a

GAO

United States Government Accountability Office

Report to Congressional Requesters

July 2005 AIR TRAFFIC 

CONTROL

Characteristics and 

Performance of 

Selected International 

Air Navigation Service 

Providers and Lessons 

Learned from Their 

Commercialization

GAO-05-769
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-769 

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-05-769, a report to 

congressional requesters 

July 2005

AIR TRAFFIC CONTROL 

Characteristics and Performance of 

Selected International Air Navigation 

Service Providers and Lessons Learned 

from Their Commercialization 

The five commercialized ANSPs that GAO selected have a number of 

common characteristics: All five have the safe movement of aircraft as their 

primary goal and are subject to some external safety regulation. All five 

operate as businesses, making and carrying out their own strategic, 

operational, and financial decisions. As businesses, all five are selffinancing, assessing fees on users of air navigation services (e.g., major 

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

aviation operators) and, as necessary, borrowing funds from capital markets. 

Finally, all five are largely monopoly providers of air navigation services and 

undergo some form of constraint in setting prices, such as economic review 

or procedural guidelines. 

Available data from the five ANSPs indicate that since commercialization, 

the safety of air navigation services has remained the same or improved; 

each ANSP has taken steps to control costs; and each ANSP has reportedly 

lowered costs and improved efficiency through investments in new 

technologies and equipment. Despite concerns about the possibility that 

commercialization could potentially 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 aircraft). All five ANSPs have taken steps to control their 

operating costs, whether by eliminating some administrative positions or by 

consolidating facilities. All five ANSPs have also invested in 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. However, the ANSPs have also increased 

fees for general aviation operators. 

GAO’s research points to a number of lessons. For example, commercialized 

ANSPs must be prepared to mitigate the effects of an industry downturn, 

whether through reserves, higher fees, cost-cutting, or other measures. 

Involving stakeholders in modernizing (i.e., upgrading or replacing) ANSP 

facilities and equipment can benefit both the ANSP and the stakeholders. 

Special measures may be needed to protect service to small or remote 

communities. Finally, when a government sells an ANSP’s assets, 

appropriate valuation is necessary to protect taxpayers’ interests. 

Montreal Tower Control 

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 as a 

business. 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 develop, as requested, a 

descriptive analysis of 

commercialized ANSPs that 

illustrated similarities and 

differences in ownership, length of 

experience with 

commercialization, and size and 

scope of operations. 

This report addresses the following 

questions: (1) What are common 

characteristics of commercialized 

ANSPs in selected foreign 

countries? (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 key lessons learned about 

the commercialization of air 

navigation services? 
Page i GAO-05-769 Air Traffic Control

Contents

Letter 1

Results in Brief 3

Background 5

Common Characteristics of the Five Selected Commercialized 

ANSPs 8

Since Commercialization, the Five ANSPs Have Maintained Safety, 

Controlled Operating Costs, and Achieved Efficiencies 18

Lessons Learned about the Commercialization of Air Navigation 

Services 24

Appendixes

Appendix I: Scope and Methodology 31

Appendix II: GAO Contact and Staff Acknowledgments 34

Tables Table 1: Summary Information on the Five Commercialized ANSPs 

That We Reviewed 6

Table 2: Ownership of the Five Selected Commercialized ANSPs 10

Figures Figure 1: Langen Control Center, Langen, Germany 20

Figure 2: The Australian Advanced Air Traffic System 22
Contents

Page ii GAO-05-769 Air Traffic Control

Abbreviations

ACCC Australian Competition and Consumer Commission

ANSP air navigation service provider 

CAA Civil Aviation Authority

CANSO Civil Air Navigation Services Organization

CTA Canadian Transportation Agency

DFS Deutsche Flugsicherung GmbH

EVA economic value added

EXCDS Extended Computer Display System

ICAO International Civil Aviation Organization

NATS National Air Traffic Services, Ltd.

OAG Office of the Auditor General

PBO performance-based organization

SARS Severe Acute Respiratory Syndrome 

TAATS The Australian Advanced Air Traffic System

UK United Kingdom

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately.
Page 1 GAO-05-769 Air Traffic Control

United States Government Accountability Office

Washington, D.C. 20548

A

July 29, 2005 Letr

The Honorable Ted Stevens

Chairman

The Honorable Daniel Inouye

Co-Chairman

Committee on Commerce, Science, 

and Transportation

United States Senate

The Honorable Conrad Burns 

Chairman

The Honorable John D. Rockefeller, IV

Ranking Minority Member

Subcommittee on Aviation 

Committee on Commerce, Science, 

and Transportation

United States Senate

The Honorable John McCain 

United States Senate

The Honorable Trent Lott

United States Senate

Since 1987, 38 nations have commercialized1

 their air navigation services, 

fundamentally shifting the responsibility for providing these services from 

the national government to an independent air navigation service provider 

(ANSP) that operates as a business and is designed as a performance-based 

1

According to the International Civil Aviation Organization, “commercialization” is the 

ability of an organization to operate like a commercial business. In discussions about air 

navigation services, the term is often used interchangeably with other terms, including 

restructuring, privatization, outsourcing, and corporatization. For this report, we use the 

term “commercialization.”
Page 2 GAO-05-769 Air Traffic Control

organization.2 In the past, governments worldwide owned, operated, and 

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

But as nations were faced with increasing congestion, outdated equipment 

and facilities, and financial strains, many governments reevaluated their 

structures for providing air navigation services. Some nations 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 and is still considered a governmental function.

You asked that we develop a descriptive analysis of selected foreign 

countries’ commercialized, performance-based air navigation service 

organizations. To do so, we asked the following research questions:

• What are common characteristics of commercialized ANSPs in selected 

foreign countries? 

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

of air navigation services have changed since commercialization?

• What are some key lessons learned about the commercialization of air 

navigation services? 

To address these questions, we reviewed the characteristics and 

performance of five commercialized ANSPs, which we selected as 

illustrative of similarities and differences in ownership, length of 

experience with commercialization, and size and scope of operations. 

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 since then as performance-based 

2

A performance-based organization (PBO) is a discrete management unit with strong 

incentives to manage for results. In the 1990s, Congress recognized the need to restructure 

federal agencies and to hold them accountable for achieving program results. To this end, 

Congress legislated the establishment of PBOs, modeled after the United Kingdom’s 

executive agencies. As designed in statute, PBOs were to commit to clear management 

objectives and specific targets for improved performance. These clearly defined 

performance goals, coupled with direct ties between the achievement of the goals and the 

pay and tenure of the head of the PBO and other senior managers, were intended to lead to 

improved performance. 
Page 3 GAO-05-769 Air Traffic Control

organizations. Because we selected these ANSPs to illustrate certain 

characteristics, our results cannot be generalized to all commercialized 

ANSPs.3

A performance-based organization develops strategies, goals, and 

measures and gathers and reports data to demonstrate its performance.4

The five ANSPs that we reviewed have been gathering and reporting data 

since commercialization, but their predecessor organizations did not 

necessarily gather or publicly report comparable data. Consequently, 

assessments of each ANSP’s performance since commercialization are 

possible, but comparisons of performance before and after 

commercialization are generally not feasible. Additionally, opportunities 

for comparing performance across commercialized ANSPs are limited to 

the extent that the ANSPs define their measures of safety, cost, and 

performance differently. We determined that the financial and safety data 

from each country were sufficiently reliable for our purposes. For 

additional information on our scope and methodology, see appendix I. We 

performed our work in accordance with generally accepted government 

auditing standards from August 2004 through July 2005. 

Results in Brief The five commercialized ANSPs that we selected for review have a number 

of common characteristics: All five have the safe movement of aircraft as 

their primary goal and are subject to some external safety regulation by an 

arm’s-length government regulatory authority. All five operate as 

businesses rather than as government organizations, making and carrying 

out their own strategic, operational, and financial decisions. As businesses, 

all five are self-financing, assessing fees on users of air navigation services 

(e.g., major commercial air carriers; regional air carriers; and, in some 

cases, general aviation operators) and, as necessary, borrowing funds from 

capital markets, instead of receiving annual appropriations from the 

3

Because we selected the five ANSPs in our sample to illustrate similarities and differences 

in specific characteristics, our sample is a nonprobability sample, and the results from such 

a sample cannot be used to make inferences about the ANSPs we did not review. 

4

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); Performance-Based 

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 4 GAO-05-769 Air Traffic Control

government. Finally, all five are largely monopoly providers of air 

navigation services and are constrained in the price-setting process by 

some form of economic review or procedural guidelines. 

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 ANSP has taken steps to control costs; and each 

ANSP has reportedly lowered costs and improved efficiency through 

modernization—that is, through investments in new technologies and 

equipment. Despite concerns about the possibility that commercialization 

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

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

fewer incidents involving loss of separation (the required distance between 

aircraft). Additionally, stakeholders told us 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 have 

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, and some ANSPs have 

increased or plan to increase the costs of service to small or remote 

locations. 

We derived a number of lessons from our research on commercialized 

ANSPs. First, commercialized ANSPs must be prepared to mitigate the 

effects of an industry downturn through such measures as establishing a 

reserve fund, implementing a revenue-generating alternative to user fees, 

or cutting costs. Second, involving stakeholders in efforts to modernize 

(i.e., upgrade or replace) ANSP facilities and equipment can help to ensure 

mutually beneficial results. Third, the conflict between an ANSP’s need to 

recover its costs and the inability of some users (e.g., regional air carriers) 

to pay the full costs of service to small or remote communities may mean 

that special measures are needed to protect service to such communities. 

Fourth, 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 taxpayers’ interests and create a basis for 

sound financial decision making. Fifth, maintaining and attracting 

sufficient personnel, with the skills and expertise needed to ensure that the 
Page 5 GAO-05-769 Air Traffic Control

regulator can provide uninterrupted safety regulation is important when 

operations are separated from regulation during commercialization. 

Finally, developing baseline safety, cost, and efficiency measures prior to 

commercialization will allow the ANSP and others to assess the progress 

the ANSP is making toward its goals and evaluate the results of 

commercialization.

Background Before commercialization, air navigation services under government 

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

freezes on air traffic controllers’ wages and insufficient funds to replace 

aging technologies. Technology replacement programs often cost more, 

took longer, and delivered less than promised, and stakeholders 

complained about performance and customer service. 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. For instance, the New 

Zealand government established 14 state-owned enterprises in 1987, 

including air navigation services, rail services, and postal services. The 

government also reformed electricity as a state-owned enterprise in 1994 

and telecommunications in 2004.

Although fiscal problems often drove the commercialization of air 

navigation services, commercialization was generally intended not only to 

relieve the government of a fiscal responsibility but also to free the ANSP 

from some governmental constraints. According to the International Civil 

Aviation Organization (ICAO),5

 a commercialized ANSP, whether wholly or 

partly owned by the government or fully privatized, should function as an 

autonomous body and, compared with a government organization, should 

have greater freedom from the government in conducting its financial 

affairs and developing infrastructure funding. In addition, it should be selffinancing, subject to the usual business taxes, and required to seek a return 

5

ICAO is an advisory organization affiliated with the United Nations that aims to promote 

the establishment of international civil aviation standards and recommended practices and 

procedures.
Page 6 GAO-05-769 Air Traffic Control

on capital. According to ICAO, the government6 should still regulate the 

safety of the ANSP’s operations, but the ANSP should be encouraged to be 

as competitive, efficient, and cost-effective as any other commercial 

business. 

In the five countries whose air navigation services we reviewed, the ANSP 

continued to provide nationwide services after commercialization and, 

with limited exceptions, remained the sole provider of air navigation 

services. Table 1 summarizes information on the size and scope of the five 

ANSPs in our review. 

Table 1: Summary Information on the Five Commercialized ANSPs That We Reviewed

Source: GAO presentation of ANSP data. 

Each ANSP generally offers en route, approach control, and terminal (or 

aerodrome control) air traffic services. Although definitions of these terms 

may vary slightly among ANSPs, the terms generally signify the same broad 

functions. Specifically, en route services guide an aircraft while it is 

operating at cruising elevations and outside terminal airspace. Approach 

control services apply during departure—immediately after the aircraft has 

6

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

the government.” A statutory authority is a public sector entity, established by legislation, 

which has the legal status of a corporate body. The reference to “independent” reflects an 

intended degree of independence from the Minister, whereby the director of the entity is 

responsible for its day-to-day operations but is accountable for its performance to the 

Minister.

Country ANSP name

Year of

commercialization ANSP ownership

Approximate

number of

employees

(controllers)

Approximate

number of

movements

handled (year)

Australia Airservices Australia 1988 Wholly government 

owned

2,900

(1,100)

2,723,828

(2004)

Canada NAV CANADA 1996 Privately owned 

company

5,400

(2,300)

6,000,000

(2003)

Germany Deutsche Flugsicherung 

GmbH 

1993 Wholly government 

owned

5,400

(2,098)

2,720,000

(2004)

New Zealand Airways Corporation of New 

Zealand, Ltd.

1987 Wholly government 

owned

650

(340)

1,004,161

(2004)

United 

Kingdom

National Air Traffic Services, 

Ltd. 

2001 Partially government 

owned

3,758

(1,380)

2,000,000

(2004)
Page 7 GAO-05-769 Air Traffic Control

taken off and while it is climbing from the origination airport—and during 

arrival—when the aircraft is descending to the destination airport toward 

the end of the flight. Terminal or aerodrome control services are provided

while the aircraft is close to the airport from which it is arriving or 

departing. However, in some countries, the ANSP may not be the sole 

provider of approach control and terminal services.7

 All but Germany’s DFS 

also offer oceanic air navigation services.8 All five ANSPs are responsible 

for providing air navigation services to both civil and military aviation. In 

addition, the ANSPs may offer other air navigation-related services, such as 

meteorological, training, and consulting services, and charge for these 

services.9

The five commercialized ANSPs are affiliated with one or more 

international aviation-related organizations. The governments of all five 

ANPS are members of ICAO and, therefore, all five ANSPs adhere to ICAO 

principles. All five ANSPS are also members of the Civil Air Navigation 

Services Organization (CANSO), a voluntary international trade 

organization whose mission is to represent the interests of commercialized 

ANSPs. In addition, the UK and Germany are members of EUROCONTROL, 

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. 

EUROCONTROL is mandated to develop implementing rules for the 

European Union’s “Single European Sky” initiative, a legislative package 

approved by the European Parliament in January 2004.10 One of these 

implementing rules specifies that each member state is to develop an 

independent safety and economic regulatory authority to oversee its ANSP. 

7

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. 

8

Oceanic services are analogous to en route services, except that the aircraft is flying over 

the ocean, where fewer communication, navigation, and surveillance capabilities are 

available than over land.

9

NATS and NAV CANADA include charges for meteorological services in their basic service 

charges.

10This initiative consists 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 8 GAO-05-769 Air Traffic Control

The UK established such an authority before commercialization, and 

Germany is planning to develop one. 

Common 

Characteristics of the 

Five Selected 

Commercialized 

ANSPs 

The five commercialized ANSPs that we reviewed have a number of 

common characteristics: First, all focus on safely moving aircraft. Second, 

despite differences in ownership structures, all operate as businesses 

rather than as government organizations and are self-financing. Third, all 

are largely monopoly providers that are subject to some form of pricesetting constraint achieved through economic review or procedural 

guidelines. 

The Five Commercialized 

ANSPs Continue to Focus 

on Safely Moving Aircraft 

For all five commercialized ANSPs, the safe movement of aircraft remains 

the primary goal. In some instances, government policy requires that the 

ANSP consider safety in any and all decisions affecting operations and 

service. For example, according to DFS officials, German legislation 

requires DFS to observe ICAO’s standards and recommended safety 

practices, as well as adhere to the objectives and policies of international 

organizations in which the German government participates, such as 

EUROCONTROL. Similarly, in Canada, legislation requires NAV CANADA 

to maintain a fixed level of safe operations. According to Transport Canada, 

the safety regulator, the Minister of Transport has the authority to direct 

NAV CANADA to maintain or increase levels of service in the interest of 

safety. Although NAV CANADA 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 certificates or 

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

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

authority that, among other things, 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 educational campaigns to increased 

monitoring and regulatory action. In Australia, the Civil Aviation Safety 

Authority regulates and promotes aviation safety, and the Australian 

Transport Safety Bureau investigates aircraft accidents, incidents, and 

safety deficiencies within the aviation system, according to Airservices 
Page 9 GAO-05-769 Air Traffic Control

Australia. In Canada, NAV CANADA and the government, through 

Transport Canada, share responsibility for the safety of the national civil air 

navigation system. Under a performance-based approach to safety 

regulation, known as the relations management approach, Transport 

Canada, as the regulator, establishes the requirements in law and 

standards, and NAV CANADA, as the operator, must demonstrate 

compliance by measuring and reporting on program results. Transport 

Canada, among other things, conducts audits, adjudicates safety issues 

raised by stakeholders, and licenses air traffic controllers. 

All five selected ANSPs have also established formal safety programs. For 

example, DFS and NATS apply a systematic Safety Management System,11

in accordance with EUROCONTROL’s safety requirements, to all of their 

operational activities. This system forms the basis for risk assessment, 

safety assurance, safety control, and safety monitoring through standards 

that comply with national and international obligations. DFS’s Safety 

Management System was also certified by the German Ministry of 

Transport in 2004. Similarly, Airservices Australia employs a systemic 

Safety Management System that complies with national and international 

requirements. To promote safety, the system requires activities such as 

operational risk assessments, surveillance, audits, and incident 

investigations. 

Although the Degree of 

Government Ownership 

Varies, the Five 

Commercialized ANSPs 

Operate as Businesses, 

Making Their Own 

Decisions and Generating 

Their Own Revenue

The five commercialized ANSPs vary in the extent to which they are owned 

by the government—wholly, partially, or not at all. (See table 2.) Three of 

these ANSPs—Airservices Australia; Airways Corporation of New Zealand, 

Ltd.; and DFS—are state-owned corporations (i.e., companies wholly 

owned by the government). The UK’s NATS is a public-private partnership 

(i.e., 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 

11The Safety Management System is a systematic and explicit approach defining the 

activities by which an ANSP undertakes safety management to achieve acceptable or 

tolerable safety levels. It is a system to ensure that the ANSP has identified, assessed, and 

satisfactorily mitigated all safety risks, including establishing procedures for reporting and 

assessing safety occurrences in air traffic control and for assessing and mitigating risks. 
Page 10 GAO-05-769 Air Traffic Control

company12 (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. The corporation has 4 members 

representing government, airlines, noncommercial users, and the unions. 

These 4 members appoint 10 of the 15 board directors: 4 are appointed by 

the airline industry, 3 by the government, 2 by employees such as air traffic 

controllers and engineers, and 1 by general and business aviation. These 10 

directors appoint another 4 based on expertise and the chief executive 

officer. 

Table 2: Ownership of the Five Selected Commercialized ANSPs

Source: CANSO.

Before commercialization, members of the two ANSPs that are not wholly 

owned by their government, NATS and NAV CANADA, “purchased” some 

or all of the ANSP assets from the government. Although the UK 

government retained the largest share of NATS, the second-largest owner, 

the consortium of seven UK airlines known as “The Airline Group,” 

provided approximately $1.4 billion, according to information from the 

National Audit Office, including about $112.2 million from the group’s own 

resources and the remainder from a loan taken out with a consortium led

12This private company, BAA, plc., owns 7 UK airports, including London’s Heathrow, 

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

ANSP

State-owned 

corporation

Public-private 

partnership Private 

Airservices Australia ✔

Airways Corporation 

of New Zealand, Ltd. ✔

Deutsche 

Flugsicherung GmbH 

(Germany) ✔

National Air Traffic 

Services, Ltd. 

(United Kingdom) ✔

NAV CANADA ✔
Page 11 GAO-05-769 Air Traffic Control

by four major banks.13 The group used this sum to acquire NATS and meet 

associated transaction costs, leaving cash assets of approximately $6.0 

million in the business. In total, the government received an estimated $1.3 

billion in cash proceeds from the transaction.14 NAV CANADA purchased 

all of the ANSP assets from the Canadian government. Instead of going 

through a formal competitive bidding process, it negotiated a selling price 

with the government, and purchased the air navigation system in 1996 for 

about $1.5 billion, using a $2.9 billion line of credit provided by a syndicate 

of banks at the time of the purchase. NAV CANADA uses the remaining 

funds for capital investment and as working capital, as required. 

The ANSPs Make and Execute 

Their Own Decisions, Involve 

Stakeholders, and Follow 

Corporate Practices 

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. For example, in the UK, government appointees, the airlines, 

and BAA (the airport consortium) are represented on NATS’s board of 

directors, while in Germany, DFS employees, government ministries, and 

the private sector are represented on a supervisory board. As in a 

corporation, an executive officer implements the ANSP board’s policies 

and is, in turn, accountable to the board. Individual business units within 

the ANSP report to the chief executive officer and are directly responsible 

for various aspects of the ANSP’s day-to-day operations. For example, 

Airservices Australia is structured around three market-oriented business 

groups—the Air Traffic Management, Airport Services, and Infrastructure 

Support Services groups. A Corporate Services group and a small Head 

Office support and lead the business groups. The managers of these five 

groups form the Executive Committee and work with the chief executive 

officer to advise the board as well as carry out the board’s policies. 

While the supervisory board and its executive officers have decisionmaking responsibility, stakeholders—including employees, the airlines, 

general aviation operators, airports, the government, the public, and 

others—may be involved in and provide input to their ANSP through a 

13Unless otherwise noted, all financial amounts have been converted to U.S. dollars from 

each country’s local currency and adjusted for inflation.

14National 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.
Page 12 GAO-05-769 Air Traffic Control

variety of mechanisms. For example, DFS has developed a Customer 

Relationship Management System to organize hearings for customers and 

involve them in working groups. This approach to involving stakeholders is 

consistent with a Single European Sky directive that member states 

establish a mechanism for consulting with stakeholders. In Australia, the 

aviation community (i.e., the airports, airlines, safety authorities, and 

others) participates in Airservices’ strategic investment decision-making 

process through the Australian Strategic Air Traffic Management Group. In 

Canada, NAV CANADA’s stakeholders (i.e., associations, unions, and 

airports, including international and U.S. representatives) are involved in 

the NAV CANADA Advisory Committee, which provides a vehicle for 

stakeholders who are not on the board of directors to raise issues and 

concerns with NAV CANADA.

As commercial organizations, the ANSPs follow corporate practices. Each 

ANSP has established performance measures and gathers and reports 

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 audits by 

independent third parties to ensure that adequate accounting records have 

been maintained, and that internal controls have prevented or detected any 

fraud and error in the accounting policies and estimates.15 In addition, the 

UK and Germany report their data to EUROCONTROL, whose 

Performance Review Commission collects data for benchmarking and 

publishes comparative studies of members’ performance. 

The ANSPs Generate Revenue 

and Have Borrowing Authority

All five commercialized ANSPs rely on user charges as their primary source 

of revenue and on capital markets for additional funding. Before 

commercialization, governments funded air navigation services through 

annual appropriations. 

Since commercialization, each ANSP collects and manages its own 

revenues, charging fees for services. The air navigation service fees are 

based on ICAO’s cost recovery principles, which call for recovering the 

15As a publicly traded corporation, NAV CANADA is subject to the equivalent in Canada of 

the U.S. Sarbanes-Oxley Act, which requires independent auditors to attest to and report on 

internal control of the organization. 
Page 13 GAO-05-769 Air Traffic Control

ANSP’s operating costs.16 Despite some variation across ANSPs, the fees 

are generally as follows:

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

both en route and approach control services. These charges are based 

on a weight-distance formula.17 If applicable, ANSPs also levy charges 

for oceanic control. 

• The ANSPs may also charge for terminal-related services. However, not 

all ANSPs are the sole providers of terminal services. In the UK and 

Germany, for example, private firms may provide terminal services. 

These terminal charges are distinct from the landing fees typically 

charged by airports, which are usually weight-based.

• The 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.

• The ANSPs may also exempt charges for some services. According to 

ICAO policies, the ANSPs may choose to recover less than the full costs 

of some services in recognition of local, regional, or national benefits. 

For example, in Canada, aircraft or flights dedicated to search and 

rescue, air ambulance operations, and firefighting services are all 

exempt from air navigation service charges. 

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 the 

revenues 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 

16Fees for the European ANSPs also include a contribution to cover the expenses of 

EUROCONTROL.

17The 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. 
Page 14 GAO-05-769 Air Traffic Control

before September 11, 2001, but depleted during the economic downturn 

caused by the events of September 11 and the Severe Acute Respiratory 

Syndrome (SARS) outbreak of 2003.18

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 debt financing and private capital. For example, NAV 

CANADA obtains all of its financing in the public debt markets. NAV 

CANADA has a borrowing capacity of about $2.4 billion, of which $1.8 

billion is currently drawn.19 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 approximately $546.4 million for a total of almost $1.1 

billion, to private investors in the market. DFS can also draw on an annual 

credit line of around $175.9 million from its bank. 

The ANSPs Generate Revenues 

from Other Services 

The ANSPs may also charge fees, as applicable, for other services, such as 

aeronautical information, consulting, and training. For example, a DFS 

business unit offers consulting services in air traffic system design and 

implementation, feasibility studies, operational planning, air traffic system 

evaluation, and safety management systems. In 2003, DFS’s consulting 

service generated revenue of about $2.8 million. In the UK, NATS competes 

with other service providers to provide terminal services at UK airports. In 

addition, NATS, like DFS, consults and offers training for other ANSPs 

worldwide in implementing safety management systems, solving airspace 

capacity problems, and commercializing ANSPs. From this business unit, 

NATS generated profits of about $11.7 million in 2003 and about $14.8 

million in 2004.

Besides offering air navigation services in its own country, an ANSP may 

provide services and technology to other regions of the world to generate 

revenue. For example, Airservices Australia manages the upper airspace in 

18Concerns about the in-flight transmission of SARS, 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.

19The amount here does not include adjustments for inflation because it refers to the current 

2005 year. The foreign exchange rate as of June 17, 2005 (1 U.S. dollar = 1.23 Canadian 

dollars), was used to convert to U.S. dollars. 
Page 15 GAO-05-769 Air Traffic Control

the Solomon Islands. NAV CANADA recently signed a contract with NATS 

to install the Extended Computer Display System (EXCDS)20 in three 

London-area airports, Stansted, Gatwick, and Heathrow, as well as to 

provide NATS with its oceanic system. While NAV CANADA prefers 

commercial off-the-shelf products, it also invests in developing in-house 

technologies. Many of the technology products developed by NAV 

CANADA are available to outside organizations, such as NATS, enabling 

them to reduce their costs and avoid development risks. 

The Five Commercialized 

ANSPs Undergo Some Form 

of Economic Review or 

Follow Price-Setting 

Process Guidelines

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

route services and, as such, functions as a monopoly. Moreover, except in 

the UK, the ANSP is the sole provider of approach control services.21 With 

no alternative provider, operators cannot seek lower prices by changing 

routes and must pay whatever fees the ANSP charges. 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. 

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.

20EXCDS is an advanced flight data processing system developed by NAV CANADA that 

allows controllers to manage electronic flight data online using mouse-based or touchsensitive display screens. 

21In the UK, terminal services are open to competition. NATS competed for and won the 

opportunity to provide terminal services for 14 UK airports, including its largest airports, 

Heathrow and Gatwick. 
Page 16 GAO-05-769 Air Traffic Control

• Monitor and encourage investments to meet future demand.

• Ensure user views are adequately taken into account.

The five countries whose ANSPs we reviewed have taken different 

approaches to reviewing their ANSP’s user charges and price-setting 

process, but all five ANSPs are subject to some form of economic review or 

price-setting process guidelines: 

• In Australia, the Australian Competition and Consumer Commission 

(ACCC)22 oversees Airservices Australia’s process of setting user fees 

for air traffic services. Airservices must notify the commission 

whenever it wants to raise fees. The commission then evaluates 

Airservices’ pricing proposal and decides to accept or reject the price 

change. If the commission rejects the proposed price, it can set a lower 

price. ACCC rejected one of two proposals 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. ACCC accepted Airservices’ first 

proposal for a temporary fee increase for a year following the 

September 11 and SARS outbreak. However, ACCC rejected Airservices’ 

second proposed fee increase. The airline industry had objected to the 

second set of proposed increases, citing a need for longer term price 

certainty. The ACCC ultimately decided that a longer term arrangement 

should be considered. ACCC directed Airservices to focus on 5-year 

pricing plans to encourage long-term planning, emphasizing that the 

robustness of the airlines should be taken into account when a price is 

set.

22This independent Commonwealth authority monitors primarily monopolistic public and 

private service industries, including Airservices Australia. 
Page 17 GAO-05-769 Air Traffic Control

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

process against an established set of statutory principles. Appeals may 

be made to CTA by the users as to whether NAV CANADA has observed 

the charging principles in establishing its rates. 23 The charging 

principles do not allow NAV CANADA to make a profit and, as a 

nonshare capital corporation, surpluses are reinvested in the business 

or used to lower charges to customers. 

• Airways Corporation of New Zealand, Ltd., 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 the net 

operating profit after taxes and the cost of capital. A portion of any EVA 

above a certain level is returned to users in the form of a rebate. For 

example, in its 2004 Annual Report, Airways reported its net operating 

profit after taxes as about $8.3 million. After subtracting the cost of 

capital ($4.4 million), the resulting EVA was approximately $3.9 million. 

Of this amount, $1.8 million was returned to customers in the form of a 

rebate, since any profits above a certain level will ultimately be returned 

to the airlines. According to the aviation industry, the EVA mechanism 

has been key in making pricing of user fees more transparent.

• In the UK, 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 index24 and the group’s own analyses 

of allowances for NATS’s estimated operating and capital costs. 

• The German Transport Ministry reviews and approves any changes in 

user fees, but it does not independently evaluate the price-setting 

process or pricing changes. According to the Transport Ministry, 

23NAV CANADA’s board of directors, which includes air carrier representatives, is the main 

venue for the industry to express any grievances over pricing issues after a required open 

and transparent consultation process. However, according to Air Canada, its input on the 

board is limited and, because the public has comparable representation on the board, the 

public—with three government and two employee representatives—and the industry—with 

four representatives—cancel out each other’s input. As previously noted, when NAV 

CANADA raised prices after its rate stabilization fund was exhausted during the economic 

downturn, aviation industry representatives argued that this move further disrupted their 

business cycles during a time of financial strain.

24The 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 18 GAO-05-769 Air Traffic Control

Germany plans to create an independent economic regulatory authority 

by 2006 to comply with the requirements of the Single European Sky 

initiative. 

Since 

Commercialization, the 

Five ANSPs Have 

Maintained Safety, 

Controlled Operating 

Costs, and Achieved 

Efficiencies 

According to information from each of the ANSPs we reviewed, air 

navigation safety has not declined since commercialization, and all five 

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

improved the efficiency of their operations by implementing new 

technologies and equipment. The ANSPs maintain that some of these 

outcomes would not have been feasible in a government organization.

Safety Performance Has Not 

Been Compromised Since 

Commercialization

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

the available data from most of the ANSPs.25 For example, data from DFS 

show a decrease in the number of aircraft proximity26 incidents in 

Germany, from 23 in 1995 to 8 in 2003, 3 of which were attributed to DFS. In 

the UK, the number of the riskiest air proximity incidents for NATS 

declined from 9 in 2001 to 2 in 2003 and 1 in 2004. Similarly, data from 

Airways Corporation of New Zealand indicate a downward trend in 

incidents involving loss of separation27 for the years following 

commercialization. NAV CANADA’s annual report for 2004 also cites a 

decrease in the rate of loss-of-separation incidents, from an average of 0.96 

incidents per 100,000 movements for 1999/2000 to an average of 0.79 

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

confirm an overall decline in aviation incidents since commercialization. 

25Since aviation accidents are rare and may be attributable to causes outside their control, 

ANSPs gather data on incidents that could pose hazards and may be within their control. 

Rates for these incidents are proxy measures for safety.

26An aircraft proximity incident occurs when the pilot or air traffic controller deems the 

safety of the aircraft involved to be endangered, whether because of speed or nonadherence 

to minimal standards for separation between aircraft.

27A loss of separation is an occurrence or operation that results in less than the prescribed 

separation between an aircraft and another aircraft; a land barrier, such as high terrain; or a 

vehicle on the runways of airports. 
Page 19 GAO-05-769 Air Traffic Control

Additionally, stakeholders have told us 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. DFS, in cooperation with its controllers’ association, has 

undertaken a comprehensive study of controllers’ stress and strain, which 

has led to internal regulations on the maximum working hours allowed at 

individual sectors, according to DFS.

The Five Commercialized 

ANSPs Have Taken Steps to 

Reduce Operating Costs 

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 radar centers into a single 

center by 2006. DFS has also integrated operations and consolidated 

facilities, moving 17 approach units from airports and integrating them into 

four air traffic control centers. DFS also relocated the Dusseldorf control 

center to the Langen control center in 2002 (see fig. 1), a year earlier than 

planned, and transferred and consolidated its headquarters from Offenbach 

to Langen. DFS reports that because its supervisory board, rather than a 

parliamentary committee, now makes major investment decisions, it has 
Page 20 GAO-05-769 Air Traffic Control

been able to make key strategic decisions that would have been politically 

difficult when DFS was under government control.

Figure 1: Langen Control Center, Langen, Germany

In the UK, NATS reduced its net operating costs by almost $161 million 

from 2002 through 2004, in part through direct management actions, 

according to its audited financial statement. For example, it consolidated 

two operations into one at a new air navigation services center, called the 

Swanwick Center. According to NATS, after placing this new center in 

service, it reduced its staff costs by nearly $20.1 million and its costs for 

services and materials by about $18.5 million between 2002 and 2003. 

Between 2003 and 2004, NATS reported, it reduced its operating costs for 

air traffic services by another $21.4 million through cost control measures. 

Source: Deutsche Flugsicherung GmbH.
Page 21 GAO-05-769 Air Traffic Control

The Five ANSPs Said They 

Have Improved Efficiency 

through Modernization 

All five ANSPs said they have improved productivity through 

modernization—that is, through investments in upgrading or replacing air 

navigation facilities and equipment. For example, Airservices Australia 

reported increases in controllers’ productivity following the introduction of 

the Australian Advanced Air Traffic System (TAAATS) (see fig. 2). 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 

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

and expects productivity gains and cost savings to follow. 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. 
Page 22 GAO-05-769 Air Traffic Control

Figure 2: The Australian Advanced Air Traffic System

Besides improving productivity, modernization—together with airspace 

redesign28—has produced operational efficiencies, including fewer and 

shorter delays, according to the ANSPs. NATS, for example, reduced its 

average delay per flight from 2.7 minutes in 2002 to 0.74 minutes in 

calendar year 2003, while handling almost 2.1 million flights. 

28Airspace redesign is a reconfiguration of the established routes that aircraft fly to maintain 

standard separation from other aircraft when arriving at or departing from airports. 

Source: Airservices Australia.
Page 23 GAO-05-769 Air Traffic Control

Access to Cash Flow and 

Borrowed Funds Has Facilitated 

Modernization 

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. According to the ANSPs, access to cash flow and 

borrowed funds has allowed them to plan and execute projects more 

efficiently and has improved their ability to deliver 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. 

Focus on Cost Control and 

Operational Efficiency Has 

Affected User Charges

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 $80.3 million annually in reduced aircraft operating costs. 

According to NAV CANADA, the airlines are now paying 20 percent less in 

user fees than they formerly paid in ticket taxes when the government 

provided air navigation services.29 In Germany, Lufthansa stated that 

except in business years 2001 through 2003, the airline paid less in user fees 

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

service in 1993. According to Airways Corporation of New Zealand, it 

29While 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. 
Page 24 GAO-05-769 Air Traffic Control

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

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

For general aviation operators, however, 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 $58.30 According to the Aircraft Owners and Pilots Association–New 

Zealand, Airways Corporation of New Zealand charges general aviation 

operators a fee of $68 for 50 landings. In addition, Airways eliminated the 

en route charge for light aircraft. 

Some governments have provided for air navigation services at small, 

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

public good. Australia, for instance, subsidizes service to some regional 

areas under the Location-Specific Tower Subsidy Program and, according 

to Transport Canada, NAV CANADA is legislatively required to maintain 

service to remote locations in the northern region. In addition, NAV 

CANADA charges the same price for services to remote locations as for 

services to the rest of the country. The price is based on a formula that 

considers weight and distance.

Lessons Learned about 

the Commercialization 

of Air Navigation 

Services

We have derived a number of lessons from our research on the 

commercialization of air navigation services in the five countries we 

selected. The following paragraphs summarize these lessons. 

The Commercialized ANSPs 

Must Be Prepared to 

Mitigate the Effects of an 

Industry Downturn

Because commercialized ANSPs rely primarily on user fees to cover their 

costs, an industry downturn presents a fundamental financial risk for such 

ANSPs that they must be prepared to mitigate, whether through a reserve 

fund, cost-cutting measures, user fee increases, additional borrowing, 

restructuring, or some combination of these or other options that will be 

30This amount does not include adjustments for inflation because the fee is established for 

the current 2005 year. The foreign exchange rate as of June 17, 2005 (1 U.S. dollar = 1.23 

Canadian dollars), was used to convert to U.S. dollars. 
Page 25 GAO-05-769 Air Traffic Control

sufficient to offset the decline in air traffic and the concomitant decline in 

revenue. The industry downturn that began in about 2000 and intensified 

after the events of September 11, 2001, and the SARS outbreak of 2003 

brought this lesson home to at least four of the five commercialized ANSPs 

we selected for review. After commercialization and before the downturn, 

these four—Airservices, DFS, NATS, and NAV CANADA—had been able to 

cover their costs through user fees and borrowing. However, during the 

downturn, they had to take additional steps to address the revenue losses. 

NATS, with the greatest debt load, was the most vulnerable, but even NAV 

CANADA, with a multimillion-dollar contingency fund, eventually had to 

take extraordinary measures. 

Besides being burdened with debt, NATS was vulnerable to the industry 

downturns because nearly all of its costs (95 percent) were fixed, limiting 

its ability to cut costs, and its revenues depended heavily on North 

American air traffic. Specifically, North American flights accounted for 14 

percent of its flights and 44 percent of its revenues. When transatlantic 

traffic declined after September 11, NATS’s revenues declined 15 percent. 

To avoid insolvency, NATS first obtained an estimated $104.2 million in 

short-term loan credit from its lending banks and then refinanced, bringing 

in a new equity partner (BAA, plc).31 However, the combination of lost 

business and increased debt threatened NATS with insolvency in early 

2002, leading it to implement operational cost savings, obtain a temporary 

loan credit, refinance its debts, renegotiate prices for users through a new 

regulatory structure, and obtain additional funds from the government and 

private shareholders. 

Under its new regulatory structure, NATS now has a system in place to 

mitigate the effects of an industry downturn through automatic price 

increases that are triggered by reductions in air traffic. These price 

increases go into effect when traffic falls below a benchmark level, limiting 

NATS’s revenue loss to 50 percent of the revenue that would have been 

generated if the benchmark level of traffic had been reached. If traffic falls 

below this 50 percent benchmark, as it might in a severe crisis, NATS’s 

revenue loss is limited to 20 percent of the projected revenue. In effect, this 

automatic trigger mechanism spreads the risk of traffic downturns between 

NATS and its airline customers. Without this trigger, the prices set by CAA, 

31Total new investment made in NATS as part of the refinancing arrangement was 

approximately $225.7 million—about $112.8 million from BAA, plc, matched by an 

additional $112.8 million from the UK’s Department for Transport.
Page 26 GAO-05-769 Air Traffic Control

the economic regulatory body, would remain fixed until the next regularly 

scheduled review when prices may be adjusted, upward or downward, and 

benchmark levels set. 

In Germany, DFS also lost revenue during the industry downturn, but to a 

lesser degree. DFS reported a loss of more than $36.4 million in 2001, when 

air traffic declined by 0.9 percent over the previous year. In 2002, it 

sustained a loss of more than $23.2 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

$87.4 million and reduced its 2005 fees for en route services by 19.5 percent 

and for approach control services 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 can develop 

such a reserve. 

Before September 11, NAV CANADA banked up to $66.3 million in its rate 

stabilization fund to protect against future losses. However, with the 

industry downturn, this fund was quickly exhausted and, after the SARS 

outbreak in 2003, the fund reached a cumulative deficit of about $96.9 

million. To maintain operations, NAV CANADA cut costs and raised its 

service fees, consulting with users as required. By the end of 2004, it 

reduced the deficit to approximately $26.0 million, according to its 2004 

annual report. However, as aviation industry representatives have noted, 

the fee increases had the inadvertent effect of disrupting the business 

cycles of air carriers, which faced the same difficult economic 

circumstances. Moreover, because NAV CANADA’s price-setting process is 

limited only by statutory charging principles, NAV CANADA was able to 

raise its fees unilaterally, without having to negotiate increases with 

representatives of the airlines or other interests. Its board approved the fee 

increases to balance revenues and expenses as required by legislation. The 

CTA rejected an appeal of the increases brought by certain operators.

Involving Stakeholders in 

Modernization Efforts Can 

Help Ensure Mutually 

Beneficial Results

According to the ANSPs, involving stakeholders in efforts to design, 

acquire, and deploy new technologies can be beneficial. For example, 

Airways Corporation of New Zealand noted that its investment decisions 

are very much driven by customers’ needs. Airways said it consults closely 

with the airlines before deciding to acquire new systems and to implement 

technology upgrades. According to Airways, if the airlines say they do not 
Page 27 GAO-05-769 Air Traffic Control

want to make a particular investment and the investment adds no value for 

the customer, Airways will not spend the money. For example, the airlines 

have reported that they are not currently interested in Automatic 

Dependent Surveillance-Broadcast,32 so Airways has no immediate plans to 

invest in the technology. DFS has also reported that consulting with its 

customers before investing in any modernization efforts has been 

beneficial. According to DFS, before commercialization, the German 

government did not consult with users and other stakeholders when it 

acquired and deployed new air navigation technologies.

Once an initial investment decision has been made, ANSPs have further 

reported, it is beneficial to involve stakeholders throughout the design and 

acquisition process. For example, Airservices Australia reported that, since 

commercialization, air traffic controllers play a much larger role in the 

acquisitions process and have come to understand the linkage between 

service delivery costs and the costs of new equipment. Similarly, Airways 

Corporation of New Zealand noted that it has found it essential to involve 

the same controllers throughout the design process to ensure consistency 

in requirements and to maintain 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. 

Steps May Be Needed to 

Balance Business and Small 

Community Interests 

In some instances, an ANSP’s need to recover its costs may be at odds with 

a small or remote community’s need for scheduled air service. Providing air 

navigation services for such communities may not be commercially viable 

because it typically generates less revenue than providing services for 

larger communities. Even though the minimum cost of an air navigation 

service is the same, regardless of the location, the cost per plane is often 

higher at small or remote locations because the cost of the service is spread 

among fewer operators, usually with smaller planes. 

In the past and in some countries today, the ANSPs charged the same fee 

for air navigation services at every airport, regardless of its size or location. 

Under this arrangement, called network pricing, services at heavily used 

32Automatic Dependent Surveillance-Broadcast is a system that allows pilots and air traffic 

controllers to “see” the location of nearby aircraft and engage in collaborative decision 

making. It broadcasts aircraft position data from an onboard navigation system, such as the 

global navigation satellite system.
Page 28 GAO-05-769 Air Traffic Control

airports subsidize services at small or remote airports. However, two of our 

five ANSPs, Airservices Australia and Airways Corporation of New 

Zealand, have adopted an alternative pricing scheme, called locationspecific pricing, under which the fee for some service matches the cost of 

providing that service to a specific location.33 Once this scheme is fully 

implemented, formerly subsidized air navigation services to small or 

remote locations may likely cost more. If an airline decides that it does not 

want to pay the increased fees, it may discontinue service to the location. 

However, air service may be the only means of public transportation to 

some small or remote locations. Continuing to provide air navigation 

services to small or remote locations may require special efforts to balance 

community needs and business interests.

Airservices Australia has reported that it plans to phase in location-specific 

pricing to ease the transition from network pricing. According to 

Airservices, it will increase charges over the next 5 years at general 

aviation and regional airports and the increased charges have been 

approved by the regulator. Although the increases will be gradual, the plan 

has raised concerns about 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, which are typically 

provided at smaller airports, will be affected. 

The impact of location-specific pricing on remote communities and small 

operators is difficult to predict. Costs may go up, but charges may not 

necessarily be prohibitive. When legislation calls for service to remote 

communities, an ANSP may ultimately be forced to take a financial loss if it 

is not able to fully recover its costs. Airservices Australia is seeking to 

control costs at some locations by deploying new lower cost technologies 

to serve remote communities. For example, Airservices Australia is 

planning to install Automatic Dependent Surveillance-Broadcast ground 

stations, which will allow air traffic surveillance services over remote 

regions of Australia where no surveillance currently exists and where the 

introduction of radar would not be cost-effective.

33NATS has not implemented location-specific pricing. However, airport services are 

provided through a competitive process in the UK, and the prices for these services may 

therefore vary by location.
Page 29 GAO-05-769 Air Traffic Control

Appropriately Assessing the 

Value of Assets Is Essential 

for Sound Pricing and Cost 

Accounting

To protect taxpayers’ interests, Canada and the UK needed to have an 

appropriate valuation of their facilities and equipment before wholly or 

partially selling these assets to their newly established ANSP. According to 

its Office of the Auditor General (OAG), Canada did not properly value its 

ANSP assets and infrastructures. The approximately $1.5 billion value that 

the government negotiated with NAV CANADA in 1996 fell short of the $2.3 

billion to $2.4 billion estimate developed in 1995 by a third party. 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 found that the UK 

government raised some $1.3 billion 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 key assets in preparation 

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

competitive bidding process. 

Maintaining Staff Levels and 

Expertise during 

Commercialization Can 

Prevent Disruptions in 

Regulatory Functions 

Some countries that commercialized their ANSP had difficulty 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 at a civil service salary 

when the private sector is paying higher salaries for safety inspectors to 

develop safety standards and procedures. CAA managers with 

responsibilities for regulating the safety of NATS’s operations also raised 

concerns about recruiting staff. According to these officials, regulators 

need the highly skilled expertise of air traffic controllers. However, the high 

salaries of air traffic controllers of the ANSPs make it difficult to recruit 

them for regulatory positions.
Page 30 GAO-05-769 Air Traffic Control

Developing Baseline 

Measures before 

Commercialization Can 

Enhance Performance 

Measurement 

Obtaining baseline measures before commercializing a country’s air 

navigation services will allow the government and others to assess the new 

ANSP’s performance in the areas of 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 

performance they are making toward their goals to access private funding 

and, therefore, they need extensive performance data. However, lack of 

baseline measures before commercialization makes it difficult to gauge its 

development before and after commercialization. For instance, the 

Canadian OAG considered the assets of NAV CANADA to be undervalued, 

due to the absence of good financial information before commercialization. 

In addition, international organizations that support commercialized 

ANSPs have emphasized the importance of developing performance 

measures and benchmarks. ICAO, for example, stresses the importance of 

having transparent financial data available for economic oversight, and 

CANSO and EUROCONTROL are working to standardize performance 

measures and compare ANSPs across dimensions such as safety, cost, and 

efficiency. 

We are sending copies of this report to interested congressional 

committees; the Secretary of Transportation; the Administrator, FAA; and 

the chief executive officers of the ANSPs in our sample. We will also make 

copies available to others upon request. In addition, the report will be 

available at no charge on the GAO Web site at http://www.gao.gov.

Please call me at (202) 512-2834 if you or your staff have any questions 

about this report. Contact points for our Offices of Congressional Relations 

and Public Affairs may be found on the last page of this report. Major 

contributors to this report are listed in appendix II.

Gerald L. Dillingham, Ph.D.

Director, Physical Infrastructure Issues
Page 31 GAO-05-769 Air Traffic Control

Appendix I

Scope and Methodology ApApenednxidexiIs

We developed a descriptive analysis of selected foreign countries’ 

commercialized, performance-based air navigation services providers 

(ANSP) by reviewing the characteristics and performance of five such 

organizations, which we selected as illustrative of similarities and 

differences in ownership, length of experience with commercialization, and 

size and scope of operations. We then analyzed the information we had 

gathered to identify lessons learned about the commercialization of air 

navigation services. Our review included site visits, agency interviews, and 

analyses of documents provided during our site visits and obtained through 

our own research. The 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 since then 

as performance-based organizations. Because we selected these ANSPs to 

illustrate specific characteristics, our results cannot be generalized to all 

commercialized ANSPs.

To describe common characteristics of commercialized air navigation 

services in the selected countries, we conducted a computer search on key 

elements of each ANSP and conducted interviews in each country. We 

collected information on the size and scope of air traffic (e.g., number of 

aircraft movements and number of air traffic controllers); the ownership, 

management, and funding structures of each country’s ANSP; and 

institutional mechanisms for stakeholder input. We interviewed 

government officials, ANSP executives and representatives, union officials, 

and representatives of aviation stakeholders in each country to synthesize 

information on how air navigation services were delivered before 

commercialization and the key elements and characteristics of 

commercialized ANSPs. 

To describe how the safety, cost, and efficiency of foreign air navigation 

services have changed since commercialization, we conducted interviews 

and reviewed documents obtained during our site visits. We also gathered 

information through our own computer research. We interviewed 

government officials, ANSP executives and representatives, national audit 

officials, union officials, and representatives of aviation stakeholders to 

obtain their views on how safety, cost, and efficiency have changed since 

air navigation services were commercialized. In addition, we interviewed 

officials from the International Civil Aviation Organization (ICAO), the Civil 

Air Navigation Services Organization (CANSO), EUROCONTROL, and the 

European Commission to obtain their perspectives on these issues. Finally, 
Appendix I

Scope and Methodology

Page 32 GAO-05-769 Air Traffic Control

through our computer research and analysis of documents obtained during 

our site visits, we obtained additional information on the performance of 

each ANSP, including its safety, costs, and efficiencies, since 

commercialization. 

To identify lessons learned about the commercialization of air navigation 

services, we conducted interviews and reviewed literature on 

commercializing air navigation services and implementing performancebased air traffic organizations. In each country, we interviewed government 

officials, ANSP executives and representatives, union officials, and 

representatives of aviation stakeholders, asking them about the lessons 

they had derived from commercialization. We also reviewed literature from 

academics and experts on commercializing air navigation services and 

synthesized information from our interviews with information from the 

literature to arrive at some general lessons on the commercialization of the 

five air navigation service providers we reviewed. 

Unless otherwise noted, we converted the local currencies of each country 

into U.S. dollars using the Organization for Economic Cooperation and 

Development’s purchasing power parity historical series for each country 

in the relevant years for the currency. We adjusted for inflation using the 

Gross Domestic Product price index of the Congressional Budget Office’s 

economic projection for 2005 to obtain the estimated value of each 

country’s currency in 2005 U.S. dollars. 

We did not compare performance before and after commercialization or 

across countries. Such comparisons 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 determined from our review of the independently audited financial 

reports of each ANSP that the financial data we obtained and used for our 

engagement were sufficiently reliable for our purposes. An independent 

audit was conducted on the annual financial reports of each of the five 

ANSPs in accordance with the applicable country’s accounting standards 

and practices. The independent auditors for each ANSP found that the 

annual financial statements were unqualified and fairly presented, in all 

material respects, the financial condition and position of the ANSP. 
Appendix I

Scope and Methodology

Page 33 GAO-05-769 Air Traffic Control

To identify any changes in safety since commercialization, we collected and 

analyzed information provided by each ANSP and by its independent safety 

regulator. We interviewed officials from these regulators, and we relied on 

safety data from the ANSPs and their audited annual financial reports, 

which had been independently reviewed and evaluated. To assess the 

reliability of these data, we (1) interviewed the officials from each ANSP 

and its independent safety regulatory authority who were responsible for 

compiling these data and (2) corroborated the data through comparison 

with other sources of information. We determined that the data from each 

country were sufficiently reliable to identify any major changes in safety 

since each ANSP was commercialized. 
Page 34 GAO-05-769 Air Traffic Control

Appendix II

GAO Contact and Staff Acknowledgments ApendxiI

GAO Contact Gerald L. Dillingham, (202) 512-2834

Staff 

Acknowledgments

In addition to the contact named above, Elizabeth Eisenstadt, Samantha 

Goodman, Brandon Haller, David Hooper, Hiroshi Ishikawa, Joseph Kile, 

Jennifer Kim, and Richard Scott made key contributions to this report.

(544094)
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