i

FEDERAL AVIATION 

ADMINISTRATION 

FY 2005 PERFORMANCE AND ACCOUNTABILITY REPORT 
ii

FAA Regional Map 

 

FAA REGIONAL MAP 
iii

Mission, Vision, & Values 

 

MISSION 

To provide the safest, most efficient aerospace system in the world. 

VISION 

To improve continuously the safety and efficiency of aviation, while being responsive to our 

customers and accountable to the public. 

VALUES 

Safety is our passion. We are world leaders in aerospace safety. 

Quality is our trademark. We serve our country, our customers, and each other. 

Integrity is our character. We do the right thing, even if no one is looking. 

People are our strength. We treat each other as we want to be treated. 

 
iv

FAA At A Glance 

 

 

FAA AT A GLANCE 

Established 1958 

Headquarters 800 Independence Avenue, SW 

Washington, DC 20591 

www.faa.gov 

FY 2005 Budget (Enacted) $13.828 billion 

Total Employees 46,495 

Headquarters 4,106 employees 

Regional Offices 37,755 employees 

Technical Center 

Atlantic City, NJ

1,244 employees 

Aeronautical Center 

Oklahoma City, OK

3,390 employees 

Passengers – U.S. Carriers 733.7 million (estimate) 

Tower Operations 63 million arrivals and departures (estimate) 
v

Foreword 

FOREWORD 

The Federal Aviation Administration (FAA) is required by directives from the Office of Management and 

Budget (OMB), which implements the Chief Financial Officers Act of 1990 (CFO Act), to prepare financial 

statements separate from those of the Department of Transportation (DOT), of which FAA is a part. FAA is 

not required to prepare a separate Performance and Accountability Report (PAR). Instead, key FAA data and 

information are provided to DOT and consolidated into the required DOT PAR. 

We recognize, however, that to demonstrate accountability, we should present performance, management, 

and financial information using the same statutory and guidance framework. To demonstrate that 

accountability, for the past several years we have elected to produce our own PAR. In some cases, however, 

we may depart from the format required of CFO Act agencies. 

Last year, we were proud to receive our second consecutive Association of Government Accountants’ 

prestigious Certificate of Excellence in Accountability Reporting award. This award is indicative of the 

progress we have made in reporting financial and program performance and in candidly assessing our results. 

In our effort to become a more results-oriented organization, we will continue to focus on performance and 

financial accountability and do our part to help DOT and the Federal Government excel in providing highquality services and products to the taxpayers we serve. 

 
vi

Table of Contents 

TABLE OF CONTENTS 

FAA REGIONAL MAP ................................................................................................................................................ ii 

MISSION, VISION, & VALUES STATEMENTS.............................................................................................. iii

FAA AT A GLANCE...................................................................................................................................................... iv

FOREWORD................................................................................................................................................................... v 

A MESSAGE FROM THE ADMINISTRATOR................................................................................................. 1

MANAGEMENT’S DISCUSSION AND ANALYSIS ....................................................................................... 3 

FAA Organization Chart.................................................................................................................................... 4 

A Year in Highlights........................................................................................................................................... 5 

Integrating Performance and Financial Information ............................................................................... 6 

 Efficiency and Cost-Effectiveness.................................................................................................................. 6 

 Alignment of FAA Costs and Goals .............................................................................................................. 9 

Risks & Trends..................................................................................................................................................... 10 

Performance Highlights .................................................................................................................................... 10 

 Managing Performance..................................................................................................................................... 10 

 FAA FY 2005 Performance at a Glance ...................................................................................................... 12 

 Verification & Validation of Performance Information ............................................................................. 14 

 President’s Management Agenda................................................................................................................... 14 

 FAA Accomplishments.................................................................................................................................... 15 

 FY 2005 Management Challenges .................................................................................................................. 16 

 Ensuring Aviation Safety in a Changing Environment............................................................................... 16 

 Aviation Capacity and Mitigating Delays....................................................................................................... 18 

 Reducing Fraud.................................................................................................................................................. 18 

 Delivering Air Traffic Control Services & Fielding New Equipment 

 While Controlling Costs............................................................................................................................. 19 

 Financial Management...................................................................................................................................... 20 

 Secure and Cost Effective IT Investment..................................................................................................... 20 

 FY 2006 Management Challenges .................................................................................................................. 21 

 DOT Management Challenges ....................................................................................................................... 21 

 Management Integrity: Controls and Compliance................................................................................... 21

 Grants Management Policies and Practices................................................................................................ 22

Financial Highlights........................................................................................................................................... 22

 Financial Management Plans........................................................................................................................... 22 

 Improper Payments Information Act of 2002 ............................................................................................ 23 

 Discussion and Analysis of the Financial Statements ................................................................................. 23 

 FY 2005 Financial Statement Audit ......................................................................................................... 23 

 Understanding the Financial Statements ................................................................................................. 24 

 Balance Sheet ............................................................................................................................................... 24 

 Statement of Net Cost................................................................................................................................ 25 

 Statement of Changes in Net Position..................................................................................................... 26 
vii

Table of Contents 

 Statement of Budgetary Resources........................................................................................................... 27 

 Statement of Financing............................................................................................................................... 27 

 Stewardship Investments ........................................................................................................................... 27 

 Limitations of the Financial Statements........................................................................................................ 28 

 Budgetary Integrity: FAA Resources & How They Are Used.................................................................. 28

PERFORMANCE RESULTS .................................................................................................................................... 30 

Safety........................................................................................................................................................................ 30

 Performance at a Glance.................................................................................................................................. 30 

 Safety Results and Initiatives........................................................................................................................... 31 

 Commercial Air Carrier Fatal Accident Rate .......................................................................................... 31 

 General Aviation Fatal Accidents & General Aviation Alaska Accidents ......................................... 32 

 Runway Incursions...................................................................................................................................... 33 

 Composite Safety Index ............................................................................................................................. 34 

 Commercial Space Launch Accidents...................................................................................................... 34 

 Operational Errors ...................................................................................................................................... 35 

 Safety Risk Management ............................................................................................................................ 36 

 Capacity .................................................................................................................................................................. 36

 Performance at a Glance.................................................................................................................................. 36 

 Capacity Results and Initiatives ...................................................................................................................... 37 

 Average Daily Airport Capacity (35 OEP Airports).............................................................................. 37 

 Average Daily Airport Capacity (8 Metropolitan Areas)....................................................................... 37 

 Annual Service Volume.............................................................................................................................. 38 

 Adjusted Operational Availability............................................................................................................. 38 

 NAS On-Time Arrival................................................................................................................................ 38 

 Noise Exposure ........................................................................................................................................... 39 

 Aviation Fuel Efficiency............................................................................................................................. 40 

 Oceanic En-route Change Requests......................................................................................................... 41 

International Leadership................................................................................................................................... 41

 Performance at a Glance.................................................................................................................................. 42 

 International Leadership Results and Initiatives.......................................................................................... 42 

 Environmental Standards and Practices .................................................................................................. 42 

 Aviation Safety Leadership ........................................................................................................................ 43 

 Bilateral Agreements (Products and Services) ........................................................................................ 43 

 Intellectual and Financial Assistance........................................................................................................ 44 

 Support for ICAO....................................................................................................................................... 44 

 NAS Technologies ...................................................................................................................................... 45 

 Organizational Excellence................................................................................................................................ 45

 Performance at a Glance.................................................................................................................................. 45 

 Organizational Excellence Results and Initiatives ....................................................................................... 46 

 Employee Attitude Survey ......................................................................................................................... 46 

 Cost Control................................................................................................................................................. 46 
viii

Table of Contents 

 Critical Acquisition Budget & Schedule................................................................................................... 47 

 Information Security................................................................................................................................... 47 

 Customer Satisfaction ................................................................................................................................ 48 

 Performance Plans ...................................................................................................................................... 48 

 Cost-Reimbursable Contracts.................................................................................................................... 48 

 Mission Critical Positions........................................................................................................................... 49 

 Flight Plan Targets ........................................................................................................................................ 49 

Completeness and Reliability of Performance Data ................................................................................. 50 

 Commercial Air Carrier Fatal Accident Rate................................................................................................ 50 

 General Aviation Fatal Accidents................................................................................................................... 50 

 Alaska Accidents ............................................................................................................................................... 50 

 Operational Errors............................................................................................................................................ 50 

 Annual Service Volume.................................................................................................................................... 51 

 Adjusted Operational Availability .................................................................................................................. 51 

 NAS On-Time Arrivals.................................................................................................................................... 51 

 Noise Exposure................................................................................................................................................. 51 

 Aviation Fuel Efficiency .................................................................................................................................. 52 

 Employee Attitude Survey (EAS)................................................................................................................... 52 

 Assessing Programs ............................................................................................................................................ 52 

 Program Assessment Rating Tool Reviews .................................................................................................. 52 

 Program Evaluations ........................................................................................................................................ 53 

FINANCIAL STATEMENTS ................................................................................................................................... 55 

 A Message from the Chief Financial Officer ..................................................................................................... 56 

 OIG Quality Control Review ............................................................................................................................... 58 

 Independent Auditors’ Report ............................................................................................................................. 60 

 Financial Statements............................................................................................................................................... 79 

 Notes to the Financial Statements ....................................................................................................................... 84 

 Required Supplementary Stewardship Information..........................................................................................109 

 Required Supplementary Information.................................................................................................................113 

 Administrative Services Franchise Fund......................................................................................................120 

Appendix: Improper Payment Information Act Reporting Details.................................................................125

Glossary of Acronyms ....................................................................................................................................................127 

Internet Links...................................................................................................................................................................130 

Acknowledgments...........................................................................................................................................................130 

We Welcome Your Comments ....................................................................................................................................130

This and prior year reports are available on the FAA website at www.faa.gov/about/plans_reports/ 
1

A Message from the Administrator 

Mike Melvill, SpaceShipOne pilot; Administrator Blakey; Doug Shane, 

SpaceShipOne Director of Flight Operations; and Burt Rutan, president 

of Scaled Composites, stand with SpaceShipOne to celebrate winning the 

Ansari X Prize in October 2004. 

A MESSAGE FROM THE 

ADMINISTRATOR 

This is the safest 3-year period in the history of 

aviation. The challenge for FAA remains not only 

maintaining this superb record, but also advancing our 

efforts to become a performance-based organization. 

This report details our specific achievements in raising 

the bar. Our goal is to pay immediate and continuous 

dividends on the taxpayer’s investment. 

 Safety. Moving passengers safely remains our 

number one priority. In FY 2005, the commercial 

air carrier fatal accident rate dipped to 0.017 fatal 

accidents per 100,000 takeoffs—the equivalent of 

1 fatal accident per 5.9 million flights. The fatal 

accident rate for general aviation remains a 

concern. FAA continues to educate the pilot 

community and deploy new technology to drop 

the numbers. Mistakes made when directing air 

traffic—also known as operational errors—were up in the past year. We are taking actions on a number 

of fronts to improve our performance in FY 2006. For the fourth year in a row, serious runway 

incursions, instances where a plane comes too close to another plane or vehicle on the ground, were 

below the target. 

 Capacity. Long lines on the tarmac are bad news, no matter which side of the counter you’re on. With 

air traffic back to pre-September 11 levels and on track to reach more than 1 billion passengers by 2015, 

FAA continues to make inroads into improving the capacity of the system. In the past 6 years, we have 

opened eight new runways: Philadelphia, Phoenix, Detroit, Cleveland, Denver, Miami, Houston, and 

Orlando. Another eight runway projects will be up and running by 2009. 

 International Leadership. FAA sets the pace for aviation across the globe. We continue to use our 

most important export—safety—as a means to ensure that the global system mirrors our own. The list of 

countries to which we provide support has reached 100. We’re working with the International Civil 

Aviation Organization (ICAO) and Eurocontrol to harmonize safety, efficiency, and technology. We 

increased our technical interactions with China, India, and Brazil, and we plan to open new offices in 

India, South America, and the Middle East in 2006. Our aim is simple: making international air travel safe 

for the American flying public, while enhancing the technical and economic stability of aviation across 

the globe. 

 Aviation for the Next Generation. New types of aircraft are already here. Last year, SpaceShip One 

made the first flights designed to carry passengers into sub-orbit. Newer kinds of small aircraft, 

sometimes called “very light jets,” will soon take to the sky and make air taxis a way of life. FAA must be 

prepared to ensure the safety of the next generation of aviation. 

 Financial Planning. Together with the Department of Transportation and our stakeholders, we are 

addressing the gap between FAA costs and revenues from the airline ticket taxes and fees that support 

our operations. 

 World Class Business Practices. Continuous improvement in our business practices paid off in 

FY 2005 and will continue to benefit aviation and FAA for many years to come. 
2

A Message from the Administrator 

Our mission is to provide the safest, most 

efficient aerospace system in the world. 

We strive to improve continuously 

the safety and efficiency of aviation, 

while being responsive to our customers 

and accountable to the public.

 Competitive Sourcing. In support of the President’s Management Agenda, we awarded an A-76 

sourcing of 58 flight service stations to Lockheed Martin. This is the single largest nonmilitary 

outsourcing initiative in the Federal Government. Since its inception, this initiative is expected to result 

in an estimated savings of $2.2 billion. 

 Labor Agreements. Contract negotiations with FAA’s two largest unions are under way. The National 

Air Traffic Controllers Association and the Professional Airway System Specialists together represent 

more than 22,000 FAA employees. Our goal is to reach new contracts that are both fair and fiscally 

responsible. 

 Organizational Excellence. The Association of Government Accountants (AGA) awarded us a second 

consecutive Certificate of Excellence in Accountability Reporting for our FY 2004 Performance and 

Accountability Report. We were honored to receive the award and are up to the challenge of continued 

improvement posed by AGA. In addition, we received a Gold Award for our FY 2004 Performance and 

Accountability Highlights from the League of American Communication Professionals. This award 

recognized our publication as one of the top annual reports in the country. 

Our FY 2005 Performance and Accountability Report provides a detailed accounting of our service to both the 

flying public and the aviation industry. The financial and performance data contained in this report are 

reliable and complete. We improved our performance this year, attaining 28 out of 31 goals in the areas of 

safety, capacity, international leadership, and organizational excellence. 

For the fifth consecutive year, we achieved an unqualified (clean) opinion from our auditors on our financial 

statements. However, this year we also received a material weakness in the area of timely processing of 

transactions and reconciliation of 

accounts. We have developed a plan 

to address this weakness, which will 

be implemented in phases during 

FY 2006. 

Internally, we assess the vulnerability 

of our programs and systems through 

the Federal Managers’ Financial 

Integrity Act (FMFIA) of 1982. I am 

pleased to report that, taken as a 

whole, the management controls and 

financial management systems in 

effect from October 1, 2004, through 

September 30, 2005, provide reasonable assurance that the objectives of both sections 2 and 4 of FMFIA are 

being met. Management controls are in place and our financial systems conform to Government-wide 

standards. 

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 move America safely and to deliver an exceptional return on the investment on behalf of the 

American taxpayer. 

Marion C. Blakey 

Administrator 

November 8, 2005 
3

Management’s Discussion & Analysis 

MANAGEMENT’S DISCUSSION 

& ANALYSIS 

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

Transportation (DOT), is to provide the safest, most efficient aerospace system in the world. 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. 

These are exciting times for aviation. Micro-jets and unmanned aerial vehicles (UAVs) are taking to the skies. 

Entrepreneurs are working to make space travel fast, reliable, and affordable. These are also challenging times 

for the industry. Fuel costs are on the rise. Low cost carriers now have a 43% share of the market, up from 

30% just 5 years ago. Legacy carriers are struggling financially. FAA must evolve and adapt to the changing 

landscape while continuing to ensure historically unprecedented levels of safety. 

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 moving America safely with the help of dedicated employees at its 

headquarters in Washington, DC, in regional offices, and in facilities around the world. We fulfill our mission 

through four lines of business that work together to create and maintain the world’s preeminent national 

airspace system. These lines of business are 

 Air Traffic Organization (ATO): Responsible for moving air traffic safely and efficiently. The 

customers of this performance-based organization are commercial, private, and military aviation. ATO is 

aligned around the services delivered to these customers. Approximately 36,000 ATO employees provide 

these services—the controllers, technicians, engineers, researchers, and support and management 

personnel whose daily efforts keep the airplanes moving. 

 Aviation Safety (AVS): 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 one 

of the safest modes of transportation in history. 

 Airports (ARP): Provides leadership in planning and developing a safe, secure, and efficient airport 

system; manages the Airport Improvement Program (AIP), which provides grants to State and local 

airport authorities; enhances environmental quality related to airport development; develops standards for 

the design and construction of airport facilities; and establishes regulations for the safe operation of 

commercial service airports and inspects airports for compliance. 

 Commercial Space Transportation (AST): Oversees the safety of commercial space launches and 

regulates the commercial space industry. 
4

Management’s Discussion & Analysis 

FAA’s organization chart shows how the agency is structured to achieve its mission and deliver results.
5

Management’s Discussion & Analysis 

BEYOND 2007 The Trust Fund

The Airport and Airway Trust Fund, which is funded by the 

excise tax on airline tickets, pays a large share of the FAA’s 

operating expenses. This system has worked well for much of 

FAA’s history; however, a troubling gap has grown recently 

between the revenue that comes in and what it costs to run 

the agency. The taxes and fees that support the Trust Fund 

expire in 2007. 

The drop in revenue is due, in large part, to changes in the 

aviation industry. In prior years, higher ticket prices helped 

keep the trust fund solvent, enabling FAA to make investments 

for the future while operating the world’s safest transportation 

system. Competition between low-cost carriers has reduced 

ticket prices dramatically. Because over half of Trust Fund 

receipts come from the 7.5% tax on airline tickets, these lower 

fares decrease Trust Fund revenue—without any 

corresponding reduction in FAA workload. The increased 

workload is further compounded by the addition of next 

generation aircraft—unmanned aerial vehicles and very light 

jets—entering the system. 

The Department of Transportation and FAA are working to 

address the problem. In April 2005, Secretary Norman Mineta 

and FAA Administrator Marion Blakey convened a forum of 

more than 150 leaders from government, industry, and Wall 

Street to discuss the issues and make recommendations. 

Over the coming months, FAA will continue to search for an 

equitable solution by reaching out to our stakeholders to help 

secure a consistent, stable revenue stream that is not tied to 

the price of an airline ticket but rather reflects the actual costs 

of maintaining the safest and most efficient aviation system in 

the world. 

 For More Information: 

www.faa.gov/airports_airtraffic/trust_fund/

A Year in Highlights 

With a workforce of 46,495 professionals and an annual budget of approximately $13.8 billion, FAA operates 

and maintains the complex air traffic control system and the facilities and equipment that support it. More 

than half of the world’s air traffic is managed by 14,540 controllers, who ensure ever-increasing levels of 

safety. We conduct research to improve aviation safety and efficiency and provide grants to improve 3,344 

eligible public-use airports in the United States. FAA also regulates commercial space launch activities to 

ensure public safety. 

Administrator Marion C. Blakey led FAA to a 

number of significant accomplishments in 

FY 2005. Aviation safety continued to improve at 

an impressive pace, and we renewed our pledge 

for constant vigilance to safeguard the flying 

public. As a result, FAA remains on track to meet 

the ambitious goal of reducing commercial air 

carrier fatal accidents by 80% from the 1994–1996 

baseline. We once again introduced new 

technologies to keep passengers safe both in the 

air and on the ground. 

During FY 2005, FAA employees 

 Achieved a record of aviation safety that sets 

the standard for countries throughout the 

world. 

 Managed increased demands on the system 

while working to minimize delays and 

congestion. During the past 6 years, FAA has 

worked with local governments to 

commission eight new runways, which added 

more than 1 million operations (takeoffs and 

landings) at major airports. We are now 

planning for eight new runway projects, 

which will further increase capacity. 

 Began work on proposed legislation for a new 

system for financing the FAA in the future. 

The excise taxes, which go to the Airport and 

Airway Trust Fund, are set to expire in 2007 

without Congressional reauthorization. 

Aviation infrastructure and FAA’s operations 

are funded, in part, by taxes on airline tickets, 

which are deposited in the Airport and 

Airway Trust Fund. Dramatic changes in the 

airline industry have caused a decline in ticket 

taxes and fees, which means less money for FAA. A troubling gap has grown between the revenue that 

comes in and what it costs to run the FAA. The Administrator hosted a Trust Fund Forum to elicit 

public input on reauthorization. FAA then developed and analyzed various options for closing and 

funding the gap. We developed and shared extensive data on who uses different parts of FAA services 

and what it costs to provide the services with the aviation community, who have and will continue to 

provide suggestions for how to shape a new financing system. In FY 2006, we will develop a specific 

legislative proposal for future revenue that is based on detailed cost and activity data and is informed by 

the advice of our stakeholders. 
6

Management’s Discussion & Analysis 

RESPONDING TO KATRINA 

Less than 24 hours after Hurricane Katrina made landfall in 

the Gulf Coast, the FAA mobilized employees and 

equipment and sent them to the hurricane-stricken region. 

Within 72 hours, all airports were open for business, with 

the exception of New Orleans Lakefront Airport, which 

suffered extensive water damage. 

FAA employees supported Operation Air Care—the largest 

airlift operation ever undertaken in the United States. Over 

the course of five days, from September 2–7, nearly 400 

civilian and military aircraft safely evacuated more than 

23,000 people, while delivering much-needed relief 

supplies. 

During that time, Louis Armstrong New Orleans 

International Airport became one of the nation’s busiest 

airports. Guided by FAA air traffic controllers and on-ground 

personnel, 3,300 flights per day—four times the normal air 

traffic levels—were able to safely complete their missions. 

FAA employees continue to work around the clock to staff 

air traffic facilities, repair navigational aids and 

infrastructure, and to provide safety oversight in support of 

ongoing evacuation and relief efforts. 

 For More Information

www.faa.gov/news/disaster_response/

 Continued to transform the system through the Joint Planning and Development Office (JPDO). 

JPDO—a joint venture of FAA, the Departments of Defense, Commerce, Transportation, and 

Homeland Security, the National Aeronautics and Space Administration (NASA), and the White House 

Office of Science and Technology—is a test bed 

for new ideas. During FY 2005, JPDO began 

work on a network-enabled operations (NEO) 

demonstration project. NEO is a 

communications link that will provide a shared 

picture of the National Airspace System (NAS) 

to enhance security and improve 

communications. 

 Sponsored research through FAA’s Center of 

Excellence for Noise and the Environment on 

technologies that will reduce both fuel 

consumption and noise. 

 Continued airport, aircraft, human factors, and 

weather research and development activities, 

which are ensuring aviation safety and 

improving capacity today and for the future. 

 Improved business practices to help control 

costs and increase efficiency, as described in the 

section that follows. 

 Maintained a focus on aviation as a global 

system and worked closely with international 

organizations to seek global solutions to safety, 

routing, procedural, technology, and 

environmental issues. 

 Continued to work 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, we were able to increase system 

capacity, maintain efficiency, and minimize delays. 

Integrating Performance & Financial Information 

Efficiency and Cost-Effectiveness 

Over the past several years, we have made significant progress in making cost control a priority throughout 

the Agency. Our areas of focus include the following. 

Consolidation of staffing and facilities addresses the synergies derived by cross-utilization of resources and 

facilities and the resulting reduction in the unit cost of services. This effort also includes benefits that are 

derived from outsourcing services to obtain cost efficiencies.

The single largest effort by FAA, and the largest nonmilitary outsourcing initiative in the Federal 

Government, involves the A-76 sourcing of 58 flight service stations to Lockheed Martin. This initiative will 

result in a cost savings of over $2.2 billion from 2003 through 2015. Although there are implementation 

costs to complete the switchover, we will start realizing significant savings beginning in FY 2007. 

Consolidation efforts undertaken by FAA include the centralization of all accounting offices. This initiative 

went from concept to reality in 2005 when two regional accounting offices were consolidated into the 

Oklahoma City Finance Center. This effort will ultimately result in payroll savings of $3.5 million per year, 
7

Management’s Discussion & Analysis 

FAA Acknowledged for 

Organizational Excellence 

Citing the FAA’s high priority on cost accounting and the routine 

use of such information in FAA decision making, the Government 

Accountability Office (GAO) removed FAA from its high risk list 

for financial management in January 2005. This endorsement is 

a clear indication that FAA’s cost accounting and financial 

tracking systems are helping to move FAA closer to the 

Administration’s goal for Federal Government agencies to 

become examples of precision and excellence for the public 

sector. 

GAO's recognition of our successful efforts to exert greater 

financial management and control follows a string of recent 

commendations the agency has received for improving overall 

organizational excellence. 

In November 2005, FAA received its fifth consecutive clean 

opinion from our independent auditors based on the audit of our 

financial statements. In recognition of the clean audit, the DOT 

Inspector General noted the FAA’s implementation of more 

disciplined financial management processes over the past 

3 years. 

Also in November, the Association for Strategic Planning 

awarded the prestigious 2004 Richard Goodman Strategic 

Planning Award to FAA for Flight Plan 2004–2008. The not-forprofit professional association honored FAA for its ability to 

enable individuals and organizations to succeed through 

strategic thinking, planning, and action.

which will begin accruing in FY 2007. In addition to accounting operations, travel processing and human 

resource support operations have also been centralized. For human resource support, we are consolidating 

personnel processing in 3 locations rather than the 12 locations that previously performed the function. 

Further consolidations of facilities and excess space will be undertaken with the formation of a new 

centralized Real Property Management office that is the result of an internal reorganization of facility 

planning and real property management resources. 

Consolidation of services in recent years has included web services, application software, servers and help 

desk consolidations in many organizations such as Information Services; Aviation Policy, Planning, and 

Environment; Regions and Center Operations; and Security and Hazardous Materials. 

Labor cost management is a major area of focus, given the size of our payroll and benefits budget of 

approximately $6 billion in FY 2005. 

In the area of unionized employees, FAA has 

already renegotiated costly memoranda of 

understanding (MOUs) and strengthened the 

approval process for future MOUs. A major 

initiative is, however, the current renegotiation 

of labor agreements with the objective of 

establishing affordable agreements and 

maximizing cost efficiency. FAA has also 

established a goal to achieve air traffic controller 

staff savings of 10% by FY 2010 through 

productivity improvements. ATO achieved the 

first 3% of that goal in FY 2005 by establishing 

a staffing target 3% below the standard staffing 

level, avoiding the need to hire 459 controllers. 

We accomplished this by absorbing traffic 

increases without adding additional staffing and 

by several cost savings initiatives started in 

FY 2005. Cost avoidance in FY 2005 was $23 

million. In addition, we have implemented 

FAA’s proposal to convert National Air Traffic 

Controllers Association (NATCA) Multi-Unit 

employees to the core compensation system, 

which provides a pay-for-performance 

system—a key FAA initiative—for noncontroller 1,900 employees. 

A reduction of over 510 overhead and 

nonsafety staff in ATO (through attrition) 

resulted in cost savings of $34 million in FY 2005. In addition, many organizations are filling vacancies with 

employees at lower pay levels resulting in lower unit labor costs. 

Strategic sourcing and demand management is an important area of focus given the cost reduction 

accomplishments in industry. Using industry best practices, FAA has already achieved strategic sourcing 

savings in selected areas such as centralizing wireless contracts to take advantage of volume discounts and 

improve management and usage. We now have a centralized ordering system, clear approval processes, and 

incentives for users to control costs. We are already realizing savings from this initiative. When it is fully 

implemented, we will save over $4 million per year, 50% of what we previously spent. 

In the same vein, FAA awarded an Oracle Enterprise License that is 24% less expensive than the General 

Services Administration (GSA) schedule and will reduce our costs by almost $1 million per year. A similar 

blanket purchase agreement (BPA) with Dell that is significantly cheaper than the GSA schedule yielded cost 
8

Management’s Discussion & Analysis 

A CONTRACT FOR THE FUTURE 

FAA and NATCA opened contract negotiations in 

July 2005. Before negotiations began, FAA Administrator Marion 

Blakey urged both sides to quickly reach an agreement that fairly 

compensates controllers and provides the flexibility needed to 

address changing air travel patterns. The Administrator was optimistic 

that the air traffic controllers share FAA’s desire to seek fair and quick 

resolution to the contract talks. 

Provisions in the current agreement have also delayed the 

introduction of certain new air traffic control systems and restricted our 

ability to staff its facilities to meet changes in air traffic volumes and 

patterns. FAA needs fundamental changes in the contract if the 

agency is to afford new systems and inspectors to improve safety and 

to modernize the air traffic control system to reduce delays and 

congestion. FAA called on the union to join in achieving a balanced 

labor agreement that allows the agency to finance the air traffic 

control system going forward while still providing a fair compensation 

package to its professional controllers—already among the highest 

paid civil servants. 

Contract negotiations come during a critical time for FAA and the 

aviation industry, both of which are attempting to reduce costs and 

transform their operations to meet ever-increasing consumer demand 

with limited revenue—in FAA’s case, a declining Airport and Airway 

Trust Fund. In December 2003, FAA and NATCA signed a 2-year 

extension of the 1998 agreement. 

 For More Information:

www.faa.gov/ahr/policy/agree/agrees/term/index.cfm

avoidance of over $3 million this year. 

By the end of FY 2006 we will generate annualized savings of over $10 million for the next 3 years through a 

Strategic Sourcing initiative. This program will result in major changes in the way we procure administrative 

commodities such as office supplies, office equipment, and Information Technology (IT) hardware and 

software through the use of private sector best practices. Savings for some items could exceed 30%. 

FAA is also addressing nonproductive time and staffing inefficiencies as key areas for improvement in 

FY 2005 and beyond. We have strengthened our management of the Worker’s Compensation program to 

insure that new claims are minimized and employees are returned to duty. Our proactive management has 

slowed the growth of this program and avoided $5.4 million in costs. 

Lost time reports that show the time recorded in the labor distribution system for leave, including vacation, 

sick time, and official time, are being distributed to FAA organizations to address potential abuse in this area. 

We have also implemented new information tools and processes to manage costs and productivity. 

New accounting, acquisition, cost 

accounting, and labor distribution systems 

have been implemented in the past few 

years enabling better availability of 

managerial cost information that helps users 

to better understand and manage unit costs 

and productivity. ATO has developed unit 

cost and productivity metrics, which have 

been incorporated into the strategic 

planning process. These metrics measure 

the cost to provide air navigation services to 

our users assessed on a “per flight” basis. 

They include the cost to provide en route 

services per flight hour, terminal costs per 

terminal operation, and flight service costs 

per customer contact. Furthermore, in June 

2005, ATO deployed an enhanced version 

of its labor distribution system. This 

provided more visibility into tasks 

employees perform, including work 

performed by air traffic controllers when 

not “on position” controlling traffic. 

This year we also instituted several key 

finance-related measures to determine 

financial trends and assess financial 

operations. These measures focus on issues 

arising from our primary business processes 

and have been incorporated into the 

business plan that implements FAA’s 

strategic plan. These measures include 

 Percent of invoices paid late, 

 Bills issued within 30 days of month-end, 

 Percent of collections achieved timely, 

 Percent of suspense account items cleared timely, and 

 Percent of assets capitalized timely. 
9

Management’s Discussion & Analysis 

Results from this year’s performance will serve as the baseline for the future and will be the basis for 

establishing a service agreement with the Oklahoma City Finance Center. 

In addition, FAA has strengthened its Capital Planning and Oversight with greater reliance on the use of 

OMB Exhibit 300s (Business Case Justification) with detailed discussions of economic measures such as Net 

Present Value (NPV), Return on Investment (ROI), and Earned Value Management (EVM), as well as 

alternatives to the proposed investment. After a program has been approved, there are processes that enable 

us to monitor cost and schedule variances to better manage the programs. 

In the area of expense controls, FAA has improved its oversight of the contract approval process to avoid 

duplication of services and ensure optimal pricing. Other analytic tools have also been put in place to enable 

efficient manpower scheduling and monitoring of productivity within the organization. 

Many other miscellaneous cost control actions have been implemented and monitored through the cost 

control program, a key objective in the Flight Plan, FAA’s strategic plan. Some examples of these initiatives 

include a review of guard service for the Orville and Wilbur Wright Federal Buildings provided by the Office 

of the Secretary that has resulted in cost savings of more than $800,000. We have replaced 6,000 incandescent 

bulbs in lights used to identify obstructions with LED bulbs. The LED bulbs last 10 times longer, require less 

monitoring by technicians resulting in improved productivity, and use only 11% of the energy consumed by 

an incandescent bulb. The 6,000 bulbs replaced so far are saving $5 million per year. 

Alignment of FAA Costs & Goals 

The alignment of FAA’s costs with its four strategic goal areas is captured in the cost accounting system 

(CAS).1 More than $10 billion, or 72% of the $14.0 billion in total net cost for FY 2005, was devoted to our 

primary goal of ensuring a safe NAS. ATO spent $7.5 billion, largely to support keeping aircraft safely 

separated in the air and on the ground. ARP directed over $1.9 billion to establishing safe airport 

infrastructure. AVS spent slightly less than $500 million on its programs to regulate and certify aircraft, pilots, 

and airlines, directly supporting the safety of commercial and general aviation. AST, FAA staff offices, and 

other programs spent the remaining 

amount of $189 million to support the 

agency’s safety performance targets and 

activities. 

Just over $3 billion, about 22% of total net 

costs, is primarily assigned to supporting 

FAA’s goal of improving the capacity of the 

NAS. $1.3 billion was spent by ATO, 

largely to support its facilities and 

equipment projects. ARP spent nearly 

$1.7 billion to enhance the capacity of the 

country’s airports, through runway projects 

and other efforts. AST directed almost 

$4 million to its efforts to expand capacity. 

The bulk of FAA’s remaining net costs, 

over $700 million, supported its 

Organizational Excellence goal. Nearly all 

the lines of businesses and staff offices contributed to this goal. The remainder, about $4.8 million, was spent 

to promote FAA’s International Leadership goal. 

 

1 See Note 11 to the financial statements, page 98. 
10

Management’s Discussion & Analysis 

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

Risks & Trends 

FAA faces a number of challenges in implementing the Flight Plan and achieving results. These challenges 

include the following. 

 Air traffic has returned to pre–September 11, 2001, levels. More than 700 million people flew last year, 

and the number of passengers is expected to climb to 1 billion by 2015. Dealing with these increases will 

demand even more from FAA resources, which are already feeling the strain. 

 The financial difficulties facing the airlines and aviation manufacturers affect their ability and willingness 

to equip aircraft with new technologies that will enhance safety and capacity. Those difficulties also affect 

FAA, which is primarily funded by the Airport and Airway Trust Fund from taxes on airline tickets. 

 Large capital investments in facility, infrastructure, and Agency human capital needs will depend largely 

on the ability to closely link budget to performance and in part on the ability and willingness of Congress 

to fund such operations and responsibilities. 

 The ability to improve safety or expand capacity in the United States 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, and implementing new 

technologies. 

 Emerging threats to national or homeland security may cause FAA priorities to shift to meet new 

responsibilities. 

Performance Highlights 

FAA is charged with promoting the safety and efficiency of the Nation’s aviation system. With broad 

authority to enforce safety regulations and conduct oversight of the civil aviation industry, we maintain the 

system’s integrity and reliability. A strategic plan, annual business plans, human capital plans, and the annual 

Performance and Accountability Report create a recurring cycle of planning, program execution, 

measurement, verification, and reporting. This strong link between resources and performance shows what is 

being accomplished and reinforces accountability for the taxpayer money being spent. 

Managing Performance 

In FY 2004, we launched an ambitious strategic plan 

to help manage and measure performance. In the 

first year of the Flight Plan’s implementation, our 

goal was to meet at least 90% of our performance 

targets (28 out of 31). 

As part of our efforts to deliver results, we 

continued to phase-in a pay-for-performance system 

that is unlike traditional Government compensation 

systems. At the end of FY 2005, 82% of FAA 

employees were included in this new system, which 

provides pay increases for organizational success. 

As the Agency continues to achieve our goals, employees included in the pay-for-performance system will get 

a pay increase. 

FAA manages performance by means of a four-step framework based on best practices from a number of 

private and public sector organizations (see the chart above). As we use this framework and instill 

management discipline into the processes, we anticipate a multiyear journey of learning and change. 

The first step in the process, “Set Goals,” includes consulting with management, stakeholders, and customers 

to determine our success. 
11

Management’s Discussion & Analysis 

AVIATION’S NEXT GENERATION 

Numerous studies and blue ribbon panels, including most 

recently the National Research Council and the Commission 

on the Future of the United States Aerospace Industry, 

concluded that today’s aviation system cannot meet 21st 

century needs. The current system is not equipped to tackle 

emerging safety and homeland security issues and cannot 

adequately address more efficient and enlarged capacity 

and changing market conditions. Given these challenges, 

piecemeal solutions or tinkering at the margins will not work. 

The future demands nothing less than the complete 

transformation of the U.S. air system. 

To meet these challenges, FAA and DOT have launched the 

Next Generation Air Transportation System (NGATS) plan. 

This plan brings together the resources, plans, and 

programs from the private sector, academia, FAA and the 

Departments of Defense, Commerce, Transportation, and 

Homeland Security, the National Aeronautics and Space 

Administration (NASA), and the White House Office of 

Science and Technology. The Joint Planning and 

Development Office (JPDO), which is jointly managed by 

FAA and NASA and supported by staff from all the agencies 

involved, serves as a focal point for coordinating the 

research related to air transportation for all of the 

participating agencies. 

At a time when tax dollars are stretched thin, NGATS is 

designed to make these groups work together, eliminating 

duplication, pooling resources, and making the best use of 

brainpower. We are confident that NGATS will take aviation 

to and through 2025. The plan incorporates the work of eight 

Integrated Product Teams—Agile Air Traffic, Airports, 

Environmental, Global Harmonization, Safety, Security, 

Situational Awareness, and Weather. 

 For More Information 

www.jpdo.aero

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 resource 

requirements to our Flight Plan. 

Our FY 2005 Budget in Brief is available at www.faa.gov/aba/html_budget/2005.html and our Flight Plan is 

available at www.faa.gov/about/plans_reports/. 

The third step, “Monitor Work,” develops measurement of the work required to achieve the goals. FAA 

developed organizational business plans for each line of business and staff office. These plans outlined the 

FY 2005 initiatives, activities, and performance targets that linked our work directly to the Flight Plan.

(Business plans are available at www.faa.gov/about/plans_reports/business_plan2005/). 

“Assess Results” is the last and most important step in the performance management process. This year, we 

continued our practice of reviewing and discussing FY 2005 performance goals every month. In addition, we 

began to deploy a new tool and business processes that focus more on discussing performance results, root 

causes of performance issues, and reallocation of resources to correct performance. 

In FY 2005, FAA marked the second year under its Flight Plan, a long-term strategic plan that charts the 

Agency’s goals through FY 2010. It provides the 

framework to match resources with initiatives for 

long-term change. It not only focuses on activities, 

but it also sets the direction for FAA and the 

national air and space community in a global 

transportation environment. It sets forth our goals 

and the performance measures to assess progress in 

meeting them. These are the goals that we must 

meet to address the challenges facing aviation, as 

well as maintain U.S. leadership in aviation. Our 

Flight Plan is tightly aligned with DOT’s mission, 

vision, goals, and performance measures. 

This year, FAA had 31 performance measures and 

targets that focused our efforts to achieve 

enhanced aviation safety, increase system capacity, 

provide international leadership, and ensure 

organizational excellence. As part of our efforts to 

continuously improve reporting, we redesigned the 

FAA Website and added a section that provides 

easy access to Flight Plan performance and results 

(www.faa.gov/about/plans_reports/). 

Our performance measures support FAA’s mission 

to provide citizens with a safe, secure, and efficient 

global aviation system. 

 Safety. Safety is not only a top priority, it is 

also an economic necessity. People will fly only 

if they feel safe. They must trust the system 

and that trust must be earned. Reducing the 

risk of aviation accidents remains a top priority. 

To enhance safety, we continued to focus on 

the challenge of reducing operational errors 

and runway incursions. A number of 

coordinated programs, safety initiatives, and 

research and development activities enabled us 
12

Management’s Discussion & Analysis 

to further reduce the commercial air carrier fatal accident rate. In addition to these results, we were 

successful in ensuring that there were no commercial space launch accidents. In FY 2005, we achieved 

five of eight safety goals. 

 Capacity. Capacity is the backbone of air travel. Aviation can grow only if capacity grows. We aim to 

achieve increases in capacity 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. In FY 2005, we achieved all eight capacity goals. 

 International Leadership. FAA’s goal is to make the international aviation system as safe and efficient 

as the one enjoyed in the United States. This year, we provided technical assistance, staff, and funding to 

assist 27 countries in improving aviation safety and efficiency. During FY 2005, we continued to promote 

safety by broadening the international network of partnerships with civil aviation authorities around the 

world. In FY 2005, we achieved all six of our goals in this area. 

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

greater fiscal responsibility, stronger leadership, more collaboration, and performance-based 

management. During FY 2005, we continued to address challenges identified by DOT’s Inspector 

General (IG). We successfully reduced operating costs, enhanced acquisition management, and worked 

on stabilizing our new accounting and acquisition systems to improve financial management. We 

continue to make great strides in improving the business processes that support efforts to improve 

aviation safety and system efficiency, and in FY 2005 we were able to achieve all nine of our 

organizational excellence goals. 

Despite the challenges, FY 2005 was a year of impressive success for FAA. 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 28 of 31 goals—a 90% 

success rate. The Performance at a Glance chart provides a snapshot of our results. 

FAA FY 2005 PERFORMANCE AT A GLANCE 

Performance Measure FY 2005 

Target 

FY 2005 

Results 

FY 2005 

Status 

FY 2006 

Target 

SAFETY 

Commercial Air Carrier Fatal Accident Rate 0.023 0.0171 z 0.018 

General Aviation Fatal Accidents 343 3501  337 

General Aviation Alaska Accidents 120 1281  115 

Runway Incursions (number/rate) 36/0.557 29/0.4602 z 0.5513

Composite Safety Index Present 

Index 

Index 

Presented z N/A 

Commercial Space Launch Accidents 0 0 z 0 

Operational Errors (number/rate) 637/3.92 680/4.272  4.203

Safety Risk Management (number of changes) 3 3 z 3 

CAPACITY 

Average Daily Airport Capacity 

(35 Operational Evolution Plan [OEP] airports) 99,892 101,4632 z 101,191 
13

Management’s Discussion & Analysis 

FAA FY 2005 PERFORMANCE AT A GLANCE 

Performance Measure FY 2005 

Target 

FY 2005 

Results 

FY 2005 

Status 

FY 2006 

Target 

CAPACITY (continued) 

Average Daily Airport Capacity (8 metropolitan 

areas) 43,080 44,3242 z 43,3384

Annual Service Volume 1.00% 1.01% z 1.00% 

(4 runways) 

Adjusted Operational Availability (35 OEP airports) 99.00% 99.76%2 z 99.50% 

NAS On-Time Arrivals 87.40% 88.44%2 z 87.40% 

Noise Exposure −3.00% −27.00%5 z −4.00% 

Aviation Fuel Efficiency −2.00% −5.84%5 z −3.00% 

Oceanic En-route Change Requests 75.00% 76.24% z N/A 

INTERNATIONAL LEADERSHIP 

Environmental Standards and Practices 

(number of milestones) 2 2 z N/A 

Aviation Safety Leadership (number of countries) 2 27 z N/A 

Bilateral Agreements (products and services) 2 2 z 1 

Intellectual and Financial Assistance 20.00% 63.00% z 20.00% 

Support for International Civil Aviation Organization 

(new aviation authorities) 2 3 z N/A 

NAS Technologies (number of countries) 1 1 z N/A 

ORGANIZATIONAL EXCELLENCE 

Employee Attitude Survey (cumulative percent 

increase) 

1.50% 2.00% z 3.00% 

Cost Control (number of activities per organization) 1 1 z At least 1 

Critical Acquisition Budget 80.00% 97.00% z 85.00% 

Critical Acquisition Schedule 80.00% 92.00% z 85.00% 

Information Security 0 0 z 0 

Customer Satisfaction 64 66 z 65 

Performance Plans 85.00% 94.29% z N/A 

Cost-Reimbursable Contracts 85.00% 170.00% z 85.00% 
14

Management’s Discussion & Analysis 

FAA FY 2005 PERFORMANCE AT A GLANCE 

Performance Measure FY 2005 

Target 

FY 2005 

Results 

FY 2005 

Status 

FY 2006 

Target 

Mission Critical Positions 6.00% 35.00% z 10.00% 

Flight Plan Targets6 90.00% 90.00% 

(28/31) z N/A 

z Green: Goal Achieved  Red: Goal Not Achieved

Notes: 

N/A: Goal discontinued for FY 2006. 

1) Preliminary estimate. Final data will be available in May 2007. 

2) Preliminary estimate. Final data will be available by January 2006. 

3) Target for FY 2006 has been changed from a number to a rate. 

4) Measure was changed during FY 2005. South Central Florida replaced Boston as one of the eight metropolitan areas where 

arrival capacity is measured. 

5) Preliminary estimate. Final data will be available in May 2006. 

6) This target is not included when calculating the percentage of targets achieved. 

Verification & Validation of Performance Information 

We employ strong management controls to ensure that data used to assess performance are accurate, timely, 

and complete. By exercising both internal and external reviews, our verification and validation process 

strongly supports the confidence that the managers and the Administrator have in their performance data. 

We use several internal review processes to ensure accurate data. First, at the start of each year we review 

every performance target for data source and validity. Where the criteria for targets have changed, we note 

and explain the changes in performance-related materials. DOT also independently verifies performance data. 

Several performance measures, such as the 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 are not considered final until NTSB gives its approval. 

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

Program evaluations can be completed by independent outside research organizations such as MITRE 

(www.mitre.org/about/index.html). 

The Office of the Inspector General (OIG), the Government Accountability Office (GAO), and the Office 

of Management and Budget (OMB) also regularly review FAA programs and activities. These reviews help 

maintain the public’s trust, as well as provide opportunities for improvement. We work with each 

organization to address concerns and improve the way business is conducted. For example, we have focused 

more closely this year on tying budget to performance, as well as cascading performance measures from the 

Agency to the lines of business and staff offices. This is a direct result of using OMB’s Program Assessment 

Rating Tool (PART). 

Further explanations of OIG and GAO concerns can be found in the Management Challenges section of this 

report. 

President’s Management Agenda 

The President’s Management Agenda (PMA) is a set of initiatives designed to make the Federal Government 

more citizen centered, results oriented, and market based. To do this, agencies are asked to set targets and 

measure performance as a way to hold them accountable for results. The Organizational Excellence targets in 

the Flight Plan support DOT’s goal to achieve “green” on the PMA. Following is a summary of the PMA 

initiatives. 
15

Management’s Discussion & Analysis 

FY 2005 PRESIDENT’S MANAGEMENT AGENDA SCORECARD 

FOR THE DEPARTMENT OF TRANSPORTATION

Initiative Status Progress 

Strategic Management of Human Capital: Design a strategy to address workforce 

gaps, eliminate skill gaps, develop performance-based incentives, ensure citizen-centered 

organizations, and ensure a robust leadership pipeline. 

z z

Competitive Sourcing: Develop a competitive sourcing plan for activities designated 

commercial in nature, with the goal of providing higher quality, more cost-effective 

services to the public. 

z z

Improved Financial Performance: Implement financial management systems capable 

of producing more timely and accurate information for decision-making, and maintain 

unqualified opinions on financial statements.

 z

Expanded Electronic Government: Better justify and track IT projects, and participate 

in Government-wide initiatives to automate transactions, reduce redundancies and 

increase efficiencies. 

z z

Budget and Performance Integration: Develop budgets aligned with outcome goals, 

and present resource requests in the context of past results. Estimate the full costs of 

programs, and document program effectiveness.

z z

Real Property Asset Management: Complete and maintain an inventory of Agency real 

property, and develop an asset management plan with deadlines for optimizing costs.  z

Eliminating Improper Payments: Reduce improper payments through identification of 

at-risk programs and establishment of a plan for corrective action. Set recovery targets 

and, where appropriate, work to meet them.

 z

Research and Development Investment Criteria: Promote coordination of R&D 

management to ensure accountability, improve program quality, and align decisions and 

budget proposals with R&D investment criteria.

z z

Key 

“Status” indicates DOT’s success in fulfilling the initiative. “Progress” indicates the rate at which DOT is moving 

toward success.

z Green: OMB’s core criteria met. 

♦ Yellow: Some but not all of OMB’s core criteria met; no “red” conditions. 

 Red: At least one of OMB’s core criteria has not been met. 

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

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

FAA Accomplishments 

Strategic Management of Human Capital 

In FY 2005, we strategically aligned workforce planning and analysis with the Flight Plan and Business Plans, 

restructured and centralized functions and organizations to standardize and improve business processes, and 

initiated efforts to close position and skill gaps in mission critical occupations. FAA also committed to build 

stronger leadership and to build a stronger Labor Relations Program, and worked to contain costs through 

improved management of workers’ compensation, official time, and sick leave usage. 

Competitive Sourcing 

In FY 2005, FAA conducted the largest A-76 outsourcing competition at a nondefense agency in the Federal 

Government. The resulting contract with Lockheed Martin to provide automated flight services will result in 

reduced operating costs, modernized services, and continued high quality service that is more cost-effective. 

This competitive sourcing initiative is expected to produce $2.2 billion in savings from 2003 through 2015. 
16

Management’s Discussion & Analysis 

Improved Financial Performance 

In January 2005, GAO removed FAA from its high risk list for financial management, citing improvements in 

cost accounting and tracking systems. During the year, we began the process of consolidating our accounting 

operations and continued the implementation of an effective cost savings program. FAA received a fifth 

consecutive clean audit for FY 2005. 

Expanded Electronic Government 

FAA forwarded its portfolio of 28 FY 2007 IT business cases (Exhibit 300s) to OMB. We expect that all IT 

business cases will receive favorable scores by OMB. FAA participated in Government-wide e-government 

initiatives for Grants, Training, Personnel and Payroll, and the Business Gateway. The FAA Enterprise 

Architecture (EA) complies with all Federal Enterprise Architecture (FEA) guidance, and the Agency has 

completed security reviews on 100% of its information systems. 

Budget and Performance Integration 

The FY 2007 budget request, submitted to OMB in September 2005, was FAA’s third performance-based 

budget. In presenting the marginal cost of performance for six requests in three goal areas totaling nearly 

$47 million, the Agency went beyond DOT’s requirement for only one goal. DOT commended this effort in 

its response to the budget request. 

Real Property Asset Management 

In FY 2005, FAA began centralizing and consolidating responsibilities for real property management. To 

assist DOT in reaching “green” on this initiative, FAA has taken the lead, since we have 99% of the real 

property assets within DOT. We will continue to enhance the Real Estate Management System (REMS) for 

tracking and managing all departmental real property assets. 

Eliminating Improper Payments 

We have historically had very low percentages of improper payments and continue to support the DOT in 

reducing the risks of such payments. FAA will continue to enhance and improve business processes that 

strengthen the internal controls on our payment process and result in even lower percentages. 

Research and Development Investment Criteria 

DOT was the first department to achieve green status on this initiative. FAA contributed to this success 

through its efforts to align its R,E&D programs with its strategic plan, as outlined in the National Aviation 

Research Plan (NARP). This plan supports DOT’s department-wide Research, Development, and Technology Plan 

and is governed by the same investment criteria. FAA also incorporated these criteria into its 

FY 2007 budget request.

FY 2005 Management Challenges 

Last year the OIG identified a number of challenges facing FAA. 

Ensuring Aviation Safety in a Changing Aviation Environment 

The U.S. aviation industry continues to be the safest in the world, with only two commercial fatal accidents 

occurring in FY 2005. However, FAA must adjust its safety oversight to emerging trends in the aviation 

industry and changing economic conditions. 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. 

The OIG recommended that FAA strengthen its procedures for oversight of foreign aviation authorities 

conducting inspections on its behalf. FAA has made considerable progress in reducing runway incursions 

(potential collisions on the ground); however, 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. 
17

Management’s Discussion & Analysis 

FAA Actions 

Adjust safety oversight to address increased maintenance outsourcing. 

To address challenges at air carrier repair stations, FAA formed a Risk Assessment work group, which is 

developing a repair station prototype program. This program will bring together a team representing all areas 

of expertise to oversee aviation certificate holders of large repair stations or companies that own multiple 

repair stations and satellite repair stations. 

The work group is developing guidance materials for inspectors and information databases to improve FAA 

oversight of repair stations. The work group has also developed a comprehensive surveillance program that 

requires repair stations to use elements of a system-safety approach, such as risk assessment and risk 

management tools. We have revised our guidance and anticipate training for the inspector workforce to begin 

in November 2005. 

Additionally, we are revising our Flight Standards Handbook Bulletin for Airworthiness (14 CFR Part 43.17) to 

incorporate the pending Bilateral Aviation Safety Agreement with associated Maintenance Implementation 

Procedures (BASA/MIP) with Canada to ensure the standardization of maintenance on U.S. aircraft repaired 

in Canada. There are no FAA certificated repair stations in Canada. In lieu of FAA repair stations, the 

Handbook states that the United States accepts the work and return to service of U.S. registered aircraft and 

components that are located in Canada by a properly certificated Transport Canada Civil Aviation entity. 

Finally, we are negotiating a BASA/MIP with the European Union that will be used to continuously verify 

European member states conducting surveillance/certification activities on behalf of the FAA to place 

adequate emphasis on the FAA regulations. We hope to finish negotiations and implement the agreement by 

FY 2008. 

Reduce operational errors and runway incursions as traffic rebounds. 

Reducing operational errors and runway incursions as traffic continues to increase is a shared responsibility 

among pilots, air traffic controllers, and vehicle drivers. To address this challenge, FAA focused on outreach, 

awareness, improved procedures and infrastructure, and technology. 

Progress was made in reducing the severity, number and rate of pilot deviations—the most common type of 

runway incursion. To enhance pilot situational awareness, we released a new pilot guide and DVD that 

highlighted communication procedures for safe surface operations. In collaboration with industry, we also 

created an online course that educates general aviation pilots on runway safety. 

To enhance air traffic supervisor and controller discussion of serious events during team briefings, FAA 

developed a safety awareness campaign designed to help controllers visualize an event that actually happened 

and aid the development of strategies based on intuitive and experiential expertise for use in similar situations. 

Additionally, we have developed an operational error database to support identification of trends from which 

error reduction initiatives will be developed. 

Improve operational error reporting from tower and TRACON facilities. 

In July 2005, FAA issued a general notice (GENOT) instructing all air traffic control facilities to establish a 

facility audit process by September 1, 2005. This audit process allows for random reviews of air traffic 

services using playback tools to identify operational errors and operational deviations, and provides greater 

assurance that operational errors and operational deviations are being reported. 

In addition to the facility audit process conducted each month, FAA identified select facilities—based on 

trends, analysis, intelligence, complaints, and statistics—and required them to review data. We reviewed the 

same data from these select facilities and addressed the issue by training or decertifying controllers, as 

appropriate. Our findings and supporting data are retained at the headquarters level for 2.5 years. 
18

Management’s Discussion & Analysis 

Aviation Capacity and Mitigating Delays 

After a few years of relative reprieve from aviation congestion, traffic and delays are once again returning. 

FAA’s challenge is determining how and where traffic is likely to grow over the next decade and planning for 

adequate investment in facilities, technology, and operational improvements to address both long-range and 

short-term needs. 

FAA Actions 

Determine how and where traffic is likely to grow over the next decade 

In FY 2004, FAA completed a study analyzing system capacity, taking into account the socioeconomic and 

demographic trends expected to occur in the United States through 2020. This study expanded the focus of 

the 35 major airports and evaluated nearly 300 commercial service airports nationwide. The study identified 

the airports that need additional capacity and the constraints to enhancing capacity. In FY 2005, we began a 

second phase of this study that will take a more detailed look at the airports outside major metropolitan areas 

and will begin to identify possible solutions to increase long-term capacity. 

New runways and airspace redesign initiatives 

FAA is increasing short-term capacity by working with airports and local communities to build new runways. 

While no new runways opened in FY 2005, eight runways are under construction—with four opening in 

FY 2006—providing the airports with the potential to accommodate an additional 665,000 annual operations. 

Two additional projects, a runway extension and a runway/taxiway relocation, are expected to begin 

construction in 2006. There are an additional nine projects, including three new airports, in the planning or 

environmental assessment stage that could provide significant capacity benefits through 2015. 

Improving the efficiency of existing airport capacity by redesigning airspace is critical for taking full advantage 

of new runways and enhancing the flow of air travel around existing runways and airports. 

The New York/New Jersey/Philadelphia Airspace Redesign project is on schedule to publish a draft 

Environmental Impact Statement in fall 2005. This is a critical step in moving to a final decision, after which 

airspace redesign may begin. 

Chicago’s O’Hare airport is one of the busiest in the Nation. Capacity problems at this airport can quickly 

cascade throughout the NAS. To address this critical hub in the aviation system, FAA is engaged in two 

separate, but related activities: the Chicago O’Hare Modernization Project and the Midwest Airspace 

Enhancement project. These projects will add and modify sectors and routes to increase traffic flow 

efficiencies in the Midwest by 2007. 

Along the West Coast, a series of advanced navigation routes was implemented in 2005 to reduce the miles 

flown between Seattle and San Francisco or Los Angeles. The routes utilize the navigational capabilities of 

advanced avionics aboard the aircraft, permitting operations along the shortest path between the airports 

rather than flying over ground-based navigation aids. 

Potential market-based initiatives to more efficiently allocate existing capacity 

FAA has conducted detailed simulation exercises in the past year to examine the effects of market-based 

alternatives like congestion pricing and slot auctions (of arrivals and departures) on airlines and airport 

operations. These simulations have provided stakeholders an opportunity to comment on these potential 

tools for managing congestion. We are committed to continue working toward a market-based solution for 

congested airports and are investigating these options for potential use at New York’s LaGuardia Airport. 

Reducing Fraud 

The OIG recommended that FAA increase progress in strengthening the oversight of Disadvantaged 

Business Enterprise (DBE) programs to include site visits, DBE and prime contractor interviews, 

application/certification file reviews, and work site surveillance. 
19

Management’s Discussion & Analysis 

FAA Actions 

FAA took a number of actions in FY 2005 to strengthen our oversight of the DBE program, including 

 Conducting on-site compliance reviews. FAA staff conducted limited reviews of basic DBE 

compliance activities at airports. We are working with the Federal Highway Administration and the 

Federal Transit Administration to develop a standard methodology for conducting DBE self-assessments 

and compliance reviews. FAA also retained a contractor to conduct in-depth compliance reviews of 

airports identified via oversight and technical support mechanisms. We are in the planning stage and are 

coordinating with the OIG to determine which airports will be reviewed. 

 Computerizing DBE reporting. We developed a web-based system for airports to report their DBE 

accomplishments. In addition to ensuring greater accuracy, the system will allow us to create specialized 

reports and trend analysis after the FY 2005 data are input beginning in December 2005. There are 

already over 300 airports have created user accounts for this system. 

 Revising regulations. FAA issued a revised regulation for airport concession DBEs. We have 

developed guidance materials and conducted a number of training sessions on the revised regulation. 

This regulation contains items to assist in the prevention of DBE fraud, such as a personal net worth cap, 

required eligibility reviews, and increased emphasis on monitoring and compliance by airports. 

Delivering Air Traffic Control Services & Fielding New Equipment 

While Controlling Costs 

As FAA increasingly turns to the U.S. Treasury’s General Fund to make up for revenue shortfalls in the 

Airport and Airway Trust Fund, the Agency will be competing with other critical Federal programs for funds 

during a period of fixed budgets. 

Compounding the budget challenges it faces, FAA estimates that nearly half the controller workforce will 

leave the Agency between FY 2005 and FY 2012. To hire and train that many controllers within a severely 

constrained operating budget, FAA must identify ways to make every stage of its process for hiring, placing 

and training new controllers more efficient and cost effective. 

FAA also faces significant challenges with respect to its major acquisition programs. We will need to control 

existing projects, determine priorities, and improve the overall management of major acquisitions in a 

constrained budget environment. 

FAA Actions 

In June 2005, a FAA/DOT team delivered the initial draft of a report on alternative financing options. This 

report will continue to be updated into FY 2006 to reflect the final recommendations from FAA and DOT 

officials and provide the basis for reauthorization legislation. 

On December 21, 2004, we announced our Air Traffic Controller Staffing Plan. Over the next 10 years, FAA 

will hire and train 12,500 controllers to cover projected total retirement and nonretirement controller losses. 

The Plan is currently being updated, with the second version to be released in December 2005. 

We are making significant strides in improving our capital investment acquisition and procurement oversight: 

 At the end of FY 2005, there were 105 certified program managers for projects greater than $50 million. 

 Large and complex investments are segmented into phases to improve oversight and control. 

 In developing the capital budget, the Agency prioritized programs and allocated resources using criteria 

such as strategic relevance, cost reduction and productivity increase, and benefits and risk. 

The newly formed Capital Investment Team, which provides an independent and objective review of costs 

and benefits of investments, reviewed 79 programs, recommending restructuring of 15 and termination of 3. 
20

Management’s Discussion & Analysis 

Financial Management 

FAA had pledged to have a fully operational cost accounting system and labor distribution system in place by 

the end of FY 2005. We, however, faced several challenges in reaching that goal. We had to revamp the 

system to account for recent significant organizational changes; get quarterly data processing back on track to 

resume reporting to business units; integrate labor distribution information into the core financial system; and 

stabilize interfaces between the core accounting system and the cost accounting system. These tasks pushed 

planned improvements into FY 2006. 

FAA Actions 

In January 2006, FAA will complete the revamping of its CAS to account for a recent significant 

organizational change. The system will replace labor assignment business rules with actual labor costs from 

the labor distribution system. This improvement will provide more accurate labor costs using actual 

maintenance time spent on NAS equipment, instead of current allocation rules based on staffing standards. 

FAA plans to implement cost accounting for ARP and AVS by June 2006. This will complete the 

implementation of cost accounting and enable all FAA lines of business and staff offices to employ financial 

and performance measures to achieve performance efficiencies and cost savings. 

Secure and Cost Effective IT Investment 

DOT is responsible for one of the largest IT investment portfolios among civilian agencies. Over 80% of 

these investments are in the air traffic control system modernization projects, many of which have 

experienced significant cost overruns and delays. During FY 2005, FAA made strides in increasing 

departmental oversight of major IT investments, but these efforts are in an early stage of implementation and 

still present challenges. 

During FY 2005, FAA also made a concerted effort to correct weaknesses in computer security. Continued 

improvements are needed, especially in the area of enhancing security of air traffic control systems. 

FAA Actions 

FAA has made significant progress in FY 2005 in addressing computer security weaknesses. In addition to 

required annual security reviews of information systems, we completed onsite security reviews of information 

systems at all Air Route Traffic Control Centers (ARTCCs) to assess the validity of the systems security 

certification and authorization process. Certification refers to the comprehensive evaluation of the technical 

and nontechnical security features of an information system. The evaluation establishes the extent to which a 

particular design and implementation meet a set of specified security requirements and that risk has been 

mitigated commensurate with magnitude of harm. Authorization refers to a formal declaration by the 

designated official who has fiscal and operational responsibility that an information system is approved to 

operate in a particular security mode using a prescribed set of countermeasures. This is the official 

management authorization for operation, and it is based on information provided in the Security Certification 

and Authorization Package (SCAP) as well as other management considerations. The authorization statement 

affixes security responsibility with the designated official and shows that due care has been taken for security. 

Similar reviews will occur for systems that are used in air traffic control terminals in FY 2006. 

We completed a plan, including a set of alternatives, for restoring essential air service in the event of a 

prolonged disruption at an en-route facility. FAA senior management followed the planning activity with a 

“Tabletop Exercise” bringing together the necessary disciplines to address a specific scenario. The exercise 

resulted in recommendations for FAA action to be addressed in FY 2006. 

We are currently planning for implementation of smart card technology for granting FAA personnel access to 

facilities and information systems, to meet the requirements of Homeland Security Presidential Directive-12 

(HSPD-12). In concert with DOT, FAA developed initial requirements, a concept of operations, and an 

implementation plan for FAA logical access using the DOT Common Identification Standard mandated by 

HSPD-12. FAA also developed pilot project concepts for logical access to information systems to strengthen 

user authentication. 
21

Management’s Discussion & Analysis 

FY 2006 Management Challenges 

The OIG memorandum finalizing the most serious management challenges facing DOT in FY 2006 will be 

provided in the near future. Until its release, the OIG has tentatively identified five challenges for FAA: 

 Aviation safety—developing effective oversight programs for air carrier operations, repair station 

maintenance, and operational errors 

 Follow through on its commitments to advance risk-based systems for air carrier operations and 

work performed by external repair facilities. 

 Continue efforts to identify and reduce operational errors. 

 Mitigating flight delays and relieving congestion 

 Take appropriate action against growing aviation delays. 

 Keep planned infrastructure and airspace redesign projects on schedule while effectively 

implementing short-term initiatives to relieve congestion and delays 

 Explore alternatives for managing capacity where new initiatives are not feasible. 

 Reauthorizing aviation programs—establishing requirements and controlling cost 

 Control costs with major acquisitions by delivering new systems that work, are on time, and are 

within budget by making long-overdue decisions on the scope of billion-dollar projects that have 

been delayed for years. 

 Gain control of support service contracts, reduce associated costs, and follow through on the 

implementation of new procedures. 

 Establish requirements for the next generation air traffic management system. 

 Address the expected surge in controller attrition and negotiating an affordable and equitable 

bargaining agreement. 

 Complete implementation of a cost accounting system to reduce costs and improve operations. 

 Improving IT investment and computer security 

 Better secure operational air traffic control systems. 

 Eliminate redundant IT infrastructure to reduce operating costs. 

 Working with other agencies to respond to disasters and address transportation security 

 Ensure that missions are performed in a well-coordinated and cost-effective manner to protect 

reconstruction funding from fraud, waste, and abuse. 

 Address security issues within the U.S. transportation system and protect users from criminal and 

terrorist acts. 

DOT Management Challenges 

There were several DOT challenges identified by the OIG in which the FAA had a role in addressing. 

A detailed discussion of this second group of challenges appears in DOT’s FY 2005 Performance and 

Accountability Report at www.dot.gov/perfacc2005. 

Management Integrity: Controls and Compliance 

FAA program managers in the lines of business and staff offices assess the vulnerability of their program and 

activity management controls annually. These assessments are conducted to determine their compliance with 

sections 2 and 4 of FMFIA. The head of the line of business or staff office then identifies in writing to the 

Administrator any potentially material internal control weakness or system nonconformance. Those deemed 

material are consolidated in a memorandum with a Statement of Assurance signed by the Administrator and 

sent to the Secretary of DOT. Our response becomes a part of the DOT Statement of Assurance sent to the 
22

Management’s Discussion & Analysis 

President. To help resolve material weaknesses or nonconformances, we develop a plan with specific 

milestones and deadlines. The plan and the status of each action are reviewed monthly, with results reported 

to DOT’s Office of the Secretary. 

As reported by the Administrator to the Secretary in a memorandum dated November 8, 2005, we identified 

one internal control material weakness in the area of timely processing of transactions and reconciliation of 

accounts. We have developed a plan to address this weakness, which will be implemented in phases during 

FY 2006. 

Since January 1999, FAA has been on GAO’s high risk list due to concerns about financial management. 

GAO identified three areas of concern: (1) the lack of a system to account for property, plant, and 

equipment, (2) the need to make hundreds of adjustments to produce audit-quality financial information for 

financial reporting, and (3) the fact that the cost accounting system was not fully implemented and 

management was not using data to make business decisions. Progress on the implementation of our cost 

accounting system and the implementation of DELPHI, with its integrated property system, resulted in the 

FAA being removed from GAO’s high risk list. 

Our Information Security Program, as part of the overarching DOT program, did not report any significant 

deficiencies in the 2005 Federal Information Security Management Act Annual Report.

Grants Management Policies and Practices 

Decisions on distributing AIP funds are centralized at FAA headquarters, with significant input from regional 

offices. While most of the day-to-day decisions for AIP project formulation are delegated to regional offices, 

FAA headquarters develops the policy to ensure that grants are implemented and that grantees are treated 

consistently. Policies for administering the program are included in an AIP Handbook, which is regularly 

updated through Policy Guidance Letters issued to grant recipients. FAA also ensures the consistent 

implementation of AIP by participating in airport industry trade conferences and training, posting statutory 

and policy changes on our public website, and requiring employees to attend annual training that focuses on 

improving business processes and updating personnel on policy changes. 

We meet regularly with eligible airport sponsors to identify planning and development needs. Through this 

process, the Airport Capital Improvement Plan, a 3-year plan that identifies the planning and development 

needs for airports nationwide, is developed and eligible projects are prioritized. Only projects identified in this 

plan are awarded grants. Airport sponsors can apply to the FAA regional or district office for a grant. We 

continued coordination with Grants.gov to develop an electronic grant application process. Typically, large 

grants are coordinated with other Federal, State, and local government agencies, such as the Environmental 

Protection Agency, the Department of Defense, and State aviation agencies. 

AIP administration, including the requirements for sponsor and project eligibility, is based on multiyear 

authorizing legislation. In FY 2003, we recommended statutory changes to AIP’s authorizing legislation that 

were approved for FY 2005. Revisions included changes to funding levels for airports and projects, changes 

to the formula for determining funding levels, and revisions to the grant process to address environmental 

and construction issues and to give smaller airports more flexibility in qualifying for certain types of grants. 

This current authorizing legislation expires on September 30, 2007. Discussions have been initiated to 

consider various alternatives for successor legislation. 

Financial Highlights 

Financial Management Plans 

For the fifth consecutive year, we achieved an unqualified (clean) opinion from our auditors on our financial 

statements. However, this year we received a material weakness in the area of timely processing of 

transactions and reconciliation of accounts. While the clean opinion means that our financial statements are 

presented “fairly, in all material respects,” at year-end, the material weakness highlights the fact that these 
23

Management’s Discussion & Analysis 

statements could not have been prepared timely, in a routine fashion, at interim points throughout the year. 

We have developed a plan to address this internal control weakness, which will be implemented in phases 

during FY 2006. 

While we are not required to prepare a performance and accountability report, we have elected to do so. For 

the second year, we were awarded the Certificate for Excellence in Accountability Reporting (CEAR) for our 

FY 2004 Performance and Accountability Report. Our primary goal remains to provide the best possible internal 

and external financial reporting supported by the clean audit opinion. 

Further steps were taken to replace our legacy systems and incorporate them with our integrated financial 

management system. With the maturation of business processes associated with our new primary financial 

management system, our financial reporting has improved significantly. These improvements included the 

interface of critical cost accounting labor information, incorporation of lease information, and improved 

visibility of assets information. We continue to work toward implementing a comprehensive grants 

management/payment system and instituting E-Travel, a paperless travel reservation and reimbursement 

system. 

Two new financial organizations were established to focus on policy and internal controls, the Financial 

Policy Division and Internal Controls Division. The latter organization has been very involved in 

implementing the new OMB requirements for strengthening internal controls over financial reporting. 

Additionally, the newly formed Financial Controls Office has focused efforts in cost control and efficiencies. 

See the section on Efficiency and Cost-Effectiveness on page 6. 

Improper Payments Information Act of 2002 

This year, DOT engaged a contractor to work with each Operating Administration, including FAA, to 

conduct a review of payments for the largest DOT programs. FAA’s Operations, Facilities and Equipment 

(F&E), and AIP were included in this review. Their results supported our past record of having improper 

payments well below reportable thresholds. In addition, for the past 3 years, DOT has contracted with 

another company to recover improper payments, which for FAA have been nominal. Details of the review 

are included in the Appendix. 

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 2005 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 

No. 01–02, Audit Requirements for Federal Financial Statements, dated October 16, 2002. DOT’s OIG is statutorily 

responsible for the manner in which the audit of FAA’s financial statements is conducted. The OIG selected 

KPMG LLP, an independent certified public accounting firm, to audit FAA’s FY 2005 financial statements. 

This firm also audited FAA’s FY 2002–FY 2004 financial statements. 

In 2002, DOT’s OIG and Chief Financial Officer, along with FAA’s Chief Financial Officer, established an 

Audit Advisory Committee to promote and encourage open communication among the OIG, FAA 

management, and the independent auditors to resolve issues that arise during 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; 

FAA’s Assistant Administrator for Regions and Center Operations; and ATO’s Chief Operating Officer. Last 
24

Management’s Discussion & Analysis 

year, committee participation was expanded to include representatives from the Chief Counsel’s Office, the 

Assistant Administrator for Human Resources Management, Information Services, and Airports. 

KPMG LLP rendered an unqualified (clean) audit opinion on FAA’s FY 2005 financial statements. This 

means that FAA’s financial statements as of, and for the year ended, September 30, 2005, were presented 

fairly in all material respects in conformity with accounting principles generally accepted in the United States. 

KPMG identified one material weakness, three reportable conditions, and three 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 Statements of Budgetary Resources have been prepared to report the financial position and results 

of operations of FAA, pursuant to the requirements of the Chief Financial Officers Act of 1990 and the 

Government Management Reform Act of 1994. 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 2004 to 

FY 2005, 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 

Total assets were $28.6 billion at the end of 

FY 2005. FAA’s assets are the resources 

available to pay liabilities or satisfy future 

service needs. The Composition of Assets chart 

depicts major categories of assets as a 

percentage of total assets. 

The Assets Comparison chart presents 

comparisons of major asset balances as of 

September 30, 2004 and 2005. 

Fund balance with Treasury represents 8% 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 (AATF), but 

not yet invested. Fund balance with 

Treasury decreased $427.6 million, primarily 

because FAA left more funds invested in the 

AATF at year-end than in the prior year. 

At $10.7 billion, Investments represent 37% of 

FAA’s current year assets and are principally 

derived from passenger ticket and other excise taxes deposited to the AATF. These amounts are used to 

finance FAA’s operations to the extent authorized by Congress. Investments increased $347.5 million due to 

an increase in tax revenues deposited into the AATF in FY 2005. 
25

Management’s Discussion & Analysis 

At $14.4 billion, Property, plant, and equipment, net (PP&E) represents 51% of FAA’s assets as of September 30, 

2005, and consists primarily of construction projects related to the development of NAS assets, and 

capitalized real and personal property. There was a negligible decrease in the total composition of PP&E as 

purchases of equipment and additions to construction-in-progress through the normal course of business 

were offset by retirements and depreciation expense during FY 2005. 

Liabilities 

At the end of FY 2005, FAA reported 

liabilities of $3.7 billion. Liabilities are 

probable and measurable future outflows of 

resources arising from past transactions or 

events. The Composition of Liabilities chart 

depicts FAA’s major categories of liabilities 

as a percentage of total liabilities. 

The Liabilities Comparison chart presents 

comparisons of major liability balances 

between FY 2004 and FY 2005. A 

discussion of the significant fluctuations 

between the two years follows. 

At $1.5 billion, Employee related, legal, and other 

liabilities represent 40% of FAA’s total 

liabilities. These liabilities increased 

$211.0 million from FY 2004 to FY 2005, 

partly as a result of accrued unfunded 

liabilities related to Hurricane Katrina relief 

efforts. Also, accrued payroll, benefits, and 

annual leave increased because there was a 

greater number of unpaid days of payroll at 

the end of FY 2005 and employee leave 

balances grew. 

At $942.3 million, Federal employee and veterans 

benefits represent 26% of FAA’s current year liabilities and consist of 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 on actual workers’ compensation payments to FAA employees over the 

preceding 4 years. 

Environmental liabilities represent 16% of FAA’s total liabilities and were relatively stable at $596.5 million as of 

September 30, 2005, and $606.3 million a year earlier. Environmental liabilities include a component for 

remediation of known contaminated sites, and the estimated environmental cost to decommission assets 

presently in service. 

FAA’s Accounts payable represent 18% of liabilities and were relatively constant from FY 2004 to FY 2005. 

Accounts payable are amounts FAA owes to other entities for unpaid goods and services and estimated 

amounts incurred but not yet claimed by Airport Improvement Program grant recipients. 

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. 
26

Management’s Discussion & Analysis 

In FY 2005, FAA’s net costs were $14.0 billion, compared to $12.2 billion in FY 2004. The Composition of Net 

Costs chart illustrates the distribution of costs among FAA’s lines of business. 

The Net Cost Comparison chart compares FY 

2004 and FY 2005 net costs. 

With a net cost of $8.9 billion, the Air 

Traffic Organization is FAA’s largest line of 

business, comprising 64% of total net costs. 

Air Traffic Organization’s net costs 

increased in FY 2005 primarily from 

increased depreciation expense as additional 

National Airspace System assets moved 

from construction-in-progress status to inservice; a greater number of assets below 

the capitalization threshold were charged to 

expense in FY 2005; and accrued payroll, 

benefits and leave expenses increased due 

to increased employee leave balances and a 

greater number of unpaid days of payroll at 

the end of FY 2005 than in FY 2004. 

The net cost of Aviation Safety represents 

8% of FAA’s total net costs, while Regions 

and Center Operations and Other comprise the 

remaining 2% of total net costs. The net 

costs of these components were relatively 

unchanged from FY 2004 to FY 2005. 

With a net cost of $3.7 billion in FY 2005, 

26% of FAA’s total net costs, Airports is our 

second largest line of business. Net costs 

increased $734.9 million, from $3.0 billion in FY 2004. The Wendell H. Ford Aviation Investment and 

Reform Act for the 21st Century (P.L. 106-181) increased Airport Improvement Program funding by more 

than $1 billion in FY 2001. Funding levels for Airports programs have continued to increase by $100 million 

or more each year since. Airport improvement projects typically take several years to complete, and FAA 

reports the associated expense as the grant recipient accomplishes the improvement work. Thus, FAA’s net 

Airports costs increased in FY 2005 as the project lifecycle associated with these grants continued. 

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. These financing sources include appropriations received and non-exchange revenue, 

such as excise taxes and imputed financing from costs absorbed on FAA’s behalf by other Federal agencies. 

Our net cost of operations and net transfers to other Federal agencies serve to reduce net position. 

FAA’s cumulative results of operations decreased $398.4 million because the net cost of operations exceeded 

net financing sources in FY 2005. Primary financing sources include excise tax revenues, which were 

$1.0 billion greater in FY 2005 than in FY 2004. At the same time, however, net cost increases surpassed 

these additional financing sources. Net cost increases in FY 2005 included Hurricane Katrina relief efforts; 

grants expenses resulting from the expansion of the Airports program; accrued payroll expenses resulting 

from a greater number of unpaid days of payroll at the end of FY 2005 and increased employee leave 

balances; increased depreciation expense as additional NAS assets moved from construction-in-progress 
27

Management’s Discussion & Analysis 

status to in-service; and a greater number of assets below the capitalization threshold charged to expense in 

FY 2005. 

Unexpended appropriations increased $269.7 million during FY 2005, compared to $436.6 million during 

FY 2004. This lesser increase in FY 2005 resulted primarily because we received $176.0 million less in general 

fund appropriations in FY 2005 than in FY 2004. 

Statement of Budgetary Resources 

This statement provides 

information on the budgetary 

resources available to FAA for 

FY 2005 and the status of those 

budgetary resources at yearend. The outlays reported on 

this statement reflect the actual 

cash disbursed for the year by 

Treasury for FAA obligations. 

The Statement of Budgetary 

Resources Comparisons chart 

outlines the changes in the 

major categories of budgetary 

resources from FY 2004 to FY 2005. 

Disbursements increased 9.7%, from $17.8 billion in FY 2004 to $19.5 billion in FY 2005. These increased 

disbursements result from the completion of long-term AIP projects, following from the significant 

expansion of this program beginning in FY 2001. Operations disbursements also increased as a result of pay 

and other inflationary increases, as well as the operational costs associated with newly deployed NAS 

equipment. 

Budget authority is the authority provided to FAA by law to enter into obligations that will result in outlays of 

Federal funds. Obligations incurred result from an order placed, contract awarded, service received, or similar 

transaction that will require payments during the same or a future period. FAA reported total budget 

authority of $17.2 billion and incurred obligations of $15.0 billion in FY 2005. These amounts were relatively 

constant from FY 2004 to FY 2005. 

Statement of Financing 

This statement reconciles the resources available to FAA to finance operations and the net cost of operating 

FAA programs. The 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. 

Stewardship Investments 

Stewardship investments are substantial investments made by FAA for the benefit of the Nation, but do not 

result in physical ownership of assets by FAA. When incurred, these amounts are treated as expenses in the 

Consolidated Statements of Net Cost. FAA’s Required Supplementary Stewardship Information (RSSI), 

beginning on page 109, includes disclosure of stewardship investments over the last five years. These are 

disclosures of Airport Improvement Program grants by State/territory, and research and development 

investments. 

The distribution of total grants expense by State/territory has been relatively stable over the past 

5 years. However, expenses recognized in FY 2004 and FY 2005 increased largely as a result of a significant 
28

Management’s Discussion & Analysis 

increase in grant funding levels in FY 2001. Because these Airport Improvement Program projects are 

typically long-term, and FAA recognizes the grants expense as the recipient accomplishes the improvement 

work, the substantial expansion of this program in FY 2001 is resulting in increased expenses in more recent 

years. 

In FY 2005 and FY 2004, FAA’s research and development expenses increased as a result of, for example, 

expanded research in the areas of fire and cabin safety, research supporting a new standard for testing 

nondestructive pavement (e.g., runways), development of a new human factors analysis tool, and 

enhancements to Aviation Digital Data Service (ADDS), which provides faster and expanded access to 

weather information. 

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 OMB, 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.

Budgetary Integrity: FAA 

Resources & How They Are 

Used 

The Airport and Airway Trust Fund 

provides approximately 80% of FAA’s 

FY 2005 budget. Created by the Airport and 

Airway Revenue Act of 1970, the trust fund 

derives its monies from excise taxes and 

earned interest. It provides a stable source of 

revenue to finance investments in the airport 

and airway system. To the extent funds are 

available, the fund also 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, and international departures and arrivals, are deposited into the fund. The Department of the Treasury 

maintains the fund and invests its monies in government securities. Interest earned is deposited into the fund. 

Monies are withdrawn as needed and transferred into each FAA appropriation to cover obligations. 

FAA is financed through annual and multiyear appropriations authorized by Congress. The FY 2005 enacted 

budget of $13.8 billion is 1% less than the FY 2004 level.2 The Combined Statement of Budgetary Resources 

reflects funding enacted by the FY 2005 Consolidated Appropriations Act, Public Law 108–447. The 

FY 2005 levels include an across-the-board rescission of 0.8%. 

 

2 This figure excludes hurricane supplemental appropriations enacted in October 2004 of $5.1 million in F&E and 

$25 million in AIP. 
29

Management’s Discussion & Analysis 

FAA has four appropriations. The largest, Operations, is funded by both the Treasury’s General Fund and 

the Airport and Airway Trust Fund. In FY 2005, the Trust Fund provided 63% of the revenue for 

Operations. The Trust Fund is the sole revenue source for FAA’s three capital investment appropriations: 

 Facilities and Equipment (F&E) 

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

 Grants-in-Aid for Airports (AIP) 

Operations. The Operations appropriation finances operating costs, maintenance, communications, and 

logistical support for the air traffic control and air navigation systems. It funds the salaries and costs 

associated with carrying out FAA’s safety inspection and regulatory responsibilities as well. The account also 

covers administrative and managerial costs for FAA’s international, medical, engineering, and development 

programs, and for policy oversight and overall management functions. The FY 2005 Operations 

appropriation was $7.7 billion, a 3% increase over FY 2004 primarily attributable to payroll and inflation 

costs. 

F&E. The programs funded by the F&E appropriation are FAA’s principal means of modernizing and 

improving air traffic control and airway facilities. The account also finances major capital investments 

required by other Agency programs as well as other improvements to enhance the safety and capacity of the 

national airspace system. F&E was funded at $2.5 billion in FY 2005, about 12% less in FY 2004. Major 

systems included En Route Automation, Terminal Automation, Oceanic Automation, the Wide-Area 

Augmentation System (WAAS), Airport Surface Detection Equipment, Model X (ASDE-X), Airport 

Surveillance Radar, and Free Flight Phase 2. 

R,E&D. The FY 2005 appropriation for R,E&D was $130 million, 9% more than in FY 2004. R,E&D funds 

long-term research programs to improve the air traffic control system. In FY 2005, programs focused on the 

environment and energy, weather initiatives, JPDO activities, human factors, and aircraft safety. 

AIP. The Secretary of Transportation is authorized to award grants for planning and development to 

maintain a safe and efficient nationwide system of public airports. These grants fund approximately one-third 

of all capital development at the Nation’s public airports. Grants are issued to maintain and enhance airport 

safety, preserve existing infrastructure, and expand capacity and efficiency throughout the system. The 

program also supports noise compatibility and planning, the military airport program, reliever airports, and 

airport program administration. FY 2005 funding for AIP was $3.5 billion, a 2.7% increase over the FY 2004 

level, and for the fourth consecutive year it included approximately $20 million for the Small Community Air 

Service program. Besides the Government-wide rescission of 0.8%, the bill rescinded $265 million in contract 

authority added to AIP in FY 2004. 

 
30

Performance Results 

PERFORMANCE RESULTS 

SAFETY 

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

Safety is our primary responsibility. It is central to the public’s interest and the economic health of aviation. 

Although commercial aviation continues to be one of the safest forms of transportation, the public demands 

continued improvement in safety. General aviation also plays an important role in both the U.S. 

transportation system and the economy. We continue to focus our efforts on reducing the incidence of all 

types of general aviation accidents. 

FAA’s Flight Plan establishes eight specific objectives and outlines numerous initiatives to maintain the lowest 

aviation accident rates ever recorded. We recognize that complacency will undermine the gains in this area, 

and we therefore make continuous improvement in overall safety an essential task. 

We assess safety through eight performance measures. The following chart describes our FY 2005 

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

FY 2005 SAFETY PERFORMANCE MEASURES AND RESULTS 

Performance Measure FY 2005 

Target 

FY 2005 

Results 

Status 

Commercial Air Carrier Fatal Accident Rate: Reduce the commercial air 

carrier fatal accident rate by 80% from the 1994–1996 baseline to a 3-year 

rolling average rate of 0.010 per 100,000 departures by FY 2007. Reduce the 

3-year rolling average fatal accident rate below 0.010 by FY 2009. 

0.023 0.0171 z

General Aviation Fatal Accidents: Reduce the number of general aviation 

and nonscheduled Part 135 fatal accidents to no more than 319 (from 385, 

which represents the average number of fatal accidents for the baseline period 

of 1996–1998) by FY 2009. 

343 3501 

General Aviation Alaska Accidents: Reduce accidents in Alaska for general 

aviation and all Part 135 operations from the 2000–2002 average of 130 

accidents per year to no more than 99 accidents per year by FY 2009.

120 1281 

Runway Incursions: Reduce the number of Category A and B (most serious) 

runway incursions to no more than 27, equivalent to a rate of 0.390 per million 

operations by FY 2009. 

36/0.557 29/0.4602 z

Composite Safety Index: Implement a single, comprehensive index that 

provides a meaningful measure of the safety performance of the U.S. civil 

aviation system.

Present 

Index 

Index 

Presented z

Commercial Space Launch Accidents: No fatalities, serious injuries, or 

significant property damage to the uninvolved public during licensed space 

launch and reentry activities. 

0 0 z

Operational Errors: Reduce the number of Category A and B (most serious) 

operational errors to no more than 563, equivalent to a rate of 3.18 per million 

activities. 

637/3.92 680/4.272 

Safety Risk Management: Apply safety risk management to at least 30 

significant changes in the National Airspace System by FY 2009. 3 3 z

z Green: Goal Achieved  Red: Goal Not Achieved 

1) Preliminary estimate. Final data will be available in May 2007. 

2) Preliminary estimate. Final data will be available by January 2006.
31

Performance Results 

Safety Results and Initiatives 

Commercial Air Carrier Fatal Accident Rate3 

Commercial aviation is one of the safest forms of transportation. While rare, aviation accidents can have 

catastrophic consequences, with large loss of life. The public demands a high standard of safety and expects 

continued improvement. 

This is one of the safest periods in aviation history. The NAS operates 32,000 scheduled commercial flights 

daily. FAA is currently exceeding its FY 2005 goal of reducing the commercial air carrier fatal accident rate to 

a 3-year rolling average rate of 0.023 per 100,000 departures. The actual figure of 0.017 fatal accidents per 

100,000 departures translates to about 1 fatal accident per 5.9 million departures. Since the last fatal jet airliner 

accident involving passengers in November 2001, more than two billion airline passengers have safely 

reached their destination.

While maintaining its regulatory and enforcement role, FAA continues to 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 longterm safety programs. 

FAA also worked in FY 2005 to increase aviation safety by preventing fuel tank explosions. We submitted a 

Notice of Proposed Rulemaking to require reducing the level of flammable vapors in fuel tanks to the level 

achieved when fuel tanks are made chemically unreactive—a process called inerting. This rule would apply to 

current aircraft in service, new production aircraft, and new kinds of aircraft designs in the transport category. 

 

3 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 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, DOT would not have met 

the 2001 target.
32

Performance Results 

FAA continued efforts to improve use of onboard technology that can enable pilots to navigate aircraft to 

any point in the world using only geographical coordinates. Required Navigation Performance (RNP) is an 

important step in moving the United States from an exclusively ground-based navigation system to one 

located within the aircraft itself. By providing pilots precise guidance to all runways, RNP can help prevent 

two major types of accidents—controlled flight into terrain and accidents that occur during the approach and 

landing phase of flight. In addition, RNP will enable pilots to land in weather conditions that would ordinarily 

require diversion to alternate airports.

In addition to these safety initiatives, FAA also engaged in hands-on preventive measures in FY 2005, such as 

increased security screening of cargo to root out fireworks and other hazardous materials. Those efforts aided 

in the detection of many undeclared hazardous materials, allowing us to safeguard airline passengers through 

increased investigation of violations of hazardous material regulations. 

z Results: Through these initiatives and strategies, we were able to exceed our goal of reducing the rate 

of commercial air carrier fatal accidents, achieving a rate of 0.017 fatal accidents per 100,000 

departures. 

General Aviation Fatal Accidents & 

General Aviation Alaska Accidents 

FAA was challenged to meet the target this year for reducing General Aviation Fatal Accidents. General 

aviation fatal accidents trended higher each month than the previous year. We believe that increased flight 

activity, the increased use of turbine aircraft, and pilots exceeding their limitations contributed to a higher 

number of accidents this year. 

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

oversees 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, and corporate transportation, as well as 

personal use and recreational flying. The majority of aviation fatalities have occurred in this segment of 

aviation. Since 1988, there has been a gradual trend downward in the number of general aviation accidents, 

but progress has not been steady.
33

Performance Results 

To improve safety awareness and training, FAA works collaboratively with the general aviation community, 

while continuing to enhance the Aviation Safety Program. The General Aviation Joint Steering Committee 

(JSC), a partnership of FAA and major general aviation associations, recently created a Turbine Operations 

Subgroup. The group identified actions to encourage charter and corporate operators to adopt safety 

management systems. In addition, the JSC continues its work to improve safety for operators of single-engine 

airplanes. 

FAA has continued to work proactively to meet its goal of reducing general aviation accidents. Because of the 

challenges weather and terrain present in Alaska and the broad use of general aviation as a means of 

transportation, FAA’s Flight Plan focuses specifically on reducing general aviation accidents in Alaska. Two 

programs in particular, Circle of Safety and CAPSTONE, appear to be making a difference. Circle of Safety is 

a consumer education program that works with passengers and organizations to share responsibility and take 

a more active role in their own flight safety. CAPSTONE helps provide pilots information on their positions 

relative to terrain, as well as real-time weather information in the cockpit. FAA worked with various members 

of the general aviation community in FY 2005, including aeromedical evacuation, charter services, and other 

members of the community, to push education and training on night landings, weather, medical evacuation 

and other areas of concern. 

 Results: We did not achieve our goal of reducing general aviation fatal accidents and general aviation 

accidents in Alaska. We continue to work with the general aviation community to improve safety 

awareness and continue to advance FAA’s Aviation Safety Program. The General Aviation Joint 

Steering Committee (JSC), a partnership of FAA and major general aviation associations, develops 

programs, training, and outreach to the many major stakeholders. The JSC recently commissioned 

three major workgroups to focus on the most critical areas currently in general aviation—light sport 

aircraft, technically advanced aircraft, and turbine aircraft. Each of these new subgroups will develop 

initiatives in the next fiscal year designed to reduce risk and lower the number of fatal accidents. 

Runway Incursions 

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 with an aircraft taking off, intending to 

take off, landing, or intending to land. Reducing runway incursions lessens the probability of accidents that 

potentially involve fatalities, injuries, and significant property damage. 

For the third year in a row, serious runway incursions were below target. The number of the most serious 

types of runway incursions is projected at 29, which is lower than the FY 2005 performance target of 36. 

We continue to develop and coordinate efforts to improve runway safety including a variety of education and 

awareness materials focused on air traffic controllers, pilots, and airport drivers to help reduce the number of 

serious runway incursion incidents. Other tools, such as air traffic control memory aids, better airport surface 

markers, and public service announcements, have contributed to the reduction of runway collisions at major 

U.S. airports. ASDE-X was first commissioned at General Mitchell International Airport in Milwaukee, WI. 

This equipment maps moving objects on the airport grounds or those approaching by air, which helps 

controllers detect potential runway collisions. In FY 2005, FAA deployed ASDE-X at three additional 

locations. The Agency expects to install this equipment at 14 additional U.S. airports by 2009. 
34

Performance Results 

z Results: FAA and industry have made significant progress in reducing runway incursions. There were 

29 (preliminary estimate) of the most serious types of runway incursions, significantly lower than our 

FY 2005 goal of 36. This performance continues a downward trend that began 5 years ago. 

Composite Safety Index (CSI) 

FAA’s target for FY 2005 was to complete development of a single, comprehensive index that can provide 

the public with a general indication of the safety of the U.S. civil aviation system. The completed index was to 

be presented to the Administrator for approval. The proposed CSI is a 3-year rolling average of the yearly 

values for fatalities per “person departures.” These departures are defined as the number of persons on board 

each flight, including the crew, which then accounts for all potential exposure. FAA can use this index to 

work with the aviation community to assess the overall level of aviation safety. 

z Results: With the help of our stakeholders, we achieved our goal. The CSI was presented to the 

Administrator for review in August 2005 and will be included in the updated FY 2006 Flight Plan. 

Commercial Space Launch Accidents 

Commercial space launches generate tremendous benefits to society by delivering payloads such as 

telecommunications satellites and remote-sensing devices to orbit. FAA continues to maintain its perfect 

record of no commercial space launch accidents while safeguarding the public from the potential 

consequences of such an accident. 

z Results: We achieved this goal in FY 2005. There were six licensed launches during the year, of which 

one involved a reusable launch vehicle. No member of the public was killed or injured, and no member 

of the public suffered any property damage related to commercial space launches. 
35

Performance Results 

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 restricted airspace. Air traffic controllers employ rules and procedures 

that define separation standards for this environment. An operational error occurs when controllers fail to 

apply or follow these procedures that enforce separation and allow aircraft to end up too close to each other 

or to an obstruction. 

FAA estimates that it will exceed the FY 2005 performance limit of 637 most serious operational errors by 

more than 6% (680 operational errors). Although we missed our target, we have seen improvements in 

overall performance. These improvements, which were due to much of the work done in FY 2005, included 

 Conducting checks of certification skills, focusing on operational error causal factors, on all control room 

personnel. 

 Scheduling regular quality assurance teleconferences with air traffic facilities and producing a regular 

newsletter for controllers to highlight causal factors and trends and discuss solutions, procedures, and 

training. 

 Encouraging collaboration between two ATO units—En Route and Oceanic Services, and Terminal 

Services—and the Controller Training Division to improve training content and identify simulation 

solutions to enhance the performance of developmental air traffic control specialists and the current fullperformance level workforce. 

 In FY 2006, we will continue our performance management and communications initiatives, refine the 

operational error severity classification process to ensure an accurate identification of the risk posed by 

an operational incident, and review a procedural change for aircraft operating on crossing and diverging 

courses to provide additional operational efficiency while maintaining safety. 
36

Performance Results 

 Results: We did not meet our goal of reducing Category A and B operational errors to 637 or fewer, 

reporting instead 680 (preliminary estimate). 

Safety Risk Management 

In FY 2004, FAA developed the Safety Management System (SMS) Manual, which describes the requirements for 

the various components/functions of the SMS, including safety risk management. Safety risk management is 

a systematic, explicit, and comprehensive approach for managing safety risk at all levels and throughout the 

entire scope of an operation and lifecycle of a system. It requires the disciplined assessment and management 

of safety risk. The safety risk management process ensures that safety-related changes are documented; risk is 

assessed and analyzed; unacceptable risk is mitigated; hazards are identified and tracked to resolution; the 

effectiveness of the risk mitigation strategies is assessed; and the performance of the change is monitored 

throughout its lifecycle. 

z Results: FAA met this goal. In FY 2005, we were successful in applying Safety Risk management in 

the following three areas: 

 East St. Louis Air Traffic Control Tower (ATCT) 

 ASDE-X Safety 

 EnRoute Software Modification (URET) 

CAPACITY 

GOAL: Work with local governments and airspace users to provide capacity that meets 

projected demand in the U.S. airspace system in an environmentally sound manner. 

After the terrorist attacks of September 11, 2001, the demand for air travel decreased dramatically. Traffic has 

increased over the past 3 years and has returned to pre-September 11 levels. While the airlines continue to 

struggle with the effects of September 11 and to reinvigorate their industry, we are preparing for a return to 

heavy demand. During FY 2005, work continued with local governments and airspace users to improve the 

design and performance of both aircraft and ground systems. These improvements will accommodate more 

traffic while easing delays; increase safety and security while addressing noise and air quality; and foster 

efficient, predictable, and flexible domestic and international air travel. 

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

the national and international aviation community. We continue to focus on aviation as a global system and 

work closely with international organizations to seek global solutions to safety, routing, procedural, 

equipment, and environmental issues. We assess system capacity through eight performance measures. The 

following chart describes our FY 2005 performance in improving efficiency by achieving of each measure. 

FY 2005 CAPACITY PERFORMANCE MEASURES AND RESULTS 

Performance Measure FY 2005 

Target 

FY 2005 

Results Status 

Average Daily Airport Capacity (35 OEP airports): Achieve an 

average daily airport capacity of 104,338 arrivals and departures per day 

by 2009 at the 35 Operational Evolution Plan (OEP) airports. 

99,892 101,4631 z

Average Daily Airport Capacity (eight metropolitan areas):

Achieve an average daily airport capacity for the eight major 

metropolitan areas of 44,428 arrivals and departures per day by 2009.

43,080 44,3241 z

Annual Service Volume: Open as many as seven new runways, 

increasing the annual service volume (ASV) of the 35 OEP airports by 

at least 1% annually, measured as a 5-year moving average, through 

2009. 

1.00% 1.01% z
37

Performance Results 

FY 2005 CAPACITY PERFORMANCE MEASURES AND RESULTS 

Performance Measure FY 2005 

Target 

FY 2005 

Results Status 

Adjusted Operational Availability: Sustain adjusted operational 

availability at 99% for the reportable facilities that support the 35 OEP 

airports.

99.00% 99.76%1 z

NAS On-Time Arrivals: Through FY 2009, achieve an 88.4% on-time 

arrival rate for all flights arriving at the 35 OEP airports. Arrivals are 

considered on time if they are less than 15 minutes late due to NASrelated delays. 

87.40% 88.44%1 z

Noise Exposure: Reduce the number of people exposed to significant 

noise by 1% per year through FY 2009, as measured by a 3-year 

moving average, from the 3-year average for calendar years 2000–2002. 

–3.00% –27.00%2 z

Aviation Fuel Efficiency: Improve aviation fuel efficiency per 

revenue plan-mile by 1% per year through 2009, as measured by a 

3-year moving average, from the 3-year average for calendar years 

2000–2002. 

–2.00% –5.84%2 z

Oceanic En-route Change Requests: Increase the number of 

oceanic en-route altitude change requests that are granted through the 

end of FY 2009 to 80%. 

75.00% 76.24% z

z Green: Goal Achieved  Red: Goal Not Achieved 

1) Preliminary estimate. Final data will be available by January 2006. 

2) Preliminary estimate. Final data will be available in May 2006.

Capacity Results and Initiatives 

Average Daily Airport Capacity (35 OEP airports)

In FY 2005, FAA’s capacity measure was modified to include both arrival and departure capacity (replacing 

the daily arrival capacity measure and arrival efficiency rate used previously). Therefore, trend information is 

not available. Each airport facility determines the number of arrivals and departures it can handle for each 

hour of each day. These numbers are the airport’s called arrival and departure rates for that hour. This metric 

is determined by computing the sum of the arrivals and departures that facilities can land and depart per 

month divided by the number of days in the month. (This is a dynamic measure that changes daily based on 

factors such as weather and runway availability.) The annual capacity level for the 35 OEP airports is the 

weighted sum of the monthly capacity levels. 

The Flight Plan performance target was to increase average daily capacity for the 35 OEP airports to 99,892 in 

FY 2005 and to 101,191 by FY 2006. 

z Results: We met our FY 2005 target. Preliminary data indicate that the average for the year was 

101,463 flights. 

Average Daily Airport Capacity (8 metropolitan areas) 

Similar to the measure above, FAA’s capacity measure for the 8 metropolitan areas was modified in FY 2005. 

Therefore, trend information is not available. Growth in air travel has generally been accomplished by 

increasing the number of flights. Measuring the growth of airport capacity indicates the limit at which 

increased service can be accommodated without affecting delay. The selected eight metropolitan areas contain 

both the most congested airspace and the airports with the greatest constraints on airport expansion. Airport 

improvements, measured by increases in capacity at these airports, are likely to contribute the most to reduce 

the causes of system delay. 
38

Performance Results 

The Flight Plan performance target was to increase average daily capacity for the eight metropolitan areas to 

43,080 in FY 2005 and to 43,338 by FY 2006. 

z Results: We met our FY 2005 target. Preliminary data indicate that the average for the year was 44,324 

flights. 

Annual Service Volume 

The annual service volume goal is in place to prevent unreasonable delays at airports. Since this measure was 

new in FY 2004, trend data will not be available until next year. In FY 2005, we increased capacity at the 35 

OEP airports by 1.01%. 

z Results: For the second year in a row, we met this goal. Even though we did not open any new 

runways in FY 2005, 8 new runways have opened over the past 6 years, resulting in the 1.01% increase 

last year, measured as a 5-year moving average. Additionally, we extended the runway at Cleveland, 

which supported the incremental increase in capacity. 

Adjusted Operational Availability 

The availability of the equipment necessary to provide service directly affects the performance of the NAS. 

Loss of radar or communications equipment will affect the speed and number of aircraft that can be handled 

where that loss occurs. The ability of the NAS to provide continuous guidance is crucial and affects both 

safety and capacity. The adoption of this metric has the additional advantage of linking three capacity 

measures. On-Time NAS Arrivals are affected by the airport and en-route capacity, which are directly 

impacted by the availability of the equipment and facilities supporting that capacity. Since this measure was 

redefined in FY 2005, trend data will not be available until FY 2007. 

z Results: We exceeded our FY 2005 target to sustain operational availability at 99% for the reportable 

facilities that support the 35 OEP airports with a result of 99.76%. 

NAS On-Time Arrivals 

The Air Traffic Control System Command Center (ATCSCC) confers daily with airline industry 

representatives to coordinate traffic around factors that could potentially cause delays. By planning before the 

day begins, FAA and industry work together to ensure that aircraft operate on time. FAA programs and 

initiatives outlined in the Operational Evolution Plan (OEP), such as airspace redesign, revised air traffic 

control procedures, and the introduction of new technology, are expected to further improve on-time arrivals. 

Terminal Airspace redesign efforts are one such way we are improving our on-time performance. 

Since FY 2000, several new runways at major metropolitan airports have been commissioned. In order to 

maximize the capacity of the new runways, FAA redesigned the surrounding airspace. These changes include 

new improvements, routes, and sector structure to allow aircraft to use the new runways. Redesigned airspace 

included Las Vegas Redesign, Great Lakes Integrated Design Plan Short-term Initiatives, and the National 

Choke Points Initiative. The airspace changes reduced delays and reduced flight distances. Departure delays 

for several Great Lakes corridor airports, including Cleveland and Detroit, were significantly reduced, 

contributing to the overall improvements in on-time performance. In Southern California, revised departure 

routes and climb procedures coupled with airspace changes provided more fuel efficient departures and 

reduced the number of leveled-off departures by over 70%. 

FAA continues to develop criteria and guidance materials that will be used for new area navigation (RNAV) 

and required navigation performance (RNP) routes and procedures. Use of RNP permits greater flexibility 

and standardizes airspace performance requirements. By adopting RNAV and RNP and leveraging existing 

and emerging cockpit capabilities, the FAA in collaboration with the aviation community will be able to 

improve airspace and procedures design, leading to increased capacity and improved efficiency. We published 

RNP special approach procedures for Palm Springs, Portland, and San Francisco. We also published the first 
39

Performance Results 

public RNP procedure in the world at Washington Reagan National Airport in September 2005. FAA 

implemented 58 RNAV arrival and departure procedures including major implementations at Atlanta 

Hartsfield and Dallas-Fort Worth. We also implemented 24 RNAV routes during FY 2005, including 20 high 

altitude and four low-altitude routes providing flexibility and efficiency in the National Airspace System.

z Results: We exceeded our FY 2005 target of 87.40%, achieving an on-time rate of 88.44%. 

Noise Exposure 

In cooperation with the aviation community, we pursue a program involving noise reduction at the source 

(development and adoption of quieter aircraft), soundproofing and buyouts of buildings near airports, flight 

control measures, and land use planning. We are authorized to provide funds for soundproofing and 

residential relocation, but each project must be locally sponsored and be a part of a noise compatibility 

program prepared by the airport sponsor and approved by FAA. This noise target is based on our experience 

and reflects the relocation of people from the DNL (day/night sound level) 65 dB contour through grant 

funding, but is also affected by market forces that drive changes in commercial aircraft fleets and operations. 
40

Performance Results 

The estimates of the number of people exposed to significant noise are calculated from a U.S. version of the 

Model for Assessing Global Exposure to the Noise of Transport Aircraft (MAGENTA). The original 

MAGENTA model development was done in conjunction with the Committee on Aviation Environmental 

Protection (CAEP) under the International Civil Aviation Organization (ICAO) to assess aviation noise 

worldwide. The 2005 estimate is based on an updated version of MAGENTA, combining improvements in 

data sources and acoustic algorithms that produce significant improvement in measuring the number of 

people exposed to significant noise levels around U.S. airports. 

z Results: We exceeded this performance target by reducing the number of people exposed to 

significant noise by 27% (preliminary estimate). The performance improvement between FY 2003 and 

FY 2005 over the targeted goals grew out of a confluence of external factors—the economic downturn, 

the impact of September 11th on the industry, and the severe acute respiratory syndrome (SARS) 

outbreak. These factors produced a dramatic downturn in operations as well as a large-scale premature 

retirement of older Stage 3 aircraft. This combination of lower operations and the rapid reduction of 

the average age of the fleets resulted in improvements in noise exposure. As the industry continues to 

recover from these events, and taking into account the Next Generation Air Transportation System 

(NGATS) goal of increasing capacity threefold, the improvements witnessed over the past 2 years will 

not be sustained. 

Aviation Fuel Efficiency 

Concern over aviation’s contribution to both global climate change and local air quality continues to grow. 

Our FY 2005 performance target was to improve aviation fuel efficiency per revenue plan-mile by 1% per 

year through FY 2009, as measured by a 3-year moving average, from the 3-year average for calendar years 

2000 through 2002. We measure this target using SAGE—the System for Assessing Aviation Global 

Emissions—a computer model that estimates aircraft fuel burn and emissions for variable year emissions 

inventories and for operational, policy, and technology-related scenarios. For FY 2004, performance was 
41

Performance Results 

calculated using operational data from one representative week during the month of May to be a 4.51% 

improvement in fuel efficiency for the 3-year efficiency average (2001–2003) compared to the baseline. For 

FY 2005 performance, we used an enhanced SAGE model that allowed analysis of full year operational data. 

For comparative consistency, we re-computed the analysis completed under the FY 2004 Flight Plan including 

the baseline fuel efficiency. 

z Results: We achieved our goal for improving aviation fuel efficiency. The calculated fuel efficiency for 

FY 2005 was a 5.84% improvement over FY 2004. However, this year’s performance results should 

not be used as an indicator of future performance. Air carrier fleet and operational changes that took 

place in the aftermath of September 11th continue to influence fuel efficiency improvements. We 

expect that a return to more typical fleet compositions and flight mission length distributions, along 

with air traffic growth, will result in decreased fuel efficiency that may not be fully offset by 

improvements in airframe and engine technologies. 

Oceanic En-route Change Requests 

Air carriers and pilots want to change their altitude to minimize fuel burn and flight time. When fuel load or 

traffic patterns change, it is beneficial for flights to be able to change their altitude in real time. Additionally, 

the amount of fuel burned on the long oceanic flights is very dependent on whether aircraft can fly at their 

optimal altitude. If oceanic air traffic facilities are getting more requests to change altitudes and can 

accommodate those requests, that means the system is flexible and responsive to user needs. 

This measure was newly introduced this year, and as the year progressed, we found that oceanic operational 

metrics require better oceanic data, modeling, and analysis to forecast how increases in traffic volume affect 

performance. Rather than have this measure serve as a major objective for the Agency, we will focus instead 

on implementation of the Advanced Techniques and Oceanic Procedures (ATOP) software and develop 

sound, base-lined metrics. We achieved full operational use of ATOP at the New York ARTCC in June 2005 

and at the Oakland oceanic facility in October 2005. Implementation is planned at the Anchorage ARTCC in 

March 2006. 

z Results: We exceeded the target of granting at least 75% of requests for route changes with a result of 

76.24%. Although ATOP was only partially implemented in September, we succeeded in granting 

75.86% of change requests that month, including those received via High Frequency and Datalink 

communication. This was despite the fact that the total number of requests had increased by 66.94%. 

Our measurement capabilities did not allow us to include Datalink requests until mid-year, but we 

achieved our FY 2005 target for the entire year even without counting the additional requests. 

INTERNATIONAL LEADERSHIP 

GOAL: Increase the safety and capacity of the global civil aerospace 

system in an environmentally sound manner.

The United States has long been a leader in the global civil aviation system. In addition to controlling nearly 

half the world’s air traffic, FAA provides direct and indirect aviation assistance to 129 countries. As a leader, 

we must promote safety by broadening the international network of partnerships with civil aviation 

authorities around the world to make air travel as safe and efficient abroad as it is at home.

We assess international performance through six performance measures. The following chart describes our 

FY 2005 performance in improving efficiency through the achievement of all six measures. 
42

Performance Results 

FY 2005 INTERNATIONAL LEADERSHIP 

PERFORMANCE MEASURES AND RESULTS 

Performance Measure FY 2005 

Target 

FY 2005 

Results 

Status 

Environmental Standards and Practices: Achieve milestones to ensure that 

international environmental standards, recommended practices, and guidance 

material adopted by the International Civil Aviation Authority (ICAO) are globally 

and uniformly applied, reflect the best available technology that can be integrated 

into the fleet, provide real environmental benefit, are economically sound, and take 

interdependencies between environmental parameters into account. 

2 2 z

Aviation Safety Leadership: Advance U.S. aviation safety leadership in 

developing regions by significantly increasing safety infrastructure in 10 priority 

countries by FY 2009 through implementation of model law and regulations for 

safety oversight, providing extensive technical assistance and training, and 

concluding bilateral agreements.

2 27 z

Bilateral Agreements: Execute new or expanded bilateral agreements with 

current partners. 2 2 z

Intellectual and Financial Assistance: Secure a yearly increase of 20% in 

intellectual and financial assistance for international aviation activities from the 

United States and international government organizations, multilateral banks, and 

industry. 

20.00% 63.00% z

Support for ICAO: Promote the creation of four new regional aviation authorities 

or organizations capable of meeting globally accepted safety standards by FY 2009. 2 3 z

NAS Technologies: Expand the use of U.S. NAS technologies and procedures to 

six priority countries by FY 2009. 1 1 z

z Green: Goal Achieved  Red: Goal Not Achieved

International Leadership Results and Initiatives 

Environmental Standards and Practices 

FAA established two milestones to measure progress in achieving this goal: 

 Reach agreement with other members of the ICAO Committee on Aviation Environmental Protection 

(CAEP) on an approach for evaluating the use of existing models and potential models under 

development (e.g., Aviation Environmental Design Tool and Aviation Portfolio Management Tool 

[AEDT-APMT] for the analysis of trade-offs between noise and emissions and among emissions). 

 Determine the feasibility of building upon the draft ICAO Circular on Operational Opportunities to 

Minimize Fuel Use and Reduce Emissions to expand the use of the most cost-effective practices 

industry-wide and to explore their use as a basis for future voluntary agreements. 

The establishment of global environmental standards promotes seamless international operations in 

cooperation with bilateral, regional, and multilateral aviation partners. The lack of international agreement on 

environmental standards and practices creates significant difficulties to the effective operation of an industry 

in which an aircraft takes off somewhere in the world every few seconds. It also can result in misapplication 

of limited regulatory and financial resources in a manner that fails to achieve cost-effective solutions to 

aviation’s environmental impacts. It is important as well to ensure that internationally agreed standards and 

practices are acceptable to the United States. In addition, there is renewed recognition that complex 

interdependencies exist among aircraft noise and emissions and among various emissions, and that to achieve 

effective mitigation we must take these interdependencies into account. Meaningful progress relies on 
43

Performance Results 

enhanced analytical tools and supporting databases. Agreement with other ICAO CAEP members on an 

approach for evaluating the use of existing models and potential models under development to analyze these 

interdependencies was an essential first step. 

z Results: We achieved both outcomes associated with this goal. 

Aviation Safety Leadership 

Technical assistance to improve aviation safety abroad is the very core of FAA’s international program. A 

primary focus of this effort is to transfer knowledge and skills to help developing countries comply with 

international aviation safety standards. FAA’s technical assistance activities thereby provide greater safety for 

U.S. citizens and air carriers traveling and operating abroad. Another focus of our technical assistance effort is 

to support an interoperable and seamless global aviation system based on common use of the latest 

technologies. Such a system will not only be safer, but also more efficient. 

The European Union has launched ambitious technical assistance efforts in developing countries to influence 

the future direction of aviation in the developing world. Continuation of FAA’s technical assistance activities 

is essential to maintain FAA’s role as a global leader in aviation standards and procedures. The technical 

assistance program supports international aviation safety and efficiency improvements attainable through 

enhanced interoperability, promotes FAA’s global leadership position, and strengthens U.S. foreign trade. 

Technical assistance is delivered under government-to-government agreements. The measure of success and 

baseline are the number of agreements concluded between FAA and other governments to provide technical 

assistance and training to improve the level of safety overseas. 

z Results: We exceeded our FY 2005 goal to provide new or expanded technical assistance to two key 

countries by concluding agreements with 27 countries. In setting our target for this year, we 

underestimated our expected progress. We will review this target and establish a different measure for 

FY 2006. 

Bilateral Agreements (Products and Services) 

The purpose of a Bilateral Aviation Safety Agreement (BASA) is to promote aviation safety and 

environmental quality and to enhance cooperation and increase efficiency in matters related to civil aviation. 

By building a network of competent civil aviation authorities and concluding agreements with additional 

countries and regional authorities, FAA can increase safety globally. Improved global understanding of U.S. 

safety regulations, processes, and procedures leads to better international regulatory oversight. Since BASAs 

are based on recognized comparability of U.S. and foreign systems for approval and surveillance of the 

aviation industry, they allow us to rely on the capabilities and technical expertise of other civil aviation 

authorities in particular areas of aviation safety, thereby minimizing duplication of effort as well as opening 

new lines of communication between authorities. 

BASAs benefit the aviation industry by reducing duplication and streamlining the reciprocal acceptance of 

products and services. With the increasing globalization of aircraft manufacturing and airline operations, 

interdependency between the United States and foreign industry is outpacing FAA’s ability to conduct 

oversight throughout the globe. By entering into agreements with other authorities, we can better focus on 

U.S. safety priorities, as described earlier in the Safety section of this report, and rely on competent civil 

aviation authorities for certain safety oversight activities. 

Depending on their scope, BASAs 

 Enable FAA to certify foreign-manufactured aircraft, engines, and parts efficiently; 

 Facilitate the renewal of certificates for repair stations that conduct maintenance on U.S. registered 

aircraft operating overseas; 

 Facilitate the acceptance of foreign simulator facilities for the training of pilots; and 
44

Performance Results 

 Streamline the process for recognizing flight crew licenses issued by the FAA or another aviation 

authorities. 

z Results: FAA achieved its goal by concluding two BASAs, recognizing safety certification and 

approval systems with Australia and China. 

Intellectual and Financial Assistance 

Often countries that could benefit the most from FAA technical assistance are the least able to afford our 

help. FAA has no grant program to finance international technical assistance. This initiative seeks to leverage 

the limited resources we are able to contribute to international safety and capacity efforts by implementing a 

methodology to increase intellectual and financial assistance from U.S. Government organizations, 

multilateral banks, and industry to support global aviation system infrastructure projects. 

FAA’s role in lobbying international funding organizations has significantly increased the level of technical 

assistance provided to other countries for aviation safety improvements. Our efforts represent an important 

opportunity to influence the development of global safety standards and procedures, particularly in 

developing countries and regions. 

z Results: We exceeded our goal for FY 2005 of increasing funding by 20% over last year, arranging 

$19.5 million in funds for technical assistance and infrastructure development programs, an increase of 

63% over the FY 2004 funding level of nearly $12 million.4 FAA’s increased focus on multilateral 

development bank funding for aviation resulted in World Bank approval of a $10 million loan to Kenya 

to increase aviation safety. This single activity represents more than 50% of our FY 2005 funding level, 

and helped us boost our results to over three times the targeted increase for the year. 

Support for ICAO 

FAA conducts extensive activities with ICAO. We support several on-going ICAO safety and technical 

programs, including the Universal Safety Aviation Oversight (USAO) program and numerous ICAO panels 

that address a range of aviation activities. 

We have also promoted increased U.S. representation at ICAO through a special Fellowship program that 

loans FAA employees to ICAO Headquarters on a temporary basis for various safety, technical, and legal 

assignments. In FY 2005, two FAA Fellows were placed in the Air Navigation Bureau and one Fellow in the 

Legal Bureau. We were also able to place two FAA employees and one private sector individual into 

permanent ICAO positions. In addition, we placed a FAA senior executive as the ICAO Air Navigation 

Commissioner, a key ICAO executive-level position. 

To support the ICAO goals of fostering the development of regional safety organizations, FAA cooperated 

with the East African Community (EAC), the Regional Aviation Safety Oversight System (RASOS) in the 

Caribbean, the Latin American Civil Aviation Commission (LACAC) in South America, and regional

Cooperative Development of Operational Safety and Continuing Airworthiness Project (COSCAP) 

organizations and the Pacific Aviation Safety Office (PASO) organization in the Asia-Pacific region. 

z Results: FAA was instrumental in supporting an Asian Development Bank grant of $1.95 million to 

help establish the PASO, a new aviation safety and security organization in the Pacific that will be 

operational by 2010. PASO members include Australia, Fiji, Kiribati, New Zealand, Papua New 

Guinea, Samoa, Solomon Islands, and Vanuatu. In Latin America, FAA organized the first senior-level 

 

4 The FY 2004 funding level has been revised from the $13.8 million reported in last year’s PAR, which was based on 

projected data. The revised level of $12 million also produces a reduction in last year’s reported percentage increase over 

the FY 2003 level of $5 million, from 177% to 139%. For FY 2005, projected data are no longer used. This year’s results 

are final numbers. 
45

Performance Results 

meeting with the LACAC in February 2005. We provided training to LACAC member countries to 

enhance the region’s capabilities in the area of airworthiness certification. In Africa, we supported the 

development of a regional safety and air navigation authority for the East African Community (Kenya, 

Tanzania, and Uganda). 

NAS Technologies 

Throughout the year in support of all NAS Technologies initiatives and supporting target activities, ATO 

continued to support its international counterparts in planning for and implementation of technologies and 

systems that are interoperable with those in the NAS. Specific to meeting the FY 2005 target, ATO 

conducted a critical technical meeting with the Japan Civil Aviation Bureau (JCAB) in Tokyo on July 11–14, 

2005, to address the future direction and content of our cooperation related to satellite navigation. Japan is 

building a system that augments the Global Positioning System (GPS) with two Multi-function Transport 

Satellites (MTSATs). This system is known as the MTSAT Satellite Augmentation System (MSAS). MSAS is 

based primarily on U.S. Wide Area Augmentation System (WAAS) technology. During the July 2005 meeting, 

ATO presented and discussed its assessment of an operational certification roadmap for the MSAS. As the 

only organization in the world to certify a satellite-based augmentation system for operational use, ATO’s 

assistance is critical in enabling JCAB to prepare MSAS for timely operational certification. The ATO and 

JCAB committed to plan additional joint activities to support JCAB efforts to provide safety, capacity, and 

efficiency enhancements for civil aviation. The activities leading up to this meeting, and the discussions at the 

meeting, mark the completion of the FY 2005 performance target to assist one country with the 

implementation of a U.S. NAS technology. 

z Results: FAA succeeded in expanding the use of U.S. NAS technologies and procedures in one 

priority country during FY 2005. 

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. 

Organizational excellence is an ongoing challenge. Our performance measures this year continued with an 

external focus on improving customer satisfaction and the launch of a more concerted internal effort to 

improve our business processes. These internal improvements included better management of our 

acquisitions, faster hiring for mission critical positions, strengthening the linkage between employee 

performance and Agency goals, shoring up the security of our information, and reducing costs. 

FY 2005 ORGANIZATIONAL EXCELLENCE 

PERFORMANCE MEASURES AND RESULTS 

Performance Measure FY 2005 

Target 

FY 2005 

Results 

Status 

Employee Attitude Survey: Increase Employee Attitude Survey scores in 

the areas of management effectiveness and accountability by at least 5% by 

FY 2008.

1.50% 2.00% 

z

Cost Control: Develop and implement a centrally managed and highly 

visible cost control program to lead the Agency in reducing costs. Each 

FAA organization will contribute at least one cost reduction activity each 

year to its Business Plan with measurable, significant cost savings. 

1 activity / 

organization 

1 activity / 

organization z

Critical Acquisition Budget: By FY 2009, 90% of major system 

acquisition investments are within 10% of budget. 

80.00% 97.00% z

Critical Acquisition Schedule: By FY 2009, 90% of major system 

acquisition investments are on schedule. 

80.00% 92.00% z
46

Performance Results 

FY 2005 ORGANIZATIONAL EXCELLENCE 

PERFORMANCE MEASURES AND RESULTS 

Performance Measure FY 2005 

Target 

FY 2005 

Results 

Status 

Information Security: Achieve zero cyber security events that significantly 

disable or degrade FAA services.

0 0 z

Customer Satisfaction: Increase Agency scores on the American 

Customer Satisfaction Index (ACSI) survey of commercial pilots.

64 66 z

Performance Plans: Directly relate 100% of all employee performance 

plans to FAA strategic goals and their organization’s performance plans. 

85.00% 94.29% z

Cost-Reimbursable Contracts: Close out 85 percent of eligible cost 

reimbursable contracts during each fiscal year.

85.00% 170.00% z

Mission Critical Positions: Reduce the time it takes to fill mission critical 

positions by 20% over the FY 2003 baseline. 

6.00% 35.00% z

Flight Plan Targets: Achieve 90% of all performance targets in the Flight 

Plan.

90.00% 90.00% z

z Green: Goal Achieved  Red: Goal Not Achieved

Organizational Excellence Results and Initiatives 

Employee Attitude Survey (EAS) 

This performance metric measures employees’ perceptions of critical management processes and practices 

using 12 specific survey items. Meeting the target requires the percentage of positive results for these items to 

be 40% by FY 2008, 5 points above the FY 2003 baseline. The interim FY 2005 target was a 1.5% increase, 

or 36.5%. 

z Results: The EAS FY 2005 performance metric result was 37% positive (2% over the baseline), a half 

percentage point above the target. We consider the FY 2005 target to be met given that the metrics’ 

confidence interval included the target value of 36.5%. The results and the recently available results 

from the Government’s Federal Human Capital Survey will be used to improve FAA’s ability to meet 

the FY 2008 target. We expect to meet this performance target in FY 2006. 

Cost Control 

For FY 2005 we elected to develop better ways to control costs. Our original Cost Control target, to use cost 

savings to fund Flight Plan initiatives, was largely achieved in FY 2004 but has been replaced. As part of the 

revised FY 2005–2009 Flight Plan, each line of business and staff office was directed to identify at least one 

cost savings activity. Additionally, the Office of Financial Controls was established and charged with 

overseeing the FAA’s cost reduction ideas and activities. Also noteworthy was the establishment of a Strategic 

Sourcing initiative in which an outside firm will assist FAA in reducing expenditures in certain procurement 

categories. The firm’s fee will be a percentage of the savings achieved. 

As the year progressed, the cost savings and cost avoidance activities proposed by the lines of business were 

tracked and reported at the monthly Flight Plan meetings. Cross-organizational initiatives, primarily in 

information technology, provided a wide impact. Benefits of over $80 million accrued, with many cost 

savings activities added as the year progressed. 

In FY 2006, we will continue to focus on financial management activities within each line of business and 

staff office. Each organization must provide a productivity and/or financial metric to measure its efficiency. 

By increasing efficiency and productivity, we will be in a better position to reduce overall cost. 

z Results: FAA met this goal. Each organization contributed a cost reduction activity for the year 

resulting in cost savings or cost avoidance. 
47

Performance Results 

Critical Acquisition Budget & Schedule 

Thirty-five critical acquisition programs are tracked against these performance measures and they have 

positively exceeded targets for both cost and schedule variance in FY 2005. In the past 3 years, FAA has 

implemented processes for variance tracking and reporting that have strengthened control over major 

acquisitions and resulted in significant performance gains. Maintaining and meeting critical program schedules 

and cost targets for equipment and technical solutions ensure the operational efficiency of the NAS. 

z Results: FAA succeeded in meeting the goal of ensuring that 80% of major system acquisition 

investments are within 10% of budget, achieving 97% compliance. We also met our goal of 

completing 80% of acquisition schedule milestones, achieving 92% compliance. 

Information Security 

During FY 2005 FAA completed development and implementation of an IT Business Plan to protect IT 

assets in accordance with numerous executive and legal requirements. The plan has 25 targets, 8 of these 

specific to information systems security (ISS) performance. In addition, information security is one of the 

PMA goals that are tracked by OMB. As a result of FAA’s support, DOT obtained a rating of “green” in IT 

Security and we are on track to maintain our green score from OMB for the year. During FY 2005, we 

completed 100% of security reviews of our IT Systems (96% were reviewed in FY 2004), eliminated 20% of 

targeted vulnerabilities, maintained an average of no more than 0.10 or fewer vulnerabilities as measured 

against SANS (SysAdmin, Audit, Network, Security) Institute top 20, expanded the vulnerability scanning and 

intrusion detection capabilities for the FAA enterprise, planned for implementation of smart card technology 

to comply with Homeland Security Presidential Directive 12, and signed a memorandum of cooperation with 

Eurocontrol to share cyber-security data and procedures and to work cooperatively toward better business 

practices. 

z Results: We achieved 100% of the FY 2005 milestones for the information security program and 

succeeded in meeting our target of zero cyber security events that significantly disable or degrade FAA 

services. 

 
48

Performance Results 

Customer Satisfaction 

Over the past 7 years, we have used the American Customer Satisfaction Index (ACSI) to measure 

satisfaction with U.S. commercial pilots. The ACSI is a national indicator of the quality of goods and services 

available to the American public. It 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, and the clarity of regulations and how they contribute to aviation safety. 

This year’s results show continued improvement in 2005. 

z Results: FAA succeeded in increasing its ASCI score to 66. 

Performance Plans 

This target requires 100% of employee performance plans to be directly related to FAA strategic goals and 

the performance plans of employees’ organizations by FY 2009. The FY 2005 target was 85%, with a 5% 

increase for each succeeding fiscal year. FAA’s Office of Human Resource Management (AHR) distributed 

guidance to FAA line and staff offices on assessing the current level of compliance to performance plan 

alignment. 

z Results: The final analysis of the reports shows that 94.29% of FAA employees, managers, and 

executives had individual performance plans linked to the strategic goals in the Flight Plan and 

organizational business goals. This exceeds the 85% goal for FY 2005. Individual organizations that 

fell short of the 85% goal for FY 2005 have been provided assistance from the Office of Human 

Resource Management in establishing FY 2006 individual performance plans that provide the 

required linkage to Flight Plan goals. This performance target was removed from the FY 2006–2010 

Flight Plan, but was retained in AHR’s FY 2006 and FY 2007 Business Plans. 

Cost-Reimbursable Contracts 

The Headquarters Contracts Division, along with significant support provided by the FAA closeout 

contractor, greatly exceeded FAA’s goal of closing 85% of eligible flexibly priced contracts. FAA uses its 

Global Contracts List database, as well as its procurement/acquisition management system, to track contracts 

becoming eligible for closeout as well as actual closeouts accomplished by its contracting officers. The target 

required the closeout of 82 contracts in FY 2005, which were completed three months ahead of schedule. By 
49

Performance Results 

the end of the fiscal year, the Contracts Division had successfully closed a total of 140 flexibly priced 

contracts. 

z Results: We exceeded this goal, closing 58 more contracts than required, or 170% of the FY 2005 

target. 

Mission Critical Positions 

This performance target measures the time to fill FAA mission critical positions (MCPs), including Air Traffic 

Controller, Transportation Specialist, Engineer, Aviation Safety Inspector, Engineering and Electronics 

Technician, and IT Specialist positions. Our FY 2005 target for filling MCPs was 76 days, which represents a 

6% reduction from the baseline of 81 days established in FY 2003. The Flight Plan goal is to achieve a 20% 

reduction in the number of days required to fill MCPs by FY 2008–from 81 days to 65 days. The time-to-fill 

measure for MCPs is the total number of days from the date an action to fill a position is requested by the 

hiring organization to the date that the job is offered to the individual who fills the job. The measure includes 

positions filled internally and externally. 

In FY 2004, FAA decided to eliminate Air Traffic Controllers from the performance target because the hiring 

process for these positions was far more complex and time consuming than for the other mission critical 

positions. Air Traffic Controllers also accounted for 37% of the mission critical hiring activity in FY 2004. A 

comprehensive study of hiring practices for the Air Traffic Controller position was recently completed, and 

these results along with other factors will be considered in determining how to set a challenging standard for 

filling Air Traffic Controller positions. Upon completion of study analyses, we will consider whether Air 

Traffic Controllers should be analyzed separately or reintroduced into the analysis of the other mission critical 

positions. 

z Results: We exceeded our target of filling MCPs within 76 days. In FY 2005, it took a median of 53 

days to fill MCPs, excluding Air Traffic Controller positions. This represents a 35% reduction over 

the FY 2003 baseline. Retrospectively, we recalculated the FY 2003 baseline without air traffic 

controllers and it was 62 days. We decided to retain the original targets, because the hiring process 

for MCPs is unstable and affected by changes in the relative number of MCPs filled, budget 

considerations, and internal policies and procedures. Our performance data in FY 2005 show 

improvement over FY 2004 performance, thus indicating stabilization of hiring practices for MCPs. 

However, it is very important that we continue to collect performance data by occupation to 

determine a balanced, efficient goal for hiring processes that will deliver high-quality candidates. 

Therefore, we believe that our implementation of monthly and quarterly monitoring of the time-tofill MCPs ensures more proactive management of our mission critical hiring processes. We expect to 

meet this performance target in FY 2006. 

Flight Plan Targets 

FAA achieved 28 of its 31 performance targets—a 90% success rate. The three targets missed included 350 

(preliminary estimate) general aviation fatal accidents, 7 (2%) above the not-to-exceed target of 343; 128 

(preliminary estimate) accidents in Alaska, 8 above the not-to-exceed target of 120; and 680 (preliminary 

estimate) operational errors, 43 above the target of 637. 

Among performance targets achieved, the commercial air carrier fatal accident rate, at 0.017 per 100,000 

departures, is the lowest annual rate in the history of aviation. NAS on-time arrivals, at 88.44%, were much 

stronger than expected, exceeding the target of 87.40%. 

For information on why individual targets are not being met and what is being done to bring them back on 

track, see the notes under the individual target. 

z Results: We achieved our goal of achieving 90% (28 of 31) of our performance goals this year. 
50

Performance Results 

Completeness and Reliability of Performance Data 

Following are summaries of completeness and reliability issues for selected performance measures. For a 

discussion of the management controls established by FAA to ensure the quality of performance data, see 

“Verification and Validation of Performance Information” in the Performance Highlights section of this report.

Commercial Air Carrier Fatal Accident Rate

The FAA does comparison checking of the departure data collected by the Bureau of Transportation 

Statistics (BTS). However, FAA has no independent data sources against which to validate the numbers 

submitted to BTS. FAA compares its list of carriers to the DOT list to validate completeness and then places 

the carriers in the appropriate category (i.e., Part 121 or Part 135). NTSB and FAA’s Office of Accident 

Investigation meet regularly to validate the accident count. 

To overcome reporting delays of 60 to 90 days, FAA must rely on historical data, partial internal data sources, 

and Official Airline Guide (OAG) scheduling information to project at least part of the fiscal year activity 

data. Due to reporting procedures in place, it is unlikely that calculation of future fiscal year departure data 

will be markedly improved. Lacking complete historical data on a monthly basis and independent sources of 

verification increases the risk of error in the activity data. 

Results are considered preliminary based on projected activity data. Most accident investigations are a joint 

undertaking: NTSB has the statutory responsibility, but, in fact, most of the accident investigations related to 

general aviation are conducted by FAA Aviation Safety Inspectors without direct involvement of NTSB. 

FAA’s own accident investigators and other FAA employees participate in all accident investigations led by 

NTSB investigators. 

General Aviation Fatal Accidents 

NTSB and FAA’s Office of Accident Investigation meet regularly to validate information on the number of 

accidents. It would be preferable to use fatal accident rates rather than number of fatal accidents as the 

performance measure. However, general aviation flight hours are based on an annual survey conducted by 

FAA. Response to the survey is voluntary, and as such the accuracy of the flight hours collected is suspect 

and there is no readily available way to verify or validate the data. For this reason, the general aviation 

community is unwilling to use a rate measure until the validity and reliability of the survey data can be 

assured. Results are considered preliminary. NTSB continues to review accident results from FY 2004. 

Alaska Accidents 

The data on Part 135 and general aviation accidents come from the NTSB Aviation Accident Database. 

Aviation accident investigators under the auspices of the NTSB develop the data. Numbers are final when the 

NTSB releases its report each March; however, the number is not likely to significantly change from the end 

of each fiscal year to the time the rate is finalized.

Operational Errors 

FAA air traffic facilities have a software program called Operational Error Detection Patch (OEDP) that 

detects possible operational errors and sends alert messages to supervisory personnel. Facility management 

reviews OEDP alerts and data provided from the National Track Analysis Program (NTAP) to determine if 

an operational error has occurred. Controllers are required to report operational errors. The information is 

summarized in the FAA Air Traffic Operational Error and Deviation Database. 

An OIG report released in September 2004 (AV-2004-085) found evidence of underreporting of operational 

errors at facilities where errors are self-reported, and recommended that FAA “take more aggressive steps to 

ensure that [they] are more accurately reported.” As of September 2005, all facilities were required to establish 

a facility audit process that allows for random reviews of services. For more detail, see the discussion of 

operational errors in the Management Challenges section under Ensuring Aviation Safety in a Changing Aviation 

Environment.
51

Performance Results 

Annual Service Volume 

The NAS Advanced Concept Branch at the FAA Technical Center in Atlantic City, NJ, through the Office of 

System Capacity provides technical support to develop a consistent method of calculating the individual 

airport Annual Service Volume (ASV). Delay curves were developed for each of the 35 OEP airports for the 

existing airport layout and with new runways where proposed. Based on an acceptable level of delay, the 

number of operations that can reasonably be expected to occur at each airport was determined. A consistent 

calculation technique to estimate capacity was used for all airports. Demand schedules and fleet mixes were 

developed from recent OAG information, supplemented with flight counts from airport traffic control tower 

logs. In addition, standard air traffic control procedures were used for each airport. FAA selected the Runway 

Delay Simulation Model (RDSIM) to calculate ASV. Once developed, the delay curves should remain 

accurate unless a major change in fleet mix or operational characteristics occurs at the airport. 

Adjusted Operational Availability

The NAS Performance Analysis System (NASPAS) was developed to analyze outages of the Air Traffic 

Control Facilities in FAA-maintained NAS. NASPAS receives monthly updates of outage data from the 

National Outage Database. The Maintenance Management System contains individual equipment outage data 

as recorded by the system specialist. Adjusted Operational Availability is the ratio of maximum 

facility/service hours, minus all outage time except for improvements, to maximum facility/service hours, 

expressed as a percentage. 

NAS On-Time Arrivals

Flight Plan data are extracted from carrier records supplied from the Aviation System Performance Metrics 

database, which is maintained by the FAA’s Office of Aviation Policy and Plans. To ensure reliability, 

summary data are compared and supplemented with data filed monthly with DOT under 14 CFR Part 234, 

Airline Service Quality Performance Reports, which separately requires reporting by major air carriers on 

flights to and from all large hubs. FY 2005 data will not be finalized until approximately 90 days after the end 

of the fiscal year. 

Noise Exposure

This measure is derived from model estimates that are subject to errors in model specification. A statistical 

modeling technique (Model for Assessing Global Exposure to the Noise of Transport Aircraft or 

MAGENTA) is applied using U.S. population data from the Department of Commerce, locally developed 

traffic distribution, and aircraft distributions developed using the Enhanced Traffic Management System 

(ETMS) and current aircraft registration databases. The local traffic utilization data is available for the busiest 

U.S. airports in the form of studies developed for the Integrated Noise Model (INM). For smaller airports, a 

generic statistical procedure was employed. 

No actual count is made of the number of people exposed to aircraft noise. Aircraft type and event level are 

current. However, some of the databases used to establish route and runway utilization were developed from 

1990 to 1997, with many of them now more than 7 years old. The plans may not reflect changes in airport 

layout, including expansions. The benefits of federally funded mitigation, such as buyout, are accounted for. 

FAA reports the percentage decrease in the number of people exposed to significant noise, measured from 

the 3-year average for calendar years 2000–2002. The 3-year average stabilizes noise trends, which can 

fluctuate from year to year and are affected by unusual events. 

The reporting of percentages helps avoid confusion over U.S. noise exposure trends caused by annual 

improvements to the noise exposure model. Until recently, the scope of the measure included only scheduled 

commercial jet transport airplane traffic at major U.S. airports. With access to better operational data sources, 

the scope has expanded to include unscheduled freight, general aviation, and military traffic. The increase in 

the estimated number of people exposed to significant noise is a result of improvements in measurement, not 

a worsening in aviation noise trends. Use of the percentage change in aircraft noise exposure shows the trend 

in aircraft noise exposure. 
52

Performance Results 

To ensure reliability, the Integrated Noise Model (the core of the MAGENTA model) has been validated 

with actual acoustic measurements at both airports and other environments. External forecast data are from 

primary sources. The MAGENTA population exposure methodology has been thoroughly reviewed by an 

ICAO task group and was most recently validated for a sample of airport-specific cases. 

Aviation Fuel Efficiency 

FAA measures this target using SAGE (System for Assessing Aviation Global Emissions), a computer model 

that estimates aircraft fuel burn and emissions for variable-year emissions inventories and for operational, 

policy, and technology-related scenarios. For this target, SAGE is used annually to generate fuel burn and 

total distance flown for all U.S. commercial operations. 

Employee Attitude Survey (EAS) 

The percent positive value is based on the number of “agree” or “strongly agree” ratings for 12 performance 

culture EAS items divided by the total number of ratings. Given that FAA measures relatively small 

differences in percent positive, census surveys are used (i.e., all employees are surveyed for our primary 

performance target assessments, such as in 2006 and 2008). However, for practical reasons we may use 

samples in some years and estimate our progress. The 2005 interim Employee Attitude Survey was 

administered in May 2005 to a stratified, random sample of about 6,500 employees and the results have been 

reported to the Administrator. Despite the large sample, there is a potential for measurement error. 

Assessing Programs 

Program Assessment Rating Tool Reviews 

In FY 2003, we reviewed ATO, known then as Air Traffic Services, and Research, Engineering, and 

Development using PART. ATO is the largest line of business within FAA and is responsible for safely 

moving air traffic throughout the national air space system. R,E&D conducts aviation safety research to 

support high priority FAA goals. 

The assessment indicated that ATO’s overall purpose is clear and that performance goals are well defined. 

The program, which was rated adequate, is working to improve its efficiencies under the new ATO 

alignment. 

OMB recommended that ATO 

 Resolve the air traffic controller staffing and efficiency concerns, as raised by the OIG and GAO. 

 Work to consistently achieve long-term goals. 

 Continue efforts to improve efforts and contain costs. 

 Develop an efficiency measure and target for the 2006 President’s Budget. 

In response to the recommendations, we have established a 10-year strategy for the air traffic control 

workforce that details efficiencies from cost savings and productivity improvements. The Flight Plan provides 

a strategic framework for a safe, efficient and sound air transportation system. Current performance against 

expected outcomes and cost cutting efforts are outlined in the Flight Plan and reported monthly. 

Additionally, ATO implemented a strategic management process in FY 2005. Preliminary targets for ATO 

efficiency measures related to unit cost and productivity were established. 

The OMB PART assessment indicated R,E&D’s overall purpose is clear and that the program has specific 

long-term performance measures tied to specific research programs. R,E&D received a rating of effective, the 

highest possible. 

OMB recommended that R,E&D 

 Work with NASA to ensure no duplication of effort in research programs exist. 

 Include efficiency measure and targets in the FY 2005 President’s Budget. 
53

Performance Results 

 Implement a new cost accounting system that will allow viewing of financial plans at various reporting 

levels in real-time. 

We completed action on the recommendations. FAA continues cooperative R&D efforts with NASA. An 

R&D efficiency measure is now part of the FAA’s annual R,E&D budget requests and is included in strategic 

and business planning documents. DELPHI financial reports are used in conjunction with the FAA cost 

accounting system as part of the R,E&D funds management and tracking. 

Program Evaluations 

Both air carriers and passengers play a critical role in the transportation of hazardous materials by air. Air 

carriers (including shippers and repair stations that ship hazardous materials) are required to transport the 

material in accordance with the existing Federal regulations. Passengers are prevented from carrying 

unauthorized hazardous materials onto scheduled commercial flights if discovered during the security 

screening. To ensure compliance, Special Agents periodically inspect and conduct investigations of violations 

by air carriers, shippers, and repair stations that ship by air. DOT’s Pipelines and Hazardous Materials Safety 

Administration (PHMSA) promulgates these hazardous materials regulations. 

DOT’s OIG conducted an evaluation to assess the effectiveness of our efforts to ensure compliance with 

existing hazardous materials regulations. To improve the management of this effort, OIG recommendations 

included the following: 

 Institute guidelines and timeframes for conducting hazardous materials investigations, conducting legal 

reviews, and issuing Notices of Proposed Civil Penalties through the coordinated efforts of the 

Hazardous Materials Division and the Office of the Chief Counsel. 

 Develop and implement alternate means of administering hazardous materials enforcement cases, such as 

the ticketing system used by PHMSA. 

 Finalize and implement the voluntary disclosure reporting program. FAA needs to take a systematic 

approach in effectively managing the program, to include disseminating all useful information to the air 

carriers, hazardous material shippers, and DOT Operating Administrations with hazardous materials 

oversight and enforcement responsibilities. 

 Implement a pilot project with the Transportation Security Administration (TSA) and one or more air 

carriers to determine the effectiveness and cost on an automated operating system to record and process 

violations of hazardous materials regulations discovered during screening of passenger carry-on and 

checked baggage. In the interim, collaborate with TSA to implement procedures for notifying FAA of 

hazardous materials incidents associated with passenger carry-on baggage. 

 Issue an Advisory Circular notifying all air carriers that they must report to FAA all unauthorized 

hazardous materials found in passenger-checked baggage and take enforcement actions against those air 

carriers not complying with the reporting requirements. 

In response to the OIG recommendations, FAA 

 Issued written field guidance on the timeliness of civil penalty cases that reduces the time allowed for civil 

penalty enforcement investigative reports to be submitted for legal review from 120 to 90 days. In 

addition, the Chief Counsel’s Office expects to revise Order 2150.3A by the end of the calendar year to 

provide more consistent guidance to all FAA inspectors. 

 Expects to publish an initial notice in the Federal Register by March 30, 2006, that will implement a notice 

of violation process similar to both the Pipelines and Hazardous Material Safety Administration 

“ticketing” process and the process we previously used to administer certain aviation security violations. 

 Completed a review of the draft Voluntary Disclosure Advisory Circular for certain hazardous materials 

violations, in cooperation with the Chief Counsel’s Office. The draft Voluntary Disclosure Advisory 

Circular has been circulated for notice and comment from air carrier associations. We expect to publish 

this Advisory Circular by December 2005. 
54

Performance Results 

 Developed a department-wide intermodal shipper database that contains DOT’s hazardous materials 

inspections, penalties, incidents, exemptions, and registrations information. The system will help set 

shipper inspection priorities based on prior penalties and incidents on record. 

 Arranged with the Air Transport Association (ATA) to provide its member air carriers with summary 

results of FAA hazardous materials inspections of their operations. We have conducted over 3,000 

outreach visits to hazardous materials shippers in the past 12 months and FAA field agents will provide a 

summary of a shipper’s prior incident records to the shipper during inspections. We also provided our 

inspection and penalty records for the DOT intermodal database system so they will bee available for the 

other DOT Operating Administrations. 

 Drafted a revision to our Memorandum of Agreement (MOA) with the TSA. This revised MOA will be 

the basis for a mechanism to share TSA data on security checkpoint seizures of hazardous materials with 

the FAA. We will evaluate and prioritize the information in terms of the risks posed by the abandoned 

hazardous materials. Lower risk items will be entered into FAA’s system to generate an automated 

outreach notification to the relevant passenger, higher risk items will be forwarded to the relevant 

Regional Office for investigation. Concerning unauthorized hazardous materials discovered during 

checked baggage screening, the TSA Standard Operating Procedure advises screeners to refer their 

discoveries to the air carrier that checked the bag. The air carrier would have to notify FAA. We initiated 

the system to generate automated outreach notices in January 2005, and by the end of FY 2005 we had 

mailed more than 4,000 outreach notices to passengers. 
55

Financial Statements 

 

 

 

FINANCIAL STATEMENTS 
56

Financial Statements 

Chief Financial Officer Ramesh 

Punwami accepted FAA’s second 

consecutive Certificate of Excellence in 

Accountability Reporting from the 

Association of Government Accountants

on September 14, 2005. 

A Message from the Chief Financial Officer 

FY 2005 has been a year of significant accomplishments for FAA. Building 

on last year’s successes, we were able to achieve 28 of 31 performance 

goals—this is an improvement over our FY 2004 performance. I am 

particularly proud of our continued success in meeting our Organizational 

Excellence goals, which support our ability to provide the traveling public 

with safe, secure, and efficient air travel. 

Notable accomplishments included the following: 

 Honored with our second consecutive Certificate of Excellence in 

Accountability Reporting from the Association of Government 

Accountants for our FY 2004 Performance and Accountability Report. FAA 

was 1 of only 10 Federal Government agencies to receive this 

distinction. We are all justly proud of this accomplishment. In addition, 

our FY 2004 Performance and Accountability Highlights publication received 

a Gold Award from the League of American Communication 

Professionals, recognizing it as one of the top annual reports in the 

country. 

 Received an unqualified opinion on our financial statements. FY 2005 

marks the fifth consecutive year that FAA has received an unqualified 

audit opinion. 

 Implemented quality control processes to address FY 2004 findings 

from the OIG and our independent auditors, to ensure improved financial statement integrity. 

 Awarded a contract for the operation of 58 Flight Service Stations to Lockheed Martin. We estimate that 

this competitive sourcing initiative—one of the largest ever undertaken by a Federal Government 

agency—will save FAA $2.2 billion from FY 2003 through 2015. 

 Improved our financial management systems. The new DELPHI general ledger system has been 

stabilized and we have focused on enhancing our cost accounting system that produces fully allocated 

cost information for operating departments. With this tool, we will be able to provide managers with 

meaningful managerial cost data to make better resource allocation decisions. 

 Neared completion on our ISO 9001 certification in our AVS line of business. We expect this to be 

awarded next year. By implementing a quality management system, FAA will have achieved a standard of 

operational excellence that is recognized and respected 

throughout the world.

 Implemented a major initiative to achieve cost efficiencies 

within FAA operations. Each line of business has undertaken 

specific cost reduction and cost avoidance actions that we 

track monthly at Flight Plan status meetings. We have 

developed a plan to expand this initiative to include 

productivity measurement and improvement in FY 2006. 

FAA has also begun contract negotiations with FAA’s largest 

unions. 

 Revised and updated our Flight Plan to reflect the new realities 

facing both FAA and its industry partners. 

Although we received an unqualified opinion on our financial 

statements for the fifth consecutive year, we received an internal 

control material weakness in the area of timely processing of 
57

Financial Statements 

transactions and reconciliation of accounts. We have already established a quality control team and are 

proactively assigning resources to correct the processes that resulted in the internal control material weakness. 

I continue to be impressed by FAA’s high levels of performance and accountability. Because of our hard 

work throughout the year, FAA has a modern financial management system that provides our managers with 

better information about the real costs of our programs and initiatives, which, in turn, has led to greater 

success. The firm foundation we have built will enable us to meet the greatest challenges we face in moving 

America safely—improving safety, increasing capacity, and managing our business more effectively while 

facing a shrinking budget and the changing aviation industry. 

Ramesh K. Punwani 

Assistant Administrator for Financial Services/Chief Financial Officer 

November 8, 2005
58

Financial Statements 
59

Financial Statements 
60

Financial Statements 
61

Financial Statements 
62

Financial Statements 
63

Financial Statements 
64

Financial Statements 
65

Financial Statements 
66

Financial Statements 
67

Financial Statements 
68

Financial Statements 
69

Financial Statements 
70

Financial Statements 
71

Financial Statements 
72

Financial Statements 
73

Financial Statements 
74

Financial Statements 
75

Financial Statements 
76

Financial Statements 
77

Financial Statements 
78

Financial Statements 

 
79

Financial Statements 

The accompanying notes are an integral part of these financial statements.

Assets 2005 2004

Intragovernmental

Fund balance with Treasury (Notes 2 & 12) 2,413,102 $ 2,840,663 $ 

Investments (Notes 3 & 12) 10,665,560 10,318,029 

Accounts receivable, advances, and other (Notes 4 & 12) 304,437 215,989 

Total intragovernmental 13,383,099 13,374,681 

Accounts receivable, advances, and other, net (Note 4) 183,493 173,283 

Inventory, operating materials, and supplies, net (Note 5) 626,086 585,709 

Property, plant, and equipment, net (Notes 6 & 9) 14,432,466 14,469,731 

Total assets $ 28,603,404 28,625,144 $ 

Liabilities

Intragovernmental liabilities

Accounts payable 106,693 $ 61,041 $ 

Employee related, legal, and other (Note 8) 294,566 287,026 

Total intragovernmental liabilities 401,259 348,067 

Accounts payable 564,575 649,005 

Environmental cleanup costs (Notes 7 & 17) 596,536 606,261 

Employee related, legal, and other (Notes 8, 9 & 17) 1,163,022 959,527 

Federal employee benefits (Note 10) 942,276 954,463 

Total liabilities 3,517,323 3,667,668 

Commitments and contingencies (Notes 9 & 17)

Net position

Unexpended appropriations 1,268,894 999,146 

Cumulative results of operations (Note 12) 23,688,582 24,086,935 

Total net position 25,086,081 24,957,476 

 Total liabilities and net position $ 28,603,404 28,625,144 $ 

(Dollars in Thousands)

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

CONSOLIDATED BALANCE SHEETS

As of September 30
80

Financial Statements 

The accompanying notes are an integral part of these financial statements. 

Line of business programs (Note 11) 2005 2004

Air Traffic Organization

Expenses 9,354,459 $ 8,214,526 $ 

Less earned revenues (423,041) (135,515) 

Net costs 8,079,011 8,931,418 

Aviation Safety

Expenses 1,079,171 942,377 

Less earned revenues (4,053) (2,649) 

Net costs 939,728 1,075,118 

Airports

Expenses 3,712,423 2,977,300 

Less earned revenues (496) (232) 

Net costs 2,977,068 3,711,927 

Commercial Space Transportation

Expenses 14,073 12,527 

Net costs 12,527 14,073 

Non line of business programs

Regions and center operations and other programs

Expenses 696,029 389,954 

Less earned revenues (399,469) (240,866) 

Net costs 149,088 296,560 

Not assigned to programs

Expenses - 36,572 

Net costs 36,572 - 

Net cost of operations

Total expenses 14,856,155 12,573,256 

Less earned revenues (827,059) (379,262) 

Total net cost 14,029,096 $ 12,193,994 $ 

(Dollars in Thousands)

For the Years Ended September 30

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

CONSOLIDATED STATEMENTS OF NET COST
81

Financial Statements 

The accompanying notes are an integral part of these financial statements. 

Cumulative Cumulative

results of Unexpended results of Unexpended 

operations appropriations operations appropriations

Beginning balances $ 999,146 24,086,935 $ 23,755,361 $ 562,595 $ 

Budgetary financing sources

Appropriations received (Note 14) - 2,856,927 - 3,032,925 

Appropriations transferred-in/out - 564 - - 

Rescissions, cancellations and other - (27,993) - (64,644) 

Appropriations used 2,559,750 (2,559,750) 2,531,730 (2,531,730) 

Excise taxes (Note 12) 10,700,024 - 9,674,509 - 

Transfers-in/out without reimbursement (106,549) - (101,662) - 

Other (8,079) - - - 

Other financing sources

Transfers-in/out without reimbursement - - (72,508) - 

Imputed financing from costs absorbed by others (Note 13) 485,597 - 493,499 - 

Total financing sources 13,630,743 269,748 12,525,568 436,551 

Net cost of operations 14,029,096 - 12,193,994 - 

Net change 269,748 (398,353) 331,574 436,551 

Ending balances $ 1,268,894 23,688,582 $ 24,086,935 $ 999,146 $ 

2005 2004

U. S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

CONSOLIDATED STATEMENTS OF CHANGES IN NET POSITION 

For the Years Ended September 30

(Dollars in Thousands)
82

Financial Statements 

The accompanying notes are an integral part of these financial statements.

Budgetary resources (Note 14) 2005 2004

Budget authority 17,176,957 $ 17,615,716 $ 

 1,107,702 1,830,252 

Spending authority from offsetting collections 1,034,126 675,454 

Recoveries of prior year obligations 486,921 190,918 

Temporarily not available pursuant to public law (60,712) (78,874) 

Permanently not available (3,125,905) (3,451,054) 

Total budgetary resources $ 16,059,862 17,341,639 $ 

Status of budgetary resources

Obligations incurred 14,982,814 $ 14,230,011 $ 

Unobligated balance available 1,067,338 1,113,378 

Unobligated balance not available 1,291,487 716,473 

Total status of budgetary resources $ 16,059,862 17,341,639 $ 

Relationship of obligations to outlays

Obligated balance, net, beginning of period 9,173,060 $ 8,644,471 $ 

Obligations incurred 14,982,814 14,230,011 

Less: Spending authority from offsetting collections

and recoveries of prior year obligations (1,521,047) (866,372) 

Less: Obligated balance, net, end of period (8,795,904) (9,173,060) 

Net outlays $ 12,835,050 13,838,923 $ 

Outlays

Disbursements 19,483,934 $ 17,756,831 $ 

Collections, net of offsetting receipts (5,645,011) (4,921,781) 

Net outlays $ 12,835,050 13,838,923 $ 

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
83

Financial Statements 

The accompanying notes are an integral part of these financial statements. 

Resources used to finance activities 2005 2004

Budgetary resources obligated

Obligations incurred 14,982,814 $ 14,230,011 $ 

Less: Spending authority from offsetting collections and

receipts and recoveries of prior year obligations 1,521,063 866,372 

Obligations net of offsetting collections 13,461,751 13,363,639 

Other resources

Transfers in/(out) without reimbursement - (72,508) 

Imputed financing from costs absorbed by others 485,597 493,499 

Net other resources used to finance activities 485,597 420,991 

Total resources used to finance activities 13,947,348 13,784,630 

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 received (160,018) 385,476 

Resources that fund expenses recognized in prior periods (decreases in

unfunded liabilities) (Note 15) 46,833 171,597 

Resources that finance the acquisition of assets 1,485,838 1,985,245 

Other resources or adjustments to net obligated resources that do not

affect net cost of operations 11,523 18,863 

Total resources used to finance items not part of net cost of operations 1,384,176 2,561,181 

Total resources used to finance net cost of operations 12,563,172 11,223,449 

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 and other unfunded liabilities (Note 15) 207,229 108,993 

Increase in exchange revenue receivable from the public - (82,812) 

Components not requiring or generating resources in future periods

Depreciation and amortization 1,190,277 952,969 

Cost of goods sold 68,418 47,589 

Other (56,194) - 

Total components of net cost of operations that will not require or

generate resources 1,258,695 944,364 

Total components of net cost of operations that will not require or 

generate resources in the current period 1,465,924 970,545 

Net cost of operations 14,029,096 $ 12,193,994 $ 

CONSOLIDATED STATEMENTS OF FINANCING

For the Years Ended September 30

(Dollars in Thousands)

U. S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION
84

Financial Statements 

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 FAA. The statements are a requirement of the Chief Financial 

Officers Act of 1990, the Government Management Reform Act of 1994, and the OMB’s Bulletin 

Number 01-02, Audit Requirements for Federal Financial Statements. They have been prepared from, and are 

fully supported by, the books and records of FAA in accordance with (1) the hierarchy of accounting 

principles generally accepted in the United States of America and standards approved by the principals of 

the Federal Accounting Standards Advisory Board (FASAB), (2) OMB Circular Number A-136, Financial 

Reporting Requirements, and (3) 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 pursuant to OMB directives that are used to 

monitor and control FAA’s use of budgetary resources. 

Notes 4 and 8 include the necessary information to present “other assets” and “other liabilities” as 

defined by OMB Circular Number A-136. This presentation is used to support the preparation of the 

consolidated financial statements of the U.S. Government. 

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 Earmarked Funds, Revolving Funds, Special Funds, General Funds, and General 

Fund Miscellaneous Receipts. 

 Earmarked funds are credited with receipts that are generated by the terms of a trust agreement or 

statute. These receipts are unavailable until appropriated by the U.S. Congress. The earmarked funds 

included in FAA’s consolidated financial statements include the Airport and Airway Trust Fund 

(AATF), which is managed by the U.S. Treasury’s Bureau of Public Debt. Once appropriated for use, 

FAA transfers AATF receipts necessary to meet cash disbursement needs to its other earmarked 

fund accounts, from which expenditures are then made. These additional earmarked funds are (a) 

Grants-in-Aid for Airports, (b) Facilities and Equipment, and (c) Research, Engineering and 

Development, all of which are funded by the AATF. 

 Revolving funds are accounts established by law to finance a continuing cycle of operations with 

receipts derived from such operations usually available in their entirety for use by the fund without 

further action by the U.S. Congress. FAA’s revolving funds include the Aviation Insurance Fund and 

the Administrative Services Franchise Fund (Franchise Fund). 

 Special funds are used for receipts earmarked by law for a specific purpose. Unlike Revolving Funds, 

the law does not authorize Special Funds to conduct a cycle of business-type operations. FAA’s 

consolidated financial statements include aviation overflight user fees, which are earmarked Special 

Fund receipts. 

 General Funds are accounts used to record financial transactions arising under Congressional 

appropriations or other authorizations to spend general revenues. FAA manages Operations and 

Facilities, Engineering & Development General Fund accounts. 
85

Financial Statements 

 General Fund Miscellaneous Receipts are accounts established for receipts of non-recurring activity, 

such as fines, penalties, fees, and other miscellaneous receipts for services and benefits. 

FAA has rights and ownership of all assets reported in these financial statements. 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 2005 and 2004, FAA was accountable for amounts made available to us in appropriations laws from 

the AATF, Revolving Funds, a Special Fund, and General Fund appropriations. FAA recognizes 

budgetary resources as assets when cash (funds held by the U.S. Treasury) is made available through the 

Department of Treasury General Fund warrants and transfers from the AATF. 

D. Basis of Accounting 

Transactions are recorded on both an accrual accounting basis and a budgetary accounting 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 Circular A-136. 

Intragovernmental transactions and balances result from exchange transactions made between FAA and 

another Federal government reporting entity, while those classified as “with the public” result from 

exchange transactions between FAA and non-Federal entities. For example, if FAA purchases goods or 

services from the public and sells them to another Federal entity, the costs would be classified as “with 

the public,” but the related revenues would be classified as “intragovernmental.” This could occur, for 

example, when FAA provides goods or services to another Federal government entity on a reimbursable 

basis. The purpose of this classification is to enable the Federal government to prepare consolidated 

financial statements, and not to match public and intragovernmental revenue with costs that are incurred 

to produce public and intragovernmental revenue. 

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 17), and through 

reimbursements for products and services provided to domestic and foreign governmental entities. 

The AATF 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 U.S. Treasury. The 

IRS does not receive sufficient information at the time the taxes are collected to determine how these 

payments should be distributed to specific earmarked funds. Therefore, the U.S. Treasury makes initial 

semi-monthly distributions to earmarked funds 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. 

FAA’s September 30, 2005 financial statements reflect excise taxes certified by OTA through March 31, 

2005, and excise taxes estimated by OTA for the period April 1 to September 30, 2005 as specified by 

Statement of Federal Financial Accounting Standards (SFFAS) Number 7, Accounting for Revenue and Other 

Financing Sources. Actual tax collections data for the quarters ended June 30, 2005 and September 30, 2005 

will not be available from the IRS until December 2005 and March 2006, respectively. 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 

management does not believe that the actual tax collections for the quarters ended June 30, 2005 and 

September 30, 2005 will be materially different than the OTA estimate based on historical results. 
86

Financial Statements 

The AATF also earns interest from investments in U.S. Government securities. Interest income is 

recognized as revenue on the accrual basis of such collections for those quarters. 

Appropriations are recognized as a financing source when expended. Revenues from services provided 

by FAA 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. Aviation overflight user fees are recognized 

as revenue in the period in which the flights took place. 

FAA recognizes as an imputed financing source 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 U.S. 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. 

H. Investment in U.S. Government Securities 

Unexpended funds in the AATF and Aviation Insurance Revolving Fund (war risk premiums) are 

invested in U.S. Government securities at cost. A portion of the AATF investments is liquidated semimonthly in amounts needed to provide cash for FAA appropriation accounts, to the extent authorized. 

The Revolving Fund investments are usually held to maturity. Investments, redemptions, and 

reinvestments are held and managed under the direction of FAA by the U.S. 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 foreign governments. These amounts due from the public are presented net of an 

allowance for loss on uncollectible accounts, based on historical collection experience or an analysis of 

the individual receivables. 

FAA reports deposits in transit when the U.S. Treasury has not yet recognized FAA’s collections received 

from the public or other Federal entities. 

J. Inventory 

Within the FAA’s Franchise Fund, 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 

National Airspace System (NAS), and is predominately 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. The cost of repair is capitalized and these items are 

reclassified as “held for sale.” 
87

Financial Statements 

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 (e.g., electronic components and wiring) that will be used in the construction of 

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 using the consumption method of accounting. 

Operating materials and supplies “held for use” are those items that are consumed on a regular and 

ongoing basis. 

Operating materials and supplies 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 “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. 

L. Property, Plant and Equipment (PP&E) 

FAA capitalizes acquisitions of PP&E when the cost equals or exceeds $25,000 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. 

Real property assets such as buildings, air traffic control towers, enroute air traffic control centers, mobile 

buildings, roads, sidewalks, parking lots, and other structures are depreciated over a useful life of up to 

40 years. 

Personal property assets such as aircraft, decision support systems, navigation, surveillance, 

communications and weather related equipment, office furniture, internal use software, vehicles, and 

office equipment are depreciated over a useful life of up to 20 years. 

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 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 AATF. 

M. Advances and Prepaid Charges 

FAA generally does not pay for goods and services in advance, except for certain reimbursable 

agreements, 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. 
88

Financial Statements 

N. Liabilities 

Liabilities covered by budgetary or other 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 amountsowed 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 agencies. 

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 unpaid goods and services received by FAA in support of the 

NAS, and estimated amounts incurred but not yet claimed by Airport Improvement Program grant 

recipients. 

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, 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 by the DOL. 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 7% of pay, distributed to their annuity account in the Civil Service 

Retirement and Disability Fund. 

FERS went into effect on January 1, 1987. 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% of pay and matches any employee contribution up to an additional 4% of pay. For FERS 

participants, FAA also contributes the employer’s matching share for Social Security. 

FAA recognizes 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 communicate these factors to FAA for current period 

expense reporting. OPM also provides information regarding the full cost of health and life insurance 

benefits. FAA recognizes the offsetting revenue as imputed financing sources to the extent these 

expenses will be paid by OPM. 
89

Financial Statements 

S. Grants 

FAA records an obligation at the time a grant is awarded. As grant recipients conduct eligible activities 

under the terms of their grant agreement, they request payment by FAA, typically via an electronic 

payment process. Expenses are recorded at the time of payment approval. FAA also recognizes an 

accrued liability and expense for estimated eligible grant payments not yet requested by grant recipients. 

Grant expenses, including associated administrative costs, are classified on the Consolidated Statements 

of Net Cost under the line of business program “Airports.”

T. 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 AATF receipts 

by the OTA, (b) legal, environmental, and contingent liabilities, (c) accruals of accounts and grants 

payable, (d) accrued workers’ compensation, (e) allowance for doubtful accounts receivable, 

(f) allowances for repairable and obsolete inventory balances, and (g) allocations of common costs to 

CIP. 

U. 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 increase or decrease in the estimated 

environmental cleanup liability is charged to expense over the life of the associated asset. Assets placed in 

service in FY 1999 and after do not have associated environmental liabilities. 

V. 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, in the 

accompanying balance sheet and statement of net cost, when they are 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 or when a loss from the outcome of future events is 

more than remote. In some cases, once losses are certain, payments may be made from the Judgment 

Fund maintained by the U.S. Treasury rather than from the amounts appropriated to FAA for agency 

operations. Payments from the Judgment Fund are recorded as an “Other Financing Source” when made. 

W. Reclassifications 

Certain FY 2004 balances have been reclassified, retitled, or combined with other financial statement line 

items for consistency with current year presentation. 
90

Financial Statements 

NOTE 2. FUND BALANCE WITH TREASURY 

Fund balance with Treasury account balances as of September 30, 2005 and 2004 were: 

Unobligated fund balances are either available or not available. Amounts are reported as not available 

when they are no longer legally available to FAA for obligation. However, balances that are not available 

can change over time, because they can be used for upward adjustments of obligations that were incurred 

during the period of availability or for paying claims attributable to that time period. 

2005 2004

Earmarked and other funds, 

excluding AATF $ 898,023 536,478 $ 

Operations general fund 1,020,306 1,042,208

Franchise fund 122,907 208,776

Revolving funds 41,100 49,649

AATF funds (Note 12) 692,311 642,007

Total 2,413,102 $ 2,840,663 $ 

Unobligated balance

 Available 1,067,338 $ 1,113,378 $ 

 Not available 1,291,487 716,473 

Obligated balance not yet disbursed 54,277 1,010,812 

Total 2,413,102 $ 2,840,663 $ 

Status of fund balance with Treasury
91

Financial Statements 

NOTE 3. INVESTMENTS 

As of September 30, 2005 and 2004, FAA’s investment balances were as follows: 

The Secretary of the Treasury makes AATF investments on behalf of FAA. FAA investments are 

considered investment authority and available to offset the cost of operations, to the extent authorized. 

As of September 30, 2005 and 2004, approximately $10.0 billion and $9.9 billion, respectively, were 

invested in U.S. Treasury Certificates of Indebtedness. Nonmarketable par value Treasury Certificates of 

Indebtedness are special series debt securities issued by the Bureau of Public Debt to Federal accounts, 

and are purchased and redeemed at par (face value) exclusively through the Federal Investment Branch of 

the U.S. Treasury’s Bureau of Public Debt. The securities are held to maturity and redeemed at face value 

on demand; thus, investing entities recover the full amount invested plus interest. Investments as of 

September 30, 2005 mature on various dates through June 30, 2006, and investments as of September 30, 

2004 matured on various dates through June 30, 2005. The annual rate of return on Certificates of 

Indebtedness is established in the month of issuance. The average rate of return for certificates issued 

during FY 2005 and FY 2004 was 3.9% and 3.6%, 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, 2005, these nonmarketable, market-based securities had maturity dates ranging from 

October 2005 to June 2009, and have an average rate of return of approximately 3.5%. 

2005 2004

Nonmarketable, par value - AATF 10,047,363 $ 9,891,592 $ 

Nonmarketable, market based - Aviation Insurance Fund 527,453 351,146 

Interest receivable 90,744 75,291 

Investments at cost 10,665,560 $ 10,318,029 $ 

Market value disclosure

Nonmarketable, par value - AATF 10,047,363 $ 9,891,592 $ 

Nonmarketable, market based - Aviation Insurance Fund 528,116 351,488 

Unamortized discount - nonmarketable, market based (663) (342) 

Nonmarketable, market based, net 527,453 351,146 

Market value disclosure 10,574,816 $ 10,242,738 $ 

Intragovernmental securities
92

Financial Statements 

NOTE 4. ACCOUNTS RECEIVABLE, ADVANCES, AND OTHER 

ASSETS 

Accounts receivable, advances, and other assets as of September 30, 2005 and 2004 were comprised of 

the following: 

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 $76.8 

million and $57.0 million, as of September 30, 2005 and 2004. 

2005 2004

Intragovernmental

Accounts receivable 100,283 $ 67,146 $ 

Advances, prepayments and other 204,154 148,843 

Subtotal, intragovernmental 304,437 215,989 

With the public

Accounts receivable, net 106,017 124,757 

Advances and prepayments 36,913 20,869 

Deposits in transit and other 40,563 27,657 

Subtotal, with the public 183,493 173,283 

Total accounts receivable, 

advances, and other 487,930 $ 389,272 $ 
93

Financial Statements 

NOTE 5. INVENTORY, OPERATING MATERIALS, AND SUPPLIES 

As of September 30, 2005 and 2004, inventory, operating materials, and supplies were: 

Inventory, operating materials, and supplies are shown net of the following allowances: 

Inventory is considered held for repair based on the condition of the asset or item, and the allowance for 

repairable inventory is based on the average historical cost of such repairs. 

FAA transfers excess items for disposal into the Government-wide automated disposal system. Disposal 

proceeds, recognized upon receipt, may go to the U.S. Treasury’s General Fund or to an FAA 

appropriation, depending upon the nature of the item and the disposal method. 

Operating materials and supplies 2005 2004

Held for use (21,295) $ (16,873) $ 

Excess, obsolete, and unserviceable (71,862) (60,242) 

Subtotal, operating materials and supplies allowances (93,157) (77,115) 

Inventory

Held for repair (86,148) (83,660) 

Excess, obsolete, and unserviceable (6,339) (5,839) 

Subtotal, inventory allowances (92,487) (89,499) 

Total allowances (185,644) $ (166,614) $ 

Operating materials and supplies 2005 2004

Held for use, net 210,170 $ 166,628 $ 

Excess, obsolete, and unserviceable, net - 11,619 

Subtotal, operating materials and supplies 210,170 178,247 

Inventory

Held for sale 61,661 59,357 

Held for repair, net 328,161 321,511 

Raw materials, finished goods, and other 13,632 13,632 

Excess, obsolete, and unserviceable, net 12,462 12,962 

Subtotal, inventory 415,916 407,462 

Total inventory, operating materials, and supplies, net 626,086 $ 585,709 $ 
94

Financial Statements 

NOTE 6. PROPERTY, PLANT, AND EQUIPMENT, NET 

Property, plant, and equipment balances at September 30, 2005 and 2004 were: 

FAA’s CIP primarily relates to NAS 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 disposal, are reflected in FAA 

financial records as Property Not in Use. FAA reported disposal losses of $28.4 million and $11.0 million 

in FY 2005 and FY 2004, respectively. 

Acquisition Accumulated Net

Class of fixed asset value depreciation book value

Real property, including land 4,193,366 $ (2,113,256) $ 2,080,110 $ 

Personal property 15,398,241 (7,598,204) 7,800,037 

Assets under capital lease (Note 9) 125,923 (80,732) 45,191 

Construction in progress 4,502,428 - 4,502,428 

Property not in use 7,706 (3,006) 4,700 

Total property, plant, and equipment 24,227,664 $ (9,795,198) $ 14,432,466 $ 

Acquisition Accumulated Net

Class of fixed asset value depreciation book value

Real property, including land 4,086,616 $ (1,966,495) $ 2,120,121 $ 

Personal property 13,894,962 (6,622,389) 7,272,573 

Assets under capital lease (Note 9) 125,923 (71,807) 54,116 

Construction in progress 5,011,586 - 5,011,586 

Property not in use 19,202 (7,867) 11,335 

Total property, plant, and equipment 23,138,289 $ (8,668,558) $ 14,469,731 $ 

2005

2004
95

Financial Statements 

NOTE 7. ENVIRONMENTAL CLEANUP COSTS 

FAA's environmental liabilities as of September 30, 2005 and 2004 were: 

Additional information on environmental projects is disclosed in note 17. 

NOTE 8. EMPLOYEE RELATED, LEGAL, AND OTHER LIABILITIES 

As of September 30, 2005 and 2004, FAA’s employee related, legal and other liabilities were: 

2005 2004

Environmental remediation 358,296 $ 366,762 $ 

Environmental cleanup and decommissioning 238,240 239,499 

 

Total environmental liabilities 596,536 $ 606,261 $ 

Intragovernmental

Non-current 

liabilities

Current 

liabilities Total

Advances received - $ 50,055 $ 50,055 $ 

Accrued payroll & benefits payable to other agencies - 41,464 41,464 

Liabilities covered by budgetary or other resources 91,519 91,519 

Federal Employees' Compensation Act (FECA) payable 110,785 86,813 197,598 

Other - 5,449 5,449 

Liabilities not covered by budgetary or other resources 110,785 92,262 203,047 

Subtotal, intragovernmental 110,785 183,781 294,566 

With the public

Advances received and other - 28,032 28,032 

Accrued payroll & benefits payable to employees - 194,626 194,626 

Liabilities covered by budgetary or other resources 222,658 - 222,658 

Accrued unfunded annual & other leave & assoc. benefits 59,228 422,298 481,526 

Sick leave compensation benefits for air traffic controllers 65,156 8,664 73,820 

Capital leases (Note 9) 42,597 8,193 50,790 

Legal claims - 6,570 6,570 

Return rights 3,060 2,601 5,661 

Hurricane related emergency support (Note 17) - 166,700 166,700 

Other accrued liabilities 155,297 - 155,297 

Liabilities not covered by budgetary or other resources 325,338 615,026 940,364 

Subtotal, with the public 325,338 837,684 1,163,022 

Total employee related, legal, and other liabilities 436,123 $ 1,021,465 $ 1,457,588 $ 

2005
96

Financial Statements 

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. Because DOL bills FAA two years after it pays such claims, FAA’s 

liability accrued as of September 30, 2005 includes workers’ compensation benefits paid by DOL during 

the periods July 1, 2003 through June 30, 2005 and accrued liabilities for the quarter July 1, 2005 through 

September 30, 2005. FAA’s liability accrued as of September 30, 2004 included workers’ compensation 

benefits paid by DOL during the period July 1, 2002 through June 30, 2004, and accrued liabilities for the 

quarter July 1, 2004 through September 30, 2004. 

The estimated liability for accrued unfunded leave and associated benefits includes annual and other types 

of vested leave, and sick leave under the terms of certain collective bargaining agreements, including the 

National Air Traffic Controllers Association (NATCA) agreement, Article 25, Section 13. For example, 

the NATCA agreement gives air traffic controllers, who are covered under FERS, the option to receive a 

lump sum payment for 40% of their accumulated sick leave as of their effective retirement date. Based on 

sick leave balances, this liability was $73.8 million and $69.4 million as of September 30, 2005 and 2004, 

respectively. 

Intragovernmental

Non-current 

liabilities

Current 

liabilities Total

Advances received - $ 52,427 $ 52,427 $ 

Accrued payroll & benefits payable to other agencies - 33,754 33,754 

Liabilities covered by budgetary or other resources - 86,181 86,181 

Federal Employees' Compensation Act (FECA) payable 111,987 88,320 200,307 

Other - 538 538 

Liabilities not covered by budgetary or other resources 111,987 88,858 200,845 

Subtotal, intragovernmental 111,987 175,039 287,026 

With the public

Advances received and other - 24,388 24,388 

Accrued payroll & benefits payable to employees - 174,881 174,881 

Liabilities covered by budgetary or other resources 199,269 - 199,269 

Accrued unfunded annual & other leave & assoc. benefits 57,932 413,063 470,995 

Sick leave compensation benefits for air traffic controllers 68,009 1,354 69,363 

Capital leases (Note 9) 46,909 13,663 60,572 

Legal claims - 19,000 19,000 

Return rights 4,481 3,290 7,771 

Other accrued liabilities 132,557 - 132,557 

Liabilities not covered by budgetary or other resources 309,888 450,370 760,258 

Subtotal, with the public 309,888 649,639 959,527 

Total employee related, legal, and other liabilities 421,875 $ 824,678 $ 1,246,553 $ 

2004
97

Financial Statements 

FAA estimated that 100% of its $6.6 million and $19.0 million legal claims liabilities as of September 30, 

2005 and 2004, 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 FAA’s 

expense. As of September 30, 2005 and 2004, there were 111 and 137 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 15. 

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, 2005 and 2004: 

As of September 30, 2005, FAA’s future payments due on assets under capital lease were: 

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. 

2005 2004

Land, Buildings, and Machinery 125,923 $ 125,923 $ 

Accumulated Depreciation (80,732) (71,807) 

Assets Under Capital Lease, net 45,191 $ 54,116 $ 

Year 1 (FY 2006) 11,620 $ 

Year 2 (FY 2007) 11,469 

Year 3 (FY 2008) 9,680 

Year 4 (FY 2009) 9,387 

Year 5 (FY 2010) 8,709 

After 5 Years 24,498 

Less: Imputed interest (24,573) 

Total capital lease liability 50,790 $ 

Future payments due by fiscal year

(Liabilities not covered by budgetary or other resources)
98

Financial Statements 

Operating Leases

FAA has operating leases for real property, aircraft, and telecommunications equipment. Future operating 

lease payments due as of September 30, 2005 were: 

Operating lease expense incurred during the years ended September 30, 2005 and 2004 was 

$172.8 million and $170.7 million, respectively, including General Services Administration (GSA) leases 

that have a short termination privilege, but FAA intends to remain in the lease. The operating lease 

amounts due after five years do 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, 2005 and 2004, FECA actuarial liabilities were $942.3 million and 

$954.5 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 or other resources and thus will require future 

appropriated funding. 

NOTE 11. NET COST BY PROGRAM AND OTHER STATEMENT OF 

NET COST DISCLOSURES 

FAA’s four 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. 

The following are net costs for the years ended September 30, 2005 and 2004 by strategic goal. 

Fiscal year

 Year 1 (FY 2006) 147,033 $ 

 Year 2 (FY 2007) 122,204 

 Year 3 (FY 2008) 102,011 

 Year 4 (FY 2009) 85,748 

 Year 5 (FY 2010) 72,128 

 After 5 Years 260,821 

 Total future operating lease payments 789,945 $ 
99

Financial Statements 

Organizational International 

Line of business programs Safety Capacity Excellence Leadership Total

Air Traffic Organization $ 1,318,277 7,539,010 $ 69,665 $ 4,466 $ 8,931,418 $ 

Aviation Safety - 503,370 571,748 - 1,075,118 

Airports 1,746,462 1,930,944 34,521 - 3,711,927 

Commercial Space Transportation 4,039 10,034 - - 14,073 

Non line of business programs 

Regions and center operations and other 6,702 178,707 110,795 356 296,560 

Net cost $ 3,075,480 10,162,065 $ 786,729 $ 4,822 $ 14,029,096 $ 

For the Year Ended September 30, 2005

Strategic Goal Areas

Organizational International 

Line of business programs Safety Capacity Excellence Leadership Total

Air Traffic Organization $ 1,513,989 6,113,865 $ 450,909 $ 248 $ 8,079,011 $ 

Aviation Safety 218 859,372 71,423 8,715 939,728 

Airports 1,213,208 1,729,468 33,992 400 2,977,068 

Commercial Space Transportation 1,627 10,900 - - 12,527 

Non line of business programs 

Regions and center operations and other 4,085 101,738 43,012 253 149,088 

Not assigned to programs 2,249 20,963 13,360 - 36,572 

Net cost $ 2,735,376 8,836,306 $ 612,696 $ 9,616 $ 12,193,994 $ 

For the Year Ended September 30, 2004

Strategic Goal Areas
100

Financial Statements 

The following is FAA’s distribution of FY 2005 and FY 2004 net costs by intragovernmental-related 

activity versus with the public. 

For the Year Ended September 30, 2005

Intra- With the

Line of business programs governmental Public Total

Air Traffic Organization

Expenses 1,844,976 $ 7,509,483 $ 9,354,459 $ 

Less earned revenues (282,342) (140,699) (423,041) 

Net costs 7,368,784 1,562,634 8,931,418 

Aviation Safety

Expenses 206,930 872,241 1,079,171 

Less earned revenues (1,871) (2,182) (4,053) 

Net costs 870,059 205,059 1,075,118 

Airports

Expenses 17,287 3,695,136 3,712,423 

Less earned revenues (387) (109) (496) 

Net costs 3,695,027 16,900 3,711,927 

Commercial Space Transportation

Expenses 320 13,753 14,073 

Net costs 13,753 320 14,073 

Non line of business programs

Regions and center operations and

other programs

Expenses 166,920 529,109 696,029 

Less earned revenues (85,669) (313,800) (399,469) 

Net costs 215,309 81,251 296,560 

Net cost of operations

Total expenses 2,236,433 12,619,722 14,856,155 

Less earned revenues (370,269) (456,790) (827,059) 

Net costs $ 12,162,932 1,866,164 $ 14,029,096 $ 
101

Financial Statements 

For the Year Ended September 30, 2004

Intra- With the

Line of business programs governmental Public Total

Air Traffic Organization

Expenses 2,016,981 $ 6,197,545 $ 8,214,526 $ 

Less earned revenues (65,889) (69,626) (135,515) 

Net costs 6,127,919 1,951,092 8,079,011 

Aviation Safety

Expenses 230,547 711,830 942,377 

Less earned revenues (432) (2,217) (2,649) 

Net costs 709,613 230,115 939,728 

Airports

Expenses 18,336 2,958,964 2,977,300 

Less earned revenues (87) (145) (232) 

Net costs 2,958,819 18,249 2,977,068 

Commercial Space Transportation

Expenses 336 12,191 12,527 

Net costs 12,191 336 12,527 

Non line of business programs

Regions and center operations and

other programs

Expenses 180,195 209,759 389,954 

Less earned revenues (84,152) (156,714) (240,866) 

Net costs 53,045 96,043 149,088 

Not assigned to programs

Expenses - 36,572 36,572 

Net costs 36,572 - 36,572 

Net cost of operations

Total expenses 2,446,395 10,126,861 12,573,256 

Less earned revenues (150,560) (228,702) (379,262) 

Net costs $ 9,898,159 2,295,835 $ 12,193,994 $ 
102

Financial Statements 

2005 2004

Assets

Fund balance with Treasury 692,311 $ 642,007 $ 

Investments, net (Note 3) 10,047,363 9,891,592 

Accounts receivable, net 85,624 129,487 

Total assets $ 10,663,086 10,825,298 $ 

Liabilities and net position

AATF amounts due to FAA 3,507,725 $ 3,704,148 $ 

Cumulative results of operations 7,317,573 6,958,938 

Total liabilities and net position $ 10,663,086 10,825,298 $ 

Revenue

Passenger ticket tax 7,007,134 $ 6,554,599 $ 

International departure tax 1,922,368 1,455,529 

Investment income 439,793 446,956 

Fuel taxes 970,794 774,150 

Waybill tax 460,563 498,871 

Tax refunds and credits (100,628) (55,596) 

Total revenue $ 9,674,509 10,700,024 $ 

Expenses

Nonexpenditure transfer out and other 10,341,404 10,838,828 $ 

Total expenses $ 10,838,828 10,341,404 $ 

NOTE 12. AIRPORT AND AIRWAY TRUST FUND EARMARKED 

COLLECTIONS 

FAA’s consolidated financial statements include the results of operations and financial position of the 

Airport and Airway Trust Fund (AATF). The AATF was created by the Airport and Airway Revenue Act 

of 1970 to provide a dedicated source of funding to the nation’s aviation system through several aviationrelated excise taxes. The IRS collects these excise taxes on behalf of FAA’s AATF. These taxes can be 

withdrawn only as appropriated by the U.S. Congress. Twice a month, Treasury estimates the amount 

collected, and adjusts the estimates by actual collections quarterly. Accordingly, the total taxes recognized 

in FY 2005 included OTA’s estimate of $5.0 billion for the six months ended September 30, 2005. The 

total taxes recognized in FY 2004 included OTA’s estimate of $4.7 billion for the six months ended 

September 30, 2004. 

The IRS has informed us that the estimated excise tax collections and the amount credited to the AATF 

for the benefit of the FAA, for the quarter ended June 30, 2005, may be understated by as much as 

$166.1 million. FAA has not recognized the potential understatement of $166.1 million since it is not 

legally enforceable until certified by the IRS. Therefore, this represents a potential gain contingency at 

September 30, 2005. The estimated taxes and deposits to the AATF will be adjusted to equal actual tax 

collections in December 2005. 

Fiscal data of the AATF as of, and for the years ended, September 30, 2005 and 2004 is summarized 

below. Intra-agency transactions have not been eliminated in the amounts presented below. 
103

Financial Statements 

NOTE 13. 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 U.S. Treasury’s Judgment 

Fund in settlement of claims or court assessments against FAA are also recognized as imputed financing. 

For the fiscal years ended September 30, 2005 and 2004, imputed financing was as follows: 

NOTE 14. STATEMENT OF BUDGETARY RESOURCES 

DISCLOSURES 

The Required Supplementary Information section of this report includes a schedule of budgetary 

resources by each of FAA’s major fund types. 

Budget authority as reported in the Combined Statements of Budgetary Resources includes amounts 

made available to FAA from general, earmarked and special funds. In contrast, appropriations received as 

reported in the Consolidated Statements of Changes in Net Position pertain to only amounts made 

available to FAA from general funds. The following is a reconciliation of these amounts: 

2005 2004

Office of Personnel Management 458,617 $ 482,253 $ 

Treasury Judgment Fund 26,980 11,246 

Total imputed financing sources 485,597 $ 493,499 $ 

2005 2004

Combined Statement of Budgetary

 Resources - budget authority 17,176,957 $ 17,615,716 $ 

Less amounts made available to FAA

 from AATF dedicated collections (14,323,881) (14,582,668) 

Net transfers of budget authority and other 54,794 - 

Less special fund aviation user fees (50,943) (123) 

Consolidated Statement of Changes in Net

 Position - appropriations received 2,856,927 $ 3,032,925 $ 
104

Financial Statements 

In FY 2005, FAA had rescissions of budgetary resources to Grants-in-Aid to Airports of $296.8 milion; 

Operations of $29.1 million; and other non-AATF earmarked funds of $60.7 million. 

In FY 2004, FAA had rescissions of budgetary resources to Grants-in-Aid to Airports of $20.1 million; 

Operations of $20.8 million; and other non-AATF earmarked funds of $65.0 million. 

Obligations incurred and budgetary resources of FAA’s Operations appropriation were reduced on the 

Combined Statements of Budgetary Resources to eliminate the effect of transfers between the AATF and 

FAA general fund components. 

Budget authority on the FY 2004 Combined Statement of Budgetary Resources includes expired funds of 

$3,506.0 million that are not presented in the Budget of the United States Government. Also, obligations 

incurred on the FY 2004 Combined Statement of Budgetary Resources includes $23.0 million of expired 

funds and $510.0 million of certain reimbursable and revolving fund obligations incurred that are not 

presented in the Budget of the United States Government. As a result, FAA’s FY 2004 Combined 

Statement of Budgetary Resources differs from FY 2004 “actuals” reported in the appendix of the 

FY 2006 Budget of the United States Government. The Budget of the United States Government is available on the 

Internet at www.whitehouse.gov/omb/budget/fy2006/. As of the date of issuance of FAA’s FY 2005 

Combined Statement of Budgetary Resources, the Budget of the United States Government for FY 2007, 

which will contain “actual” FY 2005 amounts, was not yet published. The Office of Management and 

Budget is expected to publish this information early in calendar year 2006. 

OMB Circular A-136 requires the following additional Combined Statement of Budgetary Resources 

disclosures 

 Congress mandated permanent indefinite appropriations for the Facilities and Equipment, Grants-inAid, 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 2005 and FY 2004, 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: 

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 2004, $16.7 million of obligated balances were in appropriations 

cancelled at year-end pursuant to 31 U.S.C. 1552, and thus have not been brought forward to FY 2005. 

Additionally, transfers in FY 2005 to DOT for Essential Air Services also reduced balances available for 

obligation. 

Direct Reimbursable Direct Reimbursable

Category A 5,402,794 $ 449,209 $ 5,487,783 $ 509,509 $ 

Category B 8,817,715 313,096 8,230,998 1,721 

Total 14,220,509 $ 762,305 $ 13,718,781 $ 511,230 $ 

2005 2004
105

Financial Statements 

The net obligated balance, end of period, is comprised of the following components as of 

September 30, 2005 and 2004: 

NOTE 15. FINANCING SOURCES YET TO BE PROVIDED 

The following table shows the relationship between liabilities not covered by budgetary or other 

resources as reported on the balance sheets as of September 30, 2005 and 2004, and the change in 

components of net cost of operations that will require or generate resources in future periods, as reported 

on the statements of financing. 

2005 2004 Change

Unfunded annual & other leave & associated benefits (Note 8) 481,526 470,995 10,531 

Sick leave compensation benefits and return rights (Note 8) 79,481 77,134 2,347 

Other accrued liabilities (Note 8) 327,446 133,095 194,351 

 Increases - components of net cost of operations

 requiring or generating resources in future periods 207,229 

Legal claims (Note 8) 6,570 19,000 (12,430) 

Capital leases (Notes 8 & 9) 50,790 60,572 (9,782) 

FECA payable (Note 8) 197,598 200,307 (2,709) 

Environmental liabilities (Notes 7 & 19) 596,536 606,261 (9,725) 

FECA actuarial liability (Note 10) 942,276 954,463 (12,187) 

Decreases - resources that fund expenses

recognized in prior periods (46,833) 

Liabilities not covered by budgetary resources 2,682,223 $ 2,521,827 $ 160,396 $ 

Obligated balance, net, end of period 2005 2004

Accounts receivable and advances (430,059) $ (178,862) $ 

Unfilled customer orders from Federal sources (236,602) (219,936) 

Undelivered orders 8,396,340 8,660,222 

Accounts payable and other liabilities 1,066,225 911,636 

Total obligated balance, net, end of period 8,795,904 $ 9,173,060 $ 
106

Financial Statements 

NOTE 16. CUSTODIAL ACTIVITY 

FAA collects certain non-exchange (custodial) revenue on behalf of the General Fund of the Treasury. 

During FY 2005 and FY 2004, FAA’s Statement of Changes in Net Position included custodial revenue 

totaling $20.8 million and $19.0 million, respectively. The primary source of custodial activity is revenue 

from the Metropolitan Washington Airport Authority for its leases of the Ronald Reagan National 

Airport and the Washington Dulles International Airport. Custodial activity also includes the collection 

of miscellaneous fines and penalties. The U.S. Treasury withdraws custodial receipts from FAA’s 

accounts immediately following each year-end. 

NOTE 17. COMMITMENTS, CONTINGENCIES, AND OTHER 

DISCLOSURES 

Contract Options. As of September 30, 2005 and 2004, FAA had contract options of $10.0 billion and 

$10.9 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.

Airport Improvement Program. The Airport Improvement Program provides grants for the planning 

and development of public-use airports that are included in the National Plan of Integrated Airport 

Systems. Eligible projects generally include improvements related to enhancing airport safety, capacity, 

security, and environmental concerns. FAA’s share of eligible costs for large and medium primary hub 

airports is 75% with the exception of noise program implementation, which is 80%. For remaining 

airports (small primary, reliever, and general aviation), FAA’s share of eligible costs is 95%. 

FAA has authority under 49 U.S.C. 47110(e) to issue letters of intent to enter into Airport Improvement 

Program grant agreements. FAA records an obligation when a grant is awarded. Through September 30, 

2005, FAA issued letters of intent covering FY 1988 through FY 2017 totaling $4.7 billion. As of 

September 30, 2005, FAA had obligated $3.6 billion of this total amount, leaving $1.2 billion unobligated. 

Through September 30, 2004, FAA issued letters of intent covering FY 1988 through FY 2014 totaling 

$4.7 billion. As of September 30, 2004, FAA had obligated $3.3 billion of this total amount, leaving 

$1.4 billion unobligated. 

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) nonpremium insurance, and (2) premium insurance for which a risk-based premium is charged to the air 

carrier, to the extent practical. 

FAA maintains standby non-premium war-risk insurance policies for 37 air carriers having approximately 

1,433 aircraft available for Defense or State Department charter operations. 

On September 22, 2001, the Air Transportation Safety and System Stabilization Act (Public Law 107-42) 

expanded premium insurance program authority to permit insurance of domestic operations. Under this 

program, FAA initially provided third party liability war-risk insurance to U.S. carriers whose coverage 

was cancelled following the terrorist attacks of September 11, 2001. Public Law 108-11 (and subsequent 

amendments) required us to extend policies in effect on July 19, 2002, until August 31, 2005. The 

Secretary of Transportation has extended coverage through December 31, 2005, as allowed by Public 

Law 108-11. It also mandated provision of hull loss and passenger and third party war risk liability 

insurance for those policies. There are 77 FAA premium war-risk policies. Insured air carrier per 

occurrence limits for combined hull and liability coverage range from $100 million to $4 billion. 
107

Financial Statements 

Current war risk coverage is intended as a temporary measure to provide insurance to qualifying carriers 

while allowing time for the commercial insurance market to stabilize. Premiums under this program are 

established by FAA and are based on the value of policy coverage limits and aircraft activity. However, 

airlines’ total charge for coverage is subject to a cap mandated by Congress. During FY 2005 and FY 

2004, FAA recognized insurance premium revenue of $157.5 million and $145.6 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 “Region and Center Operations 

and Other Programs.” 

The maximum liability for both hull loss and liability, per occurrence, is $4.0 billion. No claims for losses 

were pending as of September 30, 2005 or 2004. In the past, FAA has insured a small number of air 

carrier operations and establishes a maximum liability for losing one aircraft. Since the inception of the 

Aviation 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. 

Aviation Overflight User Fees. FAA’s aviation overflight user fees were the subject of litigation for 

several years. As a result, FAA suspended these billings in April 2003 and had no collections during 

FY 2004. The litigation ended in the latter part of FY 2004, and FAA resumed billing in FY 2005. 

Aviation overflight user fee revenue was $109.7 million in FY 2005. Also in FY 2005, the FAA 

Administrator appointed an Aviation Rulemaking Committee. The Committee is studying FAA’s feesetting procedures with a view to making recommendations in FY 2006 as to how procedures might be 

improved and the fees updated. Depending on the outcome of the Committee’s deliberations and the 

Administrator’s assessment of its recommendations, the fee structure may change accordingly. 

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, 2005 and 2004, 

the amount related to these two sites is $50.3 million and $49.3 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, 2005 and 2004, FAA’s contingent liabilities for asserted and pending 

legal claims reasonably possible of loss were estimated at $16.3 million and $76.7 million, respectively. 

FAA does not have material amounts of known unasserted claims. 

Hurricane-Related Emergency Support. During FY 2005, the Federal Emergency Management 

Agency (FEMA) engaged DOT and, in turn, FAA, for transportation-related relief efforts associated with 

several hurricanes that struck the continental United States. Through September 30, 2005, contractors 

provided relief efforts as follows: 

As of September 30, 2005, FAA incurred $166.7 million of obligations in excess of OMB apportioned 

budget authority. FAA did not have available funding from other sources to offset the excess obligations. 

FAA and DOT legal counsels evaluated the matter and based on an interpretation of contract clauses 

with the vendor, concluded that FAA should record obligations only to the extent of available OMB 

apportioned authority. Consequently, FAA recorded obligations equal to OMB apportioned authority of 

$56.0 million and based on the opinion of FAA and DOT counsels, FAA was not in violation of laws 

Obligations incurred and amount of services provided by contractors 294,000 $ 

Amounts paid prior to September 30, 2005 (71,300) 

Amounts unpaid as of September 30, 2005 222,700 

Less: Budgetary authority available for relief efforts (56,000) 

Excess of obligations incurred over budget authority 166,700 $ 
108

Financial Statements 

governing overspending by Federal agencies. Beginning October 1, 2005, FAA has sufficient no-year 

appropriated funds to cover the excess obligations. For financial reporting purposes, FAA recorded a 

liability in the accompanying balance sheet for services received but unpaid at September 30, 2005, equal 

to $222.7 million, and recorded obligations incurred equal to available apportioned authority of $56.0 

million in the accompanying fiscal year 2005 Combined Statement of Budgetary Resources. 

As of September 30, 2005, FAA received additional tasks from FEMA totaling an estimated 

$61.4 million for work to be performed in FY 2006 related to ongoing hurricane relief efforts. 
109

Financial Statements 

Required Supplementary 

Stewardship Information 
110

Financial Statements 

 (Dollars in Thousands)

State/Territory 2005 2004 2003 2002 2001

Alabama 59,571 $ 55,527 $ 59,760 $ 58,506 $ 27,421 $ 

Alaska 210,446 153,237 158,950 121,640 83,563 

Arizona 85,226 52,286 75,247 54,737 51,783 

Arkansas 42,342 23,198 35,530 32,937 32,412 

California 322,128 236,031 216,981 243,720 179,447 

Colorado 61,916 101,792 57,872 91,495 26,340 

Connecticut 9,991 8,511 7,011 10,420 3,480 

Delaware 9,707 2,813 2,577 5,838 4,704 

District of Columbia 5,657 555 447 71 61 

Florida 181,151 145,690 166,066 157,878 110,428 

Georgia 128,053 96,081 48,147 67,957 33,652 

Hawaii 33,097 21,020 24,767 15,846 34,569 

Idaho 24,855 22,677 30,721 19,925 25,477 

Illinois 152,307 106,145 74,202 165,518 85,566 

Indiana 45,537 49,219 47,288 43,099 30,544 

Iowa 34,064 24,282 37,521 30,765 35,159 

Kansas 25,864 24,118 22,694 15,655 7,587 

Kentucky 64,216 51,904 67,031 48,192 46,166 

Louisiana 79,747 59,438 45,394 47,915 32,841 

Maine 26,324 45,987 18,143 14,456 7,496 

Maryland 38,864 39,450 22,933 26,370 18,953 

Massachusetts 27,907 23,495 65,930 30,348 20,709 

Michigan 137,814 125,928 84,030 85,851 99,278 

Minnesota 67,267 50,472 58,826 85,675 49,143 

Mississippi 41,696 39,061 30,289 25,929 28,203 

Missouri 116,612 89,848 59,642 71,910 62,701 

Montana 27,877 36,754 34,273 24,506 19,254 

Nebraska 28,633 25,280 19,423 25,181 22,983 

Nevada 56,148 58,418 57,506 45,204 57,332 

New Hampshire 22,245 7,996 35,082 40,351 16,173 

New Jersey 53,960 55,174 29,402 26,391 18,047 

New Mexico 19,761 12,756 17,336 13,106 10,882 

Airport Improvement Program

For the Fiscal Years Ended September 30

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

Stewardship Investment

Non Federal Physical Property
111

Financial Statements 

FAA makes project grants for airport planning and development under the Airport Improvement 

Program 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. 

 (Dollars in Thousands)

State/Territory 2005 2004 2003 2002 2001

New York 118,853 $ 86,382 $ 122,675 $ 109,798 $ 118,792 $ 

North Carolina 102,669 44,668 75,317 73,493 60,908 

North Dakota 23,074 29,007 15,458 16,562 25,221 

Ohio 100,776 118,138 68,717 112,015 51,601 

Oklahoma 42,941 31,272 34,351 39,238 19,780 

Oregon 53,329 33,793 34,687 46,605 31,655 

Pennsylvania 126,833 105,293 112,761 109,388 62,343 

Rhode Island 11,901 10,861 13,736 12,409 9,547 

South Carolina 38,246 23,772 22,531 39,194 18,895 

South Dakota 22,065 20,915 16,841 15,440 10,466 

Tennessee 45,678 47,298 62,412 46,373 58,638 

Texas 235,495 174,336 159,929 192,738 127,046 

Utah 41,200 26,008 24,804 21,396 39,235 

Vermont 4,333 6,657 2,310 2,767 5,487 

Virginia 82,330 70,688 45,240 76,647 75,555 

Washington 168,764 73,153 53,351 62,798 34,023 

West Virginia 26,991 20,637 24,373 18,562 18,564 

Wisconsin 53,074 60,615 48,264 39,971 27,541 

Wyoming 38,536 33,544 21,158 25,679 16,446 

American Samoa 9,615 6,328 18,903 17,845 5,374 

Guam 11,137 2,244 5,937 368 3,653 

Northern Mariana Island 10,274 8,014 10,227 13,017 5,455 

Puerto Rico 16,209 9,323 7,419 9,022 6,399 

Virgin Islands 4,702 2,726 8,959 20,094 5,056 

Administration 82,415 86,485 65,336 64,731 58,542 

 Totals $ 2,977,300 3,712,423 $ 2,786,717 $ 2,933,542 $ 2,178,576 $ 

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

Stewardship Investment

Non Federal Physical Property

Airport Improvement Program

For the Fiscal Years Ended September 30
112

Financial Statements 

FAA conducts research and provides the essential air traffic control infrastructure to meet increasing 

demands for higher levels of safety, efficiency, and environmental improvement. 

Research priorities include aircraft structures and materials; fire and cabin safety; crash injury-protection; 

explosive detection systems; decreased in-flight ice buildup and ground de-icing operations; better tools 

to predict and warn of weather hazards, turbulence, and wake vortices; aviation medicine; and human 

factors. Human factors refers to the research of how people (e.g., air traffic controllers and pilots) 

perform when interacting with, for example, technology and equipment, under various conditions. 

Optimizing this interaction contributes toward higher levels of safe air travel. 

A few of FAA’s top FY 2005 research and development accomplishments were: 

 Developed an easy-to-use Web-based human factors analysis tool that is assisting FAA engineers in 

determining future air traffic control tower heights and location. Use of this tool poses savings of 

approximately $5 million in new airport tower construction costs per year. 

 Conducted the research necessary for the publication of a new standard for nondestructive pavement 

(e.g., runways) testing. The standard is based on use of FAA research-developed software called 

BAKFAA (back calculation-FAA). BAKFAA provides more uniform and accurate measurement of 

pavement properties. When used together with pavement design improvements previously published, 

it can save up to 3% in annual Airport Improvement Program expenditures for runway maintenance. 

 Conducted fire safety research that supported the development and publication of an advisory 

circular on “Thermal Acoustic Insulation Flame Propagation Test Method Details.” This advisory 

circular simplifies and further standardizes a new flammability test for insulation. It also includes 

flammability test procedures for insulation blanket components. 

Expenses 2005 2004 2003 2002 2001

Applied Research 103,659 $ 91,743 $ 29,406 $ 59,150 $ 120,395 $ 

Development 547 478 251 603 3,419 

Administration 29,163 28,643 31,669 44,480 46,988 

R&D Plant 5,287 4,230 2,903 3,020 10,130 

Total $ 125,094 138,656 $ 64,229 $ 107,253 $ 180,932 $ 

For the Fiscal Years Ended September 30

(Dollars in Thousands)

 Department of Transportation

FEDERAL AVIATION ADMINISTRATION

 Stewardship Investment

Research and Development
113

Financial Statements 

 

 

 

 

Required Supplementary Information 
114

Financial Statements 

Deferred maintenance is maintenance that was not performed when it should have been, or was 

scheduled to be performed but was delayed until a future period. 

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.” 

U.S. Department of Transportation

 Supplementary Information

 Deferred Maintenance

 For the Fiscal Years Ended September 30

 (Dollars in Thousands)

Asset Costs to return to

Category Method condition* acceptable condition

2005 2004 2003 2002 2001

Buildings Condition assessment 4&5 63,875 $ 53,359 $ 50,534 $ 73,741 $ 50,568 $ 

Other structures

and facilities Condition assessment 4&5 19,984 $ 16,543 $ 29,785 $ 13,843 $ 22,928 $ 

* Condition Rating Scale 4--Poor; 5--Very Poor

FEDERAL AVIATION ADMINISTRATION
Financial Statements 

 115 

Intragovernmental Assets

2005 2004

Agency

Accounts 

receivable, 

advances, 

prepayments, and 

other

Fund balance with 

Treasury Investments

Accounts 

receivable, 

advances, 

prepayments, and 

other

Fund balance with 

Treasury Investments

Department of the Treasury - 2,413,102 $ 10,665,560 $ 54,045 $ 2,840,663 $ 10,318,029 $ 

Department of the Air Force 7,904 - - 12,417 - -

Department of Agriculture 51 - - 51 - -

Department of the Army 18,207 - - 6,647 - -

Department of Commerce 526 - - 78 - -

Department of Defense 19,441 - - 2,097 - -

Department of Energy - - - 88 - -

Federal Trade Commission 152 - - 94 - -

General Services Administration 911 - - 1,542 - -

Central Intelligence Agency 233 - - - - -

Independent Agencies 184 - - 8 - -

Department of Homeland Security 385 - - 715 - -

Department of Health and Human Services 2 - - - - -

Department of the Interior 907 - - - - -

Department of Justice 535 - - 456 - -

National Aeronautics and Space Administration 2,995 - - 2,015 - -

Department of the Navy - - - 4,406 - -

Office of Personnel Management 6 - - 6 - -

Department of State 736 - - 4,201 - -

Tennessee Valley Authority 5 - - - - -

Agency For International Development 56 - - - - -

Department of Education 5 - - - - -

U.S. Army Corps of Engineers 9 - - - - -

Department of Transportation 251,187 - - 127,103 - -

Other Agencies - - - 20 - -

Total 304,437 $ 2,413,102 $ 10,665,560 $ 215,989 $ 2,840,663 $ 10,318,029 $ 

As of September 30

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

Supplementary Information

Intragovernmental Balances

(Dollars in Thousands)
116

Financial Statements 

Intragovernmental Liabilities

Agency

 Employee 

related and other 

 Accounts 

payable 

 Employee 

related and other Accounts payable 

Department of the Treasury 6,750 $ 30,972 $ 7,098 $ - $ 

Department of Defense 5,342 33,103 2,413 21,833 

Department of Agriculture - 29 - 29 

Department of the Air Force 1,106 - 700 1,228 

Department of the Army 261 801 258 140 

Department of Commerce 598 5,949 1,652 - 

Department of Education 60 - 60 - 

Department of Energy 8,473 147 4 1 

Environmental Protection Agency 72 - 300 - 

Federal Trade Commission 90 - 93 - 

General Services Administration - 22,521 - 6,889 

Government Printing Office - 81 - 83 

Department of Health and Human Services 8,502 85 33 - 

Department of Veterans Affairs - 6 - - 

Department of Homeland Security 6,203 - 7,128 - 

Department of the Interior 230 1,880 85 13 

Department of Justice - 150 68 54 

Department of Labor 197,598 - 200,307 - 

Tennessee Valley Authority 8,473 - - - 

National Aeronautics and Space Administration 2,443 2,987 1,429 2,063 

National Archives and Records Administration - 137 - - 

Department of the Navy - 358 - 212 

Office of Personnel Management 41,752 452 29,527 512 

Smithsonian Institution - - - 7 

Department of State 106 - 115 547 

Department of Transportation 6,507 6,669 11,029 26,718 

United States Postal Service - 341 - 693 

U.S. Army Corps of Engineers - 25 - 19 

Independent Agencies - - 5 - 

Other Agencies - - 24,722 - 

Total 294,566 $ 106,693 $ 287,026 $ 61,041 $ 

2005 2004

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

Supplementary Information

Intragovernmental Balances

As of September 30

(Dollars in Thousands)
Financial Statements 

 117 

Intragovernmental non-exchange revenue

Transfers-out Transfers-in Transfers-out Transfers-in

Department of Transportation 106,549 $ - $ 165,755 $ - $ Other Agencies 297,598 297,598 361,881 353,466

Total non-exchange revenue 404,147 $ 297,598 $ 527,636 $ 353,466 $ 

U.S. Department of Transportation

2005 2004

FEDERAL AVIATION ADMINISTRATION

 Supplementary Information

Intragovernmental Transactions

For the Fiscal Years Ended September 30

 (Dollars in Thousands)
Financial Statements 

 118 

Airport & Trust Fund

Airway Trust Fund Trust Fund Research, Aviation 

Trust Fund Grants-in-Aid Facilities & Eng. & Insurance Franchise Other Combined

Budgetary Resources Corpus to Airports Equipment Development Revolving Fund Operations Funds Total

Budget Authority 6 $ 6,793,320 $ 2,506,394 $ 124,890 $ - $ - $ 7,751,404 $ 943 $ 17,176,957 $ 

Unobligated balance brought forward and transfers - 285,047 1,064,646 23,715 218,561 73,238 163,727 1,318 1,830,252

Spending authority from offsetting collections - 537 92,551 2,752 168,378 438,622 331,286 - 1,034,126

Recoveries of prior year obligations - 173,568 67,754 5,399 180,886 - 59,314 - 486,921

Temporarily not available - - (20,320) (1,047) - - (39,345) - (60,712)

Permanently not available - (3,096,787) - - - - (29,118) - (3,125,905)

Total Budgetary Resources 6 $ 4,155,685 $ 3,711,025 $ 155,709 $ 567,825 $ 511,860 $ 8,237,268 $ 2,261 $ 17,341,639 $ 

Status of Budgetary Resources

Obligations incurred 6 $ 3,673,299 $ 2,742,937 $ 130,764 $ 3,529 $ 416,089 $ 8,016,190 $ - $ 14,982,814 $ 

Unobligated balances-available - 1,147 895,677 20,805 471 95,771 51,206 2,261 1,067,338

Unobligated balances-not available - 481,239 72,411 4,140 563,825 - 169,872 - 1,291,487

Total Status of Budgetary Resources 6 $ 4,155,685 $ 3,711,025 $ 155,709 $ 567,825 $ 511,860 $ 8,237,268 $ 2,261 $ 17,341,639

Relationship of Obligations to Outlays

Obligated balance, net beginning of period - $ 6,093,262 $ 1,672,086 $ 173,610 $ 186,254 $ 135,538 $ 912,310 $ - $ 9,173,060 $ 

Obligations incurred 6 3,673,299 2,742,937 130,764 3,529 416,089 8,016,190 - 14,982,814

Less: Spending authority from offsettingcollections and receipts and recoveries of prior year obligations - (174,105) (160,305) (8,151) (349,264) (438,622) (390,600) - (1,521,047)

Less: Obligated balance, net end of period - (6,062,824) (1,737,713) (157,889) (5,657) (27,137) (804,684) - (8,795,904)

Net Outlays 6 $ 3,529,632 $ 2,517,005 $ 138,334 $ (165,138) $ 85,868 $ 7,733,216 $ - $ 13,838,923 $ 

Outlays 

Disbursements - $ 3,531,452 $ 2,600,515 $ 139,949 $ 3,240 $ 396,101 $ 12,812,677 $ - $ 19,483,934 $ 

Collections, net of offsetting receipts (16) (1,820) (83,510) (1,615) (168,378) (310,233) (5,079,439) - (5,645,011)

Net Outlays (16) $ 3,529,632 $ 2,517,005 $ 138,334 $ (165,138) $ 85,868 $ 7,733,238 $ - $ 13,838,923 $ 

As of September 30, 2005

(Dollars in Thousands)

U. S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

Schedule of Budgetary Resources by Major Fund Type
Financial Statements 

 119 

Trust Fund

Trust Fund Trust Fund Research, Aviation 

Grants-in-Aid Facilities & Eng. & Insurance Franchise Other Combined

Budgetary Resources to Airports Equipment Development Revolving Fund Operations Funds Total

Budget Authority 7,069,128 $ 2,895,677 $ 119,863 $ - $ - $ 7,530,925 $ 123 $ 17,615,716 $ 

Unobligated balance brought forward and transfers 9,489 675,178 20,439 217,854 78,989 97,495 8,258 1,107,702

Spending authority from offsetting collections 578 168,413 (2,176) 1,446 362,231 144,962 - 675,454

Recoveries of prior year obligations 127,112 26,792 4,257 - - 12,989 19,768 190,918

Temporarily not available - (47,169) (706) - - (30,999) - (78,874)

Permanently not available (3,420,072) - - - - (30,843) (139) (3,451,054)

Total Budgetary Resources 3,786,235 $ 3,718,891 $ 141,677 $ 219,300 $ 441,220 $ 7,724,529 $ 28,010 $ 16,059,862 $ 

Status of Budgetary Resources

Obligations incurred 3,501,188 $ 2,654,246 $ 117,963 $ 739 $ 367,982 $ 7,561,202 $ 26,691 $ 14,230,011 $ 

Unobligated balances-available 7,884 968,754 17,956 460 73,238 43,767 1,319 1,113,378Unobligated Balances-not available 277,163 95,891 5,758 218,101 - 119,560 - 716,473

Total Status of Budgetary Resources 3,786,235 $ 3,718,891 $ 141,677 $ 219,300 $ 441,220 $ 7,724,529 $ 28,010 $ 16,059,862Relationship of Obligations to Outlays

Obligated balance, net, beginning of period 5,681,104 $ 1,952,708 $ 198,907 $ 5,201 $ 91,873 $ 694,909 $ 19,769 $ 8,644,471 $ 

Obligations incurred 3,501,188 2,654,246 117,963 739 367,982 7,561,202 26,691 14,230,011

Less: Spending authority from offsettingcollections and receipts and recoveries of prior year obligations (127,690) (195,205) (2,081) (1,446) (362,231) (157,951) (19,768) (866,372)

Less: Obligated balance, net, end of period (6,093,262) (1,672,086) (173,610) (186,254) (135,538) (912,310) - (9,173,060)

Net Outlays 2,961,340 $ 2,739,663 $ 141,179 $ (181,760) $ (37,914) $ 7,185,850 $ 26,692 $ 12,835,050 $ Outlays 

Disbursements 2,961,911 $ 2,773,790 $ 141,541 $ (180,314) $ 322,323 $ 11,710,859 $ 26,721 $ 17,756,831 $ 

Collections, net of offsetting receipts (571) (34,127) (362) (1,446) (360,237) (4,525,009) (29) (4,921,781)

Net Outlays 2,961,340 $ 2,739,663 $ 141,179 $ (181,760) $ (37,914) $ 7,185,850 $ 26,692 $ 12,835,050 $ 

(Dollars in Thousands)

U. S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

Schedule of Budgetary Resources by Major Fund Type

As of September 30, 2004
120

Financial Statements 

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. 

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, nonDOT government agencies, and the airport authorities and militaries of other countries. 

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 Fund are directed toward identifying 

the most efficient and cost effective methods to provide support services, and this is consistent with the 

current President’s Management Agenda initiative relating to competitive sourcing. 

Description of Available Products and Services 

Early in 2003, the Aeronautical Center reorganized certain Franchise Fund programs around an Enterprise 

Services Center (ESC) concept. This concept is designed to integrate the key components necessary to be a 

full service financial management provider. The efficiencies and economies of scale created by this integration 

offer the opportunity to compete for customers seeking a provider of financial management services. As new 

customers come on board, this will further reduce the cost of providing the services by spreading the fixed 

cost of operations over a larger customer base. The ESC is comprised of the following three service 

components: 

 Enterprise System – configuration and support of application software and databases; 

 Financial Operations – transaction processing, financial reporting, and analysis services; 

 Information Technology – hosting, telecommunications, information system security, and end user 

support services. 

During FY 2005, the Office of Management and Budget (OMB) conducted a competition among interested 

agencies to become a Financial Management Center of Excellence (COE). Following from the competition, 

OMB selected four providers of financial management services, with the ESC being one of those selected. As 

a COE, the ESC now has the ability to compete to provide financial management services for other 

government agencies. The ESC currently provides financial management services to all DOT agencies, the 

National Endowment of the Arts, and has several proposals out to other agencies. 

In addition to being selected as a COE, the ESC was chosen by the FAA Administrator to serve as the 

consolidated provider of all financial management services for all FAA organizations. The consolidation was 

begun in FY 2004 and is targeted for completion in FY 2006. The ESC committed to providing an improved 

level of service, meeting all requirements of the Joint Financial Management Improvement Program, while at 

the same time reducing overall expenses by 10%. 

The FAA Logistics Center located at the Aeronautical Center provides comprehensive logistics support and 

a highly sophisticated level of maintenance and repair services to ensure the safety of the flying public and to 

satisfy the critical needs of the national airspace system and related requirements. Services include materiel 

management (e.g., provisioning, cataloging, acquisition, inventory management, inventory supply), reliable 
121

Financial Statements 

and cost-effective depot-level repair of line replaceable units, life cycle and performance cost analysis, logistics 

automation, distribution services, disposal of items no longer required, and technical support in the repair and 

maintenance of national airspace and related equipment. 

The Flight Inspection Maintenance Division in the Office of Aviation System Standards provides total 

aircraft support including maintenance, logistics management, quality assurance, and overall program 

management. This service includes preventive as well as repair/overhaul and/or modification requirements, 

and reliability and maintainability studies. 

The services presented under the caption “other lines of business” in the accompanying schedule of 

condensed information on revenues and expenses of the Franchise Fund include the Center for 

Management and Executive Leadership (CMEL) and the International Training Division (ITD).

The CMEL, located at Palm Coast, Florida, provides non-technical training in support of the FAA mission. 

The center designs and delivers face-to-face centralized training at CMEL and field locations to over 4,700 

students annually and students complete more than 5,000 distance learning programs each year. CMEL is 

fully accredited with commendations by the Commission on Occupational Education, and additionally the 

American Council on Education has determined that CMEL courses are worthy of upper division college 

credit. The Federal, professional, and local communities also recognize CMEL as a premier resource for 

leadership and teambuilding training. 

The ITD in the FAA Academy at the Aeronautical Center in Oklahoma City, Oklahoma, delivers technical 

assistance and training to enhance international aviation safety and security while promoting U.S. aviation 

system technologies, products, and services overseas. The products and services of the ITD include training 

program management, instructional services, training design/development/revision, technical training 

evaluations, and consulting services tailored to meet specifically defined needs of the FAA and its 

international customers. 
122

Financial Statements 

2005 2004

Assets

Fund balance with Treasury 122,907 $ 208,776 $ 

Accounts receivable, net 69,106 4,951 

Inventory and related property, net 383,482 375,027 

General property, plant, and equipment, net 2,748 2,130 

Other 578 1,121 

Total assets $ 592,005 578,821 $ 

Liabilities

Accounts payable 22,432 $ 15,872 $ 

Advances received and other 121,178 137,326 

Total liabilities 153,198 143,610 

Net position

Cumulative results of operations 435,211 438,807 

Total net position 438,807 435,211 

Total liabilities and net position $ 592,005 578,821 $ 

As of September 30

(Dollars in Thousands)

U. S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

FRANCHISE FUND

CONDENSED INFORMATION

ASSETS, LIABILITIES, AND NET POSITION
123

Financial Statements 

 

2005 2004

Office of Enterprise Systems Revenues 44,477 $ 51,915 

Expenses 42,501 42,664 

Profit/(loss) 1,976 9,251 

Office of Financial Operations Revenues 26,229 25,847 

Expenses 24,358 24,675 

Profit/(loss) 1,871 1,172 

Office of Information Technology Revenues 23,378 41,907 

Expenses 41,037 30,417 

Profit/(loss) (17,659) 11,490 

FAA Logistics Center Revenues 239,629 167,480 

Expenses 280,531 198,825 

Profit/(loss) (40,902) (31,345) 

Flight Inspection 

Maintenance Division Revenues 36,928 50,524 

Expenses 48,334 38,710 

Profit/(loss) (11,406) 11,814 

Other lines of business Revenues 8,505 2,404 

Expenses 5,733 4,643 

Profit/(loss) 2,772 (2,239) 

Total Consolidated Revenues 379,146 340,077 

Expenses 442,494 339,934 

Profit/(loss) (63,348) $ 143 $ 

REVENUES AND EXPENSES

September 30

U. S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

FRANCHISE FUND

CONDENSED INFORMATION

For the years ended

(Dollars in Thousands)
124

Financial Statements 

2005 2004

Beginning balance, net position $ 442,613 438,807 $ 

Financing sources

Transfers-in/out without reimbursement 4,318 (10,906) 

Imputed financing from costs absorbed by others 55,421 6,954 

Other 13 3 

Total financing sources 59,752 (3,949) 

Profit (loss) 143 (63,348) 

Ending balance, net position $ 438,807 435,211 $ 

Cumulative results of operations

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

FRANCHISE FUND

CONDENSED INFORMATION

(Dollars in Thousands)

FINANCING SOURCES AND NET POSITION
125

Appendix 

APPENDIX 

Improper Payments Information Act Reporting 

Details 

Risk Assessment(s)

AOC Solutions, Inc., under contract with the Department of Transportation (DOT), conducted a review of 

FY 2004 payments in 10 DOT programs selected by DOT as susceptible to improper payments. The 

objective of the review was to determine the amounts and causes of improper payments made by the 10 

programs; to identify programs with significant improper payments (as defined by OMB); and to identify 

action plans for reducing improper payments for each program identified as having significant improper 

payments.

AOC Solutions, Inc., reviewed payments made by 10 DOT programs identified by Operating Administration 

(OA), which included the following FAA programs:

 Airport Improvement Program (Grants)A-1

 Operations (excluding payroll)

 Facilities and Equipment

AOC Solutions, Inc. conducted interviews with program representatives to discuss program history and any 

program changes or other issues that may have occurred over the past fiscal year following selection by DOT 

of the three FAA programs to be reviewed.

AOC Solutions, Inc. then performed a risk analysis of each of the 10 programs to determine the appropriate 

sample size of payments to review based on the program’s relative risk rating. Risk criteria used to assess the 

programs included gross expended amount, volume of payments, complexity of payments, established 

controls and oversight, and type and number of program recipients. Each criteria factor was scaled from high 

to low and had a numerical score assigned to each level. Programs were assessed on each criteria factor and 

scores were summed to achieve a total risk score. A high (low) total score indicated a high (low) level of risk 

associated with the program. 

The following table shows the final risk ratings of each of the three FAA programs reviewed, along with the 

risk rating of each program from the FY 2003 review for comparison.

Program FY 2003 Risk Rating FY 2004Risk Rating

Airport Improvement Program (Grants) Moderate Moderate

Operations (excluding Payroll) High Moderate

Facilities and Equipment High Moderate

Program risk ratings for FY 2004 either improved or remained the same as FY 2003 ratings. Improvements 

were noted in FAA Operations and Facilities and Equipment programs due to improvements in established 

controls and program oversight. 

Statistical Sampling Process 

Following risk assessment of each program, the potential error rate (potential rate of improper payments) for 

each program was estimated. The potential error rate for each program was then applied to the formula for 

determining minimum sample size cited in the implementation guidance of OMB 03-13. The sample size 

calculated for each program was based on this formula.

 

A-1 Identified in the former Section 57 of OMB A-11 as a program that requires reporting of improper payments. 
126

Appendix 

The minimum sample amount calculated from the formula was used for those programs with relatively high 

potential error rates because the effect of the high error rate produced a larger sample size in the calculation. 

Potential error rates and sample sizes are shown in the following table.

Program Estimated Error Rate (%) Sample Size

Airport Improvement Program (Grants) 1.20 50

Operations (excluding Payroll) 1.40 50

Facilities and Equipment 1.40 60

Total Sample Size 160

A stratified sampling design that took into account payment amounts as well as the assessed risk of each 

program was used in the review. The sampling plan was designed with a 90% confidence level, which 

indicates a 90% likelihood that the true population value is within the results of the sample value. For the 

projected improper payment rate (derived from the sample) of $8,125.00, it is 90% likely that the true 

population improper payment rate is within the range $7,922.00–$8,328.00 ($8,125.00 ±2.5%).

This statistical approach is recommended in the implementation guidance of OMB 03-13.

According to the guidance,

The estimates shall be based on the equivalent of a statistical random sample with a precision requiring a sample of sufficient

size to yield an estimate with a 90% confidence interval of plus or minus 2.5% around the estimate of the percentage of 

erroneous payments. And because the margin of error of a percentage estimate is related to the size of that estimate, the 

agency may use their initial determination of the potential error...to determine their sample size.

Corrective Action Plan

FAA’s low rate of improper payments precludes the need for a corrective action plan.

Improper Payment Reduction Outlook FY 2004–FY 2008 

A table presenting the reduction outlook is not warranted due to FAA’s low improper payments rate.

Recovery Auditing Efforts 

For the past 4 years, DOT has used PRG-Schultz for recovery audit services. During that time PRG-Shultz 

reviewed payments made by DOT Operating Administrations (OA) to commercial vendors for fiscal years 

2000, 2001, 2003, and 2004. Due to our low rate of improper payments, PRG-Shultz has recovered only 

nominal amounts for FAA.

Managers and Head Accountability 

The DOT CFO has required the CFOs of all OAs to certify the results of improper payments reviews. In 

addition, we have incorporated financial management training, which will include payment policies, and inhouse training provided to managers. Finally, we converted to the DELPHI financial system, which provides 

increased system controls over payments. In addition, we established an internal control division to direct the 

activities related to internal controls and compliance with OMB Circular A-123, Management’s Responsibility for 

Internal Control. This division provides oversight and leads development, implementation, and operation of 

internal control activities.

Information Systems and Infrastructure 

FAA has the information systems and infrastructure needed to measure improper payments.

Statutory or Regulatory Barriers Limiting Correcting Actions 

Not applicable due to FAA’s low rate of improper payments.
127

Glossary of Acronyms 

GLOSSARY OF ACRONYMS 

AATF Airport and Airway Trust Fund 

ACSI American Customer Satisfaction Index 

AEDT-APMT Aviation Environmental Design Tool and Aviation Portfolio Management Tool 

AFSS Automated Flight Service Stations 

AGA Association of Government Accountants 

AHR Office of Human Resource Management (FAA Line of Business) 

AIP Airport Improvement Program 

AMASS Airport Movement Area Safety System 

ARP Airports (FAA line of business) 

ARTCC Air Route Traffic Control Center 

ASDE-X Airport Surface Detection Equipment Model X 

AST Commercial Space Transportation (FAA Line of Business) 

ASV Annual Service Volume 

ATA Air Transport Association 

ATCSCC Air Traffic Control System Command Center 

ATCT Air Traffic Control Tower 

ATO Air Traffic Organization (FAA Line of Business) 

ATOP Advanced Techniques and Oceanic Procedures 

AVS Aviation Safety (FAA Line of Business) 

BASA Bilateral Aviation Safety Agreement 

BPA Blanket Purchase Agreement 

BTS Bureau of Transportation Statistics 

CAEP Committee on Aviation Environmental Protection 

CAS Cost Accounting System 

CEAR Certificate of Excellence in Accountability Reporting 

CFO Chief Financial Officer 

CFO Act Chief Financial Officers Act of 1990 

COSCAP Cooperative Development of Operational Safety and Continuing Airworthiness 

Project 

CSI Composite Safety Index 

DBE Disadvantaged Business Enterprise 

DOL Department of Labor 

DOT Department of Transportation 

EA Enterprise Architecture 

EAC East African Community 

ETMS Enhanced Traffic Management System 

EVM Earned Value Management 

F&E Facilities and Equipment 

FAA Federal Aviation Administration 

FEA Federal Enterprise Architecture 
128

Glossary of Acronyms 

FMFIA Federal Managers’ Financial Integrity Act 

GAO Government Accountability Office 

GENOT General Notice 

GPS Global Positioning System 

GSA General Services Administration 

HSPD-12 Homeland Security Presidential Directive-12 

ICAO International Civil Aviation Organization 

INM Integrated Noise Model 

IT Information Technology 

JCAB Japan Civil Aviation Bureau 

JPDO Joint Planning and Development Office 

JSC Joint Steering Committee 

LACAC Latin American Civil Aviation Commission 

MAGENTA Model for Assessing Global Exposure to the Noise of Transport Aircraft 

MCP Mission Critical Position 

MIP Maintenance Implementation Procedure 

MOA Memorandum of Agreement 

MSAS MTSAT Satellite Augmentation System 

MTSAT Multi-function Transport Satellite 

NARP National Aviation Research Plan 

NAS National Airspace System 

NASA National Aeronautics and Space Administration 

NASPAS National Airspace System Performance Analysis System 

NATCA National Air Traffic Controllers Association 

NEO Network-enabled Operations 

NFR Notification of Findings and Recommendations 

NGATS Next Generation Air Transportation System 

NPV Net Present Value 

NTAP National Track Analysis Program 

NTSB National Transportation Safety Board 

OA Operating Administration 

OAG Official Airline Guide 

OE Operational Error 

OEP Operational Evolution Plan 

OEDP Operational Error Detection Patch 

OIG Office of the Inspector General 

OMB Office of Management and Budget 

PAR Performance and Accountability Report 

PART Performance Assessment Rating Tool 

PASO Pacific Aviation Safety Office 

PHMSA Pipeline and Hazardous Materials Safety Administration 

PMA President’s Management Agenda 
129

Glossary of Acronyms 

R&D Research and Development 

RASOS Regional Aviation Safety Oversight System 

RD&TP Research, Development and Technology Plan 

RDSIM Runway Delay Simulation Model 

R,E&D Research, Engineering, and Development 

REMS Real Estate Management System 

RNAV Area Navigation 

RNP Required Navigation Performance 

ROI Return on Investment 

RVSM Required Vertical Separation Minimum 

SAGE System for Assessing Aviation Global Emissions 

SARS Severe Acute Respiratory Syndrome 

SMS Safety Management System 

TCCA Transport Canada Civil Aviation 

TRACON Terminal Radar Approach Control 

UAV Unmanned Aerial Vehicles 

URET User Request Evaluation Tool 

WAAS Wide-Area Augmentation System
130

Links, Acknowledgments, & Comments 

INTERNET LINKS 

Federal Aviation Administration: www.faa.gov

FAA Offices: http://faa.gov/about/office_org/

FAA Regional Offices and Centers: http://faa.gov/about/office_org/regions_centers/

FAA Operational Evolution Plan (OEP): http://faa.gov/programs/oep/

National Transportation Library: http://ntl.bts.gov

U.S. Department of Transportation: www.dot.gov

ACKNOWLEDGMENTS 

This FY 2005 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 supporting the audit of the financial statements. 

WE WELCOME YOUR COMMENTS! 

Thank you for your interest in FAA’s FY 2005 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 

Mail: Office of Financial Management, AFM-1 

Federal Aviation Administration 

800 Independence Avenue, SW 

 Room 612 

Washington, DC 20591 

E-mail: Allison.Ritman@faa.gov 

Fax: (202) 493-4191 

This and prior year reports are available on the FAA website at www.faa.gov/about/plans_reports/