Air Traffic Operations:

The Federal Aviation Administration Needs to Address Major Air Traffic Operating Cost Control Changes

GAO-05-724: Published: Jun 23, 2005. Publicly Released: Jul 26, 2005.

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Dating back to 1997, numerous reports have highlighted the need for the Federal Aviation Administration (FAA) to better control the growth in its Air Traffic Services operating costs, which account for about $6.5 billion or over 80 percent of FAA's total annual operating costs. In February 2004, FAA established the Air Traffic Organization (ATO) to take over its entire Air Traffic operations and established cost control as a major focus. GAO was asked to determine: (1) What is ATO's financial outlook for its operations? (2) To what extent is ATO taking actions to control its operating costs? (3) What are some options ATO should consider in developing its cost control strategy?

Unless revenue projections improve significantly or ATO implements significant cost reduction and control measures, the projected financial outlook for its operations is bleak. Air Traffic Services operating expenses experienced real growth of $1.8 billion (43 percent) between fiscal years 1996 and 2004, and ATO expects its operating expenses to significantly outpace available funding through fiscal year 2010. As a result, it projects a cumulative operating budget deficit of nearly $4 billion. Further, the historical growth in operating expenses has contributed to an increasing reliance on the Airport and Airways Trust Fund to cover operating costs, and the Trust Fund's balance is expected to fall to $1.2 billion by the end of fiscal year 2006. FAA and ATO are currently implementing cost control and savings initiatives that address about 12 percent of ATO's projected 5-year, $4 billion operating budget shortfall. These initiatives range from instituting sound business practices, such as improved budgeting and cost management, to structural changes, such as contracting out operation of part of the air traffic control system. ATO has been working on a 5-year business outlook to identify alternatives for closing the funding shortfall, but the plan has been delayed and its issuance date is uncertain. In order to enhance its current cost control efforts, ATO will need to consider long-standing, cost-saving recommendations including consolidating facilities for greater efficiencies, replacing outdated costly equipment, and investing in new technology to enhance workforce productivity. However, implementing these options will be challenging because doing so will require that ATO produce a sound business case for its actions, backed by organizational and political support for actions needed to control costs. Furthermore, ATO needs to balance its financial objectives against another goal--implementing new automation concepts in air traffic control in order to keep up with substantial traffic growth over the next 20 years.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: FAA has taken several actions to close the current funding gap and reduce future costs consistent with ATO's strategic plan through 2010. FAA has reduced payroll costs through a reduction in trainee compensation, eliminated management layers, and reduced management positions. FAA has also taken other savings initiatives, including better management of contract and supplier costs and oversight of travel expenses. Further, FAA has identified areas for future cost control, including better management of direct costs, improved workforce productivity, and optimizing the NAS infrastructure.

    Recommendation: To ensure that it is providing air traffic control services in the most cost-effective manner while addressing looming financial shortfalls, the Secretary of Transportation should direct the Administrator, Federal Aviation Administration, to develop a comprehensive, strategic long-term cost control and savings strategy. In doing so, ATO should complete rigorous cost benefit analyses to determine the optimal structure for providing its services to different user groups while ensuring against demonstrable adverse impacts on aviation safety. Results of these analyses should be documented in a publicly available business plan that the ATO and its key stakeholders can use to build a sound business case for making the difficult but unavoidable structural changes needed to streamline its operations.

    Agency Affected: Department of Transportation


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