CHARTING THE

NEXT CENTURY

OF FLIGHT

FEDERAL AVIATION ADMINISTRATION

PERFORMANCE AND 

A C C OUNTABILITY REPORT

FY 2003
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

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Federal Aviation Administration 

FY 2003 Performance and Accountability Report 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

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MISSION/VISION STATEMENT 

FAA provides a safe, secure, and efficient global aerospace system that contributes to 

national security and the promotion of U.S. aerospace safety. As the leading authority 

in the international aerospace community, FAA is responsive to the dynamic nature of 

customer needs, economic conditions, and environmental concerns. 
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FY 2003 Performance and Accountability Report

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TABLE OF CONTENTS

MISSION/VISION STATEMENT ...................................................................................... ii 

FAA-AT-A-GLANCE................................................................................................... 1

A MESSAGE FROM THE ADMINISTRATOR ........................................................................ 3

MANAGEMENT’S DISCUSSION AND ANALYSIS ................................................................... 5 

The Next Century of Flight Begins ....................................................................... 5 

Organization ............................................................................................... 6 

FY 2003 Enacted Budget ................................................................................. 6 

FAA Regions ................................................................................................ 7

A Year in Highlights ......................................................................................... 8 

Achieving Results ............................................................................................ 9 

Managing Performance ..................................................................................... 12

Evaluating Our Programs ................................................................................... 14 

Tying Performance to Cost ................................................................................ 14

Safety .......................................................................................................... 15 

 Commercial Air Carrier Fatal Accident Rate.......................................................... 16 

 General Aviation Fatal Accidents....................................................................... 17 

 Runway Incursions ........................................................................................ 18 

 Operational Errors ........................................................................................ 19 

 System Efficiency ............................................................................................ 21 

 On-Time Arrival ........................................................................................... 22 

 Airport Daily Arrival Capacity .......................................................................... 23 

 Airport Arrival Efficiency Rate .......................................................................... 24 

 Exposure to Noise and People Benefiting from Noise Projects .................................... 24 

 Organizational Excellence ................................................................................. 26 

 Milestones/Budget Met for Major Acquisitions ....................................................... 26 

 Customer Satisfaction—Commercial Pilots............................................................ 27 

 President’s Management Agenda ....................................................................... 27 

Financial Highlights.......................................................................................... 32 

 Management Integrity: Controls, Compliance, and Challenges................................... 32 

 OIG Management Challenges ............................................................................ 33 

 Erroneous Payments ...................................................................................... 33 

 Discussion and Analysis of the Financial Statements ................................................ 33 

 

 
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FY 2003 Performance and Accountability Report

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 FY 2003 Financial Statement Audit .................................................................... 33 

 Understanding the Financial Statements.............................................................. 34 

 Balance Sheet.............................................................................................. 34 

 Statement of Net Cost ................................................................................... 36 

 Statement of Changes in Net Position ................................................................. 37 

 Statement of Budgetary Resources..................................................................... 37 

 Statement of Financing................................................................................... 38 

 Stewardship Investments ................................................................................ 38 

 Budgetary Integrity: FAA Resources and How They Are Used ..................................... 38 

 Research and Development Highlights .................................................................. 39 

Charting the Next Century of Flight ..................................................................... 40

FY 2003 Principal Financial Statements........................................................................ 43

 A Message from the Chief Financial Officer .............................................................. 45 

 OIG Quality Control Review ................................................................................. 46 

 Independent Auditors’ Report .............................................................................. 48 

 Limitations of the Financial Statements .................................................................. 59 

 Financial Statements......................................................................................... 60 

Appendix: Department of Transportation Memo on Top Management Challenges .................... 109 

Glossary of Acronyms............................................................................................... 124 

Internet Links ........................................................................................................ 125 

Acknowledgements ................................................................................................. 125 

We Welcome Your Comments .................................................................................... 126

This report is also available on the FAA website at 

www1.faa.gov/aba/html_fm/files_pdf/2003_PAR.pdf. 
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FAA-AT-A-GLANCE

Established 1958 

Headquarters 800 Independence Avenue, SW 

Washington, DC 20591 

www.faa.gov

FY 2003 Budget $13.506 billion 

Total Employees 49,274 

Headquarters Employees 4,148 

Regional Offices 9 

Technical Center 

Atlantic City, NJ

1,319 employees 

Aeronautical Center 

Oklahoma City, OK

2,975 employees 

Facilities Staffed by Air Traffic Controllers 395 

Certificated Airports in the United States 633 
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THIS PAGE INTENTIONALLY LEFT BLANK. 
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A MESSAGE FROM THE ADMINISTRATOR

FAA employees give America wings to fly. We 

maintain, operate, and oversee the largest and most 

complex aviation system in the world, with a safety 

record that is second to none. We not only set the 

regulatory and operational standards for the United 

States, we strive to enhance aviation safety around 

the world. International cooperation leads to 

international safety. 

Aviation faces many new challenges in the years 

ahead. To help us meet these challenges and to 

ensure that aviation remains an engine of economic 

growth, we developed a new strategic plan to guide 

FAA into the next century of flight. FAA’s Flight Plan 

2004–2008, which was created around four ambitious goals, details how we will move forward into the 

future. Our goals for the coming years are: 

• Increased Safety. Safety is not only a top public-interest priority; it is also an economic necessity. 

People will fly if they feel safe and will return to the skies if they trust the system. 

• Greater Capacity. Aviation capacity is the backbone of air travel. Aviation can grow only if 

capacity grows. As we increase capacity, we will make sure we do so in an environmentally sound 

manner. 

• International Leadership. Aviation safety is a vital national export. We will enhance America’s 

leadership role by sharing our expertise and new technologies with our international partners. 

• Organizational Excellence. To fulfill our mission, the FAA must operate as a world-class 

organization. This requires greater fiscal responsibility, stronger leadership, more cooperation, and 

performance-based management. With the right tools and training, our employees will bring this 

Flight Plan to life. 

The Federal Aviation Administration’s fiscal year (FY) 2003 Performance and Accountability Report is a 

detailed accounting of our service to the flying public. The financial and performance data contained 

in this report are reliable and complete. This year we met nine out of 12 performance goals in the 

areas of safety, system efficiency, and organizational excellence. We also achieved an unqualified 

opinion from our auditors on our financial statements and installed a new core financial system as of 

the beginning of FY 2004. 

Improving our overall financial management performance is an element of our organizational 

excellence goal. Our independent auditors reported no material financial-related internal control 

weaknesses at FAA. 

Internally, we assess management risk through the 

Federal Managers’ Financial Integrity Act (FMFIA) of 1982 

process. I am pleased to report that the management 

controls and financial management systems, taken as a 

whole, in effect during the period October 1, 2002, 

through September 30, 2003, provide reasonable 

assurance that the objectives of both Sections 2 and 4 of 

the FMFIA are being met, with one internal control 

weakness and one financial systems nonconformance. 

This internal review, using broader management-risk 

criteria, identified our oversight of cost reimbursable 

contracts as a material weakness, and property 

accounting, where our financial systems were not 

integrated to meet OMB requirements, as a financial systems nonconformance. 

Improvements to the oversight of cost reimbursable contracts are being aggressively pursued. Specific 

oversight goals have been incorporated into FAA’s Flight Plan and will drive further progress in 

“FAA employees

give America 

 wings to fly.” 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

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this area. With the implementation of our new financial management system last November, FAA’s 

property accounting and financial systems meet OMB requirements. The new financial management 

system also brought FAA into compliance with the Federal Financial Management Improvement Act of 

1996 requirements. Our previous accounting system did not meet these requirements. 

As this report makes clear, our efforts to provide a safe, secure, and efficient global aerospace system, 

together with our commitment to the highest standards of efficiency and integrity, will ensure that 

FAA continues to deliver an exceptional return on the investment by the American taxpayer.

Marion C. Blakey 

Administrator 

December 18, 2003 
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MANAGEMENT’S DISCUSSION AND ANALYSIS 

The Next Century of Flight Begins 

The Federal Aviation Administration (FAA) is responsible for overseeing the largest, most complex, and 

safest aviation system in the world. It not only sets the regulatory and operational standards for the 

United States, but also effectively sets the bar for aviation around the world—and has for almost a halfcentury. 

In the first decade of the 20th century, only visionaries could imagine that air travel would be a driving 

force behind the phenomenal growth of the American economy. But as we enter the 21st century, the 

future of aviation is just as hard to see. Aviation finds itself facing terrorism, structural change, and a 

weak global economy. 

From 1926, when President Calvin Coolidge initiated Federal oversight of air safety in the United States 

by signing the Air Commerce Act, to the creation of the Federal Aviation Agency in 1958, to our 

modern-day incarnation, FAA and the aviation community have grown and worked together. We have 

shaped an industry that—like shipping and rail before it—conquered distance in a new way, lowered 

transportation costs, and created new opportunities that transformed the commercial landscape. 

Today’s FAA faces the challenges of the next century of flight with the help of more than 49,000 

employees at its headquarters in Washington, DC, in regional offices, and in facilities around the 

country. We fulfill our mission through five lines of business that work together to create and maintain 

the world’s preeminent national airspace system. These lines of business are: 

• Air Traffic Services: Manages civil and military air traffic by developing and recommending 

national policies and establishing national programs, regulations, standards, and procedures for 

management of the airspace; operates air navigation and communications systems and facilities; 

maintains separation and control of aircraft; and provides flight assistance to aircraft. 

• Airports: Provides leadership in planning and developing a safe, secure, and efficient airport 

system; manages the Airport Improvement Program and the Passenger Facility Charge Program; 

enhances environmental quality and avoids or minimizes adverse environmental impacts that might 

result from a proposed FAA action in support of airport development; develops standards for the 

design and construction of facilities that enhance the safety of aircraft operations and security of 

airline passengers; and establishes regulations for safe operation of commercial service airports 

and regularly inspects certificated airports for compliance. 

• Regulation and Certification: Oversees the safety of aircraft and the credentials and competency 

of pilots and mechanics; develops mandatory safety rules; and sets the standards that have helped 

make air travel among the safest modes of transportation in history. 

• Research and Acquisitions: Supports and conducts research to meet increasing demands for higher 

levels of system safety, security, capacity, and efficiency; and plans, monitors, controls, 

schedules, and implements the acquisition of materiel, equipment, and services for the national 

airspace system and for interagency and international programs. 

• Commercial Space Transportation: Oversees the safety of commercial space launches and 

regulates the commercial space industry.
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FAA is funded by four primary appropriation 

accounts—Operations; Facilities and Equipment 

(F&E); Grants-in-Aid for airports (AIP Grants); and 

Research, Engineering and Development (R,E&D). The 

$13.5 billion total budget for FY 2003 was about 2 

percent less than the FY 2002 enacted level due to 

some security functions being shifted to the 

Department of Homeland Security and one-time 

supplemental funding for anti-terrorism. FAA’s 

Operations account was funded at $7.019 billion. This 

account funds the operations, maintenance, 

communications, and logistical support of the air 

traffic control and air navigation system. It also 

covers administrative and managerial costs for FAA’s 

regulatory, international, medical, engineering, and 

development programs as well as policy oversight and 

overall management functions. 

For FAA’s capital accounts, Facilities and Equipment 

was funded at $2.962 billion, Grants-in-Aid for Airports at $3.378 billion, and Research, Engineering 

and Development at $147 million. The Facilities and Equipment account is the principal means for 

modernizing and improving air traffic control and airway facilities. It also finances major capital 

investments required by other agency programs and other improvements to enhance the safety and 

capacity of the national airspace system. FAA’s grants program funds airport planning and 

development, noise compatibility and planning, the military airport program, reliever airports, and 

airport program administration. Research, Engineering and Development funds long-term research 

programs to improve the air traffic control system. 

Commercial 

Space 

Transportation 

CST
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FAA Regions 
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A Year in Highlights 

The Federal Aviation Administration (FAA), an agency of the U.S. Department of Transportation (DOT), 

is charged with promoting the safety and efficiency of our national airspace system. FAA establishes 

and enforces regulations and oversees inspections that maintain the integrity and reliability of that 

system, which has fueled our economy and helped ensure our Nation’s prosperity for more than 50 

years. 

With a workforce of 49,274 professionals and an annual budget of approximately $13.5 billion, FAA 

operates and maintains the complex air traffic control system and the facilities and equipment that 

support it. Over 17,000 controllers manage more than half of the world’s air traffic, helping to ensure 

ever-increasing levels of safety. The agency also conducts research to improve aviation safety and 

efficiency and provides grants to improve 3,400 public-use airports in the United States. 

FAA Administrator Marion C. Blakey, who marked her first anniversary in office on September 15, 2003, 

led the agency to a number of significant milestones during FY 2003. Last year was one of continued 

improvement in aviation safety, with a rate of only .024 fatal commercial aviation accidents per 

100,000 departures. This achievement represents a continued reduction in the commercial fatal 

accident rate, which keeps FAA on track to meet our ambitious goal of reducing these types of 

accidents by 80% from the 1994–1996 baseline. A number of FAA initiatives also contributed to a 

significant decrease in serious runway incursions—any occurrence at an airport involving an aircraft, 

vehicle, person, or object on the ground that creates a collision hazard—which were down more than 

14% from last year. 

During FY 2003, FAA also: 

• Commissioned the Wide Area Augmentation System (WAAS) in July 2003. WAAS is a GPS-based 

navigation and landing system that provides precision guidance to aircraft at thousands of airports 

and airstrips that currently have no precision landing capability. WAAS is a critical component of 

the seamless satellite navigation system for civil aviation. This system improves the accuracy, 

availability, and integrity of global positioning system (GPS), thereby improving safety and 

capacity. 

• Enabled airlines to meet the April 9, 2003, deadline for installing reinforced (hardened) cockpit 

doors in more than 10,000 aircraft serving the United States, making air travel safer for passengers 

and crews. This achievement was the result of extraordinary cooperation among FAA, its industry 

partners, and the international aviation community. 

• Began testing an on-board fuel-inerting system designed to prevent fuel tank explosions, such as 

the one that destroyed TWA Flight 800 in 1996. The system, based on fuel-inerting technology 

devised by an FAA employee, uses an inert gas to displace oxygen in the fuel tank and thus 

reduces the risk of sparks that could ignite the fuel. 

• Worked closely with the Transportation Security Administration (TSA) and pilots to publicize and 

enforce stricter temporary flight restrictions in the wake of the September 11, 2001, terrorist 

attacks on the United States. 

• Transferred $623.6 million of civil aviation security-related property and equipment to TSA. This 

follows TSA's assumption of civil aviation security functions from FAA, effective February 13, 2002, 

in accordance with The Aviation and Transportation Security Act. 

• Worked closely with TSA to provide $447 million in Airport Improvement Program (AIP) grants for 

projects to enhance security at our Nation’s airports. Much of the AIP security funding approved in 

FY 2003 went toward terminal modifications and retrofitting baggage conveyor systems to support 

in-line explosive detection systems that screen baggage. 

• Recruited a Chief Operating Officer to help FAA continue its progress in improving system 

efficiency, increasing capacity, and achieving organizational excellence. 

• Released FAA’s Flight Plan 2004–2008—a visionary strategic plan that engaged industry and 

stakeholders in setting FAA’s future course. The plan, which is closely aligned with DOT’s Strategic 
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Plan, includes four ambitious goal areas and detailed performance targets for measuring 

achievement. 

• Commissioned new air carrier runways at Miami International, Cleveland Hopkins International 

Airport, and Denver International Airports. These three runways were included in FAA’s 

Operational Evolution Plan (OEP), which aided in ensuring that instrumentation and procedures 

were in place when the construction of the runways was complete. 

• Issued an Information Operations Condition (INFOCON) order that outlines those actions FAA will 

take to respond to threats to our information systems security. This order outlines an agencywide 

approach to defend against system attacks, to mitigate damage to the extensive information 

infrastructure, and to guard against the misuse of the agency’s information technology 

infrastructure. This coordinated approach, combined with significant efforts to ensure that our 

information systems are properly certificated and accredited, helps to ensure that the agency’s 

critical information systems are protected from cyber attack. 

FAA continued to focus on aviation as a global system and worked closely with international 

organizations to seek global solutions to safety, routing, procedural, equipment, and environmental 

issues. In addition, FAA established a Joint Planning Office with the Departments of Defense, Homeland 

Security, Commerce, and the National Aeronautics and Space Administration to create a long-term 

strategic vision for our air transportation system. 

We also worked with airports around the country to boost system capacity by analyzing chokepoints, 

commissioning new runways, and taking advantage of precise satellite navigation technologies to 

increase efficiency. Through such improvements, FAA was able to increase system capacity, maintain 

efficiency, and minimize delays. 

Throughout FY 2003, FAA has commemorated the Wright brothers’ magnificent achievement through 

numerous events across the country and around the world. As the year-long Centennial of Flight 

celebration culminates on December 17, 2003, we look forward to charting the next century of flight, 

which will be characterized by even higher levels of safety, system efficiency, innovation, and 

international cooperation. 

Achieving Results

Performance-at-a-Glance 

FAA is charged with promoting the safety and efficiency of the Nation’s aviation system—the biggest, 

busiest, and most complex in the world. With broad authority to enforce safety regulations and 

conduct oversight of the civil aviation industry, FAA maintains the integrity and reliability of the 

system. A strategic plan, annual business plans, human capital plans, and our annual Performance and 

Accountability Report help FAA create a recurring cycle of planning, program execution, measurement, 

verification, and reporting. This strong link between resources and performance allows FAA to show 

what is being accomplished and reinforces accountability for the money being spent. 

FAA’s Strategic Plan (http://www1.faa.gov/AboutFAA/FlightPlan.cfm) provides the framework to 

match resources with initiatives for long-term change. It focuses on FAA activities, but also sets 

direction for FAA and the national air and space community in a global transportation environment. It 

sets forth the agency’s goals and the performance measures to assess FAA’s progress in meeting them. 

These are the goals that FAA must meet to address the challenges facing aviation as well as to maintain 

U.S. leadership in aviation. Our Strategic Plan is tightly aligned with the Department of 

Transportation’s mission, vision, goals, and performance measures. 

FAA has established 12 performance measures and targets that enable us to measure results in 

achieving enhanced aviation safety, increased system capacity, and organizational excellence. (See the 

table on page 11 for a description of these performance measures and targets.) These measures 

support FAA’s mission of providing citizens with a safe, secure, and efficient global aviation system. 

• Safety. Safety is not only a top public-interest priority, but is also an economic necessity. People 

will fly only if they feel safe and will return to the skies only if they trust the system. The DOT 

Office of Inspector General (OIG) specified that reducing the risk of aviation accidents due to 

operational errors and runway incursions was one of DOT’s top management challenges for 
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FY 2003 Performance and Accountability Report

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calendar year 2003. A number of coordinated programs and safety initiatives enabled us to further 

reduce the commercial fatal aviation accident rate, the number of general aviation accidents, and 

the number of runway incursions. We did not achieve our goal of reducing operational errors. 

• Efficiency. Aviation capacity is the backbone of air travel. The DOT OIG stated that improving 

aviation system capacity is one of the top management challenges for DOT during calendar year 

2003. Aviation can grow only if capacity grows. As we increase capacity, we will make sure we do 

so in an environmentally sound manner. Initiatives designed to boost system efficiency were 

successful in improving on-time arrival and airport capacity and efficiency while reducing exposure 

to aircraft noise and emissions. 

• Organizational Excellence. To fulfill our mission, FAA must be a world-class organization. This 

requires greater fiscal responsibility, stronger leadership, more cooperation, and performancebased management. The DOT OIG identified reversing FAA’s spiraling operating costs as one of 

DOT’s top management challenges in calendar year 2003. Further, GAO had indicated that two 

FY 2003 performance and accountability challenges facing FAA were enhancing the management of 

acquisitions and continuing progress in financial management, which GAO considers to be a highrisk area for FAA. Although FAA made great strides in improving the business processes that support 

efforts to improve aviation safety and system efficiency, we did not meet all of our organizational 

excellence goals. We were successful in meeting our customer satisfaction goal, but we missed 

some key milestones on our major acquisition projects and did not implement DELPHI, our new 

core accounting system, as originally scheduled. However, with the full implementation of DELPHI 

in November 2003, FAA is significantly closer to achieving success in this area. 

Despite the challenges, FY 2003 was a year of impressive success for FAA. Although air traffic remains 

below pre-September 11, 2001, levels, passengers are regaining confidence in the system and are 

returning to the skies. As traffic increases, so do the challenges we face in building organizational 

excellence to improve safety and increase capacity. Through the combined efforts of our employees 

and industry partners, we were able to achieve 9 of our 12 goals—a 75% success rate. Our Performanceat-a-Glance chart provides a snapshot of the results we achieved. 
Federal Aviation Administration 

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PERFORMANCE-AT-A-GLANCE 

Performance Measure FY 2003 

Target 

FY 2003 

Results 

FY 2003 

Status 

FY 2004 

Target 

SAFETY

Commercial Air Carrier Fatal Accident Rate .033 .024* § .028 

Number of General Aviation Fatal Accidents 374 360* § 349 

Runway Incursions (number/rate) 44/.067 32/.051 § 40/NA1

Number of Air Traffic Operational Errors 642 680  629 

SYSTEM EFFICIENCY

On-time Arrival 78.20% 82.30% § 82.10% 

Airport Daily Arrival Capacity 49,120 49,537 § 51,332 

Airport Arrival Efficiency Rate 95.49% 95.50% § 95.67% 

Exposure to Noise 437,000 289,000* § 400,000 

People Benefiting from Noise Projects 12,500 13,287 § NA2

ORGANIZATIONAL EXCELLENCE

Milestones/Budget Met for Major Acquisitions 80%/80% 77%/88%  80%/80% 

Customer Satisfaction - Commercial Pilots 62 64 § 63 

President’s Management Agenda (all 5 areas) Yellow Red  NA3

§ Green: Goal Achieved  Red: Goal Not Achieved

Notes: 

1 Not Applicable: Rate no longer being tracked at corporate level. 

2 Not Applicable: No longer being tracked at corporate level. 

3 Not Applicable: Being tracked at DOT level. 

* Numbers are preliminary. The National Transportation Safety Board (NTSB) will make final 

numbers for Commercial Air Carrier Fatal Accident Rate and Number of General Aviation Fatal 

Accidents available in March 2005. Final results for the Exposure to Noise performance target will 

be available in May 2004.
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FAA Flight Plan 2004–2008 

During FY 2003, FAA completed work on a new long-term strategic 

plan. The FAA Flight Plan is the result of the hard work and 

sustained commitment of everyone involved in the planning 

process, including FAA employees, members of Congress and their 

staff, our industry partners, and stakeholders. 

The Flight Plan lays out four goals and describes FAA’s strategies 

for achieving those goals. The Flight Plan is aligned with the 

Department of Transportation’s Strategic Plan and is linked to 

FAA’s budget requests. It will be used along with detailed business 

plans from all FAA organizations to align performance and ensure 

accountability at all levels of the agency. Key performance 

measures from the Flight Plan are reported annually through the 

issuance of the Performance and Accountability Report. 

For the first time, every staff office and line of business has 

developed a plan that links directly to the Flight Plan. These 

business plans are designed to create a line of sight for our 

employees, laying out specific actions and performance measures 

that relate our work to the larger goals of the agency. In addition, 

we have begun using a web-based management tool to track the 

status of major initiatives tied to each objective in the Flight Plan.

Our senior management will regularly review progress against the 

performance measures contained in the plan. These measures may 

evolve over time as we work with our employees and external 

stakeholders to develop new ways to measure our actions. 

Managing Performance 

DOT and FAA must continue to improve the reliability and timeliness of performance data and provide 

a better linkage between human capital requirements, budgets, and performance results. We 

acknowledge that increasing the validity, reliability, timeliness, and comparability of performance data 

will be a challenging task. In FY 2002, DOT developed leading indicators for its strategic goals and most 

of its performance measures to help anticipate trends. DOT also completed an assessment of data 

quality for its major data collection systems and documented the major sources of error in all 

performance measures. 

FAA faces a number of challenges in 

implementing our Strategic Plan and 

achieving results. These challenges include: 

• The financial difficulties facing the 

airlines and aviation manufacturers 

affect their ability and willingness to 

equip aircraft with the new 

technologies that will enhance safety 

and capacity. The financial difficulties 

facing the industry also impact FAA, 

which is primarily funded by the 

Aviation Trust Fund from taxes on 

airline tickets. As long as the demand 

for air travel is down, so too are 

revenues available to FAA from the 

Trust Fund. 

• Large capital investments in facility, 

infrastructure, and agency human 

capital needs will depend largely on 

our ability to closely link budget to 

performance and also in part on the 

ability and willingness of Congress to 

fund such operations and 

responsibilities. 

• Our ability to improve safety or expand 

capacity here at home and in the 

international arena depends in part on 

the willingness of authorities at the 

state, local, and international levels to 

cooperate and collaborate in areas 

such as building new airports, 

expanding runways, or implementing 

new technologies. 

• Emerging threats to national security may cause FAA priorities to shift to meet new responsibilities. 

FAA manages performance using a four-step framework based on best practices used in a number of 

private and public sector organizations (see chart on next page). By using this framework and instilling 

management discipline into our processes, we anticipate that this will be a multi-year journey of 

learning and change. 

The first step in the process is setting goals—consulting with management, stakeholders, and customers 

to determine success for the agency. This year, Administrator Blakey focused leadership’s attention 

and resources to further improve organizational performance by launching a focused strategic planning 

effort. As part of that effort, the Administrator and FAA management developed a five-year plan called 

the Flight Plan. This Flight Plan shows the strategies, initiatives, and performance targets that FAA will 

accomplish and forms the foundation for all of FAA’s performance efforts. 
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Set 

Goals

Plan Work 

and 

Budget

Monitor 

Work

Assess 

Results

Cascade

The Monitor Work 

measures become the 

targets for the next level 

of the organization

Goals must be clear, 

measurable, time-bound, 

and be outcome focused

Management must 

identify and prioritize 

the most critical work, 

allocate limited 

resources, and find 

new resources through 

efficiencies and 

reprioritization

Success for each 

critical initiative must 

be defined in 

measurable terms 

Management uses 

data to determine if 

initiatives are 

delivering intended 

results, and that there 

is a connection 

between the work and 

the overall success of 

the organization

Set 

Goals

Plan Work 

and 

Budget

Monitor 

Work

Assess 

Results

Cascade

The Monitor Work 

measures become the 

targets for the next level 

of the organization

Goals must be clear, 

measurable, time-bound, 

and be outcome focused

Management must 

identify and prioritize 

the most critical work, 

allocate limited 

resources, and find 

new resources through 

efficiencies and 

reprioritization

Success for each 

critical initiative must 

be defined in 

measurable terms 

Management uses 

data to determine if 

initiatives are 

delivering intended 

results, and that there 

is a connection 

between the work and 

the overall success of 

the organization

The Administrator appointed Goal Leads for each of the four major goal areas of the Flight Plan—

Safety, Greater Capacity, International Leadership, and Organizational Excellence. Each Goal Lead is 

responsible for the performance targets in each goal area and for ensuring that initiatives and activities 

are coordinated across organizational lines. 

The second step, “Plan Work and Budget,” focuses 

on the critical work and resources required to 

achieve the goals. Following the framework, FAA 

created a performance-based FY 2005 budget that 

linked our resource requirements to our Flight 

Plan. 

The third step, “Monitor Work,” develops measures 

of the work required to achieve our goals. FAA 

developed organizational business plans for each 

line of business and staff office. These business 

plans outline our FY 2004 initiatives, activities, and 

performance targets that link our work directly to 

the Flight Plan. 

“Assess Results” is the last and most important step of the performance management process. This 

year, FAA continued its practice of reviewing and discussing FY 2003 performance goals on a monthly 

basis. In addition, we began the groundwork to deploy a new tool and business processes that will 

focus more on the discussion of performance results, root causes of performance issues, and 

reallocation of resources to correct performance during the fiscal year. 

Verification and Validation of Performance Information 

FAA uses strong management controls to ensure that data used to assess performance is accurate, 

timely, and complete. By exercising both internal and external review processes, FAA’s verification and 

validation process strongly supports the confidence that the managers and Administrator have in their 

performance data. 

FAA uses several internal review processes to ensure accurate data. First, at the start of each year, 

FAA reviews each performance target for data source and validity. Where the criteria for targets have 

changed, we note that and explain the changes in performance-related materials. DOT also 

independently verifies some performance data. Several performance measures, such as Commercial Air 

Carrier Fatal Accident Rate, require independent verification by the National Transportation Safety 

Board (NTSB) and the Bureau of Transportation Statistics. Data for this measure is not considered final 

until the NTSB gives final approval to the data. 

Independent program evaluations are also an important part of the verification and validation process. 

Internally, FAA’s Office of Configuration Management hires independent contractors to review and 

evaluate programs jointly run by the Air Traffic Services and Research and Acquisitions lines of 

business. 

The Office of the Inspector General, General Accounting Office, and Office of Management and Budget 

also regularly review FAA programs and activities. These reviews help maintain the public’s trust in 

FAA, as well as provide opportunities for FAA to improve. We work with each organization to address 

concerns and change how we do business. For example, FAA has focused more closely this year on tying 

budget to performance, as well as cascading performance measures from FAA to the lines of business 

and staff offices. This is a direct result of the Office of Management and Budget’s Program Assessment 

Rating Tool (PART). Further explanations of OIG and GAO concerns can be found in the financial 

performance sections of this document. 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

14

Evaluating Our Programs 

A critical component of managing performance is the periodic evaluation of programs. In FY 2003, FAA 

performed one program evaluation. This evaluation focused on the operational effectiveness of Free 

Flight Phase 1 (FFP1) tools in creating additional capacity, increasing en route efficiency, and in 

sharing existing data with customers to improve decision-making and directly supports our System 

Efficiency goal area. Key findings include: 

• The Traffic Management Advisor (TMA), operational at all 7 sites planned under FFP1, improved 

capacity by 3% to 5% for traffic into Dallas/Ft. Worth, Los Angeles, Minneapolis, Denver, and 

Atlanta airports. 

• The User Request Evaluation Tool (URET), operational at 6 of 7 en route centers planned under 

FFP1, increased direct routings by at least 15% at all 6 centers. 

• The Surface Movement Advisor (SMA) program was operational at all 6 sites planned for FFP1 and 

customers reported reduced gate delays and diversions. 

A detailed analysis of and results from the evaluation can be found at 

http://ffp1.faa.gov/approach/approach_ben_met.asp. 

In FY 2004, FAA will develop a program evaluation approach for information systems security that 

protects information technology (IT) programs. FAA programs in physical facility security, operational 

errors, Safer Skies, and aircraft delay reductions are candidates for evaluations in FYs 2005–2008. 

Tying Performance to Cost 

FAA has begun a process to develop financial and other efficiency metrics in FY 2004. This process 

complements strategic and business planning efforts to create a new performance management process 

within FAA. We intend to develop financial efficiency metrics not just at the FAA level, but in FAA lines 

of business and staff offices as well. 

One of the challenges FAA faces with developing financial metrics is data availability. The agency 

recently installed a new financial management system, DELPHI. Cost accounting is not yet available for 

every line of business. However, FAA management has decided that rather than wait for perfect data, 

we will explore what we can measure, and then seek to improve from there. 

In the future, FAA believes it will have in place a series of financial and other efficiency measures that 

will better guide our business decisions. FAA management will regularly inspect these measures to 

ensure that the agency is accomplishing its mission through the best use of its resources. 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

15

Safety 

GOAL: Achieve the lowest possible accident rate and constantly improve safety. 

Safety is FAA’s primary responsibility. Our dedication to keeping the skies safe is the single most 

important step we can take to revive the industry. Just as aviation is a key component in the economic 

health of our Nation, safety is central to the public’s interest, as well as to the economic health of 

aviation. 

FAA assesses safety through four performance measures. The chart below describes FAA’s FY 2003 

performance in improving safety through achievement of each of these measures. 

FY 2003 SAFETY PERFORMANCE MEASURES AND RESULTS 

Performance Measure Target Results Status 

Commercial Air Carrier Fatal Accident Rate: The goal is to reduce the U.S. fatal 

accident rates by 80% from the 1994–1996 baseline by FY 2007. The rate is 

calculated by determining the number of fatal accidents per 100,000 departures. 

.033 .024* z

Number of General Aviation Fatal Accidents: FAA worked to reduce the number 

of general aviation fatal accidents to no more than 374. General aviation 

includes all segments of the aviation industry except commercial air carriers and 

the military. General aviation aircraft range from single-seat home-built aircraft, 

rotorcraft, and balloons to extended-range turbojets. Public and corporate 

aircraft provide a wide range of services, from crop dusting, fire fighting, law 

enforcement, and news coverage to sightseeing, industrial work, on-demand air 

taxi service, and corporate transportation. Not all general aviation pilots file 

flight plans, so FAA does not have the data on departures that would enable us to 

calculate the rate of general aviation fatal accidents. 

374 360* z

Runway Incursions: Runway incursions create dangerous situations that can lead 

to serious accidents. A runway incursion is any occurrence at an airport involving 

an aircraft, vehicle, person, or object on the ground that creates a collision 

hazard or results in a loss of separation between aircraft taking off, intending to 

take off, landing, or intending to land at an airport. Incursions involve an aircraft 

with another aircraft, vehicle, person, or object on the ground. Reducing the 

number of runway incursions lessens the probability of accidents that potentially 

involve fatalities, injuries, and significant property damage. This performance 

measure focuses on the number of highest severity (Category A and B) incursions, 

which are characterized by conditions where separation has decreased to the 

point in which a significant risk of collision or an actual collision has occurred. 

44/.067 32/.051 z

Air Traffic Operational Errors: One of the fundamental principles of aviation 

safety is separation—the need to maintain a safe distance from other aircraft, 

terrain, obstructions, and certain airspace not designated for routine air travel. 

Air traffic controllers employ rules and procedures that define separation 

standards for the variety of environments in which aircraft operate. Pilots flying 

under visual flight rules operate under a “see and avoid” policy, while those 

using instrument procedures rely on controllers’ instructions to guide them. An 

operational error occurs when controllers fail to apply or follow the rules and 

procedures that define separation standards and separation is less than required. 

This FAA performance measure focuses on the number of highest severity 

(Category A and B) operational errors. 

642 680 

§ Green: Goal Achieved  Red: Goal Not Achieved 

* Numbers are preliminary. Final numbers will be available in March, 2005.
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

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Safety Results and Initiatives 

Commercial Air Carrier Fatal Accident Rate 

FAA has adopted a focused safety agenda designed to bring about a five-fold reduction in fatal 

accidents in part through comprehensive reviews of fatal accident causes. In partnership with industry, 

Safer Skies uses the latest technology to help analyze U.S. and global data to find the primary causes of 

accidents and determine the best actions to break the chain of events that lead to accidents. The 

value of this program has been a great reduction or elimination of recurrent causes of commercial 

accidents. 

FAA is helping to ensure safety by our coordinated efforts to move the United States from a groundbased navigation system to one located within the aircraft itself. Through the use of onboard 

technology, pilots will be able to navigate aircraft to any point in the world using only geographical 

coordinates. Required Navigation Performance (RNP) is an important step in this direction. Because of 

its high degree of precision, RNP allows for more efficient use of the airspace. Simply put, RNP will 

allow us to fly more planes, closer together, and more safely than ever before. 

FAA commissioned the Wide Area Augmentation System (WAAS) in July 2003. WAAS is a GPS-based 

navigation and landing system that immediately provided precision guidance to aircraft at hundreds of 

airports and airstrips where there is currently no precision landing capability. Weather also plays a part 

in safety and system efficiency, and FAA has deployed advanced weather processing systems at all 20 

air route traffic control facilities. The Weather and Radar Processor (WARP) allows air traffic 

controllers to see more accurate, timely weather information on the same display that shows aircraft 

position data. WARP lessens the impact of bad weather on capacity. By seeing the aircraft and the 

storm, where the aircraft is going, and when and where it will return to its original path, the controller 

is able to direct air traffic more efficiently. The system provides much more accurate and localized 

information than earlier sources of weather data and the system it replaces. 

By working closely with the aviation community, FAA helped airlines meet the April 9, 2003, deadline 

for installing reinforced (hardened) cockpit doors in more than 10,000 aircraft serving the United 

States, making air travel safer for passengers and crews. This achievement was the result of 

extraordinary cooperation among FAA, its industry partners, and the international aviation community. 

FAA also worked closely with the Transportation Security Administration (TSA) and pilots to publicize 

and enforce stricter temporary flight restrictions in the wake of the September 11, 2001, terrorist 

attacks on the United States. FAA continues to work with TSA to train airline crews to better address 

security issues. 
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FY 2003 Performance and Accountability Report

17

Recent technological advances also promise new safety gains. For example, we tested seats that help 

passengers better withstand strong and sudden forces in a plane. FAA is also emphasizing improvements 

to runway safety areas and makes our safety projects a funding priority. 

We intensified our hazardous materials program in late 2002, after the Department of Transportation 

returned this responsibility to FAA. We are working hard to prevent accidents and incidents related to 

hazardous materials by redoubling our outreach to industry and the community. For instance, in June 

2003, hazardous-materials agents visited fireworks retailers across the Southeast before the 

Independence Day holiday. During their visits, the agents distributed educational brochures and posters 

and met with local press to explain the dangers of bringing fireworks aboard aircraft. In the Southwest, 

hazardous-materials agents held press conferences at airports in Houston, New Orleans and Dallas/Ft. 

Worth to communicate the same message. We estimate that our “Fireworks Don’t Fly” community 

outreach campaign reached millions of people this year. 

While maintaining its regulatory and enforcement role, FAA has also become a partner with the 

aviation community in improving safety, which is reflected in three basic long-term strategies: 

(1) Prevent accidents by addressing recurrent causes; (2) Improve certification and surveillance; and 

(3) Share safety data and information with aviation partners. These strategies are at the heart of most 

of FAA’s significant and long-term safety programs. 

Results: Through these initiatives and strategies, FAA was able to exceed our goal of reducing the rate 

of commercial fatal aviation accidents, achieving a rate of .024 fatal accidents per 100,000 departures. 

Note: Since the 1970s, the NTSB has not included fatal crashes caused by criminal or terrorist actions when calculating the 

commercial fatal accident rate. DOT follows the NTSB methodology in quantifying FAA performance in commercial aviation safety. 

Therefore, the commercial fatal accident rate for FY 2001 did not include the four fatal crashes that occurred on September 11,

2001. If those incidents had been included, the Department would not have met the 2001 target.

General Aviation Fatal Accidents 

Although most people are familiar with FAA’s role in commercial aviation, they may not be aware that 

we also oversee the safety of almost 300,000 general aviation aircraft in the United States. These 

aircraft include single-seat home-built airplanes, rotorcraft, balloons, and highly sophisticated 

extended-range turbojets. General aviation activities include student training, crop dusting, fire 

fighting, law enforcement, news coverage, sightseeing, industrial work, on-demand air taxi service, 

corporate transportation, as well as personal use and recreational flying. 

A number of FAA safety initiatives are helping to reduce general aviation and air taxi fatal accidents. 

To further enhance general aviation safety, we introduced flight-training products for advanced small 

general aviation aircraft. The FAA/Industry Training Standards Program (FITS) helps pilots keep pace 

with new aircraft and avionics technology, new airspace, and air traffic technology emerging in the 

general aviation community. 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

18

This measure was redefined in FY 2002. Actual performance reflecting the redefinition was calculated for prior 

years. 

Results: FAA exceeded its goal of reducing the number of general aviation fatal aviation accidents by 

more than 4%, reducing the number of general aviation fatal accidents to 360. Although we met our FY 

2003 goal, we are concerned about the upward trend in general aviation fatal accidents over the past 

several years. Reducing these types of accidents remains a challenge. We are examining accident data 

and stratifying it by group (e.g., recreational, instructional, agricultural). We see a particular problem 

in instructional flying and are looking at ways to develop and implement targeted interventions (e.g, 

through our programs that certify training schools and instructors). 

Runway Incursions 

A runway incursion is any occurrence in the airport runway environment involving an aircraft, vehicle, 

person or object on the ground that creates a collision hazard or results in a loss of required separation 

with an aircraft taking off, intending to take off, landing, or intending to land. Reducing the number of 

runway incursions reduces the likelihood of collisions that could involve fatalities, injuries, or 

significant property damage. The fact that FAA was able to further reduce the most serious types of 

incursions (Category A and B) in FY 2003 is a noteworthy achievement. 

Results: In FY 2003, the number of the most serious types of runway incursions was reduced to 32, 

which was significantly lower than FAA’s limit of 44 runway incursions for the year. This continues a 

downward trend that began 4 years ago, and resulted in a 14% decrease from last year. 

One significant factor contributing to the decrease in runway incursions is lower traffic volume. Lower 

traffic volume alone, however, does not fully explain the downward trend. This is evident since the 

decline in runway incursions began in 1999, when traffic volume was increasing. 

An equally important contributing factor is that FAA has focused significant resources, time and effort 

to tackle the problem of runway incursions. FAA created the Office of Runway Safety to develop and 

coordinate efforts to improve runway safety. We created a variety of education and training programs 

focused on air traffic controllers, pilots and airports to help reduce the number of runway incursion 

incidents. Air traffic control memory aids, better airport surface markers, and public service 

announcements by Harrison Ford, plus other initiatives, have all contributed to a significant reduction 

in runway incursions. 

More work is needed to understand the interactions of traffic volume, airport-specific factors, and 

runway incursions. For example, high-traffic volume, complex and high frequency communications, 

runway crossings, and traffic mix at the local level may influence the potential risk of runway 

incursions. 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

19

Operational Errors 

An operational error is a failure to apply or follow the rules and procedures that ensure the safe 

separation of aircraft. In our ongoing efforts to reduce operational errors, we are aggressively seeking 

to identify the factors that cause those errors and to implement technology improvements, such as the 

deployment of modern displays, new decision support tools, and improved communication systems, to 

eliminate those factors. We are also providing additional training so that pilots and controllers have a 

common understanding of separation standards, policies, and procedures. 

Results: We exceeded our limit of 642 errors by almost 6%, reporting 680 Category A and B operational 

errors during FY 2003. Controller awareness was the largest contributor to operational errors, primarily 

from the inappropriate use of displayed data. The second largest factor was the lack of an adequate 

plan to ensure proper separation. Other factors include miscommunication between controllers and 

pilots, and adverse weather that caused pilots to deviate from or be unable to accept instruction from 

controllers. 

FAA attempted to control operational errors through several programs that, due to budgetary 

constraints, were either not completed or cancelled. These programs focused on increasing 

management oversight and training. In FY 2004, FAA plans to devote considerable management 

attention to operational errors. We will reallocate resources to ensure that performance in this area 

improves. 

Management oversight is one of the keys to reducing operational errors. Congress has mandated that 

FAA maintain 1,715 Operational Supervisors. Due to budget constraints and the difficulty in hiring 

qualified managers, FAA is short 126 supervisors. These budget challenges also reduced travel of FAA 

managers who oversee smaller facilities. Finally, FAA planned to conduct evaluations of its over 600 air 

traffic control facilities over the past two years. To date, we have only been able to evaluate 150. 

Training was also curtailed. FAA developed a prototype best practices course designed to increase 

controllers’ skills, teach new techniques, and help reduce operational errors. Further development 

ceased due to lack of funding. 

FAA is studying the budgetary requirements to fund initiatives designed to reduce operational errors in 

FY 2004 and beyond. Meanwhile, we continue to focus on reducing operational errors through training 

controllers on a common understanding of procedures and policies, aligning managers’ pay to this and 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

20

other performance targets. We are also developing and implementing JANUS, a tool designed to 

identify causal factors in air traffic-related incidents. 

FAA has used several procedures in the past to measure operational errors. Prior to FY 2002, FAA used 

a straight count of all operational errors. This measure did not offer any differentiation between a 

technical violation and more severe operational errors. In FY 2002 only those operational errors with 

less than 80% separation were used as a control measure, with the presumption that this level of 

separation measured those with some degree of risk. Beginning in FY 2003, we redefined the criteria 

for operational errors and categorized them by risk area, focusing on the most severe (Category A 

and B). Therefore, FAA does not have actual results for Category A and B operational errors in 

previous years. 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

21

System Efficiency 

GOAL: Work with local governments and airspace users to provide capacity in the United States 

airspace system that meets projected demand in an environmentally sound manner.

As airspace systems become ever more interconnected, we have developed more partnerships within 

the national and international aviation community. FAA continues to focus on aviation as a global 

system and works closely with international organizations to seek global solutions to safety, routing, 

procedural, equipment, and environmental issues. 

FAA assesses system efficiency through five performance measures. The chart below describes FAA’s 

FY 2003 performance in improving efficiency through achievement of each of these measures. 

FY 2003 SYSTEM EFFICIENCY PERFORMANCE MEASURES AND RESULTS 

Performance Measure Target Results Status 

On-Time Arrival: This measure includes the percent of all flights arriving at 

the 35 Operational Evolution Plan (OEP) airports no later than 15 minutes after 

the scheduled arrival time. The airlines, FAA, and the Bureau of Transportation 

Statistics agreed to use 15 minutes with scheduled arrival time as a common 

measure of aviation delay. 

78.20% 82.30% z

Airport Daily Arrival Capacity: This measure includes the sum of the daily 

hourly-called arrival rates at the 35 OEP airports per month, divided by the 

number of days in the month. The daily hourly-called rate is the number of 

arrivals an airport can handle for each hour of each day, depending on current 

conditions, including weather. In FY 2003, FAA expanded the scope of this 

measure of arrival capacity from 32 selected hub airports to the 35 OEP 

airports. 

49,120 49,537 z

Airport Arrival Efficiency Rate: This measure includes the weighted 

percentage of on-time arrivals greater than or equal to arrival demand or the 

facility-set arrival rate at the 35 OEP airports. The rate is determined by three 

factors on how well the demand for arrivals is met: arrivals during a given 

hour; arrival demand for a given hour; and airport arrival rate. While both 

arrival and departure efficiency are collected, this measure focuses on arrival 

efficiency, rather than overall airport efficiency since airborne flights and 

departures are generally delayed because of the lack of arrival capacity. In 

FY 2003, FAA changed the scope of this measure from 32 selected hub airports 

to the 35 OEP airports. 

95.49% 95.50% z

Exposure to Noise: FAA’s goal is to reduce the number of people exposed to 

significant noise through 2008, as measured by a three-year average from the 

baseline (2000-2002). The MAGENTA (Model Assessing Global Exposure from 

Noise of Transport Airplanes) population exposure methodology was used for 

the first time in FY 2000 to globally track this aircraft noise exposure goal. 

The targets for this goal are currently measured on an annual basis. 

437,000 289,000* z

Number of People Benefiting from Noise Projects: This measure represents 

an increase in the cumulative number of people in residential communities 

that are expected to benefit from noise compatibility projects funded under 

the Airport Improvement Program (AIP). The AIP provides funds for such noise 

reduction activities as residential sound insulation or relocation, sound 

insulation or relocation of buildings used for educational or medical purposes, 

land acquisition for compatible land use, installation of noise monitoring 

equipment, noise compatibility planning and the installation of noise barriers. 

12,500 13,287 z

§ Green: Goal Achieved  Red: Goal Not Achieved 

* Number is preliminary. Final number will be available in May, 2004.
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

22

An Air Traffic Organization for the Future 

During FY 2003, FAA Administrator Marion C. Blakey filled the position 

of Chief Operating Officer by appointing Russell Chew to lead a new 

Air Traffic Organization (ATO). Prior to joining FAA, Chew was in 

charge of system operations at American Airlines. His job there was to 

move thousands of aircraft every day. Throughout his career, from 

when he flew light twin engine aircraft and Lear jets and talked with 

controllers, to when he headed American's operations control center, 

he has worked closely with FAA, which makes him exceptionally well 

qualified to build an ATO for the future. 

His responsibility for ensuring that hundreds of thousands of passengers

reached their destinations each day at American Airlines made Chew 

realize that the future of the airline industry—and all of aviation—

depends on what happens with our Nation’s air traffic system. Both 

Chew and Blakey believe that only FAA can provide the environment 

for aviation to flourish. 

Chew is now in the process of realigning FAA lines of business, 

including Air Traffic Services (ATS), Research and Acquisitions (ARA), 

and the Free Flight Program Office to create a performance-based 

organization that supports the aviation system of the future. 

System Efficiency Results and Initiatives 

Commercial aviation delays are estimated to cost airlines over $3 billion per year. Missed flight 

connections, missed meetings, and loss of personal time directly affect passengers and affect our 

national system capacity to meet or exceed passenger demands on air travel. Air traffic density and 

adverse weather are generally the 

major causes of aviation delays, 

but other factors such as air carrier 

decisions on their flight operations, 

changes in consumer demand for 

air travel, rapid population growth 

in urban centers, and 

environmental considerations can 

either improve or limit the ability 

to meet on-time arrival 

expectations. 

U.S. airspace has remained largely 

unchanged for decades while every 

other component of aviation has 

progressed significantly. 

Collaborative decision making, 

Required Navigation Performance 

(RNP), and shared information 

systems are the cornerstones of 

FAA’s Operational Evolution Plan 

(OEP), which is designed to counter 

the increasing congestion, delays 

and inefficiencies that will result from increasing demand for air travel in our current system. The OEP 

is a detailed, comprehensive 10-year strategic plan developed in partnership with the aviation industry 

and other Federal agencies. Among the priorities outlined in the OEP are the modernization of onground and in-plane equipment, adoption of advanced routing procedures, and installation of state-ofthe-art weather radar and navigational aids. 

On-Time Arrival 

Traffic volume, adverse weather conditions and congestion at several large airports are significant 

causes of traffic delay. To address these issues, FAA employees at the National Command Center meet 

daily with airline industry representatives to coordinate traffic around known weather conditions and 

other factors that could potentially cause delays. By planning and agreeing to alternatives before the 

day begins, FAA and industry work together to ensure that aircraft land on time. 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

23

Control tower technology is another area in which FAA is working to improve on-time arrival rates. In 

some FAA control towers, the equipment is more than 20 years old and is becoming increasingly 

difficult to maintain. In addition, the older equipment will have difficulty handling the increase in 

traffic projected for coming years. The Standard Terminal Automation Replacement System (STARS) 

will modernize these computers and displays. STARS is a joint FAA and Department of Defense program 

that will replace systems at more than 300 civilian and military air traffic control facilities nationwide. 

STARS and the En Route Automation Modernization (ERAM) program are the centerpieces of FAA’s 

efforts to modernize the national air traffic system. ERAM will replace flight data processing and 

radar/surveillance data processing components of air traffic control software at all air route traffic 

control centers. Together, ERAM and STARS will help improve on-time arrival rates and increase airport 

capacity and efficiency. 

Finally, new navigational technologies, such as advanced area navigation (RNAV) and RNP, will allow 

suitably equipped aircraft to fly point-to-point as the pilots desire instead of following the current 

system of rigid routes from one position to another based on ground-based navigational aids. 

Results: With an on-time arrival rate of 82.30%, we exceeded our FY 2003 goal of 78.20% by over 5%. 

While decreased volume may have contributed to the increase in on-time arrivals, our success in 

achieving our goal is also attributed to the continued cooperation and coordination at the National 

Command Center with airline industry representatives. Our new programs and technology further 

supported efforts in FY 2003 to increase on-time arrivals. 

Airport Daily Arrival Capacity 

Throughout FY 2003, we continued to work with airports around the country to boost capacity by 

analyzing chokepoints in the system. FAA studied chokepoints around Chicago, Boston, and New York 

and helped work out troublesome intersections in the flight paths. The New York area airports 

redesigned airspace and made small improvements that smoothed out bottlenecks. Although it is a 

national effort, resources are being applied to geographic areas where the need is greatest. Airports in 

eight metropolitan areas have been identified as causing the most delay in the national airspace 

system. These areas are Boston, New York/Newark, Philadelphia, Washington/Baltimore, Atlanta, 

Chicago, San Francisco, and Los Angeles. 

New runways opened in Denver, Cleveland, and Miami as part of FAA’s efforts to increase capacity. The 

OEP identifies 10 additional air carrier runways to be commissioned through 2013. Because constructing 

new runways is the most effective way to add ground capacity, particularly at the Nation’s larger 

airports, FAA is also improving the criteria for assessing the capacity of our larger airports and their 

ability to meet projected demand. This information, in turn, will be used to target efforts to use 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

24

pavement, procedures, and technology to add capacity at airports with the greatest need and with the 

most potential to reduce delays nationwide. In addition, FAA will implement airspace redesign to 

reduce congestion in busy high altitude airspace as well as in congested airspace in major metropolitan 

areas. FAA will also continue to develop and deploy technology that enables aircraft to safely take off 

and land in adverse weather. 

Results: FAA met its FY 2003 target. FAA continues to focus on adding runways, new technologies, and 

improved data collection to meet its future capacity performance targets. 

Airport Arrival Efficiency Rate 

The Airport Arrival Efficiency Rate measures how well the OEP airports use the capacity they have. An 

efficient aviation system gets passenger and goods to their destinations safely and reliably. Aviation 

system improvements must be environmentally responsible, taking into consideration the impacts of 

aviation development on communities near airports and on sensitive natural resources. Our focus is on 

strategic expansion of our system capacity and other creative solutions to address our growing mobility 

needs and increase the reliability of our aviation system. 

Results: FAA met its goal. Our success in achieving this goal stems from the continuing introduction of 

new technologies and procedures, as well as improvements in data collection and reporting. 

Exposure to Noise and People Benefiting from Noise Projects 

Despite the economic benefits to industry and the public, aviation, like all industries, can have an 

unpleasant byproduct. Noise is the most “visible” downside. Helping the industry mitigate the effects 

of noise is one of our primary concerns. Noise exposure has a direct effect on our ability to expand the 

industry and the economy. New runways are the single largest action an airport can take to expand 

capacity and reduce delay. However, attempts to build new runways always meet with local 

opposition, primarily due to increased noise. 

FAA takes this problem seriously. Our Centers of Excellence program created a new aviation research 

center for aircraft noise and aviation emissions mitigation. The Center’s efforts will concentrate on a 

broad spectrum of noise and emissions mitigation issues, including socioeconomic effects, noise 

abatement flight procedures, compatible land use management, airport operational controls, and 

atmospheric and health effects. The Massachusetts Institute of Technology (MIT) will lead the center. 

The other members from academia are Boise State University, Florida International University, 

Pennsylvania State University, Purdue University, Stanford University, University of Central Florida, and 

University of Missouri—Rolla. Center team members represent academia, industry, and state, local, and 

other government agencies. The Center presently includes 18 industry partners. In addition, NASA plans 

to cosponsor the center with FAA. The center is legislatively required to match FAA grant funds with 

non-federal funding over the term of the cooperative agreement. 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

25

Results: For FY 2003, the number of people exposed to noise declined to 289,000. We are also revising 

our FY 2002 results from 379,000 to 294,000. 

Two main factors related to the terrorist attack of September 11, 2001, account for the dramatic 

reduction. The first factor is the premature retirement from passenger service of older, noisier Stage 3 

aircraft. The second factor is a decrease in aviation operations resulting from economic downturn. 

For FY 2004, FAA plans to measure this performance goal differently. Previously, FAA’s model 

compared scheduled flights to the type of aircraft flown. Computer models calculated the noise 

exposure contours. FAA upgraded its noise model to access the Enhanced Traffic Management System 

(ETMS), which provides more accurate operations data. This new model includes not just scheduled 

flights, but also any aircraft filing a flight plan to or from 95 of the United States’ busiest airports. FAA 

is now able to track unscheduled air traffic from general aviation, freight, and military operations at 

civilian airports. This new data reflects an increase in night operations, which carry a noise penalty in 

calculating noise contours and can significantly increase the noise exposure area. 

Based on this new information, FAA plans to revise the target in FY 2004, pending approval from DOT. 

FAA also increased the number of people benefiting from noise compatibility projects by 13,287, 

exceeding the goal of 12,500 by 6%. Installing residential sound insulation accounted for 10,420 people. 

Acquiring land and moving people accounted for an additional 2,778 people. Shifting aircraft flight 

tracks removed 89 people from significant noise exposure.
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

26

Organizational Excellence 

GOAL: Ensure the success of FAA’s mission through stronger leadership, a better trained workforce, 

enhanced cost-control measures, and improved decision-making based on reliable data. 

Our goals for organizational excellence fall into three specific categories: meeting our milestones and 

budget for major acquisitions; focusing on customer satisfaction; and implementing the President’s 

Management Agenda. 

FY 2003 ORGANIZATIONAL PERFORMANCE MEASURES AND RESULTS 

Performance Measure Target Results Status 

Milestones/Budget Met for Major Acquisitions: Achieve 80% of designated 

milestones and maintain 80% of critical program costs within 10% of the total 

budget as published in the Capital Investment Plan (CIP). 

80%/80% 77%/88% R 

Customer Satisfaction—Commercial Pilots: The National Quality Research 

Center at the University of Michigan Business School, the American Society for 

Quality, and the CFI Group conducted the American Customer Satisfaction 

Index (ACSI) to measure customer satisfaction of commercial pilots. As a major 

FAA customer user group that is central to our mission, we measured their 

satisfaction with air traffic control services, the clarity of our regulations, and 

pilot certification processes. A randomly selected sample of pilots was asked 

to rate FAA on a number of factors, including their level of overall satisfaction. 

62 64 z

G 

President’s Management Agenda (PMA): Achieve a “yellow light” status score 

for FY 2003 on all five initiatives of the PMA, as an interim performance 

measure to achieving “green” in FY 2004. 

Yellow Red 

§ Green: Goal Achieved  Red: Goal Not Achieved

Organizational Excellence Results and Initiatives 

Milestones/Budget Met for Major Acquisitions 

In keeping with FAA’s focus on organizational excellence, we have established a goal of achieving 80% 

of our designated milestones and maintaining 80% of critical program costs within 10% of the budget as 

published in the Capital Investment Plan. We were successful in managing our acquisitions within 

budget, but had mixed results in completing our projects on time. 

Results: We did not meet our goal of achieving 80% of the milestones for major acquisition projects on 

time. While we did complete 36 out of 47 milestones on 33 major projects on time or ahead of 

schedule, FAA did not meet its milestones in 11 other instances. Several factors caused us to miss the 

milestones including delays due to union negotiations and technical complexities. FAA still managed to 

close out 77% of its major acquisition projects on time, despite missing interim milestones in some 

cases. In FY 2004 FAA is requiring monthly assessments from affected product teams. In these 

assessments, which are collected and updated using a new automated tool, managers are required to 

provide a red/yellow/green assessment on their confidence level that individual key milestones will be 

met. This allows corrective actions to be taken quickly and will enhance FAA’s ability to meet this 

performance target. 

We did, however, do a good job of keeping our projects within their budgets, with 88 percent of our 

programs within established budget limits. 
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FY 2003 Performance and Accountability Report

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Customer Satisfaction – Commercial Pilots 

We continued to focus on delivering better, more responsive service to our customers. FAA continued 

with a customer satisfaction initiative that provides written guidance and training to all managers and 

supervisors in our Regulation and Certification offices throughout the country on applying FAA rules and 

policies in a standard, consistent manner. 

The program goals are promoting more consistency and fairness in applying FAA regulations, promoting 

earlier resolution of disagreements, providing better documented regulation and certification 

decisions, and making every FAA employee accountable for achieving the agency's mission. Through this 

new initiative, FAA customers can expect: 

• Service that promotes a safe, secure and efficient aviation system; 

• Considerate, respectful, and professional service; 

• Clear explanation of the requirements, alternatives and possible outcomes associated with their 

inquiry or request; 

• Timely and complete responses to inquiries and requests; 

• Clear explanation of FAA decisions; 

• Fair and careful consideration of their issue; and 

• Clear guidance on elevating concerns to the next-highest level of FAA authority. 

To measure customer satisfaction, FAA turned to the American Customer Satisfaction Index (ACSI) in 

FY 1999. The ACSI is a national indicator of the quality of goods and services available to the American 

public. The ACSI score is a weighted average measuring overall satisfaction, customer expectations, 

and perceived quality. Commercial pilots are asked about air traffic control personnel and services, 

pilot certification processes, the clarity of regulations, and how regulations contribute to aviation 

safety. FAA officially began measuring the score as a performance target in FY 2001. The baseline score 

in FY 1999 was 58.

Results: We exceeded our FY 2003 target of 62, achieving a score of 64 on this year’s survey of 

commercial pilots. An important factor contributing to our success is FAA’s Plain Language initiative, 

which seeks to rewrite all regulations clearly and concisely. Although FAA’s ACSI remains significantly 

below the national ACSI of 71.6 for private sector services, the score of 64 is consistent with 

government agencies that have a regulatory and enforcement function. 

President’s Management Agenda 

Throughout FY 2003, we have been working to implement the President’s Management Agenda (PMA). 

The five initiatives in the PMA focus on the strategic management of human capital, competitive 

sourcing, improved financial performance, expanded electronic government, and budget and 

performance integration. 
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Results: FAA achieved a “yellow” status on three of five initiatives on the President’s Management 

Agenda Scorecard. The status is reported in the chart below, followed by a more detailed description 

of the results for each initiative during FY 2003. Previous year’s data does not exist for this initiative, 

as this was a new initiative for FY 2003. 

Only DOT is graded officially by OMB. FAA scores mirror DOT’s scores. As a result, FAA’s scores depend 

on the results of the entire department, not just FAA. Because FAA cannot directly control its results 

for the PMA, and is dependent in a large measure on the results of other agencies within DOT, we have 

chosen not to report PMA results as an official FY 2004 performance goal. FAA and its management will, 

however, continue to track PMA results and contributions internally. 

FY 2003 PRESIDENT’S MANAGEMENT AGENDA SCORECARD FOR DOT 

INITIATIVE STATUS PROGRESS 

Human Capital: Develop an FAA-wide human capital workforce plan to address future 

workforce gaps, eliminate skill gaps in critical occupations, develop performancebased incentives for the workforce, remove unneeded management layers, and 

develop the right mix of skills in the workforce that reflect the new emphasis on EGovernment and Competitive Sourcing. 

S z

Competitive Sourcing: Compete 50 percent of commercial positions at an 

undetermined future date. Each department must submit a Strategic Competition 

Plan and compete “commercial reimbursable support services” on a recurring basis. S z

Financial Management: Develop financial management systems capable of producing 

more timely and accurate information, maintain a record of unqualified opinions on 

our financial statements, continue to improve accounting controls, and develop full 

cost accounting capability.  z

E-Government: Better justify and track cost and performance of information 

technology projects, as well as participate in government-wide initiatives that 

automate how the public deals with the Government, such as the FirstGov.gov 

initiative, E-Grants, standardization of data, and customer relationship management. 

In addition, properly secure major information technology systems used to meet the 

agency mission. 

 z

Budget/Performance Integration: Better integrate budget and performance 

functions by integrating budget and performance staff work; developing plans and 

budgets with outcome goals, output targets, and resources requested in the context 

of past results; charging full budgetary costs of programs; and documenting program 

effectiveness. 

S z

KEY TO FY 2003 STATUS 

“Status” measures where DOT is in meeting the initiative. “Progress” measures the rate at which DOT is moving 

toward green. 

z Met all of OMB’s core criteria. 

S Met some but not all of OMB’s core criteria and has no “red” conditions. 

~ At least one of OMB’s core criteria is in need of correction. 

For a more detailed discussion of the President’s Management Agenda, see the OMB website at 

www.whitehouse.gov/omb/budintegration/pma_index.html.

Strategic Management of Human Capital 

The primary focus during FY 2003 was on the development of human capital plans throughout the 

Department to make sure that personnel in key occupations have the skills they need. These plans 

enable FAA to identify business challenges and workforce issues and develop human capital solutions to 

ensure our workforce achieves Agency goals. Development of the plans requires analysis of the 

demographics and size of our workforce and the skills our personnel need to address challenges and 

achieve the mission. Such plans enable FAA to recruit, develop, and retain the talented and diverse 

workforce necessary for accomplishing our objectives. 
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To create a strategic focus for FAA human capital, lines of business plans will serve as a foundation for 

developing a corporate FAA Human Capital Plan. The Plan will establish a systematic, agency-wide 

approach to human capital management that is aligned with the FAA Flight Plan, business plans, and 

budget. It will describe human capital goals, initiatives, and measures that will be used to improve FAA 

strategic management of human capital. 

Part of our challenge is to strengthen the skills and knowledge of personnel at every level. FAA leaders 

must maintain high standards and serve as role models by promoting teamwork, communicating the 

organization’s shared vision and goals, and seeking feedback from employees. Leaders foster a learning 

culture, provide opportunities for continuous development, and invest in training and development 

opportunities for themselves and the workforce to build critical competencies. FAA is working to 

enhance these skills in its leadership by implementing competency-based executive and managerial 

workforce plans, enhancing the skills of current FAA managers and supervisors, and selecting, 

developing, and retaining a new group of leaders. 

Results: Our human capital goals are on target. In FY 2003, FAA launched a strategic human capital 

planning process in collaboration and partnership with DOT and FAA lines of business. This effort 

resulted in lines of business completing workforce plans for key mission-critical occupations. An FAA 

Executive Human Capital Board and FAA Human Capital Planning Council were established and charters 

developed that outlined shared responsibilities for FAA’s Strategic Human Capital planning efforts. 

Results from this year’s human capital planning activities advance the development of a corporate FAA 

Human Capital Plan to improve strategic management of the agency workforce. 

FAA also continued efforts to strengthen leadership capabilities. We advanced the development of a 

diverse pool of internal candidates for executive positions through a successful Action Learning pilot 

involving 30 senior managers from various FAA offices. Using development strategies from corporate 

America, participants worked with senior executives, technical experts, and learning specialists to 

address real world issues facing our leadership team. We also successfully piloted coaching for newly 

appointed executives and high potential managers. 

FAA played a key role in developing a DOT proposal on succession planning, which was reviewed and 

approved by OMB. An executive level steering group guided the extension of FAA’s Executive Success 

Profile to managerial levels, identifying leadership competencies throughout FAA. The group also 

developed corporate policies and strategies to accomplish them, which have been incorporated in FAA's 

Flight Plan. As a result of these efforts, FAA is exceptionally well positioned to move ahead with new 

initiatives in FY 2004 to improve the alignment of leadership selection, development, and 

performance. 

In the area of continuous learning, we have taken a leadership role within DOT to develop and 

transition to a department-wide Learning Management System (LMS) as part of the migration to the 

Department of Interior’s Federal Personnel and Payroll System scheduled for FY 2004. The LMS will 

enable greater alignment of training with organizational requirements, provide more accurate training 

data, and support optimal use of e-Learning technologies. The new LMS is a critical component of our 

efforts to provide high quality, just-in-time training to the FAA workforce while controlling costs and 

improving quality. 

FAA is also implementing two other major human resource initiatives designed to contain escalating 

agency costs. The first initiative is a new process for negotiating agreements with the unions 

representing FAA employees. The process places strict controls on the negotiation of union agreements 

by placing labor relations professionals in charge of negotiations and requiring a budget analysis for 

each negotiation. The second initiative involves pilot programs to reduce the workers’ compensation 

costs. The initiative includes efforts to return employees on workers’ compensation rolls to FAA duties 

and to cut down on the incidents resulting in workers’ compensation claims. 

Competitive Sourcing 

OMB has moved away from numerical goals that were originally established for the competitive 

sourcing initiative of the PMA. With the publication of the revised A-76 circular on May 29, 2003, the 

rules and procedures for conducting competitive sourcing studies have been significantly changed, 

which has further affected the original goals. The primary focus during FY 2003 was to initiate action 

and make forward movement on agency competitive sourcing efforts. 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

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Managing Cost and 

Improving Performance 

FAA continued to implement far-reaching changes 

to its financial management systems in FY 2003. In 

November 2003, we implemented DELPHI, the 

Department of Transportation’s integrated financial 

management system. The use of DELPHI will give FAA 

more timely and accurate financial information, one 

of the five goals in the President’s Management 

Agenda. DELPHI implementation also enables FAA to 

address the concerns of the General Accounting 

Office (GAO) about weaknesses in FAA accounting and

financial management systems. 

Results: Our competitive sourcing goals are on target. During FY 2003, FAA designated the Deputy 

Administrator as the Competitive Sourcing Official and established the Office of Competitive Sourcing 

Acquisitions. This office was established as a permanent organization to conduct all public-private 

competitions under the guidance of the Office of Management and Budget’s Circular A-76. 

Presently this office is conducting a competition of Automated Flight Service Stations (AFSS). This 

competition encompasses 2,700 employees at 58 facilities in the continental United States, Puerto 

Rico, and Hawaii. It is the largest competitive sourcing study currently being conducted in the 

government. We are nearing completion of the pre-planning phase of the acquisition and will soon 

publicly announce the competition. 

In June 2003, we released a Request for Information (RFI) on FAA’s Contract Opportunities website. In 

response, seventeen vendors and the Government responded with comments on the overall acquisition 

approach. One-on-one meetings with potential service providers were held later that month. We also 

convened an AFSS user group meeting in early July to gain additional feedback and insights. 

Additionally, we released a web-based survey in early August to gain input from general aviation pilots 

on the nature of services they currently receive. 

In September 2003, we approved the scope of services currently provided by AFSS and recommended 

the scope of the competition. Later that month, the agency management council approved the 

acquisition strategy and incorporated changes into the acquisition policy to accommodate the use of 

Circular A-76. In addition, we approved waivers regarding the length of time required to complete the 

acquisition and permitting the use a “trade-off” approach in the evaluation. 

Improving Financial Performance 

One of our major PMA challenges has been on this 

initiative. During the past year our focus has been on 

the implementation of the new Department of 

Transportation core financial management system, 

DELPHI, and our ongoing efforts to maintain a clean 

audit opinion. Coupled with the DELPHI system is a 

new acquisition system, PRISM, that will streamline 

our acquisition process and better integrate financial 

and acquisition business processes. 

Other focus areas that are underway include ongoing 

implementation of our cost accounting system, 

streamlining efforts on managing travel, and other 

related financial process improvements. 

A key element in the new FAA Flight Plan that will help contribute to our progress in improving 

financial performance is a program to help focus management attention on controlling costs. In 

November 2003, FAA implemented DELPHI, its new core accounting system which will streamline and 

speed reporting, eliminate cumbersome manual entries and adjustments, and integrate property 

accounting with the core accounting system. DELPHI also includes PRISM, an acquisition system that 

will enable us to fully integrate our procurement activity with our core financial system.

Results: Our efforts to improve financial performance were not on target. Since we were not able to 

meet our original schedule for DELPHI and PRISM implementation during FY2003, we did not achieve a 

“yellow” on this PMA initiative. 

The rescheduled implementation of DELPHI and PRISM has required careful planning and coordination 

not only within FAA, but also with the Department. Based on lessons learned from the delays we 

experienced in FY 2003, we realigned program management responsibilities for the PRISM program to 

the DELPHI program manager to improve the coordination across the programs. We have conducted 

numerous tests to ensure an orderly transition from the existing accounting and procurement systems. 

We have met all of our revised milestones for the implementation of DELPHI and PRISM and 

implemented the systems in November 2003. 

FAA has made significant progress to date in the financial management areas identified by GAO in its 

High Risk report. FAA now has a record of three consecutive clean audit opinions. Our auditors 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

31

reported that FAA had no material internal control weaknesses for FY 2003. The auditors also reported 

that FAA had taken effective correction action to resolve a prior material internal control weakness 

related to its reporting of legal liabilities. 

The ability to produce accurate financial statements is a key indicator of an agency’s financial 

management capabilities. The financial statement audit opinion provides an objective third party 

determination upon the validity of the agency’s accounting data and systems. Although FAA is part of 

DOT, we are required to prepare our own audited financial statements. FAA received an unqualified 

opinion on our FY 2003 financial statements. 

FAA has also focused on improving underlying processes and controls during FY 2003. We continued to 

aggressively track and implement auditor recommendations with 97% of financial-related 

recommendations implemented in the past year. In addition, FAA successfully accelerated the issuance 

of our audited financial statements by 43 days and closed our accounting system in one day—a process 

that previously took almost two weeks. During the past year FAA formed agency-wide Accelerated 

Close Teams, led by the Assistant Administrator for Financial Services, to re-engineer processes and 

ensure that accelerated year-end closing milestones were met. In addition, we coordinated closely 

with our independent auditor and the DOT Inspector General to develop a plan of key milestones to 

meet the accelerated targets. 

By the end of FY 2003, all employees in our lines of business began to record their time in labor 

distribution, which includes capturing the work of air traffic controllers in the Cru-X system. Having 

this new information on our labor costs across agency projects and activities will help us evaluate the 

effectiveness and efficiency of our programs. FAA is also working hard to make the cost accounting 

system compatible with DELPHI by February 2004. 

Expanded Electronic Government 

The President’s Management Agenda states that the administration will “create easy-to-find single 

points of access to government services for individuals” and “automate internal processes to reduce 

costs internally.” The main objective under this goal is to provide the capability for external customers 

and employees to transact business with FAA electronically, primarily using the Internet. Key 

components of the E-Government agenda are the development of an Enterprise Architecture, the 

adoption of a Capital Planning and Investment Control (CPIC) process, and properly securing our major 

operational information technology (IT) systems. Based on best practices, these elements serve as 

essential tools for managing IT infrastructure and guiding future IT investment decisions. 

Results: Our efforts to expand electronic government did not meet the target. We received a “red” on 

this PMA initiative due to problems in completing our security certification and accreditation packages 

(SCAP) on a sufficient quantity of our IT systems. 

Even though we were challenged in completing our security certifications, FAA has done 

groundbreaking work in setting the strategic direction for how we plan to tackle securing our systems. 

We have evolved our overall approach on IT security from the more simplistic approach of policy, 

education, and system-by-system certifications, to a holistic approach involving security engineering, 

intrusion prevention and quarantine/system recovery. Through this more robust and strategic 

direction, we plan to position FAA to proactively protect ourselves from and efficiently respond to any 

cyber attacks. 

Recent OMB attention to the business cases for our IT systems has caused us to redouble our efforts in 

this area. Executives in charge of FAA lines of business have become personally involved in ensuring we 

present the best possible business case on our IT investments. Existing investment board processes are 

being revamped to include the OMB Exhibit 300 as part of the regular review of major IT programs. 

FAA has made substantial progress in implementing the administration’s E-Government agenda. 

Through a team effort under the leadership of the Chief Information Officer, the mission support area 

of the Enterprise Architecture will be completed on schedule. FAA also completed Phase I of its plan 

for implementing the Government Paperwork Elimination Act (GPEA). This step enhances FAA’s level of 

service to citizens by making all of FAA’s public use forms available in a single, easy to use, Internet 

application. This project also moves FAA closer to being integrated with the other Federal EGovernment initiatives such as E-Grants and E-Authentication. 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

32

Harnessing the opportunities provided by the Internet, FAA is integrating the use of web-based 

applications into financial management business practices. In FY 2003, FAA implemented the DIY (“Do 

It Yourself”) system, which offers FAA customers the capability to pay for registrations, filings, and 

debts over the Internet with a credit card. FAA also uses the system to collect airline user fees. In FY 

2004, FAA is working on expanding the use of the system for other types of payments. 

Budget and Performance Integration 

The primary focus for the year was on the delivery of a performance-based FY 2005 budget and the 

completion of the Program Assessment Rating Tool for our Operations appropriation in the Air Traffic 

Services lines of business and for our Research, Engineering and Development (RE&D) appropriation in 

the Research and Acquisitions line of business. 

Results: Our budget-to-performance integration efforts were on target. FAA made major improvements 

in its alignment of budget and performance. This year we succeeded in aligning our FY 2005 budget to 

over 30 performance targets within 4 goal areas in the FAA Flight Plan. FAA lines of business and staff 

offices then developed individual business plans for FY 2004 that tracked with the Flight Plan, providing 

line of sight to all FAA employees on how their work contributes directly to our Strategic Plan. 

In addition, FAA has incorporated the results of OMB’s Program Assessment and Rating Tool (PART) 

within the budget request. The PART is a program that OMB is using to evaluate the effectiveness of all 

government programs. This year, OMB evaluated the RE&D appropriation and the Air Traffic Services 

Operations appropriation. The RE&D evaluation achieved the second highest score in government. Air 

Traffic Services also did well. 

We have much more work to do before our budget and performance are truly integrated. We plan to 

better justify our base requirements and establish more meaningful context and connections between 

resource requests and performance goals in the FY 2006 budget submission. Our budget and 

performance staffs are learning to work more closely together at all levels of the organization. FAA 

continues to lead the Department of Transportation in working towards a seamless integration of 

budget and performance. 

Because our Organizational Excellence goals are relatively new, trend data is not available beyond that 

depicted in the charts in the preceding pages. 

Financial Highlights 

Management Integrity: Controls, Compliance, and Challenges 

Every year, FAA’s lines of business and staff offices review the adequacy of their program and activity 

management controls to assess their compliance with Sections 2 and 4 of the Federal Managers’ 

Financial Integrity Act of 1982 (FMFIA). Based on their review, the head of the line of business or staff 

office identifies in writing to the Chief Financial Officer, potential material internal control weaknesses 

and system nonconformances. Those deemed material, are consolidated in a memorandum with a 

Statement of Assurance signed by the Administrator and sent to the Secretary of the Department of 

Transportation. FAA’s response becomes a part of the DOT’s Statement of Assurance sent to the 

President. To help resolve identified material weaknesses or nonconformances, a plan is developed, 

with specific milestones and deadlines. The plan, and the status of each action, is reviewed monthly, 

with results reported to the DOT’s Office of the Secretary. 

As reported to the Secretary in a December 2003 memorandum, in FY 2003, the FAA had one material 

weakness—oversight of cost reimbursable contracts, and one material nonconformance—the lack of a 

fully integrated property accounting system. 

Last year, we reported the closeout of cost reimbursable contracts as a material weakness. In the 

OIG’s May 2002 audit report FA-2002-092, they reported that the backlog of over-aged cost 

reimbursable contracts awaiting closeout was 1,400 with a value of $6 billion. As of September 30, 

2003, FAA has reduced this backlog to 180 contracts with a value of $3.45 billion. We have also closed 

out a significant number of cost reimbursable contracts that are not considered over-aged and have 

established a target of closing out the entire backlog of the completed contracts by September 2004. 

FAA has developed standard operating procedures and reminded contracting officers of procurement 

requirements to strengthen the administration of contracts. Finally, in November 2003 FAA 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

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implemented PRISM, the agency’s new procurement system, which is integrated with DELPHI, the 

Department’s new core accounting system. These systems will greatly improve the payment process for 

cost reimbursable contracts. 

Lack of a fully integrated property accounting system was originally reported as a material 

nonconformance in the FY 2001 FMFIA statement. The nonconformance was a result of the temporary 

use of the Interim Fixed Assets System (IFAS) to establish control over FAA’s property accounting until 

DELPHI was implemented. IFAS was not fully integrated with the accounting system used in FY 2003. In 

November 2003 FAA implemented DELPHI, which includes an integrated property accounting module. 

This should bring the FAA into conformance with Section 4 of FMFIA. 

OIG Management Challenges 

The DOT Inspector General identified his top management challenges facing DOT in FY 2004. In his 

report dated December 5, 2003 (available at www.oig.dot.gov/show_pdf.php?id=1217), he identified 

several FAA-specific challenges, which are summarized below. The Appendix to this report is the 

transmittal memorandum and extracts relating to FAA-specific challenges. 

• Aviation Safety: Ensure FAA safety oversight keeps pace with industry and economic changes such 

as significant increases in contracting aircraft maintenance to third parties. Also, while there has 

been real progress in the last year on runway incursions, operational errors continue to increase. 

Corrective actions are imperative to address this problem. 

• Improving Fiscal Discipline: Address growth in operations, and problems with delays and cost 

increases for major acquisitions. With the expected decline in Aviation Trust Fund revenues, salary 

increases experienced over the last few years are not sustainable. To abate the growth in 

operating costs, the IG states that FAA needs to have both the cost accounting and labor 

distribution systems in place and operating effectively. Also, the FAA needs to renegotiate 

memorandums of understanding between FAA and labor that have extensive cost considerations. 

• Financial Accountability. Improve oversight of cost-reimbursable contracts, and fully implement 

the new DELPHI financial management system. 

Erroneous Payments

Since 2001, FAA has been required to report on grant payments paid erroneously under the Airport 

Improvement Program (AIP). Based on FAA’s reviews, the estimated rates of erroneous payments have 

been insignificant and below minimum thresholds established by OMB. These are high dollar 

amounts/low volume payments, paid to grantees that are primarily states and political subdivisions. In 

FY 2001, when an estimated 2,000 grants were issued to approximately 1,500 grant recipients, 0.05% of 

payments were paid erroneously, amounting to $349,000 of the $3.35 billion paid in grants. In FY 2002, 

FAA had an erroneous payment rate of 0.06%, amounting to $766,000 of the $3.33 billion paid out in 

grants. In FY 2003, $3.89 billion was paid in grants. Forty-seven out of 29,830 payments, (0.16%) were 

paid erroneously, amounting to $14 million. Out of the 47 transactions paid erroneously, 19 payments 

were paid from one accounting office and paid erroneously because grantees charged the wrong 

project or grant number. Once the errors were realized, the funds were deposited back to the system. 

Discussion and Analysis of the Financial Statements 

FAA prepares annual financial statements in conformity with accounting principles generally accepted 

in the United States. The financial statements are subject to an independent audit to ensure that they 

are free from material misstatement and that they can be used to assess FAA performance. 

FY 2003 Financial Statement Audit 

The Chief Financial Officers’ Act of 1990 (Public Law 101-576), as amended by the Government 

Management Reform Act of 1994, requires that financial statements be prepared by certain agencies 

and commercial-like activities of the Federal government, and that the statements be audited in 

accordance with Government Auditing Standards. FAA is required to prepare its own financial 

statements under OMB Bulletin 01-02, Audit Requirements for Federal Financial Statements, dated 

October 16, 2002. The DOT Inspector General is statutorily responsible for the manner in which the 

audit of FAA’s financial statements is conducted. The DOT Inspector General selected KPMG LLP, an 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

34

independent certified public accounting firm, to audit FAA’s FY 2003 financial statements. KPMG also 

audited FAA’s FY 2002 financial statements. 

In 2002, the DOT’s Inspector General and Chief Financial Officer, along with the FAA Chief Financial 

Officer established an Audit Advisory Committee to promote and encourage open communications 

among the Office of Inspector General (OIG), FAA management, and the independent auditors; to 

resolve issues that arise during the course of the audit; and to monitor the implementation of audit 

recommendations. The Committee is chaired by the Director of the Office of Financial Management and 

includes representatives from the OIG, DOT’s Office of Financial Management, and FAA’s Assistant 

Administrator for Region and Center Operations, Associate Administrator for Air Traffic Services, and 

Associate Administrator for Research and Acquisitions. For FY 2003, participation on the Committee 

was expanded to include representatives from the Chief Counsel’s office, Assistant Administrator for 

Human Resources Management, Information Services, and Airports. 

FAA’s independent auditor, KPMG LLP, rendered an unqualified audit opinion on FAA’s FY 2003 

financial statements. This means that the FAA’s financial statements as of, and for the year ended, 

September 30, 2003, were presented fairly, in all material respects, in conformity with accounting 

principles generally accepted in the United States of America. KPMG’s audit report was presented by 

the OIG to the FAA Administrator. 

KPMG identified no material weaknesses and three reportable conditions: (1) Controls over property, 

plant, and equipment, (2) Process for estimating environmental liabilities, and (3) Information 

technology controls over FAA and third party systems and applications. 

Further, KPMG identified instances of noncompliance with the Federal Financial Management 

Improvement Act and the Anti-Deficiency Act. 

Understanding the Financial Statements 

FAA's Consolidated Balance Sheets, Statements of Net Cost, Changes in Net Position and Financing and 

Combined Statement of Budgetary Resources are presented in a two-year comparative format. The 

following section provides a brief description of (a) the nature of each financial statement and its 

relevance to FAA, (b) significant fluctuations from FY 2002 to FY 2003, and (c) certain significant 

balances where necessary to help clarify their link to FAA operations. 

Balance Sheet

The Balance Sheet presents the amounts 

available for use by the FAA (assets) against 

the amounts owed (liabilities) and amounts 

that comprise the difference (net position). 

Assets

As of fiscal year end, FAA’s total assets were 

$27.9 billion. The assets of the FAA are the 

resources available to pay liabilities or satisfy 

future service needs. FAA’s major categories 

of assets, as a percentage of total assets are 

as shown in the chart on to the right. 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

35

The graph at the right 

presents comparisons of 

major asset balances as 

of September 30, 2002 

versus 2003. A discussion 

of the significant 

accounts and fluctuations 

follows.

Fund Balance with 

Treasury represents 

10 percent of FAA’s 

current year assets and 

consists of funding 

available through 

Department of Treasury 

accounts from which FAA 

is authorized to make 

expenditures to pay 

liabilities. It also includes 

passenger ticket and 

other excise taxes 

deposited to the Airport and Airway Trust Fund (Trust Fund), but not yet invested. Fund Balance with 

Treasury increased 12 percent ($294 million) due primarily to collection of accounts receivable 

balances. 

At $10.8 billion, Investments represent 39 percent of FAA’s current year assets, and are principally 

derived from passenger ticket and other excise taxes deposited to the Trust Fund. These amounts are 

used to finance FAA’s operations to the extent authorized by Congress. Investments decreased slightly 

due to a reduction in tax revenues deposited into the Trust Fund in FY 2003. 

At $13.4 billion, General Property, Plant, and Equipment, net (PP&E) represents 48 percent of FAA’s 

assets as of September 30, 2003, and primarily comprises construction-in-progress related to the 

development of National Airspace System assets, and capitalized real and personal property. PP&E 

increased slightly due to the acquisition of real and personal property assets offset by current year 

property retirements and depreciation. 

Liabilities 

At the end of FY 2003, FAA reported 

liabilities of $3.5 billion. Liabilities are 

probable and measurable future outflows 

of resources arising from past transactions 

or events. The chart below depicts FAA’s 

major categories of liabilities, as a 

percentage of total liabilities. 

The graph presents comparisons of major 

liability balances between FY 2002 and 

FY 2003. A discussion of the significant 

fluctuations between the two years 

follows. 

At $1.2 billion, Employee Related, Legal, 

and Other Liabilities represent 34 percent 

of FAA’s total liabilities. The 

intragovernmental component decreased 

from $485.5 million to $344.8 million as of 

September 30, 2002 and 2003, respectively. The decrease is attributable to the settlement of an 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

36

FY 2002 $105.0 million 

excise tax liability. 

Estimated excise tax 

revenues are deposited to 

the Trust Fund quarterly, 

and are subsequently 

adjusted when Treasury’s 

Office of Tax Analysis 

(OTA) validates its 

estimates approximately 

six months later. The FY 

2002 $105.0 million liability 

resulted from this 

validation process. 

The public component of 

these liabilities decreased 

from $1,176.1 million to 

$859.1 million as of 

September 30, 2002 and 

2003, respectively. The 

decrease occurred since accrued payroll and benefits to employees was lower as the payroll was paid 

on the last day of the fiscal year, and legal liabilities were lower due to settlements of several claims. 

At $1.04 billion, Federal employee and veterans benefits comprise 29 percent of FAA’s current year 

liabilities, and consist of FAA’s expected liability for death, disability, and medical costs for approved 

workers compensation cases, plus a component for incurred but not reported claims. The Department 

of Labor (DOL) calculates the liability for DOT, and DOT attributes a proportionate amount to FAA 

based upon actual workers’ compensation payments to FAA employees over the preceding four years. 

Statement of Net Cost 

The Statement of Net Cost presents the 

annual cost of operating FAA programs. 

The gross cost less any offsetting revenue 

for each FAA program is used to arrive at 

the net cost of specific program 

operations. FAA has used its cost 

accounting system to prepare the 

Statement of Net Cost since FY 1999. 

In the Other Accompanying Information 

section of this report, net costs are 

linked to agency strategic goal areas by 

responsibility segment (line of business). 

In FY 2003, FAA’s net costs were $12.0 

billion, compared to $12.4 billion in 

FY 2002. The following chart illustrates 

the distribution of net costs among FAA’s 

lines of business. 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

37

The graph below compares FY 2002 and FY 2003 net costs, followed by a discussion of the significant 

fluctuations between the two years. 

With a net cost of 

$7.6 billion, Air Traffic 

Services is FAA’s largest 

line of business, 

comprising 64.0 percent of 

total net costs. Net costs 

increased by 6 percent, 

from $7.2 billion in 

FY 2002, primarily due to 

personnel compensation 

and benefits, as the 

general schedule of 

federal salaries increased 

by 4.3 percent on 

January 1, 2003. 

With a net cost of $2.8 billion in FY 2003, Airports is the FAA’s second largest line of business. Net 

costs decreased $147.0 million, from $2.93 billion in FY 2002. This is attributed to the one-time 

security-related grant costs paid to the Transportation Security Administration (TSA) in FY 2002, and 

not incurred in FY 2003. 

With a net cost of $443 million, Research and Acquisitions decreased $72 million due primarily to a 

decrease in a variety of contract costs. 

Region and Center Operations and Other Programs decreased $207 million, from $297 million in FY 

2002 to $90 million in FY 2003. This decrease is principally attributable to the following: (a) a nonrecurring FY 2002 Aviation War Risk Insurance payment of $50.0 million, and (b) a non-recurring FY 

2002 payment of $40.0 million to reimburse Metropolitan Washington Airports Authority for revenue 

losses due to the temporary closure of Ronald Reagan National Airport following the terrorist attacks of 

September 11, 2001. 

In accordance with Federal Accounting Standards Advisory Board Technical Bulletin 2003-1, FAA 

disclosed the net cost of Civil Aviation Security operations transferred to the Department of Homeland 

Security. The FY 2003 and FY 2002 net cost was $47 million and $533 million, respectively. 

Statement of Changes in Net Position 

The Statement of Changes in Net Position presents those accounting items that caused the net position 

section of the balance sheet to change from the beginning to the end of the reporting period. Various 

financing sources increase net position, including appropriations received and non-exchange revenue. 

The agency’s net cost of operations serves to reduce net position. 

FAA’s cumulative results of operations increased slightly (approximately 1%) to $23.8 billion in FY 2003. 

The change is primarily attributed to the increase in financing sources. 

Statement of Budgetary Resources 

This statement provides information on the budgetary resources available to FAA for FY 2003 and the 

status of those budgetary resources at year-end. The outlays reported on this statement reflect the 

actual cash disbursed for the year by Treasury for FAA obligations. The following chart outlines the 

changes in the major categories of budgetary resources from FY 2002 to FY 2003. 

Budget Authority increased 10 percent to $15.8 billion in FY 2003. The change in Budget Authority is 

attributable to an increase in the request for liquidating cash of $1.3 billion in the FY 2003 President’s 

Budget. The request was based on an estimated increase in outlays for FY 2003. 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

38

Obligations Incurred 

decreased 10 percent to 

$14.2 billion in FY 2003. 

The majority of this 

difference is attributable 

to reimbursable 

agreements with TSA 

for airport screener 

contracts utilized in 

FY 2002. 

Disbursements decreased 

$2.9 billion primarily as a 

result of a decline of 

reimbursable activity 

with TSA. 

Statement of Financing 

This statement reconciles the resources available to FAA to finance operations and the net cost of 

operating FAA programs. Change in budgetary resources obligated for goods, services, and benefits 

ordered but not yet provided includes the change in undelivered orders and unfilled customer orders. 

Resources that finance the acquisition of assets are additions and reductions to capital and other asset 

balances during the fiscal year. Components requiring or generating resources in future periods

discloses the net increase in liabilities that are not covered by current budgetary resources. 

Components not requiring or generating resources in future periods include depreciation, the 

operating gains or losses recognized upon the disposition of FAA capital assets and cost of goods sold. 

Total resources used to finance FY 2003 activities decreased by $1.3 billion comprised of: (a) a 

decrease in Obligations Net of Offsetting Collections of $659.6 million, and (b) an increase in transfers 

out, which also reduces available financing resources, of $702.8 million. The increased transfers out in 

FY 2003 were primarily of security-related equipment to the TSA. The resources used to finance items 

not part of the net cost of operations decreased from $2.9 billion in FY 2002 to $2.1 billion in FY 2003. 

The decrease was caused mainly by reductions of $417.6 million in budgetary resources obligated for 

goods, services and benefits ordered but not yet provided and $507.0 million in the acquisition of 

agency real and personal property fixed assets. The third section of the Statement of Financing, 

Components of Net Cost of Operations that will not Require or Generate Resources in the Current 

Period, remained constant at $1.0 billion for FY 2002 and FY 2003. 

Stewardship Investments 

FAA conducts research and provides the essential air traffic control infrastructure to meet increasing 

demands for higher levels of system safety, capacity, and efficiency. Research priorities include 

aircraft structures and materials, fire and cabin safety, crash injury-protection, explosive detection 

systems, and improved in-flight and ground de-icing operations. Research priorities also include better 

tools to predict and warn of weather hazards, turbulence, and wake vortices; pavement design and 

airport safety; aviation medicine; and human factors. 

Budgetary Integrity: FAA Resources and How They Are Used 

Airport and Airway Trust Fund. Approximately 76 percent of the FAA’s FY 2003 budget was provided 

by the Airport and Airway Trust Fund, which derives its funds from excise taxes and interest generated 

by the Fund. The Airport and Airway Trust Fund, created by the Airport and Airway Revenue Act of 

1970, provides a stable source of funding to finance investments in the airport and airway system and, 

to the extent funds are available, covers the operating costs of the airway system. Aviation excise 

taxes, which include taxes on domestic passenger tickets, freight waybills, general and commercial 

aviation fuel/gas, and international departures and arrivals, are deposited into the Trust Fund. The 

Department of the Treasury maintains the Trust Fund and invests its monies in Government securities. 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

39

Any interest earned is deposited into the Trust Fund. As needed, funds are withdrawn from the Trust 

Fund and transferred into each FAA appropriation to cover obligations. 

FAA is financed through annual and multi-year appropriations authorized by the Congress. Its 

FY 2003 enacted budget was $13.5 billion. The Combined Statement of Budgetary Resources reflects 

funding enacted by the Consolidated Appropriations Resolution, 2003, Public law 108-7. The enacted 

FY 2003 levels include an across the board rescission of 0.65 percent and a $3.5 million earmark for 

Midway Island Airfield under GP Sec. 371 included in Operations. FAA has four appropriations; the 

largest—Operations—is funded by Treasury’s General Fund and a portion from the Airport and Airway 

Trust Fund. The Trust Fund is the sole revenue source for the FAA’s three capital investment 

appropriations: (1) Facilities and Equipment; (2) Research, Engineering and Development, and 

(3) Airport Improvement Program. 

Operations. The Operations appropriation funds the salaries and associated costs to operate and 

maintain the air traffic control system and to carry out FAA’s safety inspection and regulatory 

responsibilities. Funding for Operations in FY 2003 represents only a 2.1 percent increase excluding the 

$200 million for the emergency supplemental from FY 2002. The increase is attributable to mandatory 

pay increases. 

Facilities and Equipment (F&E). Funds from the F&E appropriation are used to modernize, expand, 

and replenish the air traffic control infrastructure. Between FY 2002 and FY 2003, there was no 

increase after excluding the $108.5 million from emergency supplemental funding in FY 2002. Funding 

increases supported major systems, such as the en route and terminal automation programs, next 

generation weather radar, the oceanic automation program, communications, and satellite navigation. 

Airport Improvement Program (AIP). The Secretary of Transportation is authorized to award grants for 

airport planning and development to maintain a safe and efficient nationwide system of public 

airports. These grants make it possible to fund one-fourth to one-third of all capital development at 

the Nation’s public airports. Grants are issued to maintain and enhance airport safety, preserve 

existing airport infrastructure, and expand capacity and efficiency throughout the airport system. 

While the original obligation limitation was $100 million higher in FY 2003, a decrease of $97 million 

from the FY 2002 enacted level reflects the $175 million supplemental in FY 2002, as well as the 

across-the-board 0.65% rescission in FY 2003. Grants for airport improvement projects to enhance 

capacity, improve safety and security, and to mitigate noise increased by approximately $72 million. 

Research, Engineering and Development (R,E&D). Funding for R,E&D decreased $97 million from the 

prior year, which included $50 million in an emergency supplemental appropriation and a transfer of 

$47 million for system security technology to the Department of Homeland Security. The R,E&D funding 

allows for an increased focus on environment and energy, weather initiatives, human factors, and 

aircraft safety, in support of the Safer Skies initiative. 

Research and Development Highlights 

FAA’s Research, Engineering and Development (R,E&D) program is developing the technologies, tools, 

and procedures to ensure critical safety, efficiency, and environmental goals. In FY 2003, FAA’s R,E&D 

program made significant contributions to achieving the Agency’s mission and goals, including: 

y Developing and successfully testing a fuel tank inerting system. Following the 1996 TWA Flight 

800 accident, in which the center fuel tank caught fire, fuel tanks became a critical safety issue. 

With the FAA system, sparks will no longer ignite the fuel vapors, causing an explosion. This 

prototype is a low cost alternative to past, experimental inerting systems. 

y Conducting the fourth in a series of commuter airplane drop tests. Through projects, such as the 

drop test, FAA is working to establish cabin interior standards that will protect passengers and crew 

in the unlikely event of an accident. 

y Establishing the Air Transportation Center for Excellence for Aircraft Noise and Emissions 

Mitigation. Through a collaborative, cost-sharing effort among Federal, industry, and university 

researchers, this new Center is concentrating efforts on mitigating the impact of aviation noise and 

emissions, which represent major constraints on the growth of aviation. 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

40

y Issuing the Human Factors Design Standard. This comprehensive human factors reference 

provides a common source for FAA-specific design standards for air traffic and airway facilities 

systems. 

y Deploying the Graphical Turbulence Guidance. This product provides a color forecast of upper 

level clear-air turbulence. 

y Developing and validating a new method for determining the origin of post-mortem ethanol in 

the body. This method can now predict pre-death alcohol consumption. Until this groundbreaking 

work, accident investigators had difficulty determining if the ethanol present in the body was the 

result of alcoholic beverages or the result of normal postmortem ethanol formation in the body. 

Charting the Next Century of Flight 

The creative spark and can-do attitude that drove the Wright brothers to accomplish the seemingly 

impossible goal of flight also drives FAA. As FAA charts its course into the next century, the challenges 

met today lay the groundwork for the future success of the aviation community in the United States 

and around the world. 

As we enter the 21st century, the challenges facing aviation demand nothing less than transforming the 

system. We are confronted with the challenges of reducing an already low commercial accident rate, 

building an air traffic control system capable of efficiently meeting future demand, and modernizing 

our own organization. Today, securing safe air travel, navigating industry uncertainties, and managing 

new technologies require that we embrace change as never before. 

Looking farther into the future, the aviation community needs to develop a shared vision for the future 

of aviation. This is the assignment of FAA’s Joint Planning Office, which is currently developing a 

national plan through the year 2025 with NASA, and the Departments of Defense, Homeland Security, 

and Commerce. 

Several factors affect our ability to meet our ambitious goals for the future, some of which are outside 

the control of FAA. We plan to aggressively pursue the needed coordination with our partners to ensure 

success in addressing the following factors: 

Economic State of the Industry 

The financial difficulties facing airlines and manufacturers affect their ability and willingness to equip 

aircraft with new technologies to increase safety and capacity. The financial difficulties facing the 

industry also affect FAA, which is funded primarily by the Aviation Trust Fund from taxes on airline 

tickets, fuel, and air freight. As long as airline travel remains depressed, so too will the revenues 

available to FAA. 

Fiscal Priorities of the Nation 

Large capital investments in facilities, infrastructure, and staff will in part depend on the ability and 

willingness of Congress to fund those investments. 

Cooperation With State, Local, and International Agencies 

FAA’s ability to increase safety and expand capacity also depends in part on authorities at the local, 

state, and international levels collaborating with FAA to build new airports, to expand runways, and to 

implement new technologies. 

National Security 

FAA works closely with and supports agencies such as the Departments of Defense and Homeland 

Security, and the Transportation Security Administration (TSA). We will coordinate closely with TSA and 

key stakeholders on security issues and activities related to aircraft design and operations. FAA will 

also work to ensure that the roles of FAA, TSA, and DOT, along with other government and industry 

stakeholders, are clearly understood. Should new threats arise, priorities may need to shift to counter 

them. 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

41

Our goals are not easy to attain, but then, we have a long history of meeting big challenges. The safety 

record and the air travel system that FAA and the aviation community have built together are not only 

the envy of the world, but also a model for our collective future. Working together, we will exercise 

leadership in setting standards and expectations so the global aviation industry can flourish. 

As FAA attempts to identify the broad trends shaping flight, we anticipate future needs to more 

effectively guide present planning. Although we may not be able to predict the precise contours of our 

aviation future, we are working on several fronts to advance aviation technology and build on past 

successes to face the challenges ahead. While we made great strides in improving safety, enhancing 

security, and increasing efficiency during FY 2003, we must persist in our efforts to build an aviation 

system for the next century of flight. As the aviation community adjusts to changes in demand and 

economic conditions, so FAA must make mid-course corrections to address new realities.
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

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Federal Aviation Administration 

FY 2003 Performance and Accountability Report

43

FY 2003 PRINCIPAL FINANCIAL STATEMENTS
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

44

THIS PAGE INTENTIONALLY LEFT BLANK. 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

45

A MESSAGE FROM THE CHIEF FINANCIAL OFFICER

This past year, we made significant progress in financial and 

performance management. We are now in a good position to 

achieve the goals of the President’s Management Agenda in 

financial management and to embark on the next century of flight. 

We have worked hard to develop and implement the financial tools 

we need to control rising operating costs and to give our managers 

the information they need to transform the FAA into a 

performance-based organization. In FY 2003, we: 

• Received an unqualified opinion on our financial statements, 

without any material internal control weaknesses. 

• Closed our books and prepared our audited financial 

statements more quickly, finishing in mid-December. 

• Completed our final tests and preparations to use DELPHI, the Department of Transportation’s 

integrated financial management system. 

• Aligned our budget more closely with our goals and performance measures to support the 

President’s Management Agenda. 

• Implemented labor distribution systems to give managers the data they need to make costeffective decisions. 

This year’s opinion marks the third year in a row we have received an unqualified opinion. Last year 

our auditors identified the process for estimating liabilities for legal matters to be a material 

weakness. In 2003, we worked closely with the Office of General Counsel to ensure that estimates of 

legal liabilities were accurate, correct, and reported on time. This year, for the first time, our auditors 

identified no material weaknesses. 

Throughout 2003, we worked on our new procurement and financial management systems, with a goal 

of implementing them in November 2003. Our efforts paid off. We eliminated our legacy financial 

system, which was not compliant with the U.S. Standard General Ledger, and our stand-alone property 

accounting system. We replaced both with a modern financial management system that fully integrates 

property accounting. Over 42,000 employees now report time on project and activities, giving our 

managers better information about the labor cost of our work. Our cost accounting system provides 

managers with the full cost of FAA services, helping them understand and control their costs better. 

All these steps help us address concerns previously raised by the General Accounting Office and the 

DOT Inspector General about our ability to prepare accurate, reliable financial information. In the year 

to come, one of our greatest challenges will be to manage our business more effectively while meeting 

even tighter reporting deadlines on our financial statements. 

In FY 2003, we developed an approach to control our costs that will be a cornerstone for how we 

operate in FY 2004 and beyond. This multiyear effort will track and use financial and operational 

information to control costs and achieve savings. Russ Chew, the head of our new Air Traffic 

Organization, plans to use our accounting and cost accounting systems as the key to controlling 

operating costs. 

We have made significant strides in improving financial and performance management through the 

collaborative effort and hard work of the financial staff at headquarters, regional offices and centers, 

and staff from all the lines of business. We have laid the groundwork for greater success in the years to 

come, as FAA helps chart the next century of flight. 

John F. Hennigan 

Acting Chief Financial Officer 

December 18, 2003
U.S. Department of 

Memorandum

Transportation 

Office of the Secretary 

of Transportation 

Office of Inspector General

Subject: ACTION: Quality Control Review 

of Audited Financial Statements 

for Fiscal Years 2003 and 2002, FAA 

QC-2004-008

Date: December 19, 2003 

Reply

To

From Kenneth M. Mead 

Inspector General 

Attn 

Of

JA-20:x61496 

To The Secretary

Federal Aviation Administrator 

The audit of the Federal Aviation Administration’s (FAA) Financial Statements as 

of and for the years ended September 30, 2003, and September 30, 2002, was 

completed by KPMG LLP (KPMG) of Washington, D.C. (See Attachment.) We

performed a quality control review of the audit work to determine compliance with 

applicable standards. These standards include the Chief Financial Officers Act; 

Government Auditing Standards; and Office of Management and Budget 

Bulletin 01-02, Audit Requirements for Federal Financial Statements. 

The KPMG audit report presented an unqualified opinion, also known as a “clean” 

opinion, on the FAA financial statements, and we concur with this opinion. The 

report presented no material internal control weaknesses but did present the 

following three reportable internal control conditions: 

1. Controls over property, plant, and equipment; 

2. Process for estimating environmental liabilities; and 

3. Information technology controls over FAA and third-party systems and 

applications. 

The report also identified instances of noncompliance with the Federal Financial 

Management Improvement Act of 1996, and the Anti-Deficiency Act, as amended. 

KPMG made eight recommendations for corrective actions. We agree with the 

KPMG recommendations. In accordance with the Department of Transportation 

Order 8000.1C, we would appreciate receiving your written comments within 

Federal Aviation Administration 46

FY 2003 Performance and Accountability Report
2

15 days. If you concur with the recommendations, for each recommendation, 

please indicate the specific actions taken and planned, along with estimated 

completion dates for planned actions. 

In our opinion, the audit work performed by KPMG complied with applicable 

standards. Therefore, we are not making any additional recommendations. 

We appreciate the cooperation and assistance of FAA and KPMG representatives. 

If we can answer any questions, please call me at (202) 366-1959, or Ted Alves at 

(202) 366-1496. 

Attachment 

# 

Federal Aviation Administration 47

FY 2003 Performance and Accountability Report
2001 M Street, NW

Washington, DC 20036 

KPMG LLP. KPMG LLP, a U.S. limited liability partnership, is

a member of KPMG International, a Swiss association.

Independent Auditors’ Report

Administrator, Federal Aviation Administration 

Inspector General, U.S. Department of Transportation 

We have audited the accompanying balance sheets of the Federal Aviation Administration (FAA) as of

September 30, 2003 and 2002, and the related statements of net cost, changes in net position, financing, 

and budgetary resources for the years then ended (herein referred to as “financial statements”). The

objectives of our audits were to express an opinion on the fair presentation of these financial statements. 

In connection with our audits, we also considered the FAA’s internal control over financial reporting and

tested the FAA’s compliance with certain provisions of applicable laws and regulations that could have a 

direct and material effect on its financial statements. 

SUMMARY 

As stated in our opinion on the financial statements, we concluded that the FAA’s financial statements as

of, and for the years ended, September 30, 2003 and 2002, are presented fairly, in all material respects, in 

conformity with accounting principles generally accepted in the United States of America. 

Our consideration of internal control over financial reporting resulted in the following conditions being 

identified as reportable conditions: 

1. Controls over property, plant, and equipment 

2. Process for estimating environmental liabilities 

3. Information technology controls over FAA and third-party systems and applications 

However, none of the reportable conditions are believed to be material weaknesses. 

The results of our tests of compliance with certain provisions of laws and regulations disclosed instances of 

noncompliance with the following laws and regulations that are required to be reported under Government

Auditing Standards, issued by the Comptroller General of the United States, and Office of Management

and Budget (OMB) Bulletin number 01-02, Audit Requirements for Federal Financial Statements. 

1. Federal Financial Management Improvement Act of 1996 (FFMIA) 

2. Anti-Deficiency Act, as amended (ADA) 

The following sections discuss our opinion on the FAA’s financial statements, our consideration of the 

FAA’s internal control over financial reporting, our tests of the FAA’s compliance with certain provisions

of applicable laws and regulations, and management’s and our responsibilities. 
OPINION ON THE FINANCIAL STATEMENTS 

We have audited the accompanying balance sheets of the FAA as of September 30, 2003 and 2002, and the 

related statements of net cost, changes in net position, financing, and budgetary resources for the years then 

ended. 

In our opinion, the financial statements referred to above present fairly, in all material respects, the 

financial position of the FAA as of September 30, 2003 and 2002, and its net costs, changes in net position, 

budgetary resources, and reconciliation of net costs to budgetary obligations, for the years then ended, in 

conformity with accounting principles generally accepted in the United States of America. 

The information in the Management’s Discussion and Analysis, Required Supplementary Stewardship 

Information, and Required Supplementary Information sections is not a required part of the financial 

statements, but is supplementary information required by accounting principles generally accepted in the 

United States of America or OMB Bulletin number 01-09, Form and Content of Agency Financial 

Statements. We have applied certain limited procedures, which consisted principally of inquiries of 

management regarding the methods of measurement and presentation of this information. However, we did 

not audit this information and, accordingly, we express no opinion on it. 

Our audits were conducted for the purpose of forming an opinion on the financial statements taken as a 

whole. The Other Accompanying Information is presented for purposes of additional analysis, and also is 

not a required part of the fiscal year 2003 and 2002 financial statements. Such information has been 

subjected to the auditing procedures applied in the audits of the financial statements and, in our opinion, is 

fairly stated in all material respects in relation to the financial statements taken as a whole. 

INTERNAL CONTROL OVER FINANCIAL REPORTING 

Our consideration of internal control over financial reporting would not necessarily disclose all matters in 

the internal control over financial reporting that might be reportable conditions. Under standards issued by 

the American Institute of Certified Public Accountants, reportable conditions are matters coming to our 

attention relating to significant deficiencies in the design or operation of the internal control over financial 

reporting that, in our judgment, could adversely affect the FAA’s ability to record, process, summarize, and 

report financial data consistent with the assertions by management in the financial statements. 

Material weaknesses are reportable conditions in which the design or operation of one or more of the 

internal control components does not reduce to a relatively low level the risk that misstatements, in 

amounts that would be material in relation to the financial statements being audited, may occur and not be 

detected within a timely period by employees in the normal course of performing their assigned functions. 

In our fiscal year 2003 audit, we noted certain matters, described in Exhibit 1, involving internal control 

over financial reporting and its operation that we consider to be reportable conditions. However, none of 

the reportable conditions are believed to be material weaknesses. 

A summary of the status of prior year reportable conditions is included in Exhibit 2. 

We also noted other matters involving internal control over financial reporting and its operation that we 

will report to the management of the FAA in a separate letter. 

COMPLIANCE WITH LAWS AND REGULATIONS 

Our tests of compliance with certain provisions of laws and regulations, as described in the Responsibilities 

section of this report disclosed two instances of noncompliance with the laws and regulations that are 
 3 (Continued) 

are required to be reported under Government Auditing Standards and OMB Bulletin number 01-02, and 

are described below. 

1. Federal Financial Management Improvement Act of 1996 (FFMIA)

2. Anti-Deficiency Act 

The results of our tests of FFMIA disclosed instances, described in Exhibit 3, where the FAA’s accounting 

system does not comply with the United States Standard General Ledger at the transaction level and 

Federal financial management system requirements, which call for a single, integrated financial system. 

The FAA has not fully implemented managerial cost accounting and its Statement of Net Cost does not 

present costs by strategic goal. 

In addition, as discussed in Exhibit 3, we noted that certain transactions associated with the Aviation 

Insurance Revolving and Emergency Response Funds constituted violations of the Anti-Deficiency Act. 

RESPONSIBILITIES 

Management’s Responsibilities 

The Government Management Reform Act of 1994 (GMRA) requires each federal agency to report 

annually to Congress on its financial status and any other information needed to fairly present its financial 

position and results of operations. To assist the Department of Transportation in meeting GMRA reporting 

requirements, the FAA prepares annual financial statements. 

Management is responsible for the financial statements, including: 

• Preparing the financial statements in conformity with accounting principles generally accepted in the 

United States of America; 

• Establishing and maintaining internal controls over financial reporting, and preparation of the 

Management Discussion and Analysis (including the performance measures), the Required 

Supplementary Information, and Required Supplementary Stewardship Information, and 

• Complying with laws and regulations, including FFMIA. 

In fulfilling this responsibility, estimates and judgments by management are required to assess the expected 

benefits and related costs of internal control policies. Because of inherent limitations in internal control, 

misstatements, due to error or fraud may nevertheless occur and not be detected. 

Auditors’ Responsibilities 

Our responsibility is to express an opinion on the fiscal year 2003 and 2002 financial statements of the 

FAA based on our audits. We conducted our audits in accordance with auditing standards generally 

accepted in the United States of America, the standards applicable to financial audits contained in 

Government Auditing Standards, and OMB Bulletin Number 01-02. Those standards and OMB Bulletin 

Number 01-02 require that we plan and perform the audits to obtain reasonable assurance about whether 

the financial statements are free of material misstatement. 

An audit includes: 

• Examining, on a test basis, evidence supporting the amounts and disclosures in the financial 

statements; 

• Assessing the accounting principles used and significant estimates made by management; and 
 4 

• Evaluating the overall financial statement presentation. 

We believe that our audits provide a reasonable basis for our opinion. 

In planning and performing our fiscal year 2003 audit, we considered the FAA’s internal control over

financial reporting by obtaining an understanding of the FAA’s internal control, determining whether 

internal controls had been placed in operation, assessing control risk, and performing tests of controls in

order to determine our auditing procedures for the purpose of expressing our opinion on the financial

statements. We limited our internal control testing to those controls necessary to achieve the objectives

described in OMB Bulletin Number 01-02 and Government Auditing Standards. We did not test all internal

controls relevant to operating objectives as broadly defined by the Federal Managers’ Financial Integrity 

Act of 1982. The objective of our audit was not to provide assurance on internal control over financial

reporting. Consequently, we do not provide an opinion thereon. 

As required by OMB Bulletin Number 01-02, we considered the FAA’s internal control over Required 

Supplementary Stewardship Information by obtaining an understanding of the FAA’s internal control,

determining whether these internal controls had been placed in operation, assessing control risk, and 

performing tests of controls. Our procedures were not designed to provide assurance on internal control 

over Required Supplementary Stewardship Information and, accordingly, we do not provide an opinion

thereon.

As further required by OMB Bulletin Number 01-02, with respect to internal control related to

performance measures determined by management to be key and reported in the Management’s Discussion

and Analysis, we obtained an understanding of the design of significant internal controls relating to the 

existence and completeness assertions. Our procedures were not designed to provide assurance on internal

control over performance measures and, accordingly, we do not provide an opinion thereon. 

As part of obtaining reasonable assurance about whether the FAA’s fiscal year 2003 financial statements 

are free of material misstatement, we performed tests of the FAA’s compliance with certain provisions of

laws and regulations, noncompliance with which could have a direct and material effect on the 

determination of financial statement amounts, and certain provisions of other laws and regulations 

specified in OMB Bulletin Number 01-02, including certain provisions referred to in FFMIA. We limited

our tests of compliance to the provisions described in the preceding sentence, and we did not test 

compliance with all laws and regulations applicable to the FAA. Providing an opinion on compliance with 

laws and regulations was not an objective of our audit and, accordingly, we do not express such an opinion. 

Under OMB Bulletin Number 01-02 and FFMIA, we are required to report whether the FAA’s financial 

management systems substantially comply with (1) Federal financial management systems requirements, 

(2) applicable Federal accounting standards, and (3) the United States Government Standard General

Ledger at the transaction level. To meet this requirement, we performed tests of compliance with FFMIA 

Section 803(a) requirements. 

DISTRIBUTION

This report is intended for the information and use of FAA’s management, the Department of 

Transportation’s Office of the Inspector General, OMB, the General Accounting Office, and the U.S. 

Congress, and is not intended to be, and should not be used by, anyone other than these specified parties.

December 5, 2003 
Exhibit 1 

 5 (Continued) 

REPORTABLE CONDITIONS 

Under standards issued by the American Institute of Certified Public Accountants, reportable conditions are 

matters coming to our attention relating to significant deficiencies in the design or operation of the internal 

control over financial reporting that, in our judgment, could adversely affect the FAA’s ability to record, process, 

summarize, and report financial data consistent with the assertions by management in the financial statements. 

We consider the following to be reportable conditions. 

1. Controls over Property, Plant, and Equipment 

Condition 

The FAA did not fully adhere to its policies and procedures designed to ensure that property, plant, and 

equipment (PP&E) is stated in accordance with accounting principles generally accepted in United States of 

America. We noted deficiencies in the following areas: 

• Non-Integrated Systems – During FY 2003, the FAA’s PP&E subsidiary ledger (Interim Fixed Asset System, 

or IFAS) was not integrated with the general ledger system (the Departmental Accounting and Financial 

Information System or DAFIS). As a result, property transactions must be entered separately from those 

entered into the general ledger accounting system. Transactions related to real property are entered directly 

into IFAS, but personal property (i.e., equipment) transactions are first entered into a legacy property 

management system and then transferred to IFAS. The lack of electronic interface between IFAS and the 

general ledger greatly increases the likelihood that the two systems will, from time-to-time, not agree due to 

a backlog of input to either system or errors that occur in entering the data. The initial transaction 

(disbursement or receipt related to a property transaction) is recorded in the general ledger system, however 

depreciation is computed from data in IFAS. If IFAS is not updated timely, the financial statements will not 

accurately reflect depreciation expense. 

• Additions and disposals – The FAA does not have effective controls to prevent or detect errors when costs 

associated with Construction-in-Progress (CIP) assets are capitalized. Specifically, the FAA failed to detect a 

$49.6 million overstatement in the transfer of assets from DAFIS into IFAS by regional personnel. Further, 

regional personnel did not record property disposals in a timely manner. This situation affected the FAA’s 

ability to produce accurate interim financial statements and management reports. It also resulted in a 

substantial effort to research property transactions to prepare an accurate trial balance at year-end. Also, 

several Office of Inspector General (OIG) reports have indicated that the FAA has inadequate management 

and oversight controls over cost-reimbursable contracts, which is one method that the FAA uses to acquire 

PP&E. 

• CIP transfers – The FAA did not record all of its transfers of completed construction projects in a timely 

manner after the assets were placed in service. We noted that the primary reason for the delay is that 

responsible personnel in the regional offices are often focused on clearing older, completed CIP projects as 

there was little incentive to transfer costs for newly completed projects. This situation could result in an 

understatement of depreciation expense, which is not recognized until assets are capitalized in IFAS and an 

in-service date has been established. This situation has been a longstanding, recurring problem for the FAA 

that impacts financial management. However, the FAA implemented changes in its policies, which have 

significantly reduced the number of older, completed projects that had not been transferred to in-use assets. 

• Leases – The FAA’s controls were not fully effective in ensuring appropriate documentation is maintained to 

support the FAA real estate office’s determination whether the lease is capital or operating. Also, the FAA 

does not have a central database or location for maintaining detailed lease information. 
Exhibit 1 

 6 (Continued) 

• Purchases of Non-CIP Assets – The FAA does not have adequate controls to ensure purchases of non-CIP 

assets are recorded at the correct amount in IFAS. The FAA initially records the cost for the purchase of nonCIP assets in DAFIS and then subsequently enters the cost into IFAS. In one instance, FAA personnel 

recorded costs associated with a non-CIP asset at $2.2 million in IFAS although the actual recorded in 

DAFIS was only $22,000. This data entry error was not detected as the FAA did not have effective reviews 

over these transactions. 

These discrepancies occurred principally because the FAA’s property subsidiary system is not integrated with the 

general ledger system. In November 2003, the FAA implemented the Department of Transportation’s new core 

accounting system, DELPHI, which has an integrated property subsidiary system. 

Criteria 

The Joint Financial Management Improvement Program’s Core Financial System Requirements states that the 

core financial system must maintain detailed information by account sufficient to provide audit trails and support 

managerial cost accounting. It further states that costs should be captured at the lowest level to reflect actual 

costs incurred by the agency in providing goods and services. The detail transactions should be timely recorded 

in subsidiary ledgers and interfaced or timely reconciled with the general ledger. Cost tracking should be 

sufficiently detailed to explain the change in account balances during any period of time. 

OMB Circular Number A-123, Management Accountability and Control, states that transactions should be 

promptly recorded, properly classified and accounted for in order to prepare timely accounts and reliable 

financial and other reports. Documentation for transactions, management controls, and other significant events 

must be clear and readily available for examination. 

Statement of Federal Financial Accounting Standards (SFFAS) Number 6, Accounting for Property, Plant and 

Equipment, requires that constructed PP&E be recorded as construction work in progress until the asset is placed 

in service, at which time it is to be transferred to general PP&E, and depreciation expense should be taken over 

the estimated useful life of the asset. 

Recommendations 

We recommend that the FAA: 

• Perform a FY 2003 yearend reconciliation of capitalized costs reported in the accounting system to those 

costs capitalized in IFAS. 

• Reemphasize the need for regional accounting offices to follow procedures related to recording leases 

consistent with the determination made by the real estate office; and maintain appropriate supporting 

documentation. 

• Give appropriate consideration to the effects on the timeliness, completeness, and accuracy of financial 

reporting as it takes corrective actions in response to the OIG’s cited deficiencies related to management and 

oversight controls for cost-reimbursable contracts. 
Exhibit 1 

 7 (Continued) 

2. Process for Estimating Environmental Liabilities 

Condition 

The FAA’s estimate for environmental liabilities is comprised of two components – the costs to remediate known 

contaminated sites and the costs to cleanup and decommission active facilities at some future date. Within the 

FAA, there are different offices involved with developing and documenting the costs associated with these two 

components. The Environmental, Energy, and Safety Division (AFZ-800) is the primary office responsible for 

environmental remediation, and the Investment Analysis and Operations Research Division (ASD-400) is the 

primary office responsible for environmental cleanup and decommissioning. Together they compile a summary 

listing of estimated environmental cleanup liabilities, which is needed to produce timely, reliable financial 

statements. 

Although the FAA made significant improvements in this area during the current year, the Investment Analysis 

and Operations Research Division does not have adequate policies and procedures to consistently and accurately 

determine the estimated liability for cleanup and decommissioning. Specifically, FAA personnel: 

• Do not use actual cost information to help ensure the accuracy of the environmental clean-up and 

decommissioning cost model; and 

• Do not have an effective process in place to ensure all facilities are included in the estimate for 

environmental clean-up and decommissioning. Specifically, 29 different types of facilities (a total of 1,480 

facilities) were not included in the initial cost estimate. 

Criteria 

SFFAS Number 5, Accounting for Liabilities of the Federal Government, defines a liability as a probable future 

outflow or other sacrifice of resources as a result of past transactions or events. SFFAS Number 6 defines 

cleanup costs as the costs of removing, containing, and/or disposing of (1) hazardous waste from property, or 

(2) material and/or property that consists of hazardous waste at permanent or temporary closure or shutdown of 

associated property, plant and equipment. Cleanup may include, but is not limited to, decontamination, 

decommissioning, site restoration, site monitoring, closure, and post closure costs. Federal Financial Accounting 

and Auditing Technical Release Number 2, Determining Probable and Reasonably Estimable for Environmental 

Liabilities in the Federal Government, states that an agency is responsible for recognizing a liability for 

government-related environmental cleanup costs resulting from past transactions or events when a future outflow 

or other sacrifice of resources is probable and can be reasonably estimated.

Recommendations 

To improve the reliability of the environmental clean-up and decommissioning estimates, we recommend that the 

FAA: 

• Establish a routine and systematic process for capturing actual cost data and incorporate this information into 

the cost models supporting the Environmental Cleanup and Decommissioning (EC&D) liability. Actual cost 

information should also be used to improve cost models by incorporating area cost factors and similar factors 

based upon site-specific considerations. 

• Develop and implement a policy to ensure that all facility quantities and types are submitted as part of the 

EC&D liability and that submissions are reviewed by management for completeness. 
Exhibit 1 

 8 

3. Information Technology Controls over FAA and Third-party Systems and Applications 

Condition 

Certain general controls related to the FAA’s primary financial applications owned by the FAA and the 

Department of Transportation need to be strengthened. Specifically, there were weaknesses in network 

information security management and host-based application security controls, including system level access 

issues, application level operational access controls for sensitive and critical functions, separation of duties, and 

change management. In addition, there were weaknesses in network and application controls. 

As part of our audit, we tested general information technology controls over the following key systems that 

support FAA’s financial transactions and reporting: 

• Departmental Accounting and Financial Information System (DAFIS) 

• Integrated Personnel and Payroll System (IPPS) 

• Consolidated Uniform Payroll System (CUPS) 

• Consolidated Personnel Management Information System (CPMIS) 

• Interim Fixed Asset System (IFAS) 

• Acquire 

• Logistics Information System (LIS) 

At the general support level, certain controls needed improvement related to system access and integrity issues 

for IFAS, and Acquire host based systems. Additionally, there were weaknesses in the areas of application 

operational access control for appropriate segregation of duties issues and application software development and 

change control for DAFIS, Acquire, IPPS, and IFAS. Due to the sensitive nature of these issues, we provided the 

detailed results of our review, along with specific recommendations, separately to management. 

Criteria 

Appendix III, OMB Circular Number A-130, Management of Federal Information Resources, requires Federal 

agencies to establish application security plans to assure that adequate security is provided for information 

collected, processed, transmitted, stored, or disseminated through the system. 

National Institute of Standards and Technology (NIST) Special Publication Number 800-18, Guide for 

Developing Security Plans for Information Technology Systems, states the purpose of security plans are to 

provide an overview of the security requirements of the system and describe the controls in place or planned for 

meeting those requirements; and delineate responsibilities and expected behavior of all individuals who access 

the system. 

Recommendation 

We recommend that the FAA improve its information technology by implementing the specific 

recommendations previously provided. 
Exhibit 2 

 9 

STATUS OF PRIOR YEAR REPORTABLE CONDITIONS AND 

COMPLIANCE WITH LAWS AND REGULATIONS 

Condition As Reported at September 30, 2002 Status as of September 30, 2003 

Process for 

Estimating 

Liabilities for Legal 

Matters 

Material Weakness: The FAA did not have 

adequate controls to ensure that the basis for 

the estimated liability for legal matters 

pending against the FAA, both those recorded 

as liabilities and disclosed in the notes to the 

financial statements, were accurate.

No longer deemed a reportable 

condition: The FAA implemented 

procedures to resolve this issue. 

Controls and 

Processes over 

Financial 

Reporting and 

Account 

Reconciliations

Reportable Condition: The FAA’s financial 

statements initially produced by its financial 

reporting processes and systems required 

substantial review and adjustment in the postclosing process to produce materially correct 

financial statements.

No longer deemed a reportable 

condition: The FAA implemented 

procedures to resolve this issue. 

Process for 

Estimating 

Environmental 

Liabilities 

Reportable Condition: The FAA lacks 

adequate policies and procedures to 

consistently and accurately determine the 

estimated liability for financial statement 

purposes. 

Continue as a Reportable Condition: 

Although improvements were made, 

weaknesses still remain over FAA’s 

ability to produce accurate 

environmental liability estimates. 

Accounting 

Methods and 

Controls over Field 

Spares

Reportable Condition: The FAA did not 

have adequate controls to ensure all recorded 

field spares existed and that all items on hand 

were recorded. 

No longer deemed a reportable 

condition: The FAA implemented 

procedures to resolve this issue. 

Controls over 

Property, Plant and 

Equipment

Reportable Condition: The FAA did not 

fully adhere to its policies and procedures 

designed to ensure that PP&E is stated in 

accordance with accounting principles 

generally accepted in United States of 

America. 

Continue as a Reportable Condition: 

Although improvements were made, 

weaknesses still remain in FAA’s 

controls over property, plant and 

equipment. 

Technology 

Controls over 

Third-Party 

Systems and 

Applications

Reportable Condition: Certain general 

controls related to the FAA’s primary 

financial applications owned by Department 

of Transportation (DOT) need to be 

strengthened. 

Continue as a Reportable Condition: 

Although improvements were made, 

weaknesses still remain in FAA’s 

information technology controls. 

Combined with Technology Controls 

over FAA Systems. 

Technology 

Controls over FAA 

Systems

Reportable Condition: Certain general 

controls associated with key FAA-owned 

financial systems needed improvement. 

Continue as a Reportable Condition: 

Although improvements were made, 

weaknesses still remain in FAA’s 

information technology controls. 

Combined with Controls over ThirdParty Systems and Applications. 
Exhibit 3 

 10 (Continued) 

COMPLIANCE WITH LAWS AND REGULATIONS 

This section discusses instances of non-compliance with significant laws and regulations. 

1. Federal Financial Management Improvement Act of 1996 (FFMIA) 

Condition 

The FAA was not in substantial compliance with FFMIA. 

Discussion 

During FY 2003, the FAA used the DOT’s core accounting system, DAFIS, to process and record financial 

transactions. DAFIS does not comply with the United States Standard General Ledger (USSGL) at the 

transaction level and Federal financial management system requirements, which call for a single, integrated 

financial system. As reported last year, the FAA still has not fully implemented managerial cost accounting, 

however, progress was made during FY 2003. Also, the FAA’s Statement of Net Cost does not breakout costs by 

strategic goal. The FAA converted to DOT’s new core accounting system, DELPHI, during November 2003. 

DOT believes the new system processes transactions at the USSGL level, and meets Federal systems 

requirements. 

Criteria 

FFMIA requires that an agency’s financial management systems substantially comply with Federal financial 

management systems requirements, applicable Federal accounting standards, and the USSGL at the transaction 

level. 

Recommendation 

We recommend that the FAA work aggressively to implement the new DOT accounting system. 

2. Anti-Deficiency Act 

Condition 

During FY 2003 the Chief Counsel’s office determined that certain transactions associated with the Aviation 

Insurance Revolving and the Emergency Response Funds constituted violations of the Anti-Deficiency Act. 

Discussion 

For the Aviation Insurance Revolving Fund, the Chief Counsel’s office noted that the following transactions 

constituted violations: 

• Valid allotments were not established for FY 2003, thus all expenditures, which totaled approximately 

$10.9 million, violated DOT and FAA regulations and therefore the Anti Deficiency Act (31 USC 1517). 

• Payments of approximately $10.0 million, made during FY 2003, exceeded the amount apportioned. 

• An allotment made in late FY 2003 exceeded the amount apportioned. 
Exhibit 3 

 11 

In addition, the Chief Counsel determined that several payments made during the second half of FY 2002 may 

have been made after the authority to make such payments had expired. The Chief Counsel is continuing its 

review of these transactions. 

For the Emergency Response Fund, the FAA obligated $1.3 million in September 2003, which was in excess of 

the FY 2003 allotment and the annual apportionment. 

Both the Aviation Insurance Revolving and Emergency Response Funds involve a relatively small number of 

transactions. Also, the Emergency Response Fund is a special account related to the recovery from and response 

to terrorist attacks on the United States. FAA determined that the violations occurred due to a lack of 

communication and a lack of knowledge related to obtaining apportionments from the Office of Management and 

Budget and DOT and FAA regulations related to making allotments. 

FAA reported the violations to the DOT and was in the process of reporting the violations to the President and 

the Congress as required by 31 USC 1517. 

Criteria 

31 USC 1517 states that an officer or an employee of the United States Government may not make or authorize 

an expenditure or obligation exceeding an apportionment or an amount permitted by regulations as specified by 

31 USC 1514. 

Recommendation 

We recommend that the FAA provide training to personnel responsible for requesting apportionments and 

making allotments and strengthen controls to prevent further violations. 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

59

LIMITATIONS OF THE FINANCIAL STATEMENTS 

FAA has prepared its financial statements to report its financial position and results of operations, 

pursuant to the requirements of the Chief Financial Officers Act of 1990 and the Government 

Management Reform Act of 1994. 

While the FAA statements have been prepared from its books and records in accordance with the 

formats prescribed by the Office of Management and Budget, the statements are in addition to the 

financial reports used to monitor and control budgetary resources, which are prepared from the same 

books and records. 

These statements should be read with the understanding that they are for a component of the United 

States Government, a sovereign entity. Liabilities not covered by budgetary resources cannot be 

liquidated without the enactment of an appropriation by Congress, and payment of all liabilities, other 

than for contracts, can be abrogated by the Federal Government.
Assets 2003 2002

Intragovernmental

Fund balance with Treasury (Note 2) $ 2,833,723 $ 2,539,304

Investments (Note 3) 10,819,257 11,213,447

Accounts receivable, advances, and other (Note 4) 168,722 299,428

Total Intragovernmental 13,821,702 14,052,179

Accounts receivable, advances, and other, net (Note 4) 63,411 113,295

Inventory and related property, net (Note 5) 581,766 605,695

Property, plant, and equipment, net (Note 6 & 9) 13,397,607 13,175,768

Total Assets $ 27,864,486 $ 27,946,937

Liabilities

Intragovernmental liabilities

Accounts payable $ 9,324 $ 36,182

Employee related, legal and other (Notes 8 & 9) 344,868 485,511

Total Intragovernmental Liabilities 354,192 521,693

Accounts payable 669,693 677,182

Environmental cleanup costs (Note 7 & 19) 621,953 574,676

Employee related, legal, and other (Notes 8 & 9) 859,124 1,176,106

Federal employee benefits (Note 10) 1,041,568 997,103

Total Liabilities 3,546,530 3,946,760

Commitments and contingencies (Notes 9 & 19)

Net Position

Unexpended appropriations 562,595 481,919

Cumulative results of operations 23,755,361 23,518,258

Total Net Position 24,317,956 24,000,177

Total Liabilities and Net Position $ 27,864,486 $ 27,946,937

(Dollars in Thousands)

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

CONSOLIDATED BALANCE SHEETS

As of September 30

The accompanying notes are an integral part of these financial statements. 

Federal Aviation Administration 

FY 2003 Performance and Accountability Report

60
Line of Business Programs (Note 12) 2003 2002

Air Traffic Services

Expenses $ 7,718,928 $ 7,313,772

Less Earned Revenues (67,890) (77,107)

Net Costs 7,651,038 7,236,665

Regulation & Certification

Expenses 943,135 924,614

Less Earned Revenues (1,126) (1,121)

Net Costs 942,009 923,493

Research & Acquisitions

Expenses 498,778 586,991

Less Earned Revenues (55,856) (72,129)

Net Costs 442,922 514,862

Airports

Expenses 2,786,717 2,933,542

Less Earned Revenues (224) -

Net Costs 2,786,493 2,933,542

Commercial Space Transportation

Expenses 11,725 11,361

Net Costs 11,725 11,361

Non Line of Business Programs

Regional and Center Operations and Other Programs

Expenses 346,843 425,832

Less Earned Revenues (256,386) (129,211)

Net Costs 90,457 296,621

Not Assigned to Programs

Expenses 61,486 50,622

Less Earned Revenues (34,794) (56,411)

Net Costs 26,692 (5,789)

Net Cost of Continuing Operations 11,951,336 11,910,755

Transferred Operations - Civil Aviation Security (Note 15)

Expenses 124,705 719,973

Less Earned Revenues (77,455) (186,809)

Net Costs 47,250 533,164

Net Cost of Operations

Total Expenses 12,492,317 12,966,707

Less Total Earned Revenue (493,731) (522,788)

Total Net Cost $ 11,998,586 $ 12,443,919

(Dollars in Thousands)

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

CONSOLIDATED STATEMENTS OF NET COST

For the Years Ended September 30

The accompanying notes are an integral part of these financial statements. 

Federal Aviation Administration 

FY 2003 Performance and Accountability Report

61
Cumulative Cumulative

Results of Unexpended Results of Unexpended 

Operations Appropriations Operations Appropriations

Beginning Balances $ 23,518,258 $ 481,919 $ 24,575,189 $ 551,139

Budgetary Financing Sources

Appropriations received - 3,273,241 - 1,112,481

Appropriations transferred-in/out - 250 - 112,858

Other adjustments - (42,269) - (3,325)

Appropriations used 3,150,546 (3,150,546) 1,291,234 (1,291,234)

Excise taxes and associated revenue (Note 13) 9,360,469 - 9,625,942 -

Transfers-in/out without reimbursement (123,169) - (25,500) -

Other Financing Sources

Donations and forfeitures of property and other 32,218 - 11,901 -

Transfers-in/out without reimbursement (Note 15) (680,078) - 22,675 -

Imputed financing from costs absorbed by others (Note 14) 495,703 - 460,736 -

Total Financing Sources 12,235,689 80,676 11,386,988 (69,220)

Net Cost of Operations 11,998,586 - 12,443,919 -

Ending Balances $ 23,755,361 $ 562,595 $ 23,518,258 $ 481,919

2003 2002

U. S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

CONSOLIDATED STATEMENTS OF CHANGES IN NET POSITION 

For the Years Ended September 30

(Dollars in Thousands)

The accompanying notes are an integral part of these financial statements. 

Federal Aviation Administration 

FY 2003 Performance and Accountability Report

62
Budgetary Resources (Note 16) 2003 2002

Budget authority $ 15,846,546 $ 14,446,568

 9,682,455 11,425,240

Spending authority from offsetting collections 726,484 1,641,929

Recoveries of prior year obligations 249,157 310,925

Permanently not available (3,229,132) (2,362,392)

Total Budgetary Resources $ 23,275,510 $ 25,462,270

Status of Budgetary Resources

Obligations incurred $ 14,166,146 $ 15,796,838

Unobligated balance 8,627,893 9,454,968

Unobligated balance not available 481,471 210,464

Total Status of Budgetary Resources $ 23,275,510 $ 25,462,270

Relationship of Obligations to Outlays

Obligated balance, net, beginning of period $ 7,998,136 $ 7,249,535

Cancelled appropriations and other 15,702 -

Obligations incurred 14,166,146 15,796,838

Less: Spending authority from offsetting collections and 

 receipts and recoveries of prior year obligations (975,738) (1,952,959)

Less: Obligated balance, net end of period (8,644,480) (7,998,136)

Net Outlays $ 12,559,766 $ 13,095,278

Outlays

Disbursements $ 17,322,760 $ 20,264,114

Collections, net of offsetting receipts (4,762,994) (7,168,836)

Net Outlays $ 12,559,766 $ 13,095,278

Unobligated balance brought forward, transfers and other

(Dollars in Thousands)

U. S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

COMBINED STATEMENTS OF BUDGETARY RESOURCES

For the Years Ended September 30

The accompanying notes are an integral part of these financial statements. 

Federal Aviation Administration 

FY 2003 Performance and Accountability Report

63
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

64

Resources Used to Finance Activities 2003 2002

Budgetary Resources Obligated

Obligations incurred $ 14,166,146 $ 15,796,838

Less: Spending authority from offsetting collections and

receipts and recoveries of prior year obligations 975,738 1,952,959

Obligations net of offsetting collections 13,190,408 13,843,879

Other Resources

Donations and forfeitures of property and other 32,218 11,901

Transfers in/(out) without reimbursement (680,078) 22,675

Imputed financing from costs absorbed by others 495,703 460,736

Net other resources used to finance activities (152,157) 495,312

Total resources used to finance activities 13,038,251 14,339,191

Resources Used to Finance Items not Part of the Net Cost of Operations

Change in budgetary resources obligated for goods,

services and benefits ordered but not yet provided 464,695 882,286

Resources that fund expenses recognized in prior periods (decreases in

unfunded liabilities) (Note 17) 158,858 85,644

Resources that finance the acquisition of assets 1,534,555 2,041,577

Other resources or adjustments to net obligated resources that do not

affect net cost of operations (71,408) (115,237)

Total resources used to finance items not part of net cost of operations 2,086,700 2,894,270

Total resources used to finance net cost of operations 10,951,551 11,444,921

Components of Net Cost of Operations that will not Require or Generate

Resources in the Current Period:

Components Requiring or Generating Resources in Future Periods

Increases in annual leave liability, exchange revenue receivable

from the public, and other unfunded liabilities (Note 17) 103,051 167,555

Components not Requiring or Generating Resources in Future Periods

Depreciation and amortization 911,337 835,139

Revaluation of assets or liabilities (18,320) (20,579)

Cost of goods sold 34,987 23,897

Other 15,980 (7,014)

Total components of Net Cost of Operations that will not require or

generate resources 943,984 831,443

Total components of Net Cost of Operations that will not require or

generate resources in the current period 1,047,035 998,998

Net Cost of Operations $ 11,998,586 $ 12,443,919

CONSOLIDATED STATEMENTS OF FINANCING

For the Year Ended September 30

(Dollars in Thousands)

U. S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

65

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

A. Basis of Presentation 

The financial statements have been prepared to report the financial position, net cost of operations, 

changes in net position, status and availability of budgetary resources, and the reconciliation between 

proprietary and budgetary accounts of the Federal Aviation Administration (FAA). The statements are a 

requirement of the Chief Financial Officers Act of 1990, Government Management Reform Act of 1994, 

and the Office of Management and Budget’s (OMB) Bulletin Number 01-02, Audit Requirements for 

Federal Financial Statements. They have been prepared from the books and records of FAA in 

accordance with (1) the hierarchy of accounting principles and standards approved by the principals of 

the Federal Accounting Standards Advisory Board (FASAB), (2) the OMB Bulletin Number 01-09, Form 

and Content of Agency Financial Statements, and (3) Department of Transportation (DOT) and FAA 

accounting policies which are summarized in this note. These statements, with the exception of the 

Statement of Budgetary Resources, are different from financial management reports, which are also 

prepared by FAA pursuant to OMB directives that are used to monitor and control FAA’s use of 

budgetary resources. 

In accordance with OMB Bulletin Number 01-09, the financial statements and associated notes are 

presented on a comparative basis. 

Unless specified otherwise, all dollar amounts are presented in thousands. 

B. Reporting Entity 

FAA, which was created in 1958, is a component of the DOT, a cabinet-level agency of the Executive 

Branch of the United States Government. FAA’s mission is to provide a safe, secure, and efficient 

global aerospace system that contributes to national security and the promotion of United States 

aerospace safety. As the leading authority in the international aerospace community, FAA is responsive 

to the dynamic nature of customer needs, economic conditions, and environmental concerns. FAA 

reporting entity is comprised of the following primary types of funds: 

• Trust Fund - Airport and Airway Trust Fund (Corpus), including (a) Grants-in-Aid for Airports, 

(b) Facilities and Equipment, and (c) Research, Engineering and Development 

• Revolving Funds – Aviation Insurance, and Administrative Services Franchise Fund 

• Special Fund – Aviation User Fees 

• General Funds – Operations and Facilities, Engineering & Development 

• Other – General Fund Miscellaneous Receipts 

The FAA has rights and ownership of all assets reported in these financial statements. The FAA does not 

possess any non-entity assets. 

C. Budgets and Budgetary Accounting 

Congress annually enacts appropriations to permit FAA to incur obligations for specified purposes. In 

FY 2003 and 2002, FAA was accountable for Trust Fund appropriations, Revolving Funds, a Special Fund, 

General Fund appropriations, and borrowing authority. FAA recognizes budgetary resources as assets 

when cash (funds held by Treasury) is made available through the Department of Treasury General 

Fund warrants and Trust Fund transfers. 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

66

D. Basis of Accounting 

Transactions are recorded on both an accrual accounting basis and a budgetary basis. Under the 

accrual method, revenues are recognized when earned, and expenses are recognized when a liability is 

incurred, without regard to receipt or payment of cash. Budgetary accounting facilitates compliance 

with legal requirements on the use of Federal funds. All material intra-agency transactions and 

balances have been eliminated for presentation on a consolidated basis. However, the Statement of 

Budgetary Resources is presented on a combined basis in accordance with OMB Bulletin Number 01-09. 

E. Revenues and Other Financing Sources 

Congress enacts annual, multi-year, and no-year appropriations to be used, within statutory limits, for 

operating, capital and grant expenditures. Additional amounts are obtained from service fees (e.g., 

landing, registry, and overflight fees), war risk insurance premiums (see note 19), and through 

reimbursements for products and services provided to domestic and foreign governmental entities. 

The Airport and Airway Trust Fund (Trust Fund) is sustained by excise taxes that the Internal Revenue 

Service (IRS) collects from airway system users. Excise taxes collected are initially deposited to the 

general fund of the Treasury. IRS does not receive sufficient information at the time the taxes are 

collected to determine how these payments should be distributed to specific trust funds. Therefore, 

Treasury makes initial distributions to trust funds semi-monthly, based on estimates prepared by its 

Office of Tax Analysis (OTA). These estimates are based on historical excise tax data applied to current 

excise tax receipts. When actual amounts are available from the IRS, generally six months after each 

quarter-end, adjustments are made to the estimated amounts and the difference is accrued as an 

intragovernmental receivable or payable. FAA’s September 30, 2003 financial statements reflect excise 

taxes certified through June 30, 2003, and excise taxes estimated by OTA for the quarter July 1 to 

September 30, 2003 as specified by Statement of Federal Financial Accounting Standards (SFFAS) 

Number 7, Accounting for Revenue and Other Financing Sources. FAA management does not believe 

that the estimated distribution made to the trust fund will be materially different from the 

September 30, 2003 certified amount. 

The Trust Fund also earns interest from investments in Treasury securities. Interest income is 

recognized as revenue on the accrual basis. 

Appropriations are recognized as a financing source when expended. Revenues from service fees 

associated with reimbursable agreements are recognized concurrently with the recognition of accrued 

expenditures for performing the services. War-risk insurance premiums are recognized as revenue on a 

straight-line basis over the period of coverage. Overflight fees are recognized as revenue in the period 

in which the flights take place. 

FAA recognizes as imputed financing the amount of accrued pension and post-retirement benefit 

expenses for current employees paid on FAA’s behalf by the Office of Personnel Management (OPM), as 

well as amounts paid from the Treasury Judgment Fund in settlement of claims or court assessments 

against FAA. 

F. Taxes 

FAA, as a Federal entity, is not subject to Federal, State, or local income taxes, and, accordingly, no 

provision for income taxes has been recorded in the accompanying financial statements.

G. Fund Balance with the U.S. Treasury 

The U.S. Treasury processes cash receipts and disbursements. Funds held at the Treasury are available 

to pay agency liabilities. FAA does not maintain cash in commercial bank accounts or foreign currency 

balances. Foreign currency payments are made either by Treasury or the Department of State and are 

reported by FAA in the U.S. dollar equivalent. 
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H. Investment in U.S. Government Securities 

Unexpended funds in the Trust Fund and Aviation Insurance Revolving Fund are invested in 

U.S. Government securities. A portion of the Trust Fund investments is liquidated semi-monthly in 

amounts needed to provide cash for FAA appropriation accounts. The Revolving Fund investments are 

usually held to maturity. Investments, redemptions, and reinvestments are held and managed under 

the direction of FAA by the Treasury. 

I. Accounts Receivable 

Accounts receivable consists of amounts owed to FAA by other Federal agencies and the public. 

Amounts due from Federal agencies are considered fully collectible. Accounts receivable from the 

public include, for example, overflight fees, fines and penalties, reimbursements from employees, and 

services performed for sovereign entities. An allowance for uncollectible accounts receivable from the 

public is established when either (1) based upon a monthly review of outstanding accounts and the 

failure of all collection efforts, management determines that collection is unlikely to occur considering 

the debtor’s ability to pay, and payment history or (2) an account for which no allowance has been 

established is submitted to the Department of the Treasury for collection, which takes place when it 

becomes 180 days delinquent. 

J. Inventory 

Under the Franchise Fund basis of operations, inventory is held for sale to FAA field locations and other 

domestic entities and foreign governments. Inventory consists of materials and supplies used to support 

the NAS that are located at the FAA Mike Monroney Aeronautical Center in Oklahoma City. Inventory 

cost includes material, labor, and applicable manufacturing overhead, and is determined using the 

weighted moving average cost method. 

FAA field locations trade non-operational repairable components with the Franchise Fund. These 

components are classified as “Held for Repair.” An allowance is established for repairable inventory 

based on the average historical cost of such repairs. Once repaired, these items are reclassified as 

“Held for Sale.” 

Inventory may be classified as excess, obsolete, and unserviceable if, for example, the quantity 

exceeds projected demand for the foreseeable future, or if the item has been technologically 

surpassed. An allowance is established for excess, obsolete, and unserviceable inventory based on the 

condition of various inventory categories as well as FAA’s historical experience disposing such 

inventory. 

K. Operating Materials and Supplies 

In contrast to inventory, which is held for sale by the Franchise Fund, operating materials and supplies 

are used in the operations of the agency. Operating materials and supplies primarily consist of 

unissued materials and supplies that will be used in the construction of National Airspace System (NAS) 

assets. They are valued based on the weighted moving average method or on the basis of actual prices 

paid. Operating materials and supplies are expensed or reclassified as equipment or work in process 

when consumed or issued. 

Operating materials and supplies “held for use” are those items that are consumed on a regular and 

ongoing basis. 

An allowance is established for “held for use” and excess, obsolete, and unserviceable operating 

materials and supplies based on the condition of various asset categories as well as FAA’s historical 

experience disposing such assets. 
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L. Property, Plant and Equipment (PP&E) 

FAA capitalizes acquisitions of PP&E when the cost equals or exceeds $25 thousand and the useful life 

equals or exceeds two years. FAA records PP&E at original acquisition cost. 

Depreciation expense is calculated using the straight-line method. Depreciation commences the first 

month after the asset is placed in service. FAA does not recognize residual value of its PP&E. The 

useful life classifications for capitalized assets are as follows: 

Asset Classification – Real Property

Useful Life 

(years) 

Offices, buildings, warehouse buildings, residential properties, air traffic control 

towers, and enroute air traffic control centers 40 

Mobile buildings 20 

Roads, sidewalks, parking lots, and all other structures 15 

Capital improvements, facility modifications, leasehold improvements 10* 

Asset Classification - Personal Property

Aircraft, navigation, and surveillance equipment 20 

Decision support systems, including computer operating systems, FAA developed 

hardware, mainframe and mini computers, high-end workstations, and displays 

4-20 

Communications-related equipment, including voice switches, air-ground radios, 

and microwave network 

10-20 

Weather-related equipment, including general purpose weather sensors, weather 

radars, radar transmitters, and radar receivers 

15-20 

Printing and projection equipment 13 

Portable and installed communications equipment excluding air navigation and air 

traffic control facilities, and avionics equipment 

10 

Office furniture and equipment 7 

Vehicles and automatic data processing equipment 5 

Internal use software 3 

*Depreciated over the remaining life of the “parent” asset; if the parent asset is fully depreciated, 

then the useful life of improvement or modification is considered to be 10 years. For leasehold 

improvements, the useful life is 10 years or the expiration of the lease, whichever comes first. 

Buildings and equipment acquired under capital leases are amortized over the lease term. If the lease 

agreement contains a bargain purchase option or otherwise provides for transferring title of the asset 

to FAA, the building is depreciated over a 40-year service life. 

Construction in progress (CIP) is valued at actual (direct) costs, plus applied overhead and other 

indirect costs. FAA analyzes nationally funded capital expenditures annually and allocates these costs 

to the related CIP projects and/or in-use assets as appropriate. 

FAA occupies certain real property, which is leased by the Department of Transportation from the 

General Services Administration. Payments for these leases are from an appropriation of the Office of 

the Secretary of Transportation; FAA’s portion is derived from the Trust Fund. 
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M. Prepaid and Deferred Charges 

Advance payments are generally prohibited by law; there are some exceptions, such as subscriptions 

and payments to contractors and employees. Payments made in advance of the receipt of goods and 

services are recorded as advances or prepaid charges at the time of prepayment and recognized as 

expenses when the related goods and services are received. 

N. Liabilities 

Liabilities covered by budgetary resources are those liabilities for which Congress has appropriated 

funds or funding is otherwise available to pay amounts due. Liabilities not covered by budgetary or 

other resources represent amounts owed in excess of available, congressionally appropriated funds or 

other amounts. The liquidation of liabilities not covered by budgetary or other resources is dependent 

on future congressional appropriations or other funding. Intragovernmental liabilities are claims 

against FAA by other Federal entities. 

O. Accounts Payable 

Accounts payable are amounts FAA owes to other Federal agencies and the public. Accounts payable to 

Federal agencies generally consist of amounts due under inter-agency reimbursable agreements. 

Accounts payable to the public primarily consists of estimated amounts incurred but not yet claimed by 

Airport Improvement Program grant recipients and unpaid goods and services received by FAA in 

support of the NAS. 

P. Annual, Sick, and Other Leave 

Annual leave is accrued as it is earned, and the accrual is reduced as leave is taken. For each bi-weekly 

pay period, the balance in the accrued annual leave account is adjusted to reflect the latest pay rates 

and unused hours of leave. Liabilities associated with other types of vested leave, including 

compensatory, credit hours, restored leave, and sick leave in certain circumstances, are accrued at 

year-end, based on latest pay rates and unused hours of leave. Sick leave is generally nonvested, 

except for sick leave balances at retirement under the terms of certain union agreements. Funding will 

be obtained from future financing sources to the extent that current or prior year appropriations are 

not available to fund annual and other types of vested leave earned but not taken. Nonvested leave is 

expensed when used. 

Q. Accrued Workers' Compensation 

A liability is recorded for actual and estimated future payments to be made for workers' compensation 

pursuant to the Federal Employees' Compensation Act (FECA). The actual costs incurred are reflected 

as a liability because FAA will reimburse the Department of Labor (DOL) two years after the actual 

payment of expenses. Future appropriations will be used for the reimbursement to DOL. The liability 

consists of (1) the net present value of estimated future payments calculated by the DOL, and (2) the 

unreimbursed cost paid by DOL for compensation to recipients under the FECA. 

R. Retirement Plan 

FAA employees participate in either the Civil Service Retirement System (CSRS) or the Federal 

Employees Retirement System (FERS). The employees who participate in CSRS are beneficiaries of 

FAA’s matching contribution, equal to seven percent of pay, distributed to their annuity account in the 

Civil Service Retirement and Disability Fund. 

FERS went into effect on January 1, 1987, pursuant to Public Law 99-335. FERS and Social Security 

automatically cover most employees hired after December 31, 1983. Employees hired prior to January 

1, 1984 could elect either to join FERS and Social Security, or to remain in CSRS. FERS offers a savings 

plan to which FAA automatically contributes 1 percent of pay and matches any employee contribution 

up to an additional 4 percent of pay. For FERS participants, FAA also contributes the employer’s 

matching share for Social Security. 
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Beginning in FY 1997, FAA began to recognize the imputed cost of pensions and other retirement 

benefits during the employees’ active years of service. OPM actuaries determine pension cost factors 

by calculating the value of pension benefits expected to be paid in the future and communicates these 

factors to FAA for current period expense reporting. OPM also provides information regarding the full 

cost of health and life insurance benefits. FAA recognized the offsetting revenue as imputed financing 

sources to the extent these expenses will be paid by OPM. 

S. Use of Estimates 

Management has made certain estimates and assumptions when reporting assets, liabilities, revenue, 

and expenses, and in the note disclosures. Actual results could differ from these estimates. Significant 

estimates underlying the accompanying financial statements include (a) the allocation of trust fund 

receipts by the OTA, (b) legal, environmental, and contingent liabilities, (c) year-end accruals of 

accounts and grants payable, (d) accrued workers’ compensation, (e) allowance for doubtful accounts 

receivable, and (f) allowances for repairable and obsolete inventory balances, and (g) allocations of 

common costs to construction in progress. 

T. Environmental Liabilities 

FAA recognizes two types of environmental liabilities: environmental remediation, and cleanup and 

decommissioning. The liability for environmental remediation is an estimate of costs necessary to bring 

a known contaminated site into compliance with applicable environmental standards. The increase or 

decrease in the annual liability is charged to current year expense. 

Environmental cleanup and decommissioning is the estimated cost that will be incurred to remove, 

contain, and/or dispose of hazardous materials when an asset presently in service is shutdown. FAA 

estimates the environmental cleanup and decommissioning costs at the time an FAA-owned asset is 

placed in service. For assets placed in service through FY 1998, the annual increase or decrease in the 

estimated environmental cleanup liability is charged to expense. Although assets placed in service in 

FY 1999 and after generally do not have associated environmental liabilities, FAA’s accounting policy is 

to charge any such environmental cleanup liability to expense over the life of the associated asset. 

U. Contingencies 

Liabilities are deemed contingent when the existence or amount of the liability cannot be determined 

with certainty pending the outcome of future events. FAA recognizes contingent liabilities when it is 

both probable and can be reasonably estimated. FAA discloses contingent liabilities in the notes to the 

financial statements when the conditions for liability recognition are not met and when the outcome of 

future events is more than remote. In some cases, once losses are certain, payments may be from the 

Judgment Fund maintained by Treasury rather than from the amounts appropriated to FAA for agency 

operations. Payments for the Judgment Fund are recorded as an “Other Financing Source” when made. 

V. Reclassifications 

Certain FY 2002 balances have been reclassified, retitled, or combined with other financial statement 

line items for consistency with current year presentation. 
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NOTE 2. FUND BALANCE WITH TREASURY 

Fund balance with Treasury account balances as of September 30, 2003 and 2002 were: 

2003 2002

Trust Fund $ 1,250,801 $ 1,023,246

Operations General Fund 738,852 775,014

Franchise Fund 170,862 127,297

Revolving Fund 22,848 12,485

Corpus and Other Funds 650,360 601,262

Total $ 2,833,723 $ 2,539,304

Unobligated Balance

 Available $ 1,072,492 $ 1,017,806

 Restricted 700,605 665,933

Obligated Balance Not Yet Disbursed 1,060,626 855,565

Total $ 2,833,723 $ 2,539,304

Status of Fund Balance with Treasury

Restricted unobligated fund balances represent the amount of appropriations for which the period of 

availability for obligation has expired. These balances are available for upward adjustments of 

obligations incurred only during the period for which the appropriation was available for obligation or 

for paying claims attributable to the appropriation. 
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NOTE 3. INVESTMENTS 

As of September 30, 2003 and 2002, respectively, FAA's investment balances were as follows:

2003 2002

Nonmarketable, Par Value - Trust Fund $ 10,517,891 $ 10,996,847

Nonmarketable, Market Based - Aviation Insurance Fund 196,187 91,733

Accrued Interest 105,179 124,867

Investments at Cost $ 10,819,257 $ 11,213,447

Market Value Disclosure

Nonmarketable, Par Value - Trust Fund $ 10,517,891 $ 10,996,847

Nonmarketable, Market Based - Aviation Insurance Fund 196,693 92,187

Unamortized Discount - Nonmarketable, Market Based (506) (454)

Nonmarketable, Market Based, net 196,187 91,733

Market Value Disclosure $ 10,714,078 $ 11,088,580

Intragovernmental Securities

 

Nonmarketable par value Treasury Certificates of Indebtedness are special series debt securities issued 

by the Bureau of the Public Debt to Federal accounts, and are purchased and redeemed at par (face 

value) exclusively through Treasury’s Federal Investment Branch. The securities are held to maturity 

and redeemed at face value on demand; thus, investing entities recover the full amount invested plus 

interest. The Fund's trustee, the Secretary of the Treasury, makes Trust Fund investments on behalf of 

FAA. As of September 30, 2003 and 2002, approximately $10.5 billion and $11.0 billion, respectively, 

were invested in U.S. Treasury Certificates of Indebtedness. FY 2003 amounts mature June 30, 2004, 

and FY 2002 amounts matured June 30, 2003. The annual rate of return on Certificates of Indebtedness 

is established in the month of issuance. The average rate for certificates issued during FY 2003 and 

FY 2002 was 4.125% and 5.125%, respectively. 

Nonmarketable, market-based Treasury securities are debt securities that the Treasury issues to 

Federal entities without statutorily fixed interest rates. Although the securities are not marketable, 

their terms (prices and interest rates) mirror the terms of marketable Treasury securities. FAA 

amortizes premiums and discounts on market-based Treasury securities over the life of the security 

using the interest method. 

As of September 30, 2003, these nonmarketable, market-based securities have maturity dates ranging 

from two to fourteen months and an effective market rate of approximately 1 percent. 
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NOTE 4. ACCOUNTS RECEIVABLE, ADVANCES AND OTHER ASSETS 

 Accounts receivable, advances, prepayments, and other assets as of September 30, 2003 and 2002 

were comprised of the following: 

2003 2002

Intragovernmental

Accounts Receivable $ 59,924 $ 270,155

Advances, Prepayments and Other 108,798 29,273

Subtotal, Intragovernmental 168,722 299,428

With the Public

Accounts Receivable, net 42,058 58,047

Advances and Prepayments 2,359 35,413

Deposits in Transit and Other 18,994 19,835

Subtotal, With the Public 63,411 113,295

Total Accounts Receivable, Advances,

Prepayments and Other $ 232,133 $ 412,723

Intragovernmental advances and prepayments represent advance payments to other Federal

Government entities for agency expenses not yet incurred or for goods or services not yet received. 

Accounts receivable from the public are shown net of allowances for uncollectible amounts of 

$15.0 million and $5.6 million, as of September 30, 2003 and 2002, respectively. 

 
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NOTE 5. INVENTORY AND RELATED PROPERTY 

As of September 30, 2003 and 2002, inventory and operating materials and supplies were:

Operating Material and Supplies 2003 2002

Held For Use, net $ 147,879 $ 140,168

Excess, Obsolete, and Unserviceable, net 14,567 24,817

Subtotal, Operating Material and Supplies 162,446 164,985

Inventory

Held for Sale $ 61,457 $ 65,164

Held for Repair, net 330,189 348,300

Raw Materials, Finished Goods, and Other 13,632 13,643

Excess, Obsolete, and Unserviceable, net 14,042 13,603

Subtotal, Inventory 419,320 440,710

Total Inventory and Related Property, net $ 581,766 $ 605,695

Inventory and related property are shown net of the following allowances: 

Operating Materials and Supplies 2003 2002

Held For Use $ (12,167) $ (12,167)

Excess, Obsolete, and Unserviceable (57,294) (47,044)

Operating Materials and Supplies Allowances (69,461) (59,211)

Inventory

Held for Repair (83,849) (70,796)

Excess, Obsolete, and Unserviceable (4,760) (11,129)

Inventory Allowances (88,609) (81,925)

Total Allowances $ (158,070) $ (141,136)

Inventory is considered held for repair based on condition levels, and the allowance for repairable 

inventory is based on the average historical cost of such repairs. During FY 2003 and FY 2002, FAA 

recognized increases of $13.1 million and $27.8 million, respectively, to its allowance for inventory 

held for repair. 

FAA transfers excess items for disposal into the Government-wide automated disposal system. Disposal 

proceeds, recognized upon receipt, may go to the General Fund or to an FAA appropriation, depending 

upon the nature of the item and the disposal method. 
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NOTE 6. PROPERTY, PLANT, AND EQUIPMENT, NET 

Property, plant, and equipment balances at September 30, 2003 and 2002 were: 

Deprec. Service Acquisition Accumulated Net

Class of Fixed Asset Method Life Value Depreciation Book Value

Real Property, Including Land [1] [2] $ 3,874,055 $ (1,828,212) $ 2,045,843

Personal Property SL 3-20 12,643,046 (5,881,286) 6,761,760

Assets Under Capital Lease (Note 9) SL Term-40 125,923 (63,328) 62,595

Construction in Progress - - 4,513,496 4,513,496

Property Not in Use - - 18,292 (4,379) 13,913

Total Property, Plant, and Equipment $ 21,174,812 $ (7,777,205) $ 13,397,607

Deprec. Service Acquisition Accumulated Net

Class of Fixed Asset Method Life Value Depreciation Book Value

Real Property, Including Land [1] [2] $ 3,536,010 $ (1,675,322) $ 1,860,688

Personal Property SL 3-20 12,041,260 (5,275,361) 6,765,899

Assets Under Capital Lease (Note 9) SL Term-40 126,142 (55,397) 70,745

Construction in Progress - - 4,477,425 - 4,477,425

Property Not in Use - - 2,283 (1,272) 1,011

Total Property, Plant, and Equipment $ 20,183,120 $ (7,007,352) $ 13,175,768

[1] Land is not depreciated; other real property as defined in Note 1 is depreciated using the straight line method.

[2] The service life disclosed pertains to real property other than land and leasehold improvements. Leasehold

 improvements are depreciated over the lesser of the remaining life of the "parent" asset or 10 years.

2003

2002

FAA’s Construction in Progress (CIP) primarily relates to national airspace system assets, which are 

derived from centrally funded national systems development contracts, site preparation and testing, 

raw materials, and internal labor charges. 

Assets temporarily not in use, including decommissioned assets awaiting disposition, are reflected in 

FAA financial records as Property Not in Use. FAA reported disposition losses of $10.4 million and 

$82.8 million in FY 2003 and FY 2002, respectively. 
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NOTE 7. ENVIRONMENTAL CLEANUP COSTS 

FAA's environmental liabilities as of September 30, 2003 and 2002 were: 

2003 2002

Environmental Remediation $ 372,125 $ 311,914

Environmental Cleanup and Decommissioning 249,828 262,762

 

Total Environmental Liabilities $ 621,953 $ 574,676

Additional information on environmental projects is disclosed in Note 19. 

NOTE 8. EMPLOYEE RELATED, LEGAL, AND OTHER LIABILITIES 

As of September 30, 2003 and 2002, FAA’s employee related, legal and other liabilities were: 

 

Intragovernmental

Non-Current 

Liabilities

Current 

Liabilities Total

Advances Received $ - $ 42,448 $ 42,448

Accrued Payroll & Benefits Payable to Other Agencies - 29,101 29,101

Other - 72,384 72,384

Liabilities Covered by Budgetary Resources - 143,933 143,933

Federal Employees Compensation Act 113,063 87,842 200,905

Debt - 30 30

Liabilities Not Covered by Budgetary Resources 113,063 87,872 200,935

Subtotal, Intragovernmental 113,063 231,805 344,868

With the Public

Advances Received and Other - 9,089 9,089

Accrued Payroll & Benefits Payable to Employees - 130,060 130,060

Liabilities Covered by Budgetary Resources - 139,149 139,149

Accrued Unfunded Annual & Other Leave & Assoc. Benefits 451,199 - 451,199

Sick Leave Compensation Benefits for Air Traffic Controllers 57,006 6,194 63,200

Capital Leases (Note 9) 59,685 9,159 68,844

Legal Claims 53,900 25,000 78,900

Return Rights 4,400 3,150 7,550

Other Accrued Liabilities 50,282 - 50,282

Liabilities Not Covered by Budgetary Resources 676,472 43,503 719,975

Subtotal, With the Public 676,472 182,652 859,124

Total Employee Related, Legal, and Other Liabilities $ 789,535 $ 414,457 $ 1,203,992

2003
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Intragovernmental

Non-Current 

Liabilities

Current 

Liabilities Total

Advances Received $ - $ 30,995 $ 30,995

Accrued Payroll & Benefits Payable to Other Agencies - 71,654 71,654

Excise Taxes Payable to Treasury - 105,188 105,188

Other - 78,005 78,005

Liabilities Covered by Budgetary Resources - 285,842 285,842

Federal Employees Compensation Act 113,274 86,365 199,639

Debt 30 - 30

Liabilities Not Covered by Budgetary Resources 113,304 86,365 199,669

Subtotal, Intragovernmental 113,304 372,207 485,511

With the Public

Advances Received and Other 820 7,302 8,122

Accrued Payroll & Benefits Payable to Employees - 299,194 299,194

Liabilities Covered by Budgetary Resources 820 306,496 307,316

Accrued Unfunded Annual & Other Leave & Assoc. Benefits 451,341 - 451,341

Sick Leave Compensation Benefits for Air Traffic Controllers 52,138 869 53,007

Capital Leases (Note 9) 64,398 13,698 78,096

Legal Claims 93,650 76,250 169,900

Return Rights 5,250 2,450 7,700

Other Accrued Liabilities 104,605 4,141 108,746

Liabilities Not Covered by Budgetary Resources 771,382 97,408 868,790

Subtotal, With the Public 772,202 403,904 1,176,106

Total Employee Related, Legal, and Other Liabilities $ 885,506 $ 776,111 $ 1,661,617

2002

Accrued payroll and benefits to other agencies consists of FAA contributions payable to other Federal 

agencies for employee benefits. These include FAA’s contributions payable toward life, health, 

retirement benefits, Social Security, and matching contributions to the Thrift Savings Plan. 

An unfunded liability is recorded for the actual cost of workers' compensation benefits to be 

reimbursed to the DOL, pursuant to the FECA. FAA’s liability accrued as of September 30, 2003 includes

workers’ compensation benefits paid by DOL during the periods July 1, 2001 through June 30, 2003 and 

accrued liabilities for the quarter July 1, 2003 through September 30, 2003. FAA’s liability accrued as

of September 30, 2002, included workers’ compensation benefits paid by DOL during the period 

July 1, 2000 through June 30, 2002, and accrued liabilities for the quarter July 1, 2002 through 

September 30, 2002. 

The estimated liability for accrued unfunded leave and associated benefits includes annual and other 

types of vested leave, and sick leave under the terms the National Air Traffic Controllers Association 

agreement, Article 25, Section 13. This agreement gives air traffic controllers, who are covered under 
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FERS, the option to receive a lump sum payment for 40 percent of their accumulated sick leave as of 

their retirement effective date. Based on sick leave balances, this liability was $63.2 million and $53.0 

million as of September 30, 2003 and 2002, respectively. 

FAA estimated that 100 percent of its $78.9 million and $169.9 million legal claims liabilities as of 

September 30, 2003 and 2002, respectively, would be paid from the permanent appropriation for 

judgments, awards, and compromise settlements (Judgment Fund) administered by the Department of 

Treasury. 

FAA’s Return Rights Program pertains to employees who accepted transfers to overseas or certain 

domestic locations for a period of two to four years, and entitles them to a future return move at 

Government expense. As of September 30, 2003 and 2002, there were 151 and 154 employees, 

respectively, entitled to these return rights. 

Other Accrued Liabilities with the Public is comprised primarily of accruals for utilities, leases and 

travel obligations. Total liabilities not covered by budgetary resources are presented in note 17. 

NOTE 9. LEASES

FAA has both capital and operating leases. 

Capital Leases 

Following is a summary of FAA’s assets under capital lease as of September 30, 2003 and 2002: 

2003 2002

Land, Buildings, and Machinery $ 125,923 $ 126,142

Accumulated Depreciation (63,328) (55,397)

Assets Under Capital Lease, net $ 62,595 $ 70,745

As of September 30, 2003, FAA’s future payments due on assets under capital lease were: 

 

Year 1 $ 13,698

Year 2 13,620

Year 3 11,603

Year 4 9,380

Year 5 8,973

After 5 Years 41,125

Less: Imputed Interest (29,555)

Total Capital Lease Liability $ 68,844

Future Payments Due by Fiscal Year

(Liabilities Not Covered By Budgetary Resources)

FAA’s capital lease payments are funded annually. The remaining principal payments are recorded as 

unfunded lease liabilities. The imputed interest is funded and expensed annually. 
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Operating Leases

FAA has operating leases for real property, aircraft, and telecommunications equipment. Future 

operating lease payments due as of September 30, 2003 were: 

Land &

Fiscal Year Buildings Other Total

 Year 1 (FY 2004) $ 50,051 $ 829 $ 50,880

 Year 2 (FY 2005) 43,310 654 43,964

 Year 3 (FY 2006) 36,596 374 36,970

 Year 4 (FY 2007) 33,802 369 34,171

 Year 5 (FY 2008) 32,313 366 32,679

 After 5 Years 51,012 2,322 53,334

 Total Future Operating Lease Payments $ 247,084 $ 4,914 $ 251,998

Operating lease expense incurred during the years ended September 30, 2003 and 2002 was $53.3 

million and $60.0 million, respectively. The operating lease amounts due after 5 years does not include 

estimated payments for leases with annual renewal options. Estimates of the lease termination dates 

are subjective, and any projection of future lease payments would be arbitrary. 

NOTE 10. FEDERAL EMPLOYEE AND VETERANS BENEFITS PAYABLE 

As of September 30, 2003 and 2002, FECA actuarial liabilities were $1,041.6 million and $997.1 million 

respectively. The DOL calculates the FECA liability for DOT, and DOT allocates the liability amount to 

FAA based upon actual workers’ compensation payments to FAA employees over the preceding four

years. FECA liabilities include the expected liability for death, disability, medical, and miscellaneous 

costs for approved compensation cases, plus a component for incurred but not reported claims. The 

estimated liability is not covered by budgetary resources and thus will require future appropriated 

funding. 

NOTE 11. TOTAL COST AND EARNED REVENUE BY BUDGET FUNCTIONAL CLASSIFICATION 

In FY 2003, all expenses, earned revenues, and intragovernmental transactions were related to 

Transportation Programs. In FY 2002, $163 thousand of FAA’s expenses related to Community and 

Regional Development Programs. 

NOTE 12. NET COST BY PROGRAM AND OTHER STATEMENT OF NET COST DISCLOSURES

FAA’s five lines of business represent the programs reported on the Statement of Net Cost. Cost 

centers assigned to each line of business permit the direct accumulation of costs. Other costs that are 

not directly traced to each line of business, such as agency overhead, are allocated by applying ratios

representing the cost for each line of business divided by the total cost (excluding grant payments) for 

all lines of business. 

Following is FAA’s distribution of FY 2003 and FY 2002 net costs by intragovernmental-related versus

with the public. 
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For the Year Ended September 30, 2003

Intra- With the

Line of Business Programs governmental Public Total

Air Traffic Services

Expenses $ 1,082,494 $ 6,636,434 $ 7,718,928

Less: Earned revenues (24,392) (43,498) (67,890)

Net Costs 1,058,102 6,592,936 7,651,038

Regulation & Certification

Expenses 128,755 814,380 943,135

Less: Earned revenues (250) (876) (1,126)

Net Costs 128,505 813,504 942,009

Research & Acquisitions

Expenses 121,210 377,568 498,778

Less: Earned revenues (12,394) (43,462) (55,856)

Net Costs 108,816 334,106 442,922

Airports

Expenses 8,959 2,777,758 2,786,717

Less: Earned revenues (50) (174) (224)

Net Costs 8,909 2,777,584 2,786,493

Commercial Space Transportation

Expenses - 11,725 11,725

Net Costs - 11,725 11,725

Non Line of Business Programs

Regional and Center Operations and

Other Programs

Expenses 162,154 184,689 346,843

Less: Earned revenues (179,475) (76,911) (256,386)

Net Costs (17,321) 107,778 90,457

Not Assigned to Programs

Expenses - 61,486 61,486

Less: Earned revenues (7,720) (27,074) (34,794)

Net Costs (7,720) 34,412 26,692

Net Cost of Continuing Operations 1,279,291 10,672,045 11,951,336

Transferred Operations - Civil Aviation Security 

Expenses 94 ,413 30,292 124,705

Less Earned Revenues (17,186) (60,269) (77,455)

Net Costs 77,227 (29,977) 47,250

Net Cost of Operations

Total Expenses 1,597,985 10,894,332 12,492,317

Less Total Earned Revenue (241,467) (252,264) (493,731)

Total Net Cost $ 1,356,518 $ 10,642,068 $ 11,998,586
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

81

For the Year Ended September 30, 2002

Intra- With the

Line of Business Programs governmental Public Total

Air Traffic Services

Expenses $ 993,362 $ 6,320,410 $ 7,313,772

Less: Earned revenues (56,860) (20,247) (77,107)

Net Costs 936,502 6,300,163 7,236,665

Regulation & Certification

Expenses 122,368 802,246 924,614

Less: Earned revenues (568) (553) (1,121)

Net Costs 121,800 801,693 923,493

Research & Acquisitions

Expenses 146,683 440,308 586,991

Less: Earned revenues (36,549) (35,580) (72,129)

Net Costs 110,134 404,728 514,862

Airports

Expenses 8,547 2,924,995 2,933,542

Net Costs 8,547 2,924,995 2,933,542

Commercial Space Transportation

Expenses - 11,361 11,361

Net Costs - 11,361 11,361

Non Line of Business Programs

Regional and Center Operations and

Other Programs

Expenses 115,207 310,625 425,832

Less: Earned revenues (92,379) (36,832) (129,211)

Net Costs 22,828 273,793 296,621

Not Assigned to Programs

Expenses - 50,622 50,622

Less: Earned revenues (28,585) (27,826) (56,411)

Net Costs (28,585) 22,796 (5,789)

Net Cost of Continuing Operations 1,171,226 10,739,529 11,910,755

Transferred Operations - Civil Aviation Security

Expenses 265,838 454,135 719,973

Less Earned Revenues (108,141) (78,668) (186,809)

Net Costs 157,697 375,467 533,164

Net Cost of Operations

Total Expenses 1,652,005 11,314,702 12,966,707

Less Total Earned Revenue (323,082) (199,706) (522,788)

Total Net Costs $ 1,328,923 $ 11,114,996 $ 12,443,919
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

82

NOTE 13. EXCISE TAXES AND ASSOCIATED REVENUE 

The IRS collects various excise taxes on behalf of FAA's Airport and Airway Trust Fund. These taxes can 

be withdrawn only as authorized by FAA appropriations. Twice a month, Treasury estimates the amount 

collected, and adjusts the estimates by actual collections quarterly. Accordingly, the total taxes 

recognized for the year ended September 30, 2003 and 2002 included OTA’s estimate of $2.9 billion 

and $2.5 billion for the quarters ending September 30, 2003 and 2002, respectively. For the years

ended September 30, 2003 and 2002, respectively, excise taxes and associated nonexchange revenue, 

which is reported on the Statement of Changes in Net Position, was as follows: 

2003 2002

Passenger Ticket Tax $ 6,065,763 $ 6,300,562

International Departure Tax 1,517,807 1,410,234

Investment Income 570,873 777,693

Fuel Taxes 850,950 802,749

Waybill Tax 399,396 394,317

Tax Refunds and Credits (44,320) (59,613)

Total Excise Taxes and Associated Revenue $ 9,360,469 $ 9,625,942

NOTE 14. IMPUTED FINANCING SOURCES 

FAA recognizes as imputed financing the amount of accrued pension and post-retirement benefit 

expenses for current employees. The assets and liabilities associated with such benefits are the 

responsibility of the administering agency, the OPM. Amounts paid from the Treasury Judgment Fund in 

settlement of claims or court assessments against FAA are also recognized as imputed financing. For 

the fiscal years ended September 30, 2003 and 2002, respectively, imputed financing was as follows: 

2003 2002

Office of Personnel Management $ 465,868 $ 394,826

Treasury Judgment Fund 29,835 65,910

Total Imputed Financing Sources $ 495,703 $ 460,736

NOTE 15. TRANSFERRED OPERATIONS 

The Aviation and Transportation Security Act (Public Law 107-71) established the Transportation 

Security Administration (TSA) and transferred FAA’s civil aviation security functions to the TSA. The 

TSA assumed responsibility for these functions on February 13, 2002. Subsequently, the Homeland 

Security Act of 2002 (Public Law 107-296) established the Department of Homeland Security (DHS) and 

transferred TSA from the DOT to DHS effective March 1, 2003. 

FASAB Technical Bulletin (TB) 2003-1, Certain Questions and Answers related to the Homeland Security 

Act of 2002, requires Federal agencies to segregate the net costs of continuing and transferred 

operations, and recognize a transfer-out for assets and liabilities transferred to the DHS. Although the 

guidance in TB 2003-1 applies to DHS, the guidance is relevant to the transfer of the civil aviation 

security function to the TSA. Accordingly, on the Statement of Net Cost, the FAA has segregated and 

reported as “transferred operations,” the net costs incurred related to civil aviation security functions 

that transferred to TSA. Net costs of internal security functions, which remained with FAA, are 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

83

reported under Region and Center Operations and Other Programs. 

In addition, the Statement of Changes in Net Position includes $680.1 million in Other Financing 

Sources – net transfers out without reimbursement. Of this amount, $623.6 million pertains to civil 

aviation security-related PP&E that the FAA transferred to the TSA during FY 2003. 

NOTE 16. STATEMENT OF BUDGETARY RESOURCES DISCLOSURES 

The amounts reported in the Statement of Budgetary Resources are in agreement with the summary 

totals presented in the Budget of the United States Government. Amounts reported for the Operations 

appropriation were adjusted to eliminate the effect of transfers between the Trust Fund and the 

General Fund components of this account because they overstated budgetary resources and 

obligations. The Required Supplementary Information section of this report includes a schedule of 

budgetary resources by each of FAA’s major fund types. 

Differences exist between the FY 2003 Statement of Budgetary Resources and the Report on Budget 

Execution and Budgetary Resources (SF-133) due to corrections of prior year errors. Consistent with 

Statement of Federal Financial Accounting Standards No. 21, Reporting Corrections of Errors and 

Changes in Accounting Principles, because the errors were considered immaterial, the effects of the 

corrections are reflected as FY 2003 activity in the Statement of Budgetary Resources. However, for 

purposes of reporting the SF-133 to Treasury, certain beginning of year balances were restated based 

upon Treasury guidance. The net effect of all beginning balance adjustments to the SF-133 is less than 

$1 million. 

OMB Bulletin Number 01-09 requires the following additional Statement of Budgetary Resources 

disclosures: 

• FAA does not have any significant differences between the information reported on the Statement 

of Budgetary Resources and the amounts described as FY 2003 “actual” in the Budget of the United 

States Government for FY 2005. 

• Congress mandated permanent indefinite appropriations for the Facilities and Equipment, Grantsin-Aid, and Research, Development and Engineering to fully fund special projects that were ongoing 

and spanned several years. 

• FAA does not have obligations classified as “exempt from apportionment.” However, during 

FY 2003 and FY 2002, direct and reimbursable obligations incurred against amounts apportioned 

under categories A and B, as defined in OMB Circular No. A-11, Part 4, Instructions on Budget 

Execution, were as follows: 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

84

2003

Obligations Incurred

Category A Category B Total

Direct $ 10,376,768 $ 3,524,631 $ 13,901,399

Reimbursable 264,743 4 264,747

Total $ 10,641,511 $ 3,524,635 $ 14,166,146

2002

Obligations Incurred

Category A Category B Total

Direct $ 14,446,516 $ 299,149 $ 14,745,665

Reimbursable 1,051,173 - 1,051,173

Total $ 15,497,689 $ 299,149 $ 15,796,838

Total available contract authority at the end of FY 2003 and FY 2002 was $4.2 billion and $4.0 billion, 

respectively.

Public Laws 106-181 and 108-7 authorized FAA $3.4 billion and $3.1 billion in contract and liquidating 

authority, respectively, which are derived from the Airport and Airway Trust Fund and available until 

expended, for the Grants-in-Aid programs. The unobligated balance at the end of FY 2003 and FY 2002 

was $9.0 million and $.9 million respectively. 

Unobligated balances of budgetary resources for unexpired accounts are available in subsequent years 

until expiration, upon receipt of an apportionment from OMB. Unobligated balances of expired 

accounts are not available. At the end of FY 2002 $1.6 million of obligated balances, were in 

appropriations cancelled at year-end, pursuant to 31 USC 1552, and thus have not been brought 

forward to FY 2003. 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

85

The net obligated balance, end of period, is comprised of the following components as of 

September 30, 2003 and 2002: 

2003

Obligated balance, net, end of period Amount

 Accounts receivable $ (62,775)

Unfilled customer orders from Federal sources (113,350)

Undelivered orders 7,926,575

Accounts payable 894,030

Total obligated balance, net end of period $ 8,644,480

2002

Obligated balance, net, end of period Amount

 Accounts receivable $ (345,878)

Unfilled customer orders from Federal sources (92,074)

Undelivered orders 7,445,017

Accounts payable 991,071

Total obligated balance, net end of period $ 7,998,136

NOTE 17. FINANCING SOURCES YET TO BE PROVIDED 

The following table shows liabilities not covered by budgetary resources as of September 30, 2003 and 

2002, as well as the relationship between liabilities not covered by budgetary resources on the balance 

sheet and the change in components of net cost of operations that will require or generate resources in 

future periods. 

2003 2002 Change

Environmental Liabilities (Notes 7 and 19) $ 621,953 $ 574,676 $ 47,277

FECA - Intragovernmental (Actual) (Note 8) 200,905 199,639 1,266

Sick Leave Compensation Benefits and Return Rights (Note 8) 70,750 60,707 10,043

Debt - Intragovernmental (Note 8) 30 30 -

FECA (Actuarial) (Note 10) 1,041,568 997,103 44,465

 Increases - Components of Net Cost of Operations

 Requiring or Generating Resources in Future Periods 103,051

Unfunded Annual & Other Leave & Assoc. Benefits (Note 8) 451,199 451,341 (142)

Legal Claims (Note 8) 78,900 169,900 (91,000)

Capital Leases (Notes 8 & 9) 68,844 78,096 (9,252)

Other Accrued Liabilities (Note 8) 50,282 108,746 (58,464)

Decreases - Resources that Fund Expenses

Recognized in Prior Periods (158,858)

Liabilities Not Covered by Budgetary Resources $ 2,584,431 $ 2,640,238 $ (55,807)
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

86

NOTE 18. CUSTODIAL ACTIVITY 

FAA collects certain non-exchange (custodial) revenue on behalf of the General Fund of the Treasury. 

During FY 2003 and FY 2002, FAA’s Statement of Changes in Net Position included custodial revenue 

totaling $21.8 million and $29.2 million, respectively. The primary source of custodial activity is 

revenue from the Metropolitan Washington Airport Authority for its leases of Ronald Reagan National 

Airport and Washington Dulles International Airport. Custodial activity also includes the collection of 

miscellaneous fines and penalties. 

NOTE 19. COMMITMENTS, CONTINGENCIES, AND OTHER DISCLOSURES 

Contract Options. As of September 30, 2003 and 2002, FAA had contract options of $32.8 billion and 

$19.9 billion, respectively. These contract options give FAA the unilateral right to purchase additional 

equipment or services or to extend the contract terms. Exercising this right would require the 

obligation of funds in future years.

Contract Negotiations. As of September 30, 2003 and 2002, FAA had a total of $21.6 million and 

$42.1 million, respectively, in commitments (funds reserved for possible future obligations) under 

unexpired Facilities and Equipment, and Research, Engineering, and Development appropriations. The 

commitments were for purchases of goods and services for which contract negotiations have not been 

completed (i.e., agency obligations had not been incurred) at the end of each respective fiscal year. 

Letters of Intent. FAA has authority under Title 49 U.S.C. 47110(e) to issue letters of intent (LOIs) to 

enter into AIP grant agreements. Through September 30, 2003, FAA issued LOIs covering FY 1988 

through FY 2014 totaling $4.5 billion. As of September 30, 2003, FAA had obligated $3.0 billion of this 

total amount, leaving $1.5 billion unobligated. 

As of September 30, 2002, LOIs covering FY 1988 through FY 2014 totaled $4.3 billion. Of this amount, 

FAA had obligated $2.7 billion, leaving $1.6 billion unobligated as of September 30, 2002. 

AIP Grants. FY 2003 AIP grant authority totaled $3.3 billion, including $2.1 billion in entitlements to 

specific locations. Of entitlements to specific locations, sponsors have claimed $1.8 billion, and 

$336 million remains available from unused or newly enacted contract authority to those sponsors 

through FY 2005, or in the case of non-hub primary airport locations, through FY 2006. 

In FY 2002, AIP grant authority was $3.5 billion, including $1.7 billion in entitlements to specific 

locations. Of entitlements to specific locations, sponsors had claimed $1.4 billion, and $355 million 

remained available from unused or newly enacted contract authority to those sponsors through 

FY 2004, or in the case of non-hub primary airport locations, through FY 2005. 

Aviation Insurance Program. FAA is authorized to issue hull and liability insurance under the Aviation 

Insurance Program for air carrier operations for which commercial insurance is not available on 

reasonable terms and when continuation of U.S. flag commercial air service is necessary in the interest 

of air commerce, national security, and the foreign policy of the United States. FAA may issue 

(1) non-premium insurance, and (2) premium insurance for which a risk-based premium is charged to 

the air carrier. 

FAA maintains standby non-premium war-risk insurance policies for 38 air carriers having approximately 

975 aircraft available for Defense or State Department charter operations. 

On September 22, 2001, the premium insurance program was expanded by the Air Transportation 

Safety and System Stabilization Act (Public Law 107-42) to include all scheduled domestic air carriers. 

Under this program, FAA has provided temporary war-risk insurance, for typically 60-day periods, to 

U.S. carriers whose coverage was cancelled following the terrorist attacks on September 11, 2001. 

Insured air carrier per occurrence limits, for combined hull and liability coverage, range from 

$100 million to $4 billion. Total insurance in force for hull coverage as of September 30, 2003 was 

$172.7 billion. Public Law 108-11 mandated FAA to extend policies in effect on June 19, 2002, until 

August 31, 2004. The period of coverage in effect as of September 30, 2003 was from August 13 to 

October 11, 2003. There are 76 FAA war-risk policies. 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

87

The issuance of temporary war-risk coverage to all scheduled domestic carriers provides necessary 

insurance to qualifying carriers while allowing time for the commercial insurance market to stabilize. 

Premiums under this program are established by FAA and are assessed per departure. During FY 2003 

and FY 2002, FAA recognized insurance premium revenue of $124.0 million and $74.6 million, 

respectively. Premiums are recognized as revenue on a straight-line basis over the period of coverage. 

Premium revenue is reported on the Consolidated Statement of Net Cost, under “Regional and Center 

Operations and Other Programs.” 

In the past, FAA has insured a small number of air carrier operations and establishes a maximum 

liability for losing one aircraft. Typically, the maximum liability for both hull loss and liability, per 

aircraft, is $1.75 billion. No claims for losses were pending as of September 30, 2003 or 2002. Since 

the inception of the Aviation Insurance Program (including the predecessor Aviation War Risk Insurance 

Program dating back to 1951) only four claims, all involving minor dollar amounts, have been paid. 

Because of the unpredictable nature of war risk and the absence of historical claims experience on 

which to base an estimate, no reserve for insurance losses has been recorded. 

Overflight User Fees. FAA issued an interim final rule (IFR), effective on August 1, 2000, followed by a 

Final Rule, effective on August 20, 2001, that required certain aircraft operators to pay fees for air 

traffic control and related services provided by FAA to aircraft that operate in U.S.-controlled airspace 

but neither takeoff nor land in the United States. The authority to charge these fees is contained in the 

Federal Aviation Reauthorization Act of 1996, as amended. Several airlines and an air carrier 

association challenged the IFR in the U.S. Court of Appeals. FAA issued the Final Rule while the IFR 

litigation was still pending. The same group of plaintiffs then brought suit against the Final Rule, and 

the Court combined the two cases. 

FAA had recognized $79.7 million in revenue, including $19.8 million and $27.6 million in FY 2003 and 

FY 2002, respectively, before it ceased billing in light of an adverse decision in the U.S. Court of 

Appeals on April 8, 2003. The period for appealing that decision to the Supreme Court expired on 

October 31, 2003. Congress has since enacted, in the FAA Reauthorization Act signed by the President 

on December 12, 2003, a provision on overflight fees that affects past and future fee collections. FAA’s 

ability to retain these fees in light of the new legislation is under review. 

Environmental. FAA is a party to two major environmental remediation projects in which the extent of 

liability is unknown. A study is in process to determine the magnitude and scope of the remediation 

required at the two sites. Of the total environmental liability reported as of September 30, 2003 and 

2002, the amount related to these two sites is $61.6 million and $67.7 million, respectively. This 

liability includes FAA’s share of the known remediation cost and the cost to complete the study.

Legal Claims. As of September 30, 2003 and 2002, FAA’s contingent liabilities for asserted and pending 

legal claims reasonably possible of loss were estimated at $325.5 million and $499.8 million, 

respectively. FAA does not have material amounts of known unasserted claims. 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

88

REQUIRED SUPPLEMENTARY 

STEWARDSHIP INFORMATION
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

89

State/Territory 2003 2002 2001 2000 1999

Alabama $ 59,760 $ 58,506 $ 27,421 $ 19,653 $ 18,134

Alaska 158,950 121,640 83,563 51,788 70,802

Arizona 75,247 54,737 51,783 58,381 53,135

Arkansas 35,530 32,937 32,412 17,534 21,694

California 216,981 243,720 179,447 87,617 106,161

Colorado 57,872 91,495 26,340 29,860 43,452

Connecticut 7,011 10,420 3,480 1,788 4,971

Delaware 2,577 5,838 4,704 2,515 197

District of Columbia 447 71 61 83 54

Florida 166,066 157,878 110,428 64,694 71,746

Georgia 48,147 67,957 33,652 43,911 43,556

Hawaii 24,767 15,846 34,569 6,567 12,131

Idaho 30,721 19,925 25,477 13,106 15,578

Illinois 74,202 165,518 85,566 66,003 63,596

Indiana 47,288 43,099 30,544 24,141 27,467

Iowa 37,521 30,765 35,159 16,169 30,450

Kansas 22,694 15,655 7,587 7,378 7,451

Kentucky 67,031 48,192 46,166 26,205 32,741

Louisiana 45,394 47,915 32,841 29,200 24,442

Maine 18,143 14,456 7,496 3,828 4,943

Maryland 22,933 26,370 18,953 14,900 18,136

Massachusetts 65,930 30,348 20,709 14,560 15,259

Michigan 84,030 85,851 99,278 27,363 50,995

Minnesota 58,826 85,675 49,143 30,561 27,902

Mississippi 30,289 25,929 28,203 9,281 14,393

Missouri 59,642 71,910 62,701 35,137 30,089

Montana 34,273 24,506 19,254 13,157 16,727

Nebraska 19,423 25,181 22,983 8,534 14,240

Nevada 57,506 45,204 57,332 32,106 22,981

New Hampshire 35,082 40,351 16,173 8,582 8,789

New Jersey 29,402 26,391 18,047 10,012 25,906

New Mexico 17,336 13,106 10,882 7,671 10,149

Airport Improvement Program

For the Fiscal Years Ended September 30

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

Stewardship Investment

Non Federal Physical Property
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

90

State/Territory 2003 2002 2001 2000 1999

New York $ 122,675 $ 109,798 $ 118,792 $ 57,671 $ 86,754

North Carolina 75,317 73,493 60,908 26,084 50,572

North Dakota 15,458 16,562 25,221 11,490 8,263

Ohio 68,717 112,015 51,601 45,691 46,374

Oklahoma 34,351 39,238 19,780 8,678 14,949

Oregon 34,687 46,605 31,655 9,847 16,138

Pennsylvania 112,761 109,388 62,343 34,011 57,544

Rhode Island 13,736 12,409 9,547 11,705 10,813

South Carolina 22,531 39,194 18,895 11,792 22,926

South Dakota 16,841 15,440 10,466 12,301 8,893

Tennessee 62,412 46,373 58,638 39,237 36,477

Texas 159,929 192,738 127,046 111,585 103,308

Utah 24,804 21,396 39,235 14,328 8,808

Vermont 2,310 2,767 5,487 1,157 4,141

Virginia 45,240 76,647 75,555 41,109 31,069

Washington 53,351 62,798 34,023 35,498 44,454

West Virginia 24,373 18,562 18,564 7,400 12,592

Wisconsin 48,264 39,971 27,541 26,278 25,512

Wyoming 21,158 25,679 16,446 14,972 7,871

American Samoa 18,903 17,845 5,374 241 676

Guam 5,937 368 3,653 3,399 10,341

Northern Mariana Island 10,227 13,017 5,455 1,610 4,027

Puerto Rico 7,419 9,022 6,399 9,179 7,163

Trust Territory of Pacific - - - 138 27

Virgin Islands 8,959 20,094 5,056 2,411 9,231

Administration 65,336 64,731 58,542 55,196 75,680

 Totals $ 2, 2,786,717 $ 2, 933,542 $ 1 178,576 $ 1 ,375,293 $ ,612,870

FAA makes project grants for airport planning and development under the Airport Improvement 

Program (AIP) to maintain a safe and efficient nationwide system of public-use airports that meets

both present and future needs of civil aeronautics. FAA works to improve the infrastructure of 

the nation's airports, in cooperation with airport authorities, local and state governments, and

metropolitan planning authorities.

Stewardship Investment

FEDERAL AVIATION ADMINISTRATION

U.S. Department of Transportation

For the Fiscal Years Ended September 30 (continued)

Airport Improvement Program

Non Federal Physical Property
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

91

Expenditures 2003 2002 2001 2000 1999

Applied Research $ 29,406 $ 59,150 $ 120,395 $ 99,777 $ 118,834

Development 251 603 3,419 7,175 18,358

R&D Plant 2,903 3,020 10,130 12,800 14,290

Administration 31,669 44,480 46,988 46,219 36,466

Total $ 64,229 $ 107,253 $ 180,932 $ 165,971 $ 187,948

FAA conducts research and provides the essential air traffic control infrastructure to meet increasing

demands for higher levels of system safety, security, and efficiency.

Research priorities include aircraft structures and materials; fire and cabin safety; crash injury-protection;

explosive detection systems; improved in-flight icing and ground de-icing operations; better tools to

predict and warn of weather hazards, turbulence, and wake vortices; aviation medicine; and human factors.

NOTE: The FY 1999 amounts reported above are based on actual amounts. They differ from the numbers reported 

in FY 1999 financial statements, which were based on estimates.

For the Fiscal Years Ended September 30

U.S. Department of Transportation

Federal Aviation Administration

Stewardship Investment

Research and Development
REQUIRED SUPPLEMENTARY INFORMATION

Federal Aviation Administration 92

FY 2003 Performance and Accountability Report
Asset

Method Condition*

FY2003 FY 2002 FY 2001 FY 2000 FY 1999

Buildings Condition Assessment 4&5 $ 73, 50,534 $ 50, 741 $ 30, 568 $ 17, 971 $ 539

Survey

Other Structures and Facilities Condition Assessment 4&5 29,785 13,843 22,928 59,290 37,442

Survey

Total $ 87, 80,319 $ 73, 584 $ 90, 496 $ 54, 261 $ 981

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

Supplementary Information

Deferred Maintenance

Category

For the Fiscal Years Ended September 30

Costs to Return to

Acceptable Condition

*Condition Rating Scale: 4: Poor; 5: Very Poor

Information on FAA's deferred maintenance is based on condition assessment survey (annual inspection). 

Standards (orders) are provided for evaluating the fixed assets condition. These standards are combined

with FAA technicians’ knowledge, past experiences, and judgment to provide the following: 

• Minimum and desirable condition descriptions 

• Suggested maintenance schedules 

• Standard costs for maintenance actions 

• Standardized condition codes

There have not been material changes to the standards in recent years. FAA recognizes maintenance 

expense as incurred. However, maintenance was insufficient during the past several years and resulted in 

deferred maintenance on Buildings and Other Structures and Facilities. FAA reports deferred maintenance 

only on assets with condition ratings of 4 and 5 in compliance with the Statement of Federal Financial

Accounting Standard (SFFAS) Number 6, “Accounting for Property, Plant and Equipment”. 

Federal Aviation Administration 93

FY 2003 Performance and Accountability Report
Intragovernmental Assets

Agency

Accounts

Receivable,

Advances,

Prepayments, and 

Other

Fund Balance with

Treasury Investments

Department of the Treasury $ 313 $ 2,833,723 $ 10,819,257

General Accounting Office 1

Department of Agriculture 46

Department of Commerce 580

Department of the Interior 3,947

Department of Justice 14

Department of State 46

Department of Labor 4

Department of the Army 6,228

Department of the Navy 4,747

General Services Administration 330

Department of the Air Force 25,133

National Aeronautics & Space Admin. 4,125

Social Security Administration 23

Federal Emergency Management Agency 20

Social Security Administration 1

Department of Homeland Security 12,490

Department of Health and Human Services 2

Department of Defense 2,606

Department of Transportation 84,098

Department of Energy 16

Independent Agencies 2

Other Agencies 23,950

Total $ 168,722 $ 2,833,723 $ 10,819,257

As of September 30, 2003

U.S. Department Of Transportation

FEDERAL AVIATION ADMINISTRATION

Supplementary Information

Intragovernmental Balances

Federal Aviation Administration 

FY 2003 Performance and Accountability Report

94
Intragovernmental Liabilities

Agency

 Employee Related

and Other

 Accounts

Payable 

Department of the Treasury $ 20,868 $ -

Department of Agriculture 3,170 9

Department of Commerce 3,053 -

Department of the Interior 89 -

Department of State 120 -

Department of Labor 200,905 -

Department of the Army 4 3

Department of the Navy 116 84

United States Postal Service - -

General Services Administration 7,142 -

Department of Justice 68 -

Department of the Air Force 1,690 41

National Aeronautics & Space Admin. 453 -

Social Security Administration 4,835 -

Office of Personnel Management 21,127 -

Federal Emergency Management Agency 49 -

National Science Foundation 9 -

Department of Homeland Security 8,961 -

Department of Health and Human Services 20 -

Department of Defense 3,362 6

Department of Transportation 11,840 9,179

Department of Energy - 2

Department of Education 60 -

Environmental Protection Agency 100 -

Other Agencies 56,827 -

Total 34 $ 4,868 $ 9,324

As of September 30, 2003

U.S. Department Of Transportation

FEDERAL AVIATION ADMINISTRATION

Supplementary Information

Intragovernmental Balances

Federal Aviation Administration 

FY 2003 Performance and Accountability Report

95
Intragovernmental Expenses and Revenues

Agency Expenses Revenues

Department of the Treasury* $ 33,334 $ 3,115

Department of Agriculture 2 2

Department of Commerce 1,978 1,978

Department of Energy 58 58

Department of Education 5 5

Department of the Interior 777 777

Department of Justice 43 43

Department of Labor 9 9

Department of Labor - FECA* 87,631 -

Department of the Navy 3,178 3,178

Department of State 39 39

Office of Personnel Management* 1,247,460 -

Social Security Administration 100 100

Department of the Army 5,729 5,729

General Services Administration 119 119

Department of the Air Force 14,511 14,511

Fed. Emergency Mgmt. Agency 2,381 2,381

Department of Homeland Security 53,027 53,027

Department of Health and Human Services 62 62

National Aeronautics & Space Admin. 12,545 12,545

Department of Defense 7,929 7,929

Independent Agencies 154 154

Department of Transportation 117,561 117,561

Tennesee Valley Authority 4 4

Other Agencies 9,349 18,141

Total Expenses $ 1,597,985 $ 241,467

 

* Represents imputed costs funded by other agencies

on behalf of FAA and/or employee-related expenses.

Intragovernmental Non-Exchange Revenue

Transfers-Out Transfers-In

General Services Administration $ 14,991 $ 15,082

Office of Personnel Management 5 5

Department of Army 81 -

Department of Homeland Security 643,621 -

Department of Agriculture 6 -

National Aeronautics & Space Admin. 43,904 -

Department of Transportation 103,168 -

Department of Commerce 15 -

Other Agencies 14,625 2,082

Total Revenues $ 820,416 $ 17,169

U.S. Department Of Transportation

FEDERAL AVIATION ADMINISTRATION

Supplementary Information

For the Fiscal Year Ended September 30, 2003

Intragovernmental Transactions

Federal Aviation Administration 96

FY 2003 Performance and Accountability Report
Intragovernmental Assets

Agency

Accounts Receivable,

Advances,

Prepayments, and

Other

Fund Balance 

with Treasury Investments

Department of the Treasury $ 27 $ 2,539,304 $ 11,213,447

Department of Agriculture 141 - -

Department of Commerce 258 - -

Department of the Interior 5,498 - -

Department of Justice 65 - -

Department of State 4,750 - -

Department of the Army 5,574 - -

Department of the Navy 6,075 - -

General Services Administration 334 - -

Department of the Air Force 12,098 - -

National Aeronautics & Space Admin. 1,585 - -

Department of Energy 20 - -

Department of Defense 3,634 - -

Department of Transportation 228,028 - -

US Secret Service 170 - -

Other Agencies 31,171 - -

 Total $ 299,428 $ 2,539,304 $ 11,213,447

Intragovernmental Liabilities

Agency

 Employee Related 

and Other Accounts Payable

Department of the Treasury $ 105,428 $ -

Department of Agriculture 7,225 -

Department of Commerce 931 -

Department of the Interior 99 23

Department of Justice 99 -

Department of Labor 199,639 -

Department of State 126 -

Department of the Navy 347 60

General Services Administration 816 3,109

Department of the Air Force 3,441 40

National Aeronautics & Space Admin. 807 -

National Science Foundation 9 -

Office of Personnel Management 52,033 32

Department of Energy 42 -

Department of Education 42 -

Department of Health and Human Services 15 15

Department of Defense 205 1,076

Department of Transportation 22,752 3,387

Federal Emergency Management Agency 220 -

Social Security Administration 12,462 -

US Secret Service - 214

Other Agencies 78,773 28,226

 Total $ 485,511 $ 36,182

As of September 30, 2002

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

Supplementary Information

Intragovernmental Balances

Federal Aviation Administration 97

FY 2003 Performance and Accountability Report
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

98

Intragovernmental Expenses and Revenues

Agency Expenses Revenues

Department of the Treasury* $ 68,427 $ 2,518

Department of Agriculture 98 98

Department of Commerce 8,024 8,024

Department of Energy 18 18

Department of Education 22 22

Department of the Interior 1,066 1,066

Department of Justice 1,303 1,303

Department of Labor - FECA* 89,022 -

Department of the Navy 10,883 10,883

Department of State 62 62

Office of Personnel Management* 1,174,790 798

Department of the Army 5,321 5,321

General Services Administration 508 508

Department of the Air Force 17,436 17,436

Environmental Protection Agency 1,422 1,422

Federal Emergency Management Agency 3,166 3,166

Department of Health and Human Services 91 91

National Aeronautics and Space Administration 5,044 5,044

Department of Defense 40,277 40,277

Department of Transportation 224,019 224,019

U.S. Secret Service 400 400

Other Agencies 606 606

Total $ 1,652,005 $ 323,082

* Represents imputed costs funded by other agencies

on behalf of FAA and/or employee-related expenses.

Intragovernmental Non-Exchange Revenue

Transfers-Out Transfers-In

Executive Office of the President $ - $ 87,500

General Services Administration 26,970 -

Department of Transportation 67,482 (16,123)

Other Agencies - 20,250

Total $ 94,452 $ 91,627

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

Supplementary Information

For the Fiscal Year Ended September 30, 2002

Intragovernmental Transactions
Federal Aviation Administration 

Airport & Trust Fund

Airway Trust Fund Trust Fund Research, Aviation

Trust Fund Grants-in-Aid Facilities & Eng. & Insurance Franchise 

Budgetary Resources Corpus to Airports Equipment Development Revolving Fund Operations 

Budget Authority $ (797,917) $ 6,500,000 $ 2,931,899 $ 141,444 $ - $ - $ 7,071,120 

Unobligated Balance brought forward and transfers 8,749,608 894 541,486 21,187 102,361 56,581 152,833 

Spending Authority From Offsetting Collections - 686 104,312 (2,644) 129,426 353,862 140,810 

Recoveries of prior year obligations - 121,908 45,179 21,422 - - 60,647 

Permanently not available - (3,122,100) (39,376) (964) - - (66,692

Total Budgetary Resources $ 7,951,691 $ 3,501,388 $ 3,583,500 $ 180,445 $ 231,787 $ 410,443 $ 7,358,718 

Status of Budgetary Resources

Obligations Incurred $ 3 $ 3,491,899 $ 2,908,322 $ 160,006 $ 13,933 $ 331,454 $ 7,261,223 

Unobligated Balances-Available 7,951,688 8,635 612,302 17,321 6,314 - 31,633 

Unobligated Balances-Not Available - 854 62,876 3,118 211,540 78,989 65,862 

Total Status of Budgetary Resources $ 7,951,691 $ 3,501,388 $ 3,583,500 $ 180,445 $ 231,787 $ 410,443 $ 7,358,718 

Relationship of Obligations to Outlays

Obligated Balance, net beginning of period $ - $ 4,992,702 $ 1,988,809 $ 205,948 $ 5,144 $ 70,802 $ 762,286 

Cancelled appropriations and other - - 9 - - - 15,693 

Obligations Incurred 3 3,491,899 2,908,322 160,006 13,933 331,455 7,261,222 

Less: Spending authority from offsettingcollections and receipts and recoveries ofprior year obligations (97) (122,594) (149,491) (18,778) (129,426) (353,862) (201,457

Less: Obligated balance, net end of period - (5,681,104) (1,952,717) (198,907) (5,201) (91,873) (694,909

Net Outlays $ (94) $ 2,680,903 $ 2,794,932 $ 148,269 $ (115,550) $ (43,478) $ 7,142,835 

Outlays

Disbursements $ 3 $ 2,681,540 $ 2,884,966 $ 151,652 $ 13,876 $ 312,235 $ 11,326,505 

Collections, net of offsetting receipts (97) (637) (90,034) (3,383) (129,426) (355,713) (4,183,670

Net Outlays $ (94) $ 2,680,903 $ 2,794,932 $ 148,269 $ (115,550) $ (43,478) $ 7,142,835 

U. S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

Schedule of Budgetary Resources by Major Fund Type

As of September 30, 2003

FY 2003 Performance and Accountability Report
Airport & Trust Fund

Airway Trust Fund Trust Fund Research, Aviation

Trust Fund Grants-in-Aid Facilities & Eng. & Insurance Franchise 

Budgetary Resources Corpus to Airports Equipment Development Revolving Fund Operations 

Budget Authority $ (1,378,427) $ 5,425,000 $ 3,026,595 $ 245,000 $ - $ - $ 7,128,400 Unobligated Balance brought forward and transfers 10,111,046 302,331 553,845 19,400 88,241 28,620 291,897 

Spending Authority From Offsetting Collections - - 170,915 3,969 75,566 318,068 1,045,815 

Recoveries of prior year obligations - 84,936 148,600 8,374 2 - 68,961 

Permanently not available - (2,251,720) (44,317) (161) - - (66,194) 

Total Budgetary Resources $ 8,732,619 $ 3,560,547 $ 3,855,638 $ 276,582 $ 163,809 $ 346,688 $ 8,468,879 

Status of Budgetary Resources

Obligations Incurred $ 36 $ 3,559,653 $ 3,314,151 $ 255,395 $ 61,448 $ 290,106 $ 8,316,046 

Unobligated Balances-Available 8,732,583 277 489,095 16,039 59,389 56,582 100,921 

Unobligated Balances-Not Available - 617 52,392 5,148 42,972 - 51,912 

Total Status of Budgetary Resources $ 8,732,619 $ 3,560,547 $ 3,855,638 $ 276,582 $ 163,809 $ 346,688 $ 8,468,879 

Relationship of Obligations to Outlays

Obligated Balance, net beginning of period $ - $ 4,378,147 $ 1,730,817 $ 163,192 $ 127 $ 45,993 $ 930,987 

Obligations Incurred 36 3,559,653 3,314,151 255,395 61,448 290,106 8,316,046 

Less: Spending authority from offsettingcollections and receipts and recoveries of prior year obligations (105) (84,936) (319,515) (12,343) (75,568) (318,068) (1,114,776) 

Less: Obligated balance, net end of period - (4,992,702) (1,988,809) (205,948) (5,144) (70,802) (762,286) 

Net Outlays $ (69) $ 2,860,162 $ 2,736,644 $ 200,296 $ (19,137) $ (52,771) $ 7,369,971 

Outlays

Disbursements $ 36 $ 2,860,162 $ 2,900,203 $ 204,339 $ 56,429 $ 263,472 $ 13,951,695 

Collections, net of offsetting receipts (105) - (163,559) (4,043) (75,566) (316,243) (6,581,724) 

Net Outlays $ (69) $ 2,860,162 $ 2,736,644 $ 200,296 $ (19,137) $ (52,771) $ 7,369,971 

U. S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

Schedule of Budgetary Resources by Major Fund Type

As of September 30, 2002

Federal Aviation Administration FY 2003 Performance and Accountability Report
ADMINISTRATIVE SERVICES FRANCHISE FUND 

Background 

Public Law 104-205, “Department of Transportation and Related Agencies Appropriation Act, 

1997”, authorized the FAA to establish an Administrative Services Franchise Fund (Franchise Fund). 

The franchise fund is designed to create competition within the public sector in the performance of 

a wide variety of support services. It allows for the establishment of an environment to maximize 

the use of internal resources through the consolidation and joint-use of like functions and the 

recognition of economies of scale and efficiencies associated with the competitive offering of 

services to other Government agencies.

Objective 

The objective of the Franchise Fund is to enhance the support provided to the core programmatic 

mission functions within FAA. Benefits of the franchise fund are derived incrementally over time 

through efficiencies and economies of scale associated with development of partnerships and

consolidation of like functions plus the addition of new customers. Efforts in the franchise are 

directed toward identifying the most efficient and cost effective methods to provide support 

services, and this is consistent with the current Presidents’ Management Agenda initiative relating 

to competitive sourcing. 

Services 

The Franchise Fund offers a wide variety of services. These include accounting, payroll, travel, 

duplicating, multi-media, information technology, logistics and material management, aircraft 

maintenance and international and management training. The Franchise Fund’s major customers 

are FAA Line of Business Programs as shown on the consolidated Statement of Net Cost. Other 

customers include DOT entities, non-DOT government agencies, and other countries. 

Federal Aviation Administration 101

FY 2003 Performance and Accountability Report
2003 2002

Assets

 Intragovernmental

 Fund Balance with Treasury $ 170,862 $ 127,297

 Accounts Receivable, Net 1,165 2,676

 Other 13 -

 Total Intragovernmental Assets 172,040 129,973

 Accounts Receivable, Net 2,896 1,914

 Inventory and Related Property, Net 386,886 402,336

 General Property, Plant, and Equipment, Net 1,080 4,011

 Other Assets 5 4

Total Assets $ 562,907 $ 538,238

Liabilities

 Intragovernmental Liabilities:

 Accounts Payable $ - $ 5

 Other Intragovernmental Liabilities 97,780 67,088

 Total Intragovernmental Liabilities 97,780 67,093

 Accounts Payable 7,410 10,380

 Other Liabilities 15,104 16,366

Total Liabilities 120,294 93,839

Net Position Balances:

 Cumulative Results of Operations 442,613 444,399

Total Net Position 442,613 444,399

Total Liabilities and Net Position $ 562,907 $ 538,238

As of September 30

U. S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

FRANCHISE FUND

BALANCE SHEET

Federal Aviation Administration 102

FY 2003 Performance and Accountability Report
2003 2002

Programs

Earned Revenues $ 320,846 $ 284,220

Intragovernmental Costs (321,159) (306,827)

Profit (Loss) $ (313) $ (22,607)

September 30

U. S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

FRANCHISE FUND

STATEMENT OF NET COST

For the Years Ended

Federal Aviation Administration 103

FY 2003 Performance and Accountability Report
2003 2002

Beginning Balance $ 444,399 $ 465,401

Other Financing Sources

Transfers-in/out without reimbursement (8,448) (4,328)

Imputed financing from costs absorbed by others 6,251 5,387

Other 724 6

Total Financing Sources (1,473) 1,065

Profit (Loss) (313) (22,067)

Ending Balance $ 442,613 $ 444,399

Cumulative Results of Operations

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

FRANCHISE FUND

STATEMENT OF CHANGES IN NET POSITION

Federal Aviation Administration 104

FY 2003 Performance and Accountability Report
OTHER ACCOMPANYING INFORMATION

Federal Aviation Administration 105

FY 2003 Performance and Accountability Report
NET COST BY STRATEGIC GOAL AREA 

In an effort to better link actual costs to performance goals, in FY 2002 FAA began presenting a 

supplemental schedule of net cost, in which costs by program are allocated to agency strategic 

goals. In FY 2004, FAA plans to link costs to projects, and projects to goals, to improve 

understanding of the cost associated with FAA mission and programs. 

 Following are net costs for the year ended September 30, 2003 and 2002, allocated to agency 

strategic goals. 

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

CONSOLIDATED SCHEDULE OF NET COST BY STRATEGIC GOAL AREA

For the Year-Ended September 30, 2003

Organizational Homeland

Line of Business Programs Safety Capacity Excellence Security Other Total

Air Traffic Services $ 6,560,007 $ 565,613 $ 450,299 $ 75,119 $ - $ 7,651,038

Regulation & Certification 882,868 2,849 56,292 - - 942,009

Research & Acquisitions 178,936 235,374 22,174 6,438 - 442,922

Airports 766,369 1,533,507 26,124 460,493 - 2,786,493

Commercial Space Transportation 11,250 - 475 - - 11,725

Non Line of Business Programs 

Region and Center Operations and Other - - - - 90,457 90,457

Not Assigned To Programs - - - - 26,692 26,692

Net Cost of Continuing Operations $ 8,399,430 $ 2,337,343 $ 555,364 $ 542,050 $ 117,149 $ 11,951,336

Transferred Operations-Civil Aviation 

Security 14,553 1 - 32,696 - 47,250

Net Cost of Operations $ 8,413,983 $ 2,337,344 $ 555,364 $ 574,746 $ 117,149 $ 11,998,586

Strategic Goal Areas

Federal Aviation Administration 106

FY 2003 Performance and Accountability Report
Federal Aviation Administration 

Organizational Homeland

Line of Business Programs Safety Capacity Excellence Security Other Total

Air Traffic Services $ 6,566,283 $ 552,982 $ 110,411 $ 6,989 $ - $ 7,236,665

Regulation & Certification 923,493 - - - - 923,493

Research & Acquisitions 128,306 318,073 - 68,483 - 514,862

Airports 809,005 1,725,897 - 398,640 - 2,933,542

Commercial Space Transportation 11,361 - - - 11,361

Non Line of Business Programs 

Region and Center Operations and Other 10,932 - - 69,814 215,875 296,621

Not Assigned To Programs - - - - (5,789) (5,789)

Net Cost of Continuing Operations $ 8,449,380 $ 11 2,596,952 $ 0,411 $ 543,926 $ 210,086 $ 11,910,755

Transferred Operations-Civil Aviation

Security 72,186 - - 460,978 - 533,164

Net Cost of Operations $ 8,521,566 $ 11 2,596,952 $ 0,411 $ 1,004,904 $ 210,086 $ 12,443,919

Strategic Goal Areas

U.S. Department of Transportation

CONSOLIDATED SCHEDULE OF NET COST BY STRATEGIC GOAL AREA

For the Year-Ended September 30, 2002

FEDERAL AVIATION ADMINISTRATION

 

 

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FY 2003 Performance and Accountability Report
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FY 2003 Performance and Accountability Report

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Federal Aviation Administration 

FY 2003 Performance and Accountability Report

109

APPENDIX: DEPARTMENT OF TRANSPORTATION MEMORANDUM ON 

TOP MANAGEMENT CHALLENGES 

TOP MANAGEMENT CHALLENGES 

Department of Transportation 

Report Number: PT-2004-006 

Date Issued: December 5, 2003
U.S. Department of 

Memorandum

Transportation

Office of the Secretary 

of Transportation

Office of Inspector General 

Subject: ACTION: DOT’s Top Management Challenges Date: December 5, 2003 

PT-2004-006

From: Kenneth M. Mead 

Inspector General 

Reply to 

Attn. of: J-1 

To: The Secretary 

The Deputy Secretary Designate 

The Office of Inspector General (OIG) has identified 10 top management 

challenges for the Department of Transportation (DOT) for fiscal year (FY) 2004. 

In considering the items for the FY 2004 list, we continue our focus on the 

Department’s key responsibilities for transportation safety and efficiency.1

 

These management challenges are complicated by the current Government and

transportation environment: we have entered a period of deficit spending; trust 

fund revenues are down; program needs are up; and the Department has pending 

reauthorizations in intercity passenger rail, highways, motor carriers, and transit. 

The exhibit to the report compares this year’s list of management challenges with 

the list we published in FY 2003.

In our opinion, the Department is making real progress on most of its management

challenges, either through implementing changes or by developing detailed plans

to do so in the near future. 

The OIG’s list of DOT’s top management challenges for FY 2004 are summarized 

below and presented in greater detail beginning on page 5. This report will be 

incorporated into the DOT Accountability Report, as required by law. 

 1

 We removed items related to the Coast Guard and the Transportation Security Administration, since those agencies

left DOT in 2003. 

Federal Aviation Administration 110

FY 2003 Performance and Accountability Report
2

 

• Highway Safety.2 Taking aggressive action to prevent drivers from obtaining 

Commercial Driver’s Licenses (CDL s) through kickbacks or other fraudulent 

schemes (of the over 40,000 annual highway fatalities, 11 percent involve large 

trucks); strengthening the system used to identify high-risk motor carriers for 

review; implementing the Transportation Recall Enhancement, Accountability, 

and Documentation (TREAD) Act to facilitate proactive identification of 

vehicle safety defects; and continuing to support programs for primary 

enforcement of seat belt laws and prevention of drug-impaired driving (page 5). 

• Aviation Safety. Ensure Federal Aviation Administration (FAA) safety 

oversight keeps pace with industry and economic changes such as significant 

increases in contracting of aircraft maintenance to third parties. Also, there has 

been real progress in the last year on runway incursions (potential collisions on 

the ground), but operational errors (when air traffic controllers allow planes to 

come too close together in the air) continue to increase. Corrective actions are 

imperative to address this ongoing safety problem (page 7). 

• Hazardous Materials Safety and Security. For safety and cost-effectiveness 

reasons, the Department needs to take aggressive steps to coordinate hazardous 

materials (HAZMAT) inspection and enforcement efforts among the modal 

administrations in order to leverage limited HAZMAT inspection resources. 

This would include an education program and inspection/enforcement strategies 

for dealing with a common shipper who causes problems across several of the 

Department’s modes, such as a noncompliant HAZMAT shipment that uses 

motor carrier, rail, and air to move from origin to destination (page 10). 

• Protecting Taxpayer Investments in Highway and Transit Infrastructure 

Projects. Improve the taxpayers’ return on highway and infrastructure 

investments by: imposing meaningful debarment sanctions on firms that 

provide substandard materials or in other ways defraud highway and transit 

infrastructure projects; aggressively fighting motor fuel tax evasion—a drain on 

highway and transit revenues; and strengthening oversight of infrastructure 

projects to ensure they are delivered on-time and within budget. Even if these 

steps result in only a 1 percent savings, they could have a dramatic impact on 

the taxpayers’ bottom line. For instance, if the efficiency with which the 

Federal Government and the states invested $700 billion in highway projects 

2

 We removed the related item from last year’s list on “Ensuring Highway Safety as the Southern Border Is Opened 

to Mexican Motor Carriers Under the North American Free Trade Agreement.” The Department geared up 

sufficiently to provide safety oversight at the border, but then the border opening was delayed pending completion 

of an Environmental Impact Statement (EIS) and a Clean Air Act analysis being done as a result of an order by the 

Ninth Circuit Court of Appeals. Additionally, the Department of Justice filed a certiorari petition seeking 

Supreme Court review of the Appeals Court decision. We took this item off the top management challenges list 

because there is little the Department can do to address this matter until completion of the EIS and the Clean Air 

Act analysis and resolution of the legal issues. 

Federal Aviation Administration 111

FY 2003 Performance and Accountability Report
3

 

over the last 6 years had been improved by only 1 percent, an additional 

$7 billion would have been made available—enough to fund 8 of the 15 active 

major highway projects (page 12). 

• Improve Fiscal Discipline at FAA. FAA plans to address cost growth in 

operations and fundamental problems in major acquisitions. These actions are 

urgently needed, given an expected multi-billion-dollar decline in Aviation 

Trust Fund revenues. Continued salary increases on the scale experienced over 

the last few years are simply unsustainable in light of these revenue losses. The 

budget situation also makes it imperative that FAA act promptly to address 

fundamental weaknesses in its modernization acquisitions. Of the 20 major 

acquisitions we reviewed, 13 projects experienced schedule slips of 1 to 7 years 

and 14 projects experienced cost growth of over $4.3 billion—significantly 

more than FAA’s entire FY 2004 request for modernization (page 15).

• Intercity Passenger Rail. DOT and Congress have required much greater 

financial accountability from Amtrak this year. However, Amtrak’s 

authorization expired over a year ago. Without a new structure for the 

governance of intercity passenger rail agreed to by the interested parties, 

Amtrak will continue the status quo limp-along system that is financially 

dysfunctional and fails to satisfy mobility needs in corridors between city pairs. 

The Administration currently has a reauthorization proposal on Capitol Hill; 

however, achieving agreement among the Administration, the Congress, the 

states, and other interested parties on a final reauthorization measure is a 

tremendous challenge only partly under DOT’s control (page 19).

• MARAD Loan Guarantee Program. The Maritime Administration 

(MARAD) is in the process of implementing a series of recommendations we 

made to the Secretary and the Congress on how best to minimize financial loss 

to the Government from MARAD’s $3.8 billion Title XI Loan Guarantee 

Program, which is designed to assist private companies in obtaining financing 

for the construction of ships or the modernization of U.S. shipyards. Congress 

has linked MARAD’s ability to issue further guarantees to its successful 

implementation of our recommendations (page 21).3

• Financial Accountability. There has been progress in the last year in this area, 

but DOT still has a long way to go to strengthen three important financial 

management activities. First, DOT needs to free up millions in inactive 

3

In the FY 2003 list, we removed the item related to MARAD’s disposal of obsolete vessels. MARAD has made 

progress in contracting for the disposal of obsolete vessels from the National Defense Reserve Fleet; however, 

environmental concerns and legal proceedings have hindered these efforts. If these concerns are not resolved and 

additional progress is not made in meeting the legislative mandate to dispose of obsolete vessels by the end of 

FY 2006, we will consider including this issue as a top management challenge in the FY 2005 report. 

Federal Aviation Administration 112

FY 2003 Performance and Accountability Report
4

obligations or idle funds, especially at the Federal Highway Administration 

(FHWA). Second, improve oversight of cost-reimbursable contracts which 

have few inherent protections against cost overruns. Third, complete 

implementation of the new Delphi financial management system, which will 

enable DOT to strengthen financial controls and generate reliable financial 

reports (page 23). 

• Disadvantaged Business Enterprise Program. The Disadvantaged Business 

Enterprise (DBE) Program suffers from a high level of fraud and abuse as well 

as significant gaps in the Department’s oversight. We are currently 

investigating 40 DBE fraud schemes in 19 states. Over the last 5 years, our 

DBE investigations have resulted in 29 convictions. We have also found areas 

where the DBE regulations need strengthening. For instance, the DBE 

regulations covering airport concessions need to prescribe a personal net worth 

limit for the owner of a DBE. The Secretary established a senior level DBE 

task force this year, but the task force must now make tangible and prompt 

progress in strengthening the DBE Program (page 26). 

• Information Technology Management. This past year, the Department made 

progress in protecting its critical Information Technology (IT) systems against 

Internet intrusions. However, DOT is still behind in securing individual 

systems and must do more to protect critical IT systems (especially air traffic 

control systems) from attack and enhance contingency planning to ensure 

business continuity in an emergency. In addition, DOT must strengthen its new 

Investment Review Board to improve the Board’s ability to oversee high-risk 

modal IT acquisitions and maximize returns on the Department’s $2.7 billion in 

annual IT investments (page 28). 

Another area we wish to mention is the issue of human resources management. In 

the coming year, the Department’s senior management needs to consider whether 

it will be at serious risk of not being able to recruit and retain top talent. Our 

concern is based not only on the large percentage of DOT staff expected to retire 

or reach retirement eligibility in the next few years, but the fact that none of the 

DOT agencies, except FAA, have personnel rules and pay flexibility that have 

been granted to the Department of Homeland Security and the Department of 

Defense. This may place DOT at a disadvantage at the very time the Department 

is expected to lose large numbers of experienced staff and needs to recruit top 

talent to replace them. 

If you have any questions concerning this report, please call me at (202) 366-1959; 

Todd J. Zinser, my Deputy, at (202) 366-6767; or Alexis M. Stefani, Principal 

Assistant Inspector General for Auditing and Evaluation, at (202) 366-1992. 

Federal Aviation Administration 113

FY 2003 Performance and Accountability Report
7

2 Aviation Safety. Ensure Federal Aviation Administration (FAA) 

safety oversight keeps pace with industry and economic changes 

while maintaining a focus on long-standing safety issues. 

The U.S. aviation industry continues to be the safest in the world, with only 

one commercial accident occurring in the past year. However, FAA must adjust

its safety oversight to emerging trends in the aviation industry and changing 

economic conditions. Also, there has been real progress in the last year on runway 

incursions (potential collisions on the ground), but operational errors (when air 

traffic controllers allow planes to come too close together in the air) continue to 

increase. Corrective actions are imperative to address this ongoing safety 

problem.

Repair Station Oversight Needs to Be Enhanced. In a July 2003 report, we 

identified three ways that FAA needs to enhance its inspections of airline 

maintenance. 

• While air carriers have turned increasingly to outside, contracted repair 

stations, FAA continues to focus its inspection resources on air carriers’ 

in-house maintenance work. Air carriers have outsourced portions of their

maintenance work for years, but this practice has recently become more 

pronounced. While major air carriers outsourced 37 percent of their aircraft 

maintenance expense in 1996, the amount spent on outsourced maintenance

increased to 47 percent of maintenance costs in 2002. Yet, over 90 percent of 

FAA’s inspections are still focused on in-house maintenance—leaving contract

repair stations inadequately reviewed. In response to our audit, FAA agreed to 

develop a new process to identify repair stations that air carriers use to perform 

safety-critical repairs and target inspector resources to those facilities. 

• Although widely used by some air carriers, some FAA-certified foreign repair 

stations are not inspected by FAA inspectors at all because other civil aviation 

authorities review these facilities on FAA’s behalf. This arrangement helps 

prevent duplicative inspections and reduce the financial burden on foreign 

repair stations. However, in 14 of 16 (88 percent) files we reviewed, we found 

that foreign inspectors did not provide FAA with sufficient information to 

determine what was inspected, what problems were found, and how they were 

corrected. This occurred because FAA had not implemented adequate 

oversight procedures for ensuring the quality of inspections conducted on its 

behalf. FAA has agreed to conduct follow-up reviews with the three foreign

aviation authorities conducting inspections on its behalf and develop a 

procedure to verify that the authorities place adequate emphasis on FAA 

regulations when conducting their inspections. 

Federal Aviation Administration 114

FY 2003 Performance and Accountability Report
8

• Our review of repair stations disclosed weaknesses in repair station operations 

at 18 of the 21 (86 percent) facilities we visited. For example, we identified 

repair stations that did not: (1) use the parts required by the maintenance

manual; (2) properly calibrate tools and equipment; (3) have information on 

file to show that mechanics approving completed repairs were qualified to do

so; or (4) correct deficiencies previously identified by FAA inspectors. These 

weaknesses went undetected by FAA surveillance because of the weaknesses 

in FAA’s oversight structure and the process inspectors used during repair 

station inspections. In response to our audit, FAA agreed to develop a more

comprehensive approach to repair station surveillance. 

When implemented, FAA’s proposed changes to address our audit findings should 

enhance its oversight of aircraft repair stations. The key will be follow-through. 

Figure 1. Operational Errors 

FY 1998—FY 2003 

1,186

1,061

1,194

1,145

941

885

0 200 400 600 800 1,000 1,200 1,400

**FY 2003

FY 2002

FY 2001

FY 2000

FY 1999

FY 1998

Rate*

5.6

5.7

6.8

7.4

6.7

* Rate is per 1 million air traffic operations.

** FY 2003 numbers are preliminary and will be finalized in January 2004.

7.6

FAA Must Reduce the Number of Operational Errors. Operational errors (when 

air traffic controllers allow planes to come too close together in the air) pose a

significant safety risk, with 

an average of 

three operational errors per 

day and one serious error 

every 7 days. In FY 2003,

the number of operational 

errors increased 12 percent 

to 1,186, or 125 more than 

the number of incidents that 

occurred in FY 2002, as 

shown in Figure 1. Further, 

the most serious errors 

(those in which a collision 

was barely averted) 

increased 25 percent, from 

44 in FY 2002 to 55 in 

FY 2003. Moreover, the 

system FAA uses to rate errors may understate the number of serious errors that 

occur. FAA classifies the seriousness of operational errors as high, moderate, or 

low. However, we found that errors FAA classified as moderate could result in 

catastrophic consequences. For example, FAA rated one error as moderate that

was less than 12 seconds from a midair collision. 

FAA needs to ensure that air traffic controllers who make operational errors 

receive training. FAA also should closely evaluate the impact of its 

Controller-in-Charge (CIC) Program on the increase in operational errors. 

Operational errors that occurred while a CIC was on duty increased 43 percent 

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from 174 in FY 2002 to 248 in FY 2003. Finally, FAA must modify its rating

system to more accurately identify the most serious operational errors, focus on 

reducing them, and ensure that controllers receive the appropriate training after 

they have experienced a high risk error. 

In response to our April 2003 report, FAA agreed to re-evaluate its severity rating 

system for operational errors. However, to date, FAA has not completed that 

evaluation. FAA also agreed to take steps to more closely monitor its CIC 

Program, improve its oversight of regional efforts to reduce operational errors, and 

provide training to controllers. 

Figure 2. Runway Incursions 

FY 1998—FY 2003 

405

324

339

 329

304

407

0 100 200 300 400 500

**FY 2003

FY 2002

FY 2001

FY 2000

FY 1999

FY 1998

Rate*

4.7

4.8

5.9

6.2

5.2

* Rate is per 1 million tower operations.

* FY 2003 numbers are preliminary and will be finalized in January 2004.

5.2

FAA Must Continue to Reduce Runway Incursions. For the second year in a 

row, runway incursions (potential collisions on the ground) continued to 

decline, from 339 in FY 2002 to 324 in FY 2003, as shown in Figure 2. FAA also 

reduced the number of close calls 

(those runway incursions in the 

2 highest categories) from 37 in 

FY 2002 to 32 in FY 2003. While 

this represents significant progress, 

there is still an average of almost 

one runway incursion per day and an 

average of one close call every 

11 days. 

*

In view of the potential loss of life 

in a runway accident, FAA must 

continue its aggressive approach to 

reduce runway incursions.

Specifically, FAA needs to follow 

through on its plans to train pilots to avoid runway incursions and use technology

to warn pilots and controllers of potential incidents. 

For further information, the following reports and testimonies can be seen on 

the OIG web site at http://www.oig.dot.gov: 

• Review of Air Carriers’ Use of Aircraft Repair Stations 

• Operational Errors and Runway Incursions: Progress Made, but the Numbers 

of Incidents is Still High and Presents Serious Safety Risks 

• Air Transportation Oversight System 

• FAA Oversight of Passenger Aircraft Maintenance 

• Oversight of FAA’s Aircraft Maintenance, Continuing Analysis and 

Surveillance Systems 

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5 Improve Fiscal Discipline at FAA. Controlling operations cost 

growth and addressing fundamental problems with major 

acquisitions. 

FAA’s FY 2005 authorization of $14.6 billion currently exceeds estimated

Aviation Trust Fund FY 2005 revenues by $3.5 billion. Over the next 4 years, the 

Fund is expected to collect about $12.5 billion less in taxes than was anticipated in 

April 2001. Within this context, it is imperative that FAA contain the trend of

continued cost growth in its operations and address long-standing and fundamental

problems with major acquisitions. 

Abating Operating Cost Growth. FAA’s operations budget, which primarily 

covers salaries, has increased from $4.6 billion in FY 1996 (the first year of 

personnel reform) to $7.7 billion requested for FY 2005, a 67 percent increase. 

Given the substantial decline in Aviation Trust Fund revenues, a sizeable 

challenge for the Agency will be to manage within an operating budget that is 

relatively flat. For instance, the $7.7 billion requested for FY 2005 operations 

represents an increase of $141 million over FY 2004 levels; however, estimated 

pay increases for FY 2005 alone are expected to be nearly $180 million. 

Further, within the proposed $7.7 billion, FAA will incur additional costs to hire 

and train new controllers as the Agency begins to address the anticipated wave of 

controller retirements. FAA estimates that about 7,100 controllers could leave the 

Agency by the end of 2012. A key challenge for FAA will be to reduce the time 

and cost required to train new controllers—in some cases this process can take up 

to 7 years. FAA will also need to renegotiate existing work rules that allow some 

newly hired controllers to earn base salaries of up to $94,000 while in training. 

To abate the growth in operating costs, FAA needs to have both its cost 

accounting and labor distribution systems in place and operating effectively, and it 

needs to renegotiate memorandums of understanding (MOUs) between FAA and 

labor that have extensive cost implications. 

• FAA must have its cost accounting system in place and operating effectively to 

accurately know when and where costs are incurred. FAA also needs an 

accurate labor distribution system to track the costs and productivity of its 

workforces. An accurate labor distribution system is critical for determining 

how many controllers FAA will need and where they are needed—information 

that is particularly important in light of the pending wave of controller 

retirements. FAA is planning on implementing a labor distribution system

called CRU-X for the Air Traffic line of business (FAA’s largest workforce). 

However, in September 2002, FAA entered into an MOU with the controllers’ 

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union that eliminated many of the system’s internal controls and severely 

limited the system’s ability to track employee productivity. In our 

June 3, 2003 assessment of FAA’s cost accounting system, we cited the lack of 

those fundamental procedures as a serious internal control weakness. In 

response, FAA agreed to implement satisfactory internal controls for CRU-X

and has begun correspondence with the controllers’ union to reopen

negotiations concerning the CRU-X MOU. The new Chief Operating Officer 

(COO) for the Air Traffic Organization has committed to putting FAA’s cost 

accounting and labor distribution systems in place. 

• FAA will also need to address provisions of MOUs with labor that have 

extensive cost implications. In our September 2003 report “FAA’s 

Management and Controls Over MOUs,” we found that under the flexibility of 

personnel reform, FAA managers and union representatives entered into 

numerous memorandums of understanding that had substantial cost 

implications, but managers had not adequately considered the impact on future 

budgets. For example, one MOU we reviewed provides controllers with a 

cost-of-living differential of between 1 and 10 percent that is in addition to 

Government-wide locality pay. In FY 2002, this additional premium pay cost 

FAA over $35 million. In response to our audit, FAA implemented new 

controls over its MOU processes, and is currently in negotiations with the 

controllers union to modify or rescind several problematic MOUs identified 

during our audit. 

Addressing Fundamental Problems in Major Acquisitions. In June 2003, we 

reported that of 20 major acquisitions reviewed, 13 projects had experienced 

schedule slips of 1 to 7 years, and 14 projects had experienced cost growth of over 

$4.3 billion (increasing from $6.8 billion to $11.1 billion). This growth represents 

significantly more than FAA’s FY 2004 $2.9 billion request for modernization. 

Continued growth of this magnitude is unsustainable, given the multi-billiondollar declines in projected Aviation Trust Fund receipts and the projected fund 

levels authorized in FAA’s Facilities and Equipment account, which will remain

essentially flat ($3 billion to $3.1 billion range) for FYs 2004 to 2007. 

Table 1 provides cost and schedule information on three projects largely managed 

since FAA was granted acquisition reform in 1996. Cost and schedule problems 

with modernization efforts have serious consequences because they result in costly

interim systems, a reduction in units procured, postponed benefits (in terms of 

safety and efficiency), or crowding out other modernization projects. 

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Table 1. Cost and Schedule Growth 

in Three Major Modernization Programs 

Program 

Estimated 

Program Costs

(Dollars in Millions)

Percent 

Cost 

Growth 

Implementation 

Schedule

Schedule

Delay 

Original Current Original Current

Wide Area Augmentation 

System (WAAS)

$892.4 $2,922.4* 227% 1998-2001 2003-TBD** 5 years

Standard Terminal

Automation Replacement 

System (STARS) 

$940.2 $1,690.2 80% 1998-2005 2002-2012** 7 years

Local Area Augmentation 

System (LAAS)

$530.1 $696.1 31% 2002-TBD 2006-TBD** 4 years

* This includes the cost to acquire geostationary satellites.

** TBD—To Be Determined (costs and schedules are under review).

Our work has identified a number of systemic problems of major acquisitions that 

will require sustained management attention. These problems include: 

committing to major acquisitions and entering into cost-reimbursable contracts 

before user needs and requirements are fully understood; misleading and 

unreliable cost and schedule estimates; lack of centralized control over

acquisitions and lack of basic contract oversight; lack of performance measures for 

assessing progress; and not holding managers and contractors accountable for cost 

growth and schedule slips. We have seen positive signs that the FAA 

Administrator and the COO are committed to making changes—the key will be 

follow through. 

Additionally, FAA is beginning new, costly, and complex programs while still 

funding programs that are significantly behind schedule. This stretches out

program schedules, impacts other efforts, and has cash-flow implications for the 

entire modernization account. One new effort is the En Route Automation 

Replacement (ERAM) Program, which provides new hardware and software for 

facilities that manage high altitude traffic. Another new project is the Next

Generation Air-to-Ground Communications (NEXCOM) Program, which will 

provide new radios and related systems to transition to digital communications. 

Together, ERAM and NEXCOM are estimated to cost more than $3 billion. 

Any cost increases with these programs will have a cascading effect on other 

efforts and limit FAA’s flexibility to begin other projects. FAA will need to watch 

this situation and may have to rearrange priorities, modify contract instruments, 

and modify requirements. 

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For further information, the following reports and testimonies can be seen on 

the OIG web site at http://www.oig.dot.gov: 

• FAA’s Management of Memorandums of Understanding with the National Air 

Traffic Controllers Association 

• FAA Needs to Reevaluate STARS Costs and Consider Other Alternatives 

• Status of FAA’s Major Acquisitions 

• Cost Control Issues for the Federal Aviation Administration’s Operations and 

Modernization Accounts 

• FAA’s National Airspace System Implementation Support Contract 

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8 Financial Accountability. Build on financial management 

progress in the last year by freeing up hundreds of millions of 

dollars in idle funds, improving oversight of billions of dollars in

cost-reimbursable contracts, and fully implementing the new 

Delphi financial management system. 

There has been progress in the last year in this area, but DOT still has a long way 

to go to strengthen three important financial management activities. First, DOT 

needs to free up millions in inactive obligations or idle funds, especially at the 

Federal Highway Administration. Second, improve oversight of cost-reimbursable 

contracts, which have few inherent protections against cost overruns. Third, 

complete implementation of the new Delphi financial management system, which 

will enable DOT to strengthen financial controls and generate reliable financial 

reports. 

DOT must identify and deobligate hundreds of millions of dollars that have sat 

idle on completed, canceled, or modified projects, and use those funds

productively on active projects. In FY 1999, we identified $672 million of 

inactive obligations that were no longer needed or valid. In FY 2001, we 

identified $293 million, including $238 million in FHWA. (Our current audit 

work indicates that this problem continues.) For example, we found one case 

where $25.5 million sat idle for 10 years on a project to build a garage, even 

though the state decided not to build the garage years earlier. We have repeatedly 

recommended that FHWA aggressively identify funds that can be deobligated 

from completed or canceled projects, and redeploy those funds to active projects. 

This is especially important in this time of tight budget constraints. 

DOT must significantly strengthen—especially at FAA—management of 

billions of dollars in cost-reimbursable contracts, which have few inherent 

protections against cost overruns. In FY 2002’s Financial Statement Audit 

report, we reported that FAA’s management of cost-reimbursable contracts was

deficient, lacked accountability, and did not adequately protect against fraud, 

waste, and abuse. Our audits have found that FAA officials did not: (1) obtain 

audits of billions of dollars in expenditures on cost-reimbursable contracts; 

(2) ensure that reliable Government cost estimates were prepared and used in 

evaluating contracts; (3) ensure that contractor employees were qualified to do the 

work; and (4) properly account for billings and expenditures to prevent 

overpayments. 

Although FAA has taken some steps to improve its contract management, it has 

not yet implemented all our recommendations, including obtaining necessary 

interim and final audits of costs incurred for large contracts. Without these basic 

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management practices, FAA will not be in a position to monitor and control costs 

over the life of these contracts or ensure that the Government does not pay for 

unallowable costs. 

Congress is also concerned about FAA’s performance in this area and, in 

FY 2001, required FAA “to request the DCAA [Defense Contract Audit Agency] 

audits on all acquisition contracts in excess of $100,000,000, and audits on at least

15 percent of all contracts under $100,000,000”. However, our work as of 

November 2003 shows that FAA has requested audits for only 15 of 33 contracts 

that FAA identified as being over $100 million—leaving over $8 billion of 

existing cost-reimbursable contracts over $100 million unaudited. 

DOT must successfully convert all accounting operations to the new Delphi 

financial system and use the system to strengthen financial controls and 

generate reliable financial reports. In order to produce audited financial 

statements in time to meet the Office of Management and Budget’s (OMB)

accelerated deadline of November 15, 2004, FAA must complete the transition

and evaluate the effectiveness of its recent conversion to Delphi. A flawed FHWA 

conversion this year means that DOT is now undertaking heroic efforts to meet the 

current January 2004 deadline for issuing audited financial statements. Next year, 

Delphi will have to produce reliable statements (including for FAA), without 

massive manual adjustments, for DOT to meet OMB’s accelerated deadline. 

As part of Delphi implementation, DOT needs to strengthen financial controls to

ensure that funds are only spent for authorized uses and within appropriation limits

set by Congress. During the last year, we reported three separate instances where

DOT officials diverted a total of more than $612 million to unauthorized uses. In

two cases, the diversions resulted in Antideficiency Act violations. While the 

largest portion of these diversions occurred over 20 years ago and none of the 

funds were diverted for personal use, and although senior DOT officials acted 

aggressively to deal with the problems, the existence of multiple fund diversions

proves the need for more effective financial management controls. 

DOT has set a goal date and the modal administrations must make significant 

strides to implement cost accounting systems, with appropriate labor distribution 

processes. Such systems will enable DOT modes to more effectively measure the 

performance of their programs, thus allowing DOT to identify inefficient 

activities, reduce costs, and increase productivity. Cost accounting and labor 

distribution systems are key to FAA’s successful implementation of its new Air

Traffic Organization. These systems are fundamental tools for the new

organization to accurately measure the efficiency of its programs and the

productivity of its workforce. During the last 3 years, we have issued annual 

reports on FAA’s cost accounting system and the system implementation progress. 

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We cited problems with the treatment of costs, the lack of a labor distribution 

system, and the need to interface the cost accounting system with the new Delphi

financial accounting system. The FAA Administrator has made correcting these 

deficiencies a top priority. Successful implementation of these cost accounting 

systems—crucial to gauging and lowering FAA operations costs and dealing with 

other financial challenges facing the Department—must not be further delayed. 

For further information, the following reports and testimonies can be seen on 

the OIG web site at http://www.oig.dot.gov: 

• Inactive Obligations, DOT, September 1999 

• Inactive Obligations, FHWA, September 2001 

• DOT Consolidated FY 2001 Financial Statements 

• DOT Consolidated FY 2002 Financial Statements 

• Implementing a New Financial Management System 

• Oversight of Cost-Reimbursable Contracts, FAA 

• 2002 Status Assessment of Cost Accounting System and Practices 

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GLOSSARY OF ACRONYMS 

A 

ACSI American Customer Satisfaction Index 

AFSS Automated Flight Service Station 

AIP Airport Improvement Program 

ATO Air Traffic Organization 

ATS Air Traffic Services 

C 

CFO Chief Financial Officer 

CPIC Capital Planning and Investment Control 

D 

DELPHI Financial Management System 

DOC Department of Commerce 

DOD Department of Defense 

DOT Department of Transportation 

E 

ERAM En Route Automation Modernization 

F 

F&E Facilities and Equipment 

FAA Federal Aviation Administration 

FFMIA Federal Financial Management Improvement Act of 1996 

FITS FAA/Industry Training Standards Program 

FMFIA Federal Managers’ Financial Integrity Act of 1982 

FY Fiscal Year 

G 

GA General Aviation 

GAO General Accounting Office 

GPEA Government Paperwork Elimination Act 

GPS Global Positioning System 

I 

INFOCON Information Operations Condition 

IT Information Technology

L 

LMS Learning Management System 

N 

NASA National Aeronautics and Space Administration 

NTSB National Transportation Safety Board 

O 

OEP Operational Evolution Plan 

OIG Office of the Inspector General, Department of Transportation 

OMB Office of Management and Budget 

OTA Department of the Treasury’s Office of Tax Analysis 
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FY 2003 Performance and Accountability Report

125

P 

PART Program Assessment Rating Tool 

PMA President’s Management Agenda 

PP&E Property, Plant, and Equipment 

PRISM Acquisition System 

R 

R,E&D Research, Engineering and Development 

RNP Required Navigation Performance 

S 

STARS Standard Terminal Automation Replacement System 

T 

TRACON Terminal Radar Approach Control 

TSA Transportation Security Administration 

U 

URET User Request Evaluation Tool 

W 

WARP Weather and Radar Processor 

WAAS Wide Area Augmentation System 

INTERNET LINKS 

Federal Aviation Administration: www.faa.gov

FAA Offices: http://www1.faa.gov/aboutfaa/Organizations.cfm

FAA Regional Offices and Center: http://www1.faa.gov/aboutfaa/Regional.cfm

FAA Operational Evolution Plan (OEP): www1.faa.gov/programs/oep

National Transportation Library: http://ntl.bts.gov

U.S. Department of Transportation: www.dot.gov

ACKNOWLEDGMENTS 

This FY 2003 Performance and Accountability Report is a collaborative endeavor on the part of many 

FAA employees and contractors. We would like to acknowledge and thank them for their hard work and 

commitment in successfully preparing this report and in supporting the audit of the financial 

statements. 
Federal Aviation Administration 

FY 2003 Performance and Accountability Report

126

WE WELCOME YOUR COMMENTS!

Thank you for your interest in FAA’s FY 2003 Performance and Accountability Report. We welcome your 

comments on how we can make this report more informative for our readers. Please send your 

comments to 

Office of Financial Management, AFM-1 

Federal Aviation Administration 

800 Independence Avenue, SW 

Washington, DC 20591 

E-mail address: Susan.Lee@faa.gov 

Fax number: (202) 267-5271 

This report is also available on the FAA website at 

www1.faa.gov/aba/html_fm/files_pdf/2003_PAR.pdf 

Prior year Performance and Accountability Reports are available at 

www1.faa.gov/aba/html_fm/finst.html
U.S. DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

800 Independence Avenue, SW

Washington, DC 20591

www.faa.gov

An electronic copy of this document is available at http://www1.faa.gov/aba/html_fm/files_pdf/2003_PAR.pdf.

For copies of previous years' Performance and Accountability Reports, you may access http://www1.faa.gov/aba/html_fm/finst.html.