Testimony 

Before the Subcommittee on Aviation, 

House Committee on Transportation and 

Infrastructure

United States Government Accountability Office

GAO

For Release on Delivery 

Expected at 10:00 a.m. EDT 

Wednesday, April 20, 2005 AIR TRAFFIC CONTROL

Preliminary Observations 

on Commercialized Air 

Navigation Service 

Providers 

Statement of Gerald L. Dillingham, Ph.D. 

Director, Physical Infrastructure Issues 

GAO-05-542T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-542T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Gerald L. 

Dillingham, (202) 512-2834, 

dillinghamg@gao.gov. 

Highlights of GAO-05-542T, a testimony 

before the Subcommittee on Aviation, 

Committee on Transportation and 

Infrastructure, House of Representatives 

April 20, 2005

AIR TRAFFIC CONTROL 

Preliminary Observations on 

Commercialized Air Navigation Service 

Providers 

The five commercialized ANSPs that GAO selected for review have a number 

of common characteristics: Each operates as a business, making and 

carrying out its own strategic, operational, and financial decisions. Each 

generates and manages its own revenue to cover its costs, charging fees to 

users and borrowing funds from private markets instead of relying on annual 

governmental appropriations. Each has also put commercial financial and 

performance data systems in place. All five ANSPs have retained safety as 

their primary goal, and each is subject to some external safety regulation. 

Each ANSP is largely a monopoly provider of air navigation services and 

undergoes some form of economic review or follows some guidelines for 

setting prices. 

The ANSPs report that, since commercialization, each has maintained safety, 

controlled costs, and improved efficiency. Data from all five indicate that 

safety has not eroded. For example, data from New Zealand and Canada 

show fewer incidents involving loss of separation (the required distance 

between an aircraft and another object). All five ANSPs have taken steps, 

such as consolidating facilities, to control their operating costs. Finally, all 

five ANSPs have invested in new technologies that the ANSPs say have 

lowered their costs by increasing controllers’ productivity and produced 

operating efficiencies, such as fewer or shorter delays. Such measures have 

generally resulted in lower fees for major carriers, but some smaller, 

formerly subsidized users now pay new or higher fees and are concerned 

about future costs and service. 

GAO’s work to date suggests a number of observations about 

commercialized ANSPs: A contingency fund can help an ANSP cover its 

costs without greatly increasing user fees during an economic decline; 

economic regulation by an independent third party can ensure that an ANSP 

sets prices fairly; providing a forum for stakeholders gives attention to their 

needs; and special measures may be necessary to reconcile the inability of 

some users to pay the full costs of services at some small communities and 

the ANSP’s need to recover its costs. 

Size and Scope of Five Commercialized ANSPs Reviewed 

Country ANSP name ANSP ownership Employees

Movements 

handled (year)

Australia Airservices Australia Government corporation 2,900 2,723,828

(2004)

Canada NAV CANADA Private company 5,400 6,000,000

(2003)

Germany Deutsche Flugsicherung GmbH Government corporation 5,400 2,720,000

(2004)

New Zealand Airways Corporation of New 

Zealand, Ltd.

Government corporation 680 1,004,161

(2004)

UnitedKingdom National Air TrafficSystem, Ltd. Public-private

partnership 

3,758 2,000,000

(2004)

Source: GAO presentation of data from ANSPs. 

In the past, governments worldwide 

owned, operated, and regulated air 

navigation services, viewing air 

traffic control as a governmental 

function. But as nations faced 

increasing financial strains, many 

governments decided to shift the 

responsibility to an independent air 

navigation service provider (ANSP) 

that operates along commercial lines. 

As of March 2005, 38 nations 

worldwide had commercialized their 

air navigation services, fundamentally

shifting the operational and financial 

responsibility for providing these 

services from the national 

government to an independent 

commercial authority. 

GAO selected five ANSPs–in 

Australia, Canada, Germany, New 

Zealand, and the United Kingdom–to 

examine characteristics and 

experiences of commercialized air 

navigation services. These ANSPs 

used different ownership structures 

and varied in terms of their size, 

amount of air traffic handled, and 

complexity of their airspace. 

This testimony, which is based on 

ongoing work, addresses the 

following questions: (1) What are 

common characteristics of 

commercialized ANSPs? (2) What do 

available data show about how the 

safety, cost, and efficiency of air 

navigation services have changed 

since commercialization? (3) What 

are some initial observations that can 

be made about the commercialization 

of air navigation services? 
Page 1 GAO-05-542T 

Mr. Chairman, Ranking Democratic Member, and Members of the 

Subcommittee: 

Thank you for the opportunity to testify before you today on our work 

related to commercialized international air navigation service providers 

(ANSP). Since 1987, 38 nations have commercialized their air navigation 

services, fundamentally shifting the responsibility for providing air 

navigation services from the national government to an independent ANSP 

that operates as a performance-based organization along commercial 

lines.1

 In the United States, of course, the Federal Aviation 

Administration’s Air Traffic Organization was created as a performancebased organization in 2000, but has not been commercialized and remains 

entirely within the federal government. 

In the past, governments worldwide owned, operated, and regulated air 

navigation services, viewing them as a governmental function. But as air 

navigation technologies grew more complex and as nations faced 

increasing financial strains, many governments reevaluated existing 

structures for providing air navigation services, and some decided that 

shifting the responsibility for operating and, in some cases owning, the 

services to an independent commercial authority could produce 

efficiencies that would benefit both users and the government. In general, 

the responsibility for regulating the safety of the services is independent of 

the ANSP. 

Today I will discuss how different countries have commercialized their air 

navigation services and how commercialization has affected those 

services. Specifically, my statement addresses the following questions: 

• What are common characteristics of commercialized ANSPs? 

• What do available data show about how the safety, cost, and efficiency of 

air navigation services have changed since commercialization? 

 1

For additional information on performance-based organizations, see GAO, Federal Student 

Aid: Additional Management Improvements Would Clarify Strategic Direction and 

Enhance Accountability, GAO-02-255 (Washington, D.C.: Apr. 30, 2002); PerformanceBased Organizations: Lessons From the British Next Steps Initiative, GAO/T-GGD-97-151

(Washington, D.C: July 8, 1997); and Performance-Based Organizations: Issues for the 

Saint Lawrence Seaway Development Corporation Proposal, GAO/GGD-97-74

(Washington, D.C: May 15, 1997). 
Page 2 GAO-05-542T 

• What are some initial observations about the commercialization of air 

navigation services? 

To address these questions, we reviewed the characteristics and 

performance of five ANSPs, which we selected as illustrative of 

similarities and differences in the size and scope of commercialized 

ANSPs. These ANSPs—Australia’s Airservices Australia; Canada’s NAV 

CANADA; Germany’s Deutsche Flugsicherung GmbH (DFS); New 

Zealand’s Airways Corporation of New Zealand, Ltd.; and the United 

Kingdom’s (UK) National Air Traffic Services, Ltd. (NATS)—were 

commercialized between 1987 and 2001 and have been operating ever 

since as performance-based organizations along commercial lines. 

Because of the size of our sample, our results cannot be generalized to 

other commercialized ANSPs, and our purpose is not to assess or evaluate 

the selected commercialized organizations. 

Comparisons of performance before and after commercialization are 

generally not feasible because data for assessing performance are typically 

unavailable for the time before commercialization, or the measures have 

changed in the years following commercialization. Furthermore, 

comparisons between or among ANSPs are difficult because each ANSP 

may define its measures of cost, safety, and performance differently. We 

did not verify the data gathered and reported by the five ANSPs; however, 

their financial information is subject to independent audits, and their 

safety and operating performance data are publicly reported. As a result, 

we considered the data sufficiently reliable for the purposes of our review. 

The information presented in this testimony is based on ongoing work and 

may be updated as additional information becomes available. At the 

request of the Senate Committee on Commerce, Science, and 

Transportation, its Subcommittee on Aviation, and Senators John McCain 

and Trent Lott, we are planning to issue a more detailed report later this 

year on the topics discussed in this testimony. We performed our work in 

accordance with generally accepted government auditing standards from 

August 2004 through April 2005. 

Let me turn now to the results of our review. In summary: 

The five commercialized ANSPs that we selected for review have a 

number of common characteristics: Each operates as a business rather 

than a government organization, making and carrying out its own 

strategic, operational, and financial decisions. Additionally, each generates 

and manages its own revenue to cover its operating and capital costs. 

Each assesses fees on users of air navigation services (e.g., major 
Page 3 GAO-05-542T 

commercial air carriers, regional air carriers, and in some cases general 

aviation operators) and is able to borrow funds from private markets, 

instead of relying on annual appropriations from the government. All five 

ANSPs have retained safety as their primary goal, and each is subject to 

some external safety regulation. Finally, each ANSP is largely a monopoly 

provider of air navigation services and undergoes some form of economic 

review or follows some guidelines for setting prices. 

Available data from the five ANSPs we reviewed indicate that since 

commercialization, the safety of air navigation services has remained the 

same or improved, each has taken steps to control costs, and each has 

reportedly lowered costs and improved efficiency through modernization. 

Though some opponents have raised concerns that commercialization 

would compromise safety, data from all five indicate that safety has not 

eroded. For example, data from New Zealand and Canada show fewer 

incidents involving loss of separation (the required distance between an 

aircraft and another object). Additionally, anecdotal information suggests 

that safety regulation improved when the regulator was separated 

organizationally from the ANSP. All five ANSPs have taken steps to control 

their operating costs, whether by eliminating some administrative and 

middle management positions or by consolidating facilities. Furthermore, 

all five ANSPs have invested in and benefited from new technologies and 

equipment, which the ANSPs say have lowered their costs by increasing 

controllers’ productivity and produced operating efficiencies, such as 

fewer or shorter delays. As a result, some ANSPs have been able to lower 

the prices they charge the airlines for certain services. However, the 

ANSPs have also instituted or increased fees for general aviation 

operators. In Australia, a government subsidy for services to smaller 

airports is scheduled to expire later this year, raising concerns about the 

affordability and availability of services to those airports. 

Our work to date suggests a number of initial observations about 

commercialized ANSPs. First, having a contingency fund or other 

mechanism to offset a revenue shortfall can help an ANSP weather a 

decline in air traffic such as the aviation industry experienced, particularly 

after September 11, 2001. Second, because the ANSPs are largely 

monopoly providers of air navigation services, economic monitoring or 

regulation by an independent third party can protect users and ensure a 

fair pricing process. Third, addressing the concerns of stakeholders, 

especially air traffic controllers, is essential to initiate and sustain 

commercial operations, and providing a forum for communication can 

ensure subsequent attention to their needs and priorities. Fourth, the 

conflict between the inability of some users (e.g., smaller air carriers or 
Page 4 GAO-05-542T 

general aviation operators) to pay the full costs of providing services to 

small communities and the ANSPs’ need to recover their costs means that 

special measures may be necessary to protect service to some locations. 

Fifth, when a government sells its interest in an ANSP to private investors 

as part of the commercialization, the ANSP’s assets have to be 

appropriately valued to protect taxpayer interests and create a basis for 

sound financial decision-making. Sixth, when operations are separated 

from regulation during commercialization, it is important to ensure that 

the regulator can attract and retain sufficient personnel with the skills and 

expertise needed to provide uninterrupted safety regulation. Finally, 

developing baseline safety, cost, and efficiency measures prior to 

commercialization will allow the ANSP and others to compare the 

performance of the ANSP before and after commercialization and over 

time. 

Before commercialization, air navigation services under government 

control faced increasing strain. Many were underfunded, as evidenced by 

air traffic controller wage freezes and insufficient funds to replace aging 

technologies. In some instances, the country as a whole faced widespread 

fiscal problems and the commercialization of air navigation services was 

simply part of a larger movement to reform government enterprises such 

as rail, telecommunications, and electricity. 

With commercialization, the government typically retains full or partial 

ownership of the air navigation system and continues to regulate 

operational safety,2

 but an independent ANSP is responsible for operating 

the system. The independent ANSP is subject to corporate financial and 

accounting rules and, in line with today’s current management theories, is 

generally designed as a performance-based organization—that is, an 

organization that develops strategies, goals, and measures and gathers and 

reports data to demonstrate its performance. In the five countries whose 

air navigation services we reviewed, the ANSP continued to provide 

nationwide services after commercialization and, with certain exceptions, 

remained the sole provider of air navigation services. 

Each ANSP offers en route, approach control, and terminal air traffic 

services. However, in some cases, an ANSP may not be the sole provider 

 2

In the UK and Australia, safety and economic regulators are “statutorily independent of the 

government.” 

Background 
Page 5 GAO-05-542T 

of approach control and terminal services in a country. Although technical 

definitions may vary slightly among ANSPs, these services broadly 

correspond to the services provided in U.S. air traffic centers, approach 

control centers, and towers. All but Germany’s DFS also offer oceanic air 

navigation services. All five ANSPs are responsible for providing air traffic 

services to both civil and military aviation. In addition, the ANSPs may 

offer other air-navigation-related services, such as meteorological services, 

fire and rescue, training, and consulting. The ANSPs also charge for these 

services.3

Discussions about the commercialization of air navigation services often 

use a number of terms interchangeably. Among these terms are 

restructuring, privatization, outsourcing, and corporatization, as well as 

commercialization. The Civil Air Navigation Services Organization 

(CANSO), which represents the interests of ANSPs worldwide, uses the 

term corporatization. Others, such as the International Civil Aviation 

Organization (ICAO), which establishes international civil aviation 

standards and recommends practices and procedures for ANSPs, use the 

term commercialization. Some note that an organization can be 

“commercialized” but not “corporatized” (i.e., established under prevailing 

company law). For this statement, we will use “commercialization.”4

Two of the countries we examined–Germany and the UK–are members of 

the European Union and EUROCONTROL.5

 As parties to these 

international organizations, the two countries follow the policies and 

regulatory framework of the European Commission’s “Single European 

 3

NATS includes charges for meteorological services in the charges for en route services. 

4

According to ICAO, commercialization is the ability of an organization to operate like a 

commercial business, whether it is wholly or partly owned by the government or fully 

privatized. A commercialized organization should function as an autonomous body and, 

compared with a government organization, have greater freedom from the government in 

conducting its financial affairs and developing infrastructure funding. In addition, it should 

be self-financing, subject to the usual business taxes, and required to seek a return on 

capital. The safety of its operations should still be regulated by the government, and it 

should be encouraged to be as competitive, efficient, and cost-effective as any other 

commercial business. 

5

EUROCONTROL is a European organization responsible for regulating the safety of air 

navigation, monitoring the performance of air traffic management systems, and developing 

a seamless air traffic management system in Europe. 
Page 6 GAO-05-542T 

Sky” initiative.6 Under this initiative, EUROCONTROL is mandated to 

develop implementing rules, one of which specifies that each member 

state is to develop an independent safety and economic regulatory 

authority to oversee the ANSP. To this end, Germany is planning to 

develop such an authority, and the UK has already established one. Table 1 

summarizes information on the size and scope of the five ANSPs in our 

review: 

Table 1: Summary Information on Five Commercialized ANSPs Reviewed 

 Australia Canada Germany 

New 

Zealand 

United 

Kingdom 

Agency Airservices 

Australia 

NAV 

CANADA 

Deutsche 

Flugsicherung 

GmbH (DFS) 

Airways 

Corporation 

of New 

Zealand, 

Ltd. 

National Air 

Traffic 

Services, 

Ltd. (NATS) 

Year of 

commercialization

1988 1996 1993 1987 2001 

Type of 

ownership 

Wholly 

governmentowned 

Privately 

owned 

company 

Wholly 

governmentowned 

Wholly 

governmentowned 

Partially 

governmentowned 

Approximate 

number of 

employees 

(Number of 

controllers) 

2,900 

(1,100) 

5,400 

(2,300) 

5,400 

(2,098) 

680 

(340) 

3,758 

(1,380) 

Approximate 

number of aircraft 

movements 

handled (Year) 

2,723,828 

(2004) 

6,000,000 

(2003) 

2,720,000 

(2004) 

1,004,161 

(2004) 

2,000,000 

(2004) 

Source: GAO presentation of data from ANSPs. 

 6

The “Single European Sky” initiative, approved by the European Parliament in January 

2004, is a legislative package consisting of four regulations that address (1) the framework 

for the creation of a single European sky, (2) the provision of air navigation services in the 

single European sky, (3) the organization and use of the airspace in the single European 

sky, and (4) the interoperability of the European Air Traffic Management network. 
Page 7 GAO-05-542T 

The five commercialized ANSPs that we reviewed have a number of 

common characteristics: All operate as businesses rather than as 

government organizations, all focus on safety, and all are largely monopoly 

providers that are subject to some form of economic review or guidelines 

for setting prices. 

All five commercialized ANSPs operate as businesses, although they differ 

somewhat in their ownership structures. (See table 1.) Three of the five—

Airservices Australia, Airways Corporation of New Zealand, and DFS—are 

currently state-owned corporations—that is, companies wholly owned by 

the government. The UK’s National Air Traffic Services (NATS) is a publicprivate partnership, that is, a cooperative venture between the public and 

private sectors that is designed to meet defined public needs with the risks 

and rewards divided between both parties. The government holds the 

largest share of NATS (49 percent), and the remaining shares are divided 

among a consortium of seven UK airlines (42 percent), NATS staff (5 

percent), and a private airport company7

 (4 percent). By 2006, Germany 

plans to change the ownership of DFS, selling 74.9 percent of its equity to 

private investors and reorganizing it as a public-private partnership, along 

the lines followed in the UK. NAV CANADA is a nonshare capital, private 

corporation—that is, it has “members” instead of shareholders. These 

members represent the airline industry, the government, and general and 

business aviation, and they also include employees such as air traffic 

controllers and engineers. 

Each ANSP makes and carries out its own strategic, operating, and 

financial decisions. A supervisory board oversees policy making and 

operations and, when applicable, has fiduciary responsibilities to 

shareholders. The members of this board may represent key stakeholders, 

such as the airlines, employees, general aviation, and the national 

government. An executive officer implements the board’s policies and is in 

turn, accountable to the board. Individual business units within the ANSP 

report to the executive officer and are directly responsible for various 

aspects of the ANSP’s day-to-day operations. 

As commercial organizations, the ANSPs follow corporate practices. Each 

ANSP has established performance measures and gathers and reports 

 7

This private company, BAA, plc., owns seven UK airports, including London’s Heathrow, 

Gatwick, and Stansted, and has interests at 13 airports overseas. 

Common 

Characteristics of 

Five Commercialized 

ANSPs 

Five Commercialized 

ANSPs Operate as 

Businesses 

ANSPs Make and Execute 

Their Decisions and Follow 

Corporate Practices 
Page 8 GAO-05-542T 

financial and other performance data. Each ANSP also publishes an annual 

report, which makes financial information available to the public to ensure 

transparency. Financial statements are typically subject to third-party 

audit to ensure that adequate accounting records have been maintained 

and that internal controls have prevented and detected any fraud and error 

in the accounting policies and estimates. In addition, the UK and Germany 

report their data to EUROCONTROL’s Performance Review Commission, 

which collects data for benchmarking and publishes comparative studies 

of members’ performance. 

Before commercialization, two of the five ANSPs “purchased” the ANSP 

assets from their government. NAV CANADA negotiated a selling price 

with the Canadian government, rather than going through a formal 

competitive bidding process, and purchased the air navigation system in 

1996 for C$1.5 billion.8

 In the UK, according to information from the 

National Audit Office, a collection of seven UK airlines known as “The 

Airline Group” provided £795 million of funds, partly from its own 

resources (£65 million) and from a loan taken out with a consortium led by 

four main banks. The group used these funds to acquire NATS and meet 

associated transaction costs, leaving £3.5 million of cash in the business. 

In total, the government received £758 million in cash proceeds from the 

transaction.9

All five commercialized ANSPs rely on user charges as their primary 

source of revenue and on private capital markets for additional funding. 

Before commercialization, governments funded air traffic control services 

through annual appropriations from their national government. 

All five ANSPs collect and manage their own revenues, charging fees for 

services. Their air navigation service fees are based on ICAO’s cost 

recovery principles, which call for recovering the ANSP’s operating costs.10

Despite some variation across ANSPs, the fees are generally as follows: 

 8

Unless otherwise noted, all financial amounts are expressed in local currencies. As of 

April 13, 2005, 1 U.S. dollar was equivalent to 0.78 euro, 1.29 Australian dollars, 0.53 UK 

pound sterling, 1.24 Canadian dollars, and 1.39 New Zealand dollars. 

9

National Audit Office, The Public Private Partnership for National Air Traffic Services 

Ltd., Report by the Comptroller and Auditor General, HC 1096, Session 2001-2002, July 24, 

2002. 

10Fees for the European ANSPs also include a contribution to cover the expenses of 

EUROCONTROL. 

ANSPs Generate Revenue and 

Have Borrowing Authority 
Page 9 GAO-05-542T 

• The air navigation fees cover operating and capital costs associated with 

both en route and terminal services. These charges are based on a weightdistance formula.11 If applicable, ANSPs also levy charges for oceanic 

control. 

• ANSPs may also charge for tower-related services. However, not all ANSPs 

are the sole providers of tower services. In the UK and Germany, for 

example, private firms may provide tower services. These tower charges 

are distinct from the landing fees typically charged by airports, which are 

usually weight-based. 

• ANSPs may charge general aviation operators a flat fee for services or 

additional fees in particular circumstances rather than charging the 

weight-distance fees typically assessed to larger air carriers. 

• ANSPs may also charge additional fees, as applicable, for other services, 

such as meteorological, aeronautical information, training, and consulting 

services. 

The five ANSPs vary in their treatment of any operating profits or losses. If 

an ANSP generates revenues from charges in excess of its costs (i.e., 

operating profits), it may rebate them to the users, lower the charges for 

the next year, pay some form of dividend to shareholders, or retain them 

in reserve to protect against future losses. If costs exceed revenues, 

ANSPs use different strategies to meet those shortfalls. For example, NAV 

CANADA established a “rate stabilization fund,” which it used to store 

revenues when the aviation industry was healthy. The fund could then be 

used to cover costs and keep rates stabilized when the industry was ailing. 

The fund was capitalized by operating profits earned before September 11, 

2001, but depleted following the economic downturn caused by the events 

of September 11 and the SARS outbreak of 2003.12 In 2003, the rate 

stabilization fund had reached a cumulative deficit of C$116 million. 

According to NAV Canada’s 2004 annual report, the C$116 million deficit 

has been reduced to C$32 million. In the UK, NATS, which experienced a 

 11The standard weight-distance formula is a single charge per flight for en route services 

based on the distance flown by the aircraft within a defined area and the aircraft’s weight. 

This formula is based on ICAO’s policies on charges for air navigation services. 

12Concerns about the in-flight transmission of SARS (severe acute respiratory syndrome), a 

highly contagious respiratory disease that appears to be transmitted by close personal 

contact, affected passenger traffic on international flights to and from Asia, compounding 

the economic downturn in the aviation industry that began in 2000. 
Page 10 GAO-05-542T 

major decline in transatlantic traffic after September 11, first obtained a 

₤60 million short-term loan from its lending banks and then refinanced, 

bringing in a new equity partner (BAA, plc.).13

To pay for capital projects, the five ANSPs can either use current 

operating revenues or borrow funds. Before commercialization, the ANSPs 

relied on annual appropriations for capital projects; now, all five can 

borrow funds through access to private capital and debt financing. For 

example, NAV CANADA can seek debt financing in private markets. NAV 

CANADA has a borrowing capacity of C$2.9 billion. In Germany, DFS 

mainly finances its capital expenditures by drawing on a capital market 

program, which issues short-, medium- , or long-term notes (i.e., debt 

issuance and commercial paper) each amounting to € 500 million for a 

total of € 1 billion to private investors in the market. DFS can also draw on 

an annual credit line of €161 million from its bank. 

Stakeholders, including employees, as well as the airlines, general aviation 

operators, airports, the government, the public, and others, may be 

involved in their ANSP through a variety of mechanisms. In Europe, for 

example, the Single European Sky initiative directs member states to 

establish a consultation mechanism for involving stakeholders. Germany 

and the UK have followed this direction by including stakeholder 

representatives on their ANSP’s board of directors. For example, in 

Germany, DFS employees, government ministries, and the private sector 

are represented on a supervisory board. In the UK, government 

appointees, the airlines, and BAA, plc. (the airport consortium) are 

represented on NATS’s board. In Australia, the aviation community (e.g., 

the airports, airlines, safety authorities, and others) has a role in the air 

traffic procurement process through the Australian Strategic Air Traffic 

Management Group (ASTRA). 

For all five commercialized ANSPs, safety remains the primary goal. In 

some countries, government policy requires that the ANSP consider safety 

in any and all decisions affecting operations and service. For example, in 

Germany, legislation requires DFS to observe ICAO’s standards and 

 13Total new investment made in NATS as part of the refinancing arrangement was ₤130 

million—₤65 million from BAA, plc., matched by an additional ₤65 million from the UK’s 

Department for Transport. 

ANSPs Have Mechanisms for 

Stakeholder Involvement and 

Communication 

Common Focus on Safety 

Among the Five 

Commercialized ANSPs 
Page 11 GAO-05-542T 

recommended safety practices, as well as adhere to the objectives and 

policies of international organizations where the German government is 

represented, such as EUROCONTROL. Similarly, in Canada, legislation 

requires NAV CANADA to maintain a fixed level of safety. Under the Civil 

Air Navigation Services Commercialization Act, the Minister of Transport 

has the authority to direct NAV CANADA to maintain or increase levels of 

service in the interest of safety. Although it can alter operations in 

accordance with business principles, it must demonstrate that the changes 

meet the required level of safety through an aeronautical risk assessment. 

All five ANSPs are subject to external safety regulation. A separate 

authority conducts safety regulation and issues relevant certifications or 

licenses to air traffic controllers and technicians. In New Zealand, for 

example, the Civil Aviation Authority (CAA) is an independent regulatory 

authority that establishes civil aviation safety and security standards and 

monitors adherence to those standards. CAA carries out accident and 

incident investigations and uses information from these investigations to 

establish an industrywide safety picture and develop safety initiatives 

ranging from education campaigns to increased monitoring and regulatory 

action. 

All five selected ANSPs have established formal safety programs. For 

example, Airservices Australia employs a surveillance model, which 

includes incident investigation, trend analysis, system review, and internal 

audit. Similarly, DFS and NATS apply a systematic Safety Management 

System to all of its operational activities. The system forms the basis for 

risk assessment, safety assurance, safety control and safety monitoring 

through standards that comply with national and international obligations. 

Each of the five commercialized ANSPs is its country’s sole provider of en 

route navigation services.14 There is no opportunity for more than one 

organization to provide competing air navigation services. Thus, operators 

cannot choose alternative providers by changing routes. To forestall the 

abuse of monopoly position and address concerns about the level of prices 

or charges, the five ANSPs are subject to the following: 

 14Although the ANSP for each country is the only provider of en route air navigation 

services and thus functions as a monopoly, some other air navigation services may 

theoretically be open to competition. For example, in the UK, NATS provides tower 

services—won on a competitive basis against other service providers—for only 14 UK 

airports. 

Five Commercialized 

ANSPs Undergo Some 

Form of Economic Review 

or Follow Price-Setting 

Guidelines 
Page 12 GAO-05-542T 

• In the UK, the Civil Aviation Authority (CAA) exercises economic 

regulation over NATS. CAA’s Economic Regulation Group sets price caps 

for 5-year periods, basing them generally on the retail price index15 and the 

group’s own analyses of allowances for NATS’ estimated operating and 

capital costs. 

• The Australian Competition and Consumer Commission (ACCC), an 

independent commonwealth authority, monitors primarily monopolistic 

public and private service industries, including Airservices Australia. 

ACCC oversees Airservices Australia’s process of setting user fees for air 

traffic services and decides to accept or reject price changes on the basis 

of public consultation and its own evaluation of Airservices’ pricing 

proposals. 

• Airways Corporation of New Zealand operates under a memorandum of 

understanding with its airline users. Under this memorandum, Airways 

uses the principle of “Economic Value Added” (EVA) to self-regulate its 

pricing. EVA is the difference between net operating profit after taxes 

minus the cost of capital. EVA above a certain level is returned to users in 

the form of a rebate. 

• The German Transport Ministry reviews and approves any changes in user 

fees, but does not independently evaluate the price-setting process or 

pricing changes. According to the Transport Ministry, Germany plans to 

create an independent economic regulatory authority by next year to 

comply with the requirements of the forthcoming Single European Sky 

initiative. 

• The Canadian Transportation Agency (CTA) reviews the price-setting 

process against an established set of principles. However, CTA does not 

respond to user grievances about existing prices. NAV CANADA is 

legislatively required to place all revenues in excess of costs in its rate 

stabilization fund. 

 15The retail price index is the average measure of change in the prices of goods and 

services bought for consumption by the vast majority of households in the UK. 
Page 13 GAO-05-542T 

Based on information from each of the ANSPs we reviewed, following 

commercialization, air navigation safety has not declined, and all five 

ANSPs have taken steps to control costs. In addition, the ANSPs have 

improved the efficiency of their operations through the implementation of 

new technologies and equipment. According to the ANSPs, some of these 

outcomes would not have been feasible in a government organization. 

At a minimum, safety has not eroded since commercialization, according 

to the available data from of each of the five ANSPs. For example, data 

from Airways Corporation of New Zealand indicate a downward trend in 

incidents involving loss of separation16 for the years following 

commercialization. Similarly, according to NAV CANADA’s annual report 

for 2004, the rate of loss-of-separation incidents decreased from 1999/2000 

through 2003/2004. Officials at Transport Canada, the safety regulator, 

confirm an overall decline in aviation incidents since commercialization. 

Additionally, stakeholders have anecdotally reported that they believe the 

air navigation system is as safe as it was when the government provided 

air navigation services. According to some, the separation of operating and 

regulatory functions has strengthened safety regulation and diminished 

any potential conflict of interest between promoting the financial interests 

of aviation operators and protecting safety. 

As improved technology and system upgrades have allowed individual 

controllers to handle increasing levels of air traffic, concerns have arisen 

about the potential for controllers’ fatigue to compromise safety. Data are 

not available to assess this potential, but some ANSPs have taken steps to 

limit and monitor controllers’ workload. For example, the UK’s CAA has 

regulated the hours of civil air traffic controllers, and its Safety Regulation 

Group must be notified of any breach by NATS or by controllers. In New 

Zealand, as air traffic has increased, some airspace sectors have been 

subdivided so that controllers are responsible for a smaller piece of 

airspace. 

 16Loss of separation is an occurrence or operation that results in less than the prescribed 

separation between aircraft, vehicles, or objects. 

Available Data 

Indicate That Since 

Commercialization, 

the Five ANSPs Have 

Maintained Safety, 

Controlled Costs, and 

Achieved Efficiencies 

Since Commercialization, 

Safety Performance Has 

Not Been Compromised 
Page 14 GAO-05-542T 

To lower their personnel costs, all five ANSPs have reduced their 

administrative staff or flattened their management organizations. For 

example, NAV CANADA closed most of its regional administrative offices 

and centralized corporate functions to its headquarters, reducing mostly 

administrative staff by 1,100 people (17 percent of the workforce). Airways 

Corporation of New Zealand also reportedly reduced its personnel costs 

by eliminating some middle management and administrative positions. In 

general, the ANSPs have not reduced their air traffic controller staffs. 

To lower their facility operating costs, all five ANSPs have closed, 

relocated, or consolidated facilities. For example, Airways Corporation of 

New Zealand reported consolidating four radar centers into two over 8 

years and is planning to consolidate these two into a single radar center by 

2006. DFS has also integrated operations and consolidated facilities. 

Seventeen approach units have been integrated from the airports to the 

four air traffic control centers. It relocated the Dusseldorf control center 

to the Langen control center in 2002, a year earlier than planned, and 

transferred and consolidated its headquarters from Offenbach to Langen. 

DFS reports that, because its supervisory board now makes major 

investment decisions, rather than a parliamentary committee, it has been 

able to make key strategic decisions that would have been politically 

difficult when DFS was under government control. 

In the UK, NATS reduced its net operating costs by almost ₤96 million 

during 2002 through 2004, in part through direct management actions. For 

example, it consolidated two operations into one at the new air navigation 

services center called the Swanwick Center. According to NATS, it 

reduced its staff costs by ₤12 million and its costs for services and 

materials by about ₤11 million between 2002 and 2003, after placing this 

new center in service. Between 2003 and 2004, NATS reported reducing its 

operating costs for air traffic services by another ₤13 million through cost 

control measures. 

All five ANSPs have purchased new equipment and technologies that they 

say have improved productivity. For example, Airservices Australia 

reported increases in controllers’ productivity following the introduction 

of the Australian Advanced Air Traffic System (TAAATS). This system 

replaced conventional radar screens with more advanced computer 

screens that display data from a range of sources, including ground based 

surveillance equipment and satellite-linked navigational equipment on 

aircraft, among others. TAAATS replaced handwritten paper flight 

progress strips with screen-based information that is updated 

Five Commercialized 

ANSPs Have Taken Steps 

to Reduce Operating Costs 

Five ANSPs Say They Have 

Improved Efficiency 

through Modernization 
Page 15 GAO-05-542T 

automatically. DFS is also eliminating systems that depend on paper strips 

and anticipates productivity gains and cost savings as a result. In New 

Zealand, according to the union that represents air traffic controllers, 

individual controllers are now able to handle much more flight activity 

because of improved technology. 

Besides improving productivity, modernization, together with airspace 

redesign, has produced operational efficiencies, including fewer and 

shorter delays, according to the ANSPs. 

Commercialization has allowed the ANSPs to implement modernization 

projects more efficiently. Formerly, the uncertainty associated with the 

annual appropriations from national governments made it difficult to plan 

over multiple years. With access to cash flow and borrowed funds, the 

ANSPs report that they have been able to plan and execute projects more 

efficiently and have seen improvements in delivering projects on time, 

within budget, and to specification. For example, Airways Corporation of 

New Zealand deployed its new oceanic system, FANS1, in less than a year. 

The management of NAV CANADA estimates that it is producing new 

technology faster than the government once did and at half the cost. 

Some of the commercialized ANSPs maintain that they have achieved the 

benefits of modernization faster and at less cost by purchasing 

commercially available systems and upgrades or by modifying off-the-shelf 

technologies to meet their needs, rather than developing their own 

systems from the ground up. NATS purchased its oceanic system and 

automated tower/terminal control system from NAV CANADA. To achieve 

further purchasing efficiencies, some commercialized European ANSPs 

have developed an alliance to procure systems. For instance, Germany has 

developed a strategic alliance with Switzerland and the Netherlands for 

the joint procurement of a new radar system. 

Through their cost control initiatives and modernization efforts, some of 

the ANSPs have been able to lower their unit costs and, in turn, lower their 

charges to major commercial airlines, which pay the largest proportion of 

user fees and therefore are the primary users served by the ANSPs. 

Airservices Australia, for example, reported lower unit costs resulting 

from the increases in controllers’ productivity that followed the 

introduction of TAAATS. NAV CANADA estimates that it is saving the 

airlines approximately C$100 million annually in reduced aircraft 

Access to Cash Flow and 

Borrowed Funds Has 

Facilitated Modernization 

Focus on Cost Control and 

Operational Efficiency Has 

Affected User Charges 
Page 16 GAO-05-542T 

operating costs. According to NAV CANADA, the airlines are now paying 

20 percent less in user fees than it formerly paid in ticket taxes when the 

government provided air navigation services.17 In Germany, Lufthansa 

stated that except in business years 2001 through 2003, it has paid less in 

user fees than it paid during the initial commercialization of Germany’s air 

navigation service. According to Airways Corporation of New Zealand, it 

reduced en route charges by 22 percent in 1995 and another 13 percent 

since 1997, resulting in an overall reduction of more than 30 percent. 

However, for general aviation operators, commercialization has 

sometimes meant an increase in fees. Before commercialization, many 

only paid taxes on fuel. Some countries, such as Canada and New Zealand, 

have tried to make the fees affordable for small operators by charging a 

flat fee. NAV CANADA, for instance, charges general aviation operators a 

flat annual fee of C$72. According to the Aircraft Owners and Pilots 

Association—New Zealand, Airways Corporation of New Zealand charges 

general aviation operators a fee of NZ$100 for 50 landings. In addition, 

Airways eliminated the en-route charge for light aircraft. 

Some governments have subsidized air navigation services at small, 

remote, general aviation, and regional airports, viewing such services as a 

public good. Australia, for instance, provides a subsidy for service to some 

remote areas under the Remote Air Subsidy Scheme. Similarly, to protect 

service to remote locations and ensure equity of service to smaller 

communities, Canada legislatively requires NAV CANADA to maintain 

service to such locations. For instance, service to the Northern region, 

which is designated as “remote,” is guaranteed under the legislation. In 

addition, NAV CANADA is required to price services to remote locations 

on the same basis as service to the rest of the country. 

Through our research, we made a number of initial observations about the 

commercialization of air navigation services in the five countries we 

selected. The following paragraphs summarize these observations. 

 17While Australia, Canada, and New Zealand collect both en route and terminal fees 

themselves, Germany and the UK collect terminal fees themselves and receive en route 

fees collected for them by EUROCONTROL. 

Initial Observations 

on Commercialized 

ANSPs 
Page 17 GAO-05-542T 

Following commercialization, two changes—shifting the source of funding 

from appropriations to user fees and allowing the ANSPs to borrow money 

on the open market—have generally enabled commercialized ANSPs to 

cover their operating and capital costs. However, user fees and borrowing 

may not be sufficient to cover an ANSP’s costs during an industry 

downturn. As a result, a contingency fund or other mechanism may help to 

offset the effects of a downturn, although it may not do so completely if 

the effects are severe. 

When the economy began to stagnate in 2000 and air traffic began to 

decline, revenues from ANSP user fees began to fall. These revenue losses 

grew as transatlantic traffic declined after September 11, particularly 

affecting some ANSPs. In the UK, as a result of both these losses and the 

relatively high debt that it had assumed to commercialize, NATS’s 

solvency was threatened. Ultimately, NATS refinanced its debt with the 

concurrence of the Department for Transport and other shareholders. In 

Germany, DFS also experienced revenue losses, but to a lesser degree. 

DFS reported a loss of more than €33 million in 2001, when air traffic 

declined by 0.9 percent over the previous year. In 2002, it sustained a loss 

of more than €21 million, when air traffic levels fell 2.9 percent below 2001 

levels. To address these deficits, DFS modified investments, canceled 

projects, and ultimately raised fees, thereby increasing financial pressures 

on the airlines. However, when air traffic increased again in 2003, DFS 

recorded an operating profit of more than €80 million and reduced fees for 

2005 en route by 19.5 percent and terminal charges by 28 percent. DFS has 

begun to consider the benefits of a reserve fund, but German legislation 

governing air navigation service charges must be changed before DFS will 

be allowed to develop such a reserve. NAV CANADA had banked up to 

C$75 million in its rate stabilization fund before September 11 and the 

concerns about SARS. However, following the severe industry downturn 

resulting from these two events, the fund was quickly exhausted. 

Because the ANSP is typically the sole provider of en route and approach 

control services in a country, some mechanism may be necessary to keep 

prices in check. Since user fees constitute the ANSP’s primary source of 

revenue, economic monitoring and regulation by an independent third 

party can protect users and ensure a fair pricing process. Such an entity 

can ensure that all parties’ interests are taken into account and a variety of 

alternatives are considered. It can also provide assurance to users that 

price levels are appropriate, do not reflect overcharging, and are 

consistent with competitive practices. 

Having a Contingency 

Fund Can Help, but May 

Not Be Sufficient, to 

Protect Against an 

Industry Downturn 

Some Economic Review or 

Guidelines May Be Needed 

to Ensure Fairness in 

Pricing 
Page 18 GAO-05-542T 

ICAO recognizes the need for an independent mechanism to provide 

economic regulation of air navigation services. According to ICAO, the 

objectives of economic regulation should include the following: 

• Ensure nondiscrimination in the application of charges. 

• Ensure that there is no overcharging or other anticompetitive practice. 

• Ensure the transparency and availability of all financial data used to 

determine the basis for charges. 

• Assess and encourage efficiency and efficacy in the operation of providers. 

• Establish standards for reviewing the quality and level of services. 

• Monitor and encourage investments to meet future demand. 

• Ensure user views are adequately taken into account. 

Australia and Canada have taken different approaches to reviewing their 

ANSPs’ user charges and price setting. In Australia, the Australian 

Competition and Consumer Commission (ACCC) oversees price changes. 

Airservices Australia must notify ACCC whenever it wants to raise fees. 

Following a formal notification and vetting process, ACCC decides to 

accept or reject the price change on the basis of its evaluation of 

Airservices’ pricing proposal; and if they reject the proposed price, they 

can set a lower price. Recently, the ACCC rejected a proposal by 

Airservices for a temporary fee increase to address the revenue losses that 

followed September 11 and the SARS outbreak, as well as the collapse of 

Australia’s second largest airline. In rejecting the proposal, ACCC 

considered the fact that the industry took exception to these increases, 

raising concerns about the need for longer-term price certainty. ACCC 

ruled in favor of the industry and rejected the temporary price increases, 

instead deciding that a longer-term arrangement be considered. ACCC 

directed Airservices to focus on 5-year pricing plans to encourage longterm planning, emphasizing that the robustness of the airlines should be 

taken into account when a price is set. 

Canada has no formal regulation of fee setting. According to the Office of 

the Auditor General, the Canadian Transportation Agency (CTA), the 

formal appeal agency, can intervene only in matters concerning the price–

setting process, not price levels or price changes. CTA was not given 

authority over price-setting issues to ensure that NAV CANADA could 
Page 19 GAO-05-542T 

maintain a good credit rating, thus making NAV CANADA appealing to 

financiers. (As of April 2005, NAV CANADA’s bonds were rated AA–nearly 

as high as the government’s AAA-rated bonds.) NAV CANADA’s board of 

directors, which includes air carrier representatives, is the main venue for 

the industry to express any grievances over pricing issues. However, 

according to Air Canada, its input on the board is limited and, because the 

public has comparable representation on the board, the public and the 

industry cancel out each other’s input. When NAV CANADA raised prices 

after its rate stabilization fund was exhausted during the economic 

downturn, air carriers argued that this move further disrupted their 

business cycle during a time of financial strain. 

CAA officials said they must ensure that society’s broader interests are 

protected. In particular, GAO believes addressing the concerns of air 

traffic controllers was essential because they play a vital role in the air 

navigation system. For several of the ANSPs we reviewed, controllers’ 

support of commercialization was crucial to move the process forward. In 

New Zealand, controllers supported commercialization when faced with 

an aging system and inadequate public funds to acquire new equipment. 

Controllers in Canada supported the transition following a 5-year salary 

freeze and hiring freezes. However, Canadian controllers’ support for 

commercialization has diminished, mainly because of differences over 

collective bargaining issues such as wage increases, the right to strike and 

controller fatigue. The Canadian controllers have acknowledged that they 

were instrumental in pushing for change, but they have also noted that the 

results of commercialization have fallen short of their expectations. 

ANSPs have also noted the importance of involving stakeholders in efforts 

to design, acquire, and deploy new technologies. According to Airservices 

Australia, its air traffic controllers have come to understand the 

commercial imperative to make a return on investment. Similarly, Airways 

Corporation of New Zealand notes that it is essential to involve the same 

controllers throughout the design process so that there is consistency in 

requirements and a thorough understanding of the project’s ongoing 

specifications. In Airways’ experience, it is essential for controllers, 

manufacturers, and the ANSP to reach agreement in order to establish 

realistic expectations for system design from the very beginning. 

Early and Continuous 

Stakeholder Involvement 

Is Key 
Page 20 GAO-05-542T 

Hypothetically, small or remote communities, that rely primarily on 

aviation for transportation, may be threatened by location-specific pricing. 

Under this pricing scheme, an ANSP charges a fee for service that matches 

the cost of providing that service to a specific location. As a result, some 

communities may be subject to higher charges than others. By contrast, 

two ANSPs have used network pricing, a scheme that charges the same fee 

for air navigation services to every airport, regardless of size or location, 

even though the costs of providing the services to some airports may be 

greater than to others. Under network pricing, the service to heavily used 

airports subsidizes the service to others. 

Two of the ANSPs have adopted location-specific pricing for some air 

navigation services. (Airport services are provided by competition in the 

U.K., which may result in different prices.) Often, the minimum costs of 

service to small or remote communities are higher per plane than the costs 

of service to large communities because the cost of air navigation services 

must be spread among fewer operators, usually with smaller aircraft. If 

airlines decide that service to such communities is not commercially 

viable, they may ultimately discontinue service to these communities. 

Similarly, general aviation operators may be threatened if they are 

required to pay fees that cover the full costs of the air navigation services 

they receive. Continuing to serve small communities and operators may 

require special efforts to balance public service needs and business 

interests. 

In addition to the Remote Air Subsidy Scheme mentioned earlier, Australia 

also provided a subsidy that allowed prices to be capped at most general 

aviation and regional airports. This subsidy was designed to ease the 

transition to location specific pricing for select airports and is scheduled 

to end in June 2005. Consequently, Airservices Australia reported that, in 

order to compensate, it will be increasing charges over the next 5 years at 

these locations and that these increases have been approved by the 

regulator. These increases have been moderated to balance the effect on 

aviation at airports frequently used by general aviation operators. As a 

result, concerns persist about the implications of further price increases 

and any future need to close or reduce services at these locations. Some 

fear that needed air services to remote bush locations will be lost while 

others fear that secondary services such as flight school training will be 

affected. 

Hypothetically, the impact on small operators and remote communities is 

difficult to assess. Theoretically, costs may go up as a result of 

implementing user fees, but charges may not necessarily be prohibitive. 

Steps May Be Needed to 

Balance Public and 

Business Interests 
Page 21 GAO-05-542T 

Where service to small communities is legislatively mandated, ANSPs may 

ultimately be forced to take a financial loss if they are not able to fully 

recover their costs. Airservices Australia is seeking to control costs at 

some of those locations by deploying new lower-cost technologies to serve 

small communities. For example, Airservices Australia is planning to 

install Automatic Dependent Surveillance Broadcast (ADS-B) ground 

stations, which will allow air traffic surveillance services over remote 

regions of Australia where radar is not a cost-effective solution. 

To protect taxpayers’ interests, the countries that commercialized their air 

navigation services needed to have an appropriate valuation of their 

facilities and equipment before selling these assets to the newly 

established ANSP. According to the Office of the Auditor General (OAG) 

in Canada, Canada did not properly value its ANSP assets and 

infrastructures. The C$1.5 billion value that the government negotiated 

with NAV CANADA in 1996 fell short of the C$2.3 billion to 2.4 billion 

estimate developed in 1995 by a third party hired by the OAG. NAV 

CANADA reported, however, that both it and Transport Canada disagreed 

with the OAG’s estimate and its underlying assumptions. In a study of the 

NATS reorganization, the National Audit Office (NAO) found that the UK 

government had raised some ₤758 million from the sale of the ANSP to a 

consortium of seven UK-based airlines. However, these proceeds were 

realized by increasing the level of NATS’s bank debt. As a result of this 

debt, NATS was extremely vulnerable to the decline in air traffic after 

September 11. DFS is currently undergoing a valuation of its assets in 

preparation for selling 74.9 percent of its equity to private investors in a 

formal competitive bidding process. 

Some countries experienced difficulties in retaining a sufficient number of 

staff to carry out safety regulation. For example, in Canada, many of the 

safety staff moved to the newly established NAV CANADA after 

commercialization, leaving the government regulator, Transport Canada, 

with insufficient staff to carry out timely safety inspections during the first 

6 months after commercialization. Germany faces a similar challenge as 

the government prepares to develop a safety regulatory authority in 

accordance with the Single European Sky initiative by the end of this year. 

According to the Transport Ministry, it may be difficult for the government 

to recruit safety staff on a civil service salary and compete with the 

salaries of safety inspectors from the private sector. 

Appropriately Assessing 

the Value of Assets Is 

Essential for Sound Pricing 

and Cost Accounting 

Maintaining Staff Levels 

and Expertise During 

Commercialization Can 

Prevent Disruptions in 

Regulatory Functions 
Page 22 GAO-05-542T 

Obtaining baseline measures before commercializing a country’s air 

navigation services will allow the government and others to assess the 

new ANSP’s safety, cost, and efficiency. Some of the countries whose 

ANSPs we reviewed did not collect baseline data or measure performance 

as extensively as the commercialized ANSPs have since done. As 

businesses, commercialized ANSPs must assess the progress they are 

making toward their goals to access private funding, and therefore they 

need extensive performance data. In addition, international organizations, 

such as CANSO and ICAO, support commercialized ANSPs and ICAO, for 

example, emphasizes the importance of having transparent financial data 

available for economic oversight. 

Mr. Chairman, this concludes my prepared statement. I would be pleased 

to respond to any questions that you or the other Members of the 

Subcommittee may have. 

For further information about this testimony, please contact me at (202) 

512-2834 or dillinghamg@gao.gov. Individuals making key contributions to 

this testimony included Bess Eisenstadt, Samantha Goodman, Hiroshi 

Ishikawa, Jennifer Kim, Steve Martin, and Richard Scott. 

Developing Baseline 

Measures before 

Commercialization Will 

Enhance Performance 

Measurement 

GAO Contacts and 

Staff 

Acknowledgements 

(540098) 
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