past week (see link below). Borenstein is a strong opponent of mergers and believes the airlines want to merge so they can raise fares, not improve efficiency. His views would quickly change if he were responsible, and accountable, to the key stakeholders of an airline.

Merger Debate: UC Berkeley'sBorenstein & Cordle / May 4, 2010 Point-to-Point KCRW

http://www.kcrw.com/media-player/mediaPlayer2.html?type=audio&id=tp100504will_the_latest_airl

This is not rocket science, but it does require a good understanding of what it takes for the industry to meet the strategic tests of consistency and fit, as it relates to the objectives of the Commission.

The simple equation:

World class workforce + balance between competitiveness and viability + carbon taxes + funding for ATC and aircraft technology = higher government taxes/fees, security costs, airport charges, ADS-B technology costs, and labor costs for the airlines.

These higher costs must be viewed within the context of a $1.4 to $2 trillion budget deficit and Obama's need to reduce government spending in later years.

Solution:

Allow consolidations and mergers which will allow the industry to pass the increased costs on to consumers of the air transportation system.

Airports and manufacturers will not like consolidation because it results in less traffic and demand. National unions will favor big mergers because it enhances negotiating power. Low-cost airlines will not want to be constrained in terms of their ability to grow, which of course gets to the heart of why the industry prices its product below capital costs. Airline executives and analysts understand what that required return must be and that destructive fare competition - a byproduct of excess capacity - makes the airlines unfit for long term investment.

Commission objectives:

• Safety: gotta say this and more money is typically the only way to improve safety.

• World-class aviation workforce: skill set or in terms of wages/benefits?

• Balancing competitiveness and viability: without mergers, the networks are not viable and will continue a slow liquidation.

• Securing funding: charge the airlines or taxpayers, with airlines likely paying for technology that helps the airlines.

• Addressing environmental challenges and solutions - carbon taxes are coming and airline passengers will have to pay their fair share.

It's easy to see where the Commission's final conclusions are headed before the first meeting is even held. The Commission is a political means to provide cover for Lahood and Obama, who really don't have a clue about how to fix the industry. In the final analysis it's about shifting costs, and those costs will ultimately be absorbed by the shareholders and the consumer.

The good news is that the logic of why airlines must merge is overwhelmingly solid. More mergers provide relief for the industry and the most important stakeholder, the shareholder, at least for a few years.

This post was sent to us by Robert Mann, a long-time airline executive who is now president of the airline industry consulting firm R.W. Mann & Co.:

Perhaps the better question is what are the opportunity costs of NOT having had a coherent transportation policy that meshes properly with other national policy issues.

With respect, DOT Secretary LaHood's new federal advisory committee, tasked with studying "every facet of the aviation industry" seems plagued by tunnel vision, right out of the gate.

The nascent committee's work scope will be incomplete and its results suboptimal, unless and until it and the nation face up to the need to address and develop an over-arching and integrated set of transportation, energy, environmental and economic policy.

We don't fly without specialized transportation fuels with their carbon signature, potentially stifling cap-and-trade economic impact, and the possible future need for allocations.

We don't achieve the full measure of economic growth that aviation, and transportation generally, can supply when the failure to address critical issues creates such significant uncertainty and business risk -- both in domestic and international commerce.

Without such a multidisciplinary and multi-modal approach to ALL issues facing transportation --- the aviation industry, scheduled, business and general aviation, as well as rail, trucking, bus and personal vehicles -- pursuing development of an isolated aviation policy sub-optimizes potential economic benefits to industry in the broadest sense, both as suppliers and consumers of transportation services, and to the nation as a whole.

This is not a new issue, but one that I and others articulated since the 1970s, most recently in January 2009 at the ABA's Air & Space Law Update Conference. Several blue ribbon transportation commissions later, here we are.

In some respects, the nation has come a long way, yet the full economic benefits of an integrated transportation policy, and aviation, within that have yet to be realized. We continue to be impeded by the self-induced drag of having failed over the long term to address these important issues.

There is no better time than now.

There are thousands of aviation experts with a thousand-and-one exciting new practices, technological innovations, and clever ideas for overcoming the challenges faced by the airline industry. As a layperson, I have to offer the federal advisory committee one thing: the big picture. The airline industry needs to see itself as part of the transportation network if it wants to succeed. To stay competitive, it must reduce or even stop serving short haul trips where it cannot compete with cheaper, faster, more convenient inter-city rail transit.

Short haul trips are those flights which take less than three hours, or travel about 500 miles. It includes trips like Los Angeles to San Francisco, Minneapolis to Indianapolis, and New York to Buffalo. I often see people take flights from Baltimore to Philadelphia - a trip one could make in an hour and a half by train. These airplane customers probably spend that much time waiting at the airport. It will not be long before customers notice that they are getting the short end of the stick.

Customers already recognize that airplanes are not always the best option. Over 80 percent of travelers who make trips of 300-450 miles do so by car, because of costs and because the distance is too short for the unavoidable hassle that airplane trips involve. As we move to a greener economy, short haul flights make even less sense - while airplanes are notoriously high carbon emitters, short trips have significantly higher emissions per mile than long trips. Automobile travel is not a good option for many people either. In these circumstances, trains are the most cost effective and most environmentally friendly mode of transportation. As the government seriously steps up investment in high speed rail and other rail expansions, trains will become even more the obvious choice.

The FAA cannot and should not try to make planes the best or most convenient mode for short trips. It can instead build capacity for the long, difficult trips that planes and only planes do best. In many cases this change in policy will seriously reduce projected infrastructure expansion costs.The savings can help pay for technological and other improvements at our airports and help fund rail expansion.

That is the way to build a truly intermodal and truly national transportation system.

The following response was sent in by Kevin Mitchell, chairman of the Business Travel Coalition.

Business Travel Coalition (BTC) was invited to speak at U.S. DOT Secretary LaHood’s 12 November aviation stakeholder forum. We were inspired by the Secretary’s leadership and grateful that large buyers of commercial air transportation services were represented during that important gathering of travel industry stakeholders.

As requested, BTC submitted 5 problems that in its view should be considered by Secretary LaHood’s committee. Clearly there are more than 5 pressing airline industry problems that deserve national policy attention, but they will no doubt be fleshed out by this initial exercise. So as not to confuse symptoms with problems, BTC organized its response in the following order: problem, causes, effects. For example, the issue of extended tarmac delays is not a “problem” per se but rather an effect or symptom of problems such as over-scheduling and obsolete air traffic control technology. This is BTC’s list of 5 important problems:

PROBLEM #1

· No National Air Transportation Policy

Causes

· unbridled faith in efficacy of market forces

· lack of government and industry foresight and leadership

Effects

· all manner of intractable industry problems

· vanquished professional workforce

· dearth of strategic investors

· outsourcing of aircraft maintenance

· broken regional airline business model

PROBLEM #2

· Airline Over-Scheduling

Causes

· lack of government and industry leadership

Effects

· extended tarmac delays

· delays, cancellations

· lost traveler productivity

· negative environmental impacts

PROBLEM #3

· Broken Industry Workforce Model

Causes

· lack of productive labor-management model

· lack of labor and management leadership

· unworkable airline industry financial model

Effects

· no pride-in-place for industry workers

· no longer a desired professional career

· lower flight-safety margins

· adverse customer service impacts

PROBLEM #4

· Obsolete Air Traffic Control Technology

Causes

· ineffective FAA management

· fragmented industry positions

· lack of Congressional leadership

Effects

· higher airline operating costs

· harmful environmental impacts

· lost traveler productivity

· artificial constraints on capacity

PROBLEM #5

· Airline Industry Financial Failure

Causes

· lack of industry and government leadership and planning

Effects

· pressure on safety margins

· deteriorating customer service levels

· loss of skilled jobs

· lost service

· loss of international aviation leadership

The Air Transport Association shared its five key agenda items for a healthy, vibrant and sustainable commercial air transportation system with Secretary LaHood, immediately following his Nov. 12 meeting. The industry believes emphatically that the key to providing the type of air transportation the public needs and expects (not to mention powering $1.1 trillion in economic activity and over 10 million U.S. jobs) lies in future public policies fully reflecting the following key principles:

1. No new taxes and fees, which would burden an already overtaxed industry and travelers/shippers

2. Fully funded and accelerated modernization of the nation’s air traffic control (ATC) system

3. Enhanced oversight of energy markets to stop excessive speculation and the resulting volatility of oil prices

4. Elimination of arcane restrictions on airlines’ ability to operate efficiently in the global marketplace

5. A global sectoral approach to climate change for aviation developed through the International Civil Aviation Organization (ICAO)

The National Air Traffic Controllers Association is represented on Secretary LaHood's Federal Advisory Committee by Executive Vice President Trish Gilbert. She participated in the Secretary's Nov. 12 forum, and believes it represented an important first step toward true industry-wide collaboration on the biggest issues facing the U.S. aviation industry. NATCA firmly believes that our best chance of success lies in bringing together diverse perspectives and expertise from every aspect of the aviation industry and working together to develop comprehensive solutions to our problems and plans for our future.

It is with this in mind that we developed these recommendations for the advisory committee:

1. Equipage –In order for the transition into NextGen to be successful, airlines and aircraft owners will need to equip their fleets with ADS-B and other new technology. How this equipage will take place remains an open question. The taskforce should explore:

· Whether equipage should be compulsory.

· Who will be responsible for funding equipage and budgetary effects of that decision. This funding should not come at the expense of other FAA budgets. NextGen is a long-term plan requiring long-term funding. HR 915, the FAA Reauthorization Bill that passed the House of Representatives, only provides funding through 2012. In contrast, SESAR, the European equivalent of NextGen, is funded 15 years into the future. The taskforce should make recommendations about funding needs and funding sources for NextGen in both the long and short term.

· Whether there will be other incentives for equipage (i.e. best-equipped, best-served policy).

· Logistical details for a best-equipped, best-served policy (i.e. procedures, displaying equipage information on ATC scopes).

2. Runways – In order to effectively address existing problems with capacity and efficiency, the FAA’s NextGen must include plans for runway construction as well as plans to maximize efficiency of the existing ground infrastructure. The taskforce should explore:

· Which airports would benefit from additional runway construction.

· The best configuration for the additional runways and taxiways.

· Procedural, technological and other changes that could maximize efficiency and capacity of existing and planned runway infrastructure.

3. Workforce – The current and future aviation system depends as much on the human factors as the technological ones. Throughout the aviation industry, employers are finding it difficult to attract and retain qualified employees, from pilots and flight attendants to air traffic controllers and engineers. The taskforce should explore ways to:

· Attract qualified employees to the aviation professions.

· Retain experienced employees.

· Provide career development opportunities for the existing workforce.

· Meaningfully utilize the expertise within the workforce in research and development projects and beyond.

· Build trust between management and labor.

· Build and maintain a safety culture.

· Ensure that new technologies and procedures are developed with attention paid to human factors implications. New technology must support the work of aviation safety professionals.

4. Training – Because NextGen promises to bring significant changes both to the cockpit and to the control room, training must be an integral part of any NextGen Plan. The Taskforce must address:

· How to develop comprehensive NextGen training for both controllers and pilots (i.e. training on new procedures, equipment/displays, roles for controllers and pilots, separation standards, and blunder training).

· How to coordinate training between controllers and pilots so that each group has confidence in the others training and abilities.

· How to compensate for the current training burden on the air traffic control system due to the high percentage of new hires in the workforce and the need to train them to full certification.

· Training logistics (i.e. how to ensure uninterrupted service during training process)

5. Collaboration, Accountability and Oversight– The FAA is only now beginning to embark on a path of collaboration. This taskforce is a first step toward including industry, user and workforce stakeholders in the process of developing and implementing changes to the aviation system. This taskforce should develop:

· A program for continuing this collaboration, particularly with regard to the development and implementation of the FAA’s NextGen projects, which would benefit significantly from the expertise of both workforce and industry liaisons.

· A system of oversight and accountability to ensure that the FAA follows the guidelines set by this taskforce and other stakeholder groups as appropriate (i.e. RTCA NextGen Taskforce report).

Those who have written already have outlined many of the key issues within the aviation industry itself. I would add to the list a series of questions about the relationship of the aviation sector to other transportation and non-transportation issues and remind those setting national policy that aviation should not be dealt with in isolation. For example, sound aviation policy must be closely related to how the nation thinks about high speed rail: the surest way to add capacity to airports is by removing short-haul flights from over-crowded airspace and substituting rail service for all trips under, say, 500 miles. Other nations have understood this trade-off (see Frankfurt airport and rail), but the siloed-funding of American transportation, and the powerful interest groups that have arrayed around those funding streams, makes such a conversation difficult if not impossible. Other trade-offs need consideration: airports in the US are often profoundly constrained because land use decisions in the adjoinning communities are made without regard to aviation needs of the future -- adding a runway is always difficult, but verges on the impossible when nearby homes and neighborhoods are affected. How can we integrate land use thinking into aviation planning the way we have (just) begun to discuss doing in surface transportation? Other examples abound, but the larger point is that we need a policy approach that is broad as well as deep, engaging more than the obvious interest groups in the debate.

Secretary LaHood’s federal advisory committee is a solid first step toward outlining a vision, while helping restore and, in some cases, repair the U.S. aviation industry. As the committee builds its agenda, I recommend five critical issues must be addressed:

1. Implement a national aviation plan. The development of a national aviation plan is critical if we are to promote commerce, better move people and goods, and facilitate response on a national basis to natural and manmade disasters. Enacting an overall plan is, in fact, the foundation upon which all other improvements should be based.

2. Increase emphasis on safety. The public expects and deserves the safest possible experience when traveling by air. More than just additional guidelines, the committee needs to explore augmenting enhanced regulatory solutions with available and affordable technical solutions, such as expanding the FAA’s runway status lights program.

3. Focus on congestion relief. When airports are congested, nobody wins. Implementation of NextGen and more realistic scheduling are oft-discussed – and important – steps in the right direction. But, let’s also keep in mind the larger consumer experience. Let’s move toward landside and airside design of airports that reduce congestion and frustration at all points along the way for travelers.

4. Address critical environmental issues. Good environmental stewardship can’t be a long-term goal for airports; Sustainability, or at least steps toward sustainability, is expected by today’s citizenry. As airports grow and evolve, the greening of facilities and airside procedures must play a role.

5. Move toward market pricing. It’s time to recognize our nation’s airports are in a battle for economic survival. Let’s let airports set their pricing structure based on market conditions. Such a free market approach could reduce the reliance on federal funds and help strengthen the financial position of airports, large and small.

The federal advisory committee is the perfect conduit for establishing the forward momentum that’s critical for meeting the challenges and opportunities in front of us as an industry.

Secretary LaHood and the Journal are essentially asking the same question--what are the five most important issues that should be on the Advisory Group's agenda--a fair enough and straightforward request. In framing the issues, however, great care should be taken to frame them with certain protocols in mind. First, the issues should be expressed in such a manner that they are clear and explicit and not so general as to be unmanageable. Second, action items should have near term milestones so that progress can be measured during this Administration's term of office. Third, every effort should be made to construct issues in a way that seek to unite not divide the aviation community. I am thinking here, for example, of general and commercial aviation, management and labor, airlines and their passengers.

Although certainly not an exhaustive list, here are my thoughts for your readership to consider. They cover a range--Expedited Air traffic Control (ATC) modernization and associated ATC procedures; Federal financing of aviation, which is critical to the national transportation infrastructure and should include a robust General Fund contribution; Optimizing aviation safety gains; and Ensuring U.S. leadership on the international front. Also, I believe it is important to clarify that congressional enactment of the long delayed multi-year FAA reauthorization is the most appropriate vehicle to articulate national aviation policy and that the establishment of the Secretary's Advisory Group does not stand in the critical path of the reauthorization measure moving forward expeditiously in 2010.

1. Expediting Air Traffic Control (ATC) Modernization and Associated ATC Procedures. We need a four to five year action plan that can be implemented expeditiously and that plan should be focused on a manageable number of achievable actions. FAA's RTCA Task Force 5 performed a genuine service in that it emphasized what needs to be done in the near term. Enplanements and operations are down sharply, so there truly is a silver lining afforded by the economic recession--an opportunity to move forward smartly during this lull in operations. This opportunity should not be squandered. When the economic engine again begins firing on all cylinders, USDOT and FAA will not be in a position to take corrective action to avoid gridlock and intolerable congestion--except by taking draconian actions. The action plan should be targeted to operational benefits for general and commercial aviation and use meaningful metrics. As part of this effort, FAA should take a look at the ATO's organizational structure and reporting lines to judge how best to fix accountability for implementing the action plan. The ATO does an excellent job of running the ATC system 24/7/365, but does that come at the expense of an actionable vision and plan for the next five years?


2. Financing Aviation. Implement a financing system that recognizes the legitimacy of a continuing and robust General Fund contribution, which will translate to 25-35% of FAA's budget--more on the order of 30-35% for the immediate future. In addition to the importance of this to job maintenance and job creation, it will go a long way toward recognizing aviation as an integral part of the nation's transportation infrastructure. And, in the case of NextGen, an appropriate and equitable toolbox of financial incentives should be considered to incentivize avionics equipage. The infrastructure for a modernized ATC system will not work safely and efficiently without new on-board avionics and ground infrastructure.
   
   From the standpoint of financing policy, decision-makers need to keep in mind the very substantial General Fund contributions currently being made to high speed rail, Amtrak, highways, bridges and mass transit. Aviation should not be left out in the cold. Efforts to shift aviation infrastructure costs to a user fee system or through burdensome additional taxes and fees should be abandoned as dilatory, divisive, and unnecessary.


3. International Strategy. Given the success of the Open Skies initiative, the Advisory Group could make a lasting contribution by establishing the key going forward aviation agenda items on the international front and articulate the elements of a strategy for achieving that agenda. Climate Change, GHG emissions, NextGen and SESAR harmonization, equipage requirements and various certification issues are among the targets of opportunity that come immediately to the forefront.


4. Aviation Safety Building Blocks. Secretary LaHood's Advisory Group should also have a focus on aviation safety and seek to build on what by almost any measure is a remarkable safety record. Not only is "safety" always characterized as DOT's number #1 priority, it also is an area where a failure to continuously improve can have tragic consequences. Aviation safety may not show up on everyone's "top 5 issues" list, but that is because there seem to be so many other deep-seated and obvious problems. That is not the test though in the safety area. Proactiveness is key and extraordinary aviation safety gains have been made because proactiveness was the compass. This is one of the messages of former Ambassador Ed Stimpson's Blue Ribbon Panel Report on Aviation Safety to then Secretary Mary Peters. I was saddened to learn of Ed's passing last week; his contributions to aviation safety are an important part of his legacy.


5. Moving Forward on FAA Reauthorization. A multi-year reauthorization of FAA and aviation programs will serve both a substantive and symbolic purpose. Due ostensibly to the press of higher legislative and Administration priorities, it is likely that still another short term extension of existing law will be necessary (it may be extension number 11, but I have lost count). Reauthorization is the appropriate vehicle for articulating national aviation policy. The House passed its version months ago, but the Senate bill has yet to make it to the Senate floor. A great deal of work went into both bills. Hopefully, the Senate and House will be in a position to move forward to Conference and reconciliation of the two measures early in 2010. I believe it would be helpful to clarify that the establishment of the Advisory Committee is not intended as a signal to defer expeditious movement of the reauthorization measures.

National Journal Blog: What should be the top five items on the agenda of the new federal advisory committee on the aviation industry?

The formation of a federal advisory committee is a timely initiative that has the potential to provide a much-needed forum to address important issues affecting the commercial aviation industry. It’s especially important at a time when the industry is feeling the effects of the economic downturn and reporting huge losses.

AIA representatives attending the Transportation Department forum were encouraged to hear both Secretary LaHood and Administrator Babbitt assure the audience that this federal panel would be different than others before it. This suggests that not only will the panel’s recommendations be acted upon but that, more importantly, the panel’s year-long deliberations will also not hinder or delay efforts such as NextGen acceleration and FAA reauthorization that will help the aviation industry recover.

The overarching issue that the panel needs to address is “The Future Impact of Government Legislation, Regulation, Policy, Taxes and Fees on the Health and Growth of the U.S. Civil Aviation Industry.” This encompasses a broad number of focus areas and should include, but not be limited to:

• Domestic and international environmental laws and regulations;
• FAA funding;
• Acceleration of NextGen;
• Competitiveness of the U.S. civil aviation industry in the global market place.

The panel provides an excellent opportunity to pull together a cross-section of the industry that have a stake in the issues affecting its future. This includes stakeholders from manufacturing companies; passenger and cargo mainline and regional airlines; labor unions; general and business aviation representatives; airports; passenger advocates and financial analysts.

Commercial aviation helps drive $1.1 trillion in U.S. economic activity and more than 10 million U.S. jobs. Taking steps to restore this sector’s health, which has lost nearly $60 billion since 2001, will be a boon not only to aviation, but to our entire economy.

What should Secretary LaHood’s new aviation advisory committee focus on? Let me suggest five guiding principles.

First, do no harm. By that I mean don’t undercut or hobble the democratization of air travel ushered in by the Airline Deregulation Act of 1978. Even though adjusting to real competition has been difficult for most legacy carriers (and some new entrants), some airline business models are succeeding, even in today’s recession. Passengers overwhelmingly prefer low fares to greater amenities, and we should respect their judgment.

Second, implement further reforms of the air traffic control system, as recommended by both the Baliles and Mineta Commissions. Implementing the much-needed NextGen paradigm shift will remain high-risk, if the Air Traffic Organization remains embedded in a traditional federal bureaucracy subject to continual micromanagement and unable to tap the capital markets for large-scale investments. The Nav Canada example of user-board governance and a bondable user-charge funding system is the best model for what the ATO should become.

Third, strengthen FAA safety regulation, in two ways. Get serious about applying a single safety standard to all scheduled air service. And put FAA safety regulation at arm’s length from the provision of ATC services, by separating the ATO from the FAA. The latter is critically important to ensure public confidence in the major changes (e.g., automation, reduced separation standards) inherent in implementing NextGen.

Fourth, get serious about “over-scheduling” at major congested airports, by implementing runway congestion pricing at such airports. Yes, NextGen and more concrete have roles to play, but ultimately when peak-period demand still far exceeds capacity, that limited capacity must be allocated somehow. The fairest way to do that is via market pricing.

Fifth, let’s implement truly open skies, by dropping the anachronistic protectionism that still treats airlines as different from other competitive industries. In other words, remove the restrictions on foreign ownership, so as to permit the emergence of truly global carriers with access to global capital markets. And yes, that will ultimately mean removing restrictions on cabotage.

1. Review the last 2 Commission reports (i.e. the Baliles report and the Mineta report) to see what recommendations may be useful. A lot of smart people participated in both those efforts and we need not re-tread the same ground.

2. Review the efforts and organization of the ATO to determine if it has worked as intended. Are there ways the FAA leadership and the ATO could be more effective in delivering NEXGEN benefits?

3. How will the FAA assure technical expertise on its advisory committees in light of the Administration concerns on participation of lobbyists? Are there ways to secure the views and participation of experts from all parts of the industry?

4. Assess the status of aeronautical/air traffic R&D. The FAA’s R&D budget is minimal; much of the aviation research previously done by NASA has been discontinued. How should important R&D be funded? Who should do it?

5. Much of the past year has been spent discussing FAA funding mechanisms and all that the various mechanisms entail. Two truths have emerged: the FAA needs an assured funding stream to implement and execute capacity solutions; Trust Fund revenues are intended to fund capacity improvements for the traveling public. The FAA administrator should have the strongest voice in determining the value of capacity improvements. Is the aviation community prepared to allow the FAA to do this? The Commission should consider how to reinforce and reinvigorate the top management of the FAA (who are confirmed by the Senate and therefore accountable) to make the decisions about resources and projects that will deliver the system improvements that are so desperately needed. Otherwise the current quagmire of competing voices, differing agendas and interest group pressure will continue to the detriment of solid gains in the aviation arena.

I firmly believe that the Federal Advisory Committee announced by DOT Secretary LaHood can make a difference if they have a clear mission and broad aviation representation.

Why am I so confident? Because I served as Executive Director on the Commission to Ensure a Strong Competitive Airline Industry (National Airline) Commission in 1993. While most of our recommendations were not implemented, they were certainly forward looking – including our emphasis on modernization of the air traffic control system.

In order to chart a successful future way forward for the aviation industry, I believe the following five issues must be addressed:

• The critical need for investment in airport infrastructure and air traffic modernization;
• The development of a sustainable funding system for aviation, given the fact that receipts for the Airport & Airways Trust Fund continue to decline and the ever increasing airline fees do not contribute to the Trust Fund;
• Consumer issues including ensuring airline competition, the continuation of small community air service and more disclosure of consumer information to passengers before they purchase their tickets;
• The full range of aviation environmental issues including climate change, noise, water quality and biofuels; and;
• Ensuring international competitiveness through additional open skies agreements, as well as a level playing field for U.S. manufacturers of aircraft and systems.

Greg Principato, President
Airports Council International-North America

There are no easy answers. Much of the industry carries a “legacy” designator and that indicates that there is a lot of history and definition inherent in the structures of those companies. As we have seen in other industries, overcoming that heritage can be a mighty task. And it is made more complex by the fact that US carriers, for a considerable time, were global leaders. Like nations, it’s hard to move down in the pecking order. But there are some steps that might move the US industry in a more positive direction.

Remember that you are a service industry. I frequently have more positive encounters with supermarket cashiers than with airline staff. All to often the “we are delighted to have you on board today” announcement is the sum total of goodwill that will be dispensed. I realize that the knocks taken by staff have put many of them out of sorts, but they lose track of the fact that the individual passenger is not to blame for that situation and should not be held accountable. A quick read through many online flight reviews reveals a stunning number of references to staff attitude.

There is more to the problem than ATC. If by some miracle the next-gen systems were available tomorrow, there would still be only two runways at LaGuardia and the runways in San Francisco would still be only 750 feet apart. I recently did an assessment of the 5-6pm departures at Atlanta and found that the number of operations was a bit below the optimal capacity in good weather. Add a storm or fog, however, and you have an unsustainable operational schedule at an airport that has actually added runway capacity. So where does that leave Newark?

Hello Labor? Hello Management? Much of the time it is virtually impossible to believe that these two groups actually are involved in the same enterprise. There are continuous actions by both that seem primarily intended to exacerbate the wounds rather than heal them. There are bound to be points of friction due to the different perspectives and responsibilities of each party but even at Ryanair, pilots are not trashing their own company in order to dig at management. Eastern showed decades ago that intractability can, indeed, bring the company down. And then?

“The industry” is not synonymous with its parts. In the US we continue to assume that aviation is really a certain set of brand names and to allow one of those names to fail is equivalent to total industry decline. Pan Am, certainly one of the first global brands, disappeared and, strangely, people still got to London. Eastern’s demise did not result in Miami becoming a backwater. The elaborate “safety net” of bankruptcy protections has generally served to only extend the lives of companies that eventually prove to be unsustainable. However, in the meantime, as is regularly pointed out by international competitors, the regulations allow the weakest links to establish pricing baselines that have far fewer or much-reduced cost components. Getting to Phoenix does not inherently require a 50 year-old airline.

Forget national, think global. Some have described the airlines as the original world-wide web and long before we spoke of a global village, the world’s airlines were connecting it. Yet despite this incredible reach, US airlines especially, remain very domestic companies that simply go a lot of places. The ownership regulations were fine decades ago but they serve no real purpose in the present environment. I take that back--they offer a way for incumbent carriers to file seemingly endless lawsuits concerning the ownership of Virgin America. And this is beneficial just how? While this narrow view of the world is not exclusive to the US, we continue to fear foreign involvement far more than most. Even the Japanese are seemingly more open to foreign involvement—which points out that the US does not object to being the owner, just the ownee.

For reasons that are unclear, airlines occupy a unique sliver of the national and corporate psyche. Banks, energy companies, automakers and other high-profile corporate names merge or disappear on a regular basis and the nation goes on about its business, but the possible disappearance of American Airlines or United hints at national Armageddon. As we are seeing in the battle for Japan Air Lines, investors are willing to supply billions in support of US carriers that are themselves in poor financial shape in order to get JAL into their alliance!!! As long as that kind of reality disconnect exists, no commission will be able to “fix” things.

The first question the LaHood Advisory Committee should consider is why the United States has no national air transportation policy (Let’s call it a NATP to save space and time). Given the performance of the U. S. airline industry, and the country’s obvious need to reduce its use of fossil fuels, it is hard to understand the absence of long term planning. Unfortunately, as former U. S. DOJ antitrust official Joel Kline observed in his recent and excellent book “Politics Lost”, we seem to be living in a period when “the very notion of planning, especially planning for the common good, seems vaguely socialist”.

In the 31 years that have elapsed since the U.S.airline industry was deregulated, the industry has lurched from crisis to crisis, and its performance has declined by virtually every measure. Year after year the industry’s financial situation grows more desperate, it provides fewer good jobs, its employee relations worsen, its customer service deteriorates and its international competitiveness declines.

Unhappily, the U.S. has never bothered to put together what corporate America would call a mission statement or, in simple terms, a definition of the air transportation goals of public policy. Just what is it we want the airline industry to do?

Since 1978, we have behaved as if we want nothing other than the lowest possible fares, and if that is so, we might plausibly claim success. But is that really the case? Are we interested in having a financially sustainable air transportation system and in keeping small and mid-size communities connected to the rest of the country and the world? Do we want our airlines to provide well-paid jobs and a secure career path for the men and women who serve the public at airports, and fly and maintain the aircraft we travel on? Do we want U.S. carriers good enough to compete on the world stage? Do we want to minimize both fuel usage and carbon emissions?

If the answers to those questions are yes, then we need to develop public policy objectives and a framework for strategic analysis which is far different from the path we have followed since 1978, and which is free of ideological convictions about the virtues of unregulated competition and regulatory oversight.

If we can assume that the LaHood Committee does come up with an NATP whose objectives include saving money, conserving fuel, providing better service to travelers, offering good jobs and being more competitive on the world stage, the second question it should ask is “Why is the U. S. air traffic control system so antiquated and what can we do to fix the problem?”.

I doubt there is anyone with an in depth knowledge of aviation that does not believe our 20th century air traffic control system is broken and badly needs replacement. Our system contributes to congestion, costs too much, drives excess fuel use and unnecessary emissions and limits growth. It needs fixing, and because financing, development and implementation are heavily impacted by politics, it’s getting fixed far too slowly and inefficiently. Unfortunately, because the airlines and the general aviation community have been unable to agree on how the air traffic control system should be financed, because Congress has been unwilling to give up control of such minutia as where FAA facilities are located and because the union representing air traffic controllers would rather negotiate with Congress than with a professionally run business, the U. S. is virtually alone among advanced countries in not having created a fee financed, commercialized, professionally run air navigation service provider.

Given the many constituencies that would be impacted, fixing the problem won’t be easy. However, a long series of studies, commissions and task forces dating back to 1985 have all reached the conclusion that creating some form of a professionally managed, user governed, fee based organization is needed to assure the continued adequacy of our air traffic control infrastructure. So this task force should avoid the inevitable temptation to launch still more study of a problem that is already well understood. Instead, it should recommend that the administration embrace the concept, and bring to bear the political resources necessary to find a prompt solution.

The third problem on the Committee’s agenda should be the issue of over scheduling. In the intensely competitive airline industry, individual airlines cannot effectively limit the number of flights scheduled at congested airports. Consider the reality that in the absence of government imposed flight limitations, an airline that reduces the number of flights it offers at a congested airport is very likely to see anything it cancels replaced by additional flights offered by a competitor. Since planes leave an airport on a first come – first served basis, an airline which reduces the number of flights it offers will not reap the rewards of more on time departures, particularly if other airlines add more service at approximately the same times as the flights that were cancelled. However, because competing airlines will now offer travelers greater frequency, and thus a wider range of arrival and departure options, the cancelling airline is likely to lose both market share and revenue.

Over scheduling imposes unnecessary delays on travelers, drives excess fuel usage and unnecessary emissions and costs the airlines money. Thus, it is difficult to see why the FAA has resisted imposing mandatory schedule reductions at those airports where there are more flights than the physical facilities can readily accommodate.

The Committee should recommend that the FAA be directed to come up with a way to limit the number of flights at any given airport to the number that can be operated on time in normal weather conditions, thus improving on time performance, reducing delays for travelers and conserving both fuel and dollars.

The fourth serious problem to which the Committee should turn its attention is the airline industry’s deplorable labor relations. The industry operates under the provisions of the Railway Labor Act, which facilitates corporate wide organizing and which seeks to minimize the probability of transportation strikes by imposing various mediation and arbitration options on both labor and management. Moreover, because the industry operated as a regulated utility from 1938 to 1978, because it became widely organized in the years immediately after World War II, because it has always been the subject of pattern bargaining, and because airlines are uniquely unable to bear the impact of strikes, airline employees until very recent years enjoyed compensation well above that paid for similar skills in other industries.

All these conditions have created nearly constant stress between airline labor and airline managements. That stress, which has been heightened in recent years by the adverse impact of deregulation on the country’s legacy airlines and has been recently exacerbated by the impact of a severe recession, has clearly had an adverse impact on airline service levels and on airline financial performance. Something better is needed, and the Committee should examine every possible approach to improvement.

Finally, the Committee should examine the question of whether the goals of a NATP can be realized by an industry chronically unable to earn anything approaching satisfactory financial returns. The airline industry is extraordinarily capital intensive, and to assure both satisfactory performance and optimal safety, must consistently invest large sums in training its employees. An industry which does not attract long term investors, and whose securities are widely regarded only as trading vehicles, cannot offer the attractive careers sought by the high quality employees airlines need and want, contribute to mitigating the country’s excess use of energy, buy and operate the modern aircraft customers prefer, or finance the competitive international services required to be an effective global competitor. Thus, the Committee should address the question of why this important industry is unable to earn satisfactory financial returns, and propose alternatives to remedy the problem.

Finally, A Secretary’s Call To Act

With the Obama Administration in its first year, a long-term Federal Aviation Administration (FAA) authorization still held up in the Senate, and no industry consensus about how to fund future FAA obligations (including NextGen), now is the time for the aviation industry to sit down under the auspices of a Federal Advisory Committee and chart a collaborative path forward for aviation.

Credit goes to Transportation Secretary LaHood for calling together the recent aviation forum and announcing his intent to appoint a year-long Federal Advisory Committee. It was heartening to note that during the forum all segments of the industry (air carriers, labor, airports manufacturers, consumer groups, academics, and financial analysts) acknowledged that the industry has serious and fundamental problems. All said they saw the value in having the industry meet to review the aviation business model and government’s involvement with it.

A discerning listener also would have heard minimal differences between Republicans and Democrats, industry and labor, or airlines and airports. This reflects the realization that while there are real disagreements (e.g., how to fund airport capacity or the organizing requirements for unions), there is more that unites the industry than divides it. After all, failing airlines are bad for shareholders, labor, communities that own and operate airports, and manufacturers.

Participants also appeared unanimous in knocking down the straw man that government action is tantamount to taking the industry back to the pre-deregulation days of 30 years ago. In addition to operating air traffic control and funding aviation infrastructure, government regulates aviation issues as diverse as safety, ownership and control, airport rates and charges, reporting of delays, and price transparency. In addition, there are international rules and standards that govern international air services, aircraft emissions, airport ground handling, noise and others. The real question is what government should do, what if anything in that regulation should change, and how the nation should fund aviation infrastructure going forward.

The Secretary asked forum participants to submit the five issues they believe should be in the scope of the Committee’s review. To get the conversation started, here are mine:

1. NextGen (air traffic control modernization): we need a strategy to specify the capabilities; a road map for how capabilities will be deployed; a better process for FAA to manage the program; and a funding strategy to pay for what all of the industry asserts needs to be done.

2. Funding (the Airport and Airway Trust Fund and taxpayer contributions): the FAA has barely two weeks of reserve in the Trust Fund to pay for future obligations. This at a time when the sources of funding (i.e., the revenue generated from ticket taxes and other fees) are dropping with fares, traffic and departures and experts estimating that we need tens of billions of dollars in new money for NextGen.

3. The Airlines’ Economic Model: While cargo airlines such as UPS and passenger airlines such as Southwest are financially strong, the rest of the U.S. industry is in tough shape, highly leveraged and vulnerable to one of a series of shocks that have shaken the industry over the last decade (recession, acts of terrorism, SARS, fuel spikes, and the financial meltdown). This at a time when other airlines such as Singapore, Lufthansa, Air France/KLM and others have prospered. It is fair to say that the U.S. airline industry has lost its place as the preeminent worldwide leader. Why?

4. Air Service: Many of our nation’s small communities continue to lose air service entirely or see their departures drop by 30% or more compared to a decade ago. Among the culprits are high fuel prices and the elimination of many smaller turboprops and regional jets. While the vast majority of the aviation industry believes that we should retain competition and market pricing, what is our answer for these communities? Are there new models beyond the Essential Air Service and the small community program that could contribute to a revitalization of services? Are there new aircraft or business models that could contribute to improving service? Or do we just let current trends continue and have communities decoupled from the global network?

On the flip side of small communities are international services and the global nature of the industry. Are there practical ways to take advantage of international capital and the expansion of markets such as China, India and other developing nations that could help the U.S. industry?

5. The Climate: Despite great progress by the global aviation industry in designing more fuel-efficient (and less carbon emitting) aircraft, projected future growth in aviation together with aggressive goals to reduce greenhouse gas emissions make aviation’s future uncertain. While NextGen and a new generation of aircraft will certainly help, they will not be enough to counter the impact that growth will potentially have on the climate. How do we effectively coordinate commendable efforts by the military, manufacturers, airlines, and airports to reduce the carbon footprint of aviation? What are the most effective ways to turn research and development into innovations and incorporate these into the global industry?

The aviation industry needs to act now. If we do not, we run the real risks of further eroding our global position, ceding our leadership to other nations, and damaging a key component of our modern lives and economic activity. Let’s all support the work to come by Secretary LaHood, FAA Administrator Babbitt, and the future members of the Committee.

If Secretary LaHood’s Federal Advisory Committee is to be effective, here are five issues I believe must be considered:

1.) Aviation is a global industry. According to a June 2009 Oxford Economics report, a total of 2.5 billion passengers are flown worldwide annually; as of 2007 35% of the value of trade in manufactured goods was transported by air; and over 5.5 million workers are employed directly in the industry worldwide. Efforts to restrain globalization by limiting investment and putting bilateral agreements at risk represent backwards thinking. What we need is a forward-thinking, globally-oriented approach. We must come to terms with the fact that this is a global industry.

2.) The need to pass an FAA reauthorization that includes the right level of regulatory oversight. Since deregulation the aviation industry has become more and more regulated every year. Certainly the federal government has an absolute responsibility to oversee the safety of the industry. However, regulatory mandates and security directives must be carefully considered and the right balance must be found between safety oversight and costly and unnecessary government intervention.

3.) Competition is good for the consumer. While this is often stated, it is just as often undermined. Prior to deregulation, the federal government regulated all aspects of the airline industry, including the number of air carriers, routes flown, and airfares. Therefore, prices were high and very few people could afford to fly. Since deregulation, new carriers have entered the market, new routes and communities are being served, and ticket prices have decreased drastically. Unfortunately, there are a number of laws that prevent the market from working. Airlines in other parts of the world are able to make a profit, but in the United States investment and consolidation are severely limited. This is not a healthy situation.

4.) NextGen is not the sole answer to the aviation industry’s woes. The FAA is forecasting a 27% increase in domestic flights and a 70% growth in international operations by 2016. If air traffic grows as forecasted, delays in the U.S. will increase 62% between 2004 and 2014. Modernizing air traffic control will allow more airplanes in the sky, but if airport congestion is not addressed and alternate transportation systems developed we will achieve nothing. After years of work, we are no closer to understanding what “NextGen” will be able to achieve when completed. To address these issues, we need a national transportation strategy that looks at the transportation system as a whole. We also need someone in charge and with authority to meet specific milestones and make key NextGen decisions.

5.) Go back to the basics. Aviation is a service-based industry. Airlines need to be able to adapt to markets and profitable business models.