In May 2005, the Government Accountability Office
(GAO) released classified and unclassified versions of
an assessment of the performance of airport passenger
screeners. Although no numbers were included in the
unclassified version, the overall conclusion was that
screening performance today, after several years of
operation by federal Transportation Security
Administration screeners, was little or no better than
the performance of minimum-wage private-contract
screeners in place at the time of the 9/11 attacks.
Moreover, the performance of the new private

These results raised concerns in Congress and the news media over the value gained by tripling the cost of
airport screening by \u201cfederalizing\u201d it. And they also suggested that, to the extent that the new federal
mandates remain in place, it might be more cost-effective to phase out TSA as the operator of screening in
favor of a performance-contracting approach. Just such a change has been advocated by Rep. John Mica (R,
FL), chairman of the House Aviation Subcommittee.

Under current law, all airports have been permitted, since November 2004, to opt out of TSA-provided
screening, making use of a TSA-certified contractor instead. As of May 2005, however, only two small
airports had applied to do so. This is in part because of continued airport concerns over liability if TSA is
not the provider. But it also reflects on the centralized nature of the TSA\u2019s opt-out program. If an airport
decides to opt out, it is not allowed to seek bids from a set of TSA-certified contractors, hire the most
responsive one, and then integrate its operations into the overall airport security program. Instead, it must
apply to TSA, and TSA assigns it a contractor, hired by and supervised by TSA. Thus, most airport directors
see little value in such a minor change.

During 2004, the TSA began a five-airport pilot test of a Registered Traveler program, under which
frequent flyers can volunteer to become pre-cleared and receive a biometrically encoded ID card. When they
arrive at the passenger checkpoint, the idea is that they will proceed through a special lane, for expedited
processing, after verifying their identity by showing that their physical feature (fingerprint, iris scan)
matches that encoded on the card. By year-end, about 10,000 people were taking part in the program at the
five airports. And it appears that instead of expanding the program itself, TSA is willing to accept proposals
from private firms, working with airports and airlines, to offer such programs as a feature for frequent
flyers. A New York-based company, Verified Identity Pass, Inc., is developing such a service, to be launched
at Orlando International Airport in the first half of 2005.

In early 2005 the Federal Aviation Administration announced the winner
in the largest non-military outsourcing competition to date. It involves 58
Automated Flight Service Stations (AFSS) around the country, which
provide flight-plan and weather-briefing services to private pilots. This
technology used at these facilities is obsolete, they are very labor-intensive
(most such services can easily be provided on-line, rather than by voice
over the phone), and there is no particular reason why there are 58 such
stations scattered about the country. Moreover, the cost of the program
was in excess of $500 million per year. And since the fuel tax revenue

There was a lively competition for the contract to take over, modernize, and operate the AFSS program,
held under the standard federal A-76 outsourcing rules. One team consisted of the current employees and
Harris Corporation\u2014the so-called \u201cMost Efficient Organization\u201d approach (internal restructuring in the
face of real competition). The others were all aerospace contractors. The winning bid, announced by the
FAA in January 2005, came from Lockheed Martin. By consolidating the program into 20 facilities instead
of 58 and equipping them with state-of-the-art equipment to maximize on-line services, Lockheed Martin
was able to bid $1.9 billion over 10 years (an average of $190 million per year, versus more than $500
million today). There will be no more \u201cwalk-in\u201d briefings for pilots, but only 2 percent of pilots got their
briefings that way in any case. The principal private pilot group, Aircraft Owners & Pilots Association,
supported the competition from day one, and cheered the results in its publications and on its Web site.

As for the 2,500 existing staff, Lockheed Martin expects to downsize with minimal layoffs. First, it will
offer all the positions in the consolidated facilities to current employees. Second, it will take advantage of
the fact that about half the staff will become eligible to retire over the next several years, as the
consolidation takes place (by March 2007). Third, the FAA is encouraging those who are qualified to apply
to become air traffic controllers (where thousands need to be hired over the next decade to replace
upcoming retirees). And the FAA is also encouraging transfers to other vacancies within its Air Traffic
Organization.

Early in 2005, FAA leaders began giving briefings on the emerging funding crisis facing the agency, two- thirds of whose budget and staff is devoted to operating the nation\u2019s air traffic control (ATC) system. The largest FAA funding source is the 7.5 percent tax on the value of airline tickets. Over the past five years, increased competition from low-cost carriers (LCCs) has pushed air fares downwards, such that the ticket

tax is producing far less revenue than had been projected by the FAA in each of the previous five years. But at the same time, the agency\u2019s budget has increased from $9.8 billion in FY1999 to $13.9 billion in FY2004. Both Transportation Secretary Norm Mineta and FAA Administrator Marion Blakey have begun calling for a new FAA funding system, one more directly related to the cost of providing ATC services.

Reason Foundation released a report in May 2005 calling for a replacement of the current user-tax regime
with a system of direct payments by ATC customers to the ATC provider, \u201cResolving the Crisis in Air
Traffic Control Funding.\u201d It pointed out that the United States is the last developed country in the world
that funds ATC via taxes rather than direct user fees. And it summarized a whole set of advantages of
creating a customer-provider relationship between the Air Traffic Organization and its aviation customers\u2014
in contrast to the status quo, in which the ATO must satisfy Congress, from which its money comes. Part of
the proposal is a new governance mechanism, consisting of a board of directors with the power to hire and
fire ATO management, set the operating budget, and determine the capital budget. This board would
directly represent key aviation groups.

Many of the concerns about the ATC budgetary problems were echoed a week later in a report from the
FAA\u2019s Management Advisory Council. It decried the recent cutbacks in capital investment (modernization),
just when flight activity is reaching new highs that suggest a return to serious congestion and delays. It
called for serious consolidation of ATC facilities, taking advantage of modern telecommunications
technology to provide the same service at less cost. It called for outsourcing the remaining 71 non-radar
towers, based on the track record of 226 that are operated by contractors at less than half the cost of
equivalent FAA-run towers. And it called for the FAA to regain control of its workforce, via negotiating a
much more productivity-oriented contract with the controllers union in 2005.

Since the wave of reform began in 1987 with the corporatization of
Airways New Zealand, a total of 40 air traffic control systems have been
converted from a department of government to a commercial entity. The
key features are (1) having a corporate form of organization (with a
CEO and a real board of directors), (2) being self-supporting from fees
paid by users for its services (and hence outside the government budget
process), and (3) being regulated for safety, at arms length, by the
government. Most of these air navigation service providers (ANSPs) are
government corporations. The two notable exceptions are NATS in the
United Kingdom (which is owned 49 percent by the government, 46
percent by airlines and airports, and 5 percent by its employees) and

Nav Canada, which is a non-profit corporation with a largely stakeholder board of directors. Countries
with ATC provided in this way include Australia and New Zealand, Thailand, India, South Africa, Turkey,
and in Europe: Austria, Belgium, Czech Republic, Denmark, Germany, Hungary, Ireland, Italy,
Netherlands, Norway, Portugal, Slovakia, Spain, Sweden, and Switzerland. These ANSPs all belong to an
organization called the Commercial Air Navigation Services Organization.