PART 1

EXECUTIVE SUMMARY

COMMISSION FINDINGS AND RECOMMENDATIONSON FUNDING

The aviation system of the United States is ata critical crossroads. Aviation activity is growing, the technology ofaviation is changing rapidly, and the business of aviation is becomingmore complex.

Yet, a critical piece of aviation’s future isin doubt. The Federal Aviation Administration (FAA) currently lacks theorganizational, management, and financial wherewithal to keep pace withthe dynamic aviation community. Unless the FAA and various aviation stakeholders— the Congress, the Executive Branch, and the aviation community — changethe status quo, internal and external to the FAA, our nation’s aviationsystem will succumb to gridlock. Delays will skyrocket while we reminisceabout the "reliable" flight schedules of the past. This currentcourse will impair our domestic economy, reduce our standing in the globalmarketplace, 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. Trafficdata and trends indicate that adding just a few minutes of delay to eachairline flight in the United States will bring the aviation system to gridlockwith dramatic negative impacts on the economy. The airline industry’s complicatedschedules are based on precise and efficient air traffic control technologyand management. Rapidly growing demand combined with a reduction in capacity,as the result of continued reliance on outdated equipment, will bring ournation’s aviation system to gridlock soon after the turn of the century.Gridlock could also have safety implications as pressures to meet flightschedules grow just at a time when capacity is increasingly being constrained.

• Federal budget rules are crippling. The presentsystem of federal budget regulation is inappropriate for a system controllingcommercial operations that needs to be driven by demand for services. Budgetrules that govern the federal aviation system must be revised. The moneyproblem that faces the FAA is an inability to access the revenues collectedfor its use.

• There are "too many cooks", makingauthority and accountability too diffused. Authority and accountabilityare too diffused to run a 24 hour-a-day, high technology, rapidly changingoperating system for a major commercial industry. Everyone responsiblefor the current air traffic control (ATC) system — the FAA, the DOT, theaviation industry, the Administration, and the Congress — wants to makethe system work. But there are too many people in charge. The problemsare systemic and require basic changes in command and control.

• FAA is nearsighted. While the vast majorityof individual FAA employees remain dedicated and professional, the FAAas an institution impedes needed modernization by not focusing enough ondetermining and meeting its external users’ needs for high quality andmodern services at reasonable costs. Modern business tools, such as a costaccounting system, that tie specific costs to services, and measurementtools that assess how well services are provided are not yet available.Incentives are needed for the FAA’s culture to become more externally focusedon users and services, more businesslike, and more responsive.

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

• Airport needs are not being met. Airport-relatedcongestion will increase in the future without a strong federal commitmentof resources. Airport capital investments must go hand-in-hand with ATCinvestment to maintain system capacity.

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

The National Civil Aviation Review Commissionbelieves these problems can be rectified, but it will take dramatic changesin the way that the air traffic system and airport development are managedand financed. Institutional relations within the FAA and among the variousstakeholders must be altered if we are to increase accountability at theagency, improve management performance, and ensure that resources are sufficientand used effectively.

These problems have been identified by previousCommissions and analyses. Among these are the National Commission for aStrong Competitive Airline Industry (1993), the Clinton AdministrationAir Traffic Control Corporation Study (1994), the White House Commissionon Safety and Security (early 1997), and the Coopers & Lybrand FAA-IndependentFinancial Assessment (early 1997). While these problems are not new, thereis now a realization and a consensus as to their seriousness and implications.

Recommendations on an Integrated and ComprehensiveFunding Package

Meeting the demands of a growing, complex aviationsystem is no small task. In the funding report, the Commission recommendsbroad 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 takeadvantage of industry growth and technological change.

The Commission has agreed on a set of five broadrecommendations that stem from their findings. The recommendations areviewed as a comprehensive package and are strongly supported by all Commissioners.Any alternative to the Commission’s proposal must demonstrate similar consensusto be credible. It must be recognized that the strong agreement withinthe Commission for these recommendations exists because they are viewedas a comprehensive package. Moving forward on implementing some elementsof the package without the others being addressed would result in a lossof unanimity. The importance of this consensus is demonstrated by the shortfallof previous efforts, which lacked full public and industry support to reformthe 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 Commissionrecommends that the FAA’s funding and financing system receive a federalbudget treatment ensuring that revenues from aviation users and spendingon aviation services are directly linked and shielded from discretionarybudget caps. This will ensure that FAA expenditures will be driven by aviationdemand.

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

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

• FAA must control its operating costs and increasecapital investments. The Commission has reviewed the FAA’s forecasted budgetneeds and assumes the agency’s budget projections to be reasonable in astatus quo environment. However, the Commission recommends that FAA operatingcosts could be better managed and controlled and that investments in airtraffic control modernization should be increased.

• Airport capital needs must be met. The federalrequirements of airport capital development currently exceed the amountof revenue presently available to finance these requirements. The AirportImprovement Program (AIP) is the linchpin of airport financial planningand the Commission believes AIP should be funded at a minimum of $2 billionannually over the next five years.

These funding-related recommendations are stronglyinterconnected. Without budget treatment that links aviation revenues andspending together, key capital investments will not be made despite industry’swillingness to pay. Without movement to a cost-based system, FAA’s improvedperformance will be limited because the agency will lack critical datato judge performance and appropriate market signals to make sound investmentdecisions. Without management and organizational changes, there will beno guarantee that any dollar that goes into the FAA is used wisely andefficiently.

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

COMMISSION FINDINGS AND RECOMMENDATIONS ONAVIATION SAFETY

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

Commercial aviation is an extraordinarily safehuman endeavor. The risk of perishing in a commercial aircraft accidentis about one in every two million flights. This safety record is due tothe high standards that exist in the building and operation of commercialaircraft. These high standards are the result of decades of strong interactionbetween government regulators and safety professionals within the aviationindustry.

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

Findings on Aviation Safety

• The commercial aviation accident rate is extraordinarilylow, but it has shown virtually no improvement over the past 30 years.By the end of the 1960s, the large-transport aircraft fleet had becomemostly jet powered. The introduction of highly reliable jets into commercialaviation 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 anticipatedhealthy growth in aviation will lead to a significant increase in the absolutenumber of accidents If there is no change in the accident rate, and theanticipated growth occurs, there will be a large airliner accident somewherein 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 whollyunacceptable. Public interest in aviation safety runs very high, with demandsfor improvements ever present. If the public perceives that air transportationsafety is deteriorating, the demands for improvement will become increasinglystrong.

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

Recommendations on Aviation Safety

The Commission believes that the accident ratecan be reduced, but this will take a comprehensive and concerted programby government and industry that will require new ways of doing businesswith each other and a greater emphasis on cooperation and collaboration.

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

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

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

• Government and industry should expand on theirprograms to improve aviation safety in other parts of the world. Thereare areas of the world where the accident rate is significantly higherthan it is in the U.S. It is in the U.S. traveling public’s interest, aswell U.S. commercial and trade interests, to see that safety is improvedeverywhere, not just in the U.S.

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