THE NEXT 100 YEARS 

OF FLIGHT

FEDERAL AVIATION ADMINISTRATION

PERFORMANCE AND ACCOUNTABILITY REPORT FY 2004
FAA employees work at headquarters in Washington, DC, in 9 regional

offices, and other facilities throughout the country and around the world.

FAA fulfills its mission through four lines of business that work together

to create and maintain the world's preeminent national airspace system.

FA A REGIONS

WA

WY

NE

KS

MO

IA

IL

IN OH

WI

MI

MN ND

SD

UT

C

OR

CA

NV

AZ

Hawaii

NM OK AR

MS AL GA SC

NC

TN

KY

WV VA

MD DE

PA NJ

NY

VT

NH

ME

MA

CT RI

FL

LA

TX

ID MT

ANM

 (Northwest 

Mountain) 

ACE 

(Central) 

AWP

(WesternPacific)2

ASW

(Southwest) 

AEA

(Eastern) 

ANE

(New England) 

Alaska

AAL

(Alaskan) 1 Includes Puerto Rico, the 

 Republic of Panama, and 

 the Virgin Islands

2 Includes Wake, Samoa, 

 and Guam

Atlanta

Ft. Worth

Oklahoma City

Los Angeles

Seattle

Kansas 

City

Jamaica, NY

 Atlantic City

Washington, DC

LEGEND

Regional Office

Mike Monroney Aeronautical Center

William J. Hughes Technical Center

National Headquarters (DC)

Boston

Chicago

Anchorage

AGL

(Great Lakes) 

ASO

(Southern)1 
FEDERAL AVIATION ADMINISTRATION 

FY 2004 PERFORMANCE AND ACCOUNTABILITY REPORT 
ii 

MISSION/VISION STATEMENT 

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

FAA AT A GLANCE 

Established 1958 

Headquarters 800 Independence Avenue, SW 

Washington, DC 20591 

www.faa.gov 

FY 2004 Budget $13.871 billion 

Total Employees 47,877 

Headquarters 4,228 employees 

Regional Offices 38,957 employees 

Technical Center 

Atlantic City, NJ

1,298 employees 

Aeronautical Center 

Oklahoma City, OK

3,394 employees 
iv 

FOREWORD 

The Federal Aviation Administration (FAA) is part of the U.S. Department of Transportation (DOT). The 

FAA is required by Office of Management and Budget (OMB) directives, which implement the Chief 

Financial Officers Act of 1990 (CFO Act), to prepare financial statements separate from those of the DOT. 

FAA is not required to prepare a separate Performance and Accountability Report (PAR). 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, we have elected to produce our own PAR for the past several years. This PAR, however, 

departs from the format required of CFO Act agencies. Rather than have a separate section on 

performance, we have included a detailed discussion of performance in the “Management’s Discussion 

and Analysis” section. This year, we have also chosen not to report separately on our progress in 

achieving the goals of the President’s Management Agenda (PMA). FAA does not have separate PMA 

targets. Our results are incorporated in the results that DOT reports. 

Last year, we were proud to receive the Association of Government Accountants’ prestigious Certificate of 

Excellence in Accountability Reporting award for the first time. 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. 
v 

TABLE OF CONTENTS 

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

FAA AT A GLANCE........................................................................................................................ iii

FOREWORD ................................................................................................................................. iv 

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

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

A Year in Highlights............................................................................................................ 4 

Achieving Results ............................................................................................................... 6 

FY 2004 Performance at a Glance...................................................................................... 8 

Managing Performance...................................................................................................... 9 

Verification and Validation of Performance Information ......................................................... 11 

 Performance Assessment Rating Tool .................................................................................. 11 

 Evaluating Our Programs.................................................................................................... 12 

 Improving Cost Control ...................................................................................................... 12 

 Describing Results ............................................................................................................. 13 

Strategic Goal #1: Safety................................................................................................... 13

 Performance Measures and Results ..................................................................................... 14 

 Safety Results and Initiatives.............................................................................................. 15 

 Commercial Air Carrier Fatal Accident Rate ...................................................................... 15 

 General Aviation Fatal Accidents ..................................................................................... 16 

 Operational Errors ......................................................................................................... 17 

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

 Commercial Space Launch Accidents............................................................................... 19 

 Strategic Goal #2: Capacity............................................................................................... 19

 Performance Measures and Results ..................................................................................... 19 

 Capacity Results and Initiatives........................................................................................... 20 

 On-Time Arrival............................................................................................................. 20 

 Aircraft Noise Exposure.................................................................................................. 21

 Aviation Fuel Efficiency .................................................................................................. 22 

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

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

 Annual Service Volume .................................................................................................. 25 

 Operational Availability .................................................................................................. 25 

Strategic Goal #3: International Leadership .................................................................... 25

 Performance Measures and Results ..................................................................................... 25 

 International Leadership Results and Initiatives.................................................................... 26 

 Intellectual and Financial Assistance................................................................................ 26 

 Bilateral Agreements...................................................................................................... 26 

 Technical Assistance...................................................................................................... 27 

 Technology and Procedures ........................................................................................... 27 
vi 

 Global Environmental Standards ..................................................................................... 27 

 Required Vertical Separation Minimum ............................................................................ 28 

 Strategic Goal #4: Organizational Excellence................................................................... 28

 Performance Measures and Results ..................................................................................... 28 

 Organizational Excellence Results and Initiatives .................................................................. 29 

 Acquisitions .................................................................................................................. 29 

 Cost Reimbursable Contracts.......................................................................................... 29 

 Customer Satisfaction—Commercial Pilots........................................................................ 29 

 Cost Control.................................................................................................................. 30 

 Information Security...................................................................................................... 30 

 Performance Plans......................................................................................................... 31 

 Mission Critical Positions ................................................................................................ 31 

 FAA Flight Plan.............................................................................................................. 31 

Management Challenges.................................................................................................... 32

Financial Highlights............................................................................................................ 35

 Management Integrity: Controls, Compliance, and Challenges ............................................... 35 

 Financial Plans................................................................................................................... 36 

 Grants Management Policies and Practices........................................................................... 37 

 Office of the Inspector General FY 2005 Management Challenges .......................................... 38 

 Improper Payments Information Act of 2002........................................................................ 38 

 Discussion and Analysis of the Financial Statements ............................................................. 38 

FINANCIAL STATEMENTS............................................................................................................ 45 

 A Message from the Chief Financial Officer............................................................................... 47 

 Limitations of the Financial Statements .................................................................................... 49 

 OIG Quality Control Review..................................................................................................... 51 

 Independent Auditors’ Report.................................................................................................. 53 

 Financial Statements .............................................................................................................. 69 

 Notes to the Financial Statements............................................................................................ 74 

 Required Supplementary Stewardship Information .................................................................... 101 

 Required Supplementary Information....................................................................................... 105 

Appendix: Improper Payments Information Act Reporting Details .......................................... 117 

Glossary....................................................................................................................................... 120 

Internet Links.............................................................................................................................. 122 

Acknowledgments....................................................................................................................... 122 

We Welcome Your Comments..................................................................................................... 122

This report is also available on the FAA Website at www.faa.gov/aba/html_fm/files_pdf/2004_PAR.pdf

Prior year reports are available at www.faa.gov/aba/html_fm/finst.html
vii 

This page intentionally left blank. 
1 

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. 

A MESSAGE FROM THE ADMINISTRATOR 

FAA is making great strides in becoming a performance-based organization. This year has been one of 

significant accomplishments and challenges for us. 

 Safety. Safety is our number one priority. The past three-year period has been the safest in aviation 

history for commercial flight, and the number of general aviation accidents continues to decline as 

well. 

 New Frontiers. We launched a new era in space travel. SpaceShipOne—the first private manned 

space vehicle licensed by FAA—

successfully completed two flights 

to the edge of space and won the 

$10 million Ansari X-Prize. 

 Reorganization. We are 

implementing the most sweeping 

organizational change in FAA’s 

history with the establishment of 

a new Air Traffic Organization. 

This change is going to make FAA 

a much more accountable, 

efficient, and performanceoriented organization. It is a best 

practice that we see paying real 

dividends to industry and the 

traveling public.

 International Leadership. We 

signed a number of bilateral 

agreements with foreign 

countries, spreading the reach of 

aviation safety around the globe. 

 Growth without Gridlock. Achieving growth without gridlock is especially challenging in light of 

the financial uncertainties facing the industry. A first-ever conference was held to change air traffic 

control’s approach to handling delays throughout the system. We instituted “express lanes in the sky” 

and convened daily morning conferences with the airlines to deal with weather and congestion. This 

partnership approach often stops delays before they occur. Separately, we reached an historic 

agreement with the airlines serving Chicago’s O’Hare International Airport. We brokered schedule 

changes in Chicago, reducing congestion during peak hours by more than 30%. 

 Labor Agreements. We are preparing for labor negotiations with FAA’s two largest unions—the 

National Air Traffic Controllers Association and the Professional Airway System Specialists, which 

together represent more than 22,000 FAA employees. We are reviewing existing agreements and will 

enter these negotiations with the goal of reaching new contracts that are fair to our employees and 

fiscally responsible. 

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

review of our automated flight service stations to ensure that the government is getting the most 
2 

The dedicated men and women 

of FAA maintain, operate, and 

oversee the largest and most 

complex aviation system in the 

world, with a safety record 

 that is second to none. 

from the taxpayer’s investment. These facilities, which are generally in need of repair, cost more than 

$500 million annually to operate. Whether FAA provides these services using government employees 

or a private sector contractor, we expect to realize more than $400 million in savings over a five-year 

period as a result of this process. 

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

Certificate of Excellence in Accountability Reporting for our FY 2003 Performance and Accountability 

Report. We were honored to receive the award and are up to the challenge posed by AGA of 

continued improvement. 

Our FY 2004 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. To reflect the increasing emphasis on accountability within the organization, 

we added 18 new performance goals this year. We attained 24 out of 30 goals in the areas of safety, 

capacity, international leadership, and organizational excellence. While I am proud of what we achieved, 

we hope to improve on this record. 

We also achieved an unqualified opinion from our 

auditors on our financial statements and implemented a 

new core financial management system that supports 

our efforts to become a performance-based 

organization. Improving our overall financial 

management performance is an element of our 

organizational excellence goal. 

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, 

2003, through September 30, 2004, 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 key government-wide standards. With the implementation 

of our new financial management system, we have made significant progress toward meeting the 

requirements of the Federal Financial Management Improvement Act of 1996. 

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

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

continues to deliver an exceptional return on investment on behalf of the American taxpayer for the next 

100 years of flight.

Marion C. Blakey 

Administrator 

November 1, 2004 
3 

FAA’s organization chart shows how the agency is structured to 

achieve its mission and deliver results.

MANAGEMENT’S DISCUSSION AND ANALYSIS 

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

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

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

century 

In the first decade of the 20th 

century, only visionaries could 

imagine that air travel would be a 

driving force behind the 

phenomenal growth of the 

American economy. As we enter 

the 21st century, the future of 

aviation is just as hard to imagine 

as it was 100 years ago, as the 

industry finds itself facing 

terrorism, structural change, and 

a fluctuating global economy. 

From 1926, when President Calvin 

Coolidge initiated Federal 

oversight of air safety in the 

United States by signing the Air 

Commerce Act, to the creation of 

the Federal Aviation Agency in 

1958, to our modern-day 

incarnation, FAA and the aviation 

community have grown and 

worked together. We have shaped 

an industry that—like shipping 

and rail before it—conquered 

distance in a new way, lowered 

transportation costs, and created 

new opportunities that 

transformed the commercial 

landscape. 

Today’s FAA faces the challenges 

of the next 100 years of flight 

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 the 

following: 

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

customers of this performance-based organization are commercial and private aviation and the 

military. ATO employees are the service providers—the 38,000 controllers, technicians, engineers, 
4 

SpaceShipOne catches the sun’s rays in space during its historic 

first flight. 

FAA Helps Launch a New Era in Space Travel 

On June 21, 2004, the world witnessed the dawn of a new

era in space travel, as the first private manned space vehicle

licensed by FAA soared beyond Earth’s atmosphere.

SpaceShipOne reached a record altitude of 328,491 feet

(approximately 62 miles or 100 km), making pilot Mike Melvill

the first civilian to fly a spaceship out of the atmosphere and

the first private pilot to earn astronaut wings. Melvill

successfully reached suborbital space for a second time on

September 29, 2004. 

In marking SpaceShipOne’s success, FAA Administrator

Marion Blakey said, “The first century of flight began with 12

seconds over Kitty Hawk that would change the world. The

second century begins with the advent of passenger travel

into space. Our horizon will never be the same, and FAA is

leading the way.” 

and support personnel whose 

daily efforts keep airplanes 

moving. ATO is aligned around 

the services delivered to its 

customers. 

 Regulation and Certification:

Oversees the safety of aircraft 

and the credentials and 

competency of pilots and 

mechanics, develops mandatory 

safety rules, and sets the 

standards that have helped make 

air travel one of the safest modes 

of transportation in history.

 Airports: 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: Oversees the 

safety of commercial space 

launches and regulates the 

commercial space industry. 

A Year in Highlights 

FAA, an agency of the U.S. Department of Transportation (DOT), is charged with promoting the safety 

and efficiency of our national airspace system. FAA establishes and enforces regulations and oversees 

inspections that maintain the integrity and reliability of that system, which has fueled our economy and 

helped ensure our Nation’s prosperity for more than 50 years. 

With a workforce of 47,877 professionals and an annual budget of approximately $13.9 billion, FAA 

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

support it. Almost 15,000 controllers manage more than half of the world’s air traffic, helping to ensure 

ever-increasing levels of safety. The agency conducts research to improve aviation safety and efficiency 
5 

America’s Runways: The Safest in the World 

Runway safety at the Nation’s airports continued to

improve in FY 2004. As runway incursions continued

to decline, serious incursions, for which there is

some risk of collision, dropped significantly between

FY 2000 and FY 2004. For the third consecutive year,

there were no serious incursions involving two large

commercial jets. 

FAA continues leading an industry-wide effort to

improve runway safety through increased education,

training, and awareness, along with new technology

and improved airport runway markings and lighting.

To prevent runway accidents, FAA delivered a new

technology called the Airport Movement Area Safety

System (AMASS) to 34 airports and is deploying the

new Airport Surface Detection Equipment Model X

(ASDE-X) to another 25 airports. 

One of the Flight Plan’s performance targets is to

reduce the most serious type of runway incursions

(Category A and B) by at least 48%, with no more

than an average of 27 serious incursions per year by

FY 2008.

and provides grants to improve 3,344 public-use airports in the United States. FAA also regulates 

commercial space launch activities to ensure public safety. 

FAA Administrator Marion C. Blakey led the agency to a number of significant accomplishments in 2004. 

Aviation safety continued to improve at an impressive pace, and the agency renewed its 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. In an 

effort to significantly reduce congestion and delays at airports nationwide, FAA invoked new authority 

granted in its reauthorization legislation. 

During fiscal year (FY) 2004, FAA employees 

 Ushered in the first year’s implementation of FAA’s Flight Plan, a strategic plan that will guide the 

organization into the next century of flight. The plan sets specific performance goals in four 

overarching areas: safety, capacity, international leadership, and organizational excellence. It also 

sets the direction for the aviation community in a global transportation environment. 

 Worked to win legislative support for Vision 100—the Century of Aviation Act. This four-year 

reauthorization bill provides $60 billion in economic power and calls for 665,000 new jobs through 

airport improvement projects throughout the country. Vision 100 also provides the agency with funds 

for important environmental and clean air initiatives, as well as expanded authority to work 

collaboratively with industry to reduce delays at the Nation’s airports. 

 Recorded the lowest commercial aviation 

fatal accident rate ever (based on a threeyear average). We partnered with 

industry to achieve an unprecedented 

safety record and promote a culture of 

safety throughout commercial aviation. 

 Made significant progress in reducing 

general aviation accidents in Alaska 

through initiatives such as FAA’s 

CAPSTONE safety program. 

 Issued new certification rules for lightsport aircraft that improve the safety and 

affordability of recreational flying. FAA 

created two new certificates that cover 

special light sport and experimental ultralight aircraft, pilots, and mechanics. We 

expect these new rules to encourage the 

return of thousands of pilots who left 

aviation because of cost concerns. 

 Embraced a new era in commercial space 

transportation, as the first privately built 

manned spacecraft successfully reached 

suborbital space on June 21, 2004. 

 Engaged in an active, collaborative 
6 

approach to countering delays and congestion, which returned in FY 2004 as air traffic levels 

approached pre–September 11, 2001, levels. FAA commissioned new runways in Houston, TX, and 

Orlando, FL, during FY 2004. We worked with industry to develop new air traffic procedures that will 

allow for growth without gridlock. We also began to work with the airlines to change flight schedules 

to ease delays. 

 Emphasized environmental stewardship. FAA worked with the Center of Excellence for Aircraft Noise 

and Aviation Emissions Mitigation to develop quieter, cleaner aircraft. The center conducts research 

into the environmental impact of aviation as it continues to grow. 

 Bolstered efforts with regard to international leadership. We continue to provide assistance to other 

countries to improve aviation safety and efficiency throughout the world. Among our most important 

achievements was our success in working with the International Civil Aviation Organization (ICAO) to 

adopt global environmental standards and in executing three bilateral agreements, with one new 

agreement set to be completed in FY 2005. 

 Continued to improve organizational efficiency and effectiveness by achieving six out of seven 

organizational excellence goals, which included controlling costs, hiring mission-critical positions, 

completing critical acquisitions, and strengthening information security. 

FAA continues to face challenges in reducing the number of general aviation fatal accidents, boosting 

system capacity to handle increased traffic, and achieving new organizational excellence goals. To 

address these challenges, we 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. 

We also 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.

Achieving Results

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. 

In FY 2004, FAA marked the first year under its Flight Plan, a long-term strategic plan that charts the 

agency’s goals through FY 2008. It provides the framework to match resources with initiatives for longterm change. It not only focuses on FAA activities, but it also sets the direction for FAA and the national 

air and space community in a global transportation environment. It sets forth the agency’s goals and the 

performance measures to assess 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 30 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 
7 

added a section that provides easy access to Flight Plan performance and results 

(www.faa.gov/aboutfaa/performance.cfm). 

Our performance measures, listed in the “FY 2004 Performance At A Glance” chart on the next two 

pages, support FAA’s mission to provide citizens with a safe, secure, and efficient global aviation system. 

The FAA’s four strategic goals are 

 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 and safety 

initiatives enabled us to further reduce the commercial aviation accident rate, the number of 

general aviation accidents, and the number of runway incursions. In addition to these results, we 

were successful in ensuring that there were no commercial space launch accidents. In FY 2004, we 

achieved eight of nine safety goals. 

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

We aim to achieve any 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 2004, we 

achieved four of 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 and 

training to assist more than 30 countries in improving aviation safety and efficiency. During 

FY 2004, we continued to promote safety by broadening the international network of partnerships 

with civil aviation authorities around the world. In FY 2004, we achieved all six of our international 

leadership goals. 

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

requires greater fiscal responsibility, stronger leadership, more collaboration, and performancebased management. During FY 2004, we continued to address challenges identified by DOT’s Office 

of Inspector General (OIG). We successfully enhanced acquisition management, and implemented 

a new accounting and acquisition system to improve financial management. Although we made 

great strides in improving the business processes that support efforts to improve aviation safety 

and system efficiency, we did not meet all of our organizational excellence goals. We did, however, 

succeed in meeting our goals for customer satisfaction and major acquisition projects. In FY 2004, 

we achieved six of seven organizational excellence goals.

Despite the challenges, FY 2004 was a year of impressive success for FAA. Although air traffic still 

remains 2.4% below pre–September 11, 2001, levels, passengers are regaining confidence in the system 

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

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

industry partners, we were able to achieve 24 of 30 goals—an 80% success rate. The Performance at a 

Glance chart on the following pages provides a snapshot of the results we achieved. 
8 

FY 2004 PERFORMANCE AT A GLANCE 

Performance Measure FY 2004 

Target 

FY 2004 

Results 

FY 2004 

Status 

FY 2005 

Target 

SAFETY 

Commercial Air Carriers 

Fatal Accident Rate 0.028 0.021* z 0.023 

Single Safety Index 1 1 z 1 

Injuries from Turbulence 18 9* z N/A** 

General Aviation Accidents 

Fatal Accidents—Overall 349 340* z 343 

Accidents—Alaska 125 100* z 120 

Operational Errors 629 637#

 610 

Runway Incursions 40 28#

z 36 

Commercial Space Launch Accidents 

Fatalities/Injuries 0 0 z 0 

Property Damage 0 0 z 0 

CAPACITY

On-time Arrival 82.10% 79.08%#

 82.20% 

Aircraft Noise Exposure 2% 23%# z 3% 

Aviation Fuel Efficiency 1% 4.5% z 2% 

Airport Capacity 

Airport Daily Arrival Capacity 

(35 Operational Evolution Plan [OEP] airports) 51,332 51,587#

z 51,999 

Airport Daily Arrival Capacity 

(eight metropolitan areas) 21,290 21,233#

 21,465 

Airport Arrival Efficiency Rate (35 OEP airports) 95.67% 95.03%#  95.76% 

Annual Service Volume (new runways opened) 2 2 z 1 

Operational Availability 99% 98.95%#

 99% 

INTERNATIONAL LEADERSHIP

Intellectual and Financial Assistance 20% 177% z 40% 

Bilateral Agreements 2 3 z 4 
9 

FY 2004 PERFORMANCE AT A GLANCE 

Performance Measure FY 2004 

Target 

FY 2004 

Results 

FY 2004 

Status 

FY 2005 

Target 

Technical Assistance 6 30 z 12 

Technology and Procedures 75% 100% z N/A** 

Global Environmental Standards 2 3 z 100% 

Reduced Vertical Separation Minimum 85% 90% z N/A** 

ORGANIZATIONAL EXCELLENCE

Acquisitions 80% 91% z 80% 

Cost Reimbursable Contracts 180 135  85% 

Customer Satisfaction—Commercial Pilots 63 65 z 64 

Cost Control 10% 10% z 20% 

Information Security 90% 100% z 90% 

Performance Plans 80% 84.56% z 85% 

Mission Critical Positions 3% 28% z 6% 

Flight Plan (This target itself is not included when 

calculating the percentage of targets achieved.) 90% 80%  90% 

z Green: Goal Achieved  Red: Goal Not Achieved

Notes: 

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

May 2005. 

** Target is not included in the Flight Plan for 2005. 

# These are preliminary estimates. Final data will be available between November 2004 and January 2005.

Managing Performance 

In FY 2004, we launched our 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 (27 out of 30). 

As part of our efforts to deliver results—enhanced safety, increased capacity, international leadership, 

and organizational excellence—we continued to phase in a pay-for-performance system that is unlike 

traditional government compensation systems. At the end of FY 2004, 78% of FAA employees were 

included in this new plan, which includes pay increases for organizational success. As the agency 

continues to achieve its goals, employees included in the pay-for-performance system will get a pay 

increase. 
10 

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

We faced a number of challenges in implementing the Flight Plan and achieving results. These challenges 

included the following: 

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

willingness to equip aircraft with the new technologies that will enhance safety and capacity. 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 also in part on the ability 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. 

FAA manages performance by means of a 

four-step framework based on best practices 

from a number of private and public sector 

organizations (see chart). As we use this 

framework and instill management discipline 

into the processes, we anticipate that this will 

be a multiyear journey of learning and change. 

The first step in the process, “Set Goals,” 

includes consulting with management, 

stakeholders, and customers to determine 

success for the agency. 

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. Our Flight Plan is available at www.faa.gov/avr/flightplan.) 

The third step, “Monitor Work,” develops measures 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 2004 initiatives, activities, and performance targets that linked our work directly to the Flight Plan.

(Business plans are available at www.faa.gov/aboutfaa/businessplans.cfm.) 

“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 2004 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. 
11 

Verification and 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 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. 

Each year, we ensure that program evaluations are completed by independent outside research 

organizations such as MITRE. 

DOT 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). 

Performance Assessment Rating Tool 

In FY 2002, we reviewed AIP using PART. AIP provides funding to airports for infrastructure 

improvements such as safety, security, and capacity projects. The OMB PART assessment indicated that 

the program’s overall purpose is clear and that performance goals are clearly defined and achievable. The 

program, which was rated moderately successful, is working to improve its overall cost-effectiveness and 

efficiencies through greater use of automated systems and greater delegation to the regions. 

Dependence on Federal government assistance varies based on an airport’s location, size, and financial 

resources. Large airports are less dependent on Federal funds because of their ability to access different 

revenue sources such as landing fees. The structure of the program, combined with the statute, can limit 

the program’s ability to respond quickly to new situations and events. 

OMB recommended that FAA 

 Examine the grant formula to channel resources to airports most in need of Federal assistance and 

align the AIP budget with FAA's and DOT's performance objectives. 

 Create a performance measure for efficient program delivery. 

 Create a mechanism that captures full program costs in order to better support budget decisions. 

In response to those recommendations, we proposed formula changes to channel more AIP funding to 

small and medium-sized airports in FY 2004. Vision 100 did not incorporate these formula changes. As 

enacted, however, the law did include other changes to AIP that benefit small airports, which will be 

allowed to carry over funding, share entitlements with other small airports, and use Federal funds for a 

greater range of projects. In addition, we have increased the Federal share of project costs from 90% to 

95% at small hub and smaller airports through the end of FY 2007. 
12 

Unmanned Flight 

FAA was instrumental in approving the flight plan

for a test of Mariner, a remote-controlled

surveillance plane operated by the U.S. Coast

Guard. The test, which took place in July 2004,

became a mission when this unmanned aerial

vehicle (UAV), was deployed to provide video

footage of wildfires burning out of control in

Alaska. 

Mariner provided land management officials with

valuable information about the fires. We are

working with the Department of Defense, the

National Aeronautics and Space Administration,

and other operators to speed the process of

clearing UAVs. We must balance the desire for

quicker approval with the need to ensure the

safety of other aircraft. 

We also developed efficiency measures to track the number of labor hours spent in administering each 

grant and each $1 million in grant awards for the program ($3 billion total). We implemented data 

collection through the labor distribution reporting system and will develop baselines for the measures in 

FY 2005. 

Evaluating Our Programs 

A critical component of managing our performance is the periodic evaluation of FAA programs. In 

FY 2004, we asked MITRE’s Center for Advanced Aviation System Development (CAASD) to evaluate our 

Information System Security (ISS) Program. 

FAA requires all information systems listed in the information technology (IT) systems inventory provided 

to DOT (currently 285) to have a completed security certification and authorization package (SCAP). 

CAASD evaluators examined the security mitigation measures from the plans of a random sample of 

national airspace system SCAPs and compared them with what had been accomplished in the field. The 

purpose was to measure the extent to which 

security remediations were performed as 

planned. The measure of completed 

remediations is considered a strong indicator of 

ISS Program success. 

FAA is now considering several findings from 

the evaluation. Complete and current data are 

critical for an agency-wide evaluation of 

information security. SCAPs provide a wealth of 

information on methods for improving the 

management of FAA IT system security. 

However, as they are now, they present 

challenges for data evaluation. To validate SCAP 

information, our ATO has started to put a 

subset of the mitigation data into a tracking 

mechanism. This best practice will be used as a 

model for evaluating other FAA organizations. 

Tracking the mitigation measures will provide a 

useful tool for managing FAA IT system 

security. 

Additionally, the remediation status can be used as part of a larger effort to better allocate funding for 

risk mitigation based on priority, urgency, and cost. FAA’s ATO is already taking action in this area and is 

documenting processes and procedures as a model for other lines of business. 

FAA programs in the air transportation of hazardous material, physical facility security, operational errors, 

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

Improving Cost Control 

In FY 2004, we introduced new cost and efficiency measures into the Flight Plan, focusing on the 

management of cost reimbursable contracts and cost control. Last fiscal year, DOT’s Federal Managers’ 

Financial Integrity Act (FMFIA) letter cited FAA with a material weakness related to our management of 

cost reimbursable contracts. Taking an aggressive stance on eliminating the weakness, we contracted 

with the Defense Contract Audit Agency to perform audits in support of the closeout of over 400 cost 

reimbursable contracts. As a result of our efforts, OIG no longer considers this area a material weakness. 
13 

To ensure that we continue to oversee this area, we have shifted funding for an ongoing program to 

review and closeout selected contracts. 

Having started FY 2004 with a new Flight Plan that contained several new, unfunded initiatives, 

Administrator Blakey challenged her management team to redirect funding to support the plan. We 

introduced a process to help guide and track the successful reallocation of funds. Although this measure 

was not viewed as the kind of long-term measure that would truly drive down costs, it helped focus 

senior management on the need to stop certain activities and redirect funds to new strategic priorities. 

One of the challenges we face with developing financial metrics is the availability of data. This fiscal year, 

we simultaneously implemented the new DOT financial management system, DELPHI, and the new FAA 

acquisition management system, PRISM. Like any major system implementation, this posed great 

challenges for the agency to correct problems, reduce processing backlogs, and improve business 

processes. These new systems, along with the existing cost accounting and labor distribution systems, 

provide us with a foundation of up-to-date financial tools and information to focus FAA’s culture on cost 

control. FAA management is committed to providing more accurate and timely financial information to all 

lines of business beginning in FY 2005. With these data, we will explore what we can measure and seek 

to improve from there. 

All FAA programs that were reviewed by using PART have developed efficiency measures as suggested by 

OMB. In the future, we will have a series of financial and other efficiency measures in place that better 

guide business decisions. FAA management will regularly evaluate these measures to ensure that the 

agency is accomplishing its mission through the best use of its resources. 

Describing Results 

In the section that follows, we report the results for each target in our Performance at a Glance charts. 

The charts are followed by a detailed discussion of the most important results and initiatives in each goal 

area—safety, capacity, international leadership, and organizational excellence.

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. 
14 

We assess safety through nine performance measures. The following chart describes our FY 2004 

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

FY 2004 SAFETY PERFORMANCE MEASURES AND RESULTS 

Performance Measure Target Results Status 

Commercial Air Carrier Fatal Accident Rate: Reduce U.S. fatal 

accident rates by 80% from the 1994–1996 baseline by FY 2007 and 

maintain the rate in FY 2008. The rate is calculated by determining the 

number of fatal accidents per 100,000 departures. 

0.028 0.021* z

Single Safety Index: Implement a single, comprehensive index to 

provide a meaningful measure of the safety performance of the U.S. civil 

aviation system by FY 2006. The goal for FY 2004 was to plan and hold a 

conference to discuss the index. (The conference was held on January 21, 

2004.)

1 1 z

Injuries from Turbulence: Reduce serious injuries from turbulence to 

no more than 12. 18 9* z

General Aviation Fatal Accidents: Reduce the number of fatal 

accidents to no more than 325 by FY 2008. 349 340* z

General Aviation Accidents—Alaska: Reduce accidents in Alaska to no 

more than 104 per year by FY 2008. 125 100* z

Operational Errors: Reduce the number of highest severity operational 

errors (Category A and B) to no more than 563 by FY 2008. 629 637#



Runway Incursions: Reduce the number of highest severity (Category A 

and B) incursions to no more than 27 by FY 2008. 40 28#

z

Commercial Space Launch Accidents: Prevent fatalities or serious 

injuries to the uninvolved public during commercial space launch or 

reentry. 

0 0 z

Commercial Space Launch Accidents—Property Damage: Prevent 

significant damage to property that is not associated with flight during 

commercial space launch or reentry. 

0 0 z

z Green: Goal Achieved  Red: Goal Not Achieved

* Numbers are preliminary. The NTSB will make final data available in May 2005. 

# These are preliminary estimates. Final data will be available between November 2004 and January 2005.
15 

Safety Results and Initiatives 

Commercial Air Carrier Fatal Accident Rate 

In FY 2004, FAA and the aviation industry recorded unprecedented success in preventing commercial air 

carrier fatal accidents, capping the lowest three-year accident rate in the history of U.S. civil aviation. Our 

focused safety agenda with its emphasis on using the latest technology to break the chain of events that 

lead to accidents, along with strong partnerships with industry, continues to keep the skies safe for 

commercial airspace passengers. 

While maintaining our regulatory and enforcement role, we continue to partner with the aviation 

community to improve safety. This partnership 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 our 

significant and long-term safety programs. 

We also worked to increase aviation safety by preventing fuel tank explosions. In addition to more than 

60 directives aimed at preventing ignition sources, we began working on a proposal to outfit certain large 

commercial jets with equipment that would virtually eliminate these accidents. The proposed systems 

replace oxygen in a jet’s fuel tank with an inert gas, preventing the potential ignition of flammable 

vapors. FAA researchers have produced a lightweight system with no moving parts; the cost is relatively 

low compared with previous proposals. 

We continued our efforts to improve the use of onboard technology that can enable pilots to navigate 

aircraft to any point in the world by using only geographic coordinates. Required Navigation Performance 

(RNP) is an important step toward moving the United States from an exclusively ground-based navigation 

system to one located within the aircraft itself. By providing pilots with precise guidance to all runways, 
16 

RNP can help prevent two major types of accidents—controlled flight into terrain and accidents that occur 

during approach and landing. In addition, RNP will enable pilots to land in weather that would ordinarily 

require diversion to other airports. 

In addition to these safety initiatives, we also engaged in hands-on preventive measures, such as 

increased security screening of cargo to root out fireworks and other hazardous materials. Those efforts 

helped detect many undeclared hazardous materials, allowing FAA to safeguard airline passengers. 

z Results: Through these initiatives and strategies, we were able to exceed our goal of reducing the 

rate of commercial fatal aviation accidents, achieving a rate of 0.021 fatal accidents per 100,000 

departures.1

 

General Aviation Fatal Accidents 

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

also oversee the safety of almost 300,000 general aviation aircraft, including single-seat home-built 

airplanes, rotorcraft, balloons, and highly sophisticated extended-range turbojets, in the United States. 

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 and recreational flying. 

z Results: We exceeded our goal by reducing the number of general aviation fatal aviation accidents 

to 340 (preliminary estimate). 

 

1 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.
17 

We continued to work proactively to meet our goal of reducing general aviation accidents. Because of the 

challenges of weather and terrain and the wide use of general aviation as a means of transportation in 

Alaska, our Flight Plan focuses specifically on reducing general aviation accidents there. 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 with information on their 

positions relative to terrain, as well as real-time weather information in the cockpit. 

As another strategy for reducing general aviation fatal accidents, we established the Joint Steering 

Committee (JSC) in partnership with industry. JSC brings together key people from the general aviation 

community and the agency. This group met for the second time in July 2004 and established a new 

focus: (1) analyzing recent accidents to note emerging trends—for example, the shift in using aircraft 

more for transportation and less for recreational flying; (2) identifying specific new interventions that 

address major causes of accidents, such as formal guidance (FAA Advisory Circulars), instructional articles 

in magazines, and Web-based materials and interactive training aids; and (3) achieving consensus on 

effective new strategies and interventions, regardless of whether the effort is carried out by government 

or industry. 

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 

the procedures that enforce 

separation and allow aircraft to 

end up too close to each other or 

to an obstruction. To differentiate 

between technical violations and 

more severe operational errors, 

our performance measure focuses 

on the number of highest severity 

cases: Category A and B errors. These classifications are based on a point scale rating of three factors—

vertical and lateral distances, closure rates, and flight paths, as well as on the level of air traffic controller 

oversight. Category A errors (high severity) rate 90 or higher. Category B errors (moderate severity–

uncontrolled) rate between 40 and 89. 

 Results: We did not meet our goal of reducing Category A and B operational errors to 629 or 

fewer, reporting instead 637 (preliminary estimate). However, this represents a 6.3% reduction 

from the FY 2003 level, a significant accomplishment for our safety programs. 
18 

We are making progress toward our goal of reducing the annual number of operational errors. Last year, 

we exceeded our performance target of 642 Category A and B errors by 6%. This year, we missed our 

performance target of 629 errors by slightly more than 1%. While we did not achieve our goal, this 

decrease demonstrates positive improvement. To build on it, we will continue our efforts to better 

understand and control the human factors that cause operational errors. We also will employ a focused 

strategy to further reduce errors and develop an ATO quality assurance plan. In addition, we plan to 

implement a safety management system to anticipate emerging risks and monitor the effectiveness of 

our risk mitigation strategies. 

Runway Incursions 

A runway incursion is any 

occurrence 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 at 

an airport. Reducing runway 

incursions lessens the 

probability of accidents that 

involve fatalities, injuries, and 

significant property damage. 

Our performance measure 

focuses on the number of 

Category A and B runway 

incursions, the highest severity events that present the most serious risk of collision. Category A 

incursions occur when separation is decreased and participants take extreme action to narrowly avoid a 

collision or the event results in a collision. With Category B incursions, a significant potential for collision 

exists. 

z Results: FAA and industry have made progress in reducing runway incursions. There were 28 of 

the most serious types of runway incursions (preliminary estimate), significantly lower than our 

FY 2004 goal of 40. This performance continues a downward trend that began five years ago and 

reflects a 12.5% decrease from FY 2003. 

To help reduce the number of serious runway incursions, our Office of Runway Safety developed and 

coordinated efforts with a variety of education and awareness materials focused on air traffic controllers, 

pilots, and vehicle operators. Other tools, such as air traffic control memory aids, better airport surface 

markers, and public service announcements, have contributed to the reduction in incursions. 

A new runway technology system was prepared for deployment in FY 2004 to curb the threat of runway 

collisions at major U.S. airports. Airport Surface Detection Equipment, Model X (ASDE–X) was first 

commissioned at General Mitchell International Airport in Milwaukee, WI. It is the first phase of 

equipment that will eventually incorporate safety data derived from multiple airport sensors to help 

controllers detect potential runway collisions. Enhancing FAA’s runway safety initiative, ASDE–X 

equipment maps moving objects on airport grounds or approaching by air. After this equipment was 

deployed in Milwaukee, FAA began preparing to install it at 25 other U.S. airports. 
19 

Commercial Space Launch Accidents (new for FY 2004)

Commercial space launches generate tremendous benefits to society by delivering payloads such as 

telecommunications satellites and remote-sensing devices to orbit. Since the first DOT-licensed space 

launch in 1989, there has not been a single accident. We strive to maintain this perfect record while 

safeguarding the public from the potential consequences of such an accident.

z Results: We achieved this goal in FY 2004. There were 13 licensed launches during the year, of 

which 4 involved reusable launch vehicles operating from an inland spaceport. No member of the 

public was killed or injured, and no member of the public suffered any property damage related to 

commercial space launches. 

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. While 

traffic has increased over the past three years, FAA forecasts suggest that it will not fully rebound until 

FY 2006. 

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 2004, 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 FAA’s 

FY 2004 performance in improving efficiency through the achievement of each of these measures. 

FY 2004 CAPACITY PERFORMANCE MEASURES AND RESULTS 

Performance Measure Target Results Status 

On-Time Arrival: Through FY 2008, increase the percentage of all flights 

arriving within 15 minutes of schedule at the 35 OEP airports by 7%, as 

measured from the three-year FY 2000–2002 baseline. 

82.10% 79.08%# 

Aircraft Noise Exposure: Reduce the number of people (in thousands) 

exposed to significant noise by 1% per year cumulative from FY 2003 

through FY 2008, as measured by a three-year moving average, from the 

three-year average baseline for calendar years 2000 through 2002. 

2% 23%# z
20 

FY 2004 CAPACITY PERFORMANCE MEASURES AND RESULTS 

Performance Measure Target Results Status 

Aviation Fuel Efficiency: Improve fuel efficiency per revenue plane-mile 

by 1% per year cumulative from FY 2004 through FY 2008, as measured 

by a three-year moving average, from the three-year average baseline for 

calendar years 2000 through 2002.

1% 4.5% z

Airport Daily Arrival Capacity (35 OEP airports): Achieve an increase 

in capacity at the 35 OEP airports from 50,550 arrivals per day from the 

2000–2002 baseline to at least 53,600 per day by FY 2008. 

51,332 51,587# z

Airport Daily Area Capacity (eight metropolitan areas): Achieve an 

increase in capacity for the eight major metropolitan areas from 21,290 

arrivals per day from the 2000–2002 baseline to at least 22,000 per day by 

FY 2008.

21,290 21,233# 

Airport Arrival Efficiency Rate: Achieve a rate of 96% at the 35 OEP 

airports by FY 2008. 95.67% 95.03%#



Annual Service Volume: Open as many as nine new runways and 

increase the volume of the 35 OEP airports by at least 1% annually 

through FY 2008.

2 2 z

Operational Availability: Sustain availability at 99% for the reportable 

facilities that support the 35 OEP airports. 99% 98.95% 

z Green: Goal Achieved  Red: Goal Not Achieved 

# These are preliminary estimates. Final data will be available between November 2004 and January 2005.

Capacity Results and Initiatives 

On-Time Arrival 

As air traffic volume continued to return to pre–September 11, 2001, levels, delays have increased. To 

respond to this increase, we continued to focus on easing congestion in eight metropolitan areas by 

improving overall capacity at the nation’s top 35 airports, building new runways, enhancing access to 

reliever airports for general aviation operations, and increasing traffic coordination and communication 

through new technologies. 

We are dedicated to improving on-time arrival rates at O’Hare International Airport in Chicago, IL, and 

throughout the country. As delays mounted across the system in FY 2004, FAA began negotiations in 

August with carriers serving O’Hare to reduce the number of scheduled flights and improve on-time 

arrival rates. O’Hare is a connecting point for thousands of passengers every day, and increasing delays 

at the already congested airport can create delays in many other airports. To resolve the problem quickly, 

we invoked Vision 100 authority allowing us to ask commercial airlines to meet and discuss fight 

reductions at severely congested airports. 
21 

As part of our efforts to implement the Roadmap for Performance-Based Navigation (2003–2020), we are 

working to develop criteria and guidance materials for new RNAV and RNP procedures. RNP permits 

greater flexibility and standardizes airspace performance requirements. By adopting the Roadmap and 

RNP and by leveraging existing 

and emerging cockpit capabilities, 

we will work with the aviation 

community to improve airspace 

and procedures design. The 

combination of new procedures 

and continued collaboration with 

industry will lead to increased 

capacity and improved efficiency 

in years to come. 

 Results: We did not meet 

our FY 2004 on-time target 

of 82.10%. Our failure was 

due primarily to a 

significant increase in 

adverse weather from May through August 2004, which caused a 72.5% increase in weatherrelated delays for that period compared with the previous year. Weather delays increased over 

44% from last year and accounted for approximately 72% of all delays. Congestion delays at 

Chicago’s O’Hare also played a significant role in causing systemwide delays. 

To improve on-time performance in FY 2005, we established an agreed upon ceiling with air carriers on 

scheduled hourly flights at O’Hare and continued efforts to improve performance during adverse weather. 

Physical capacity improvements at airports and collaborative efforts between FAA and the airlines to 

improve performance are ongoing. 

Aircraft Noise Exposure

Public concern over and sensitivity to aircraft noise around airports are high. In recent years, noise 

complaints have increased even as quieter aircraft have been introduced. Aircraft noise is an undesired 

by-product of our mobility, and the government acts to reduce the public’s exposure to unreasonable 

noise levels. In the past decade, the phase-out of noisier commercial aircraft was principally responsible 

for the reduction in the number of people exposed to high levels of aircraft noise, although efforts were 

complemented by noise compatibility projects funded under the AIP. While the new international aircraft 

noise standard will encourage the introduction of quieter aircraft, AIP-funded noise compatibility projects 

will be the principal means used by government to mitigate significant exposure to aircraft noise. 

z Results: We exceeded this performance target by reducing the percentage of people exposed to 

significant noise by 9% in FY 2004, for a cumulative reduction of 23% from the baseline.
22 

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, operational 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 contour through 

grant funding, but is also affected 

by market forces that drive 

changes in commercial aircraft 

fleets and operations. [Note: The 

DNL is the 24-hour average sound level in decibels. The DNL is derived from all noise-producing events 

during that time period.]

The significant improvement over targeted goals in noise reduction grew out of the confluence of a 

number of external factors, including the economic downturn, the impact of September 11, 2001, on the 

industry, and the severe acute respiratory syndrome (SARS) outbreak, which caused passengers who 

were afraid of contracting SARS to avoid air travel. The large-scale premature retirement of older stage 3 

aircraft (Boeing 727, DC–9, and MD–80), along with these other factors, produced a dramatic downturn 

in operations. This combination of lower operations and the rapid reduction in the average age of 

operating fleets produced the dramatic improvements in noise exposure. Assuming that the industry will 

recover over the next few years, the level of improvements witnessed last year is unlikely to persist. 

We are beginning a multiyear effort to update our noise model—MAGENTA (Model for Assessing the 

Global Exposure of Noise because of Transport Airplanes). These changes result from a combination of 

improvements in data sources and acoustic algorithms in the model. This effort will produce significant 

improvement in our ability to measure the number of people exposed to significant noise levels around 

U.S. airports. We will adopt a new performance metric report that uses percentage change in noise 

exposure to make it consistent with the Flight Plan. We will also use the projection analysis as a tool to 

assist us in an ongoing assessment of our noise targets. 

Aviation Fuel Efficiency (new for FY 2004)

There is growing concern over aviation’s contribution to both global climate change and local air quality. 

Like noise, aviation emissions are becoming a major environmental concern around airports, and local air 

quality is a major consideration of any assessment of potential capacity increases. Although today’s 

aircraft are up to 70% more efficient than early jets and the science involved with emissions is still 

developing, aviation is viewed as a small contributor to climate change. 
23 

FAA’s Operational Evolution Plan: 

A Vision for Tomorrow 

To deal with the challenges presented by growing demand for air travel, we worked with the entire

aviation community to create a blueprint that will guide our efforts to enhance and modernize the

airspace system. In June 2001, we released the Operational Evolution Plan (OEP)—a dynamic, 

comprehensive, and integrated document that uses an evolutionary, one-step-at-a-time approach to 

modernization. New runways, new routes, new tools, and airspace redesign are the core changes OEP

addresses in this 10-year strategic plan. 

OEP specifically addresses the capacity challenges faced by the country’s 31 large hub airports and 4

medium hub airports (Memphis, TN; Reagan National in Washington, DC: Cleveland, OH; and

Portland, OR). These airports are referred to as the 35 OEP airports in several of FAA’s FY 2004

capacity goals. 

Each set of solutions outlined in OEP represents the aviation community’s commitment to make 

investments and implement changes that will increase capacity and enhance efficiency to create an

aviation system for the future. OEP is available on the FAA Website at www.faa.gov/programs/oep/.

Our FY 2004 performance target was to improve aviation fuel efficiency per revenue plane-mile by 1% 

per year through FY 2008, as measured by a three-year moving average, from the three-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 variableyear emissions inventories and for operational, policy, and technology-related scenarios. For this target, 

SAGE is used to generate fuel burn and total distance flown data annually for all U.S. commercial 

operations. We calculated the baseline for this performance target by averaging the annual SAGEgenerated fuel burn for calendar years 2000 through 2002 and dividing by the average total distance 

flown over that period. Our FY 2004 performance was calculated for the most recent three years (2001, 

2002, and 2003). 

z Results: We exceeded our goal for improving aviation fuel efficiency. Relative to the baseline, the 

calculated fuel efficiency for FY 2004 was a 4.5% improvement. 

Airport Daily Arrival Capacity 

We increased long-term capacity throughout the system due, in large part, to two major new runways 

that were commissioned in Houston, TX, and Orlando, FL, in FY 2004. The Operational Evolution Plan 

(OEP), our long-range plan for expanding capacity in national air space, currently identifies seven 

additional air carrier runways to be commissioned through 2014, allowing these airports to accommodate 

an additional 889,000 operations each year. Because constructing new runways is the most effective way 

to add ground capacity, particularly at the Nation’s larger airports, we are also improving the criteria for 

assessing the capacity of our larger airports and their ability to meet projected demand. This information, 

in turn, will be used to target efforts to use pavement, procedures, and technology to add capacity at 

airports with the greatest need and with the most potential to reduce delays nationwide. 

We will continue to develop and deploy technology that enables aircraft to safely take off and land in 

adverse weather. We will also focus on adding runways, new terminal technologies, and improved data 

collection to meet future capacity performance targets. 
24 

z Results: We exceeded our 

target of 51,332 arrival positions for 

the 35 OEP airports. Preliminary data 

indicate that arrival capacity at the 35 

busiest airports was 51,587 per day. 

 Results: We did not meet our 

FY 2004 target for capacity of 21,290 

in the eight metropolitan areas. 

Runway construction at Washington 

Dulles and Boston’s Logan 

International Airport markedly 

reduced arrival capacity in May, with 

lower capacity available in selected 

metropolitan areas because of the 

increased occurrence of adverse 

weather in the summer. Capacity was 

above the target levels in the closing 

months of the year, however. (Graph 

not included.) 

Airport Arrival Efficiency Rate 

This rate measures how well the 35 

OEP airports use their existing 

capacity. An efficient aviation system 

gets passengers and goods to their 

destinations safely and reliably. 

Aviation system improvements must 

be environmentally responsible, taking 

into consideration the impact of 

aviation development on communities 

near airports and on sensitive natural 

resources. Our focus is on the strategic expansion of system capacity and other creative solutions to 

address growing mobility needs and increase the reliability of the system. 

 Results: We did not meet our FY 2004 target of 95.67%. The arrival efficiency rate compares 

landed aircraft in a specific time frame with the lesser of demand or arrival capacity. The increased 

adverse weather experienced in 2004 reduced timely aircraft landings and increased the level of 

demand (aircraft not landed when originally scheduled may be "held over" successive periods), 

thus reducing the rate. 

We are implementing procedures to standardize the compilation of airport arrival rates, which will help 

aircraft flow control and improve arrival rates. 
25 

Annual Service Volume (new for FY 2004)

The annual service volume goal is in place to prevent unreasonable delays at airports and expand the 

number of runways at several of the 35 OEP airports. In 2004, we commissioned two new runways (in 

Houston, TX, and Orlando, FL). 

z Results: We met this goal by opening two new runways in the first quarter of FY 2004, thus 

increasing annual service volume by 1.07%, measured as a five-year moving average. These 

runways will accommodate an additional 370,000 annual operations. 

Operational Availability (new for FY 2004)

Sustaining operational availability at 99.00% is another key component of FAA’s Flight Plan goal of 

reducing aviation delays. FAA focuses on each OEP airport’s reportable facilities, factoring in standard 

maintenance procedures, as well as long-term airport construction that can cause runway shutdowns. A 

subset of the national airspace system is analyzed to determine the ratio of total operating facility/service 

hours to maximum facility/service hours, expressed as a percentage.

 Results: We did not achieve our goal because of a 0.38% increase in scheduled downtime from 

improvement projects. Operational ability at all 35 OEP airports was 98.95% for FY 2004, slightly 

below our goal. 

The goal is under review for FY 2005. We will consider an adjusted measure that excludes scheduled 

downtimes. 

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 2004 performance in improving efficiency through the achievement of each of these measures. 

FY 2004 INTERNATIONAL LEADERSHIP PERFORMANCE MEASURES AND RESULTS 

Note: All International Leadership Performance Measures are new for FY 2004. 

Performance Measure Target Results Status 

Intellectual and Financial Assistance: Secure a 100% increase by FY 

2008 over FY 2003 levels in intellectual and financial assistance for 

international aviation activities from the United States and international 

government organizations, multilateral banks, and industry. 

20% 177% z

Bilateral Agreements: Conclude new bilateral agreements recognizing 

safety certification and approval systems with 10 key countries or regional 

authorities by FY 2008. 

2 3 z
26 

FY 2004 INTERNATIONAL LEADERSHIP PERFORMANCE MEASURES AND RESULTS 

Note: All International Leadership Performance Measures are new for FY 2004. 

Performance Measure Target Results Status 

Technical Assistance: Provide new or expanded technical assistance and 

training to 30 key countries or regional authorities by FY 2008. 6 30 z

Technology and Procedures: Ensure that the United States, ICAO, and 

other international partners implement new techniques and key operational 

procedures in a consistent and timely manner. FAA’s goal was to attain 75% of 

the milestones planned for FY 2004.

75% 100% z

Global Environmental Standards: Ensure that international environmental 

standards, recommended practices, and guidance material adopted by ICAO 

are globally and uniformly applied, reflect the best available technology, 

provide real environmental benefit, and are economically sound. This goal is 

considered met by the successful adoption of an internationally agreed-on 

approach on two of three environmental issues acceptable to the United 

States. 

2 3 z

Required Vertical Separation Minimum (RVSM): Implement RVSM in the 

North American region by January 2005. Achieve all FY 2004 milestones on 

time.

85% 90% z

z Green: Goal Achieved  Red: Goal Not Achieved

International Leadership Results and Initiatives 

Intellectual and Financial Assistance 

During FY 2004, we cooperated with several U.S. government and international development 

organizations to meet and exceed targets for providing intellectual and financial assistance. In FY 2004, 

we directed $13.8 million in funding to support 14 key aviation infrastructure and development projects in 

the Americas, Asia, and Africa to improve aviation safety; promote the use of new technologies, such as 

GNSS (Global Navigation Satellite System); enhance efficiency; and encourage regional technical 

cooperation. Funding sources included the U.S. Agency for International Development, the U.S. Trade 

and Development Agency, the World Bank, and the Japan Bank for International Cooperation. 

We were instrumental in supporting the establishment of the Committee on International Aviation Safety 

and Security, a U.S. government interagency effort to improve coordination and tracking for funding key 

international aviation infrastructure projects.

Bilateral Agreements 

The objective of this target is to promote improved safety and regulatory oversight through the 

conclusion of new Bilateral Aviation Safety Agreements (BASAs) with key countries. These BASAs 

recognize safety certification and approval systems, promote safety and environmental quality, and 

enhance cooperation and increase efficiency in matters related to civil aviation. By building a network of 

competent civil aviation authorities, we can increase safety around the world. Improved global 

understanding of U.S. safety regulations, processes, and procedures leads to better international 

regulatory oversight. 
27 

Our FY 2004 target was to conclude BASAs with two countries. We exceeded this goal, signing 

agreements with Singapore in February 2004, Brazil in March 2004, and Iceland in September 2004. 

BASA agreements are also pending with China and Australia. 

Technical Assistance 

FAA provided a range of technical assistance and training through 50 separate projects to improve 

aviation safety and system efficiency to 30 countries during FY 2004. Activities included supporting key 

presidential initiatives to improve aviation infrastructure in Iraq, Afghanistan, Africa, and the Americas. 

FAA focused significant resources on a range of cooperative programs with China that encompassed 

aviation safety, air traffic control and airport operations, and manufacturing certification activities. Under 

the “Safe Skies for Africa” Presidential Initiative, technical assistance and training were provided to 10 

countries. We participated in ICAO regional safety programs and sponsored safety seminars in the AsiaPacific and Americas regions. 

We also supported seven FAA–George Washington University Consortium Summits on Aviation Safety and 

Security, with 48 countries participating. The 144 participants included 19 ministers responsible for civil 

aviation and 31 directors general of civil aviation. The summit program promotes global safety by 

creating advocacy among senior officials for implementing international standards and improving regional 

cooperation. 

Technology and Procedures 

By working with international agencies, organizations and states, we can enhance the international 

leadership role of the United States by having a positive influence on critical technological issues. Our 

target for FY 2004 was to reach 75% of milestones set to ensure the implementation of new technologies 

and procedures in a consistent and timely manner by the U.S., ICAO, and other international partners. 

The milestones set for this target were: development of a worldwide Ionospheric Mitigation Roadmap, 

revision of the existing FAA/EUROCONTROL Memorandum of Cooperation, exchange of information 

relating to RNP with two groups of ATS providers, and orchestration of a joint US/IATA/Europe Digital 

Air-Ground Communications Workshop. We exceeded our goal, completing 100% of these projects in 

FY 2004.

Global Environmental Standards

The establishment of global environmental standards promotes seamless international operations in 

cooperation with bilateral, regional and multilateral aviation partners. The lack of international 

harmonization 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 does not 

achieve cost-effective solutions to deal with aviation's environmental impacts. It is important as well to 

ensure that internationally agreed standards and practices are acceptable to the U.S. 

Our target for FY 2004 was to achieve at least two of the following three outcomes in association with 

ICAO: (1) agreement on new nitrogen oxide emissions standards for commercial aircraft engines, 

(2) adoption of guidance on the Balanced Approach to Noise Management, and (3) support for 

developing voluntary measures as a viable alternative to mandatory emissions trading schemes or 

charges. We exceeded our target, achieving all three outcomes. 
28 

Required Vertical Separation Minimum (RVSM) 

Separation between aircraft is one of the fundamental principles of aviation safety. The RVSM goal is to 

reduce the vertical separation above 29,000 feet from the current 2,000-foot minimum to a 1,000-foot 

minimum. This will allow aircraft to safely fly the most efficient routes, gain fuel savings, and increase 

airspace capacity. RVSM was first implemented in North Atlantic airspace in 1997. It has also been 

implemented in other major airspaces such as Europe, the Pacific Ocean, and Australia and will be 

implemented in additional international airspace in 2005. 

z Results: FAA met or exceeded all of its performance goals for international leadership. 

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 focus 

on improving 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 2004 ORGANIZATIONAL EXCELLENCE PERFORMANCE MEASURES AND RESULTS 

Performance Measure Target Results Status 

Acquisitions: Ensure that 90% of major system acquisition investments are 

both on schedule and within 10% of budget by FY 2008. 80% 91% z

Cost Reimbursable Contracts: Close out 100% of 180 cost reimbursable 

contracts (FY 2001 baseline) by the end of FY 2004 and close out 85% of 

contracts that become eligible for closure in future years.

180 135 

Customer Satisfaction: Increase FAA’s score on the American Customer 

Satisfaction Index. 63 65 z

Cost Control: By putting cost controls in place and having a more efficient, 

effective workforce, fund at least 75% of the currently unfunded portion of the 

Flight Plan.

10% 10% z

Information Security: Achieve 90% of the annual milestones for the agency 

information security plan for each year through FY 2008. 90% 100% z

Performance Plans: Directly relate all employee performance plans to FAA 

strategic goals and the organization’s performance plans by FY 2008. 80% 84.56% z

Mission Critical Positions: Reduce the time it takes to hire mission critical 

positions by 20% over the FY 2003 baseline. 3% 28% z

Flight Plan: Meet 27 of 30 performance targets for FY 2004. (This is 

performance goal #31.) 90% 80% 

z Green: Goal Achieved  Red: Goal Not Achieved
29 

Organizational Excellence Results and Initiatives 

Acquisitions 

In keeping with the focus on organizational excellence, FAA established a goal of achieving 80% of 

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

published in the Capital Investment Plan. 

z Results: FAA met the FY 2004 goal with 91% of major system acquisitions remaining within the 

cost and schedule performance goal. Overall, 4 out of 43 programs had schedule and/or cost 

variances beyond established thresholds. All cost goals remain within established thresholds. This 

resulted in the final 91% performance results for the acquisition goal. The use of a disciplined 

automated monthly reporting process allowed detailed insight into cost and schedule performance 

for all levels of management. Such insight enhanced decision making and ensured that critical 

acquisitions remained within the established 80% performance parameter. Technical issues were 

the primary reason four of the programs missed the FY 2004 performance goal. 

Cost Reimbursable Contracts 

Our target for this goal required that we close out 100% of 180 cost reimbursable contracts (FY 2001 

baseline) by the end of FY 2004 and close out 85% of contracts that become eligible for closeout in 

future years. 

 Results: There were 459 cost reimbursable contracts overdue for closeout in FY 2001. Our 

FY 2004 target was to close out 180 of these contracts (45 per quarter). By the end of the year, we 

had closed out a total of 311 cost reimbursable contracts, 135 of which were included in the 

FY 2001 baseline count. We also closed out 58 contracts that became overdue after the 

FY 2001 baseline was established. In addition, we closed out 118 contracts that were not yet 

overdue. While we were not able to close out 100% of the 180 targeted contracts, we 

demonstrated our ability to achieve timely closure of future contracts. 

Key reasons for not meeting our goal for FY 2004 were that vendors were unwilling or unable to provide 

required information, and a lack of records for contracts that are more than 20 years old. The remaining 

contracts will be tracked to ensure final closeout. 

Customer Satisfaction–

Commercial Pilots 

Over the past six 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 
30 

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

processes, the clarity of regulations, and how they contribute to aviation safety. This year’s results show 

that the stabilized improvement in 2002 and 2003 continues into 2004. While satisfaction for commercial 

pilots has remained in the mid-60s for the past three years, it is significantly higher than the levels 

achieved in the first three years of the study. 

z Results: We exceeded our FY 2004 target of 63, achieving an ACSI score of 65. Slightly higher 

expectations for FAA and a slightly higher rating for Air Traffic Services have led to a small increase 

in quality and a corresponding increase in customer satisfaction. 

Cost Control (new for FY 2004)

We expect to fund at least 75% of the currently unfunded portion of FAA’s Flight Plan by FY 2008 

through cost control measures and a more efficient, effective workforce. Our FY 2004 target was to fund 

10% of the unfunded portion through FY 2008. However, unfunded amounts for FY 2006 through FY 

2008 were never calculated because of budget uncertainties. The original unfunded amount for FY 2004 

was $212 million. As the year progressed, some Flight Plan initiatives were reprioritized, and cost 

estimates were reviewed and updated. Other costs were deferred to FY 2005 and later years. As a result, 

the unfunded amount was reduced to $4 million at the end of FY 2004. 

We are now integrating an agency-wide cost control program designed to maximize savings through the 

Flight Plan. FAA is working on cross-organizational initiatives focused on controlling operational costs, 

starting with an emphasis on IT. As an example, we have established cross-cutting teams of IT 

professionals and subject matter experts to focus on several different cost-containment initiatives. These 

include Web and server consolidation, enterprise licensing, desktops and help desks, and IT baselining. 

We are retooling our FY 2005 goals in support of these FY 2004 findings. Additional efforts will focus on 

planning for IT infrastructure efficiencies and simplification. To support its cost containment efforts, the 

agency is partnering with industry leaders in such areas as asset identification, cost modeling, client 

technology, storage solutions, and enterprise architecture. 

We will also focus on improving business processes related to the implementation of DELPHI (financial 

management system) and PRISM (acquisition system). By creating incentives for employees to better 

manage costs and providing them with the tools to make those decisions, the agency will continue to 

make progress on funding the Flight Plan and achieving its performance goals. 

z Results: FAA met this goal. 

Information Security (new for FY 2004)

During FY 2004, we made significant progress toward protecting our IT assets in accordance with 

numerous executive and congressional requirements. Noteworthy is the fact that we assisted DOT in 

achieving a “green” status on the President's Management Agenda’s e-Gov goal, and OIG removed the 

material weakness condition in cyber security in its FY 2004 submission to OMB. The FY 2004 actions that 

contributed to the success of information security are as follows: conducting a security review of FAA’s IT 

inventory, achieving an average of no more than 0.05 vulnerabilities per network server scanned, and 

expanding the intrusion detection capability for the FAA enterprise. 

z Results: FAA exceeded its goal, completing 100% of the FY 2004 milestones for the information 

security plan. 
31 

Performance Plans (new for FY 2004)

This target requires 100% of employee performance plans to be directly related to FAA strategic goals 

and the performance plan of employees' organizations. The FY 2004 target is 80%, with a 5% increase 

for each succeeding fiscal year. FAA's Office of Human Resources distributed guidance to FAA line and 

staff offices on assessing the current level of compliance on performance plan alignment. 

z Results: The final analysis of the reports from the agency's organizations show that 84.56% 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 80% goal for FY 2004. 

Individual organizations that did not meet the 80% goal for FY 2004 have been offered assistance 

from FAA’s Office of Human Resources in establishing FY 2005 individual performance plans. 

Mission Critical Positions (new for FY 2004)

This performance target measures the time to fill all competitive FAA mission critical positions, including 

air traffic controllers, transportation specialists, engineers, flight inspectors, IT positions, and engineering 

and electrical technicians. Our FY 2004 target for filling mission critical positions was 79 days, which 

represents a 3% 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 mission critical positions by FY 2008—from 

81 days to 65 days. Time is measured from vacancy notification to job offer and includes positions filled 

from internal and external sources. 

The FY 2004 target of 79 days includes the occupational specialties described previously. However, after 

studying hiring patterns, we eliminated air traffic controllers from the performance measure. Our 

research indicated that these positions took significantly longer to fill and accounted for 37% (373 of 

995) of the hiring activity for mission critical positions for FY 2004. The difference in time to fill this 

mission-critical position is due, in part, to internal procedures that do not allow a controller to leave a job 

before the position has been filled. A comprehensive internal and external study of hiring practices for air 

traffic controller positions is under way. We plan to use findings from the study to set a challenging, but 

more accurate and realistic, performance target for future years. An occupation-specific target will help 

ensure that we maintain an efficient and effective hiring process. 

z Results: We exceeded our target of completing the hiring process for mission critical positions 

within 79 days. For FY 2004, it took a median of 58 days to fill these positions, excluding air traffic 

controller slots. Retrospectively, we recalculated the FY 2003 baseline without air traffic controllers 

and found it to be 62 days. We decided to retain the original targets, because the hiring process for 

mission critical positions is unstable and affected by changes in the relative number of positions 

filled, budget considerations, and internal policies and procedures. For example, if we had hired 

half the number of aviation safety inspectors and twice the number of engineers and transportation 

specialists in FY 2004, the days to fill mission critical positions would have been significantly higher. 

Therefore, we believe that we must continue to collect more data by occupation to determine more 

rational targets for mission critical positions. Further, it is also important that we balance efficiency 

goals with a strong focus on sustaining hiring processes that deliver high-quality candidates. 

FAA Flight Plan (new for FY 2004)

This target includes the results of our 30 FY 2004 performance goals. We began operating under the 

Flight Plan in FY 2004. It was created to guide FAA into the next century of flight and to set specific 
32 

performance goals in safety, capacity, international leadership, and organizational excellence. It also 

established a target of achieving 27 out of 30 performance goals in FY 2004. 

 Results: Although we did achieve 80% (24 of 30) of our performance goals this year, we did not 

meet our target of 27. Our plans for meeting this target in FY 2005 are described in our discussion 

of each goal that we did not achieve this year.

Management Challenges 

FAA faced a number of management challenges in FY 2004. Some were challenges that the DOT Office of 

Inspector General (OIG) identified; others were DOT challenges that FAA had a role in addressing. A 

detailed discussion of this second group of challenges appears in DOT’s FY 2004 Performance and 

Accountability Report at www.dot.gov. 

Agency Management Challenge Response 

SAFETY 

Aviation Safety: FAA must adjust its safety oversight to emerging trends in the aviation industry and 

changing economic conditions.

Inspections: 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. Further, the FAA must 

strengthen its oversight procedures for foreign 

aviation authorities conducting inspections on 

FAA’s behalf. 

Inspections: We formed a risk assessment 

work group to develop a process that will 

manage risks and develop a repair station 

prototype program to strengthen oversight of 

large repair stations. We are also scheduled to 

conduct follow-up reviews with three foreign 

aviation authorities and develop a procedure to 

verify that these authorities place adequate 

emphasis on FAA regulations when conducting 

inspections. 

FAA 

Runway Incursions/Operational Errors: While 

there was real progress in reducing runway 

incursions, operational errors continue to increase. 

OIG stated that corrective actions are imperative to 

address this ongoing safety problem. Also, the 

OIG has recommended that FAA improve the 

process for calculating operational errors. 

Runway Incursions/Operational Errors: We 

educated pilots through ongoing education and 

awareness programs. In FY 2004, we developed 

a new safety brochure for pilots. In addition, we 

acquired or upgraded 38 additional ASDE-X and 

ASDE-3 systems to help ensure safety. 

Despite our efforts, we failed to meet our goal of 

reducing operational errors. We are reviewing 

budgetary requirements to determine additional 

initiatives to reduce operational errors in the 

future. 

The FAA is evaluating its process for calculating 

operational errors. 

DOT Hazardous Materials: OIG stated that the dual 

role of ensuring the safety and security of 

hazardous materials shipments is an enormous 

challenge for DOT. 

Hazardous Materials: We implemented a 

prioritized risk-based shipper inspection plan, 

creating a shipper database that can be 

accessed by other DOT administrations. It 

includes shipper records related to enforcement, 

inspections, exemptions, and registrations. We 
33 

Agency Management Challenge Response 

(continued) are also working with DOT’s Research and 

Special Programs Administration to strengthen 

hazardous materials regulations to reduce the 

incidence of fires caused by storage batteries 

and flammable aerosols. 

DOT/ 

FAA 

Aviation and Transportation Security: Both 

OIG and GAO have previously noted that 

challenges exist in meeting national requirements 

for improving security in aviation and surface 

transportation. 

Aviation and Transportation Security: We 

continue to work closely with the Transportation 

Security Administration (TSA) and other 

Department of Homeland Security divisions to 

ensure the security of FAA assets and operations 

and to support homeland and national security 

requirements. During FY 2004, we continued to 

participate in training exercises with TSA. 

ORGANIZATIONAL EXCELLENCE 

FAA Improve Fiscal Discipline: The growth in 

operating costs is a management challenge FAA 

must address. To slow or stop the growth in 

operating costs, OIG found that FAA needs to have 

both its cost accounting and labor distribution 

systems in place and operating effectively and 

renegotiate memorandums of understanding 

(MOUs) between FAA and labor that have 

significant cost implications. OIG and GAO 

recommended that FAA address fundamental 

problems in major acquisitions. Air traffic system 

modernization projects must be fielded on time and 

on budget for continued progress to be made in 

reducing congestion in the Nation’s air 

transportation system as demand for flights grows 

back to and beyond pre–September 11, 2001, 

levels. OIG noted positive signs that the FAA 

Administrator and the Chief Operating Officer are 

committed to making changes. 

Improve Fiscal Discipline: To address these 

challenges, FAA took the following steps: 

 We are implementing a new process that 

places strict controls on the negotiation of 

union agreements, such as placing labor 

relations professionals in charge of the 

negotiations and requiring a budget analysis 

for each negotiation. Reform continued with 

the centralization of the Agency Labor 

Relations Management function in the 

Assistant Administrator for Human Resource 

Management and the implementation of a 

national Labor Relations Database to manage 

and monitor MOUs to ensure an effective 

strategic and corporate FAA Labor 

Management Relations Program. 

 We did not meet the management challenge 

of having both cost accounting and labor 

distribution systems fully in place in FY 2004. 

This goal was dependent on the completion of 

the DELPHI interface to accept labor 

distribution data and the interface to create 

the data file required for the cost accounting 

system. Unfortunately, the cost accounting 

interface was delayed until the middle of the 

fiscal year and the labor distribution interface 

was delayed for the entire year. For FY 2004, 

cost accounting data will be available only for 

the fiscal year, rather than monthly. Labor 

distribution data were posted manually in 

DELPHI for proper capitalization and 

reimbursable charges. These problems will be 

eliminated in FY 2005, since the cost 

accounting interface is now working and the 
34 

Agency Management Challenge Response 

(continued) labor distribution interface will be completed 

in FY 2005. 

 We have implemented a number of initiatives 

to mitigate fundamental problems in major 

acquisitions. These include changes in 

organizational structures and responsibilities, 

process changes, reporting capabilities, and 

overall management discipline. 

Organizationally, we consolidated two major 

lines of business into the ATO. Flattening 

management layers will improve productivity, 

decision making, and communications. 

We are improving the Acquisition 

Management System to incorporate OMB’s 

Capital Programming Process. We will use 

essential information that is part of OMB’s 

Exhibit 300 to help FAA managers make 

better decisions. Programs will be segmented 

into smaller pieces with cost/benefits 

identified. This process integration will result 

in better investment decisions and more 

effective management. We are incorporating 

more stringent reporting, to include monthly 

and quarterly program variances, monthly 

performance goal status, and detailed cost 

expenditure reporting at all levels of 

management. These actions were effective in 

helping us meet our FY 2004 performance 

goals.

DOT/ 

FAA 

Financial Systems: As indicated by OIG, GAO, 

and OMB, converting all DOT activities to the 

Department’s improved financial accounting system 

has presented a significant management challenge, 

requiring DOT to develop more comprehensive cost 

accounting systems and, most critically, to develop 

improved labor distribution systems, and record 

keeping and valuation procedures for property, 

plants, and equipment. This last requirement 

remains a significant challenge for FAA, whose 

direct provision of services to the public involves 

significant capital assets. 

Financial Systems: We implemented DELPHI, 

DOT’s improved financial system, in November 

2003. We also established revised business 

processes and record keeping, and improved 

valuation procedures in the property, plant, and 

equipment area. In the audit report for FY 2003, 

the material weakness in the property, plant, 

and equipment area was lowered to a reportable 

condition. This year, with the establishment of 

the new system and procedures, the reportable 

condition was eliminated as well. During FY 

2004, FAA completed changing cost accounting 

system data structures to comply with DELPHI. 

FAA Financial Accountability: The OIG has stated 

that there has been progress in the past year, but 

that DOT still has a long way to go to strengthen 

three important financial management activities. 

First, DOT needs to free up millions in inactive 

obligations or idle funds, especially at the Federal 

Financial Accountability: We established a 

national audit tracking system and, using the 

$3 million appropriated in the FY 2004 budget, 

we ordered all audits necessary to meet the 

specified criteria for oversight of cost 

reimbursable contracts. FAA also successfully 
35 

Agency Management Challenge Response 

Highway Administration. Second, DOT must 

improve oversight of cost reimbursable contracts, 

which have few inherent protections against cost 

overruns. Third, DOT and FAA must completely 

implement the DELPHI financial management 

system. 

implemented DELPHI in November 2003. An 

ongoing process is under way to further enhance 

controls and the financial reporting process. 

DOT/ 

FAA 

Computer Security: OIG, GAO, and OMB have 

identified information system security as a critical 

government-wide management challenge and, in 

particular, have identified FAA air traffic control 

information systems as needing special attention to 

harden them against malicious or criminal attack. 

Computer Security: We made significant 

progress toward improving security for all FAA 

information systems in FY 2004. We established 

a stable inventory of information systems; 

certified and authorized 274 of 285 information 

systems; increased monitoring of our 

information systems; conducted regular 

meetings with senior executives and mid-level 

managers to address strategic and tactical 

issues; and implemented a number of OIG and 

GAO recommendations from previous audits. 

DOT IT Management: DOT has one of the largest IT 

investment portfolios among civilian agencies. DOT 

IT systems support air traffic control and distribute 

billions of dollars in Federal grants for 

transportation improvements. Security breaches 

against these systems could have far-reaching 

effects on the Nation’s transportation system and 

economy. 

IT Management: Our response to this 

challenge is discussed in the “Information 

Security” section. In addition, an FAA 

representative participated in a DOT Investment 

Review Board. This board, which is chaired by 

the Deputy Secretary of Transportation, has the 

authority to approve, modify, or terminate major 

IT investments. 

Financial Highlights

Management Integrity: Controls, Compliance, and Challenges 

Every year, FAA program managers in the lines of business and staff offices assess the vulnerability of 

their program management controls. On the basis of these assessments, reviews 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 potential 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 President. To help resolve material weaknesses or 

nonconformances, we have developed 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 September 30, 2004, we 

identified no material weaknesses and no nonconformances in FY 2004. Last year, we had one material 

weakness—oversight of cost reimbursable contracts—and one material nonconformance—the lack of a 

fully integrated accounting system. 

Cost reimbursable contracts were first reported in FY 2002 as a FMFIA material weakness. In their 

May 2002 audit report, the OIG reported a backlog of 1,400 over-aged cost reimbursable contracts with a 
36 

value of $6 billion. Our FY 2004 target was to close out all 180 contracts ($3.45 billion) that remained to 

be closed as of September 2003, and 85% of contracts that subsequently became eligible for closure. 

While the oversight of cost reimbursable contracts is no longer a material internal control weakness, we 

did not meet our target. As of September 2004, 135 of the 180 contracts were closed, and 58 contracts 

that became overdue after the FY 2001 baseline were closed. We did not meet our target for several 

reasons. Some contracts could not be closed because there were issues to be resolved, such as final 

rates and instances where vendors were unwilling or unable to provide information. Other contracts were 

so old that there were no supporting records or documentation. The remaining contracts will be closed by 

September 2005, eliminating the $1.5 billion backlog. 

Once a stand-alone system, our property accounting system is now integrated with our financial 

management system, thus eliminating last year’s material system nonconformance. This was first 

reported in the FY 2001 FMFIA statement as a result of the temporary use of the Interim Fixed Assets 

System (IFAS). IFAS was established to control FAA’s property accounting until the implementation of the 

new financial management system. DELPHI, which was implemented in November 2003, has an 

integrated property accounting module, bringing us into compliance with section 4 of FMFIA. 

Since January 1999, FAA has been on GAO’s High Risk List. GAO identified three areas of concern 

including (1) FAA’s 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. With the implementation of our cost accounting system and DELPHI, with its 

integrated property system, we are optimistic that we will be removed from GAO’s High Risk List. 

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

deficiencies in the 2004 Federal Information Security Management Act Annual Report. We have made a 

concerted effort to correct weaknesses identified in previous years. 

Noteworthy improvements made since the annual information security reviews began in FY 2001 include 

the following: 

 Increased oversight of IT investment management and security controls through the DOT Investment 

Review Board. 

 Strengthened protection of network infrastructure against internal and external attacks. 

 Improved integrity, confidentiality, and availability of program operations that depend on computer 

systems support. This year, we increased the percentage of systems completing the security 

certification reviews to 96%. 

In FY 2005, we will continue our efforts to coordinate IT budget requests, improve the quality of security 

certification reviews, and enhance air traffic control system security. 

Financial Plans 

We have received four successive unqualified (clean) opinions and were awarded a Certificate for 

Excellence in Accountability Reporting for our FY 2003 Performance and Accountability Report. Last year, 

for the first time, our auditors identified no material weaknesses. As we work toward improving our 

financial systems and business processes, our underlying goals are to maintain a clean opinion and to 

have the best possible internal and external financial reporting. 

Strategically, we are replacing our legacy systems and instituting an integrated financial management 

system. Starting last November, we implemented a commercial, off-the-shelf system that integrates 
37 

acquisition, funds control, general ledger, property accounting, and external financial reporting, with an 

interface to our cost accounting and labor distribution systems. The new system fully complies with 

Federal financial systems standards. It follows accounting principles generally accepted in the United 

States of America and records transactions based on the U.S. Government Standard General Ledger. Our 

goal is to integrate or interface all financial and mixed financial/program systems with this core financial 

system to eliminate redundancy, lower maintenance and system-improvement costs, and standardize 

financial information. The new environment enables us to perform single-source data entry, ensuring 

consistency between systems and subsidiary components. 

Our cost accounting system provides managers with the full cost of services, enabling them to better 

understand and control their costs. It includes labor charges that are allocated to services. Over the next 

two years, we will complete the implementation of the cost accounting system, and the entire agency will 

thus be well equipped to direct costs to the most critical services. 

We are also implementing other initiatives that support the President’s Management Agenda for financial 

management and e-Gov. We will work with DOT to implement a comprehensive grants 

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

system. To further automate our processes, we plan to implement a system to image documents such as 

contracts and invoices. For FY 2005 and beyond, our challenge is to strengthen internal controls and to 

institute new business processes and improve existing ones. 

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 five-year plan than 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. After a project has been identified, the airport sponsor 

can apply to the FAA regional or district office for a grant. We have begun coordinating 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 2004. 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. 
38 

Office of the Inspector General FY 2005 Management Challenges 

The OIG’s memorandum finalizing the most serious management challenges facing DOT in FY 2005 will 

be provided in the near future. OIG has chosen to address FAA’s challenges within the DOT document. 

Until its release, they have tentatively identified several challenges for FAA, which include: 

 Delivering air traffic control services and fielding new air traffic control equipment while controlling 

costs in a fixed budget environment. 

 Increasing aviation capacity and mitigating delays. 

 Ensuring safety in a changing aviation environment. 

 Strengthening financial management to protect Federal funds. 

 Improving cost effectiveness of $2.7 billion in information technology investments and continuing to 

enhance computer security. 

The OIG also identified three emerging issues that will become increasingly important in the future. They 

are: 

 Ensuring transportation funds are adequate to meet growing needs. 

 Growing interdependency among DOT and other Federal agencies to ensure safe, secure, and 

efficient transportation. 

 Meeting human resource needs given retirements and changing skills mix. 

Improper Payments Information Act of 2002: Narrative Summary of 

Implementation Efforts for FY 2004 and Agency Plans for FY 2005–FY 2007

Historically, FAA has not had a problem with improper payments. Since 2001, our improper payment rate 

has ranged from 0.01% to 0.36%, well below thresholds established by OMB (over 2.5% of program 

payments and $10 million). With the passage of the Improper Payments Information Act of 2002, there 

has been added emphasis on curtailing improper payments. This year, DOT worked 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. The results supported 

our past record of having improper payments well below reportable thresholds. Plans for the future call 

for sustaining the existing low rates. 

In addition, for the past two years, DOT has contracted with a company to recover improper payments. 

According to this company’s audit, only 0.0038% of FAA’s payments were improper in FY 2004. 

The appendix, Improper Payments Information Act Reporting Details, provides additional information on 

our improper payments review. 

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 2004 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 
39 

commercial-like activities of the Federal government and that the statements be audited in accordance 

with government auditing standards. FAA is required to prepare its own financial statements under OMB 

Bulletin 01–02, Audit Requirements for Federal Financial Statements, dated October 16, 2002. DOT OIG 

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

OIG selected KPMG LLP, an independent certified public accounting firm, to audit FAA’s FY 2004 financial 

statements. This firm also audited FAA’s FY 2002 and FY 2003 financial statements. 

In 2002, DOT’s OIG and Chief Financial Officer, along with the FAA 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 Region and Center Operations; and the Chief Operating Officer, ATO. 

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

Office, and the Assistant Administrators for Human Resources Management, Information Services, and 

Airports. 

KPMG LLP rendered an unqualified audit opinion on FAA’s FY 2004 financial statements. This means that 

FAA’s financial statements as of, and for the year ended, September 30, 2004, were presented fairly in all 

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

audit report was presented by OIG to the FAA Administrator. KPMG identified no material weaknesses 

and the following five reportable conditions: 

 Implementation of a new financial accounting system. 

 Lack of timely cost accounting information. 

 Inadequate reconciliations of fund balance with Treasury. 

 IT controls over FAA and third-party systems and applications. 

 Oversight of cost reimbursable contracts. 

KPMG also determined that we were not in substantial compliance with FFMIA. In converting to DELPHI, 

we encountered a number of challenges that prevented us from recording a significant number of 

transactions. This affected our ability to produce accurate and complete financial and budgetary reports. 

In addition, KPMG found that six key subsidiary financial systems did not comply with financial 

management system requirements. 

Management’s responses to KPMG’s findings are included in the Independent Auditors’ Report. 

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 are presented in a two-year comparative format. The 

following section provides a brief description of (1) the nature of each financial statement and its 

relevance to FAA, (2) significant fluctuations from FY 2003 to FY 2004, and (3) certain significant 

balances where necessary to 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). 
40 

Assets 

Total assets were $28.6 billion at the end of FY 

2004. 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, 2003 and 2004. 

Fund balance with Treasury represents 10% 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. 

At $10.3 billion, Investments represent 36% of current year assets and are principally derived from 

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

operations to the extent authorized by Congress. Investments decreased $501 million due to a reduction 

in tax revenues deposited into the AATF in FY 2004. 

At $14.5 billion, Property, plant, and 

equipment (PP&E) represents 51% of 

FAA’s assets as of September 30, 

2004, and primarily comprises 

construction-in-progress related to the 

development of national airspace 

system assets and capitalized real and 

personal property. Increases in PP&E 

are primarily related to purchases of 

equipment and additions to 

construction-in-progress through the 

normal course of business during FY 

2004. 

Liabilities 

At the end of FY 2004, FAA reported liabilities of $3.5 billion. Liabilities are probable and measurable 

future outflows of resources arising from past transactions or events. The Composition of Liabilities chart 

(see next page) depicts FAA’s major categories of liabilities as a percentage of total liabilities. 

The Liabilities Comparison chart (see next page) presents comparisons of major liability balances 

between FY 2003 and FY 2004. 

At $1.2 billion, Employee related, legal, and other liabilities represent 36% of total liabilities. While this 

overall category of liabilities was relatively constant from FY 2003 to FY 2004, several components 
41 

experienced variations that offset in the 

aggregate. Accrued payroll, benefits, and annual 

leave increased because there were a greater 

number of unpaid days of payroll at the end of 

FY 2004 and employee leave balances grew. In 

contrast, legal liabilities decreased due to 

settlements of several claims. 

At $954.5 million, Federal employee and 

veterans benefits represent 27% of current year 

liabilities and consist of FAA’s expected liability 

for death, disability, and medical costs for 

approved workers compensation cases, plus a 

component for incurred, but not reported, 

claims. The Department of Labor (DOL) 

calculates the liability for DOT, and DOT 

attributes a proportionate amount to FAA 

based upon actual workers’ 

compensation payments to FAA 

employees over the preceding four years. 

Environmental liabilities represent 17% of 

FAA’s total liabilities and were relatively 

stable at $606.3 million as of September 

30, 2004 and $621.9 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. 

Accounts payable represent 20% of liabilities. We made a concerted effort to pay down these liabilities at 

the end of FY 2003 in anticipation of converting to a new financial management system. Thus, at 

$679.0 million as of September 30, 2003, accounts payable was $31.0 million less than the same date 

one year later. 

Statement of Net Cost 

The Statement of Net Cost presents the annual cost of 

operating FAA programs. The gross cost less any 

offsetting revenue for each FAA program is used to 

arrive at the net cost of specific program operations. 

FAA has used its cost accounting system to prepare 

the Statement of Net Cost since FY 1999. 

In FY 2004, FAA’s net costs were $12.2 billion, 

compared to $12.0 billion in FY 2003. The Composition 

of Net Costs chart illustrates the distribution of net 

costs among FAA’s lines of business. The Net Cost 
42 

Comparison chart compares FY 2003 and FY 

2004 net costs. 

With a net cost of $8.1 billion, the Air Traffic 

Organization is FAA’s largest line of 

business, comprising 66% of total net costs. 

The net cost of Regulation and Certification

represents 8% of FAA’s total net costs, 

while Region and Center Operations and All 

Other comprise the remaining 2% of total 

net costs. The net costs of these three 

components were relatively unchanged from 

FY 2003 to FY 2004. 

With a net cost of $3.0 billion in FY 2004, which is 24% of FAA’s total net costs, Airports is FAA’s second 

largest line of business. Net costs increased $190.6 million, from $2.8 billion in FY 2003. The Wendell H. 

Ford Aviation Investment and Reform Act for the 21st Century (P.L. 106-181) increased Airport 

Improvement Program funding by $725.0 million in FY 2001. Funding levels for Airports programs have 

continued to increase by $100 million or more each year since that time. 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 Airport costs increased in FY 2004, as the project 

lifecycle associated with these grants continued. 

In accordance with Federal Accounting Standards Advisory Board Technical Bulletin 2003-1, FAA 

disclosed the net cost of civil aviation security operations, which transferred in FY 2002 to DHS. In 

FY 2003, we incurred $47.0 million of Civil Aviation Security costs that continued to be funded from FAA’s 

direct appropriations. Since the transfer of the associated funding is complete, we did not incur similar 

costs in FY 2004. 

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 nonexchange revenue, such as excise taxes and imputed financing from costs absorbed on FAA’s behalf by 

other Federal agencies. The agency’s net cost of operations and net transfers to other Federal agencies 

serve to reduce net position. 

FAA’s cumulative results of operations increased slightly to $24.1 billion in FY 2004. The increase 

occurred because the net financing sources exceeded net cost of operations in FY 2004. Unexpended 

appropriations increased to $999.1 million because FY 2004 activities were funded with a greater 

proportion of AATF dedicated collections and less general fund appropriations.

Statement of Budgetary Resources 

This statement provides information on the budgetary resources available to FAA for 

FY 2004 and the status of those budgetary resources at yearend. The outlays reported on this statement 

reflect the actual cash disbursed for the year by the Treasury for FAA obligations. The Statement of 

Budgetary Resources Comparisons chart (see next page) outlines the changes in the major categories of 

budgetary resources from FY 2003 to FY 2004. 
43 

Budget authority increased 5.8%, from 

$16.6 billion in FY 2003 to $17.6 billion in 

FY 2004. This increase is primarily related to 

the FAA Operations general and trust funds, 

and the Airports program. Budget authority 

for Operations increased $459.8 million in 

FY 2004. This increase was primarily 

attributable to pay and other inflationary 

increases, as well as the operational costs 

associated with newly deployed national 

airspace system equipment. Budget 

authority for Airports was increased $569.1 

million, including $267.1 million of contract 

authority. This is consistent with the continued trend toward expansion of the Airports program. 

Obligations incurred and Disbursements were both relatively stable from FY 2003 to FY 2004. 

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. 

Budgetary Integrity: FAA Resources and How They Are Used 

Approximately 78% of FAA’s FY 2004 budget is provided by the Airport and Airway Trust Fund, which 

derives its monies from excise taxes and interest generated by the fund. Created by the Airport and 

Airway Revenue Act of 1970, the trust fund provides a stable source of monies to finance investments in 

the airport and airway system and, to the extent funds are available, covers the operating costs of the 

airway system. Aviation excise taxes, which include taxes on domestic passenger tickets, freight waybills, 

general and commercial aviation fuel/gas, and international departures and arrivals, are deposited into 

the fund. The Department of the Treasury maintains the fund and invests its monies in government 

securities. 

Any interest 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 2004 

enacted budget, $13.9 billion, is 2.7% above the FY 2003 level. The Combined Statement of Budgetary 

Resources reflects funding enacted by the FY 2004 Consolidated Appropriations Bill, Public law 108–199. 

The FY 2004 levels include an across-the-board rescission of 0.59% and $1.98 million in other budget 

authority for Fort Worth Alliance included in Grants-in-Aid for Airports. 

FAA has four appropriations; the largest—Operations—is funded by the Treasury’s General Fund and a 

portion from the Airport and Airway Trust Fund. The trust fund is the sole revenue source for FAA’s three 
44 

capital investment appropriations: (1) Facilities and Equipment (F&E); (2) Research, Engineering and 

Development (R,E&D), and (3) Grants-in-Aid for Airports (AIP). 

Our Operations appropriation was $7.5 billion. This account funds the operations, maintenance, 

communications, and logistical support of the air traffic control and air navigation systems. It also covers 

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

development programs, as well as policy oversight and overall management functions. 

For FAA’s capital appropriations, F&E was funded 

at $2.9 billion, Grants-in-Aid for Airports at $3.4 

billion, and R,E&D at $119 million. The F&E 

account is the principal means for modernizing 

and improving air traffic control and airway 

facilities. It also finances major capital 

investments required by other agency programs 

and other improvements to enhance the safety 

and capacity of the national airspace system. 

FAA’s grants program funds airport planning and 

development, noise compatibility and planning, 

the military airport program, reliever airports, and 

airport program administration. R,E&D funds longterm research programs to improve the air traffic 

control system. 

Operations. The Operations appropriation funds the salaries and costs associated with operating and 

maintaining the air traffic control system and carrying out our safety inspection and regulatory 

responsibilities. Funding in FY 2004 represents a 6.6% increase that is primarily attributable to mandatory 

pay increases and the operations and maintenance of newly implemented air traffic control systems. 

F&E. Funds from the F&E appropriation are used to modernize, expand, and replenish the air traffic 

control infrastructure. Funding in FY 2004 is $2.9 billion, about 2% less than the FY 2003 level. Major 

systems funded are En Route Automation, Terminal Automation, Oceanic Automation, Wide-Area 

Augmentation System, ASDE-X, Airport Surveillance Radar, and Free Flight Phase 2. 

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

to maintain a safe and efficient nationwide system of public airports. These grants make it possible to 

fund one-fourth to one-third of all capital development at the Nation’s public airports. Grants are issued 

to maintain and enhance airport safety, preserve existing infrastructure, and expand capacity and 

efficiency throughout the system. AIP funding was essentially unchanged from FY 2003 and for the third 

consecutive year included approximately $20 million for the Small Community Air Service program. 

R,E&D. Funding for R,E&D decreased $28.8 million from the previous year. The focus is on environment 

and energy, weather initiatives, human factors, and aircraft safety. 

 
45 

FINANCIAL STATEMENTS 
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Chief Financial Officer Ramesh Punwani oversees FAA’s $14 billion 

budget, as well as the development and agency-wide application 

of cost accounting and financial management systems. Punwani 

came to FAA from Cendant Corporation, where he was senior vice 

president for global strategy. 

Punwani’s background in aviation and the travel industry spans 

more than three decades. Before joining Cendant, he was 

executive vice president and CFO of Travelocity.com. He holds 

Masters of Business Administration and of Engineering in 

Management Science degrees, and a Bachelor of Technology 

degree in Industrial Engineering.

A Message From the Chief Financial Officer 

I joined FAA in April 2004 after a long career as 

the Chief Financial Officer for major 

corporations, including airlines, in the private 

sector. During that career, I met and managed 

many exceptional and dedicated people. Over 

the past several months, I have found my new 

colleagues to be among the most visionary and 

committed I have ever encountered, and I am 

impressed by FAA's already high levels of 

performance and accountability. 

When I came to FAA, my mandate from 

Administrator Blakey was to improve financial 

discipline at the agency and to implement 

financial management best practices from the 

private sector. Over the past six months, we 

have made significant progress in achieving 

these objectives. Among our accomplishments 

in FY 2004, we 

 Successfully implemented DELPHI, DOT’s 

integrated financial management system. 

DELPHI integrates acquisition, property 

accounting, and cost accounting and is 

compliant with the U.S. Government 

Standard General Ledger at the 

transaction level, thus we have made significant progress toward meeting the requirements of the 

Federal Financial Management Improvement Act of 1996.

 Received an unqualified opinion on our financial statements, with no material internal control 

weaknesses. FY 2004 marks the fourth consecutive year in which FAA has received an unqualified 

audit opinion and the second year in which there has been no material weakness. 

 Closed our books and prepared our year-end financial statements more quickly than ever before, 

completing work in October 2004. 

 Worked to remove last year’s FMFIA material weakness in the area of contract closeouts. While we 

made significant progress in this area, we did not meet our internal FY 2004 performance target of 

closing out 100% of cost reimbursable contracts. Many of the contracts under review are more 

than 20 years old and present a significant challenge. During the next year, we will concentrate on 

further improving our performance in closing out current contracts while we attempt to locate 

information on older contracts. We are confident that our increased efforts in this area will enable 

us to achieve our FY 2005 performance goal. 

 Were honored with a Certificate of Excellence in Accountability Reporting (CEAR) from the 

Association of Government Accountants for our FY 2003 Performance and Accountability Report. 

FAA was 1 of only 10 Federal agencies to receive this distinction. This accomplishment, of which 

we are all justly proud, demonstrates that FAA’s business practices are equal to or better than 

those found in many of today’s large corporations. 
48 

 Continued our organizational transformation by initiating the consolidation of the accounting 

operations of nine FAA regional locations into a single center. This consolidation will enable us to 

provide more timely and accurate cost and accounting data to FAA leadership while realizing cost 

synergies. 

Because of our hard work throughout the year, FAA has a modern financial management system that 

fully integrates acquisition, property, and cost accounting. We can now provide our managers with better 

information about the real costs of our programs and initiatives. Better information leads to more 

effective planning, which in turn leads to improved management of our budget. The firm foundation we 

are building will enable us to meet one of the greatest challenges we face in the years to come—

improving aviation safety in the United States and around the world, increasing capacity, and managing 

our business more effectively while facing a shrinking budget and ever-tighter reporting deadlines. 

We made significant progress last year—not only in modernizing our technology and systems, but also in 

changing our culture. FAA has laid the groundwork for greater success in helping the world chart the next 

100 years of flight. 

Ramesh K. Punwani 

Assistant Administrator for Financial Services and Chief Financial Officer 

November 1, 2004 
49 

LIMITATIONS OF THE FINANCIAL STATEMENTS 

FAA has prepared its financial statements to report its financial position and results of operations, 

pursuant to the requirements of the Chief Financial Officers Act of 1990 and the Government 

Management Reform Act of 1994. 

While the FAA statements have been prepared from its books and records in accordance with the formats 

prescribed by the Office of Management and Budget, the statements are in addition to the financial 

reports used to monitor and control budgetary resources, which are prepared from the same books and 

records. 

These statements should be read with the understanding that they are for a component of the United 

States Government, a sovereign entity. Liabilities not covered by budgetary resources cannot be 

liquidated without the enactment of an appropriation by Congress, and payment of all liabilities, other 

than for contracts, can be abrogated by the Federal Government. 
50 

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Assets 2004 2003

Intragovernmental

Fund balance with Treasury (Note 2) 2,840,663 $ 2,833,723 $ 

Investments (Note 3) 10,318,029 10,819,257 

Accounts receivable, advances, and other (Note 4) 215,989 168,722 

Total intragovernmental 13,374,681 13,821,702 

Accounts receivable, advances, and other, net (Note 4) 173,283 63,411 

Inventory and related property, net (Note 5) 585,709 581,766 

Property, plant, and equipment, net (Notes 6 & 9) 14,469,731 13,397,607 

Total assets $ 27,864,486 28,603,404 $ 

Liabilities

Intragovernmental liabilities

Accounts payable 61,041 $ 9,324 $ 

Employee related, legal and other (Notes 8 & 9) 287,026 344,868 

Total intragovernmental liabilities 348,067 354,192 

Accounts payable 649,005 669,693 

Environmental cleanup costs (Note 7 & 19) 606,261 621,953 

Employee related, legal, and other (Notes 8 & 9) 959,527 859,124 

Federal employee benefits (Note 10) 954,463 1,041,568 

Total liabilities 3,546,530 3,517,323 

Commitments and contingencies (Notes 9 & 19)

Net position

Unexpended appropriations 999,146 562,595 

Cumulative results of operations 24,086,935 23,755,361 

Total net position 24,317,956 25,086,081 

Total liabilities and net position $ 27,864,486 28,603,404 $ 

(Dollars in Thousands)

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

CONSOLIDATED BALANCE SHEETS

As of September 30

The accompanying notes are an integral part of these financial statements. 
70 

Line of business programs (Note 12) 2004 2003

Air Traffic Organization

Expenses $ 8,222,442 8,214,526 $ 

Less earned revenues (123,746) (135,515) 

Net costs 8,098,696 8,079,011 

Regulation & Certification

Expenses 943,135 942,377 

Less earned revenues (1,126) (2,649) 

Net costs 942,009 939,728 

Airports

Expenses 2,786,717 2,977,300 

Less earned revenues (224) (232) 

Net costs 2,786,493 2,977,068 

Commercial Space Transportation

Expenses 11,725 12,527 

Net costs 11,725 12,527 

Non line of business programs

Regional and center operations and other programs

Expenses 342,107 389,954 

Less earned revenues (256,386) (240,866) 

Net costs 85,721 149,088 

Not assigned to programs

Expenses 61,486 36,572 

Less earned revenues (34,794) - 

Net costs 26,692 36,572 

Net cost of continuing operations 11,951,336 12,193,994 

Transferred operations - Civil Aviation Security (Note 15)

Expenses 124,705 -

Less earned revenues (77,455) -

Net costs 47,250 - 

Net cost of operations

Total expenses 12,492,317 12,573,256 

Less earned revenues (493,731) (379,262) 

Total net cost $ 11,998,586 12,193,994 $ 

(Dollars in Thousands)

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

CONSOLIDATED STATEMENTS OF NET COST

For the Years Ended September 30

The accompanying notes are an integral part of these financial statements. 
71 

Cumulative Cumulative

results of Unexpended results of Unexpended 

operations appropriations operations appropriations

Beginning balances $ 562,595 23,755,361 $ 23,518,258 $ 481,919 $ 

Budgetary financing sources

Appropriations received (Note 16) - 3,032,925 - 3,273,241 

Appropriations transferred-in/out - - - 250 

Rescissions, cancellations and other - (64,644) - (42,269) 

Appropriations used 2,531,730 (2,531,730) 3,150,546 (3,150,546) 

Excise taxes and associated revenue (Note 13) 9,674,509 - 9,360,469 - 

Transfers-in/out without reimbursement (101,662) - (123,169) - 

Other financing sources

Donations and forfeitures of property and other - - 32,218 - 

Transfers-in/out without reimbursement (72,508) - (36,457) - 

Transferred operations (Note 15) - - (643,621) - 

Imputed financing from costs absorbed by others (Note 14) - 493,499 495,703 - 

Total financing sources 12,525,568 436,551 12,235,689 80,676 

Net cost of operations - 12,193,994 11,998,586 - 

Ending balances $ 999,146 24,086,935 $ 23,755,361 $ 562,595 $ 

2004 2003

U. S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

CONSOLIDATED STATEMENTS OF CHANGES IN NET POSITION 

For the Years Ended September 30

(Dollars in Thousands)

The accompanying notes are an integral part of these financial statements. 
72 

The accompanying notes are an integral part of these financial statements. 

2003

Budgetary resources (Note 16) 2004 AS RESTATED

Budget authority 17,615,716 $ 16,644,463 $ 

 932,850 1,107,702 

Spending authority from offsetting collections 675,454 726,484 

Recoveries of prior year obligations 190,918 249,157 

Temporarily not available pursuant to public law (78,874) - 

Permanently not available (3,451,054) (3,229,132) 

Total budgetary resources $ 15,323,822 16,059,862 $ 

Status of budgetary resources

Obligations incurred 14,230,011 $ 14,166,146 $ 

Unobligated balance available 1,113,378 676,205 

Unobligated balance not available 716,473 481,471 

Total status of budgetary resources $ 15,323,822 16,059,862 $ 

Relationship of obligations to outlays

Obligated balance, net, beginning of period 8,644,480 $ 7,998,136 $ 

Cancelled appropriations and other (9) 15,702 

Obligations incurred 14,230,011 14,166,146 

Less: Spending authority from offsetting collections and 

 receipts and recoveries of prior year obligations (866,372) (975,738) 

Less: Obligated balance, net, end of period (9,173,060) (8,644,480) 

Net outlays $ 12,559,766 12,835,050 $ 

Outlays

Disbursements 17,756,831 $ 17,322,760 $ 

Collections, net of offsetting receipts (4,921,781) (4,762,994) 

Net outlays $ 12,559,766 12,835,050 $ 

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
73 

The accompanying notes are an integral part of these financial statements. 

Resources used to finance activities 2004 2003

Budgetary resources obligated

Obligations incurred $ 14,166,146 14,230,011 $ 

Less: Spending authority from offsetting collections and

receipts and recoveries of prior year obligations 866,372 975,738 

Obligations net of offsetting collections 13,363,639 13,190,408 

Other resources

Donations and forfeitures of property and other - 32,218 

Transfers in/(out) without reimbursement (72,508) (680,078) 

Imputed financing from costs absorbed by others 493,499 495,703 

Net other resources used to finance activities 420,991 (152,157) 

Total resources used to finance activities 13,784,630 13,038,251 

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 385,476 464,695 

Resources that fund expenses recognized in prior periods (decreases in

unfunded liabilities) (Note 17) 171,597 158,858 

Resources that finance the acquisition of assets 1,985,245 1,534,555 

Other resources or adjustments to net obligated resources that do not

affect net cost of operations 18,863 (71,408) 

Total resources used to finance items not part of net cost of operations 2,561,181 2,086,700 

Total resources used to finance net cost of operations 11,223,449 10,951,551 

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 liablilty and other unfunded liabilities (Note 17) 108,993 103,051 

Increase in exchange revenue receivable from the public (82,812) - 

Components not requiring or generating resources in future periods

Depreciation and amortization 952,969 911,337 

Revaluation of assets or liabilities - (18,320) 

Cost of goods sold 34,987 47,589 

Other 15,980 (56,194) 

Total components of net cost of operations that will not require or

generate resources 943,984 944,364 

Total components of net cost of operations that will not require or 

generate resources in the current period 970,545 1,047,035 

Net cost of operations 12,193,994 $ 11,998,586 $ 

CONSOLIDATED STATEMENTS OF FINANCING

For the Years Ended September 30

(Dollars in Thousands)

U. S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION
74 

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, 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) the OMB Bulletin Number 

01-09, Form and Content of Agency Financial Statements, 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. 

In accordance with OMB Bulletin Number 01-09, the financial statements and associated notes are 

presented on a comparative basis. 

Unless specified otherwise, all dollar amounts are presented in thousands. 

B. Reporting Entity and New Line of Business 

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. Our 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 Trust Funds, Revolving Funds, Special Funds, General Funds, and General Fund 

Miscellaneous Receipts. 

! Trust Funds are credited with receipts that are generated by the terms of a trust agreement or 

statute. At the point of collection, our receipts are unavailable until appropriated by the U.S. 

Congress. The Trust Funds included in our consolidated financial statements include the Airport 

and Airway Trust Fund (AATF), which is managed by the U.S. Treasury’s Bureau of Public Debt, 

and funds the (a) Grants-in-Aid for Airports (b) Facilities and Equipment and (c) Research, 

Engineering and Development. 

! 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. 

! Special Funds are accounts established for receipts earmarked by law for a specific purpose, but 

are not generated by a cycle of operations for which there is continuing authority to reuse such 

receipts. Our consolidated financial statements include Aviation User Fees, which are Special 

Fund receipts. 

! General Funds are accounts used to record financial transactions arising under congressional 

appropriations or other authorizations to spend general revenues. We manage Operations and 

Facilities, Engineering & Development General Fund accounts. 
75 

! 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. We do not possess 

any non-entity assets. 

On February 8, 2004, FAA established the ATO. The ATO combined the FAA’s Research and 

Acquisitions, Air Traffic Services, and Free Flight Offices into one performance based organization. 

The primary service of the ATO is to move air traffic safely and efficiently. The customers of the ATO 

are commercial and private aviation and the military. 

C. Budgets and Budgetary Accounting 

Congress annually enacts appropriations to permit FAA to incur obligations for specified purposes. In 

FYs 2004 and 2003, we were accountable for AATF appropriations, Revolving Funds, a Special Fund, 

and General Fund appropriations. We recognize 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 basis. Under the 

accrual method, revenues are recognized when earned, and expenses are recognized when a liability 

is incurred, without regard to receipt or payment of cash. Budgetary accounting facilitates compliance 

with legal requirements on the use of Federal funds. All material intra-agency transactions and 

balances have been eliminated for presentation on a consolidated basis. However, the Statement of 

Budgetary Resources is presented on a combined basis in accordance with OMB Bulletin 01-09. 

E. Revenues and Other Financing Sources 

Congress enacts annual, multi-year, and no-year appropriations to be used, within statutory limits, 

for operating, capital and grant expenditures. Additional amounts are obtained from service fees 

(e.g., landing, registry, and overflight fees), war risk insurance premiums (see note 19), and through 

reimbursements for products and services provided to domestic and foreign governmental entities. 

The 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 trust funds. Therefore, the U.S. Treasury makes 

initial semi-monthly distributions to trust 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. When actual amounts are available from the IRS, generally six months after each quarterend, adjustments are made to the estimated amounts and the difference is accrued as an 

intragovernmental receivable or payable. FAA’s September 30, 2004 financial statements reflect 

excise taxes certified through March 31, 2004, and excise taxes estimated by OTA for the period April 

1 to September 30, 2004 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 two quarters ended June 30, 2004 and September 30, 2004 will not be available from the IRS 

until December 2004 and March 2005, respectively. FAA management does not believe that the 

actual tax collections for the quarters ended June 30, 2004 and September 30, 2004 will be materially 

different than the OTA estimate. 
76 

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 service fees 

associated with reimbursable agreements are recognized concurrently with the recognition of accrued 

expenditures for performing the services. War-risk insurance premiums are deferred and recognized 

as revenue on a straight-line basis over the period of coverage. Overflight fees are recognized as 

revenue in the period in which the flights took place. 

We recognize as an imputed financing source the amount of accrued pension and post-retirement 

benefit expenses for current employees paid on our 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 are invested in U.S. 

Government securities at cost. A portion of the AATF investments is liquidated semi-monthly in 

amounts needed to provide cash for FAA appropriation accounts. The Revolving Fund investments 

are usually held to maturity. Investments, redemptions, and reinvestments are held and managed 

under the direction of FAA by the 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. An allowance for uncollectible accounts receivable from 

the public is established when either (1) based upon a review of outstanding accounts and the failure 

of all collection efforts, management determines that collection is unlikely to occur considering the 

debtor’s ability to pay, or (2) an account for which no allowance has been established is submitted to 

the Department of the Treasury for collection, which takes place when it becomes 180 days 

delinquent. 

J. Inventory 

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 
77 

based on the average historical cost of such repairs. The cost of repair is capitalized and these items 

are reclassified as “Held for Sale.” 

Inventory may be classified as excess, obsolete, and unserviceable if, for example, the quantity 

exceeds projected demand for the foreseeable future, or if the item has been technologically 

surpassed. An allowance is established for excess, obsolete, and unserviceable inventory based on 

the condition of various inventory categories as well as our historical experience disposing such 

inventory. 

K. Operating Materials and Supplies 

In contrast to inventory, which is held for sale by the Franchise Fund, operating materials and 

supplies are used in the operations of the agency. Operating materials and supplies primarily consist 

of unissued materials and supplies that will be used in the construction of 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 our 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. The 

useful life classifications for capitalized assets are as follows: 

Real Property Useful Life (years) 

Buildings, air traffic control towers, and enroute air traffic control centers 40 

Mobile buildings 20 

Roads, sidewalks, parking lots, and all other structures 15 

Capital and leasehold improvements Up to 10 

Personal Property 

Aircraft, navigation, and surveillance equipment 20 

Decision support systems, communications- and weather-related equipment 4-20 

Office furniture, printing, projection, and office equipment, vehicles 5-13 

Internal use software 3 
78 

Buildings and equipment acquired under capital leases are amortized over the lease term. If the lease 

agreement contains a bargain purchase option or otherwise provides for transferring title of the asset 

to FAA, the building is depreciated over a 40-year service life. 

Construction in progress (CIP) is valued at actual direct costs, plus applied overhead and other 

indirect costs. FAA analyzes nationally funded capital expenditures and allocates these costs to the 

related in-use assets. 

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 

Advance payments are generally prohibited by law. There are some exceptions, such as 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. 

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 amounts owed in excess of available, Congressionally 

appropriated funds or other amounts. The liquidation of liabilities not covered by budgetary or other 

resources is dependent on future Congressional appropriations or other funding. Intragovernmental 

liabilities are claims against FAA by other Federal 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 estimated amounts incurred but not yet claimed 

by Airport Improvement Program grant recipients and unpaid goods and services received by FAA in 

support of the NAS. 

P. Annual, Sick, and Other Leave 

Annual leave is accrued as it is earned, and the accrual is reduced as leave is taken. For each biweekly pay period, the balance in the accrued annual leave account is adjusted to reflect the latest 

pay rates and unused hours of leave. Liabilities associated with other types of vested leave, including 

compensatory, credit hours, restored leave, and sick leave in certain circumstances, are accrued at 

year-end, based on latest pay rates and unused hours of leave. Sick leave is generally nonvested, 

except for sick leave balances at retirement under the terms of certain union agreements. Funding 

will be obtained from future financing sources to the extent that current or prior year appropriations 

are not available to fund annual and other types of vested leave earned but not taken. Nonvested 

leave is expensed when used. 

Q. Accrued Workers' Compensation 

A liability is recorded for actual and estimated future payments to be made for workers' 

compensation pursuant to the Federal Employees' Compensation Act (FECA). The actual costs 

incurred are reflected as a liability because FAA will reimburse the Department of Labor (DOL) two 

years after the actual payment of expenses. Future appropriations will be used for the reimbursement 
79 

to DOL. The liability consists of (1) the net present value of estimated future payments calculated by 

the DOL, and (2) the unreimbursed cost paid by DOL for compensation to recipients under the FECA. 

R. Retirement Plan 

FAA employees participate in either the Civil Service Retirement System (CSRS) or the Federal 

Employees Retirement System (FERS). The employees who participate in CSRS are beneficiaries of 

FAA’s matching contribution, equal to seven percent of pay, distributed to their annuity account in 

the Civil Service Retirement and Disability Fund. 

FERS went into effect on January 1, 1987. FERS and Social Security automatically cover most 

employees hired after December 31, 1983. Employees hired prior to January 1, 1984 could elect 

either to join FERS and Social Security, or to remain in CSRS. FERS offers a savings plan to which 

FAA automatically contributes 1 percent of pay and matches any employee contribution up to an 

additional 4 percent of pay. For FERS participants, FAA also contributes the employer’s matching 

share for Social Security. 

We recognize the imputed cost of pensions and other retirement benefits during the employees’ 

active years of service. OPM actuaries determine pension cost factors by calculating the value of 

pension benefits expected to be paid in the future and communicates these factors to FAA for current 

period expense reporting. OPM also provides information regarding the full cost of health and life 

insurance benefits. We recognized the offsetting revenue as imputed financing sources to the extent 

these expenses will be paid by OPM. 

S. Use of Estimates 

Management has made certain estimates and assumptions when reporting assets, liabilities, revenue, 

and expenses, and in the note disclosures. Actual results could differ from these estimates. 

Significant estimates underlying the accompanying financial statements include (a) the allocation of 

AATF receipts by the OTA, (b) legal, environmental, and contingent liabilities, (c) year-end accruals of 

accounts and grants payable, (d) accrued workers’ compensation, (e) allowance for doubtful 

accounts receivable, (f) allowances for repairable and obsolete inventory balances, and (g) allocations 

of common costs to construction in progress. 

T. Environmental Liabilities 

FAA recognizes two types of environmental liabilities: environmental remediation, and cleanup and 

decommissioning. The liability for environmental remediation is an estimate of costs necessary to 

bring a known contaminated site into compliance with applicable environmental standards. The 

increase or decrease in the annual liability is charged to current year expense. 

Environmental cleanup and decommissioning is the estimated cost that will be incurred to remove, 

contain, and/or dispose of hazardous materials when an asset presently in service is shutdown. FAA 

estimates the environmental cleanup and decommissioning costs at the time an FAA-owned asset is 

placed in service. For assets placed in service through FY 1998, the 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. 

U. Contingencies 

Liabilities are deemed contingent when the existence or amount of the liability cannot be determined 

with certainty pending the outcome of future events. We recognize contingent liabilities, in the 

accompanying balance sheet and statement of net cost, when it is both probable and can be 

reasonably estimated. FAA discloses contingent liabilities in the notes to the financial statements 

when the conditions for liability recognition are not met or when a loss from the outcome of future 
80 

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. 

V. Restatement 

As discussed in note 16, FAA has restated its FY 2003 Combined Statement of Budgetary Resources 

to reduce the unobligated balance of budgetary resources by $7,951.7 million, which represents the 

amount of AATF excise tax receipts that were not available for obligation upon collection by the IRS. 

W. Reclassifications 

Certain FY 2003 balances have been reclassified, retitled, or combined with other financial statement 

line items for consistency with current year presentation. 
81 

NOTE 2. FUND BALANCE WITH TREASURY 

Fund balance with Treasury account balances as of September 30, 2004 and 2003 were: 

Restricted unobligated fund balances represent the amount of appropriations for which the period of 

availability for obligation has expired. These balances are available for upward adjustments of 

obligations incurred only during the period for which the appropriation was available for obligation or 

for paying claims attributable to the appropriation. 

2004 2003

Trust funds 1,117,810 $ 1,250,801 $ 

Operations general fund 1,042,208 738,852 

Franchise fund 208,776 170,862 

Revolving funds 49,649 22,848 

AATF and other funds 422,220 650,360 

Total 2,840,663 $ 2,833,723 $ 

Unobligated balance

 Available 1,113,378 $ 1,072,492 $ 

 Restricted 716,473 700,605 

Obligated balance not yet disbursed 1,010,812 1,060,626 

Total 2,840,663 $ 2,833,723 $ 

Status of fund balance with Treasury
82 

NOTE 3. INVESTMENTS 

As of September 30, 2004 and 2003, respectively, 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 for unrestricted use to offset the cost of operations. As 

of September 30, 2004 and 2003, approximately $9.9 billion and $10.5 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 the 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, 2004 mature on various dates through June 30, 2005, 

and investments as of September 30, 2003 matured on various dates through June 30, 2004. 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 2004 and FY 2003 was 3.6% and 4.125%, 

respectively. 

Nonmarketable, market-based Treasury securities are debt securities that the Treasury issues to 

Federal entities without statutorily fixed interest rates. Although the securities are not marketable, 

their terms (prices and interest rates) mirror the terms of marketable Treasury securities. FAA 

amortizes premiums and discounts on market-based Treasury securities over the life of the security 

using the interest method. As of September 30, 2004, these nonmarketable, market-based securities 

had an initial term of six months, have an effective market rate of approximately 1%, and mature 

within 98 days. 

2004 2003

Nonmarketable, par value - AATF 9,891,592 $ 10,517,891 $ 

Nonmarketable, market based - Aviation Insurance Fund 351,146 196,187 

Accrued interest 75,291 105,179 

Investments at cost 10,318,029 $ 10,819,257 $ 

Market value disclosure

Nonmarketable, par value - AATF 9,891,592 $ 10,517,891 $ 

Nonmarketable, market based - Aviation Insurance Fund 351,488 196,693 

Unamortized discount - nonmarketable, market based (342) (506) 

Nonmarketable, market based, net 351,146 196,187 

Market value disclosure 10,242,738 $ 10,714,078 $ 

Intragovernmental securities
83 

NOTE 4. ACCOUNTS RECEIVABLE, ADVANCES AND OTHER ASSETS 

Accounts receivable, advances, prepayments, and other assets as of September 30, 2004 and 2003 

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 

$57.0 million and $15.0 million, as of September 30, 2004 and 2003, respectively. 

2004 2003

Intragovernmental

Accounts receivable 67,146 $ 59,924 $ 

Advances, prepayments and other 148,843 108,798 

Subtotal, intragovernmental 215,989 168,722 

With the public

Accounts receivable, net 124,757 42,058 

Advances and prepayments 20,869 2,359 

Deposits in transit and other 27,657 18,994 

Subtotal, with the public 173,283 63,411 

Total accounts receivable, advances,

Prepayments and other 389,272 $ 232,133 $ 
84 

NOTE 5. INVENTORY AND RELATED PROPERTY 

As of September 30, 2004 and 2003, operating materials and supplies and inventory were: 

Operating materials and supplies and inventory 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 material and supplies 2004 2003

Held for use, net 166,628 $ 147,879 $ 

Excess, obsolete, and unserviceable, net 11,619 14,567 

Subtotal, operating material and supplies 178,247 162,446 

Inventory

Held for sale 59,357 61,457 

Held for repair, net 321,511 330,189 

Raw materials, finished goods, and other 13,632 13,632 

Excess, obsolete, and unserviceable, net 12,962 14,042 

Subtotal, inventory 407,462 419,320 

Total inventory and related property, net 585,709 $ 581,766 $ 

Operating materials and supplies 2004 2003

Held for use (16,873) $ (12,167) $ 

Excess, obsolete, and unserviceable (60,242) (57,294) 

Subtotal, operating materials and supplies allowances (77,115) (69,461) 

Inventory

Held for repair (83,660) (83,849) 

Excess, obsolete, and unserviceable (5,839) (4,760) 

Subtotal, inventory allowances (89,499) (88,609) 

Total allowances (166,614) $ (158,070) $ 
85 

NOTE 6. PROPERTY, PLANT, AND EQUIPMENT, NET 

Property, plant, and equipment balances at September 30, 2004 and 2003 were: 

Our Construction in Progress (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. We reported disposal losses of $11.0 million and 

$10.4 million in FY 2004 and FY 2003, respectively. 

Deprec. Service Acquisition Accumulated Net

Class of fixed asset method life value depreciation book value

Real property, including land [1] [2] 4,086,616 $ (1,966,495) $ 2,120,121 $ 

Personal property SL 3-20 13,894,962 (6,622,389) 7,272,573 

Assets under capital lease (Note 9) SL Term-40 125,923 (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 $ 

Deprec. Service Acquisition Accumulated Net

Class of fixed asset method life value depreciation book value

Real property, including land [1] [2] 3,874,055 $ (1,828,212) $ 2,045,843 $ 

Personal property SL 3-20 12,643,046 (5,881,286) 6,761,760 

Assets under capital lease (Note 9) SL Term-40 125,923 (63,328) 62,595 

Construction in progress - - 4,513,496 - 4,513,496 

Property not in use - - 18,292 (4,379) 13,913 

Total property, plant, and equipment 21,174,812 $ (7,777,205) $ 13,397,607 $ 

[1] Land is not depreciated; other real property as defined in Note 1 is depreciated using the straight line method.

[2] The service life disclosed pertains to real property other than land and leasehold improvements. Leasehold

 improvements are depreciated over the lesser of the remaining life of the "parent" asset or 10 years.

2004

2003
86 

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 470,995 - 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 722,951 37,307 760,258 

Subtotal, with the public 722,951 236,576 959,527 

Total employee related, legal, and other liabilities 834,938 $ 411,615 $ 1,246,553 $ 

2004

NOTE 7. ENVIRONMENTAL CLEANUP COSTS 

FAA's environmental liabilities as of September 30, 2004 and 2003 were: 

Additional information on environmental projects is disclosed in Note 19. 

NOTE 8. EMPLOYEE RELATED, LEGAL, AND OTHER LIABILITIES 

As of September 30, 2004 and 2003, FAA’s employee related, legal and other liabilities were:

2004 2003

Environmental remediation 366,762 $ 372,125 $ 

Environmental cleanup and decommissioning 239,499 249,828 

 

Total environmental liabilities 606,261 $ 621,953 $ 
87 

Accrued payroll and benefits to other agencies consists of FAA contributions payable to other Federal 

agencies for employee benefits. These include FAA’s contributions payable toward life, health, 

retirement benefits, Social Security, and matching contributions to the Thrift Savings Plan. 

An unfunded liability is recorded for the actual cost of workers' compensation benefits to be 

reimbursed to the DOL, pursuant to the FECA. FAA’s liability accrued as of September 30, 2004 

includes workers’ compensation benefits paid by DOL during the periods July 1, 2002 through June 

30, 2004 and accrued liabilities for the quarter July 1, 2004 through September 30, 2004. FAA’s 

liability accrued as of September 30, 2003 included workers’ compensation benefits paid by DOL 

during the period July 1, 2001 through June 30, 2003, and accrued liabilities for the quarter 

July 1, 2003 through September 30, 2003. 

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 percent of their accumulated sick leave as of their 

Intragovernmental

Non-current 

liabilities

Current 

liabilities Total

Advances received - $ 42,448 $ 42,448 $ 

Accrued payroll & benefits payable to other agencies - 29,101 29,101 

Other 72,384 - 72,384 

Liabilities covered by budgetary or other resources - 143,933 143,933 

Federal Employees' Compensation Act (FECA) payable 113,063 87,842 200,905 

Debt 30 - 30 

Liabilities not covered by budgetary or other resources 113,063 87,872 200,935 

Subtotal, intragovernmental 113,063 231,805 344,868 

With the public

Advances received and other - 9,089 9,089 

Accrued payroll & benefits payable to employees - 130,060 130,060 

Liabilities covered by budgetary or other resources 139,149 - 139,149 

Accrued unfunded annual & other leave & assoc. benefits 451,199 - 451,199 

Sick leave compensation benefits for air traffic controllers 57,006 6,194 63,200 

Capital leases 59,685 9,159 68,844 

Legal claims 53,900 25,000 78,900 

Return rights 4,400 3,150 7,550 

Other accrued liabilities 50,282 - 50,282 

Liabilities not covered by budgetary or other resources 676,472 43,503 719,975 

Subtotal, with the public 676,472 182,652 859,124 

Total employee related, legal, and other liabilities 789,535 $ 414,457 $ 1,203,992 $ 

2003
88 

effective retirement date. Based on sick leave balances, this liability was $69.4 million and 

$63.2 million as of September 30, 2004 and 2003, respectively. 

FAA estimated that 100 percent of its $19.0 million and $78.9 million legal claims liabilities as of 

September 30, 2004 and 2003, respectively, would be paid from the permanent appropriation for 

judgments, awards, and compromise settlements (Judgment Fund) administered by the Department 

of Treasury. 

FAA’s Return Rights Program pertains to employees who accepted transfers to overseas or certain 

domestic locations for a period of two to four years, and entitles them to a future return move at 

Government expense. As of September 30, 2004 and 2003, there were 137 and 151 employees, 

respectively, entitled to these return rights. 

Other Accrued Liabilities with the Public is comprised primarily of accruals for utilities, leases and 

travel obligations. Total liabilities not covered by budgetary resources are presented in note 17. 

NOTE 9. LEASES

FAA has both capital and operating leases. 

Capital Leases 

Following is a summary of FAA’s assets under capital lease as of September 30, 2004 and 2003: 

As of September 30, 2004, 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. 

2004 2003

Land, buildings, and machinery 125,923 $ 125,923 $ 

Accumulated depreciation (71,807) (63,328) 

Assets under capital lease, net 54,116 $ 62,595 $ 

Year 1 (FY 2005) 13,663 $ 

Year 2 (FY 2006) 11,408 

Year 3 (FY 2007) 11,335 

Year 4 (FY 2008) 9,661 

Year 5 (FY 2009) 9,468 

After 5 Years 34,250 

Less: Imputed interest (29,213) 

Total capital lease liability 60,572 $ 

Future payments due by fiscal year

(Liabilities not covered by budgetary or other resources)
89 

Operating Leases

FAA has operating leases for real property, aircraft, and telecommunications equipment. Future 

operating lease payments due as of September 30, 2004 were: 

Operating lease expense incurred during the years ended September 30, 2004 and 2003 was 

$55.3 million and $53.3 million, respectively. 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, 2004 and 2003, FECA actuarial liabilities were $954.5 million and 

$1,041.6 million respectively. The DOL calculates the FECA liability for DOT, and DOT allocates the 

liability amount to FAA based upon actual workers’ compensation payments to FAA employees over 

the preceding four years. FECA liabilities include the expected liability for death, disability, medical, 

and miscellaneous costs for approved compensation cases, plus a component for incurred but not 

reported claims. The estimated liability is not covered by budgetary resources or other and thus will 

require future appropriated funding. 

NOTE 11. TOTAL COST AND EARNED REVENUE BY BUDGET FUNCTIONAL 

CLASSIFICATION 

In FY 2004 and FY 2003, all expenses, earned revenues, and intragovernmental transactions were 

related to Transportation Programs. 

NOTE 12. NET COST BY PROGRAM AND OTHER STATEMENT OF NET COST DISCLOSURES

During FY 2004, the FAA formed the ATO. The ATO is largely comprised of two former lines of 

business, Air Traffic Services and Research & Acquisitions, as well as one other business program, 

Free Flight, which was previously reported under Regional and Center Operations and Other 

Programs. The FY 2003 net costs of these former organizations have been reclassified and reported 

under ATO for consistency with the current year presentation. 

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. 

Fiscal year 2004

 Year 1 (FY 2005) 55,330 $ 

 Year 2 (FY 2006) 36,817 

 Year 3 (FY 2007) 28,899 

 Year 4 (FY 2008) 21,204 

 Year 5 (FY 2009) 13,815 

 After 5 Years 77,033 

 Total future operating lease payments 233,098 $ 
90 

The following are net costs for the years ended September 30, 2004 and 2003 by strategic goal. 

Organizational Homeland

Line of business programs Safety Capacity Excellence Security Other Total

Air Traffic Organization $ 800,987 6,738,943 $ 472,473 $ 81,557 $ 4,736 $ 8,098,696 $ 

Regulation & Certification 2,849 882,868 56,292 - - 942,009 

Airports 1,533,507 766,369 26,124 460,493 - 2,786,493 

Commercial Space Transportation - 11,250 475 - - 11,725 

Non line of business programs 

Region and center operations and other - - - - 85,721 85,721 

Not assigned to programs - - - - 26,692 26,692 

Net cost of continuing operations 2,337,343 8,399,430 555,364 542,050 117,149 11,951,336 

Transferred Operations-Civil Aviation 

Security 1 14,553 - 32,696 - 47,250 

Net cost of operations $ 2,337,344 8,413,983 $ 555,364 $ 574,746 $ 117,149 $ 11,998,586 $ 

For the Year Ended September 30, 2003

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 $ 

Regulation & Certification 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 

Region 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
91 

The following is our distribution of FY 2004 and FY 2003 net costs by intragovernmental-related 

activity versus with the public. 

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 

Regulation & Certification

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

Regional 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 $ 
92 

For the Year Ended September 30, 2003

Intra- With the

Line of business programs governmental Public Total

Air Traffic Organization

Expenses 1,203,704 $ 7,018,738 $ 8,222,442 $ 

Less earned revenues (36,786) (86,960) (123,746) 

Net costs 6,931,778 1,166,918 8,098,696 

Regulation & Certification

Expenses 128,755 814,380 943,135 

Less: Earned revenues (250) (876) (1,126) 

Net Costs 813,504 128,505 942,009 

Airports

Expenses 8,959 2,777,758 2,786,717 

Less earned revenues (50) (174) (224) 

Net costs 2,777,584 8,909 2,786,493 

Commercial Space Transportation

Expenses - 11,725 11,725 

Net costs 11,725 - 11,725 

Non line of business programs

Regional and center operations and

other programs

Expenses 162,154 179,953 342,107 

Less earned revenues (179,475) (76,911) (256,386) 

Net costs 103,042 (17,321) 85,721 

Not assigned to programs

Expenses - 61,486 61,486 

Less earned revenues (7,720) (27,074) (34,794) 

Net costs 34,412 (7,720) 26,692 

Net cost of continuing operations 10,672,045 1,279,291 11,951,336 

Transferred operations - Civil Aviation Security 

Expenses 94,413 30,292 124,705 

Less earned revenues (17,186) (60,269) (77,455) 

Net costs (29,977) 77,227 47,250 

Net cost of operations

Total expenses 1,597,985 10,894,332 12,492,317 

Less total earned revenue (241,467) (252,264) (493,731) 

Total net cost $ 10,642,068 1,356,518 $ 11,998,586 $ 
93 

NOTE 13. AIRPORT AND AIRWAY TRUST FUND DEDICATED 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 

aviation-related excise taxes. The IRS collects these excise taxes on behalf of FAA's AATF. These 

taxes can be withdrawn only as authorized 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 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, 2004, may be understated by as 

much as $275 million. We have not recognized the potential understatement of $275 million since it 

is not legally enforceable until certified by the IRS. Therefore, this represents a potential gain 

contingency at September 30, 2004. The estimated taxes and deposits to AATF will be adjusted to 

equal actual tax collections in December 2004. Total taxes recognized in FY 2003 included OTA’s 

estimate of $2.9 billion for the quarter ending September 30, 2003. Fiscal data of the AATF as of, and 

for the years ended, September 30, 2004 and 2003 is summarized below. Intra-agency transactions 

have not been eliminated in the amounts presented. 

2004 2003

Assets

Fund balance with Treasury 642,007 $ 614,503 $ 

Investments, net (Note 3) 9,891,592 10,517,891 

Accounts receivable, net 129,487 105,179 

Total assets $ 11,237,573 10,663,086 $ 

Liabilities and net position

AATF amounts due to FAA 3,704,148 $ 3,115,669 $ 

Cumulative results of operations 6,958,938 8,121,904 

Total liabilities and net position $ 11,237,573 10,663,086 $ 

Revenue

Passenger ticket tax 6,554,599 $ 6,065,763 $ 

International departure tax 1,455,529 1,517,807 

Investment income 446,956 570,873 

Fuel taxes 774,150 850,950 

Waybill tax 498,871 399,396 

Tax refunds and credits (55,596) (44,320) 

Total revenue $ 9,360,469 9,674,509 $ 

Expenses

Nonexpenditure transfer out and other 10,838,828 $ 9,707,949 $ 

Total expenses $ 9,707,949 10,838,828 $ 
94 

NOTE 14. IMPUTED FINANCING SOURCES 

FAA recognizes as imputed financing the amount of accrued pension and post-retirement benefit 

expenses for current employees. The assets and liabilities associated with such benefits are the 

responsibility of the administering agency, the OPM. Amounts paid from the 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, 2004 and 2003, respectively, imputed 

financing was as follows: 

 

NOTE 15. TRANSFERRED OPERATIONS 

The Aviation and Transportation Security Act (Public Law 107-71) established the TSA and 

transferred FAA’s civil aviation security functions to the TSA. The TSA assumed responsibility for 

these functions on February 13, 2002. Subsequently, the Homeland Security Act of 2002 (Public Law 

107-296) established the Department of Homeland Security (DHS) and transferred TSA from the DOT 

to DHS effective March 1, 2003. 

FASAB Technical Bulletin (TB) 2003-1, Certain Questions and Answers related to the Homeland 

Security Act of 2002, requires Federal agencies to segregate the net costs of continuing and 

transferred operations, and recognize a transfer-out for assets and liabilities transferred to the DHS. 

Although the guidance in TB 2003-1 applies to DHS, the guidance is relevant to the transfer of the 

civil aviation security function to the TSA. Accordingly, on FY 2003 the Statement of Net Cost, FAA 

has segregated and reported as “transferred operations,” the net costs incurred related to civil 

aviation security functions that transferred to TSA. Net costs of internal security functions, which 

remained with FAA, are reported under Region and Center Operations and Other Programs. In 

addition, of the $643.6 million transferred operations reported on the Statement of Changes in Net 

Position for the year ended September 30, 2003, $623.6 million pertains to security-related PP&E that 

FAA transferred to the TSA. There were no transfers to TSA in FY 2004. 

2004 2003

Office of Personnel Management 482,253 $ 465,868 $ 

Treasury Judgment Fund 11,246 29,835 

Total imputed financing sources 493,499 $ 495,703 $ 
95 

NOTE 16. STATEMENT OF BUDGETARY RESOURCES RESTATEMENT AND DISCLOSURES 

The AATF is managed by the U.S. Department of Treasury’s Bureau of Public Debt (BPD). In FY 2003 

and years prior, FAA reported the AATF as having unobligated budget authority, causing an 

overstatement of budgetary resources presented on the Combined Statement of Budgetary 

Resources. In accordance with the U.S. Department of Treasury’s Trust Fund Accounting Guide 

(updated in 2001), BPD, and consequently FAA, no longer present AATF as having budget authority. 

This change in classification results in a correction of an error in presentation and a restatement of 

the FY 2003 Budget authority and Unobligated balance brought forward, transfers and other of 

$.8 billion and $8.8 billion, respectively, and an offsetting reduction in Unobligated balances available

of $8.0 billion. The effect of this restatement on the Combined Statement of Budgetary Resources is 

as follows: 

The amounts reported in the Statement of Budgetary Resources are in agreement with the summary 

totals presented in the Budget of the United States Government. Amounts reported for the 

Operations appropriation were adjusted to eliminate the effect of transfers between the AATF and 

the General Fund components of this account because they overstated budgetary resources and 

obligations. The Required Supplementary Information section of this report includes a schedule of 

budgetary resources by each of FAA’s major fund types. 

Budget authority as reported in the Combined Statements of Budgetary Resources includes amounts 

made available to FAA from general, trust and special funds. In contrast, appropriations received as 

reported in the Consolidated Statements of Changes in Net Position pertains only to amounts made 

available to FAA from general funds. The following is a reconciliation of these amounts: 

2003

Originally Effect of 2003

stated restatement As restated

Budgetary resources

Budget authority 15,846,546 $ 797,917 $ 16,644,463 $ 

Unobligated balance brought forward,

 transfers and other 9,682,455 $ (8,749,605) $ 932,850 $ 

Status of budgetary resources

Unobligated balance available 8,627,893 $ (7,951,688) $ 676,205 $ 

2004 2003

Combined Statement of Budgetary

 Resources - budget authority 17,615,716 $ 16,644,463 $ 

Less amounts made available to FAA

from AATF dedicated collections (14,582,668) (13,371,222) 

Less special fund aviation user fees (123) - 

Consolidated Statement of Changes in Net

 Position - appropriations received 3,032,925 $ 3,273,241 $ 
96 

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 the AATF of $65.0 million. In FY 2003, a rescission of budgetary 

resources was made to the Facilities and Equipment fund in the amount of $39.5 million, and to 

contract authority of the Grants-in-Aid to Airports fund in the amount of $22.1 million. 

OMB Bulletin 01-09 requires the following additional Statement of Budgetary Resources disclosures: 

! FAA does not have any significant differences between the information reported on the 

Statement of Budgetary Resources and the amounts described as FY 2004 “actual” in the 

Budget of the United States Government for FY 2006. 

! Congress mandated permanent indefinite appropriations for the Facilities and Equipment, 

Grants-in-Aid, and Research, Development and Engineering to fully fund special projects that 

were ongoing and spanned several years. 

! FAA does not have obligations classified as “exempt from apportionment.” However, during 

FY 2004 and FY 2003, 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: 

Total available contract authority at the end of FY 2004 and FY 2003 was $3.7 billion and $4.2 billion, 

respectively. 

Public Law 108-199 authorized FAA $3.4 billion in liquidating authority, derived from the AATF, for 

the Grants-in-Aid program. In addition, Public Laws 108-176 and 106-181 authorized FAA with 

$3.7 billion of contract authority. 

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 2003, $17.6 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 2004. Additionally, transfers in FY 2004 to DOT for Essential Air Services also reduced 

balances available for obligation.

The net obligated balance, end of period, is comprised of the following components as of 

September 30, 2004 and 2003: 

Direct Reimbursable Direct Reimbursable

Category A 5,487,783 $ 509,509 $ 10,376,768 $ 264,743 $ 

Category B 8,230,998 1,721 3,524,631 4 

Total 13,718,781 $ 511,230 $ 13,901,399 $ 264,747 $ 

2004 2003

Obligated balance, net, end of period 2004 2003

Accounts receivable and advances (178,862) $ (62,775) $ 

Unfilled customer orders from Federal sources (219,936) (113,350) 

Undelivered orders 8,660,222 7,926,575 

Accounts payable and other liabilities 911,636 894,030 

Total obligated balance, net, end of period 9,173,060 $ 8,644,480 $ 
97 

NOTE 17. FINANCING SOURCES YET TO BE PROVIDED 

The following table shows liabilities not covered by budgetary or other resources as of September 30, 

2004 and 2003, as well as the relationship between liabilities not covered by budgetary or other 

resources on the balance sheet and the change in components of net cost of operations that will 

require or generate resources in future periods. 

NOTE 18. CUSTODIAL ACTIVITY 

FAA collects certain non-exchange (custodial) revenue on behalf of the General Fund of the Treasury. 

During FY 2004 and FY 2003, FAA’s Statement of Changes in Net Position included custodial revenue 

totaling $19.0 million and $21.8 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. 

NOTE 19. COMMITMENTS, CONTINGENCIES, AND OTHER DISCLOSURES 

Contract Options. As of September 30, 2004 and 2003, we had contract options of $10.9 billion 

and $32.8 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.

Letters of Intent. FAA has authority under 49 U.S.C. 47110(e) to issue letters of intent (LOIs) to 

enter into Airport Improvement Program grant agreements. Through September 30, 2004, FAA 

issued LOIs 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. 

As of September 30, 2003, LOIs covering FY 1988 through FY 2014 totaled $4.5 billion. Of this 

amount, FAA had obligated $3.0 billion, leaving $1.5 billion unobligated as of September 30, 2003. 

2004 2003 Change

Unfunded annual & other leave & assoc. benefits (Note 8) 470,995 $ 451,199 $ 19,796 $ 

Sick leave compensation benefits and return rights (Note 8) 77,134 70,750 6,384 

Other accrued liabilities (Note 8) 133,095 50,282 82,813 

 Increases - components of net cost of operations

 Requiring or generating resources in future periods 108,993 

Environmental liabilities (Notes 7 and 19) 606,261 $ 621,953 $ (15,692) $ 

Legal claims (Note 8) 19,000 78,900 (59,900) 

Capital leases (Notes 8 & 9) 60,572 68,844 (8,272) 

Debt - intragovernmental (Note 8) - 30 (30) 

FECA payable (Note 8) 200,307 200,905 (598) 

FECA actuarial liablilty (Note 10) 954,463 1,041,568 (87,105) 

Decreases - resources that fund expenses

Recognized in prior periods (171,597)

Liabilities not covered by budgetary or other resources 2,521,827 $ 2,584,431 $ (62,604) $ 
98 

Airport Improvement Program Grants. FY 2004, Airport Improvement Program grant authority 

totaled $3.4 billion, including $2.0 billion in entitlements to specific locations. Of entitlements to 

specific locations, sponsors have claimed $1.6 billion, and $416.0 million remains available from 

unused or newly enacted contract authority to those sponsors through FY 2006, or in the case of 

non-hub primary airport locations, through FY 2007. 

In FY 2003, Airport Improvement Program grant authority was $3.3 billion, including $2.1 billion in 

entitlements to specific locations. Of entitlements to specific locations, sponsors had claimed $1.8 

billion, and $336.0 million remained available from unused or newly enacted contract authority to 

those sponsors through FY 2005, or in the case of non-hub primary airport locations, through 

FY 2006. 

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. We may issue 

(1) non-premium 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 39 air carriers having 

approximately 1,228 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, we 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, 2004 and gave the Secretary of Transportation discretion to further extend coverage 

through December 31, 2004. 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. The period of coverage in effect as of September 30, 2004 was from September 1, 2004 

through December 31, 2004. 

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 2004 and FY 2003, we recognized insurance premium revenue of $145.6 million and 

$124.0 million, respectively. Premiums are recognized as revenue on a straight-line basis over the 

period of coverage. Premium revenue is reported on the Consolidated Statement of Net Cost, under 

“Regional and Center Operations and Other Programs.” 

Typically, the maximum liability for both hull loss and liability, per aircraft, is $1.75 billion. No claims 

for losses were pending as of September 30, 2004 or 2003. 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. 
99 

Overflight User Fees. FAA issued an interim final rule (IFR), effective on August 1, 2000, followed 

by a Final Rule, effective on August 20, 2001, that required certain aircraft operators to pay fees for 

air traffic control and related services provided by FAA to aircraft that operate in U.S.-controlled 

airspace but neither takeoff nor land in the United States. The authority to charge these fees is 

contained in the Federal Aviation Reauthorization Act of 1996, as amended. Several airlines and an 

air carrier association challenged the IFR in the U.S. Court of Appeals. FAA issued the Final Rule while 

the IFR litigation was still pending. The same group of plaintiffs then brought suit against the Final 

Rule, and the Court combined the two cases. 

FAA had recognized $19.8 million in FY 2003, before it ceased billing in light of an adverse decision in 

the U.S. Court of Appeals on April 8, 2003. Congress has since enacted, in the FAA Reauthorization 

Act signed by the President on December 12, 2003, a provision on overflight fees that affects past 

and future fee collections. In July 2004, the FAA Administrator issued an Administrative Order 

determining the disposition of all fees collected under both rules. Concurrently, a settlement was 

reached with the plaintiff that will allow FAA to resume collection of fees in FY 2005. 

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, 2004 and 2003, the amount related to these two sites is $49.3 million and $61.6 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, 2004 and 2003, FAA’s contingent liabilities for asserted and 

pending legal claims reasonably possible of loss were estimated at $76.7 million and $325.5 million, 

respectively. FAA does not have material amounts of known unasserted claims. 
100 

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101 

Required Supplementary Stewardship Information 
102 

State/Territory 2004 2003 2002 2001 2000

Alabama 55,527 $ 59,760 $ 58,506 $ 27,421 $ 19,653 $ 

Alaska 153,237 158,950 121,640 83,563 51,788 

Arizona 52,286 75,247 54,737 51,783 58,381 

Arkansas 23,198 35,530 32,937 32,412 17,534 

California 236,031 216,981 243,720 179,447 87,617 

Colorado 101,792 57,872 91,495 26,340 29,860 

Connecticut 8,511 7,011 10,420 3,480 1,788 

Delaware 2,813 2,577 5,838 4,704 2,515 

District of Columbia 555 447 71 61 83 

Florida 145,690 166,066 157,878 110,428 64,694 

Georgia 96,081 48,147 67,957 33,652 43,911 

Hawaii 21,020 24,767 15,846 34,569 6,567 

Idaho 22,677 30,721 19,925 25,477 13,106 

Illinois 106,145 74,202 165,518 85,566 66,003 

Indiana 49,219 47,288 43,099 30,544 24,141 

Iowa 24,282 37,521 30,765 35,159 16,169 

Kansas 24,118 22,694 15,655 7,587 7,378 

Kentucky 51,904 67,031 48,192 46,166 26,205 

Louisiana 59,438 45,394 47,915 32,841 29,200 

Maine 45,987 18,143 14,456 7,496 3,828 

Maryland 39,450 22,933 26,370 18,953 14,900 

Massachusetts 23,495 65,930 30,348 20,709 14,560 

Michigan 125,928 84,030 85,851 99,278 27,363 

Minnesota 50,472 58,826 85,675 49,143 30,561 

Mississippi 39,061 30,289 25,929 28,203 9,281 

Missouri 89,848 59,642 71,910 62,701 35,137 

Montana 36,754 34,273 24,506 19,254 13,157 

Nebraska 25,280 19,423 25,181 22,983 8,534 

Nevada 58,418 57,506 45,204 57,332 32,106 

New Hampshire 7,996 35,082 40,351 16,173 8,582 

New Jersey 55,174 29,402 26,391 18,047 10,012 

New Mexico 12,756 17,336 13,106 10,882 7,671 

(continued)

(Dollars in Thousands)

Airport Improvement Program

For the Fiscal Years Ended September 30

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

Stewardship Investment

Non-Federal Physical Property
103 

FAA makes project grants for airport planning and development under the Airport Improvement 

Program (AIP) to maintain a safe and efficient nationwide system of public-use airports that meets 

both present and future needs of civil aeronautics. FAA works to improve the infrastructure of the 

nation’s airports, in cooperation with airport authorities, local and state governments, and 

metropolitan planning authorities. 

State/Territory 2004 2003 2002 2001 2000

New York 86,382 $ 122,675 $ 109,798 $ 118,792 $ 57,671 $ 

North Carolina 44,668 75,317 73,493 60,908 26,084 

North Dakota 29,007 15,458 16,562 25,221 11,490 

Ohio 118,138 68,717 112,015 51,601 45,691 

Oklahoma 31,272 34,351 39,238 19,780 8,678 

Oregon 33,793 34,687 46,605 31,655 9,847 

Pennsylvania 105,293 112,761 109,388 62,343 34,011 

Rhode Island 10,861 13,736 12,409 9,547 11,705 

South Carolina 23,772 22,531 39,194 18,895 11,792 

South Dakota 20,915 16,841 15,440 10,466 12,301 

Tennessee 47,298 62,412 46,373 58,638 39,237 

Texas 174,336 159,929 192,738 127,046 111,585 

Utah 26,008 24,804 21,396 39,235 14,328 

Vermont 6,657 2,310 2,767 5,487 1,157 

Virginia 70,688 45,240 76,647 75,555 41,109 

Washington 73,153 53,351 62,798 34,023 35,498 

West Virginia 20,637 24,373 18,562 18,564 7,400 

Wisconsin 60,615 48,264 39,971 27,541 26,278 

Wyoming 33,544 21,158 25,679 16,446 14,972 

American Samoa 6,328 18,903 17,845 5,374 241 

Guam 2,244 5,937 368 3,653 3,399 

Northern Mariana Island 8,014 10,227 13,017 5,455 1,610 

Puerto Rico 9,323 7,419 9,022 6,399 9,179 

Trust Territory of Pacific - - - - 138 

Virgin Islands 2,726 8,959 20,094 5,056 2,411 

Administration 86,485 65,336 64,731 58,542 55,196 

 Totals $ 2,786,717 2,977,300 $ 2,933,542 $ 2,178,576 $ 1,375,293 $ 

Stewardship Investment

FEDERAL AVIATION ADMINISTRATION

U.S. Department of Transportation

(Dollars in Thousands)

For the Fiscal Years Ended September 30 

Airport Improvement Program

Non-Federal Physical Property
104 

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 injuryprotection; explosive detection systems; improved in-flight icing and ground de-icing operations; 

better tools to predict and warn of weather hazards, turbulence, and wake vortices; aviation 

medicine; and human factors. In FY 2004, our research and development program made significant 

contributions to achieving the agency’s mission and goals, including the following achievements. 

Center of Excellence for Airliner Cabin Environment Research: FAA recently established the 

Air Transportation Center of Excellence for Airliner Cabin Environment Research. This center, 

managed for FAA by the Civil Aeromedical Institute and led by Auburn University, includes Purdue 

University, Harvard University, Boise State University, Kansas State University, the University of 

California at Berkeley, and the University of Medicine and Dentistry of New Jersey. The consortium 

will research cabin air quality and conduct an assessment of chemical and biological threats. 

Aviation Digital Data Service (ADDS) Enhancements: Accurate, timely, and user-friendly 

forecasts of icing, turbulence, thunderstorms, and clouds are required to support safe and efficient 

flight operations. The availability of weather data on the Internet has made current weather 

information from sophisticated numerical models readily available to users. Researchers developed 

several enhancements to ADDS in FY 2004. These include faster access to critical weather 

information, the capability to customize weather information (saving preferences), and the ability to 

print an entire screen display. By providing current and forecast information on key weather hazards 

to support the needs of users, ADDS enhances aviation safety and helps reduce delays. Access via 

the Internet has ensured that enhancements are available to users quickly and cost-effectively. 

Aviation Environmental Design Tool: In 2004, FAA, in collaboration with the National Aeronautics 

and Space Administration, initiated a long-term strategic effort to develop analytical tools to address 

the relationship between noise and emissions and between different types of emissions. Current 

analytical tools focus on noise or emissions; however, noise and emissions are interdependent 

phenomena. 

Expenditures 2004 2003 2002 2001 2000

Applied research 91,743 $ 29,406 $ 59,150 $ 120,395 $ 99,777 $ 

Development 478 251 603 3,419 7,175 

R&D Plant 4,230 2,903 3,020 10,130 12,800 

Administration 28,643 31,669 44,480 46,988 46,219 

Total $ 64,229 125,094 $ 107,253 $ 180,932 $ 165,971 $ 

For the Fiscal Years Ended September 30

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

Stewardship Investment

Research and Development

(Dollars in Thousands)
105 

Required Supplementary Information 
106 

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.” 

Asset

Method condition*

2004 2003 2002 2001 2000

Buildings Condition assessment 4 & 5 53,359 $ 50,534 $ 73,741 $ 50,568 $ 30,971 $ 

survey

Other structures

and facilities Condition assessment 4 & 5 16,543 $ 29,785 $ 13,843 $ 22,928 $ 59,290 $ 

* Condition rating scale: 4--poor; 5--very poor

Category

For the Fiscal Years Ended September 30

Costs to return to

acceptable condition

(Dollars in Thousands)

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

Supplementary Information

Deferred Maintenance
Intragovernmental Assets

2004 2003

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 54,045 $ 2,840,663 $ 10,318,029 $ 313 $ 2,833,723 $ 10,819,257 $ 

Department of the Air Force 12,417 - - 25,133 - -

Department of Agriculture 51 - - 46 - -

Department of the Army 6,647 - - 6,228 - -

Department of Commerce 78 - - 580 - -

Department of Defense 2,097 - - 2,606 - -

Department of Energy 88 - - 16 - -

Federal Emergency Management Agency 715 - - 20 - -

Federal Trade Commission 94 - - -

Government Accountability Office - - - 1 - -

General Services Administration 1,542 - - 330 - -

Independent Agencies 8 - - 2 - -

Department of Homeland Security - - - 12,490 - -

Department of Health and Human Services - - - 2 - -

Department of the Interior - - - 3,947 - -

Department of Justice 456 - - 14 - -

Department of Labor - - - 4 - -

National Aeronautics & Space Admin. 2,015 - - 4,125 - -

Office of Personnel Management 6 - - - - -

Department of the Navy 4,406 - - 4,747 - -

Social Security Administration - - - 24 - -

Department of State 4,201 - - 46 - -

Department of Transportation 127,103 - - 84,098 - -

Other Agencies 20 - - 23,950 - -

Total 215,989 $ 2,840,663 $ 10,318,029 $ 168,722 $ 2,833,723 $ 10,819,257 $ 

(Dollars in Thousands)

As of September 30

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

Supplementary Information

Intragovernmental Balances

107 
Intragovernmental Liabilities

Agency

 Employee 

related and other

 Accounts 

payable 

 Employee 

related and other Accounts payable 

Department of the Treasury 7,098 $ - $ 20,868 $ - $ 

Defense Agencies 2,413 21,833 3,362 6

Department of Agriculture - 29 3,170 9

Department of the Air Force 700 1,228 1,690 41

Department of the Army 258 140 4 3

Department of Commerce 1,652 - 3,053 -

Corps of Engineers - 19 - -

Department of Education 60 - 60 -

Department of Energy 4 1 - 2

Environmental Protection Agency 300 - 100 -

Federal Emergency Management Agency 47 - 49 -

Federal Trade Commission 93 - - -

General Services Administration - 6,889 7,142 -

Government Printing Office - 83 - -

Department of Health and Human Services 33 - 20 -

Department of Homeland Security 7,081 - 8,961 -

Department of the Interior 85 13 89 -

Department of Justice 68 54 68 -

Department of Labor 200,307 - 200,905 -

National Aeronautics & Space Administration 1,429 2,063 453 -

Department of the Navy - 212 116 84

Office of Personnel Management 29,527 512 21,127 -

Smithsonian Institution - 7 9 -

Department of State 115 547 120 -

Department of Transportation 11,029 26,718 11,840 9,179

United States Postal Service - 693 - -

Independent Agencies 5 - 4,835 -

Other Agencies 24,722 - 56,827 -

Total 287,026 $ 61,041 $ 344,868 $ 9,324 $ 

2004 2003

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

Supplementary Information

Intragovernmental Balances

As of September 30

(Dollars in Thousands)

108 
Intragovernmental Expenses and Revenues

Agency Expenses Revenues Expenses Revenues

Department of the Treasury* 515,544 $ 405 $ 33,334 $ 3,115 $ 

Department of Agriculture 6,757 58 2 2

Department of the Air Force 54,492 18,781 14,511 14,511

Department of the Army 5,042 8,548 5,729 5,729

Department of Commerce 32,306 1,876 1,978 1,978

Corps of Engineers 253 - - -

Defense Agencies 110,084 16,602 7,929 7,929

Department of Education - 10 5 5

Department of Energy 5,403 37 58 58

Environmental Protection Agency 40 - - -

Federal Emergency Management Agency - 2,030 2,381 2,381

Department of Health and Human Services 682 19 62 62

Department of Homeland Security 145,591 50,911 53,027 53,027

Department of the Interior 2,232 903 777 777

Department of Justice 11,523 2,691 43 43

Federal Trade Commission - 151 9 9

Department of Labor - FECA* 86,809 13 87,631 -

General Services Administration 132,991 129 119 119

Government Printing Office 8,114 - - -

National Aeronautics & Space Admin. 7,668 6,244 12,545 12,545

National Archives and Records Administration 84 - - -

National Science Foundation 49 - - -

Department of the Navy - 10,386 3,178 3,178

Office of Personnel Management* 1,093,184 6 1,247,460 -Securities and Exchange Commission 15,183 - - -

Social Security Administration - 323 100 100

Smithsonian Institution 192 - - -

Department of State 796 274 39 39

Tennesee Valley Authority - - 4 4

Department of Transportation 208,819 28,964 117,561 117,561

United States Postal Service 2,382 - - -

Department of Veterans Affairs 5 - - -

Independent Agencies - 185 154 154

Other Agencies 170 1,014 9,349 18,141

Total expenses 2,446,395 $ 150,560 $ 1,597,985 $ 241,467 $ 

* Represents imputed costs funded by other agencies

on behalf of FAA and/or employee-related expenses.

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

2003 2004

Supplementary Information

(Dollars in Thousands)

 Intragovernmental Transactions

For the Fiscal Years Ended September 30

109 
Intragovernmental non-exchange revenue

Transfers-out Transfers-in Transfers-out Transfers-in

Department of Agriculture - $ - $ 6 $ - $ 

Department of Army - - 81 -

Department of Commerce - - 15 -General Services Administration - - 14,991 15,082

Department of Homeland Security - - 643,621 -National Aeronautics & Space Administration - - 43,904 -Office of Personnel Management - - 5 5

Department of Transportation 165,755 - 103,168 -Other Agencies 361,881 353,466 14,625 2,082

Total non-exchange revenue 527,636 $ 353,466 $ 820,416 $ 17,169 $ 

U.S. Department of Transportation

2004 2003

FEDERAL AVIATION ADMINISTRATION

 Supplementary Information

Intragovernmental Transactions

For the Fiscal Years Ended September 30

 (Dollars in Thousands)

110 
111 

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 1,107,702Spending authority from offsetting collections 578 168,413 (2,176) 1,446 362,231 144,962 - 675,454Recoveries of prior year obligations 127,112 26,792 4,257 - - 12,989 19,768 190,918Temporarily 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 1,113,378

Unobligated 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 $ 16,059,862 $ 

Relationship of Obligations to Outlays

Obligated balance, net, beginning of period 5,681,104 $ 1,952,717 $ 198,907 $ 5,201 $ 91,873 $ 694,909 $ 19,769 $ 8,644,480 $ Cancelled appropriations and other - (9) - - - - - (9)Obligations incurred 3,501,188 2,654,246 117,963 739 367,982 7,561,202 26,691 14,230,011Less: 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
112 

Airport &

Airway Trust Fund

Trust Fund Trust Fund Trust Fund Research, Aviation Combined

Corpus Grants-in-Aid Facilities & Eng. & Insurance Franchise Other Total

Budgetary Resources AS RESTATED to Airports Equipment Development Revolving Fund Operations Funds AS RESTATED

Budget authority - $ 6,500,000 $ 2,931,899 $ 141,444 $ - $ - $ 7,071,120 $ - $ 16,644,463 $ 

Unobligated balance brought forward and transfers 3 894 541,486 21,187 102,361 56,581 152,833 57,505 932,850

Spending authority from offsetting collections - 686 104,312 (2,644) 129,426 353,862 140,810 32 726,484

Recoveries of prior year obligations - 121,908 45,179 21,422 - - 60,647 1 249,157

Permanently not available - (3,122,100) (39,376) (964) - - (66,692) - (3,229,132)

Total Budgetary Resources 3 $ 3,501,388 $ 3,583,500 $ 180,445 $ 231,787 $ 410,443 $ 7,358,718 $ 57,538 $ 15,323,822 $ 

Status of Budgetary Resources

Obligations incurred 3 $ 3,491,899 $ 2,908,322 $ 160,006 $ 13,933 $ 331,454 $ 7,261,223 $ (694) $ 14,166,146 $ 

Unobligated balances available - 8,635 612,302 17,321 6,314 - 31,633 - 676,205

Unobligated balances not available - 854 62,876 3,118 211,540 78,989 65,862 58,232 481,471

Total Status of Budgetary Resources 3 $ 3,501,388 $ 3,583,500 $ 180,445 $ 231,787 $ 410,443 $ 7,358,718 $ 57,538 $ 15,323,822 $ 

Relationship of Obligations to Outlays

Obligated balance, net, beginning of period - $ 4,992,702 $ 1,988,809 $ 205,948 $ 5,144 $ 70,802 $ 762,286 $ (27,555) $ 7,998,136 $ 

Cancelled appropriations and other - - 9 - - - 15,693 - 15,702

Obligations incurred 3 3,491,899 2,908,322 160,006 13,933 331,455 7,261,222 (694) 14,166,146

Less: Spending authority from offsettingcollections and receipts and recoveries of prior year obligations (97) (122,594) (149,491) (18,778) (129,426) (353,862) (201,457) (33) (975,738)

Less: Obligated balance, net, end of period - (5,681,104) (1,952,717) (198,907) (5,201) (91,873) (694,909) (19,769) (8,644,480)

Net Outlays (94) $ 2,680,903 $ 2,794,932 $ 148,269 $ (115,550) $ (43,478) $ 7,142,835 $ (48,051) $ 12,559,766 $ Outlays 

Disbursements 3 $ 2,681,540 $ 2,884,966 $ 151,652 $ 13,876 $ 312,235 $ 11,326,505 $ (48,017) $ 17,322,760 $ 

Collections, net of offsetting receipts (97) (637) (90,034) (3,383) (129,426) (355,713) (4,183,670) (34) (4,762,994)

Net Outlays (94) $ 2,680,903 $ 2,794,932 $ 148,269 $ (115,550) $ (43,478) $ 7,142,835 $ (48,051) $ 12,559,766 $ 

U. S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

Schedule of Budgetary Resources by Major Fund Type

As of September 30, 2003

(Dollars in Thousands)
113 

ADMINISTRATIVE SERVICES FRANCHISE FUND 

Background 

Public Law 104-205, “Department of Transportation and Related Agencies Appropriation Act, 1997”, 

authorized the FAA to establish an Administrative Services Franchise Fund (Franchise Fund). The 

Franchise Fund is designed to create competition within the public sector in the performance of a wide 

variety of support services. It allows for the establishment of an environment to maximize the use of 

internal resources through the consolidation and joint-use of like functions and the recognition of 

economies of scale and efficiencies associated with the competitive offering of services to other 

Government agencies. 

Objective 

The objective of the Franchise Fund is to enhance the support provided to the core programmatic mission 

functions within FAA. Benefits of the Franchise Fund are derived incrementally over time through 

efficiencies and economies of scale associated with development of partnerships and consolidation of like 

functions plus the addition of new customers. Efforts in the Franchise 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. 

Services 

The Franchise Fund offers a wide variety of services. These include accounting, payroll, travel, 

duplicating, multi-media, information technology, logistics and material management, aircraft 

maintenance and international and management training. The Franchise Fund’s major customers are 

FAA Line of Business Programs as shown on the consolidated Statement of Net Cost. Other customers 

include DOT entities, non-DOT government agencies, and the airport authorities and militaries of other 

countries. 
114 

2004 2003

Assets

 Intragovernmental

 Fund balance with Treasury 208,776 $ 170,862 $ 

 Accounts receivable, net 1,608 1,165 

 Other 1,111 13 

 Total intragovernmental assets 211,495 172,040 

 Accounts receivable, net 3,343 2,896 

 Inventory and related property, net 375,027 386,886 

 General property, plant, and equipment, net 2,130 1,080 

 Other assets 10 5 

Total assets $ 562,907 592,005 $ 

Liabilities

 Intragovernmental liabilities:

 Accounts payable 549 $ - $ 

 Other intragovernmental liabilities 137,326 97,780 

 Total intragovernmental liabilities 137,875 97,780 

 Accounts payable 15,323 7,410 

 Other liabilities - 15,104

Total liabilities 120,294 153,198 

Net position balances:

 Cumulative results of operations 438,807 442,613 

Total net position 442,613 438,807 

Total liabilities and net position $ 562,907 592,005 $ 

As of September 30

(Dollars in Thousands)

U. S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

FRANCHISE FUND

BALANCE SHEETS
115 

 

2004 2003

Programs 

Earned revenues 340,077 $ 320,846 $ 

Intragovernmental costs (339,934) (321,159) 

Profit (loss) $ (313) 143 $ 

September 30

U. S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

FRANCHISE FUND

STATEMENTS OF NET COST

For the years ended

(Dollars in Thousands)
116 

2004 2003

Beginning balance $ 444,399 442,613 $ 

Other financing sources

Transfers-in/out without reimbursement (10,906) (8,448) 

Imputed financing from costs absorbed by others 6,954 6,251 

Other 3 724 

Total financing sources (3,949) (1,473) 

Profit (loss) (313) 143 

Ending balance $ 442,613 438,807 $ 

Cumulative results of operations

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

FRANCHISE FUND

STATEMENTS OF CHANGES IN NET POSITION

(Dollars in Thousands)
117 

APPENDIX 

Improper Payments Information Act Reporting Details 

I. Describe your agency’s risk assessment(s), performed subsequent to compiling your full 

program inventory. List the risk-susceptible programs (i.e., programs that have a significant 

risk of improper payments based on OMB guidance thresholds) identified through your risk 

assessments. Be sure to include the programs previously identified in the former Section 57 

of OMB Circular A-11. 

Working in coordination with DOT, we reviewed FAA programs and activities to identify those that might 

be susceptible to significant improper payments. This review was a two-phase process. In the first 

phase, the work involved (1) researching and developing an improper payment risk assessment process 

and methodology, (2) determining the amount of improper payments and their causes for ten DOT 

programs, and (3) determining an action plan for reducing improper payments for any program that was 

identified as having a significant problem. 

For the first phase, 10 DOT programs were identified as having the highest potential risk for improper 

payments based on FY 2003 expenditures, including FAA’s Operations, Facilities and Equipment, and 

Airport Improvement Program (AIP) [former Section 57 program]. In addition, one of the programs 

included in DOT’s review was salary payments. After an initial risk assessment to determine the sample size 

to be analyzed, a comprehensive review, using OMB guidelines, was undertaken for each program. 

For the second phase, we conducted our own self-assessment of the potential risk for improper payments in 

the R,E&D program using a risk-assessment tool. 

For all FAA programs, it was determined that there were no significant improper payments. 

II. Describe the statistical sampling process conducted to estimate the improper payment 

rate for each program identified. 

An understanding of the programs, and the payments made under the programs, was developed through 

research, questionnaires, and interviews. Criteria were developed as the basis for further assessing 

program risk. Risk criteria included gross expended amount; complexity of payment calculations; 

established internal controls and oversight; type of program recipients; number of program recipients; 

volume of payments; probability of program growth; and changes in the program. Results of the risk 

assessment were used to create a sampling plan. 

A stratified sampling design was used to test payments based on the FY 2003 amounts disbursed and the 

assessed risk of the program. This sampling plan provided a statistical confidence of 95% by measuring 

the actual variability of the dollar data and, through a weighted set of formulas, provided a natural 

measure of the relative sampling error. Use of appropriate population weights with the stratification 

methodology produced an unbiased estimate for the whole file. This statistical sampling design allowed 

us to calculate statistical projections for the amount of improper payments for each tested program and 

to project attributes across the selected population. 

The sample selection of payments was random within each stratum. Allocations to each stratum were 

based on the dollar value of the payment using the Neyman Optimization formula with a design precision 

ranging from 1% to 10% of the estimated dollar amount, depending on the assessed risk level. For high 

risk, the design precision was between 1% and 3%; for moderate risk, between 5% and 7%; and for low 

risk, 10%. A two-sided 95% confidence limit was achieved. The stratification design relies on dollar 

amount ranges to generate better precision than simple random sampling for a given sample size. The 
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stratification ensured that all strata were mutually exclusive and collectively exhaustive, thus covering the 

entire population of payments. 

A total sample size of 390 payments was randomly selected among a minimum of three quantitative 

strata based on the payment amount. The table below shows the overall sample sizes by program.

Program Name Universe 

Amount 

Risk for Sample 

Selection 

Sample 

Size 

Sample 

Amount 

Operations $1,397,734,502 High 146 $ 75,421,806 

Airport Improvement Program 2,577,240,731 Moderate 101 169,251,812 

Facilities and Equipment 1,739,830,557 High 143 180,390,902 

Total Amount $5,714,805,790 390 $425,064,520 

III. Explain the corrective actions your agency plans to implement to reduce the estimated rate 

of improper payments. Include in this discussion what is seen as the cause(s) of errors and the 

corresponding steps necessary to prevent future occurrences. If efforts are already underway, 

and/or have been ongoing for some length of time, it is appropriate to include that information 

in this section. 

Our improper payment rates did not exceed both 2.5% of program payments and $10 million. 

IV. Improper Payment Reduction Outlook FY 2003 – FY 2007 (in millions) 

Program FY 03 Outlays FY03 

IP% 

FY04 

IP% 

FY05 

IP% 

FY06 

IP% 

FY07 

IP% 

FAA AIP 

[Section 57 program]

$3,088,999 0% 0% 0% 0% 0% 

Operations $2,054,313 0% 0% 0% 0% 0% 

F&E $2,369,266 0% 0% 0% 0% 0% 

V. Discuss your agency’s recovery auditing effort, if applicable, including the amount of 

recoveries expected, the actions taken to recover them, and the business process changes 

and internal controls instituted and/or strengthened to prevent further occurrences. 

For the past two years, DOT has used PRG-Schultz for recovery audit services. During that time PRGSchultz reviewed payments made by the DOT agencies to their commercial vendors for fiscal years 2000, 

2001, and 2002. For FAA, PRG-Schultz has recovered $34,137, an improper payment rate of 0.0038%. 

VI. Describe the steps the agency has taken and plans to take (including time line) to 

ensure that agency managers (including the agency head) are held accountable for reducing 

and recovering improper payments. 

The DOT CFO has required the CFOs of all operating administrations, including the FAA, to certify the 

results of our improper payment reviews. In addition, we are incorporating financial management 

training, which will include payment policies, in training provided to FAA managers. Finally, we plan to 
119 

establish a new Internal Control staff, whose responsibilities will ultimately include reviews of payment 

processes. 

VII. Describe whether the agency has the information systems and other infrastructure it 

needs to reduce improper payments to the levels the agency has targeted. 

Currently, we have the information systems and other infrastructures needed to measure improper payments. 

VIII. A description of any statutory or regulatory barriers that may limit the agencies’ 

corrective actions in reducing improper payments 

None. 

IX. Additional comments, if any, on overall agency efforts, specific programs, best practices, 

or common challenges identified as a result of IPIA implementation. 

None. 
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GLOSSARY 

Airport Movement Area Safety System (AMASS): AMASS, an enhancement to the Airport Surface 

Detection Equipment (ASDE) radar, enables controllers to observe airport surface movements, particularly 

at night and when visual observation is impaired by bad weather. The system works by processing 

surveillance data from ASDE, the airport surveillance radar, and the terminal automation system. AMASS 

then determines conflicts based on the position, velocity, and acceleration of airborne arrival aircraft with 

ground-based aircraft and vehicles. 

Airport Surface Detection Equipment Model X (ASDE-X): This airport surface surveillance system 

radar provides air traffic controllers, pilots, airlines, and airports with highly accurate data that has many 

potential applications. The primary application is to provide controllers with positive identification of 

aircraft on the surface in all weather conditions. 

American Customer Satisfaction Index (ACSI): Established in 1994, the ACSI is a uniform and 

independent measure of household consumption experience. A powerful economic indicator, the ACSI 

tracks trends in customer satisfaction and provides valuable benchmarking insights of the consumer 

economy for companies, industry trade associations, and government agencies. The ACSI is produced 

through a partnership of the University of Michigan Business School, the American Society for Quality, 

and the international consulting firm, CFI Group. 

Automated Flight Service Stations (AFSS): These FAA facilities provide general aviation pilots with 

aeronautical information and services necessary to promote safe flight operations. These services include 

pre- and in-flight weather briefings, flight planning assistance, aeronautical notices, and emergency 

assistance. Unlike other air traffic facilities, such as towers and centers, automated flight service stations 

do not control air traffic. 

Airport Improvement Program (AIP): The AIP facilitates the development of a nationwide system of 

public-use airports by providing funding for airport planning and development projects at airports 

included in the FAA’s National Plan of Integrated Airport Systems. The AIP also provides funding for noise 

compatibility planning and noise compatibility programs established by the Aviation Safety and Noise 

Abatement Act of 1979. 

CAPSTONE: CAPSTONE is a technology focused safety program in Alaska that seeks near term safety 

and efficiency gains in aviation by accelerating implementation and use of modern technology. 

CAPSTONE links multiple programs and initiatives under a common umbrella for planning, coordination, 

focus and direction and develops capabilities and requirements jointly with FAA, the Alaskan community 

and aviation industry. CAPSTONE focuses on improving aviation safety and efficiency through installation 

of government-furnished Global Positioning System (GPS)-based avionics and data link communications 

suites in commercial aircraft. 

International Civil Aviation Organization (ICAO): ICAO is a United Nations organization that is 

dedicated to increasing the safety and security of international civil aviation. The organization addresses 

fundamental issues ranging from air navigation and capacity to emerging environmental concerns such as 

engine noise and emissions. 

Model for Assessing the Global Exposure of Noise because of Transport Airlines (MAGENTA):

MAGENTA is computerized modeling tool for evaluating the impact of aircraft noise impacts in 

communities around airports. 
121 

Operational Error: Occurs when controllers fail to apply or follow procedures that enforce separation 

and allow aircraft to end up too close to each other or to an obstruction.

Operational Evolution Plan (OEP): The OEP is a dynamic, comprehensive, and integrated document 

that uses an evolutionary, one-step-at-a-time approach to the modernization of the U.S. national airspace 

system. New runways, new routes, new tools, and airspace redesign are the core changes OEP addresses 

in this 10-year strategic plan. 

Required Vertical Separation Minimum (RVSM): The goal of RVSM is to reduce the vertical 

separation between aircraft above flight level (FL) 290 (29,000 feet) from the current 2000-ft minimum to 

a 1000-ft minimum. This reduction will allow aircraft to safely fly more optimum profiles, gain fuel savings 

and increase airspace capacity. 

Runway Incursion: 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. 

Required Navigation Performance (RNP): Required navigation performance extends the capabilities 

of modern airplane navigation systems by providing real-time estimates of navigation uncertainty, 

assurance of performance through its containment concepts, and features that ensure the repeatability 

and predictability of airplane navigation. This precise characterization of airplane performance is key to 

designing more efficient airspace routes and procedures. 

System for Assessing Aviation Global Emissions (SAGE): SAGE is a computer model that estimates 

aircraft fuel burn and emissions.
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INTERNET LINKS 

Federal Aviation Administration: www.faa.gov

FAA Organizations: www.faa.gov/aboutfaa/organizations.cfm

FAA Regional Offices and Centers: www.faa.gov/aboutfaa/regional.cfm

FAA Operational Evolution Plan (OEP): www.faa.gov/programs/oep

National Transportation Library: ntl.bts.gov

U.S. Department of Transportation: www.dot.gov

ACKNOWLEDGMENTS 

This FY 2004 Performance and Accountability Report is a collaborative endeavor on the part of many, 

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 2004 Performance and Accountability Report. We welcome your 

comments on how we can make this report more informative for our readers. Please send your 

comments to: 

Office of Financial Management, AFM-1 

Federal Aviation Administration 

800 Independence Avenue, SW 

Washington, DC 20591 

E-mail address: susan.lee@faa.gov 

Fax number: (202) 267-5271 

This report is also available on the FAA Website at 

www.faa.gov/aba/html_fm/files_pdf/2004_PAR.pdf

Prior year Performance and Accountability Reports are available at 

www.faa.gov/aba/html_fm/finst.html 
"SpaceShipOne Photos courtesy of Scaled Composites."
U.S. DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

800 Independence Avenue, SW

Washington, DC 20591

www.faa.gov

An electronic copy of this document is available at http://www.faa.gov/aba/html_fm/files_pdf/2004_PAR.pdf.

For copies of previous years' Performance and Accountability Reports, you may access http://www.faa.gov/aba/html_fm/finst.html.