# Presentation: 130119

## BAGGAGE SCREENING 

- May 3,  2006

- BAGGAGE SCREENING
- INVESTMENT STUDY

- Aviation Security Advisory Committee (ASAC)

**Notes:**
Delighted to be with you today to share info on a launch effort by TSA to address difficult issue of how we, as an industry, can rationally, cost-effectively and expeditiously implement optimal baggage screening systems at airports.

Will share WHAT we’re going to do, WHY we’re doing it and the basic framework of HOW we’re going to do it.

## Objective of the Baggage Screening Investment Study

**Establish, in consultation with industry partners, a strategy for facilitating the installation of cost-effective checked baggage screening systems, consistent with Congressional mandates, including the identification of **
**Cost-saving approaches, **
**Alternative funding sources, **
**Recommended enabling legislation, and **
**Mechanisms for ongoing effective collaboration throughout planning, design, construction, and operation**

**Notes:**
This is what TSA wants to accomplish.

Not  a small task!  I think you all will agree it needs to be done and with your help, I’m confident we can achieve this objective.

## Why Are We Doing This?Legislative Background

**The Intelligence Reform and Terrorism Prevention Act of 2004 requires a baggage screening funding study**
**The 2005 DHS Appropriations Act Conference Report directs TSA to comprehensively plan for expediting the installation of in-line EDS in consultation with aviation stakeholders**
**The March 15, 2005 GAO Report recommends that TSA work with airport operators to develop plans for installing in-line systems**

**Notes:**
WHY are we doing this?

There are a couple of reasons: TSA believes it needs to be done and is willing to plunge into a thorny topic to essentially negotiate a sustainable funding strategy with industry.

Just as important, however, is that Congress wants this done AND lots of airports have remaining operational problems from our scramble to meet Congressional deadlines.

Let’s look at the legislative instructions and then do a quick scan of the airport situations.

## Required byIntelligence Reform and Terrorism Prevention Act of 2004

**SEC. 4019. IN-LINE CHECKED BAGGAGE SCREENING.**
**(a) IN-LINE BAGGAGE SCREENING EQUIPMENT.—The Assistant Secretary of Homeland Security (Transportation Security Administration) shall take such action as may be necessary to ****expedite the installation and use of in-line baggage screening equipment**** at airports at which screening is required by section 44901 of title 49, United States Code.**
**(b) SCHEDULE.—Not later than 180 days after the date of enactment of this Act, the Assistant Secretary shall submit to the appropriate congressional committees ****a schedule to expedite the installation**** and use of in-line baggage screening equipment at such airports, ****with an estimate of the impact**** that such equipment, facility modification, and baggage conveyor placement will have ****on staffing needs and levels related to aviation security****.**
**(c) REPLACEMENT OF TRACE-DETECTION EQUIPMENT.—Not later than 180 days after the date of enactment of this Act, the Assistant Secretary shall establish and submit to the appropriate congressional committees a ****schedule for replacing trace-detection equipment****, as soon as practicable and where appropriate, ****with explosive detection system equipment.**

**Notes:**
This is the specific language in the Intel Reform Bill..   I’m not going to read the language, but there are couple things worth noting:

The text refers to in-line baggage equipment.  Important to note that it’s not cost-effective or necessary for all airports to have in-line systems so TSA is focused on analyzing very specifically, with the airports and airlines, what types of systems make sense for what types of pax flows, terminal configurations, etc.

Also important to note that COST SAVINGS is a focus.  We’ve learned lots from installation and operation of some of the in-line systems that have been  completed.  Now that we’re all smarter, it’s clear that some of the complex systems are not necessary. Simple and lean is good.

Lastly, innovative financing and necessary legislation are explicitly requested.  We’re not restricted to possibilities in existing law or regulation.  That said, I would be totally naïve not to point out that OMB and CBO interests will be. . .challenging to work with.

## Intelligence Reform & Terrorism Prevention Act of 2004

**“****(d) COST-SHARING STUDY.—The Secretary of Homeland Security, in consultation with representatives of air carriers, airport operators, and other interested parties, shall submit to the appropriate congressional committees, in conjunction with the submission of the budget for fiscal year 2006 to Congress under section 1105(a) of title 31, United States Code—**
**(1) a proposed ****formula for cost-sharing**** among the Federal Government, State and local**** governments, and the private sector for projects to install in-line baggage screening equipment that ****reflects the benefits that each of such entities derive from such projects****, including national security benefits and labor and other cost savings;**
**(2) ****recommendations, including recommended legislation, for an equitable, feasible, and expeditious system for defraying the costs**** of the in-line baggage screening equipment authorized by this title; and**
**(3) the results of a ****review of innovative financing approaches**** and possible cost savings associated with the installation of in-line baggage screening equipment at airports**

## Why Are We Doing This?Existing Challenges  

**Increase EDS use during peak demand periods to speed throughput and minimize staff requirements.**
**Provide scalable systems to match projected traffic growth **
**Maintain 100% screening compliance given traffic growth**
**Emerging screening technologies combined with improved baggage screening system designs will significantly improve the economic case for automation investments**
**With current investment levels, another 20 years would be required to complete the installation of optimal systems**
**Without program acceleration, there will be substantial “throw away” investment for life cycle replacement and refurbishment of suboptimal systems**

**Notes:**
The other reason we commencing this effort relates to the situation on the ground at many airports. 
Existing screening systems are extremely personnel-intensive and Congress is reducing TSA’s staffing budgets.

At many airports, TSA and the airlines are patching things together, but growth in traffic will inevitable result in system failure. 

New technologies anticipated to be available over the next year or so will allow high-speed screening (800-1000 bags/hour), but unless there are systems that can feed the bags at that rate, the new technology is wasted.

Lastly, even if current annual federal investment levels could be sustained, it would take 20 years to complete installation of optimal systems AND during those 20 years, much of the investment would be in replacing obsolete equipment because it had reached the end of it’s useful life. 

## How Are We Doing This?Collaborative Approach to the Study

**Aviation Security Advisory Committee (ASAC) sponsorship for the study**
**Comprehensive engagement of industry stakeholders on baggage screening investment issues**
**Technical Team, Finance Team and Steering Committee**
**Regular industry association (ACI, AAAE, ATA) briefings on progress **
**Duration: through May ’06**

**Notes:**
Now let’s talk about HOW we’re going to attack this problem.

We’re working through ASAC to get this done and will be requesting their approval for our plan of action in January—so this is preliminary until we get that approval.

Some analytical work to identify the size of the problem has already been done.  That preliminary work will be introduced to the working groups and refined with  on-the-ground realities and combined with operational cost data from airports, airlines as well as government costs.

Once we’ve got the basic size of the investment and operational needs, we’ll look at alternatives for sharing the cost, identify planning and design guidelines for, develop necessary legislation and establish a go-forward pattern of collaboration between TSA and the industry.

ONE WORD OF CAUTION:  Airports and airlines have wanted to take a strong position that the screening costs are a federal government responsibility and therefore solely a federal government cost.  We can argue philosophy all day.  Fact is, the federal government will not pick up all the costs and we can hold hardline positions for the next ten years as the system falls apart, but we haven’t served our industry well.  We’ve got to find a compromise.

## Baggage Screening Investment Study Context

**Airport-Specific Concept Plans**

**Coordinated Plans, ****Designs, and Funding Approach**** for each Airport**

**Refined Strategic Plan**

**Industry Steering Committee as a Working Group of ASAC***

**Airport-specific ****Working Groups**

**Strategic Plan Framework**

**Refined Design Guidelines**

**Funding Levels, Funding/Financing Strategies, & Legislation**

- Baggage Screening Investment Study

**** ASAC - Aviation Security Advisory Committee***

**Notes:**
This graphic simply shows a pictorial view of how the Baggage Screening Investment Study fits into the flow of work.

The industry working groups will refine the Strategic Plan Framework and issue 
Refined Design Guidelines
Airport Specific Concept Plans identifying optimal baggage screening systems for the top 250 airports, and
Recommended funding levels, innovative financing tools, and legislation necessary to implement.

At that point, the Baggage Screening Investment Study is complete and the implementation work continues with airport specific groups working with TSA on individual airport plans and funding approaches.

(If a question arises about the product of the Airport Security Design Guidelines Working Group product and the Planning & Design Guidelines we expect to issue, we  need to explain that our product will be an update to the baggage screening section of the Security Design Guidelines which cover much more than baggage screening.)

## Steering Committee Members

| Affiliation | Name | Title |
| --- | --- | --- |
| Airports |  |  |
|    Port Authority of New York and New Jersey   (JFK/EWR/LGA) | William R. DeCota | Director, Aviation Department |
|    City of Chicago, Department of Aviation (ORD/MDW) | Erin O'Donnell | Deputy Commissioner |
|    Metropolitan Washington Airports Authority (IAD/DCA) | James Bennett | President & CEO |
|    Port of Oakland (OAK) | Steve Grossman | Director of Aviation |
|    Kent County Aeronautics Board (GRR) | James A. Koslosky | Aeronautics Director |
|    Hillsborough County Aviation Authority (TPA) | Louis E. Miller | Executive Director |
| Airlines |  |  |
|    American Airlines | Laura Einspanier | Vice President, Corporate Real Estate |
|    United Airlines | Ajay Singh | Vice President, Corporate Real Estate |
|    Southwest Airlines | Mike Golden | Senior Director, Airport Technology Strategies |
|    Northwest Airlines | Jim Greenwald | Vice President, Properties and Facilities |
|    JetBlue Airways | Rob Maruster | Vice President, Operational Planning |
|    Continental Airlines | Hershel Kamen  | Vice President, Security and Regulatory Affairs |
| Government |  |  |
|    TSA Operational Process & Technology | Randy Null | Assistant Director and Chief Information Officer |
|    TSA Security Technologies | Chuck Burke | Director of Security Technologies Division/Deputy CTO |
|    TSA Finance and Administration | Mark Kerski | CFO Chief of Staff |
|    TSA Chief Counsel | Ross Dembling | Assistant Chief Counsel |
|    TSA Security Operations | Richard Hayes | Director of Operations |

## Technical Team Members

| Affiliation | Name | Title |
| --- | --- | --- |
| Airports |  |  |
|    Department of Aviation, City of Atlanta (ATL) | Dan Malloy | Aviation Assistant General Manager |
|    Dallas/Fort Worth International Airport (DFW) | Jim Crites | Executive Vice President, Operations |
|    Seattle-Tacoma International Airport (SEA) | Jeff Fitch | Director, Public Safety and Security |
|    Manchester Regional Airport (MHT) | Kevin Dillon | Executive Director |
| Airlines |  |  |
|    American Airlines | Nick Meador | Manager, Airport Security Processes |
|    JetBlue Airways | Rick Garde | Director Security Services |
|    Southwest Airlines | John Conlon | Senior Manager, Federal Airport Security Technology |
|    Northwest Airlines | Fred Clements | Managing Director, Construction and Design |
|    Delta Air Lines | Terry Spradlin | Manager, GSE Support and Asset Management |
|    United Airlines | John McDonald | Manager, Intelligence Gov’t Liaison; Facilities Security |
| Government |  |  |
|    TSA Security Operations | Michael Salmen | TPA Stakeholder Manager |
|    TSA Security Operations | Scot Thaxton | Screening Operations Specialist |
|    TSA Security Operations | Brian Koski | Industrial Engineer Supervisor |
|    TSA Office of Security Technologies | Robert Sheftel | Technology Manager |
|    TSA Office of Security Technologies | Keith Goll | CTO Deployment Manager |
|    TSA Office of Security Technologies | Andy Lee | Acting Checked Baggage Program Lead |
| Baggage Handling System (BHS) Designers (as required) |  |  |
|    Cage | Bob Pollard | Chief Operating Officer |
|    Vic Thompson Company | Victor H. Thompson | President |
|    BNP | Cal Trudeau | Senior Project Manager |
|    Raytheon | Mike Moser | Subject Matter Expert – Inline EDS System |
|    URS | Paul Benefield | Vice President |
|    Swanson Rink | Jim Lusche | Vice President, Project Management |

## Financial Team Members

| Affiliation | Name | Title |
| --- | --- | --- |
| Airports |  |  |
|    Greater Orlando Aviation Authority (MCO) | Maureen S. Riley | Deputy Executive Director, Finance and Administration |
|    Department of Aviation, City of Atlanta (ATL) | Mario Diaz | Deputy General Manager |
|    Columbus Regional Airport Authority (CMH) | Elaine Roberts | President and CEO |
|    Maryland Aviation Administration (BWI) | Jim Walsh | Deputy Executive Director, Business Managem’t and Admin.   |
|    Port of Portland (PDX) | Vincent Granato | General Manager of Financial Services |
|    City of Boise (BOI) | John Anderson | Director, Aviation and Public Transportation  |
| Airlines |  |  |
|    Southwest Airlines | Leslie Carr | Attorney |
|    US Airways | Dion Flannery | VP, Financial Analysis |
|    United Airlines | Peter Wemple | Director, Corporate Real Estate |
|    Alaska Airlines | Kathy Smith | Manager of Airport Affairs |
|    JetBlue Airways | Lisa Studness | Director, Airport Affairs |
|    American Airlines | Tim Skipworth | Managing Director |
| Government |  |  |
|    TSA Finance and Administration | Kim Hutchinson | EDS Program Reviewer |
|    TSA Finance and Administration | Randy Fiertz | TSA Director of Revenue |
|    TSA Security Technologies | Kimberly Rhodes | Financial Program Manager |
|    DHS PA&E | Bonita McClenny | DHS CFO Program Analyst |
|    FAA | Barry Molar | Division Manager, Financial Assistance, Airports Division (Technical Advisor) |
|    FAA | Catherine Lang | Acting Associate Administrator for Airports (Technical Advisor) |
|    FHWA National Resource Center | Jennifer Mayer | Innovative Finance Specialist |
| Finance Industry |  |  |
|    Bear Stearns | Wendy Franklin | Managing Director |
|    Financial Guaranty Insurance Company (FGIC) | Mary Francoeur | Director |
|    JP Morgan | Crystal Mullins | Vice President |

## Key Tasks in the Baggage Screening Investment Study

**Define investment benefits and costs for all parties**
- Collect airport/airline cost and benefit data
- Refine government cost and benefit data developed in recent studies
**Develop funding and financing model**
**Identify and evaluate innovative funding and financing alternatives**** alternatives**
**Recommend Legislation (if required)**
**Establish methodology for ongoing stakeholder involvement**
**Publish refined design guidelines**

**Notes:**
Think we may have covered this indirectly, but here are the key tasks:
Define the costs (capital and operating and including life cycle re-investment)
Develop a cost sharing modeling tool
Evaluate innovative financing options
Identify and evaluate alternative cost sharing formulas
Recommend necessary legislation to allow implementation of sustainable funding options
Establish how TSA is going to move ahead with airports & airlines to implement what would then be a strategic plan.
Submit recommendations to ASAC and TSA.

This is a tough assignment and if we can reach some consensus, I expect all sectors of the industry may be equally unhappy.  But we’re at stalemate right now.  This is a time for all of us to pull together to craft our future rather than retreat to our corners and beat our chest about righteous positions.  I hope you’ll support this effort.

## How are we doing?

| Area | Status |
| --- | --- |
| Defining optimal systems | Top-down assessment completed |
| Capital costs to solve the “problem” | Top-down estimate near completion |
| Operating costs  (TSA & airports/airlines) | Top-down estimate near completion |
| Implications of varying investment schedules	 | Broad assessment completed |
| Financing tools | Options identified, resolution pending funding decision |
| Funding | Options identified, no decisions made |

## Cost v. Benefits

|  | Benefits |  |  | Costs |  |
| --- | --- | --- | --- | --- | --- |
|  | Staff Savings | Operating Improvements | Security Benefits | Capital Costs | O&M,  excl. staff |
| Government |  |  |  |  |  |
| Industry |  |  |  |  |  |

- Significant, but not quantifiable
- Even excluding them, expedited investment reduces the program cost by $1B over 20 years through staff savings

## Technical Team Findings

**Cost for baggage handling systems & infrastructure is largest cost hurdle to implementing optimal systems**
**Approximately $4.0 Billion in capital funding will be required to complete the deployment of optimal screening systems**
**At current rates of investment, optimally-scaled EDS in Cat X-III airports will not be completed until approx. 2024**
- Traffic growth stresses current inefficient systems
- Life-cycle reinvestment needs inhibit ability to make significant progress on facility/infrastructure changes to accommodate new systems
**Increasing capital investment now could expedite completion of optimal system installation and save over $1 Billion PV **
- Life-cycle cost of program lowered primarily by taking advantage of staff savings
- Majority savings to federal government
- Significant increased cost to industry through increased O&M

## Finance Team Findings

**Funding sources and financing options are two different things**
**Many interesting financing options—bottom line reality is someone always has to pay**
- Industry / travelers
- Federal government / taxpayers
**User fees currently offsetting approx. 50% annual aviation security costs **
**Economic benefits of expediting installation of optimal EDS accrue largely to TSA**
**Looked for financing options to minimize additional cost to industry**

## Finance Team Recommendations

| Key Concept |  | Operating and Maintenance |  |  | Capital |  |
| --- | --- | --- | --- | --- | --- | --- |
|  |  | Screeners | Maintenance | Other O&M | Equipment | BHS / Infrastructure |
| 1 | Equipment Lease |  | ? |  |  |  |
| 2a | Service Contract w/ Screeners/Opt-Out |  |  |  |  | ? |
| 2b | Usage Contract w/ no Screeners (new) |  |  |  |  | ? |
| 3 | Share-in-Savings |  |  |  |  |  |
| 4a | AIP Eligibility |  |  |  |  |  |
| 4b | Enhanced PFC Eligibility |  |  |  |  |  |
| 5 | Trust Fund/LOI | ? | ? | ? |  |  |
| 6 | Tax Credit Bonds |  |  |  | ? |  |
| 7 | New User Fees |  |  |  |  |  |

## Next Steps	

**Evaluate feasibility of funding/financing options by developing case studies**
**Establish ongoing stakeholder involvement program for implementation**
**Complete work w/ industry – May 2006**
**Report to ASAC and TSA including recommended legislation if required – June 2006**