PART 1

EXECUTIVE SUMMARY

COMMISSION FINDINGS AND RECOMMENDATIONS ON FUNDING

The aviation system of the United States is at a critical crossroads. Aviation activity is growing, the technology of aviation is changing rapidly, and the business of aviation is becoming more complex.

Yet, a critical piece of aviation’s future is in doubt. The Federal Aviation Administration (FAA) currently lacks the organizational, management, and financial wherewithal to keep pace with the dynamic aviation community. Unless the FAA and various aviation stakeholders — the Congress, the Executive Branch, and the aviation community — change the status quo, internal and external to the FAA, our nation’s aviation system will succumb to gridlock. Delays will skyrocket while we reminisce about the "reliable" flight schedules of the past. This current course will impair our domestic economy, reduce our standing in the global marketplace, and result in a long term deterioration of aviation safety. In this regard, the Commission has made several critical findings.

Findings on Funding

• Gridlock is near and will be expensive. Traffic data and trends indicate that adding just a few minutes of delay to each airline flight in the United States will bring the aviation system to gridlock with dramatic negative impacts on the economy. The airline industry’s complicated schedules are based on precise and efficient air traffic control technology and management. Rapidly growing demand combined with a reduction in capacity, as the result of continued reliance on outdated equipment, will bring our nation’s aviation system to gridlock soon after the turn of the century. Gridlock could also have safety implications as pressures to meet flight schedules grow just at a time when capacity is increasingly being constrained.

• Federal budget rules are crippling. The present system of federal budget regulation is inappropriate for a system controlling commercial operations that needs to be driven by demand for services. Budget rules that govern the federal aviation system must be revised. The money problem that faces the FAA is an inability to access the revenues collected for its use.

• There are "too many cooks", making authority and accountability too diffused. Authority and accountability are too diffused to run a 24 hour-a-day, high technology, rapidly changing operating system for a major commercial industry. Everyone responsible for the current air traffic control (ATC) system — the FAA, the DOT, the aviation industry, the Administration, and the Congress — wants to make the system work. But there are too many people in charge. The problems are systemic and require basic changes in command and control.

• FAA is nearsighted. While the vast majority of individual FAA employees remain dedicated and professional, the FAA as an institution impedes needed modernization by not focusing enough on determining and meeting its external users’ needs for high quality and modern services at reasonable costs. Modern business tools, such as a cost accounting system, that tie specific costs to services, and measurement tools that assess how well services are provided are not yet available. Incentives are needed for the FAA’s culture to become more externally focused on users and services, more businesslike, and more responsive.

• Increasing operational costs overshadow capital investments. The funding system forces trade-offs, which substitute operational costs for capital investments. The system is in a downward spiral where increasing operation and maintenance costs, driven by outdated equipment, are "freezing out" new investments under current federal budget cap assumptions. Future system capacity will be reduced in real terms from today’s capacity.

• Airport needs are not being met. Airport-related congestion will increase in the future without a strong federal commitment of resources. Airport capital investments must go hand-in-hand with ATC investment to maintain system capacity.

• International competitive stature will be hurt. Historically, the U.S. has been the leader in air traffic management and technology. However, other countries are now or soon will be moving ahead of the United States in making improvements to their aviation infrastructure. Falling behind other countries in making critical capital investments will certainly affect the international competitive position of the U.S.

The National Civil Aviation Review Commission believes these problems can be rectified, but it will take dramatic changes in the way that the air traffic system and airport development are managed and financed. Institutional relations within the FAA and among the various stakeholders must be altered if we are to increase accountability at the agency, improve management performance, and ensure that resources are sufficient and used effectively.

These problems have been identified by previous Commissions and analyses. Among these are the National Commission for a Strong Competitive Airline Industry (1993), the Clinton Administration Air Traffic Control Corporation Study (1994), the White House Commission on Safety and Security (early 1997), and the Coopers & Lybrand FAA-Independent Financial Assessment (early 1997). While these problems are not new, there is now a realization and a consensus as to their seriousness and implications.

Recommendations on an Integrated and Comprehensive Funding Package

Meeting the demands of a growing, complex aviation system is no small task. In the funding report, the Commission recommends broad and sweeping changes in the ways the FAA is managed, sets its priorities, assesses and achieves performance outcomes, and is financed. As a package, these reforms put the FAA and aviation stakeholders in position to take advantage of industry growth and technological change.

The Commission has agreed on a set of five broad recommendations that stem from their findings. The recommendations are viewed as a comprehensive package and are strongly supported by all Commissioners. Any alternative to the Commission’s proposal must demonstrate similar consensus to be credible. It must be recognized that the strong agreement within the Commission for these recommendations exists because they are viewed as a comprehensive package. Moving forward on implementing some elements of the package without the others being addressed would result in a loss of unanimity. The importance of this consensus is demonstrated by the shortfall of previous efforts, which lacked full public and industry support to reform the FAA. The Commission’s recommendations are included, as appropriate, in the proposed legislation in Attachment 1, and are summarized below.

• FAA’s budget treatment must change. The Commission recommends that the FAA’s funding and financing system receive a federal budget treatment ensuring that revenues from aviation users and spending on aviation services are directly linked and shielded from discretionary budget caps. This will ensure that FAA expenditures will be driven by aviation demand.

• FAA’s management must become performance based. The Commission recommends that services related to the air traffic system be placed in a Performance Based Organization (PBO), which is managed by a Chief Operating Officer and overseen by a board of public interest directors. In addition, the FAA should institute a cost accounting system and be given authority to implement innovative programs involving leasing and borrowing authority. The Commission further recommends that the safety and security functions of the FAA, which are separate from the PBO, should also adopt a performance based management philosophy so that the quality of these programs can be improved.

• FAA’s revenue stream must become more cost based. The Commission recommends that the FAA adopt a cost-based revenue stream to support its air traffic system activities including capital investments. At the same time, funding for aviation security, safety, and government use of the air traffic system should be provided by the federal government’s general fund.

• FAA must control its operating costs and increase capital investments. The Commission has reviewed the FAA’s forecasted budget needs and assumes the agency’s budget projections to be reasonable in a status quo environment. However, the Commission recommends that FAA operating costs could be better managed and controlled and that investments in air traffic control modernization should be increased.

• Airport capital needs must be met. The federal requirements of airport capital development currently exceed the amount of revenue presently available to finance these requirements. The Airport Improvement Program (AIP) is the linchpin of airport financial planning and the Commission believes AIP should be funded at a minimum of $2 billion annually over the next five years.

These funding-related recommendations are strongly interconnected. Without budget treatment that links aviation revenues and spending together, key capital investments will not be made despite industry’s willingness to pay. Without movement to a cost-based system, FAA’s improved performance will be limited because the agency will lack critical data to judge performance and appropriate market signals to make sound investment decisions. Without management and organizational changes, there will be no guarantee that any dollar that goes into the FAA is used wisely and efficiently.

These connections are the basis for why the Commission’s recommendations are comprehensive and sweeping. It is the belief of the Commission that without these changes, the aviation system infrastructure of this country will become an impediment to economic growth. Critics of these proposals, or defenders of the status quo, must provide a compelling alternative, because the current system is headed down a path toward economic disaster and reduced safety. Since this is unacceptable, the Commission offers its funding report as a clarion call to action and innovation.

COMMISSION FINDINGS AND RECOMMENDATIONS ON AVIATION SAFETY

The Commission was charged to look at the ability of the Federal Aviation Administration (FAA) to anticipate changes in the aviation industry and develop policies and actions to ensure the highest level of aviation safety in the 21st century. The Commission was also directed to examine some specific safety issues.

Commercial aviation is an extraordinarily safe human endeavor. The risk of perishing in a commercial aircraft accident is about one in every two million flights. This safety record is due to the high standards that exist in the building and operation of commercial aircraft. These high standards are the result of decades of strong interaction between government regulators and safety professionals within the aviation industry.

Even with this excellent safety record, there is a growing sense that the high level of public confidence in the safety of the aviation system will slowly erode over the next 10-15 years if significant steps are not taken to further improve aviation safety.

Findings on Aviation Safety

• The commercial aviation accident rate is extraordinarily low, but it has shown virtually no improvement over the past 30 years. By the end of the 1960s, the large-transport aircraft fleet had become mostly jet powered. The introduction of highly reliable jets into commercial aviation resulted in a dramatic, multifold reduction in the accident rate, but since that time the accident rate has remained virtually unchanged.

• A flat accident rate coupled with the anticipated healthy growth in aviation will lead to a significant increase in the absolute number of accidents If there is no change in the accident rate, and the anticipated growth occurs, there will be a large airliner accident somewhere in the world every 7-10 days by the year 2010.

• The public, their government representatives, and the aviation industry will find an increasing number of accidents wholly unacceptable. Public interest in aviation safety runs very high, with demands for improvements ever present. If the public perceives that air transportation safety is deteriorating, the demands for improvement will become increasingly strong.

• The accident rate must be reduced significantly. Safety professionals in industry and government believe that the current rate should and can realistically be reduced by 80%.

Recommendations on Aviation Safety

The Commission believes that the accident rate can be reduced, but this will take a comprehensive and concerted program by government and industry that will require new ways of doing business with each other and a greater emphasis on cooperation and collaboration.

• FAA and the aviation industry must develop a strategic plan to improve safety, with specific priorities based on objective, quantitative analysis of safety information and data. Presently, there is no agreed upon safety improvement strategy; rather there are many tactical efforts at work. Without a comprehensive strategy, priorities are allowed to fluctuate and progress toward safety improvement is slowed.

• Aviation safety programs in industry and government need to be improved by establishing more effective safety risk management programs. This should include self-audit and self-disclosure programs within aviation companies, protecting and sharing safety information in non-punitive ways, and encouraging research to support these activities. Where possible, these programs should include the analysis of real flight and operational data. The aviation community must look deeper than accidents and incidents to identify latent and emerging problems and fix them before a mishap occurs. There needs to be a willingness in government and industry to invest in new ways of doing business. This will require changes in the traditional regulatory relationship so that tools beyond the simple enforcement of rules are available to improve safety.

• FAA safety programs need to become performance-oriented. The FAA must establish performance measures to focus resources and hold the agency’s safety management accountable to make improvements.

• Government and industry should expand on their programs to improve aviation safety in other parts of the world. There are areas of the world where the accident rate is significantly higher than it is in the U.S. It is in the U.S. traveling public’s interest, as well U.S. commercial and trade interests, to see that safety is improved everywhere, not just in the U.S.

The safety report also provides analysis and recommendations on a number of specific issues: the use of suspected unapproved aircraft parts, electronic maintenance record keeping, staffing and training of FAA safety personnel, runway incursions, flight data recorders, and FAA oversight in the future.