Could Privatization of Air Traffic Control Reduce Costs for Businesses?

President Trump’s plans to overhaul the Federal Aviation Administration and privatize the nation’s air traffic control system just might be good for business. However, while some transportation experts believe reduced operating costs could result in savings for business travel and air cargo, others are not confident private companies can manage the airspace.

The FAA currently has 13,000 licensed controllers across the country and employs tens of thousands of engineers and technicians. The administration is funded through aviation user fees and taxes on things like tickets, jet fuel and air travel miles.

Proponents of privatization have argued that it will reduce fees and make the system safer, yet critics say the skies are already safe and they question whether private companies can handle the world’s busiest and most complex airspace.

Ashley Nunes, Ph.D., at the Center for Transportation Logistics at the Massachusetts Institute of Technology, feels there is little evidence to suggest that privatization of air traffic control results in a measurable improvement in safety.

“privatization should make it cheaper for companies to ship their products. LOWER operating costs will be passed on in the form of lower air traffic fees. That also should help spur demand, because it becomes cheaper to use air freight.”

He said more of an issue is cost and control. One compelling reason for privatization is that air traffic services do not serve the interests of the people who pay for it but for the interests of Congress who appropriate funds for the agency. Advocates say privatization would reduce operating costs because companies would have to compete for contracts. “In theory, a privatization system should deliver greater benefits to the companies paying for the service,” Nunes said.

These costs can be significant. Nunes says the Canadian air traffic control system Nav Canada was privatized in 1996, and has since reduced its costs by nearly 30%. While the cost of service per flight hour in Canada is $355, it is currently $453 per flight hour in the United States. Nunes says because the U.S. has far more flights to spread fees, costs per flight hour is not a small figure and should be significantly lower.

“In theory, [privatization] should make it cheaper for companies to ship their products. As a result of operating costs going down, they will be passed on in the form of lower air traffic fees for users like UPS, FedEx and others. That also should help spur demand, because it becomes cheaper to use [air freight],” Nunes said.

Nunes notes that most modern economies, including Germany, the UK, Australia and New Zealand, already have shifted to privatized air traffic control models. He notes the Canadian model has held up “as a role model of what can be achieved if U.S. governance structure is changed.”

While many airline CEOs are for an overhaul of the FAA, some are against privatization. Delta CEO Richard Anderson said in a letter last year that it would be “unnecessary and unwise” because the current system is safer, has fewer delays and is actually more cost effective than privatized alternatives. Delta released a study that found air traffic privatization will increase costs to travelers. Anderson said it’s hard to compare the U.S. to international models because its system is so large and complex. He noted that the U.S. has nearly 25 million annual flight hours, while Canada only has 3.3 million.

“Advocates describe privatization as a cure-all for what ails the FAA. But the truth is that it carries serious risks, offers speculative benefits, and is not necessary,” said Anderson.

Nunes notes there is considerable political opposition to the proposal from lawmakers across the spectrum and that it “will not happen quickly.” Opponents are against turning over public infrastructure, including control towers, antennas and radar systems to private companies and say that in practice, it would allow a private organization to impose taxes on the public.

“Coupled with vigorous lobbying from special interest groups—like general aviation, corporate jet and small airport lobby—it’s unclear if this will come to pass. However, it has a better chance of doing so than it has in years past,” Nunes says.

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Craig Guillot
Craig Guillot is a business writer based in New Orleans, La. His work has appeared in Wall Street Journal, Entrepreneur, CNNMoney.com and CNBC.com. You can read more about his work at www.craigdguillot.com.

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