Proper Air Control Privatization
by Robert Poole
Issue 221– February 13, 2013
Two recent articles have suggested that a way to resolve many of the problems besetting the U.S. ATC system is to “privatize” it. One was a Bloomberg article by reporter Alan Levin and the other was a piece by former FAA Executive Director for Engineering & Development Joe Del Balzo (on www.jdasolutions.aero) headlined “Privatization of the ATC System Is a Timely Issue.” I bristle when I see this term applied to the kind of ATC reform I support, so let me take this opportunity to explain why.
As used in everyday parlance, privatization has two principal meanings. One version is when a government agency goes into the marketplace to purchase a service that it formerly produced in-house. (Full disclosure: More than 30 years ago I wrote the first book on this form of privatization,Cutting Back City Hall.) In this setting, government generally seeks the lowest-cost bidder that can meet its specifications.
The other version is when a government sells off a state-owned enterprise, as Margaret Thatcher did with British Airways, Jaguar, British Steel, British Telecom, etc. In those circumstances, the decision is that the entity is not inherently governmental, so the government should divest it. In those cases, government generally seeks the highest bidder.
So when most people hear someone calling for “privatization” of air traffic control, they think this means either (1) outsourcing it to the lowest bidder or (2) selling it to the highest bidder. But when it comes to the ATC system, I don’t favor either of those courses of action. I reached this conclusion for three reasons.
First, with current technology at least, ATC appears to be a natural monopoly (apart from the admittedly contestable business of individual airport control towers). That means selling it as a for-profit business would be unwise—or at the very least, would call for stringent price regulation. Second, even if I favored this approach in theory, I understand that it would be politically impossible in the world we actually live in, so I would not waste time advocating it.
Third, I don’t favor outsourcing the whole business to the lowest bidder, because the only credible providers would be big aerospace/avionics companies. But because ATC is such a capital-intensive business, such an outsourcing contract would have to be pretty long-term (at least 20 years or more). It would make no sense to give one such company a 20 or 30-year lock on the ATC system, when there is all kinds of talent and experience out there for an ANSP to take advantage of for specific capabilities.
Yet when most people hear the words “privatize the ATC system,” those are the untenable alternatives they think are being proposed.
What I have long argued for, instead, is reform of the governance and funding of existing air navigation service providers—i.e., reform in place. This does not mean somehow letting the private sector take over, displacing current managers and staff. Rather, it means government deciding that to shield the ANSP from government budget pressures and from—let’s be honest—politicization of what should be business decisions, the ANSP should be made into a separate, self-supporting entity, operated on commercial principles. Its funding should come directly from its aviation customers, rather than being appropriated by legislators. Its governance, as a business, should be by a management team reporting to a real board of directors. And the best sort of board is one that represents all the key stakeholders—airlines, business and general aviation, airports, and employees. That is the governance structure of Nav Canada, and it has worked very well for the past 16 years. The other aspect of governance should be arm’s-length safety regulation by the government’s aviation safety body—in this case, it would be the FAA minus the Air Traffic Organization.
Most commercialized ANSPs follow most of this model, and most of them are government corporations. Nav Canada is a not-for-profit corporation with a unique stakeholder board, and NATS in the U.K. is a kind of hybrid, with ownership shared among U.K. airlines, the government, and the employees. Some refer to Nav Canada and NATS as “privatized,” but neither falls into the two categories I outlined above.
So I’d really like to see the “P” word banished from the debate over ATC reform. We should neither outsource the ATO to the lowest bidder nor sell it to the highest bidder. Instead, we should follow global best practice and reform its funding and governance.
Robert Poole edits the Reason Foundation’s ATC Reform News, where this first appeared.