FY 2002 PERFORMANCE AND ACCOUNTABILITY REPORT

FEDERAL AVIATION ADMINISTRATION
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

TABLE OF CONTENTS 

FAA-at-a-Glance 3

A Message from the Administrator 5 

Management’s Discussion and Analysis 7 

A Vital Mission 7

A Year in Highlights 9 

Making It Safer 9 

 Enhancing Security 11 

 Eliminating Bottlenecks 12 

 Safeguarding the Environment 13 

A Foundation for Excellence 13 

 Facing Challenges 15 

 Financial Highlights 17 

Looking to the Future 26 

Achieving Results 27

Safety 29

Air Carrier Fatal Accident Rate 29 

General Aviation Fatal Accidents 30 

 Runway Incursions 31 

 Operational Errors 34 

System Efficiency 35

 Noise 35 

 On-Time Arrival 37 

Airport Arrival Capacity Level 39 

Airport Arrival Efficiency Rate 40 

Organizational Excellence 40 

 Clean Audit 40 

American Customer Satisfaction Index 41 

Financial Statements 43

A Message from the Chief Financial Officer 43 

OIG Quality Control Review 44

Independent Auditors’ Report 45 

Limitations of the Financial Statements 64 

Financial Statements 65 

Glossary of Acronyms 111

Internet Links 112

Acknowledgements 112

We Welcome Your Comments 113 

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FAA AT-A-GLANCE 

Established 1958

Headquarters 800 Independence Avenue, S.W. 

Washington, DC 20591 

www.faa.gov

FY 2002 Budget $14 billion 

Employees 48,899

Regional Offices 9 

Technical Center 

Atlantic City, NJ

1,456 employees 

Aeronautical Center 

Oklahoma City, OK

2,122 employees 

Staffed Air Traffic Control Facilities 677 

Unstaffed Air Traffic Control Facilities 9,836 

FAA Takes Flight 

A little more than two decades after Wilbur and Orville Wright took flight over Kill Devil Hills, North 

Carolina, in December 1903, the U.S. Congress passed the Air Commerce Act of 1926. The Act, which 

established an Aeronautics Branch within the Department of Commerce, was the cornerstone of the 

Federal government’s regulation of civil aviation. This landmark legislation was passed at the urging of 

the aviation industry, which understood that the airplane could not reach its full commercial potential 

without Federal action to improve and maintain safety standards. In 1938, Congress passed the Civil 

Aeronautics Act to create an independent agency, the Civil Aeronautics Authority, with expanded 

authority to issue air carrier route certificates and regulate airfares. 

The introduction of jet airliners and a series of midair collisions spurred passage of the Federal Aviation 

Act of 1958. This legislation established a new independent body, the Federal Aviation Agency, which 

had broader authority to enforce safety regulations. The Aviation Act entrusted safety rulemaking to the 

new agency and gave it sole responsibility for developing and maintaining a common civil-military

system of air navigation and air traffic control. In 1967, FAA became an agency of the newly created 

Department of Transportation and was renamed the Federal Aviation Administration. 

Today’s FAA has 48,899 employees at its headquarters in Washington, DC, in regional offices, and 

facilities around the country. This does not include civil aviation security personnel who are now under 

the administrative control of the Transportation Security Administration (TSA). FAA fulfills its mission 

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

airspace system. These five lines of business are: 

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FY 2002 Performance and Accountability Report

• Air Traffic Services: Manages civil and military air 

traffic by developing and recommending national 

policies and establishing national programs, regulations, 

standards, and procedures for management of the 

airspace; operates air navigation and communications 

systems and facilities; maintains separation and control 

of aircraft; and provides flight assistance to aircraft. 

100 Years of Flight 

“There is something quintessentially 

American about Orville and Wilbur Wright's 

historic achievement at Kitty Hawk on 

December 17, 1903. They worked 

independently, as most American heroes 

have done, free of the entanglements of 

large industrial or government organizations. 

Their intense preoccupation with their 

airplane was fueled not by economic

necessity—income they already had, from

their bicycle business—but mostly from their 

imaginative determination to cross one of

the last technological barriers to human 

flight—stability in the air. 

“The invention of the airplane was a 

fundamental turning point in history. It 

redefined the way we fought our wars; 

revolutionized travel and commerce; fueled 

the process of technological change; and 

helped to shape a world in which the very 

survival of a nation would depend on its 

scientific and technical prowess. Flight is, 

and will continue to be, one of humankind's 

most significant accomplishments.” 

The U.S. Centennial of Flight Commission

www.centennialofflight.gov

• Regulation and Certification: Oversees the safety of 

aircraft and the credentials and competency of pilots and 

mechanics, develops mandatory safety rules, and sets the 

standards that have helped make air travel among the 

safest modes of transportation in history. 

• Airports: Provides leadership in planning and 

developing a safe, secure, and efficient airport system; 

enhances environmental quality and avoids or minimizes 

adverse environmental impacts that might result from a 

proposed FAA action in support of airport development; 

and develops standards for the design and construction 

of facilities that enhance the safety of aircraft operations 

and security of airline passengers. 

• Research and Acquisitions: Supports and conducts 

research to meet increasing demands for higher levels of 

system safety, security, capacity, and efficiency; and 

plans, monitors, controls, schedules, and implements the 

acquisition of materiel, equipment, and services for the 

national airspace system and for interagency and 

international programs. 

• Commercial Space Transportation: Oversees the 

safety of commercial space launches and regulates the 

commercial space industry. 

The Aviation and Transportation Security Act (Public Law 

107-71), enacted on November 19, 2001, established TSA. 

On February 13, 2002, responsibility for aviation security

was transferred from FAA to TSA. 

The Federal Aviation Administration’s FY 2002 Performance and Accountability Report was 

prepared to meet the requirements of the Chief Financial Officers’ Act of 1990 

and its implementing guidelines, including guidance on form and content 

provided by the Office of Management and Budget (OMB). 

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FY 2002 Performance and Accountability Report

January 31, 2003 

A MESSAGE FROM THE ADMINISTRATOR 

I am pleased to present the Federal Aviation 

Administration’s FY 2002 Performance and Accountability 

Report. This year we met nine out of ten performance goals 

in the areas of safety, security, system efficiency, and 

organizational excellence. We also achieved a clean 

opinion on our financial statements. 

FAA’s highest priority is safety. Safety is not only the top 

priority from the standpoint of the public’s interest, but it 

is also an economic necessity. People will only fly if they

feel safe. 

Marion C. Blakey was sworn in September 13, 2002 

as the 15th Administrator of the Federal Aviation 

Administration. At the FAA, Ms. Blakey, continues a 

long career of public service. In addition to serving as 

Chairman of the National Transportation Safety

Board, Blakey served as Administrator of the National 

Highway Traffic Safety Administration and held key 

positions at the Department of Commerce, the 

Department of Education, the National Endowment 

for the Humanities, and the White House.

Through initiatives like Safer Skies (the FAA’s datadriven approach to establishing and evaluating safety

priorities) and the Airport Movement Area Safety System, 

(which provides air traffic controllers with visual and 

audio alerts of potential runway accidents), we were able 

to make last year one of the safest in the history of commercial and general aviation. Although we have 

made tremendous strides in improving aviation safety, there is more that can and will be done in the 

coming years, and aviation security will continue to require attention. While aviation security is now 

under the direction of the new Transportation Security Administration (TSA), we will continue ongoing 

and close coordination to ensure our respective safety and security programs are interrelated and 

coordinated. 

Enhancing the efficiency of our national aviation system remains a high priority for the FAA. Working 

together with the aviation community, we continue to refine FAA’s Operational Evolution Plan (OEP), 

which is designed to increase system capacity by more than 30 percent over the next 10 years. Since first 

released in June 2001, we have achieved a total capacity increase of 5 percent—2 percent more than 

expected. We have recently issued Version 5.0 of the plan, which emphasizes collaborative decisionmaking and better matching of capacity supply with air travel demand. 

New runways are critical in meeting our OEP goals. Nineteen of the 35 major U.S. airports are now at 

various stages of planning and development for expanding capacity. Last year, we opened a new runway

in Detroit that increased the departure rate by as much as 30 percent. Twelve more runways will open by 

2008, including four next year in Denver, Houston, Miami, and Orlando. 

Last year, the FAA installed the Traffic Management Advisor (TMA), a software program that smoothes 

the flow of aircraft into congested airports at six locations around the country. TMA is already 

responsible for capacity increases of 3 to 5 percent. To illustrate the importance of this tool, in

Minneapolis/St. Paul, a 5 percent capacity increase resulted in 3,000 more passengers boarding their 

connecting flights. 

We also installed the User Request Evaluation Tool (URET), a conflict probe that provides controllers 

with advanced notice of potential in-flight conflicts, at six en route centers. Airlines are reporting savings 

of $1.5 million a month from the more direct routings made possible by URET. We plan to expand use to 

the remaining 14 en route centers over the next two years. 

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FY 2002 Performance and Accountability Report

For improved flight performance in bad weather conditions, we installed the first Integrated Terminal 

Weather System (ITWS) in Atlanta. ITWS integrates information with forecasts from a host of sensors 

and sources, and provides a visual weather display to controllers. 

The FAA is also expanding the use of satellite navigation. As we are deploying GPS (global positioning 

system) technologies, we are also redesigning the nation’s airspace. Combining airspace redesign with 

new technologies will improve efficiency and capacity by allowing approaches that minimize noise and 

offer greater access to runways in all weather conditions. 

The FAA faces many challenges. In FY 2003, we will redouble our efforts to become a better-managed, 

more responsive agency, with an even stronger linkage between our budget and our results. We are also 

sensitive to the problems facing the aviation industry in the aftermath of September 11th. Working 

together with the aviation community, I am confident that we can improve the aviation system to achieve 

greater capacity, more efficiency, and even safer skies.

A hundred years ago, Orville and Wilbur Wright returned home to Dayton, Ohio, exuberant about the 

results of their glider flights in Kitty Hawk. They realized powered, manned, controlled flight was 

possible. With the same kind of ingenuity and vision that propelled the Wright brothers from the sands of 

a North Carolina beach into the history books, FAA intends to build on the power of aviation and chart 

the next century of flight that is worthy of the first. 

Marion C. Blakey 

Administrator

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MANAGEMENT’S DISCUSSION AND ANALYSIS

A Vital Mission

Onward and Upward 

Satellite technology makes it possible for us to enjoy live 

national or worldwide television and radio broadcasts, place 

international telephone calls, have high-speed Internet access 

and nationwide paging services, receive weather forecasts, 

respond to emergencies and disasters, and pay by credit card 

at a retail store. Getting those satellites into space is the 

responsibility of the commercial space transportation industry. 

During FY 2002, FAA supervised 8 licensed launches, with up 

to 12 more expected next year. We also oversee the operation 

of four nonfederal spaceports, and at least five more such 

space launch and reentry sites are under development. 

According to a 2001 study commissioned by FAA, commercial 

space transportation has already contributed more than 

$61 billion to the U.S. economy through the manufacture of 

launch vehicles, the design and construction of satellites and 

satellite equipment, satellite services, and related space 

industries. In the coming decades, FAA expects the 

commercial space industry to grow, especially with the 

development of a new generation of both expendable and 

reusable launch vehicles that will reduce the cost of 

transporting satellites to orbit and carry human passengers on 

suborbital and orbital flights. 

The Federal Aviation Administration (FAA) is 

charged with providing a safe, secure, and 

efficient aviation system that contributes to 

national security and encourages civil aviation. 

To fulfill its mission, FAA establishes and 

enforces regulations and conducts oversight of 

the civil aviation industry.

FAA operates and maintains the nation’s 

complex air traffic control system and the 

facilities and equipment that enable its optimal 

operation. FAA controllers supervise more 

than half of the world’s air traffic—5,000 

aircraft at any given moment and close to 7 

million commercial, military, and general 

aviation aircraft each year. We conduct 

leading-edge research to continually improve 

safety and efficiency and assist in the 

development of a system of more than 5,000 

public airports in the United States. FAA also 

regulates and licenses U.S. commercial space 

transportation activities. 

Despite the many challenges that the aviation 

industry and the traveling public faced during fiscal year (FY) 2002 —reduced traffic, increased security, 

and the uncertain future of many airlines—last year was one of the safest in aviation history. One 

challenge we faced was to provide war risk insurance to airlines that could no longer afford commercial 

policies, ensuring that these carriers could stay in the air. As of the end of FY 2002, 72 carriers had been 

extended $114 billion in war risk coverage. We also provided $57 million to 190 air carriers to pay for 

some of the added cost of war risk insurance bought from private insurers, helping carriers adjust to the 

new, higher insurance costs. 

A phone call from the Pentagon spurred another singular achievement last year. The Department of 

Defense (DOD) had a simple question: Could FAA help establish a sophisticated radar net inside the 

United States, similar to the one the DOD maintains, to detect intruding aircraft crossing U.S. borders? In 

just 3 months, FAA and the DOD worked together to provide upgraded surveillance and radio 

communications capabilities equal to the most advanced systems used by the military. 

While dealing with the aftermath of the attacks on the World Trade Center and the Pentagon, we 

continued to deliver on our commitments to improve system efficiency and deploy new technologies, to 

improve safety, and to develop and implement new security procedures. We accelerated investments in 

advanced computer systems, including state-of-the-art weather radar systems; introduced innovative 

control procedures; created new in-air routes to minimize delays; and supervised the construction and 

expansion of airports, runways, and air traffic facilities. FAA’s commitment to our customers—the 

traveling public and the carriers that transport them—is clear and unchanging: to create and maintain the 

safest and most efficient air transportation system in the world. 

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On September 13, 2002, Marion C. Blakey was sworn in as the head of the Federal Aviation 

Administration. Assisted by a Deputy Administrator, Administrator Blakey provides overall leadership and 

management direction. Both the Administrator and Deputy Administrator are appointed by the President 

and confirmed by the Senate. Five Associate Administrators direct the organizations that carry out the 

agency’s principal mission.

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9 

A Year in Highlights 

FAA values the enduring partnerships we have forged with our employees, unions, the airlines, general 

aviation and commercial pilots, commercial space launch companies and site licensees, manufacturers, 

airports, and hundreds of communities around the country. We work with these partners to mitigate risks, 

further reduce noise pollution, and minimize environmental hazards. Without the cooperation of these 

partners, we could not have achieved the many successes highlighted in this report. 

MAKING IT SAFER 

Almost 100 years after the Wright brothers first took flight, FAA is proud to report that FY 2002 was one 

of the safest years in the history of commercial and general aviation. To achieve that milestone, we set 

and attained a number of ambitious safety goals. Despite our success, more must be done, and so we 

continue to focus on reducing the air carrier fatal accident rate still further—by 80 percent from the 

FY 1994–FY 1996 baseline—and limiting general aviation accidents involving fatalities to 331 per year 

by 2007. 

Commercial Aviation Safety

Several programs and initiatives were instrumental in helping FAA reach last year’s high level of aviation 

safety. The Runway Safety Program helped bring about a significant reduction in the number of high-risk 

runway incursions, which, in turn, lessened the probability of collisions that could involve fatalities, 

injuries, and significant property damage. We continued to install software that coordinates air traffic 

control radar with radar that monitors ground traffic. The Airport Movement Area Safety System

(AMASS) was commissioned at 18 major airports and is now operating at 25 of 34 major airports, 

contributing to the reduction in runway incursions. FAA also undertook a number of runway 

improvements, including new markings and runway redesign to more efficiently direct departures and 

landings. To further enhance safety, FAA’s Safer Skies effort made significant progress in addressing a 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

number of the factors that cause air carrier 

accidents—controlled flights into terrain and 

uncontained engine failures. 

Keeping It Safe 

Last year, FAA continued installing the Airport 

Movement Area Safety System (AMASS) at 34 of the 

country’s busy airports. AMASS helps prevent runway 

collisions by providing air traffic controllers with visual

and audio alerts of conditions that might cause runway

accidents. 

AMASS enhances the Airport Surface Detection 

Equipment Model 3 (ASDE-3) radar. The system works 

by processing surveillance data from the ASDE-3 and 

the terminal automation system. It then determines 

conflicts between the position, velocity, and 

acceleration of arriving aircraft and other aircraft or 

vehicles on the ground. Developing AMASS into a 

useful, reliable warning system to meet user 

requirements has been an extremely complex technical 

challenge. 

In its continuing effort to improve runway safety, the 

FAA is working closely with the aviation community to 

promote awareness and support increased education

and training for pilots, controllers, airport personnel, 

and vehicle operators. We believe that education is the 

best way to improve runway safety and give 

passengers an extra margin of safety on the ground. 

While we were able to decrease operational 

errors by 9 percent from FY 2001, we did not 

achieve our target. An operational error is a 

failure to apply or follow the rules and 

procedures that ensure the safe separation of 

aircraft. In our ongoing efforts to reduce 

operational errors, we are aggressively

seeking to identify the factors that cause those 

errors and to implement technology

improvements, such as the deployment of 

modern displays, new decision support tools, 

and improved communication systems, to 

eliminate those factors. We are also providing 

additional training so that pilots and 

controllers have a common understanding of 

separation standards, policies, and 

procedures. 

FAA recognizes that partnerships are key to 

identifying and addressing problems and

achieving safety goals. With the National 

Aeronautics and Space Administration and 

DOD, for example, we are implementing interagency safety plans to reduce human error and improve 

system-wide safety. FAA’s partnership with the aviation community has led to the voluntary

establishment of the Advanced Qualification Program, under which more than 56,900 airline pilots were 

trained. In addition, the Aviation Safety Action Program, under which thousands of safety reports have 

been submitted by 31 employee groups from 20 airlines, and the Flight Operational Quality Assurance 

Program, under which 11 U.S. airlines routinely collect and analyze digital flight data, will enable the 

FAA to intervene and correct adverse safety trends. 

General Aviation Safety

FAA oversees the safety and operation of almost 300,000 general aviation aircraft in the United States. 

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

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

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

transportation, as well as personal use and recreational flying. 

Our strategy for improving general aviation safety is to establish a proactive partnership with the general 

aviation community to identify problems and implement solutions. In 2002, we published and distributed 

educational materials to pilots, including information about instrument flight and how to find and use the 

latest weather information. We also upgraded general aviation–related equipment, such as automated 

flight service stations (air traffic facilities that provide pilot briefings, en-route communications, search 

and rescue services, assistance to lost aircraft and to aircraft in emergency situations), automated weather 

observation systems, and communications systems that provide weather and altimeter settings to pilots. 

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A Vision for Tomorrow 

Before September 11, 2001, our national airspace 

system handled almost 2 million passengers, 40,000

tons of cargo, and 60,000 nonscheduled flights each 

day. Congested airspace and demand at the busiest 

airports led to delays and a lack of efficiency, 

flexibility, and predictability throughout the system. 

Traffic and delays, which decreased immediately 

after the terrorist attacks, are now forecast to reach 

pre-September 11 levels by FY 2004. 

To deal with the challenges presented by growing air 

travel demand, FAA 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, FAA 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. Each set of solutions 

outlined 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 21st 

Century. 

One example of a program designed to improve general aviation safety is Capstone in Alaska. Because of 

the state’s unique geography, general aviation plays a key role in meeting the transportation needs of 

Alaska’s citizens. Alaska’s difficult terrain is a primary factor in the number of general aviation accidents 

that occur there. Capstone uses the latest in digital avionics and global positioning system (GPS) 

technology to significantly improve aviation safety in a part of the country where extreme weather and 

rugged, remote destinations can be a recipe for accidents. Under Capstone, installation of advanced 

equipment in general aviation aircraft operating in the 

Yukon-Kuskokwim Delta began in November 1999, 

and expansion of ground infrastructure and data 

collection will continue through December 2004. An 

interim analysis by the University of Alaska and the 

MITRE Corporation’s Center for Advanced Aviation 

System Development indicates that Capstone-equipped 

aircraft have 40 percent fewer accidents than aircraft 

without the Capstone avionics.

ENHANCING SECURITY

In February 2002 the job of overseeing the security of

the aviation system became the responsibility of the 

newly created TSA. Except for employees working on 

internal FAA security and the Hazardous Material 

Program, all aviation security personnel will be transferred from FAA to TSA, marking one of the largest 

personnel transfers in FAA’s history. FAA continues 

to supply equipment, advice, and training to TSA. 

FAA and other agencies concerned with the threat of 

domestic and international terrorism also collaborated 

to determine how best to allocate security resources. 

Even before the September 11th terrorist attacks, FAA

was working with commercial air carriers to voluntarily 

implement a computer-assisted passenger-screening 

program at more than 130 airports nationwide. 

One notable security enhancement initiative last year was the fortification of cockpit doors, which 

required FAA to quickly formulate standards and implement new regulations. FAA will continue to 

collaborate with TSA on the development of technologies to benefit aircraft safety and security, such as 

structural and systems hardening. In the area of information systems security, or cybersecurity, FAA 

continued efforts to provide security certification and authorization packages for all new systems; built a 

state-of-the-art Computer Security Incident Response Center that operates 24 hours a day, 7 days a week; 

hardened Internet access points; and deployed boundary protection capability throughout its networks.

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ELIMINATING BOTTLENECKS

Passengers are directly affected by delayed or cancelled 

flights, missed connections, and later-than-expected arrivals. 

To ensure that the national airspace system can meet 

increasing demand, FAA continued work on a number of 

fronts. A key component of our efforts to improve efficiency

and increase system capacity is the Operational Evolution Plan 

(OEP), a detailed, comprehensive 10-year strategic plan

developed in partnership with the aviation industry and other 

Federal agencies. Among the priorities outlined in the OEP are 

the modernization of on-ground and in-plane equipment, 

adoption of advanced routing procedures, and installation of 

state-of-the-art weather radar and navigational aids. Redesign 

of the system of spacing between planes is also under way. By

2010, FAA expects that OEP implementation will result in a 

30 percent increase in system capacity. 

Circling the Globe 

FAA plays a vital role in improving aviation 

safety, security, and system efficiency around 

the world. FAA works directly with its 

counterparts in more than 188 countries and 

through the International Civil Aviation 

Organization (ICAO) headquartered in 

Montreal. FAA works with other nations to 

provide technical assistance and training to 

promote aviation safety worldwide. FAA also 

works with its foreign counterparts to improve 

and encourage compliance with international 

aviation safety standards in all aspects of the 

global aviation industry. In FY 2002, the 

agency was instrumental in establishing global 

standards for airport safety and security and 

for encouraging ICAO to adopt FAA standards 

for the fortification of cockpit doors. FAA also 

worked with countries on several continents to 

help their civil aviation officials meet ICAO

requirements, thus improving safety and

lowering the cost of travel to certain 

developing countries. 

The construction of new runways is one of the most effective 

methods of increasing capacity. In FY 2002, one large hub 

airport (Detroit Metropolitan–Wayne County Airport) 

commissioned a new runway and projected a 

21 percent increase in airport capacity. In FY 2003, two large 

hub airports (Denver International Airport and Miami 

International Airport) are scheduled to commission new 

runways and 10 new runways at large hub airports are 

scheduled to open between FY 2004 and FY 2009. 

Work is under way to consolidate various air traffic management activities into a performance-based 

organization led by a chief operating officer. This new organization will coordinate research and 

development, modernization, operation, and maintenance efforts to boost efficiency throughout the 

aviation system. In coming years, this new organization will help improve air travel by

• Removing roadblocks to innovation and quickening the pace of improvements. 

• 

• 

• 

Involving air traffic controllers in developing and refining control systems to ensure rapid 

deployment. 

Providing pilots with more flexibility to choose the fastest, most economical routes. 

Reengineering America’s airspace to handle more airplanes and reduce or eliminate delays and 

congestion. 

One important initiative designed to help eliminate bottlenecks in the system is Free Flight. The idea is 

simple: establish a series of national and international corridors (much like our current system of 

interstate highways) through which aircraft can fly. Of course, flying an airplane is not as simple as 

driving from one city to the next, since airplanes occupy thousands of feet of vertical airspace and must 

avoid intense weather systems such as thunderstorms. Even so, given such constraints, allowing pilots to

choose the most efficient routes should increase system capacity. Free Flight will rely on the latest 

technological advances to change airplane spacing, provide advanced weather information, allow more

accurate navigation on board and on the ground, and free the national airspace system from slowdowns 

and congestion. Free Flight Phase 1, which was delivered on time and within budget, provided tools that 

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FY 2002 Performance and Accountability Report

allowed people to succeed. FAA is using the success of Free Flight to design other programs that will 

help increase system capacity and efficiency.

Making the Grade 

An article in the May 15, 2002, edition of Government 

Executive magazine gave FAA an improved grade on 

its Federal Performance Project report card. The 

project, a partnership between Government Executive

and The George Washington University Department of 

Public Administration, is designed to determine how 

well Federal agencies are managed. FAA improved in

four categories—human resources management, 

information management, financial management, and 

physical asset management—and maintained its rating

in managing for results. FAA improved its overall grade

to a “B,” making it one of the better-managed agencies

in the Federal government. 

SAFEGUARDING THE ENVIRONMENT 

FAA is committed to further reducing the number of 

people exposed to excessive airport noise levels. With

the advent of quieter aircraft, improved airport 

planning, and funds for projects designed to minimize 

noise, we estimate that fewer than 379,000 people 

were exposed to excessive aircraft noise last year—a 

significant reduction from the 1975 level of 7.5 

million people. Engine emissions also remain a 

concern, as projections indicate an increase in air 

traffic over the coming decade. One promising 

development is the increased use of newer, smaller, 

lower-emission jets, which will reduce the number of 

older, larger jets with more polluting engines. We are 

also working with industry and other government 

agencies to ensure that future engines, large or small,

have a less detrimental environmental impact. 

While research continues on quieter engine 

technology, other projects designed to minimize noise 

will be the principal means for reducing the numbers 

of people exposed to airport noise for the foreseeable 

future. In FY 2002, FAA approved the commitment of 

over $600 million for these other projects. FAA 

proposed, and subsequently implemented, six environmental streamlining initiatives to expedite 

environmental impact statements for major airport projects. These initiatives, which tackle resource, 

process, product, and interagency coordination problems, can streamline environmental reviews and 

reduce project delays. 

In cooperation with the National Park Service, FAA is also developing air tour implementation plans for 

each National Park unit. The plans include any adjacent tribal lands where commercial air tours operate. 

The objective is to mitigate or prevent any significant adverse effects on the park environment while 

ensuring aviation safety.

A FOUNDATION FOR EXCELLENCE 

FAA has made impressive strides in building a foundation for organizational excellence. The five 

management focus areas within the President’s Management Agenda provide a framework for, and 

further impetus to, FAA’s organizational excellence initiatives. During the past year, we made substantial 

progress in our efforts to modernize FAA management systems. In the coming year, we will continue our 

efforts to implement the DELPHI financial management system. Concurrent with DELPHI 

implementation, we will implement a new acquisition system with improved integration of the financial 

and acquisition functions. 

Over the past year, six more organizations within FAA began using cost accounting to better understand 

and track the costs of the products and services they provide. We also took aggressive action to improve 

control over property accounting and mitigate its financial risk, a long-standing material internal control 

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FY 2002 Performance and Accountability Report

weakness. Because of continuous improvement in financial management and reporting, FAA received an 

unqualified opinion on its financial statements, providing a solid foundation for further analysis and 

discussion of our performance and strategic investments in safety, security, and system efficiency. 

FAA continues to work with the Department of Transportation (DOT) and the Office of Management and 

Budget (OMB) toward achieving a “green light” in each of the President’s Management Agenda 

initiatives. “Getting to green” in all five initiatives is one of FAA’s two organizational excellence goals 

for the coming year. 

We continued to measure customer satisfaction by surveying commercial pilots. The survey helps us 

determine how we are viewed and what areas need improvement. One approach to improving customer 

satisfaction is our plain language initiative, which emphasizes clear, unambiguous communication to 

ensure that our regulations and procedures are understood. As the program matures, we will use focus 

groups to identify areas that need clarification and use a survey to track results. 

President’s Management Agenda Scorecard for FAA 

INITIATIVE FY 2002 

STATUS 

PROGRESS 

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

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

develop the right mix of skills in the workforce that reflect the new emphasis on 

E-Government and Competitive Sourcing. 

~ Q

Competitive Sourcing: Compete 5 percent of eligible commercial positions in 

FY 2002, 10 percent in FY 2003 (for a cumulative 15 percent by the end of FY 2003), 

and to eventually compete 50 percent at an undetermined future date. In addition, each 

department must submit a Strategic Competition Plan and compete “commercial 

reimbursable support services” on a recurring basis. 

~ Q

Financial Management: Develop financial management systems capable of producing 

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

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

accounting capability. ~ Q

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

projects, as well as participate in government-wide initiatives that automate how the 

public deals with the Government, such as the FirstGov.gov initiative, 

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

~ Q

Budget/Performance Integration: Better integrate budget and performance functions 

by integrating budget and performance staff work; developing plans and budgets with

outcome goals, output targets, and resources requested in the context of past results; 

charging full budgetary costs of programs; and documenting program effectiveness. π Q

KEY TO FY 2002 STATUS 

The “status” column measures where FAA/DOT are in meeting the initiative. Agencies get a green rating by reaching the 

required score. Agencies must maintain scores between evaluations to maintain a green. The “progress” column 

measures the rate at which FAA and DOT are moving toward green. Agencies get a green rating when implementation is 

advancing according to plan.

z Indicates that the agency has met all of OMB’s core criteria for the initiative. 

π Indicates achievement of some but not all of OMB’s core criteria for the initiative and that the agency has no 

 “red” conditions. 

~ Indicates that at least one of the conditions identified by OMB for that initiative is in need of correction. 

For a more detailed discussion of the President’s Management Agenda, see the Office of Management and Budget 

Website at www.whitehouse.gov/omb/budget/fy2002/pma_index.html.

14 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

FACING CHALLENGES

In a January 2001 report to Congress, the General Accounting Office (GAO) identified a number of 

challenges that FAA must address to improve safety, increase efficiency, and achieve organizational 

excellence. In addition, the DOT Inspector General identified his top management challenges facing DOT 

in FY 2003, listing several FAA-specific challenges. These include: (1) Reducing the risk of aviation 

accidents due to operational errors and runway incursions; (2) Reversing FAA’s spiraling operating costs; 

(3) Improving system capacity; and (4) Reauthorizing the Wendell H. Ford Aviation Investment and 

Reform Act for the 21st Century (AIR-21). More information on the Inspector General’s challenges is 

provided in the DOT FY 2002 Performance and Accountability Report.

Safety

GAO recommended a number of improvements in the areas of aviation safety, airport security, and air 

traffic control computer security. These include more focused performance goals and evaluation 

procedures for Safer Skies initiatives, improved hiring and training of security checkpoint screeners, and 

further action to secure FAA’s air traffic control computer systems to reduce the possibility of intrusion or 

attacks. 

To address GAO’s recommendations, we have revamped our safety performance goals to advance our 

annual goal of reducing fatal accidents and reducing the high-risk runway incursions and operational 

errors. We have met our goal of reducing fatal accidents for the past several years and are on track to 

achieve our long-term goal of reducing fatal accidents by 80 percent. To improve air traffic control 

computer system security, we standardized and upgraded eight Internet access points, deployed 40 

network intrusion detection devices, and continued efforts to identify and address the vulnerabilities of 

our computer systems. We are also on target to meet the following milestones outlined in the report: 

• Publish required navigation performance criteria by July 2003. These criteria will mandate the use of 

satellite-based navigation systems, including precision landings at airports, improved safety of 

approach and landing, and reduced controlled flight into terrain. 

• Develop and implement a 3-year operational error prevention plan by September 2005. 

• Develop and implement continuous, noninvasive monitoring of our information technology assets and 

services by September 2003. 

Safety Management Challenges 

One of the most critical management challenges that we face is the increase in known safety risks such as 

runway incursions and operational errors. While we were able to reduce operational errors by 9 percent 

compared with FY 2001, we did not meet our target. We will continue to pursue a number of initiatives to 

address this problem, and we are currently identifying and evaluating technologies that can be put to use 

quickly in high-risk airports. 

We are also studying the feasibility of expanding the Air Transportation Oversight System (ATOS) to 

include smaller commercial air carriers and providing complete system safety and risk analysis training 

for all ATOS-assigned field inspectors. Designed to identify safety trends in order to spot and correct 

problems before accidents occur, ATOS is now in place for the 10 largest airlines, which handle 95 

percent of U.S. passengers, and will ultimately include all U.S. airlines. 

With ATOS, FAA inspectors look at an airline as a whole to see how the many elements of its 

operations—from aircraft to pilots to maintenance facilities to flight dispatch—interact to meet Federal 

standards. By collecting and analyzing data on the many airline systems, inspectors are better able to 

15 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

target areas for improvement. ATOS has already enabled us to create a targeted, more effective 

surveillance plan. As we expand ATOS, we will also continue to address deficiencies in aircraft

maintenance programs at some major air carriers by publishing detailed requirements and delivering 

updated policies and procedures and training courses to the inspection work force.

Efficiency 

FAA has undertaken a comprehensive program to modernize the air traffic control system. This program

includes replacing and updating voice communication systems and introducing enhanced automation aids 

and improved weather systems. We face significant management challenges in meeting the modernization 

schedule and controlling the costs of new technologies. The OEP will be key to our ability to meet those 

challenges. The OEP builds on successful Free Flight program techniques; includes objective, measurable 

results; and coordinates FAA modernization efforts with those of industry so that our investments yield 

timely benefits. We have assigned responsibility for delivering each new capability to an executive, who 

will coordinate both acquisition and operational integration performance. The performance measures for 

OEP projects are directly tied to organizational measures, ensuring that resources are aligned with our 

commitment to increase capacity.

Maximizing Investments

The GAO recognized that FAA has made progress in addressing acquisition problems but said that 

reforms are not yet complete and recommended additional changes. We have instituted an Air Traffic 

Services Oversight Board and refined the OEP to establish agreement and understanding with the aviation 

community on modernization improvements. To demonstrate significant improvement in the acquisition 

arena, we will meet the following modernization milestones on time: 

• Complete a successful independent operational test and evaluation on the first full production of the 

Standard Terminal Automation Replacement System at Philadelphia by September 2003. 

• Install the Integrated Terminal Weather System, Weather System Processor, and Low-Level Wind 

Shear Alert System at identified OEP airports by September 2003. 

Organizational Excellence 

Strategic Human Resource Planning 

DOT and FAA, along with the entire Federal Government, face a wave of retirements. These retirements 

pose a large-scale planning challenge. While this exodus of talent will not happen overnight, we must 

plan now to maintain required levels of experience and expertise in our civilian and contract workforce. 

Succession planning, as well as managing and maintaining adequate institutional knowledge, will be 

crucial to our ability to carry out our functions during this high workforce turnover. DOT has developed a 

Strategic Human Capital Management Plan to address the President’s Management Agenda and GAO’s 

management challenge. As part of this effort, we are also developing a corporate Human Capital Plan, 

which is aligned with DOT’s plan, the FAA budget, and our performance objectives. 

Financial Management 

We continued to implement far-reaching changes to FAA financial management during FY 2002. These 

changes demonstrate our commitment to the principles of sound financial management and to the goals 

articulated in the President’s Management Agenda. To address GAO concerns about weaknesses in FAA 

accounting and financial management and to meet the challenge of producing accurate and timely

financial information, we implemented five of the six auditor recommendations to establish greater 

controls in accounting for FAA property. When DELPHI, a new, integrated financial management 

16 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

system, is implemented, the remaining auditor recommendation relating to property accounting will be 

implemented. DELPHI will streamline and speed reporting, eliminate cumbersome manual entries and 

adjustments, and integrate property accounting with the core accounting system.

Before implementing DELPHI, we established central control over property accounting by instituting an 

interim fixed asset system. New business processing rules for property transactions were also put into 

place during FY 2002. In addition, FAA’s Administrator formed the National Capitalization Team, a 

cross-functional group responsible for enhancing oversight and control over property accounting. 

To further underscore our commitment to financial management, we have made achieving a clean audit 

opinion a corporate performance goal. Achieving a clean audit and further improving agency 

accountability are goals that affect all employees. Finally, we have made substantial progress in 

implementing an agency cost accounting system, putting the FAA ahead of most other Federal agencies in 

the government-wide effort to identify the cost of managing its programs, and linking cost to

performance.

Government Performance and Results Act 

The Government Performance and Results Act requires Federal agencies to develop five-year strategic 

plans, annual performance plans, and annual performance reports. DOT’s strategic and performance plans 

have been recognized as among the best in the Federal Government. To build on this success, DOT and 

FAA must improve the reliability and timeliness of performance data and provide better linkage between 

budgets and performance results. We acknowledge that increasing the validity, reliability, timeliness, and 

comparability of performance data will be a challenging task. To improve our ability to provide timely

and reliable performance data, the Bureau of Transportation Statistics is developing data standards, 

training people in the collection and interpretation of transportation data, and coordinating data series 

across the Department. In FY 2002, DOT developed leading indicators for its strategic goals and most of 

its performance measures to help anticipate trends in each of these outcomes. DOT also completed an 

assessment of data quality for its major data collection systems, and documented the major sources of 

error in all performance measures. By the end of FY 2004, consensus data standards will be in use 

throughout DOT. 

Beginning with our FY 2002 performance plan, we have more closely linked the budget with each 

performance goal. This performance plan allocates the budget request to specific outcomes and 

performance goals. We will continue to refine our attribution process in subsequent plans to aid strategic 

decision-making. 

FINANCIAL HIGHLIGHTS 

Management Integrity: Controls, Compliance, and Challenges 

FAA conducts an annual review of the adequacy of FAA program and activity management controls in 

accordance with the Federal Managers’ Financial Integrity Act of 1982 (FMFIA). The results of this 

review are included in the Secretary of Transportation’s Statement of Assurance sent to the President on 

December 30, 2002. 

For the FAA, there was one material weakness – the contract closeout process, and one material

nonconformance—the lack of a fully, integrated property accounting system. 

17 

In a May 8, 2002 Office of Inspector General (OIG) report, Oversight of Cost-Reimbursable Contracts, it 

was found that the FAA was not properly administering closeout and final payment of cost-reimbursable 

contracts. To address this weakness the FAA will improve its procedures to ensure cost-reimbursable 

contracts are closed out more timely. 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

FAA nonconformance relating to property accounting systems was reported in FY’s 2000 and 2001. 

Since a fully integrated fixed asset system will not be in place until the new core financial system

(Delphi) is implemented, FAA has established additional controls to ensure that property data is correct. 

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 2002 Financial Statement Audit 

The Chief Financial Officers’ Act of 1990 (Public Law 101-576), as amended by the Government 

Management Reform Act of 1994, requires that financial statements be prepared by certain agencies and 

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

with Government Auditing Standards. FAA is required to prepare its own financial statements under 

OMB Bulletin 01-02, Audit Requirements for Federal Financial Statements, dated October 16, 2002. The 

DOT Inspector General is statutorily responsible for the manner in which the audit of FAA’s financial 

statements is conducted. The DOT Inspector General selected KPMG LLP, an independent certified 

public accounting firm, to audit FAA’s FY 2002 financial statements. 

In February 2002, the DOT’s Inspector General and Chief Financial Officer, along with the FAA Chief 

Financial Officer established an Audit Advisory Committee to promote and encourage open 

communications among the Office of Inspector General (OIG), FAA management, and the independent 

auditors; to resolve issues that arise during the course of the audit; and to monitor the implementation of 

audit recommendations. The Committee is chaired by the Director of the Office of Financial Management 

and includes representatives from the OIG, DOT’s Office of Financial Management, and FAA’s Assistant

Administrator for Region and Center Operations, Associate Administrator for Air Traffic Services, and 

Associate Administrator for Research and Acquisitions. 

FAA’s independent auditor, KPMG LLP, rendered an unqualified audit opinion on FAA’s FY 2002 

financial statements. This means that the FAA’s financial statements as of, and for the year ended, 

September 30, 2002, were presented fairly, in all material respects, in conformity with accounting 

principles generally accepted in the United States of America. KPMG’s audit report was presented by the 

OIG to the FAA Administrator.

KPMG identified one material weakness: the process for estimating liabilities for legal matters; and six 

reportable conditions: (1) Controls and processes over financial reporting and accounts reconciliation, (2) 

Process for estimating environmental liabilities, (3) Accounting methods and controls over field spares, 

(4) Controls over property, plant, and equipment, (5) Information-technology controls over third-party

systems and applications, and (6) Information-technology controls over FAA systems. 

Understanding the Financial Statements 

FAA's Consolidated Balance Sheet and Consolidated Statement of Net Cost are presented in a two-year 

comparative format, as required by OMB Bulletin Number 01-09, Form and Content of Agency Financial

Statements, dated September 25, 2001. The following section provides a brief description of (a) the nature 

of each required financial statement and its relevance to FAA, (b) an analysis of significant fluctuations 

from FY 2001 to FY 2002, and (c) other significant balances where necessary to help clarify their link to

FAA operations. 

18 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

Balance Sheet:

Assets – At September 30, 2002, FAA’s assets totaled $28 billion. FAA’s assets are the resources 

available to pay liabilities or satisfy future service needs. FAA’s major categories of assets, as a 

percentage of total assets are as follows:

Balance Sheet Assets 2002

Investments

40%

Fund Balance

with Treasury

9%

Other

3%

PP&E

48%

The following chart presents comparisons of major asset balances as of FY 2001 versus FY 2002. 

A discussion of the significant accounts and fluctuations follows. 

Ba lance Shee t Assets Compa rison

(Dolla rs in T housands)

$0 $4,000,000 $8,000,000 $12,000,000

Other

Property, Plant and

Equipment

Investments

Fund Balance with

Treasury

2001

2002

19 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

Fund Balance with Treasury represents resources from Department of Treasury accounts from which 

FAA is authorized to make expenditures to pay liabilities. It includes passenger ticket and other excise 

taxes deposited to the Airport and Airway Trust Fund (Trust Fund), but not yet invested. The September 

30, 2002 Fund Balance with Treasury was $541 million greater than the balance as of September 30, 

2001. This resulted because the Trust Fund received $589 million of excise taxes at the end of FY 2002, 

which were not yet invested as of September 30, 2002. 

Investments represent 40 percent of FAA’s current year assets, and are principally comprised of passenger 

ticket and other excise taxes deposited to the Trust Fund. These amounts can be used to finance FAA’s 

operations to the extent authorized by Congress. Investments decreased $2.7 billion, due to several 

factors: (a) FAA was authorized increased funding from the Trust Fund in FY 2002 as compared to 

FY 2001; (b) excise tax revenues decreased following the terrorist attacks of September 11, 2001; (c) 

investment interest revenue decreased during FY 2002; and (d) a greater amount of excise tax receipts 

was reported as Fund Balance with Treasury at the end of FY 2002 as compared to FY 2001, as these 

amounts awaited investment. 

General Property, Plant, and Equipment (PP&E) represents 48 percent of FAA’s assets as of 

September 30, 2002, and primarily comprises construction-in-progress related to the development of 

National Airspace System assets, and capitalized real and personal property. PP&E increased

$1.4 billion, substantially related to construction in progress, which correspondingly increased 

$1.3 billion during the same time period, due to several factors including significant civil aviation 

security-related additions following the attacks of September 11, 2001, and a significant number of 

projects were under development during FY 2002, and thus not ready to be placed in use by year-end. 

Liabilities

At the end of FY 2002, FAA reported liabilities of $3.9 billion. Liabilities are probable and measurable 

future outflows of resources arising from past transactions or events. The chart below depicts FAA’s 

major categories of liabilities, as a percentage of total liabilities. 

Balance Sheet Liabilities 2002

Federal employee

& veterans

benefits

25%

Accounts payable

18%

Environmental

cleanup costs

14%

Employee related 

and other

43%

20 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

The graph below presents comparisons of major liability balances between FY 2001 and FY 2002. 

A discussion of the significant fluctuations between the two years follows. 

Ba lance Shee t Liabilities Comparison

(Dolla rs in T housands)

$0 $900,000 $1,800,000

Accounts payable

Environmental

cleanup costs

Federal employee &

veterans benefits

Employee related

and other

2001

2002

Employee Related, Legal, and Other Liabilities represent 48 percent of FAA’s total liabilities. 

Intragovernmental liabilities increased $118.1 million, from $367.4 million to $485.5 million as of 

September 30, 2001 and 2002, respectively. Excise taxes are deposited to the Airport and Airway Trust 

Fund quarterly based on estimates by the Department of Treasury’s Office of Tax Analysis. The amounts 

are subsequently adjusted when the estimates are certified. The increased liability primarily results from

a downward adjustment of FY 2002 excise taxes, following certification of the estimate. The prior year 

estimate was adjusted upward following certification, and thus there was no comparable liability as of 

September 30, 2001. 

Non-intragovernmental Employee Related, Legal, and Other Liabilities increased $92 million, from

$1,084 million to $1,176 million as of September 30, 2001 and 2002, respectively. This change is 

primarily related to increases in accrued payroll and benefits to employees and the value of their accrued 

annual and other leave, such as compensatory time. These liabilities increased because of (a) increases in 

number of employee annual and other leave hours, (b) one additional day of unpaid payroll at the end of 

FY 2002 as compared to FY 2001, and (c) compensation increases. 

21 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

Statement of Net Cost: FAA has used its cost accounting system to prepare the Statement of Net Cost 

since FY 1999. This year, in the Other Accompanying Information section of this report, we have begun 

to link our net costs to agency strategic goal areas by responsibility segment. 

For the fiscal year ending September 30, 2002, FAA’s net costs were $12.4 billion, compared to 

$10.7 billion in FY 2001. The following chart illustrates the distribution of net costs among FAA’s lines 

of business. 

Net Cost 2002

A irport s

24%

R eg ulat io n &

C ert if icat ion

7%

R eg io n and 

C ent er

Operat ions &

Ot her

2 %

C ivil Aviat ion

Securit y

5%

R esearch &

A cquisit ions

4 %

A ir Traffic

Services

58 %

The graph below compares FY 2001 and FY 2002 net costs, followed by a discussion of the significant 

fluctuations between the two years. 

Net Cost Comparison

(Dollars in T housands)

$0 $2,000,000 $4,000,000 $6,000,000 $8,000,000

Commercial Space & Other

Research & Acquisition

Regulations & Certification 

Air Traffic Service

Civil Aviation Security

Airports

2001

2002

22 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

Airports net costs increased $755 million, from $2,179 million in FY 2001 to $2,934 million in FY 2002. 

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

Airport Improvement Program funding by more than $1 billion in FY 2001. Airport improvement projects 

typically take two to three years to complete, and FAA reports the associated expense as the grant 

recipient accomplishes the improvement work. Thus, FAA’s net Airports costs continued to increase in 

FY 2002, as the project lifecycle associated with these grants continued. 

Civil Aviation Security net cost increased from $160.4 million in FY 2001 to $613.9 million in FY 2002 

due to the increased security actions following the terrorist attacks of September 11, 2001. Although TSA 

assumed responsibility for civil aviation security functions on February 13, 2002, the FAA incurred 

substantially increased costs in this area through that date, and as disclosed in the Other Accompanying 

Information section of this report, FAA continued to fund certain of these security-related activities 

thereafter. 

Air Traffic Services is FAA’s largest line of business, comprising 58 percent of total net costs. Air Traffic 

net costs increased $.3 billion (4.6 percent), from $6.9 billion in FY 2001 to $7.2 billion in FY 2002, 

primarily due to personnel compensation and benefits increases. 

Regulation and Certification net cost increased $124.7 million, from $799.9 million in FY 2001 to 

$924.6 million in FY 2002, principally as a result of (1) increased personnel compensation and benefits 

and (2) reimbursements to airlines for costs associated with the Enhanced Airplane Security Program

(EASP). These costs include, for example, strengthening cockpit doors.

Region and Center Operations and Other Programs net cost increased $97.1 million, from $118.8 million 

in FY 2001 to $215.9 million in FY 2002, primarily resulting from $90 million of payments made by

FAA in FY 2002 following the terrorist attacks of September 11, 2001. These payments included, for 

example, reimbursement to the Metropolitan Washington Airports Authority for revenue losses due to the 

temporary closure of Ronald Reagan National Airport.

Statement of Changes in Net Position: FAA’s net position decreased $1.3 billion, from $25.3 billion in 

FY 2001 (after restatement) to $24.0 billion in FY 2002. FAA’s $12.4 billion net cost of operations 

exceeds financing sources by $1.1 billion, resulting in a reduction of net position. FAA’s net position 

also decreased by $152.7 million, the cumulative effect of a change in accounting principle related to 

accounting for field spares. These factors collectively resulted in a $1.3 billion net decrease of FAA’s net 

position during FY 2002. 

Statement of Budgetary Resources: This statement provides information on how budgetary resources 

were made available to FAA for the year and the status of those budgetary resources at year-end. The 

outlays reported on this statement reflect the actual cash disbursed for the year by the Department of the 

Treasury for FAA obligations. This statement is consistent with information presented in the Budget of 

the United States Government. 

Statement of Financing: This statement reconciles the net budgetary obligations used to finance FAA 

operations and the net fully accrued cost of operating FAA programs. The reconciling amounts displayed 

in this statement represent timing differences related to the way accounting events are recorded under 

budgetary (obligations) accounting and accrual accounting. 

23 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

Budgetary Integrity: FAA Resources and How They Are Used

Airport and Airway Trust Fund. Approximately 92 percent of the FAA’s FY 2002 budget was 

provided by the Airport and Airway Trust Fund, which derives its funds from excise taxes and interest 

generated by the Fund. The Airport and Airway Trust Fund, created by the Airport and Airway Revenue 

Act of 1970, provides a stable source of funding to finance investments in the airport and airway system

and, to the extent funds are available, covers the operating costs of the airway system. Aviation excise 

taxes, which include taxes on domestic passenger tickets, freight waybills, general and commercial 

aviation fuel/gas, and international departures and arrivals, are deposited into the Trust Fund. The 

Department of the Treasury maintains the Trust Fund and invests its monies in Government securities. 

Any interest earned is deposited into the Trust Fund. As needed, funds are withdrawn from the Trust Fund

and transferred into each FAA appropriation to cover obligations. At the end of FY 2002, the 

uncommitted balance was approximately $4.8 billion, as compared to $7.3 billion at the end of FY 2001.

This decrease resulted from a reduction in air travel and the associated revenue from excise taxes. 

FAA is financed through annual and multi-year appropriations authorized by the Congress. Its 

FY 2002 enacted budget was $13.528 billion. The Combined Statement of Budgetary Resources reflects 

funding enacted by the FY 2002 Department of Transportation Appropriations Act (Public Law 107-87), 

and two Emergency Supplemental Appropriations Acts (Public Laws 107-117 and 107-206). Total 

budgetary resources, however, are not adjusted for rescissions and reductions required by these 

appropriations acts. FAA has four appropriations, the largest—Operations—is funded by Treasury’s 

General Fund and the Airport and Airway Trust Fund (Trust Fund). The Trust Fund is the sole revenue 

source for the FAA’s three capital investment appropriations: (1) Facilities and Equipment; (2) Research, 

Engineering, and Development, and (3) Airport Improvement Program.

FY 2002 ENACTED BUDGET

53%

21%

2%

24%

Operations

F&E

RE&D 

AIP Grants

FAA FY 2002 Budget by Appropriation 

24 

Operations. The Operations appropriation funds the salaries and associated costs to operate and maintain 

the air traffic control system and to carry out FAA’s safety inspection and regulatory responsibilities. 

Funding for Operations in FY 2002 increased $475 million over FY 2001, including $200 million in an 

emergency supplemental appropriation. Much of the increase was attributable to mandatory pay increases 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

and growth in the controller workforce. In FY 2002, Congress imposed separate funding levels for 

individual organizations funded by the Operations appropriations. 

Facilities and Equipment (F&E). Funds from the F&E appropriation are used to modernize, expand, 

and replenish the air traffic control infrastructure. Between FY 2001 and FY 2002, there was a 13 percent 

increase in funding, which includes $108.5 million in the emergency supplemental appropriation. Funding 

increases supported major systems, such as the en route and terminal automation programs, next 

generation weather radar, the oceanic automation program, communications, and satellite navigation. 

Airport Improvement Program (AIP). The Secretary of Transportation is authorized to award grants 

for airport planning and development to maintain a safe and efficient nationwide system of public 

airports. These grants make it possible to fund one-fourth to one-third of all capital development at the 

Nation’s public airports. Grants are issued to maintain and enhance airport safety, preserve existing 

airport infrastructure, and expand capacity and efficiency throughout the airport system. An increase of 

$579 million over the FY 2001 enacted level was for airport improvement projects to enhance capacity, 

improve safety and security, and mitigate noise. 

The increase included an emergency supplemental appropriation of $175 million to reimburse airports for 

the direct costs of meeting new security requirements imposed after September 11th. Congress directed 

FAA to distribute the funds in a manner that would assist airports facing the greatest financial challenges 

in complying with the new security directions. FAA received 317 applications that requested a total of 

$445 million in assistance. We found that smaller airports suffered the greatest effects, while mediumsized and large airports had a greater capacity to absorb the additional costs. Our fund allocations 

reflected these findings. Almost 200 non-hub airports received $35.6 million to fund 100 percent of their 

eligible costs, while 67 small hub airports received $28.3 million to fund 50 percent of their eligible 

project costs. Almost 70 medium/large hub airports received $111.1 million in assistance. 

For FY 2003, we are working with TSA and the Office of the Secretary, DOT, to develop a plan to use 

AIP funds to finance security capital requirements, targeting AIP expenditures for security at the same 

level as in FY 2002. Funding security at this level will assure that sufficient AIP resources are available 

to finance other national priorities including safety, environmental initiatives and major capacity projects. 

To fund long-term security requirements, such as modifying airport terminals to accommodate screening 

equipment, and purchasing and installing surveillance cameras, TSA is working with Congress and the 

FAA to establish a TSA-administered grant program. 

Research, Engineering, and Development (RE&D). Funding for RE&D increased $58 million from the 

prior year and included $50 million in an emergency supplemental appropriation. This additional funding 

allowed for an increased focus on security, environment and energy, human factors, and aircraft safety,

which supports the Safer Skies initiative. 

25 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

Looking to the Future 

As FAA attempts to identify the broad trends shaping flight, we anticipate future needs to more 

effectively guide present planning. Although we may not be able to predict the precise contours of our 

aviation future, we are working on several fronts to advance aviation technology and improve safety and 

system efficiency. 

Aircraft manufacturers are already experimenting with 

new composite materials that will reduce aircraft 

weight by as much as 30 percent. Lighter planes will 

fly faster, burn less fuel, and produce fewer emissions. 

Cockpits are being redesigned to incorporate the latest

communication, navigation, and surveillance 

equipment. This new equipment will maximize 

efficiency and help pilots cope with severe weather. 

Within the next two decades, airplanes will become 

even more automated, allowing commercial pilots to 

concentrate on monitoring complex aircraft systems to 

ensure optimum performance. In such advanced 

vehicles, security, and especially cyberterrorism, will 

be a concern. Airplanes will need computer 

diagnostics, a quick fix for viruses, and manual 

backup systems that will allow pilots to bypass 

automated systems and fly the airplane the oldfashioned way. 

Future Flight 

Imagine an airplane with an immune system that 

allows it to automatically heal its skin or one that 

flies with curved control surfaces that could 

adjust thousands of times per minute, like 

feathers on the wings of a bird. Consider an 

aircraft that can seat 600 people, weighs half as 

much as today’s planes, and can fly three times 

as far. While this may sound like science fiction, it

may, in fact, be the future of flight. 

es. 

s

by

Rapid advances in microelectronics and

materials are bringing us closer to airplanes that 

are more like living organisms than machin

The emerging field of nanotechnology promise

to revolutionize air travel. Manufacturers will be 

able to routinely incorporate “smart” materials 

with built-in information processing into devices

the size of molecules that can be controlled

equally miniaturized electronics. Tomorrow’s 

airplanes could self-repair or self-correct in flight 

and contain redundant systems to handle almost 

any airborne emergency. These airplanes of the 

future will be faster and more maneuverable, 

enabling airlines to transport more passengers 

and cargo more safely and efficiently. 

FAA’s research, engineering, and development 

program has historically provided a solid

foundation for advances in aviation. Our strong

commitment to research is vital to future flight, 

and we will continue developing new 

technologies to help ensure the safety and 

efficiency of the global aviation system.

As we look to the future, FAA will build on past 

successes to face the challenges ahead. While we 

made great strides in improving safety, enhancing 

security, and increasing efficiency, we must persist in 

our efforts to build an aviation system for the next 100 

years of flight. As the aviation community adjusts to 

changes in demand and economic conditions, so FAA 

must make mid-course corrections to address new 

realities. 

Charles Lindbergh saw aviation as part of the 

continuum of human endeavor. The men and women 

of FAA will work with our partners around the globe

to realize the enormous potential of flight for fostering 

economic growth and enriching our lives.

26 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

Achieving Results 

This section of FAA’s FY 2002 Performance and Accountability Report provides a detailed discussion of 

our efforts to improve the safety and efficiency of our national airspace system. In this section, we present 

a detailed analysis of our performance in achieving three strategic and two organizational excellence 

goals, present our FY 2002 results, and describe ongoing efforts to improve our effectiveness in serving 

our customers—the public and the aviation industry.

Strategic Goals

SAFETY SECURITY SYSTEM EFFICIENCY 

Reduce fatal aviation accident 

rates by 80 percent in 10 years 

(2007) 

Prevent security incidents in the 

aviation system 

Provide an aerospace 

transportation system that meets 

the needs of users and is efficient 

in applying resources 

Annual Performance Goals 

• Reduce the commercial air carrier

fatal accident rate to .038 per 

100,000 departures. 

• Limit the number of fatal general 

aviation accidents to 379. 

• Reduce the number of category A 

and B runway incursions to 53. 

• Reduce the rate of category A and 

B runway incursions to .084 per 

100,000 operations. 

• Reduce the number of operational 

errors where less than 80 percent 

of required separation between 

aircraft is maintained to 568 (a rate 

of 4.0 per million activities). 

Corporate Projects 

• Safer Skies – Runway Safety 

• Safer Skies – Commercial Aviation 

• Safer Skies – General Aviation 

• Global positioning system (GPS) 

implementation 

• Air Transportation Oversight 

System (ATOS) 

• Aviation Safety Action Program 

(ASAP) 

• Space Transportation Safety 

Corporate Projects 

• Transition security functions to the 

Transportation Security 

Administration 

• Information security 

Annual Performance Goals 

• Increase the percentage of flights 

that arrive no more than 15

minutes after the scheduled arrival 

time at the 32 large hub airports to 

 77.2 percent. 

• Limit the number of people in the 

United States who are exposed to 

significant aircraft noise levels to 

440,000. 

• Increase the sum of the arrival 

rates at the 32 large hub airports to 

46,600 (average daily capacity). 

• Increase the percentage of time 

arrival demand is satisfied at the 

32 large hub airports to 

95.25 percent. 

Corporate Projects

• Develop the Air Traffic 

Organization (ATO) 

• Implement the Operational

Evolution Plan (OEP). Core areas 

include: 

 - Arrival/Departure Rates 

 - En Route Congestion 

 - Airport Weather Conditions 

 - En-route Severe Weather 

• Standard Terminal Automation 

Replacement System (STARS) 

• Revitalize existing structures, 

technology, and operational

resources (RESTORE) 

• En-Route Automation 

Modernization (ERAM) 

27 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

Organizational Excellence Goals

PEOPLE REFORM ENVIRONMENT GLOBAL LEADERSHIP 

Prepare the workforce 

for the demands of the 

21st Century

Become more 

businesslike while 

increasing customer 

responsiveness 

Annual Performance 

Goals 

• Increase the score 

received on the 

American Customer

Satisfaction Index 

Survey of U.S. 

commercial pilots to 60. 

• Achieve an unqualified 

audit opinion for 

FY 2001. 

Maintain the number of 

people exposed to 

aircraft noise at current 

levels 

(Corresponds to System 

Efficiency goals.) 

Improve the safety and 

security of the 

international aviation 

system 

Corporate Projects

• Labor-management 

cooperation 

• Workforce planning

Corporate Projects

• Compensation

implementation 

• Clean audit 

• Cost accounting/cost and 

performance 

management 

• Achieve major 

procurement program 

goals 

Corporate Project

• Airplane noise 

Corporate Projects 

• GPS implementation 

28 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

Safety

AIR CARRIER FATAL ACCIDENT RATE 

While commercial aviation remains one of the safest forms of transportation available, the public 

demands a high standard of safety and expects continued improvement. As demand for commercial air 

transportation grows, government and industry must meet the new challenges and maintain and improve 

the current level of safety.

Commercial Air Carrier Fatal Accident Rate

0.00

0.02

0.04

0.06

0.08

0.10

0.12

FY89 FY91 FY93 FY95 FY97 FY99 FY01 FY03 FY05 FY07

Accident rate - 3 year average

Fatal Accident Rate 3 yr average Target

Results: Preliminary data indicate that FAA met its target of further reducing the fatal accident 

rate in FY 2002. We remain on target for an 80 percent reduction in the commercial air carrier 

fatal accident rate by 2007. 

In addition to the programs and initiatives described earlier in this report, FAA continued to implement an 

integrated research plan with NASA. The purpose of this plan is to effectively leverage our combined 

safety research and development resources to reduce the fatal aviation accident rate. The plan specifies 

how the two agencies 

• Articulate common goals that tie research programs to “real world” outcomes in focus areas: accident 

prevention, precursor identification, mitigation, and safety risk analysis. 

• Consolidate all aviation safety research. 

• Improve coordination and communication between the agencies. 

• Establish an investment strategy that coordinates assessments of accomplishments and investment 

plans, synchronizes communication based on budget cycles, and integrates planning and 

implementation. 

Note: Since the 1970s, the National Transportation Safety Board (NTSB) has not included fatal crashes caused by

criminal or terrorist actions when calculating the commercial fatal accident rate. DOT follows the NTSB methodology

in quantifying FAA performance in commercial aviation safety. Therefore, the commercial fatal accident rate for FY

2001 did not include the four fatal crashes that occurred on September 11, 2001. If those incidents had been 

included, the Department would not have met the 2001 target. 

29 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

GENERAL AVIATION FATAL ACCIDENTS 

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

military. General aviation aircraft range from single-seat home-built aircraft, rotorcraft, and balloons to 

extended-range turbojets. Public and corporate aircraft provide a wide range of services, from crop 

dusting, fire fighting, law enforcement, and news coverage to sightseeing, industrial work, on-demand air 

taxi service, and corporate transportation. Privately owned aircraft provide personal transportation and 

recreation. Levels of risk vary, as does regulatory oversight. Some general aviation aircraft operate in 

hazardous environments, such as agricultural application, external-load operations, fire fighting, and the 

patrol of pipelines/power lines. The majority of aviation fatalities are related to general aviation. 

General Aviation Fatal Accidents

0

100

200

300

400

500

600

FY89 FY91 FY93 FY95 FY97 FY99 FY01 FY03 FY05 FY07

# of Fatal Accidents

FYTo Ttal Aotal Acciden ccidts ents Target

Results: Preliminary data for FY 2002 indicate that FAA met its target of reducing general aviation 

fatal accidents during the year. 

We continue to work with the general aviation community to achieve further improvements in safety and 

further reductions in fatal accidents through the Safer Skies initiative. During FY 2002, FAA and the 

general aviation community

• Developed a new Advisory Circular, Controlled Flight into Terrain (CFIT) Awareness.

• Published the Aeronautical Information Manual (AIM) for pilots on the use of advanced weather 

products. 

• Developed a checklist of weather scenarios/operations for pilots. 

• Analyzed the factors that contribute to general aviation fatal accidents to determine which 

interventions would be most effective. FAA is preparing a report that evaluates the effectiveness of 

various interventions to improve pilot decision-making. 

Together with the aviation industry, FAA initiated a new program, System Safety Approach for General 

Aviation, to foster aviation safety and awareness. This collaboration is designed to encourage the use of 

new technology and to provide training and education to enhance safety. We also worked to upgrade 

safety equipment such as the flight service station automation system, automated weather observation 

30 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

systems, and communications systems that provide weather and altimeter settings to pilots. Our 

partnership with NASA included general research on aviation safety programs, which will help reduce the 

general aviation fatal accidents. 

RUNWAY INCURSIONS

Categorizing Risk 

FAA tracks Category A, B, C and D 

runway incursions. Category C and D 

incursions are not included in this 

performance measure. 

Category A runway incursion:

Separation decreases and participants 

take extreme action to narrowly avoid 

a collision, or the event results in a

collision.

Category B runway incursion:

Separation decreases and there is a 

significant potential for a collision. 

Category C runway incursion:

Separation decreases, but there is

ample time and distance to avoid a 

potential collision. 

Category D runway incursion: Little 

or no chance of collision, but meets the 

definition of a runway incursion. 

Runway incursions create dangerous situations that can lead to serious accidents. A runway incursion is 

any occurrence at an airport involving an aircraft, vehicle, person or object on the ground that creates a 

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

landing, or intending to land at an airport. Incursions involve an aircraft with another aircraft, vehicle, 

person, or object on the ground. Reducing the number of runway incursions lessens the probability of 

accidents that potentially involve fatalities, injuries, and 

significant property damage. 

Anticipated increases in activity make runway incursions more 

likely. Other factors that contribute to the occurrence of runway

incursions are 

• Pilots unfamiliar with an airport. 

• 

• 

• 

• 

Complex and varied airport configurations. 

Aircraft of different types and capabilities in close 

proximity. 

Weather changes that impact visibility and conceal normal 

visual cues. 

Unclear signs and surface markings. 

Although preventing all incursions is important, FAA research 

has determined that all runway incursions may not pose the 

same level of risk. In light of that analysis, we have developed 

ways of categorizing risk to better understand the problem and 

to target our resources more effectively to reduce risk. By

categorizing and analyzing the risk of incursions, we can better 

evaluate our effectiveness in improving runway safety. 

31 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

Runway Incursions by Year - Number and Rate

Category A & B Only

0

10

20

30

40

50

60

70

80

FY99 FY00 FY01 FY02 FY03 FY04

Number

0.05

0.06

0.07

0.08

0.09

0.1

0.11

Rate (per 100,000 tower operations)

Target # Actual # Target Rate Actual Rate

Results: FAA met its FY 2002 targets for reducing the number and rate of the most serious runway 

incursions. 

To help further reduce the number and rate of runway incursions, we

• Conducted education and training on awareness of runway incursions for pilots, and 

controllers/vehicle operators and distributed more than 250,000 program materials (brochures, 

videotapes, CDs, and other visual aids). 

• Published two runway safety reports that analyzed FAA performance for the periods 1997–2000 and

1998–2001. 

• Completed and distributed the Runway Safety Blueprint: 2002–2004, which presents data collection 

results and analyses and defines objectives to be achieved during the next 2 years. 

• Reviewed pilot/controller communications and conducted Air Traffic Teamwork Enhancement 

Training for tower controllers. 

• Developed and distributed training videotapes for airport vehicle operators and aircraft mechanics. 

• Published and distributed two advisory circulars for airport surface operations and, with industry, 

developed an advisory circular for vehicle operations. 

• Conducted runway incursion “callbacks”—collecting information that may reveal key factors that 

caused a particular incursion—through the NASA Aviation Safety Reporting System Program. 

In addition, we

• Continued participation in the Commercial Aviation Safety Team (CAST) and runway incursion Joint 

Safety Implementation Teams (JSIT) process. 

• Conducted 102 Airport Runway Safety Action Team site visits. 

32 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

• Conducted a second round of 12 regional runway safety workshops designed to raise awareness and 

report on the progress of runway safety efforts. 

• Performed the first operational Airport Movement Area Safety System (AMASS) installation. 

AMASS systems are now operational in 25 of 34 planned locations.

• Awarded the contract for Airport Surface Detection Equipment–Model X, which depicts aircraft 

vehicle position and identification information overlaid on a color map of the airport surface. The 

contract provides airport surface surveillance systems at the two busiest non-ASDE-3/AMASS 

airports. The program is on schedule. 

• Conducted 7 of 14 scheduled airport technology needs assessments by June 30, 2002. 

• Published human factors and runway safety booklet, Runway Safety: It’s Everybody’s Business.

Several other efforts are helping to reduce runway incursions. Based on radar images, the Department of 

Defense has developed software that detects aircraft and other vehicular movement and reduces runway

incursions at military airports. NASA and FAA are also working on aviation safety research and 

technology development for runway safety and other areas. The NTSB investigates runway accidents and 

determines causal factors that help us refine our safety program design. 

Note: The runway safety measure was changed in 2002 to the number and rate of Category A and B (highest risk) 

runway incursions per 100,000 operations; i.e., those runway incursions where there is higher potential for a collision.

As a result, the measure focuses on reducing the risks from runway incursions that pose the greatest risk to the flying 

public. 

33 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

OPERATIONAL ERRORS 

One of the fundamental principles of aviation safety is separation—the need to maintain a safe distance 

from other aircraft, terrain, obstructions, and certain airspace not designated for routine air travel. Air 

traffic controllers employ rules and procedures that define separation standards for the variety of 

environments in which aircraft operate. Pilots flying under visual flight rules operate under a “see and 

avoid” policy, while those using instrument procedures rely on controllers’ instructions to guide them. An 

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

separation standards and separation is less than required. FAA seeks to reduce operational errors. 

Operational Errors by Year - Number

Less Than 80% Separation

300

400

500

600

700

FY 99 FY 00 FY 01 FY 02

Number

Actual Operational Errors Target

New Severity Index 

Based on our success in reducing 

runway incursions, we plan to apply a 

Severity Index to operational errors in 

FY 2003. The Severity Index will be

used to determine the gravity of an inflight operational error or the degree to 

which the separation standard was 

violated. The categories of operational 

errors are 

• 

• 

• 

• 

Category A: High 

Category B: Moderate—Uncontrolled

Category C: Moderate—Controlled 

Category D: Low

The severity classifications are based on 

the vertical and lateral distances 

between aircraft, their closure rates and 

flight paths, and the level of air traffic 

control.

Results: Although FAA did not meet its target for reducing operational errors in FY 2002, 

we were successful in reducing operational errors by 9 percent 

from the prior year.

Training designed to provide a common understanding of 

procedures and policies among controllers and pilots is central to 

our strategy for reducing operational errors. We are aggressively

seeking to identify the factors that cause these errors and are 

implementing technology improvements, such as modern displays, 

new decision support tools, and improved communication systems. 

These improvements will allow controllers to more effectively

determine aircraft location and reduce miscommunication between 

pilots and controllers. 

In addition to controller and pilot training and risk factor analysis, 

FAA 

• Investigated the utility of the User Request Evaluation Tool 

(URET), a prototype conflict probe that provides controllers 

with more advanced notification of potential in-flight conflicts. 

• Investigated the initial deployment of Controller Pilot Data Link Communications to improve pilot 

and controller communications, thereby reducing operational errors caused by miscommunication. 

• Continued to conduct quality assurance review audits to identify and correct deficiencies in controller 

34 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

performance before an operational error or deviation occurs. We continued to resolve performance 

deficiencies through corrective training. 

• Worked with the National Air Traffic Controllers Association to develop and implement a system to 

classify operational errors based on risk. 

We expect to meet our goal for reducing operational errors next year. We have started collecting data for 

the Severity Index and are developing a 3-year operational error prevention plan relating to the Severity

Index. As part of these efforts to improve safety, we have proposed changing separation standards to 

reflect the level of risk. 

Note: The operational errors measure was changed in 2002 to the number of operational errors in which less than 

80 percent of required aircraft separation was maintained. This change was made to focus the measure on the 

highest risks associated with in-flight operational safety and to focus results on the most serious violations. For 

FY 2003, the goal will focus on Category A/B operational errors to reduce the number of these errors to 642. In 

addition, we will collect data on Category C and D operational errors. 

System Efficiency

NOISE 

The public is concerned about and sensitive to aircraft noise around airports. In recent years, noise 

complaints have increased, despite the introduction of quieter aircraft. Population growth around airports 

and increasing flight activity can negatively impact FAA’s ability to reduce the public’s exposure to 

aircraft noise.

Aircraft Noise Exposure by Year

0

100

200

300

400

500

600

700

FY99 FY00 FY01 FY02

# People (in thousands) Exposed to Noise

Actual # People Exposed Target

Results: Preliminary data indicate that FAA met its target for reducing exposure to noise in 

FY 2002. 

We achieved our goal by working with the aviation community to implement a noise control program. 

The program includes noise reduction through the development of quieter aircraft, soundproofing and 

35 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

buyouts of houses and buildings near airports, operational flight control measures, and land use planning 

strategies. During FY 2002, we 

• Continued to provide funds for such noise reduction activities as the soundproofing of residences and 

buildings used for educational or medical purposes near airports, purchase of buffer zones around 

airports, and noise reduction planning through our Airport Improvement Program. 

• Continued to develop noise research and assessment technologies. 

• Implemented flight control measures to help reduce neighborhood exposure. 

• Continued to examine and validate the methodologies used to assess aircraft noise exposure. 

• Developed a research plan and program for international noise standards certification for turbojet 

airplanes that will be more stringent than current standards. 

• Worked in cooperation with the National Park Service to assess noise exposure and develop Air Tour 

Implementation Plans for each national park. 

We are also working with NASA to conduct noise reduction technology research. We hope to identify

concepts that will reduce the noise impact of future subsonic jet airplanes by half (7 to 10 decibels), 

relative to 1992 technology. 

36 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

ON-TIME ARRIVAL 

Commercial aviation delays cost the airlines and the traveling public both time and money. Delays, which 

are projected to increase as passenger travel demand recovers and continues to rise, are usually caused by

air traffic congestion and adverse weather. Other factors that contribute to delays are 

• Decisions by air carriers to concentrate operations in one or more hub airports. 

• 

• 

• 

• 

• 

Changing demand for air travel. 

Rapid population growth in urban centers. 

Physical configurations of airports and terminals. 

Environmental considerations. 

Increased security.

Percent of On-Time Arrivals By Year

65%

70%

75%

80%

85%

FY 99 FY 00 FY 01 FY02 FY 03 FY 04

Percent On-Time Target

Percent On-Time 

Results: FAA met its target for reducing delays and increasing the rate of on-time arrivals. 

 

We continue to work with the aviation community to improve on-time arrivals. Over the long term, 

increased airport capacity, as a result of all-weather access to runways, and runway construction, will 

provide the best means for reducing delays. In the near term, service delivery improvements designed to 

reduce delays focus on Free Flight Phase 1 tools, continued modernization of air traffic management 

capital asset systems, and improvements in the aviation weather system. In 2002, we 

• Completed installation of air traffic automation enhancements such as the Traffic Management

Advisor at major hubs (Dallas–Ft. Worth, Los Angeles, Atlanta, Minneapolis, Oakland, Miami, and 

Denver). 

• Developed two major systems to improve weather reporting, processing, and dissemination. The 

Integrated Terminal Weather System consolidates information from several sources and provides it to 

FAA TRACONs and airport towers. The Weather and Radar Processor reports weather information 

and integrates weather radar data provided to the FAA Centers. 

37 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

• Continued to implement and improve existing weather sensors such as Next Generation Weather 

Radar, Terminal Doppler Weather Radar, the Low-Level Wind Shear Alert System and a wind shear 

detection channel for the terminal radar, and the Automated Surface Observation System. 

• Implemented and evaluated the Collaborative Convective Forecast Product (CCFP), an experimental 

demonstration program from the National Weather Service, at the Air Traffic Control System

Command Center. The CCFP provides a single convective forecast for use in coordinating a systemwide approach to severe weather events. 

As part of the collaborative efforts to reduce delays, we have created a special data system, Aviation 

System Performance Metrics (ASPM), to compare actual versus scheduled performance by flight phase. 

ASPM data contain, among other things, actual and scheduled arrivals and departures by air carriers by

airport, and the actual acceptance and departure rates by airport. Acceptance and departure rates reflect 

the arrivals and departures that can occur, based on standard air traffic management practices. Aviation 

industry demand for arrivals or departures at an airport, divided by the practical capacity of the airport, 

gives a utilization rate for that airport. By studying utilization rates, we can evaluate the effectiveness of 

our delay reduction programs. 

In a further effort to reduce delays and increase efficiency, FAA and NASA developed enhanced software 

tools for air traffic control. Our aviation weather research program, conducted with the National Weather 

Service and other government agencies, invests in improved models to provide more detailed and timely

detection and forecasting of hazardous weather. Improved de-icing, turbulence, oceanic convection, and 

national ceiling and visibility forecast programs provide the tools for improved flight planning and 

collaborative decision making. 

Note: The airlines, FAA, and the Bureau of Transportation Statistics have agreed to use the percentage of flights 

arriving no more than 15 minutes after the scheduled arrival time as a common measure of aviation delay. 

38 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

AIRPORT ARRIVAL CAPACITY LEVEL 

System capacity is one of many measures that we use to determine the effectiveness of our national 

airspace system’s ability to manage demand. One of the metrics used to assess system capacity is average 

daily arrival capacity, which is the sum of the arrival rates at 32 large hub airports. 

Airport Daily Arrival Capacity

45.0

45.5

46.0

46.5

47.0

47.5

48.0

48.5

49.0

49.5

FY01 FY02 FY03

Arrival Capacity (in thousands)

Actual Airport Arrival Capacity Target

Results: FAA exceeded its target for maintaining airport arrival capacity. 

Continued education is being provided and an increased focus is being placed on all factors that affect 

airport performance. Such efforts will continue to increase airport capacity. In addition, we continue to

develop projects to increase usable capacity, flexibility, and efficiency. These projects include 

• Center TRACON Automation System (CTAS), a decision support tool for air traffic controllers that 

enables a more efficient arrival flow into terminal airspace and onto runways. 

• URET, a conflict probe that enables controllers to more quickly approve user requests in en route 

airspace by identifying potential aircraft-to-aircraft conflicts up to 20 minutes in advance. 

Note: In FY 2003, the measure will be changed to arrival rates at the 35 airports designated in the OEP, rather than 

the 32 large hubs that were used in FY 2001 and FY 2002. 

39 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

AIRPORT ARRIVAL EFFICIENCY RATE 

The airport arrival efficiency rate measures the percentage of the time that arrival demand is satisfied 

given the minimum of facility set arrival rate or arrival demand. Factors that influence airport arrival 

efficiency include airport capabilities, as determined by runway configuration, and weather conditions. 

Airport Arrival Efficiency Rate by Year

90%

92%

94%

96%

98%

100%

FY00 FY01 FY02 FY03

Rate

Actual Rate Target

Results: FAA exceeded its target for maintaining the airport arrival efficiency rate. 

At each air traffic control tower, FAA will continue to emphasize the importance of reflecting and 

meeting real time airport capabilities. We continue to undertake projects, such as CTAS and URET, 

which will increase usable capacity, flexibility, and efficiency. 

Organizational Excellence 

FAA has two organizational excellence goals, Clean Audit and American Customer Satisfaction Index 

(ASCI). 

CLEAN AUDIT 

While FAA is part of DOT, we are required to prepare our own audited financial statements. FAA has 

received unqualified opinions (clean audit) on the FY’s 2001 and 2002 financial statements, and we have 

taken steps to ensure that those results are sustained in the years to come. An independent auditor’s 

unqualified opinion means that FAA’s financial statements are prepared in accordance with accounting 

principles generally accepted in the United States and are free from material misstatements. In prior 

years, FAA did not receive unqualified opinions because of a material internal control weakness in 

accounting and reporting for FAA property, plant, and equipment (PP&E). These assets, valued at over 

$13 billion in FY 2002, account for 48 percent of FAA’s total assets. To address this issue, we established 

40 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

an Interim Fixed Asset System (IFAS) to centrally account for, and control, PP&E. FAA’s commitment 

to achieving a clean audit and improved financial management is underscored by the inclusion of the 

clean audit goal in both short-term incentives for FAA executives and organization success increases for 

all employees who are part of the core compensation plan. 

FAA Clean Audit Results

Fiscal Year 

Financial 

Statements 1998 1999 2000 2001 2002 

Results ~ Q ~ Q Q

KEY: 

z Indicates that the agency received an unqualified opinion on its financial statements. 

~ Indicates that the agency did not receive an unqualified opinion on its financial statements.

Results: FAA received an unqualified opinion for its financial statements. 

In FY 2002, we instituted new rules for processing property transactions in IFAS and in May 2002, the 

FAA Administrator established the National Capitalization Team to improve oversight and control of 

FAA property accounting. We implemented five of the six auditor recommendations for improving

control of FAA property, plant, and equipment during FY 2002. The remaining recommendation will be 

implemented with the launch of DELPHI, the new, integrated financial management system. 

AMERICAN CUSTOMER SATISFACTION INDEX (ACSI) 

The National Quality Research Center at the University of Michigan Business School, the American 

Society for Quality, and the CFI Group have conducted the ACSI survey each year since 1994. The 

survey measures customer satisfaction with products and services of both private sector companies and 

government agencies. ACSI currently surveys customer satisfaction with about 190 private sector 

companies and about 70 Federal agencies. FAA has participated in the survey for the past 4 years. 

We survey commercial pilots, a major customer user group that is central to our mission, on their 

satisfaction with air traffic control services and the clarity of our regulations. Randomly selected samples 

of pilots are called each year and asked to rate FAA on a number of factors. The questions address the 

level of overall satisfaction, the level of satisfaction relative to expectations, and the level of satisfaction 

relative to an ideal. 

41 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

Score on ACSI Survey by Year

30

35

40

45

50

55

60

65

70

FY99 FY00 FY01 FY02 FY03

American Cust Sat Index Score

Actual ACSI Target

42 

Results: FAA met its target for increasing customer satisfaction. 

Historically, we have received a high score on pilot satisfaction with air traffic control services and a low 

score on the clarity of our regulations. To help increase customer satisfaction, we introduced an initiative 

to make plain language part of our culture. FAA hired a plain language advocate to coordinate activities 

under the initiative. We provided training to about 600 FAA employees and contractors and plan to offer 

additional training next year. We also maintained a website that provides employees and interested 

members of the public with information on regulatory developments and allows them to find resources 

and obtain copies of the latest plain language documents. 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

FINANCIAL STATEMENTS 

January 31, 2003 

A Message From the Chief Financial Officer 

The Federal Aviation Administration is pleased to issue its 

FY 2002 Performance and Accountability Report. This report is an 

integrated presentation of programmatic and management performance, 

including how we have responded to our financial management and 

management control responsibilities. The report, which describes our 

business priorities and accomplishments during FY 2002, is based on data 

that are complete and reliable. We remain committed to the highest 

standards of management integrity, and we pledge to continue improving

our management and accountability processes. 

We have made tremendous progress in our efforts to modernize management systems and practices, and 

to improve internal controls. Our FY 2002 accomplishments include: 

An unqualified opinion on our financial statements, providing a solid foundation for a discussion of 

agency performance and strategic investments in safety, security, and aviation system efficiency. 

• 

• 

• 

• 

Improved control over property accounting by instituting new business rules for property transactions 

and creating a National Capitalization Team responsible for enhancing oversight and control over 

property accounting. 

Substantial progress in implementing DELPHI—a new, integrated core accounting system. When 

operational, DELPHI will be a fully integrated, state-of-the-art financial management system. 

Implementation of cost accounting in six new organizations and 21 percent of employees tracking 

their time by project and activity in labor distribution reporting. 

In the year to come, we will continue to build a solid foundation for organizational excellence. Our most 

significant challenge will be to bring DELPHI online. Last year we made major strides in implementing 

the new system. The DELPHI team completed solution design activities to ensure the system would meet 

the FAA’s business requirements. In addition, the team provided formal process-based training on the 

functionality of DELPHI to over 900 end users. Although we made progress, we encountered problems in 

our efforts to convert old systems. Despite the technical issues we face, we are committed to resolve the 

problems and modernize our management systems. 

In addition to improving financial management, our areas of focus in FY 2003 will be the other 

government-wide initiatives outlined in the President’s Management Agenda—human capital, 

competitive sourcing, e-government, and budget and performance integration. We will also address the 

material weakness and reportable conditions identified during the annual independent audit of our 

financial statements. Our auditors identified one material internal control weakness related to the process 

for determining legal liabilities, which will be corrected in 2003. 

Thanks to the men and women of FAA, the United States has the safest, most efficient aviation system in 

the world. In 2003, we will continue to invest in innovations to our business operations to ensure that the 

agency is prepared for the next century of flight. 

Chris Bertram 

Chief Financial Officer

43 
U.S. Department of 

Memorandum

Transportation

Office of the Secretary 

of Transportation

Office of Inspector General 

Subject: INFORMATION: Quality Control Review 

of Audited Financial Statements 

for Fiscal Year 2002, FAA 

QC-2003-017

Date: January 27, 2003 

Reply To 

From Kenneth M. Mead Attn Of Meche:x61496 

Inspector General 

To The Secretary 

Federal Aviation Administrator 

The audit of the Federal Aviation Administration (FAA) Financial Statements as of and 

for the year ended September 30, 2002, was completed by KPMG LLP (KPMG) of

Washington, D.C. We performed a quality control review of the audit work to determine 

compliance with applicable standards. These standards include the Chief Financial

Officers Act, Government Auditing Standards, and Office of Management and Budget 

Bulletin 01-02, Audit Requirements for Federal Financial Statements. 

The KPMG audit report rendered an unqualified opinion on the FAA financial 

statements. The report included one material internal control weakness, six reportable

internal control conditions, and one material noncompliance with accounting laws and 

regulations. KPMG made 14 recommendations for corrective actions (see Attachment). 

We agree with the KPMG recommendations. We are requesting that, within 15 days,

FAA specify actions taken and planned, along with estimated completion dates for 

planned actions. 

In our opinion, the audit work performed by KPMG complied with applicable standards. 

Therefore, we are not making any additional recommendations. 

We appreciate the cooperation and assistance of FAA and KPMG representatives. If we

can answer any questions, please call me at (202) 366-1959, or John Meche at (202) 366-

1496. 

Attachment 

44 
2001 M Street, NW

Washington, DC 20036 

Independent Auditors’ Report 

Administrator, Federal Aviation Administration 

Inspector General, U.S. Department of Transportation: 

We have audited the accompanying consolidated balance sheet of the Federal Aviation 

Administration (FAA) as of September 30, 2002, the related consolidated statements of net cost,

changes in net position, and financing, and the related combined statement of budgetary resources 

for the year ended September 30, 2002 (herein referred to as financial statements). The objective 

of our audit was to express an opinion on the fair presentation of these financial statements. 

In connection with our audit, we also considered the FAA’s internal control over financial 

reporting and tested the FAA’s compliance with certain provisions of applicable laws and 

regulations that could have a direct and material effect on its financial statements. 

SUMMARY 

As stated in our opinion on the financial statements, we concluded that the FAA’s financial 

statements as of and for the year ended September 30, 2002, are presented fairly, in all material

respects, in conformity with accounting principles generally accepted in the United States of

America. The accompanying consolidated balance sheet and consolidated statement of net cost of

the FAA as of and for the year ended September 30, 2001, were audited by other auditors whose 

report expressed an unqualified opinion before the adjustments, audited by us and discussed in 

Note 15 to the financial statements. As discussed in note 5 to the financial statements, the FAA 

implemented a change in accounting principle related to the classification and accounting for field

spares. Also, as discussed in Note 16, the FAA restated its beginning of the year obligated and 

unobligated balances in the combined statement of budgetary resources. 

Our consideration of internal control over financial reporting resulted in the identification of

reportable conditions in the following areas: 

1. Process for estimating liabilities for legal matters 

2. Controls and processes over financial reporting and account reconciliations 

3. Process for estimating environmental liabilities 

4. Accounting methods and controls over completeness of field spares 

5. Controls over property, plant, and equipment 

6. Information technology controls over third-party systems and applications 

7. Information technology controls over FAA systems 

We consider the first reportable condition, regarding the process for estimating liabilities for legal 

matters, to be a material weakness. 

The results of our tests of compliance with certain provisions of laws and regulations, exclusive of

those referred to in the Federal Financial Management Improvement Act of 1996

(FFMIA),disclosed no instances of noncompliance that are required to be reported under 

Government Auditing Standards, issued by the Comptroller General of the United States, and 

KPMG LLP. KPMG LLP, a U.S. limited liability partnership, is

a member of KPMG International, a Swiss association.
Office of Management and Budget (OMB) Bulletin No. 01-02, Audit Requirements for Federal 

Financial Statements. 

The results of our tests of compliance with the FFMIA disclosed instances where the FAA’s

financial management systems did not substantially comply with Federal financial management 

system requirements and the use of the United States Standard General Ledger at the transaction 

level. 

The material weakness, reportable conditions, and the FFMIA compliance issue, along with our 

recommendations, have been discussed with, and agreed to, by key FAA management officials. 

FAA management has indicated that corrective actions have been or will be implemented during 

fiscal year 2003. 

The following sections discuss our opinion on the FAA’s fiscal year 2002 financial statements, our

consideration of the FAA’s internal control over financial reporting, our tests of the FAA’s 

compliance with certain provisions of applicable laws and regulations, and management’s and our 

responsibilities. 

OPINION ON THE FINANCIAL STATEMENTS

We have audited the accompanying consolidated balance sheet of the FAA as of September 30, 

2002, the related consolidated statements of net cost, changes in net position, and financing, and 

the related combined statement of budgetary resources for the year then ended. 

In our opinion, the financial statements referred to above present fairly, in all material respects, the

financial position of the FAA as of September 30, 2002, and its net costs, changes in net position, 

budgetary resources, and reconciliation of net costs to budgetary obligations for the year then 

ended, in conformity with accounting principles generally accepted in the United States of 

America. The consolidated balance sheet and statement of net cost of the FAA as of and for the

year ended September 30, 2001, were audited by other auditors whose report dated February 27, 

2002, expressed an unqualified opinion on those statements before the adjustments discussed in

Note 15 to the financial statements. We audited the adjustments described in Note 15 that were

applied to the fiscal year 2001 consolidated balance sheet and statement of net cost, and in our

opinion, such adjustments are appropriate and have been properly applied. 

As discussed in note 5 to the financial statements, the FAA implemented a change in accounting 

principle related to the classification and accounting for field spares. Also, as discussed in Note 16, 

the FAA restated its beginning of the year obligated and unobligated balances in the combined

statement of budgetary resources. 

The information in the Management’s Discussion and Analysis, Required Supplementary 

Stewardship Information and Required Supplementary Information sections is not a required part 

of the financial statements, but is supplementary information required by accounting principles

generally accepted in the United States of America or OMB Bulletin No. 01-09, Form and Content 

of Agency Financial Statements. We have applied certain limited procedures, which consisted

principally of inquiries of management regarding the methods of measurement and presentation of

this information. However, we did not audit this information and, accordingly, we express no 

opinion on it.

Our audit was conducted for the purpose of forming an opinion on the fiscal year 2002 financial 

statements taken as a whole. The Other Accompanying Information is presented for purposes of 

additional analysis and is not a required part of the fiscal year 2002 financial statements. Such 

46
information has been subjected to the auditing procedures applied in the audit of the fiscal year 

2002 financial statements and, in our opinion, is fairly stated in all material respects in relation to

the fiscal year 2002 financial statements taken as a whole. 

INTERNAL CONTROL OVER FINANCIAL REPORTING 

Our consideration of internal control over financial reporting would not necessarily disclose all

matters in the internal control over financial reporting that might be reportable conditions. Under 

standards issued by the American Institute of Certified Public Accountants, reportable conditions 

are matters coming to our attention relating to significant deficiencies in the design or operation of

the internal control over financial reporting that, in our judgment, could adversely affect the FAA’s 

ability to record, process, summarize, and report financial data consistent with the assertions by 

management in the financial statements. 

Material weaknesses are reportable conditions in which the design or operation of one or more of

the internal control components does not reduce to a relatively low level the risk that 

misstatements, in amounts that would be material in relation to the financial statements being 

audited, may occur and not be detected within a timely period by employees in the normal course

of performing their assigned functions. 

In our fiscal year 2002 audit, we noted certain matters, described in Exhibits 1 and 2, involving 

internal control over financial reporting and its operation that we consider to be reportable 

conditions. We believe that the reportable condition presented in Exhibit 1 is a material weakness.

Exhibit 2 presents the other reportable conditions. A summary of the status of the prior year 

reportable condition is included as Exhibit 3. 

We also noted other matters involving internal control over financial reporting and its operation

that we will report to the management of the FAA. 

COMPLIANCE WITH LAWS AND REGULATIONS 

The results of our tests of compliance with certain provisions of laws and regulations described in 

the Responsibilities section of this report, exclusive of FFMIA, disclosed no instances of 

noncompliance that are required to be reported herein under Government Auditing Standards or 

OMB Bulletin No. 01-02. In accordance with the Federal Managers’ Financial Integrity Act of 

1982 (FMFIA), the Secretary of Transportation reported to the President that Department of 

Transportation (DOT) was not in full compliance with FFMIA, as DOT’s core accounting system,

which FAA uses, does not meet Federal systems requirements. In addition, the Secretary reported 

that FAA’s property systems also did not conform with Federal systems requirements and that

there were weaknesses in the area of information systems security within DOT and the FAA’s 

process for closing out cost-reimbursable contracts. 

The results of our tests of compliance with FFMIA disclosed instances where the FAA was not in 

substantial compliance with Federal financial management system requirements and the use of the 

United States Standard General Ledger at the transaction level. Details of the compliance matters 

are included in Exhibit 4.

47
RESPONSIBILITIES 

Management’s Responsibilities 

The Government Management Reform Act of 1994 (GMRA) requires each federal agency to report 

annually to Congress on its financial status and any other information needed to fairly present its 

financial position and results of operations. To assist the DOT in meeting the GMRA reporting 

requirements, FAA prepares annual financial statements. 

Management is responsible for: 

• Preparing the financial statements in conformity with accounting principles generally accepted 

in the United States of America; 

• Establishing and maintaining internal control over financial reporting, and preparation of the

Management’s Discussion and Analysis (including the performance measures), the Required 

Supplementary Information, and the Required Supplementary Stewardship Information; and 

• Complying with laws and regulations, including FFMIA. 

In fulfilling this responsibility, estimates and judgments by management are required to assess the 

expected benefits and related costs of internal control policies. Because of inherent limitations in 

internal control, misstatements, due to error or fraud may nevertheless occur and not be detected. 

Auditors’ Responsibilities 

Our responsibility is to express an opinion on the FAA’s fiscal year 2002 financial statements

based on our audit. We conducted our audit in accordance with auditing standards generally 

accepted in the United States of America, the standards applicable to financial audits contained in 

Government Auditing Standards and OMB Bulletin No. 01-02. Those standards and OMB Bulletin 

No. 01-02 require that we plan and perform the audits to obtain reasonable assurance about 

whether the financial statements are free of material misstatement. 

An audit includes: 

• Examining, on a test basis, evidence supporting the amounts and disclosures in the financial 

statements; 

• Assessing the accounting principles used and significant estimates made by management; and 

• Evaluating the overall financial statement presentation. 

We believe that our audit provides a reasonable basis for our opinion. 

In planning and performing our fiscal year 2002 audit, we considered the FAA’s internal control 

over financial reporting by obtaining an understanding of the FAA’s internal control, determining

whether internal controls had been placed in operation, assessing control risk, and performing tests

of controls in order to determine our auditing procedures for the purpose of expressing our opinion 

on the financial statements. We limited our internal control testing to those controls necessary to 

achieve the objectives described in Government Auditing Standards and OMB Bulletin No. 01-02.

We did not test all internal controls relevant to operating objectives as broadly defined by the 

48
49

FMFIA. The objective of our audit was not to provide assurance on internal control over financial 

reporting. Consequently, we do not provide an opinion thereon. 

As required by OMB Bulletin No. 01-02, we considered the FAA’s internal control over the 

Required Supplementary Stewardship Information by obtaining an understanding of the FAA’s

internal control, determining whether these internal controls had been placed in operation, 

assessing control risk, and performing tests of controls. Our procedures were not designed to

provide assurance on internal control over Required Supplementary Stewardship Information and, 

accordingly, we do not provide an opinion thereon.

As further required by OMB Bulletin No.01-02, with respect to internal control related to 

performance measures determined by management to be key and reported in the Management’s 

Discussion and Analysis, we obtained an understanding of the design of significant internal 

controls relating to the existence and completeness assertions. Our procedures were not designed 

to provide assurance on internal control over performance measures and, accordingly, we do not 

provide an opinion thereon.

As part of obtaining reasonable assurance about whether the FAA’s fiscal year 2002 financial 

statements are free of material misstatement, we performed tests of the FAA’s compliance with

certain provisions of laws and regulations, noncompliance with which could have a direct and

material effect on the determination of financial statement amounts, and certain provisions of other 

laws and regulations specified in OMB Bulletin No. 01-02, including certain provisions referred to

in FFMIA. We limited our tests of compliance to the provisions described in the preceding 

sentence, and we did not test compliance with all laws and regulations applicable to the FAA. 

Providing an opinion on compliance with laws and regulations was not an objective of our audit 

and, accordingly, we do not express such an opinion. 

Under OMB Bulletin No. 01-02 and FFMIA, we are required to report whether the FAA’s financial 

management systems substantially comply with (1) Federal financial management systems 

requirements, (2) applicable Federal accounting standards, and (3) the United States Government

Standard General Ledger at the transaction level. To meet this requirement, we performed tests of 

compliance with FFMIA Section 803(a) requirements. 

DISTRIBUTION 

This report is intended for the information and use of the FAA’s management, the Department of 

Transportation’s Office of the Inspector General, OMB, and the U.S. Congress, and is not intended 

to be and should not be used by anyone other than these specified parties. 

 

January 24, 2003 
Exhibit 1

Material Weakness 

Under standards issued by the American Institute of Certified Public Accountants, reportable 

conditions are matters coming to our attention relating to significant deficiencies in the design or

operation of the internal control over financial reporting that, in our judgment, could adversely 

affect the FAA’s ability to record, process, summarize, and report financial data consistent with the 

assertions by management in the financial statements. Material weaknesses are reportable

conditions in which the design or operation of one or more of the internal control components does 

not reduce to a relatively low level the risk that misstatements, in amounts that would be material 

in relation to the financial statements being audited, may occur and not be detected within a timely 

period by employees in the normal course of performing their assigned functions. 

This section contains our discussion of the reportable condition that we believe is a material

weakness. 

1. Process for estimating liabilities for legal matters 

Condition 

The FAA did not have adequate controls to ensure that the basis for the estimated liability for legal

matters pending against the FAA, both those recorded as liabilities and disclosed in the notes to the 

financial statements, were accurate. The Office of General Counsel’s (AGC) initial estimate was 

overstated by approximately $514 million as cases deemed to be reasonably possible of loss were

incorrectly included with those deemed to be probable of loss. Additionally, the AGC incorrectly 

reported those cases where the likelihood of loss was deemed to be remote. As a result, the notes 

to the fiscal year 2001 financial statements incorrectly stated that the FAA had legal contingencies 

totaling $20 billion. These errors occurred because the AGC did not have an adequate 

comprehensive understanding of financial reporting requirements, and the Office of Financial 

Management (AFM) had not established a process to review information developed by the AGC. 

In addition, the AGC is not providing the AFM with the necessary information to make quarterly

adjustments to the estimated accrued liability related to legal matters. The FAA, as with other 

Federal government organizations, must rely on its legal counsel to provide information to record 

estimated and actual legal liabilities in the financial statements. In the past, the AGC has generally 

only provided this information in response to the annual independent auditors request, which will 

not be sufficient to comply with the new OMB interim reporting requirements for fiscal years 2003 

and beyond. As of 75 days after year-end (December 15, 2002) the FAA was still making inquiry

and receiving relevant information needed to produce materially correct financial statements. 

We noted the following matters related to legal liabilities and communications with the AGC: 

• Communications with the AGC – the FAA has not established a plan of communication that 

would ensure timely periodic (at least quarterly) material updates be provided to the AFM; 

• Quality and consistency of information received from the AGC – The information provided by

the AGC is fragmented, inconsistent, often incomplete, and in some cases erroneous – 

requiring substantial follow-up to resolve questions and determine proper case status and dollar

estimates. 

50
Exhibit 1

Criteria 

Statement of Federal Financial Accounting Standard (SFFAS) No. 5, Accounting for Liabilities in

the Federal Government has defined pending or threatened litigation and possible claims and 

assessments as a loss contingencies. The Standard states that contingent future outflows of 

resources as a result of past transactions or events may be recognized, may be disclosed, or may not 

be reported at all, depending on the circumstances. Legal contingencies should be recognized as a 

liability when the likelihood of loss is probable and reasonably estimable or measurable. A 

contingent liability should be disclosed if any of the conditions for liability recognition are not met 

and there is a reasonable possibility that a loss may have been incurred. Disclosures should include 

the nature of the contingency and an estimate of the possible liability, and estimate of the range of 

the possible liability, or a statement that such an estimate cannot be made. 

The Office of Management and Budget (OMB), Circular A-123, Management Accountability and 

Control, states “management controls are the organization, policies and procedures used by

agencies to reasonably ensure that... reliable and timely information is obtained, maintained, 

reported and used for decision making. In addition, the Joint Financial Management Improvement 

Program’s (JFMIP) Framework for Federal Financial Management Systems, Chapter 3, states that 

processing covers those mechanisms necessary to properly process and track data on financial 

events.” 

Recommendation 

We recommend that the FAA develop a communication and coordination plan to ensure timely,

complete, accurate information regarding legal matters is routinely provided to and reviewed by the 

AFM. The information must be sufficiently complete to allow the AFM to properly state legal

liabilities in the financial statements and the notes thereto, in compliance with applicable

accounting standards. 

51
Exhibit 2

Reportable Conditions 

We consider the following to be reportable conditions.

2. Controls and processes over financial reporting and account reconciliations 

Condition 

The financial statements initially produced by FAA’s financial reporting processes and systems 

required substantial review and adjustment in the post-closing process to produce materially correct 

financial statements. The current financial reporting process places significant reliance on the 

AFM’s manual reviews and reconciliations that increase the likelihood that error or oversight could 

occur. Also, a number of account analyses and reconciliation procedures were not performed

routinely during fiscal year 2002, resulting in a significant number of material post-closing 

adjustments. Controls over the financial reporting process should be improved to ensure related

budgetary and proprietary accounts are in agreement, abnormal account balances are minimized,

promptly identified and investigated, intra entity transactions are correctly eliminated, unearned

revenue is properly recorded as deferred revenue, and reimbursable activity is correctly recorded. 

We noted the following matters that affected the FAA’s ability to produce accurate financial 

statements: 

• Fiscal year 2001 audit adjustments were incorrectly allocated to the lines of business on the 

statement of net cost based on the financial activity that occurred in the month of September 

instead of activity for the entire year. The FAA revised the fiscal year 2001 statement of net 

cost to reflect the proper allocation of audit adjustments to the entire year. The revision did not 

have an effect on fiscal year 2001 total net costs. 

• Fiscal year 2002 earned revenue of $116 million was not properly classified on the statement

of net cost, resulting in revenue that significantly exceeded expenses in the Costs Not Assigned 

to Programs. 

• Fiscal year 2002 intra-entity expenses of $260 million related to Franchise Fund operations 

were incorrectly eliminated against the FAA’s lines of business. 

• Related budgetary and proprietary general ledger accounts did not agree. Specifically, 

collections of advance payments totaling $35 million were recorded in proprietary, but not 

corresponding budgetary general ledger accounts. Reimbursable expenses totaling $45 million 

were incorrectly recorded as appropriations used. Also, revenue totaling $46 million for 

reimbursable activities was recorded against the incorrect budgetary general ledger account. 

• The FAA has not assessed the financial reporting impact, if any, of its FMFIA reported control 

weakness related to its process for closing-out cost reimbursable contracts. In its report dated 

May 8, 2002, the OIG reported control weaknesses in this process and identified approximately 

$130 million of potential unallowable costs that could be identified by incurred costs audits. 

• The Franchise Fund did not correctly record $6.6 million of unearned revenue as deferred. As 

a result, fiscal year 2002 revenue was overstated. 

52
Exhibit 2

• The Franchise Fund did not properly record the receipt of inventory delivered without an 

invoice. As a result, both accounts payable and expenses were misstated by approximately $3 

million. 

Upon investigation the AFM made appropriate adjustments to the fiscal year 2002 financial

statements to correct the discrepancies noted above. In addition during the post-closing review 

process and in response to our audit inquires, the AFM detected and corrected the following 

additional discrepancies: 

• Although the statement of budgetary resources is presented on a combined basis and therefore 

intra-entity transactions are not eliminated, certain intra-entity transactions distorted budgetary 

resources and obligations by $5.8 billion and required an adjustment to offset the balances for

financial statement presentation purposes. 

• Note 2, Status of fund balance with Treasury related to fiscal year 2001, misstated the

Available Unobligated Balance and Obligated Balance Not Yet Disbursed by $3.2 billion. 

• The beginning unobligated balance in the budgetary resources section of the statement of 

budgetary resources required a retroactive adjustments to increase the balance by $302 million 

to properly account for fiscal year 2001 grant contract authority previously reported as 

temporarily unavailable and decrease the balance by $113 million to correctly report unfilled 

customer orders. 

Criteria 

OMB Circular A-123 states that financial managers must incorporate certain specific management 

controls standards and ensure that transactions are promptly recorded, properly classified and

accounted for in order to prepare timely accounts and reliable financial and other reports. 

Statement of Federal Financial Accounting Concepts No. 1, Objectives of Federal Financial 

Reporting, states that Federal financial reporting should assist report users in understanding

whether financial management systems and internal accounting and administrative controls are 

adequate to ensure that: 

• Transactions are executed in accordance with budgetary and financial laws and other

requirements are consistent with the purpose authorized, and are recorded in accordance with

federal accounting standards; 

• Assets are properly safeguarded to deter fraud waste, and abuse; and 

• Performance measurement information is adequately supported. 

The three objectives should be accomplished in conjunction with the fact that accounting supports

both effective management and control of organizations and the process of reporting useful 

information. Accounting processes are an integral part of the management control system. The

ability to prepare financial reports that report all transactions, classified in appropriate ways that 

reliably represent the underlying events, is itself an indication that certain essential controls are in

place and operating effectively. The preparation of reliable financial reports also helps to ensure

that reporting entities have early warning systems to indicate potential problems and take actions to 

correct material weaknesses or problems.

53
Exhibit 2

Recommendation 

Since the FAA will be converting to DOT’s new accounting system in the near future, we 

recommend that the AFM establish compensating controls to detect and correct the discrepancies

identified and other matters of this nature. In conjunction with this effort, we recommend that the 

FAA routinely reconcile and resolve budgetary and proprietary account differences, and perform

account and subledger analyses and reconciliations on other key accounts throughout the year, in

order to produce reliable interim financial reports and reduce the number of post-closing

adjustments at year-end. We also recommend that FAA assess the financial reporting impact

related to weaknesses in its process for closing-out cost reimbursable contracts. 

3. Process for estimating environmental liabilities 

Condition 

The FAA’s estimate for environmental liabilities is comprised of two components – the costs to

remediate known contaminated sites and the costs to cleanup and decommission active facilities at 

a future date. Within the FAA, there are two different offices involved with developing and

documenting the costs associated with these two components. The Environmental, Energy, and 

Safety Division (AFZ-800) is the primary office responsible for environmental remediation and the

Investment Analysis and Operations Research Division (ASD-400) is the primary office 

responsible for environmental cleanup and decommissioning. Together they compile a summary

listing of estimated environmental cleanup liabilities, which is needed to produce timely, reliable 

financial statements. 

Although improvements were made during the current year, both offices lack adequate policies and

procedures to consistently and accurately determine the estimated environmental liability for 

financial statement purposes. Specifically, within the Environmental, Energy and Employee Safety 

Division, we noted a lack of: 

• Periodic reporting of adjustments to the AFM during the year to refine estimates and to 

facilitate accurate interim reporting; 

• Completeness of listed liabilities (for both known and unknown clean-up); 

• Comprehensiveness of instructions provided to regional personnel; and 

• Documentation of planning assumptions that will ensure consistency in application of

estimating methods and applicable accounting standards. 

Within the Investment Analysis and Operations Research Division, we noted a lack of: 

• Documentation of planning assumptions on contaminate type and quantity; and 

• Cost estimating models for each type of facility that includes appropriate financial statement

criteria (e.g. conditions necessary to estimate and accrue a liability). 

54
Exhibit 2

Criteria 

SFFAS No. 5 defines a liability as a probable future outflow or other sacrifice of resources as a 

result of past transactions or events. SFFAS No. 6, Accounting for Property, Plant, and

Equipment, defines cleanup costs as the costs of removing, containing, and/or disposing of (1) 

hazardous waste from property, or (2) material and/or property that consists of hazardous waste at 

permanent or temporary closure or shutdown of associated property, plant and equipment. Cleanup 

may include, but is not limited to, decontamination, decommissioning, site restoration, site 

monitoring, closure, and post closure costs. Federal Financial Accounting and Auditing Technical 

Release No. 2, Determining Probable and Reasonably Estimable for Environmental Liabilities in 

the Federal Government, states that an agency is responsible for recognizing a liability for 

environmental cleanup costs resulting from past transactions or events when a future outflow or

other sacrifice of resources is probable and can be reasonably estimated. 

Recommendations 

To improve the reliability, relevance and timeliness of information received by the AFM regarding 

environmental remediation, we recommend that the AFM, in conjunction with the Environmental, 

Energy, and Safety Division: 

• Establish a process to provide periodic reporting for environmental liabilities; 

• Develop and report estimates in current year dollars; 

• Consider a risk-based evaluation of uninspected facilities to determine if any environmental 

remediation exists. This evaluation should focus on those facilities that are similar in function 

and design as other facilities in which the FAA has determined contamination exists; 

• Develop guidance for Environmental Site and Cleanup Report (ESCR) preparation and

documentation requirements; and 

• Improve documentation and quantification of planning assumptions. 

Regarding the environmental cleanup and decommissioning estimate, we recommend that the 

AFM, in conjunction with Airways Facilities and the Investment Analysis and Operations Research

Division: 

• Establish a process to provide quarterly reporting for environmental liabilities; 

• Improve the planning assumption documentation to include information on the contaminate

type and quantity;

• Develop cost estimating models for each facility type; and 

• Establish a cost/schedule baseline estimate for the environmental cleanup and 

decommissioning scope of work. 

55
Exhibit 2

4. Accounting Methods and Controls over Field Spares 

Condition 

The FAA did not have adequate controls to ensure all recorded field spares existed and that all 

items on hand were recorded. 

Prior to fiscal year 2002, the FAA recorded field spares as operating materials and supplies using 

the consumption method as outlined in SFFAS No. 3, Accounting for Inventory and Related 

Materials. Under the consumption method, field spares were maintained at full value until the 

FAA disposed of the item. At that time the full cost of the item was treated as an expense. During

fiscal year 2002, the FAA reevaluated its accounting treatment for field spares and determined that 

treating the spares as a component of property, plant and equipment (PP&E) in accordance with

SFFAS No. 6 better represented actual operations as the cost of the field spares would be recorded 

as an expense, through depreciation, over the period of time that the field spares support the 

respective equipment. Accordingly, for financial statement presentation in fiscal year 2002, the 

FAA reclassified field spares from operating materials to PP&E, and recognized the retroactive 

accumulated depreciation that would have occurred prior to fiscal year 2002. This change in 

accounting method will require that the FAA design and implement a new method of accounting 

for field spares that are sent to the Franchise Fund for repair and/or replacement. Presently, the

Franchise Fund records incoming field spares at weighted average cost – the same as new 

inventory held for sale. The new accounting method will result in recognition of periodic 

depreciation expense on those assets and any adjustment to carrying value, other than through

depreciation, may result in a financial statement misstatement. 

The FAA uses the Field Spares Inventory (FSI) module of the Logistics Inventory System as a 

subsidiary ledger to support field spare balances presented in the financial statements. The FSI

module does not have an adequate transaction history and is not a perpetual inventory system. To 

ensure completeness of field spare quantities in FSI, the FAA must rely on periodic physical

inventories and other controls. Our tests of control indicated that the periodic inventories and other 

controls may not be properly designed to ensure recorded quantities exist, and that actual quantities 

on hand are recorded. Further, tests of balances showed that errors occurred, and were not 

detected, as some locations did not properly report field spares in the correct inventory location. In 

addition, at some locations, the recorded quantities were incorrect due to confusion when both 

components and subcomponents were involved. We also noted a lack of supporting documentation 

related to new issuances and the commissioning of new equipment. Accurate tracking of field

spare quantities will be especially important since depreciation expense will now be recognized on

the balance. It will also be important to properly match the field spare as a component of the asset 

it supports to ensure proper matching of depreciation with useful life and to properly record 

disposals as they occur. 

Criteria 

SFFAS No. 6 defines general property, plant, and equipment as any property, plant, and equipment 

used by an entity in providing goods or services. The standard further states that depreciation 

expense for PP&E is calculated through the systematic and rational allocation of the cost, less its

estimated salvage/residual value, over the estimated useful life of the general PP&E. Any 

adjustment in carrying value other than through depreciation, or other impairment, will be 

inconsistent with FAA’s newly adopted accounting policy. Therefore field spares received by the

56
Exhibit 2

Franchise Fund in exchange for new or refurbished spares, can not be inventoried at weighted 

average cost, for financial statement purposes, as was done in the past 

OMB Circular A-123, states that proper stewardship of Federal resources is a fundamental 

responsibility of agency managers and staff. Federal employees must ensure that government 

resources are used efficiently and effectively to achieve intended program results. Resources must 

be used consistent with agency mission, in compliance with laws and regulations, and with

minimal potential for waste, fraud, and mismanagement. The Circular further states that 

transactions should be promptly recorded, and properly classified and accounted for, in order to 

prepare timely accounts and reliable financial and other reports. Documentation for transactions, 

management controls, and other significant events must be clear and readily available for 

examination. 

Recommendations 

We recommend that the AFM: 

• Implement procedures to ensure that field spare quantities are adequately recorded and tracked 

as a component of PP&E. 

• Evaluate the accounting methodology used by the Franchise Fund to account for returned field 

spares to ensure that the financial statements properly reflect depreciation and do not include 

adjustments for changes in value (other that depreciation expense) once the field spare is issued

by the Franchise Fund. 

5. Controls over Property, Plant and Equipment 

Condition 

The FAA did not fully adhere to its policies and procedures designed to ensure that PP&E is stated

in accordance with accounting principles generally accepted in United States of America. We 

noted deficiencies in the following areas: 

• Reconciliations – The FAA did not reconcile its PP&E sub-ledger (IFAS) to the general ledger 

throughout the year. Since IFAS is not integrated with the FAA’s general ledger, property

transactions must be entered separately from those entered into the general ledger accounting 

system. Transactions related to real property are entered directly into IFAS, but personal 

property (i.e., equipment) transactions are first entered into a legacy property management 

system, which is then transferred to IFAS. The lack of electronic interface between IFAS and 

the general ledger greatly increases the likelihood that the two systems will, from time-to-time,

not agree due to a backlog of input to either system or errors that occur in entering the data. 

The initial transaction (disbursement or receipt related to a property transaction) is recorded in 

the general ledger system, however depreciation is computed from data in IFAS. If IFAS is not 

updated timely, the financial statements will not accurately reflect depreciation expense. 

In addition, we noted that the FAA had difficulty preparing a year-end roll-forward of fixed

asset additions and disposals by category and thus unable to clearly support composition of 

changes in PP&E. 

57
Exhibit 2

• Additions and disposals – Regional personnel did not record property disposals in a timely 

manner. This situation negatively affected the AFM’s ability to produce accurate interim 

financial statements and management reports. It also resulted in a substantial effort to research

months-old data to prepare an accurate closed trial balance at year-end. If uncorrected, this 

situation will likely put in jeopardy the FAA’s ability to adhere to new OMB reporting 

requirements for interim reporting during fiscal years 2003 and beyond. 

• Construction-in-process (CIP) transfers – The FAA has not recorded the transfer of completed

construction projects in a timely manner after the asset has been placed –in service. We noted

that the primary reason for the delay is that: (i) responsible personnel in the regional offices 

often focused on clearing older completed CIP projects as there was little incentive to transfer 

costs for newly completed projects (within 180 days of date that an asset is commissioned), or 

(ii) costs could not be transferred until the requirement to have 97 percent of the supporting

documentation was met. This situation could result in an understatement of depreciation

expense, since assets classified as CIP will not begin to depreciate in IFAS until an in-service 

date has been established. This situation has been a longstanding, recurring problem for the 

FAA that impacts financial management. Also, projected commissioning dates were not 

updated when changes occurred. 

• Capitalization of labor and travel costs – Technical Support Service Contractor (TSSC) labor

and travel costs related to PP&E was not properly processed as some costs were incorrectly

capitalized as stand alone assets. 

 

Criteria 

JFMIP’s Core Financial System Requirements, states that the core financial system must maintain

detailed information by account sufficient to provide audit trails and support managerial cost 

accounting. It further states that costs should be captured at the lowest level to reflect actual costs 

incurred by the agency in providing goods and services. The detail transactions should be timely 

recorded in subsidiary ledgers and interfaced or timely reconciled with the general ledger. Cost 

tracking should be sufficiently detailed to explain the change in account balances during any period 

of time need. 

OMB Circular A-123 states that transactions should be promptly recorded, properly classified and 

accounted for in order to prepare timely accounts and reliable financial and other reports. 

Documentation for transactions, management controls, and other significant events must be clear

and readily available for examination. 

SFFAS No. 6 requires that constructed PP&E be recorded as construction work in progress until 

the asset is placed in service, at which time it is to be transferred to general PP&E, and depreciation 

expense should be taken over the estimated useful life of the asset.

SFFAS No. 6 also states that all general PP&E shall be recorded at cost. Cost shall include all

costs incurred to bring the PP&E to form and location suitable for its intended use. For example,

the cost of acquiring property, plant, and equipment may include: amounts paid to vendors; 

transportation charges to the point of initial use; handling and storage costs; labor and other direct 

or indirect production costs (for assets produced or constructed); engineering, architectural, and 

other outside services for designs, plans, specifications, and surveys; etc. 

58
Exhibit 2

Recommendations 

We recommend that the AFM: 

• Develop and implement formal periodic financial reporting processes to reconcile the PP&E

recorded in IFAS to the general ledger and record additions and disposals in a timely manner; 

• Ensure that there is appropriate staffing to complete and review these periodic month-end

reporting procedures, and that regional offices fully cooperate in providing information to the 

AFM in a timely manner; 

• Prepare a roll-forward of fixed assets on a regular basis, at least quarterly, as a high level

review of the activity in PP&E and help ensure that all transactions have been properly coded 

and recorded; 

• Improve its policy regarding accounting for construction-in-progress and to ensure a timely

matching of depreciation expense with assets placed in-service; and. 

In conjunction with the Assistant Administrator for Regions and Center, reemphasize the need to 

follow procedures related to recording property disposals timely and ensuring TSSC labor, travel

and other costs necessary to put an asset in place are correctly capitalized. 

6. Information Technology Controls over Third-party Systems and Applications 

Condition 

Certain general controls related to the FAA’s primary financial applications owned by Department 

of Transportation (DOT) need to be strengthened. Specifically, security program planning and 

management related to the development, certification, and accreditation of security programs for

these applications were not effectively coordinated with the FAA Information Systems Security

Officers, who have a shared responsibility to ensure that risk factors were appropriately known and

considered. Also, application software development practices did not provide for effective and 

sustainable maintenance of these financial applications. Additionally, access controls for sensitive 

and critical functions were not based on least privilege principles. 

As part of our audit, we performed a limited scope general controls review of information 

technology controls over the following key systems that support FAA’s financial transactions and 

reporting: 

• Departmental Accounting and Financial Information System (DAFIS) 

• Integrated Personnel and Payroll System (IPPS) 

• Consolidated Uniform Payroll System (CUPS) 

• Consolidated Personnel Management Information System (CPMIS) 

The development, certification, and accreditation of security programs for these four applications

needed improvement. Also, there were weaknesses in the areas of access control and application 

software development and change control for all four applications. Due to the sensitive nature of 

59
Exhibit 2

these issues, we provided the detailed results of our review, along with specific recommendations, 

separately to management. 

To operate these key financial systems, the FAA contracted with NITC, located in Kansas City,

Missouri, to provide information technology resources for the operation of key FAA financial

systems. Accordingly, NITC is responsible for establishing and maintaining effective internal 

controls. In coordination with the DOT’s Office of Inspector General, the USDA’s OIG conducted

a review of NITC in accordance with Statement of Auditing Standards No. 70, Service

Organizations. The USDA OIG identified weakness in the areas of security program planning and 

management, access controls, and system software concerning FAA operations at NITC. The

report identified controls that were (1) properly designed and operating effectively, (2) properly 

designed, but not operating effectively, and (3) not properly designed. However, the report was not 

issued to DOT OIG until January 13, 2003, limiting its usefulness for planning and executing the

FAA’s fiscal year 2002 consolidated financial statement audit. 

In addition, the FAA has an agreement with the Federal Transit Administration (FTA) to use the 

Electronic Clearinghouse Operation (ECHO) system to process payment requests and 

disbursements for the majority of the FAA’s grants under the Airport Improvement Program. 

Accordingly, FTA is responsible for establishing and maintaining an effective internal control 

structure. FTA did not have an independent assessment of its control structure as discussed in SAS

70 or any other type of independent review of its control structure. Without a SAS 70 or other type 

of independent review, there is an increased risk that control weaknesses may exist at FTA that 

may not be known to the FAA. 

Criteria 

Appendix III, OMB Circular No.A-130, Management of Federal Information Resources, requires 

Federal agencies to establish application security plans to assure that adequate security is provided 

for information collected, processed, transmitted, stored, or disseminated through the system. 

National Institute of Standards and Technology (NIST) Special Publication No. 800-18, Guide for 

Developing Security Plans for Information Technology Systems, states the purpose of security plans 

are to provide an overview of the security requirements of the system and describe the controls in 

place or planned for meeting those requirements; and delineate responsibilities and expected 

behavior of all individuals who access the system. 

SAS 70 states: “When a user organization uses a service organization, transactions that affect the 

user organization's financial statements are subjected to controls that are, at least in part, physically 

and operationally separate from the user organization. The significance of the controls of the 

service organization to those of the user organization depends on the nature of the services 

provided by the service organization, primarily the nature and materiality of the transactions it 

processes for the user organization and the degree of interaction between its activities and those of

the user organization.” 

Recommendations 

We recommend that the AFM improve information technology controls over third-party systems 

and applications by: 

60
Exhibit 2

• Monitoring the progress of the FAA organizations responsible for implementing the specific 

recommendations previously provided – not repeated here due to the sensitive nature of the

recommendations content;

• In conjunction with the DOT OIG, request that the USDA OIG complete its review of the FAA

operations at NITC sooner; and 

• In conjunction with DOT, request FTA to have an independent review performed, preferably in

accordance with SAS 70, and prepare a report on controls placed in operation and tests of 

operating effectiveness related to the ECHO system. 

7. Information technology controls over FAA systems 

Condition 

Certain general controls associated with a key FAA-owned financial system, the Logistics

Inventory System (LIS), needed improvement. Specifically, improvements were needed in overall

security program planning and management, access controls and applications software

development and change control. 

As part of our audit, we performed a limited scope general controls review of information 

technology controls over LIS, which is a key FAA financial and logistical system. The FAA had 

designated LIS as a mission critical system as it provides control and distribution of logistical 

material for the National Airspace System. The FAA has not developed an information systems

security program for LIS. Also, there were weaknesses in the areas of access controls and 

application software development and change control. Due to the sensitive nature of these issues, 

we provided the detailed results of our review along with specific recommendations separately. 

Criteria 

Appendix III, OMB Circular No. A-130, requires Federal agencies to establish application security

plans to assure that adequate security is provided for information collected, processed, transmitted, 

stored, or disseminated through the system. 

NIST Special Publication No. 800-18, states the purpose of security plans are to provide an 

overview of the security requirements of the system and describe the controls in place or planned 

for meeting those requirements; and delineate responsibilities and expected behavior of all

individuals who access the system. 

Recommendation 

We recommend that the AFM monitor the progress of those within FAA who are responsible for

implementation of the specific recommendations associated with LIS. 

61
Exhibit 3

62

Status of Prior Year Reportable Conditions, and 

Compliance with Laws and Regulations 

Prior Year

Conditions 

As Report at September 30, 2001 Status as of September 30, 2002

Property, 

Plant, and

Equipment 

Material Weakness: FAA was unsuccessful 

in implementing an integrated property 

accounting system, calculated depreciation 

expense and the net book value of its property,

plant, and equipment using electronic 

spreadsheets outside the existing property 

system, and these amounts could not be

substantiated.

Reportable condition: FAA implemented five 

of the six recommendations and substantially

improved controls over PP&E. Thus, this

reportable condition is no longer deemed a 

material weakness. However, additional 

improvements are needed.

Inactive 

Obligations 

Reportable Condition: FAA did not perform

sufficient reviews to identify inactive 

obligations. 

No longer deemed a reportable condition: 

FAA implemented procedures to resolve this 

issue. 

Personal

Property 

Acquisitions 

Reportable Condition: FAA yearend review 

procedures of personal property transactions

did not include regional offices. 

No longer deemed a reportable condition: 

FAA revised its yearend procedures to include 

review of regional property transactions.

NonCompliance 

with FFMIA 

Non-Compliance with Laws and 

Regulations: FAA was not in substantial 

compliance with FFMIA because: (1) DOT’s

core accounting system, DAFIS, cannot 

produce auditable financial statements and is

not compliant with the U.S. Standard General

Ledger at the transaction level; (2) security 

over financial information systems needed to

be improved; (3) managerial cost accounting 

standards were not fully implemented; and (5)

the financial management systems are not fully

integrated.

Continue as an instance of non-compliance 

with laws and regulations: The FAA continues 

to remain substantially non-compliant with

FFMIA. FAA continues to make progress in

implementing managerial cost accounting, 

however, full implementation has not yet been

achieved.
Exhibit 4

Compliance with Laws and Regulations 

This section discusses an issue related to the Federal Financial Management Improvement Act of

1996 (FFMIA). 

Condition 

The FAA was not in substantial compliance with FFMIA. 

Discussion 

The FAA uses the DOT’s core accounting system DAFIS to process and record financial

transactions. DAFIS does not comply with the United States Standard General ledger (USSGL) or 

Federal financial management system requirements, which call for a single, integrated financial 

system. The FAA is planning to convert to DOT’s new core accounting system during fiscal year 

2003. DOT considers the new system to meet Federal systems requirements and process 

transactions at the USSGL level. As reported last year, the FAA has not fully implemented 

managerial cost accounting, however, additional progress was made during fiscal year 2002. 

Criteria 

FFMIA requires that an agency’s financial management systems substantially comply with Federal

financial management systems requirements, applicable Federal accounting standards, and the

USSGL at the transaction level. 

Recommendation 

We recommend that the FAA work aggressively to implement the new DOT accounting system. 

63
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

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.

64 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

 FINANCIAL STATEMENTS 

2002 2001

Assets As Restated

Intragovernmental

Fund balance with Treasury (Note 2) $ 2,539,304 $ 1,998,297

Investments (Note 3) 11,213,447 13,866,780

Accounts receivable, advances, and other (Note 4) 299,428 173,522

Total Intragovernmental 14,052,179 16,038,599

Accounts receivable, advances, and other, net (Note 4) 113,295 163,149

Inventory and related property, net (Notes 5 & 15) 605,695 1,086,986

Property, plant, and equipment, net (Note 6) 13,175,768 11,726,534

Total Assets $ 27,946,937 $ 29,015,268

Liabilities

Intragovernmental liabilities

Accounts payable $ 36,182 $ 49,930

Employee related and other (Notes 8 & 9) 485,511 367,420

Total Intragovernmental Liabilities 521,693 417,350

Accounts payable 677,182 602,482

Environmental cleanup costs (Notes 7 & 15) 574,676 587,781

Employee related, legal, and other (Notes 8 & 9) 1,176,106 1,084,331

Federal employee and veterans benefits (Note 10) 997,103 1,044,259

Total Liabilities 3,946,760 3,736,203

Commitments and contingencies (Notes 9 & 19)

Net Position

Unexpended appropriations 481,919 551,139

Cumulative results of operations (Note 15) 23,518,258 24,727,926

Total Net Position 24,000,177 25,279,065

Total Liabilities and Net Position $ 27,946,937 $ 29,015,268

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

As of September 30

The accompanying notes are an integral part of these financial statements. 

65 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

66 

2002 2001

Line of Business Programs (Note 12) As Restated

Air Traffic Services

Expenses $ 7,313,772 $ 6,988,124

Less Earned Revenues (77,107) (81,157)

Net Air Traffic Services Costs 7,236,665 6,906,967

Regulation & Certification

Expenses 924,614 799,964

Less Earned Revenues (1,121) (1,276)

Net Regulations & Certification Costs 923,493 798,688

Research & Acquisitions

Expenses 586,991 525,261

Less Earned Revenues (72,129) (38,966)

Net Research & Acquisitions Costs 514,862 486,295

Airports

Expenses 2,933,542 2,178,576

Net Airports Costs 2,933,542 2,178,576

Civil Aviation Security

Expenses 804,822 161,434

Less Earned Revenues (190,912) (1,031)

Net Civil Aviation Security Costs 613,910 160,403

Commercial Space Transportation

Expenses 11,361 9,580

Net Commercial Space Transportation Costs 11,361 9,580

Non Line of Business Programs

Regional and Center Operations and Other Programs

Expenses 340,983 162,723

Less Earned Revenues (125,108) (43,940)

Net Other Program Costs 215,875 118,783

Not Assigned to Programs 50,622 56,508

Less Earned Revenues (56,411) (42,485)

Net Costs Not Assigned to Programs (5,789) 14,023

Net Cost of Operations

Total Expenses 12,966,707 10,882,170

Less Total Earned Revenue (522,788) (208,855)

Net Cost of Operations $ 12,443,919 $ 10,673,315

(Dollars in Thousands)

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

CONSOLIDATED STATEMENTS OF NET COST

For the Years Ended September 30

The accompanying notes are an integral part of these financial statements.
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

Cumulative

Results of Unexpended 

Operations Appropriations Total

Beginning Balances $ 23,105,205 $ 551,139 $ 23,656,344

Prior period adjustments (Notes 1 & 15) 1,622,721 - 1,622,721

Beginning balance after restatement 24,727,926 551,139 25,279,065

Cumulative effect of change in accounting principle (Notes 1 & 5) (152,737) - (152,737)

Budgetary Financing Sources

Appropriations received - 1,112,481 1,112,481

Appropriations transferred-in/out - 112,858 112,858

Other adjustments - (3,325) (3,325)

Appropriations used 1,291,234 (1,291,234) -

Taxes and non-exchange revenue (Note 13) 9,625,942 - 9,625,942

Transfers-in/out without reimbursement (25,500) - (25,500)

Other Financing Sources

Donations and forfeitures of property and other 11,901 - 11,901

Transfers-in/out without reimbursement 22,675 - 22,675

Imputed financing from costs absorbed by others (Note 14) 460,736 - 460,736

Total Financing Sources 11,386,988 (69,220) 11,317,768

Net Cost of Operations 12,443,919 - 12,443,919

Ending Balances $ 23,518,258 $ 481,919 $ 24,000,177

(Dollars in Thousands)

U. S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

CONSOLIDATED STATEMENT OF CHANGES IN NET POSITION

For the Year Ended September 30, 2002

The accompanying notes are an integral part of these financial statements.

67 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

Budgetary Resources 

Budget authority $ 14,446,568

Unobligated balance brought forward and transfers (Note 16) 11,425,240

Spending authority from offsetting collections 1,641,929

Recoveries of prior year obligations 310,925

Permanently not available (2,362,392)

Total Budgetary Resources $ 25,462,270

Status of Budgetary Resources

Obligations incurred $ 15,796,838

Unobligated balance 9,454,968

Unobligated balance not available 210,464

Total Status of Budgetary Resources $ 25,462,270

Relationship of Obligations to Outlays

Obligated balance, net, beginning of period (Note 16) $ 7,249,535

Obligations incurred 15,796,838

Less: Spending authority from offsetting collections and 

receipts and recoveries of prior year obligations (1,952,959)

Obligated balance, net end of period (7,998,136)

Net Outlays $ 13,095,278

Outlays

Disbursements $ 20,264,114

Collections net of offsetting receipts (7,168,836)

Net Outlays $ 13,095,278

(Dollars in Thousands)

U. S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

COMBINED STATEMENT OF BUDGETARY RESOURCES

For the Year Ended September 30, 2002

The accompanying notes are an integral part of these financial statements.

68 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

Resources Used to Finance Activities

Budgetary Resources Obligated

Obligations incurred $ 15,796,838

Less: Spending authority from offsetting collections and

receipts and recoveries of prior year obligations 1,952,959

Obligations net of offsetting collections 13,843,879

Other Resources

Donations and forfeitures of property and other 11,901

Transfers in/out without reimbursement 22,675

Imputed financing from costs absorbed by others 460,736

Net other resources used to finance activities 495,312

Total resources used to finance activities 14,339,191

Resources Used to Finance Items not Part of the Net Cost of Operations

Change in budgetary resources obligated for goods,

services and benefits ordered but not yet provided 882,286

Resources that fund expenses recognized in prior periods (decreases in other

unfunded liabilities) 85,644

Resources that finance the acquisition of assets 2,041,577

Other resources or adjustments to net obligated resources that do not

affect net cost of operations (115,237)

Total resources used to finance items not part of net cost of operations 2,894,270

Total resources used to finance net cost of operations 11,444,921

Components of Net Cost of Operations that will not Require or Generate

Resources in the Current Period:

Components Requiring or Generating Resources in Future Periods

Increases in annual leave liability, exchange revenue receivable

from the public, and other unfunded liabilities 167,555

Components not Requiring or Generating Resources in Future Periods

Depreciation and amortization 835,139

Revaluation of assets or liabilities (20,579)

Cost of goods sold 23,897

Other (7,014)

Total components of Net Cost of Operations that will not require or

generate resources 831,443

Total components of Net Cost of Operations that will not require or

generate resources in the current period 998,998

Net Cost of Operations $ 12,443,919

CONSOLIDATED STATEMENT OF FINANCING

For the Year Ended September 30, 2002

(Dollars in Thousands)

U. S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

The accompanying notes are an integral part of these financial statements.

69 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

NOTES TO THE FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

A. Basis of Presentation 

These consolidated financial statements have been prepared to report the financial position, net cost of 

operations, changes in net position, status and availability of budgetary resources, and the reconciliation

between proprietary and budgetary accounts of the Federal Aviation Administration (FAA). The statements 

are required by the Chief Financial Officers Act of 1990 and Government Management Reform Act of

1994. They have been prepared from the books and records of FAA in accordance with (1) the hierarchy of

accounting principles and standards approved by the principals of the Federal Accounting Standards 

Advisory Board (FASAB), (2) the Office of Management and Budget’s (OMB) Bulletin Number 01-09, 

Form and Content of Agency Financial Statements, and (3) Department of Transportation (DOT) and FAA 

accounting policies which are summarized in this note. These statements, with the exception of the 

Statement of Budgetary Resources, are different from financial management reports, which are also

prepared by the FAA pursuant to OMB directives that are used to monitor and control the FAA’s use of 

budgetary resources. 

In accordance with OMB Bulletin Number 01-09, the Consolidated Balance Sheet and Consolidated

Statement of Net Cost and associated notes are presented on a comparative basis with the prior year as 

restated. 

Unless specified otherwise, all dollar amounts are presented in thousands. 

B. Reporting Entity 

FAA, which was created in 1958, is a component of the DOT, a cabinet-level agency of the Executive

Branch of the United States Government. FAA’s mission is to provide a safe, secure, and efficient global

aerospace system that contributes to national security and the promotion of United States aerospace safety. 

As the leading authority in the international aerospace community, FAA is responsive to the dynamic 

nature of customer needs, economic conditions, and environmental concerns. FAA reporting entity is 

comprised of the following primary types of funds: 

Trust Fund - Airport and Airway Trust Fund, including (a) Grants-in-Aid for Airports, 

(b) Facilities and Equipment, and (c) Research, Engineering and Development 

Revolving Funds – Aviation Insurance, and Administrative Services Franchise Fund 

Special Fund – Aviation User Fees 

General Funds – Operations and Facilities, Engineering & Development 

Other – General Fund Miscellaneous Receipts 

C. Budgets and Budgetary Accounting 

Congress annually enacts appropriations to permit FAA to incur obligations for specified purposes. In FY

2002 and 2001, FAA was accountable for Trust Fund appropriations, Revolving Funds, a Special Fund, 

General Fund appropriations, and borrowing authority. FAA recognizes budgetary resources as assets when

cash (funds held by Treasury) is made available through the Department of Treasury General Fund

warrants and Trust Fund transfers.

D. Basis of Accounting 

70 

Transactions are recorded on 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 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

on the use of Federal funds. All material intra-agency transactions and balances have been eliminated for 

presentation on a consolidated basis. However, the Statement of Budgetary Resources is presented on a 

combined basis in accordance with OMB Bulletin Number 01-09.

E. Revenues and Other Financing Sources

Congress enacts annual, multi-year, and no-year appropriations to be used, within statutory limits, for 

operating and capital expenditures. Additional amounts are obtained from service fees (e.g., landing, 

registry, and overflight fees), war risk insurance premiums (see note 19), and through reimbursements for

products and services provided to domestic and foreign governmental entities. 

The Airport and Airway Trust Fund (Trust Fund) is sustained by excise taxes collected by the Internal 

Revenue Service (IRS) from airway system users. Excise taxes collected by the IRS are initially deposited

to the general fund of the Treasury. IRS does not receive sufficient information at the time the taxes are 

collected to determine how these payments should be distributed to specific trust funds. Therefore,

Treasury makes initial distributions to trust funds based on semi-monthly 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 certified amounts are available from the IRS, generally six months after each quarter-end, 

adjustments are made to the estimated amounts and the difference is accrued as an intragovernmental 

receivable or payable. The FAA’s September 30, 2002 financial statements reflect excise taxes certified 

through June 30, 2002, and excise taxes estimated by OTA for the quarter July 1 to September 30, 2002 as

specified by Statement of Federal Financial Accounting Standards (SFFAS) Number 7, Accounting for

Revenue and Other Financing Sources. FAA management does not believe that the estimated distribution

made to the trust fund will be materially different from the September 30, 2002 certified amount. 

The Trust Fund also earns interest from investments in Treasury securities. Interest income is recognized as 

revenue on the accrual basis. 

Appropriations are recognized as a financing source when expended. Revenues from service fees

associated with reimbursable agreements are recognized concurrently with the recognition of accrued 

expenditures for performing the services. War-risk insurance premiums are recognized as revenue on a 

straight-line basis over the period of coverage. Overflight fees are recognized as revenue in the period in

which the flights take place. 

The FAA recognizes as imputed financing the amount of accrued pension and post-retirement benefit

expenses for current employees paid on FAA’s behalf by the Office of Personnel Management (OPM), as 

well as amounts paid from the Treasury Judgment Fund in settlement of claims or court assessments 

against the 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 Balances with the U.S. Treasury 

The U.S. Treasury processes cash receipts and disbursements. Funds 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 the 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 Trust Fund and Aviation Insurance Revolving Fund are invested in U.S.

Government securities. A portion of the Trust Fund investments is liquidated semi-monthly in amounts 

needed to provide cash for FAA appropriation accounts. The Revolving Fund investments are usually held

to maturity. Investments, redemptions, and reinvestments are held and managed under the direction of FAA 

by the Treasury. 

71 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

I. Accounts Receivable 

Accounts receivable consist of amounts owed to FAA by other Federal agencies and the public. Amounts 

due from Federal agencies are considered fully collectible. Accounts receivable from the public include, for 

example, overflight fees, fines and penalties, reimbursements from employees, and services performed for 

sovereign entities. An allowance for uncollectible accounts receivable from the public is established when 

either (1) based upon a monthly review of outstanding accounts and the failure of all collection efforts,

management determines that collection is unlikely to occur considering the debtor’s ability to pay, and

payment history or (2) an account for which no allowance has been established is submitted to the 

Department of the Treasury for collection, which takes place when it becomes 180 days delinquent. 

J. Operating Materials and Supplies 

In contrast to inventory, which is held for sale by the Franchise Fund, operating materials and supplies are 

used in the operations of the agency. Operating materials and supplies primarily consist of unissued 

materials and supplies that will be used in the construction of National Airspace System (NAS) assets. 

They are valued based on the weighted moving average method or on the basis of actual prices paid. 

Operating materials and supplies are expensed or reclassified as equipment or work in process when

consumed or issued. 

Operating materials and supplies “held for use” are those items that are consumed on a regular and ongoing 

basis. Items “held in reserve” are additional stocks that FAA determined must be on hand to ensure that

operations will continue unabated because, for example, these items may not be readily available on the 

open market. 

An allowance is established for excess, obsolete, and unserviceable operating materials and supplies based 

on the condition of various asset categories as well as FAA’s historical experience disposing such assets. 

K. Inventory 

Under the Franchise Fund basis of operations, inventory is held for sale to FAA field locations and other 

domestic entities and foreign governments. Inventory consists of spare parts, materials, and supplies used in 

support of the NAS that are located at the FAA Mike Monroney Aeronautical Center in Oklahoma City. 

Inventory cost includes material, labor and applicable manufacturing overhead, and is determined using the 

weighted moving average cost method. 

FAA field locations exchange with the Franchise Fund inventory in need of repair, which is classified as

“Held for Repair.” An allowance is established for repairable inventory based on the average historical cost

of such repairs. Once repaired, these items are reclassified as “Held for Sale.” 

Inventory may be classified as excess, obsolete, and unserviceable if, for example, the quantity exceeds 

projected demand for the foreseeable future, or if the item has been technologically surpassed. An 

allowance is established for excess, obsolete, and unserviceable inventory based on the condition of various

inventory categories as well as FAA’s historical experience disposing such inventory. 

L. Property, Plant and Equipment (PP&E) 

FAA capitalizes acquisitions of PP&E when the cost equals or exceeds $25 thousand and the useful life 

equals or exceeds two years. The FAA records PP&E at original acquisition cost. 

Depreciation expense is calculated using the straight-line method. Depreciation commences the first month

of the fiscal year after the asset is placed in service. The FAA does not recognize residual value of its 

PP&E. The useful life classifications for capitalized assets are as follows: 

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Asset Classification – Real Property

Useful Life

(years) 

Offices, buildings, warehouse buildings, residential properties, air traffic control towers, and

enroute air traffic control centers

40 

Mobile buildings 20 

Roads, sidewalks, parking lots, and all other structures 15 

Capital improvements, facility modifications, leasehold improvements 10* 

Asset Classification - Personal Property

Aircraft, navigation, and surveillance equipment 20 

Decision support systems, including computer operating systems, FAA developed hardware, 

mainframe and mini computers, high-end workstations, and displays

4-20 

Communications-related equipment, including voice switches, air-ground radios, and 

microwave network 

10-20 

Weather-related equipment, including general purpose weather sensors, weather radars, radar

transmitters, and radar receivers 

15-20 

Printing and projection equipment 13 

Portable and installed communications equipment excluding air navigation and air traffic 

control facilities, and avionics equipment 

10 

Office furniture and equipment 7 

Vehicles and automatic data processing equipment 5 

Internal use software 3 

*Depreciated over the remaining life of the “parent” asset; if the parent asset is fully depreciated, then the useful

life of improvement or modification is considered to be 10 years. For leasehold improvements, the useful life is 10

years or the expiration of the lease, whichever comes first. 

Buildings and equipment acquired under capital leases are amortized over the lease term. If the lease

agreement contains a bargain purchase option or otherwise provides for transferring title of the asset to

FAA, the building is depreciated over a 40-year service life. 

Construction in progress is valued at actual (direct) costs, plus applied overhead and other indirect costs. 

FAA analyzes centrally funded capital expenditures annually and allocates these costs to the related CIP 

projects and/or in-use assets as appropriate. 

FAA occupies certain real property, which is leased by the Department of Transportation from the General

Services Administration. Payments for these leases are from an appropriation of the Office of the Secretary 

of Transportation; FAA’s portion is derived from the Trust Fund. 

M. Prepaid and Deferred Charges 

Advance payments are generally prohibited by law; there are some exceptions, such as subscriptions and 

payments to contractors and employees. Payments made in advance of the receipt of goods and services are 

recorded as advances or prepaid charges at the time of prepayment and recognized as expenses when the

related goods and services are received. 

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N. Liabilities 

Liabilities covered by budgetary resources are those liabilities for which Congress has appropriated funds 

or funding is otherwise available to pay amounts due. Liabilities not covered by budgetary or other 

resources represent amounts owed in excess of available, congressionally appropriated funds or other 

amounts. The liquidation of liabilities not covered by budgetary or other resources is dependent on future 

congressional appropriations or other funding. Intragovernmental liabilities are claims against FAA by 

other Federal entities. 

O. Annual, Sick, and Other Leave 

Annual leave is accrued as it is earned, and the accrual is reduced as leave is taken. For each bi-weekly pay 

period, the balance in the accrued annual leave account is adjusted to reflect the latest pay rates and unused

hours of leave. Liabilities associated with other types of vested leave, including compensatory, credit hours, 

restored leave, and sick leave in certain circumstances, are accrued at year-end, based on latest pay rates 

and unused hours of leave. Sick leave is generally nonvested, except for sick leave balances at retirement 

under the terms of certain union agreements. Funding will be obtained from future financing sources to the 

extent that current or prior year appropriations are not available to fund annual and other types of vested

leave earned but not taken. Nonvested leave is expensed when used. 

P. Accrued Workers' Compensation

A liability is recorded for actual and estimated future payments to be made for workers' compensation

pursuant to the Federal Employees' Compensation Act (FECA). The actual costs incurred are reflected as a 

liability because FAA will reimburse the Department of Labor (DOL) two years after the actual payment of 

expenses. Future appropriations will be used for the reimbursement to DOL. The liability consists of (1) the 

net present value of estimated future payments calculated by the DOL, and (2) the unreimbursed cost paid

by DOL for compensation to recipients under the FECA. 

Q. 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 the 

FAA’s matching contribution, equal to seven percent of pay, distributed to their annuity account in the

Civil Service Retirement and Disability Fund. 

FERS went into effect on January 1, 1987, pursuant to Public Law 99-335. FERS and Social Security 

automatically cover most employees hired after December 31, 1983. Employees hired prior to January 1, 

1984 could elect either to join FERS and Social Security, or to remain in CSRS. FERS offers a savings plan 

to which FAA automatically contributes 1 percent of pay and matches any employee contribution up to an

additional 4 percent of pay. For FERS participants, FAA also contributes the employer’s matching share for 

Social Security. 

Beginning in FY 1997, FAA began to recognize the imputed cost of pensions and other retirement benefits

during the employees’ active years of service. OPM actuaries determine pension cost factors by calculating 

the value of pension benefits expected to be paid in the future and communicates these factors to the FAA 

for current period expense reporting. OPM also provides information regarding the full cost of health and

life insurance benefits. The FAA recognized the offsetting revenue as imputed financing sources to the 

extent these expenses will be paid by OPM. 

R. Use of Estimates 

Management has made certain estimates and assumptions when reporting assets, liabilities, revenue, and

expenses, and in the footnote disclosures. Actual results could differ from these estimates. Significant 

estimates underlying the accompanying financial statements include (a) the allocation of trust fund receipts 

by the OTA, (b) contingent legal and environmental liabilities, (c) year-end accruals of accounts and grants 

payable, (d) accrued workers’ compensation, (e) allowance for doubtful accounts receivable, and 

(f) allowances for repairable and obsolete inventory balances, and (g) allocations of common costs to

construction in progress. 

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S. Environmental Liabilities 

The FAA recognizes two types of environmental liabilities: environmental remediation and cleanup and 

decommissioning. The liability for environmental remediation is an estimate of all 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 waste when an asset presently in service is shutdown. The FAA estimates the 

environmental cleanup and decommissioning costs at the time an FAA-owned asset is placed in service. 

For assets placed in service through FY 1998, the annual increase or decrease in the estimated 

environmental cleanup liability is charged to expense. Although assets placed in service in FY 1999 and 

after generally do not have associated environmental liabilities, FAA’s accounting policy is to charge any 

such environmental cleanup liability to expense over the life of the associated asset. 

T. Contingencies 

Liabilities are deemed contingent when the existence or amount of the liability cannot be determined with 

certainty pending the outcome of future events. FAA recognizes contingent liabilities when it is both 

probable and can be reasonably estimated. FAA discloses contingent liabilities in the notes to the financial 

statements when the conditions for liability recognition are not met and when the outcome of future events 

is more than remote. In some cases, once losses are certain, payments may be from the Judgment Fund

maintained by Treasury rather than from the amounts appropriated to FAA for agency operations. 

Payments for the Judgment Fund are recorded as an “Other Financing Source” when made. 

U. Changes in Accounting Principle, Prior Period Adjustments, and Restatements 

In FY 2002, the FAA changed its method of accounting for its exchange and repair spare parts (see note 5). 

In connection with this change, exchange and repair spare parts were reclassified from operating materials 

and supplies to PP&E, and FAA recognized accumulated depreciation equal to $152.7 million on these 

spare parts through October 1, 2001 as a cumulative effect adjustment in the 2002 Consolidated Statement 

of Changes in Net Position. 

Effective October 1, 2001, the FAA adopted the provisions of SFFAS number 21, Reporting Corrections of 

Errors and Changes in Accounting Principles. As discussed in notes 5 and 15, the FAA has restated 

operating materials and supplies as of September 30, 2001, by reclassifying slow-moving items from “held 

for use” to “excess, obsolete, and unserviceable” and establishing an allowance for these items to reflect net 

realizable value in accordance with SFFAS number 3, Accounting for Inventory and Related Property. In

addition, parts and components used to service FAA’s fleet of aircraft were reclassified from “held for 

reserve” to “held for use.” 

As discussed in notes 7 and 15, FAA has restated and reduced its environmental liabilities as of

September 30, 2001 by $1,168.2 million to account for a correction in the application of relevant

accounting standards. 

As discussed in notes 8, 12, and 15, FAA has restated its legal claims liability as of September 30, 2001 to

correct an overstatement of those claims considered probable of loss in accordance with SFFAS Number 5, 

Accounting for Liabilities of the Federal Government. 

The FY 2001 Consolidated Statement of Net Cost has been restated to reflect an improved method of

allocating certain costs among FAA lines of business, and for a component of the restatement of legal

claims liability (see notes 8, 12, and 15). 

As disclosed in note 16, instances in which ending balances on the FY 2001 Statement of Budgetary

Resources differ from reported FY 2002 beginning balances include (a) unobligated balances in the Grantsin-Aid program, and (b) a correction of beginning net obligated balances resulting from overstated unfilled

customer orders from Federal sources as of September 30, 2001. 

As disclosed in notes 2 and 15, FAA has restated the unobligated balance available and obligated balance 

not yet disbursed, of its FY 2001 fund balance with the U.S. Treasury. This restatement among the status 

classifications did not affect the total reported fund balance with the U.S. Treasury as of September 30, 

2001. 

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V. Reclassifications 

Certain FY 2001 balances have been reclassified, retitled, or combined with other financial statement line

items for consistency with current year presentation.

NOTE 2. FUND BALANCE WITH TREASURY 

Fund balances with Treasury as of September 30, 2002 and 2001, respectively, were:

2002 2001

Trust Fund $ 1,023,246 $ 698,763

Operations General Fund 775,014 1,036,548

Franchise Fund 127,297 74,525

Revolving Fund 12,485 85,081

Corpus and Other Funds 601,262 103,380

Total $ 2,539,304 $ 1,998,297

Unobligated Balance

 Available (2001 restated) $ 1,017,806 $ 1,168,136

 Restricted 665,933 96,998

Obligated Balance Not Yet Disbursed (2001 restated) 855,565 733,163

Total $ 2,539,304 $ 1,998,297

Status of Fund Balance with Treasury

Restricted unobligated fund balances represent the amount of appropriations for which the period of

availability for obligation has expired. These balances are available for upward adjustments of obligations 

incurred only during the period for which the appropriation was available for obligation or for paying

claims attributable to the appropriation. 

The September 30, 2001 unobligated balance available and obligated balance not yet disbursed have been

revised to correct a previously reported error. This restatement does not affect the total reported fund 

balance with Treasury as of September 30, 2001. 

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NOTE 3. INVESTMENTS 

As of September 30, 2002 and 2001, FAA's investment balances were:

2002 2001

Nonmarketable, Par Value - Trust Fund $ 10,996,847 $ 13,659,804

Nonmarketable, Market Based - Aviation Insurance Fund 91,733 -

Accrued Interest 124,867 206,976

Investments at Cost $ 11,213,447 $ 13,866,780

Market Value Disclosure

Nonmarketable, Par Value - Trust Fund $ 10,996,847 $ 13,659,804

Nonmarketable, Market Based - Aviation Insurance Fund 91,733 -

Unamortized Premium - Nonmarketable, Market Based 454 -

Nonmarketable, Market Based, net 92,187 -

Market Value Disclosure $ 11,089,034 $ 13,659,804

Intragovernmental Securities

Nonmarketable par value Treasury Certificates of Indebtedness are special series debt securities issued by

the Bureau of the Public Debt to Federal accounts, and are purchased and redeemed at par (face value)

exclusively through Treasury’s Federal Investment Branch. The securities are held to maturity and

redeemed at face value on demand; thus, investing entities recover the full amount invested plus interest. 

The Fund's trustee, the Secretary of the Treasury, makes Trust Fund investments on behalf of FAA. As of

September 30, 2002 and 2001, approximately $11.1 billion and $13.7 billion, respectively, were invested in 

U.S. Treasury Certificates of Indebtedness. FY 2002 amounts mature June 30, 2003, and FY 2001 amounts

matured June 30, 2002. The annual rate of return on Certificates of Indebtedness is established in the month 

of issuance. The average rate for certificates issued during FY 2002 and FY 2001 was 5.125 percent and 

6.375 percent, 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. 

Following the terrorist attacks of September 11, 2001, all market-based Treasury securities were redeemed

so they would be available for use in various initiatives related to the Aviation Insurance Program (see note 

19). Thus, FAA reported no nonmarketable, market-based securities as of September 30, 2001. During

FY 2002, FAA again began investing in nonmarketable, market-based Treasury securities. 

As of September 30, 2002 the following amounts were invested in market-based Treasury securities: 

Effective

Maturity Interest Net

Date Rate Investments

12/19/02 1.73% $ 28,175

01/16/03 1.71% 40,687

02/13/03 1.61% 23,325

$ 92,187

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NOTE 4. ACCOUNTS RECEIVABLE, ADVANCES, AND OTHER ASSETS 

Accounts receivable, advances, prepayments, and other assets as of September 30, 2002 and 2001 were 

comprised of the following: 

2002 2001

Intragovernmental

Accounts Receivable $ 270,155 $ 127,429

Advances and Prepayments 28,524 40,442

Other 749 5,651

Subtotal, Intragovernmental 299,428 173,522

With the Public

Accounts Receivable, net 58,047 51,280

Advances and Prepayments 35,413 67,204

Deposits in Transit and Other 19,835 44,665

Subtotal, With the Public 113,295 163,149

Total Accounts Receivable, Advances,

Prepayments and Other $ 412,723 $ 336,671

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 $5.6 million 

and $5.4 million, as of September 30, 2002 and 2001, respectively. 

NOTE 5. INVENTORY AND RELATED PROPERTY 

Effective October 1, 2001, FAA changed its method of accounting for exchange and repair (E&R) spare 

parts kept at field locations. This reclassification of the E&R spare parts to equipment is a change to a 

preferable method of accounting because it enables FAA to associate the cost of these items more properly 

with the periods benefited (via depreciation). In connection with this change, $416.4 million in gross value 

of operating materials and supplies (items held for use) as of September 30, 2001 was reclassified to

personal property – equipment on October 1, 2001. The accumulated depreciation on these spare parts

through September 30, 2001, had they been originally classified as personal property – equipment, was 

$152.7 million. This amount is reported on the Consolidated Statement of Changes in Net Position as the 

cumulative effect of the change in accounting method. The remaining operating materials and supplies 

consist primarily of unissued materials and supplies that will be utilized in the construction of NAS assets. 

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FY 2002 Performance and Accountability Report

As of September 30, 2002 and 2001, inventory and operating materials and supplies were:

Operating Material and Supplies 2002 2001

Held For Use (Restated, Note 15) $ 152,335 $ 604,699

Excess, Obsolete, and Unserviceable, net (Restated, Note 15) 24,817 21,482

Subtotal, Operating Material and Supplies 177,152 626,181

Inventory

Held for Sale $ 65,164 $ 63,154

Held for Repair, net 336,133 362,770

Raw Materials, Finished Goods, and Other 13,643 14,297

Excess, Obsolete, and Unserviceable, net 13,603 20,584

Subtotal, Inventory 428,543 460,805

Total Inventory and Related Property, net $ 605,695 $ 1,086,986

Excess, obsolete, and unserviceable, and inventory held for repair are shown net of the following 

allowances: 

Operating Materials and Supplies 2002 2001

Excess, Obsolete, and Unserviceable (Restated, Note 15) $ (47,044) $ (40,797)

Inventory

Held for Repair (82,963) (55,167)

Excess, Obsolete, and Unserviceable (11,129) (15,528)

Total Allowances $(141,136) $ (111,492)

As discussed in note 15, FAA has restated operating materials and supplies as of September 30, 2001 by

reclassifying $48.4 million of slow-moving items from “held for use” to “excess, obsolete, and 

unserviceable” and establishing an allowance of $34.7 million for these items to reflect net realizable value 

in accordance with SFFAS number 3, Accounting for Inventory and Related Property. In addition, 

$96.2 million of parts and components used to service FAA’s fleet of aircraft were reclassified from “held 

for reserve” to “held for use.” 

Inventory is considered held for repair based on condition levels, and the allowance for repairable 

inventory is based on the average historical cost of such repairs. During FY 2002 and FY 2001, FAA

recognized increases of $27.8 million and $55.2 million, respectively, to its allowance for inventory held

for repair. 

FAA transfers excess items for disposal into the Government-wide automated disposal system. Disposal 

proceeds, recognized upon receipt, may go to the General Fund or to an FAA appropriation, depending 

upon the nature of the item and the disposal method. 

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NOTE 6. PROPERTY, PLANT, AND EQUIPMENT, NET 

Property, plant, and equipment balances at September 30, 2002 and 2001, respectively, were: 

Deprec. Service Acquisition Accumulated Net

Class of Fixed Asset Method Life Value Depreciation Book Value

Real Property, Including Land [1] [2] $ 3,536,010 $ (1,675,322) $ 1,860,688

Personal Property (Note 5) SL 3-20 12,041,260 (5,275,361) 6,765,899

Assets Under Capital Lease (Note 7) SL Term-40 126,142 (55,397) 70,745

Construction in Progress - - 4,477,425 - 4,477,425

Property Not in Use - - 2,283 (1,272) 1,011

Total Property, Plant, and Equipment $ 20,183,120 $ (7,007,352) $ 13,175,768

Deprec. Service Acquisition Accumulated Net

Class of Fixed Asset Method Life Value Depreciation Book Value

Real Property, Including Land [1] [2] $ 3,300,694 $ (1,552,988) $ 1,747,706

Personal Property SL 3-20 11,174,613 (4,486,094) 6,688,519

Assets Under Capital Lease (Note 7) SL Term-40 110,432 (38,769) 71,663

Construction in Progress - - 3,218,646 - 3,218,646

Property Not in Use - - 966 (966) -

Total Property, Plant, and Equipment $ 17,805,351 $ (6,078,817) $ 11,726,534

[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.

2002

2001

FAA’s Construction in Progress (CIP) primarily relates to its NAS assets, which are derived from centrally 

funded national systems development contracts, site preparation and testing, raw materials, and internal 

labor charges. Some centrally funded payments are initially recorded as expenses; therefore, FAA routinely 

reviews these payments to determine those that are capitalizable. In FY 2002 and FY 2001, these reviews 

resulted in the identification of additional CIP costs totaling $482 million and $605 million, respectively. 

After these reviews, FAA then performs an analysis to determine that amount of centrally funded CIP costs 

that should be transferred to assets that are in-use. As a result of this analysis, FAA transferred 

$313 million and $1,072 million of centrally funded CIP costs to its in-use assets in FY 2002 and FY 2001, 

respectively. 

Assets temporarily not in use, including decommissioned assets awaiting disposition, are reflected in the 

FAA financial records as Property Not in Use. FAA reported disposition losses of $82.8 million and

$139.1 million in FY 2002 and FY 2001, respectively. 

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NOTE 7. ENVIRONMENTAL CLEANUP COSTS 

As discussed in note 15, FAA’s financial statements as of September 30, 2001 have been restated to reflect

a reduction in environmental remediation and cleanup and decommissioning liabilities. FAA's 

environmental liabilities as of September 30, 2002 and 2001 as restated, respectively, were: 

2001

2002 As Restated

Environmental Remediation $ 311,914 $ 325,019

Environmental Cleanup and Decommissioning 262,762 262,762

 

Total Environmental Liabilities $ 574,676 $ 587,781

NOTE 8. EMPLOYEE RELATED, LEGAL, AND OTHER LIABILITIES 

As of September 30, 2002 and 2001, respectively, FAA’s employee related, legal, and other liabilities 

were: 

Intragovernmental

Non-Current 

Liabilities

Current

Liabilities Total

Advances Received $ - $ 30,995 $ 30,995

Accrued Payroll & Benefits Payable to Other Agencies - 71,654 71,654

Excise Taxes Payable to Treasury - 105,188 105,188

Other - 78,005 78,005

Liabilities Covered by Budgetary Resources - 285,842 285,842

Federal Employees Compensation Act 113,274 86,365 199,639

Debt 30 - 30

Liabilities Not Covered by Budgetary Resources 113,304 86,365 199,669

Subtotal, Intragovernmental 113,304 372,207 485,511

With the Public

Advances Received and Other 820 7,302 8,122

Accrued Payroll & Benefits Payable to Employees - 299,194 299,194

Liabilities Covered by Budgetary Resources 820 306,496 307,316

Accrued Unfunded Annual & Other Leave & Assoc. Benefits 451,341 - 451,341

Sick Leave Compensation Benefits for Air Traffic Controllers 52,138 869 53,007

Capital Leases (Note 9) 64,398 13,698 78,096

Legal Claims 93,650 76,250 169,900

Return Rights 5,250 2,450 7,700

Other Accrued Liabilities 104,605 4,141 108,746

Liabilities Not Covered by Budgetary Resources 771,382 97,408 868,790

Subtotal, With the Public 772,202 403,904 1,176,106

Total Employee Related, Legal, and Other Liabilities $ 885,506 $ 776,111 $ 1,661,617

2002

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FY 2002 Performance and Accountability Report

Intragovernmental

 Non-Current

Liabilities

 Current 

Liabilities Total

Advances Received $ - $ 22,537 $ 22,537

Accrued Payroll & Benefits Payable to Other Agencies - 55,478 55,478

Other - 95,059 95,059

Liabilities Covered by Budgetary Resources - 173,074 173,074

Federal Employees Compensation Act 109,981 84,337 194,318

Debt 28 - 28

Liabilities Not Covered by Budgetary Resources 110,009 84,337 194,346

Subtotal, Intragovernmental 110,009 257,411 367,420

With the Public

Advances Received and Other - (15,509) (15,509)

Accrued Payroll & Benefits Payable to Employees - 249,063 249,063

Liabilities Covered by Budgetary Resources - 233,554 233,554

Accrued Unfunded Annual & Other Leave & Assoc. Benefits 412,590 - 412,590

Sick Leave Compensation Benefits for Air Traffic Controllers 47,850 811 48,661

Capital Leases (Note 9) 65,015 15,256 80,271

Legal Claims (Restated, Note 15) 123,900 65,909 189,809

Return Rights 4,050 6,050 10,100

Other Accrued Liabilities 109,346 - 109,346

Liabilities Not Covered by Budgetary Resources 762,751 88,026 850,777

Subtotal, With the Public 762,751 321,580 1,084,331

Total Employee Related, Legal, and Other Liabilities $ 872,760 $ 578,991 $ 1,451,751

2001

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, 2002 includes workers’ 

compensation benefits paid by DOL during the period July 1, 2000 through June 30, 2002, and accrued

liabilities for the quarter July 1, 2002 through September 30, 2002. FAA’s accrued liability as of 

September 30, 2001 was for the corresponding period July 1, 1999 through September 30, 2001. 

The estimated liability for accrued unfunded leave and associated benefits includes annual and other types 

of vested leave, and sick leave under the terms the National Air Traffic Controllers Association agreement, 

Article 25, Section 13. This agreement gives air traffic controllers, who are covered under the FERS, the 

option to receive a lump-sum payment for 40 percent of their accumulated sick leave as of the date of 

retirement eligibility. Based on sick leave balances, this liability was $53.0 million and $48.7 million as of 

September 30, 2002 and 2001, respectively. 

As discussed in note 15, legal claims liabilities as of September 30, 2001 have been restated because the 

originally stated amount included certain claims that are not considered probable of loss in accordance with

SFFAS Number 5. The correction of this overstatement as of September 30, 2001 reduces the originally 

stated $679.0 million legal claims liability by $489.2 million to $189.8 million, and correspondingly 

reduces the balance sheet line within which legal claims is reported, “Employee Related, Legal, and Other 

Liabilities.” 

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FY 2002 Performance and Accountability Report

FAA estimated that $1.7 million of its $169.9 million legal claims liability as of September 30, 2002, 

would be paid from FAA appropriations, and $168.2 million would be paid from the permanent

appropriation for judgments, awards, and compromise settlements (Judgment Fund) administered by the 

Department of Treasury. Of its $189.8 million legal claims liability as of September 30, 2001, FAA 

estimated that $2.1 million would be paid from FAA appropriations, and $187.7 million would be paid

from the Judgment Fund. 

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 the employees to a future return move at

Government expense. As of September 30, 2002 and 2001, there were 154 and 202 employees, 

respectively, entitled to these return rights. 

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, 2002 and 2001: 

2002 2001

Land, Buildings, and Machinery $ 126,142 $ 110,432

Accumulated Depreciation (55,397) (38,769)

Assets Under Capital Lease, Net $ 70,745 $ 71,663

As of September 30, 2002, FAA’s future payments due on assets under capital lease were:

Year 1 $ 13,698

Year 2 13,698

Year 3 13,041

Year 4 10,722

Year 5 10,525

After 5 Years 43,128

Less: Imputed Interest (26,716)

Total Capital Lease Liability $ 78,096

Future Payments Due by Fiscal Year

(Liabilities Not Covered By Budgetary Resources)

FAA’s capital lease payments are funded annually. The remaining principal payments are recorded as

unfunded lease liabilities. The imputed interest is funded and expensed annually. 

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Operating Leases

FAA has operating leases for real property, aircraft, and telecommunications equipment. Future operating 

lease payments due as of September 30, 2002 were: 

Land &

Fiscal Year Buildings Other Total

 Year 1 (FY 2003) $ 51,875 $ 1,428 $ 53,303

 Year 2 (FY 2004) 47,277 1,193 48,470

 Year 3 (FY 2005) 44,661 956 45,617

 Year 4 (FY 2006) 40,626 686 41,312

 Year 5 (FY 2007) 35,822 683 36,505

 After 5 Years 63,276 2,820 66,096

 Total Future Operating Lease Payments $ 283,537 $ 7,766 $ 291,303

Operating lease expense incurred during the years ended September 30, 2002 and 2001 was $60.0 million 

and $48.8 million, respectively. The operating lease amounts due after 5 years does not include estimated 

payments for leases with annual renewal options. Estimates of the lease termination dates are subjective, 

and any projection of future lease payments would be arbitrary. 

NOTE 10. FEDERAL EMPLOYEE AND VETERANS BENEFITS PAYABLE 

As of September 30, 2002 and 2001, FECA actuarial liabilities were $997.1 million and $1,044.3 million

respectively. 

The DOL calculates the FECA liability for DOT, and DOT allocates the liability amount to FAA based 

upon actual workers’ compensation payments to FAA employees over the preceding four years. FECA

liabilities include the expected liability for death, disability, medical, and miscellaneous costs for approved 

compensation cases, plus a component for incurred but not reported claims. The estimated liability is not 

covered by budgetary resources and thus will require future appropriated funding. 

NOTE 11. TOTAL COST AND EARNED REVENUE BY BUDGET FUNCTIONAL

CLASSIFICATION

In FY 2002 and FY 2001, a total of $163 thousand and $2 thousand of FAA’s expenses, respectively, 

related to Community and Regional Development Programs. All other expenses, earned revenues, and

intragovernmental transactions related to Transportation Programs. 

NOTE 12. NET COST BY PROGRAM AND OTHER STATEMENT OF NET COST 

DISCLOSURES

FAA’s six lines of business represent the programs reported on the Statement of Net Cost. Cost centers 

assigned to each line of business permit the direct accumulation of costs. Other costs that are not directly

traced to each line of business, such as agency overhead, are allocated by applying ratios representing the

cost for each line of business divided by the total cost (excluding grant payments) for all lines of business. 

The FY 2001 Consolidated Statement of Net Cost has been restated to reflect an improved method of

allocating certain costs among the FAA lines of business. While this restatement does not impact FY 2001

total net costs, net costs of several FAA lines of business are restated. Also, FAA’s correction of its legal

claims liability as of September 30, 2001 correspondingly impacts its Consolidated Statement of Net Cost

for the year then ended. The effects of these restatements are shown in note 15. 

Following is FAA’s distribution of FY 2002 net costs by intragovernmental-related versus with the public. 

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FY 2002 Performance and Accountability Report

For the Year Ended September 30, 2002

Intra- With the

Line of Business Programs governmental Public Total

Air Traffic Services

Expenses $ 993,362 $ 6,320,410 $ 7,313,772

Less: Earned revenues (56,860) (20,247) (77,107)

Net Air Traffic Services Costs 936,502 6,300,163 7,236,665

Regulation & Certification

Expenses 122,368 802,246 924,614

Less: Earned revenues (568) (553) (1,121)

Net Regulation & Certification Costs 121,800 801,693 923,493

Research & Acquisitions

Expenses 146,683 440,308 586,991

Less: Earned revenues (36,549) (35,580) (72,129)

Net Research & Acquisitions Costs 110,134 404,728 514,862

Airports

Expenses 8,547 2,924,995 2,933,542

Net Airports Costs 8,547 2,924,995 2,933,542

Civil Aviation Security

Expenses 297,168 507,654 804,822

Less: Earned revenues (110,516) (80,396) (190,912)

Net Civil Aviation Security Costs 186,652 427,258 613,910

Commercial Space Transportation

Expenses - 11,361 11,361

Net Commercial Space Transportation Costs - 11,361 11,361

Non Line of Business Programs

Regional and Center Operations and

Other Programs

Expenses 83,877 257,106 340,983

Less: Earned revenues (90,004) (35,104) (125,108)

Net Other Program Costs (6,127) 222,002 215,875

Not Assigned to Programs

 Expenses - 50,622 50,622

Less: Earned revenues (28,585) (27,826) (56,411)

Net Costs Not Assigned to Programs (28,585) 22,796 (5,789)

Net Cost of Operations

Total expenses 1,652,005 11,314,702 12,966,707

Less: Total earned revenues (323,082) (199,706) (522,788)

Net Cost of Operations $ 1,328,923 $ 12,443,919 11,114,996 $ 

Comparative Statement of Net Cost information is presented in Note 15.

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NOTE 13. TAXES AND OTHER NONEXCHANGE REVENUE 

The IRS collects various taxes on behalf of the FAA's Airport and Airway Trust Fund. These taxes can be 

withdrawn only as authorized by FAA appropriations. Treasury estimates the taxes to be collected each 

quarter and adjusts the estimates by actual collections. Accordingly, the total taxes recognized for the year 

ended September 30, 2002 included OTA’s estimate of $2.5 billion for the quarter ending September 30, 

2002. For the year ended September 30, 2002, Treasury reported to FAA the following taxes collected: 

2002

Passenger Ticket Tax $ 6,300,562

International Departure Tax 1,410,234

Investment Income 777,693

Fuel Taxes 802,749

Waybill Tax 394,317

Tax Refunds and Credits (59,613)

Total Taxes and Other Nonexchange Revenue $ 9,625,942

NOTE 14. IMPUTED FINANCING SOURCES 

The FAA recognizes as imputed financing the amount of accrued pension and post-retirement benefit

expenses for current employees. The assets and liabilities associated with such benefits are the 

responsibility of the administering agency, the OPM. Amounts paid from the Treasury Judgment Fund in 

settlement of claims or court assessments against the FAA are also recognized as imputed financing. For 

the fiscal year ended September 30, 2002, imputed financing was as follows:

2002

Office of Personnel Management $ 394,826

Treasury Judgment Fund 65,910

Total Imputed Financing Sources $ 460,736

NOTE 15. PRIOR PERIOD ADJUSTMENTS – RESTATEMENTS

FAA’s environmental liabilities as of September 30, 2001 have been restated and reduced by

$1,168.2 million to correct the application of relevant accounting standards. The restatement is comprised 

of reductions of $57.2 million in environmental remediation and $1,111.0 million in environmental cleanup 

and decommissioning. The restatement results from three primary factors: (1) the 2001 restated liability is 

reported in constant dollars, while the originally stated liability was determined using inflation factors to 

approximate the future payments; (2) the restated 2001 liability considers reduced costs associated with

cleanup of assets that are co-located within a single facility, while the FY 2001 estimate was without regard

to co-locations; and (3) the restated 2001 liability is based on asset counts from the Interim Fixed Asset 

System (IFAS), which FAA implemented in FY 2001. Asset counts within IFAS differ from the source

used in estimating the originally stated FY 2001 liability. 

As discussed in note 8, the FAA has restated its legal claims liability as of September 30, 2001 because the 

originally stated amount included claims that were not probable of loss in accordance with SFFAS 

Number 5. As a result, the originally stated $679.0 million legal claims liability (as a component of 

Employee Related, Legal, and Other Liabilities) was reduced by $489.2 million to $189.8 million. This 

correction of the legal claims liability also reduced FY 2001 expenses by $141.3 million.

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FY 2002 Performance and Accountability Report

As discussed in note 5, the FAA has restated its operating materials and supplies as of September 30, 2001

by reclassifying $48.4 million of slow-moving items from “held for use” to “excess, obsolete, and

unserviceable,” and establishing a $34.7 million allowance for these items to reflect net realizable value in 

accordance with SFFAS number 3, Accounting for Inventory and Related Property. In addition,

$96.2 million of parts and components used to service FAA’s fleet of aircraft were reclassified from “held 

for reserve” to “held for use.” As a result, the originally stated $660.9 million balance of operating 

materials and supplies, net, (as a component of Inventory and Related Property) was reduced by $34.7

million to $626.2 million.

The FY 2001 Consolidated Statement of Net Cost has also been restated to reflect an improved method of 

allocating certain costs among the FAA lines of business (see note 12). 

As disclosed in note 2, the FAA has restated the unobligated balance available and obligated balance not 

yet disbursed, of its FY 2001 fund balance with Treasury. This restatement among the status classifications

did not affect the total reported fund balance with Treasury as of September 30, 2001. 

The effects of these restatements on the Consolidated Balance Sheet as of September 30, 2001 are follows:

2001

Originally Effect of 2001

Stated Restatement As Restated

 

Inventory and Related Property, net $ 1,121,698 $ (34,712) $ 1,086,986

Environmental Cleanp Costs $ 1,756,000 $ (1,168,219) $ 587,781

Employee Related, Legal, and Other $ 1,573,545 $ (489,214) $ 1,084,331

Cumulative Results of Operations $ 23,105,205 $ 1,622,721 $ 24,727,926

Restatements of certain FY 2002 opening balances affecting the Combined Statement of Budgetary 

Resources are discussed in Note 16.

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The effects of the restatements on the Consolidated Statement of Net Cost for the year ended September 30, 

2001 are as follows: 

2001 Effect of

Originally Effect of Legal Claims 2001

Line of Business Programs Stated Reallocations Restatement As Restated

Air Traffic Service

Intragovernmental expenses $ 991,401 $ - $ - $ 991,401

Public expenses 6,083,177 54,800 (141,254) 5,996,723

Total expenses 7,074,578 54,800 (141,254) 6,988,124

Less earned revenues (112,832) 31,675 - (81,157)

Net Air Traffic Service Costs 6,961,746 86,475 (141,254) 6,906,967

Regulations & Certification

Intragovernmental expenses 110,027 - - 110,027

Public expenses 690,212 (275) - 689,937

Total expenses 800,239 (275) - 799,964

Less earned revenues (1,276) - - (1,276)

Net Regulations & Certification Costs 798,963 (275) - 798,688

Research & Acquisitions

Intragovernmental expenses 121,041 - - 121,041

Public expenses 581,605 (177,385) 404,220

Total expenses 702,646 (177,385) - 525,261

Less earned revenues (38,966) - - (38,966)

Net Research & Acquisitions Costs 663,680 (177,385) - 486,295

Airports

Intragovernmental expenses 8,080 8,080

Public expenses 2,170,496 - - 2,170,496

Net Airports Costs 2,178,576 - - 2,178,576

Civil Aviation Security

Intragovernmental expenses 32,425 - - 32,425

Public expenses 195,130 (66,121) 129,009

Total expenses 227,555 (66,121) - 161,434

Less earned revenues (1,031) - - (1,031)

Net Civil Aviation Security Costs 226,524 (66,121) - 160,403

Commercial Space

Intragovernmental expenses 1,329 - - 1,329

Public expenses 8,243 8 8,251

Net Commercial Space Costs 9,572 8 - 9,580

Non Line of Business Programs

Regional and Center Operations and

Other Programs

Intragovernmental expenses 77,880 - - 77,880

Public expenses 101,676 (16,833) 84,843

Total expenses 179,556 (16,833) - 162,723

Less earned revenues (11,560) (32,380) - (43,940)

Net Other Program Costs 167,996 (49,213) - 118,783

Not Assigned to Programs

Public expenses (149,298) 205,806 - 56,508

Total expenses (149,298) 205,806 - 56,508

Less earned revenues (43,190) 705 - (42,485)

Net Costs Not Assigned to Programs (192,488) 206,511 - 14,023

Net Cost of Operations

Intragovernmental expenses 1,342,183 - - 1,342,183

Public expenses 9,681,241 - (141,254) 9,539,987

Total expenses 11,023,424 - (141,254) 10,882,170

Less earned revenues (208,855) - - (208,855)

Net Cost of Operations $ 10,814,569 $ - $ (141,254) $ 10,673,315

U.S. Department of Transportation

CONSOLIDATED STATEMENTS OF NET COST

FEDERAL AVIATION ADMINISTRATION

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NOTE 16. STATEMENT OF BUDGETARY RESOURCES DISCLOSURES 

The amounts reported in the Statement of Budgetary Resources are in agreement with the summary totals 

presented in the Budget of the United States Government. Amounts reported for the Operations

appropriation were adjusted to eliminate the effect of transfers between the Trust Fund and the General

Fund components of this account because they overstated budgetary resources and obligations. The 

Required Supplementary Information section of this report includes a schedule of budgetary resources by

each of FAA’s major fund types. 

FAA incurred several rescissions of budgetary resources in FY 2002, including reductions to the Facilities 

& Equipment Fund of $16.7 million and Grants-in-Aid for Airports contract authority of $301.7 million. 

There are two significant instances in which ending balances on the FY 2001 Statement of Budgetary

Resources differ from reported FY 2002 beginning balances:

• The FY 2002 Grants-in-Aid program beginning unobligated balance is $301.9 million higher than the 

FY 2001 ending unobligated balance. At the end of FY 2001, this amount was classified as 

“Temporarily Not Available” rather than “Unobligated Balance Not Available.” If this amount had 

been reclassified as unobligated not available, the FY 2001 ending and FY 2002 beginning balances 

would have been in agreement. 

• The FY 2002 beginning net obligated balance is $109.3 million less than the FY 2001 ending balance. 

This adjustment was necessary to correct the balance of “Unfilled customer orders from Federal 

sources,” which was correspondingly overstated as of September 30, 2001. 

In FY 2001, there was $36 million appropriated and reported as budget authority for user fees. In FY 2002, 

$29.6 million in user fees were collected and reported on the SF 132 Apportionment and Reapportionment 

Schedule as an unobligated balance. The $6.4 million balance that was appropriated but not collected was 

not carried forward to FY 2002. 

OMB Bulletin Number 01-09 requires the following additional Statement of Budgetary Resources 

disclosures: 

• FAA does not have any significant differences between the information reported on the Statement of 

Budgetary Resources and the amounts described as FY 2002 “actual” in the Budget of the United 

States Government for FY 2004. Subsequent to the final FY 2001 FACTS II submission, however,

audit adjustments to deobligate $36.3 million were reported in the FY 2001 Statement of Budgetary 

Resources. The beginning balances of the FY 2002 Statement of Budgetary Resources reflect these 

audit adjustments. Since the Budget of the United States Government is derived from final FACTS II 

data, the Budget of the United States Government does not reflect these adjustments. 

• FAA does not have obligations classified as “exempt from apportionment.” However, during 

FY 2002, direct and reimbursable obligations incurred against amounts apportioned under categories 

A and B, as defined in OMB Circular A-34, Instructions on Budget Execution, were as follows: 

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FY 2002 Performance and Accountability Report

Category A Category B Total

Direct $ 14,446,516 $ 299,149 $ 14,745,665

Reimbursable 1,051,173 - 1,051,173

$ 15,497,689 $ 299,149 $ 15,796,838

Obligations Incurred

Total available contract authority at the end of FY 2002 was $4 billion.

Public Laws 106-181 and 107-87 authorized FAA $3.3 billion and $1.8 billion in contract and liquidating 

authority, respectively, which are derived from the Airport and Airway Trust Fund and available until 

expended, for the Grants-in-Aid programs. The unobligated balance at the end of FY 2002 was $.9 million. 

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 2001, $15.9 million of unobligated balances, and $.4 million of obligated

balances, respectively, were in appropriations cancelled at year-end, pursuant to 31 USC 1552, and thus

have not been brought forward to FY 2002. 

The net obligated balance, end of period, is comprised of the following components:

Obligated balance, net, end of period Amount

Accounts receivable $ (345,878)

Unfilled customer orders from Federal sources (92,074)

Undelivered orders 7,445,017

Accounts payable 991,071

Total obligated balance, net end of period $ 7,998,136

NOTE 17. FINANCING SOURCES YET TO BE PROVIDED 

The following table shows the relationship between liabilities not covered by budgetary resources on the 

balance sheet and the change in components of net cost of operations that will require resources in future 

periods. 

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FY 2002 Performance and Accountability Report

Liabilities Not Covered by Budgetary Resources, 

 Beginning of Period, as restated $ 2,677,163

Components Requiring Resources in Future Periods:

Increases:

Unfunded Annual & Other Leave & Assoc. Benefits (Note 8) 38,751

FECA (Actual) (Note 8) 5,321

Sick Leave Buy-Back Option for Air Traffic Controllers (Note 8) 4,346

Debt (Note 8) 2

Decreases:

Environmental Liabilities (Notes 7 and 15) (13,105)

Legal Claims (Note 8) (19,909)

Return Rights (Note 8) (2,400)

Capital Leases (Notes 8 & 9) (2,175)

Other Accrued Liabilities (Note 8) (600)

FECA (Actuarial) (Note 10) (47,156)

Total Components of Net Cost of Operations that will Require

Resources in Future Periods (36,925)

Liabilities Not Covered by Budgetary Resources, End of Period $ 2,640,238

For the Year Ended September 30, 2002

The FY 2001 ending balance of liabilities not covered by budgetary resources was $4,379.9 million, which

was $1,702.7 million greater than the beginning balance of $2,677.2 million brought forward. This

difference was attributable to three factors: (a) environmental liabilities were restated and reduced by

$1,168.2 million, (b) legal claims liabilities were restated and reduced by $489.2 million, and (c) certain

accounts have been reclassified between covered versus not covered by budgetary resources, resulting in a 

net decrease of $45.3 million.

NOTE 18. CUSTODIAL ACTIVITY 

FAA collects certain non-exchange (custodial) revenue on behalf of the General Fund of the Treasury. 

During FY 2002, FAA’s Statement of Changes in Net Position included custodial revenue totaling

$29.2 million. The primary source of custodial activity is revenue from the Metropolitan Washington

Airport Authority for its leases of Ronald Reagan National Airport and Washington Dulles International 

Airport. Custodial activity also includes the collection of miscellaneous fines and penalties. 

NOTE 19. COMMITMENTS, CONTINGENCIES, AND OTHER DISCLOSURES 

Contract Options. As of September 30, 2002 and 2001, FAA had contract options of $19.9 billion and

$17.9 billion, respectively. These contract options give FAA the unilateral right to purchase additional 

equipment or services or to extend the contract terms. Exercising this right would require the obligation of

funds in future years.

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Contract Negotiations. As of September 30, 2002 and 2001, FAA had a total of $42.1 million and 

$106.4 million, respectively, in commitments (funds reserved for possible future obligations) under 

unexpired Facilities and Equipment, and Research, Engineering, and Development appropriations. The 

commitments were for purchases of goods and services for which contract negotiations have not been

completed (i.e., agency obligations had not been incurred) at the end of each respective fiscal year. 

Letters of Intent. FAA has authority under Title 49 U.S.C. 47110(e) to issue letters of intent (LOI) to 

enter into AIP grant agreements. Through September 30, 2002, FAA issued LOI’s covering FY 1988 

through FY 2014 totaling $4.3 billion. As of September 30, 2002, FAA had obligated $2.7 billion of this 

total amount, leaving $1.6 billion unobligated. FAA anticipates obligating an additional $293 million in

FY 2003. 

As of September 30, 2001, LOI’s covering FY 1988 through FY 2014 totaled $3.9 billion. Of this amount, 

FAA had obligated $2.4 billion, leaving $1.5 billion unobligated as of September 30, 2001. 

AIP Grants. FY 2002 AIP grant authority totaled $3.5 billion, including $1.7 billion in entitlements to

specific locations. Of entitlements to specific locations, sponsors have claimed $1.4 billion, and $355

million remains available from unused or newly enacted contract authority to those sponsors through 

FY 2004, or in the case of non-hub primary airport locations, through FY 2005. 

In FY 2001, AIP grant authority was $3.1 billion, including $1.4 billion in entitlements to specific 

locations. Of entitlements to specific locations, the sponsors had claimed $1.1 billion, and $298 million

remained available from unused or newly enacted contract authority to those sponsors through FY 2003, or

in the case of non-hub primary airport locations, through FY 2004. 

Aviation Insurance Program. FAA is authorized to issue hull and liability insurance under the Aviation

Insurance Program for air carrier operations for which commercial insurance is not available on reasonable 

terms and when continuation of U.S. flag commercial air service is necessary in the interest of air 

commerce, national security, and the foreign policy of the United States. FAA may issue (1) non-premium

insurance, and (2) premium insurance for which a risk-based premium is charged to the air carrier. 

FAA maintains standby non-premium war-risk insurance policies for 38 air carriers having approximately

974 aircraft available for Defense or State Department charter operations. 

On September 22, 2001, the premium insurance program was expanded by the Air Transportation Safety

and System Stabilization Act (Public Law 107-42) to include all scheduled domestic air carriers. Under this 

program, the FAA provided temporary war-risk insurance to U.S. carriers whose coverage was cancelled 

following the terrorist attacks on September 11, 2001. As of September 30, 2001, $121.68 billion of war 

risk insurance was extended to 74 carriers for a period of 30 days, and coverage has been subsequently

extended, typically for 60-day periods. As of September 30, 2002, $114 billion of war risk coverage was 

extended to 72 carriers until October 16, 2002. The most recent period of coverage is December 16, 2002

to February 13, 2003, in which $112.5 billion of war risk coverage is extended to 71 carriers. The issuance 

of temporary war-risk coverage to all scheduled domestic carriers provides necessary insurance to

qualifying carriers while allowing time for the commercial insurance market to stabilize. Premiums under

this program are established by the FAA and are assessed per departure. During FY 2002 and FY 2001, the 

FAA recognized insurance premium revenue of $74.6 million and $4.6 million, respectively. Premiums are 

recognized as revenue on a straight-line basis over the period of coverage. Premium revenue is reported on

the Consolidated Statement of Net Cost, under “Regional and Center Operations and Other Programs.” 

In the past, the FAA has insured a small number of air carrier operations and establishes a maximum

liability for losing one aircraft. Typically, the maximum liability for both hull loss and liability, per 

aircraft, is $1.75 billion. No claims for losses were pending as of September 30, 2002. Since the inception 

of the Aviation Insurance Program (including the predecessor Aviation War Risk Insurance Program dating 

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FY 2002 Performance and Accountability Report

back to 1951) only four claims, all involving minor dollar amounts, have been paid. Because of the 

unpredictable nature of war risk and the absence of historical claims experience on which to base an

estimate, no reserve for insurance losses has been recorded. 

Overflight User Fees. FAA issued an interim final rule (IFR) on August 1, 2000, that required certain

aircraft operators to pay fees for air traffic control and related services provided by the 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 this IFR in the U.S. Court of Appeals. On July 13, 2001, 

the Court, in a preliminary opinion, ruled in favor of the airlines. The FAA ceased all billing and collection 

activities under the IFR. In August 2001, the FAA issued a Final Rule on overflight fees, thereby allowing

the agency to resume charging fees and collecting fees. The same group of plaintiffs brought suit against

the Final Rule. The FAA filed a motion for reconsideration of the Court's ruling on the IFR. The Court 

granted this motion on December 28, 2001, allowing the IFR to remain in place. The FAA continued to 

collect fees throughout FY 2002, while litigation under both the IFR and the Final Rule continued. The 

financial statements include $27.6 million and $29.3 million in Overflight Fee revenue for the years ended 

September 30, 2002 and 2001, respectively. While the FAA believes it will prevail, those revenues remain

at risk until the litigation has come to a final resolution. 

Environmental. The 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, 2002, the 

amount related to these two sites is $67.7 million. This liability includes the FAA’s share of the known 

remediation cost and the cost to complete the study. 

Legal Claims. As of September 30, 2002 and 2001, FAA’s contingent liabilities for asserted and pending 

legal claims reasonably possible of loss were estimated at $499.8 million and $445.8 million, respectively. 

The FAA does not have material amounts of known unasserted claims. 

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REQUIRED SUPPLEMENTARY 

STEWARDSHIP INFORMATION

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FY 2002 Performance and Accountability Report

State/Territory 2002 2001 2000 1999 1998

Alabama $ 58,506 $ 27,421 $ 19,653 $ 18,134 $ 15,556

Alaska 121,640 83,563 51,788 70,802 77,949

Arizona 54,737 51,783 58,381 53,135 47,243

Arkansas 32,937 32,412 17,534 21,694 19,291

California 243,720 179,447 87,617 106,161 101,896

Colorado 91,495 26,340 29,860 43,452 44,768

Connecticut 10,420 3,480 1,788 4,971 1,348

Delaware 5,838 4,704 2,515 197 284

District of Columbia 71 61 83 54 206

Florida 157,878 110,428 64,694 71,746 60,752

Georgia 67,957 33,652 43,911 43,556 41,604

Hawaii 15,846 34,569 6,567 12,131 7,142

Idaho 19,925 25,477 13,106 15,578 12,532

Illinois 165,518 85,566 66,003 63,596 74,514

Indiana 43,099 30,544 24,141 27,467 21,213

Iowa 30,765 35,159 16,169 30,450 16,983

Kansas 15,655 7,587 7,378 7,451 11,250

Kentucky 48,192 46,166 26,205 32,741 43,116

Louisiana 47,915 32,841 29,200 24,442 20,338

Maine 14,456 7,496 3,828 4,943 5,505

Maryland 26,370 18,953 14,900 18,136 9,765

Massachusetts 30,348 20,709 14,560 15,259 22,615

Michigan 85,851 99,278 27,363 50,995 47,890

Minnesota 85,675 49,143 30,561 27,902 23,430

Mississippi 25,929 28,203 9,281 14,393 9,788

Missouri 71,910 62,701 35,137 30,089 35,996

Montana 24,506 19,254 13,157 16,727 13,367

Nebraska 25,181 22,983 8,534 14,240 13,015

Nevada 45,204 57,332 32,106 22,981 30,420

New Hampshire 40,351 16,173 8,582 8,789 11,743

New Jersey 26,391 18,047 10,012 25,906 9,918

New Mexico 13,106 10,882 7,671 10,149 5,327

Airport Improvement Program

For the Fiscal Years Ended September 30

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

Stewardship Investment

Non Federal Physical Property

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FY 2002 Performance and Accountability Report

96 

State/Territory 2002 2001 2000 1999 1998

New York $ 109,798 $ 118,792 $ 57,671 $ 86,754 $ 67,664

North Carolina 73,493 60,908 26,084 50,572 31,226

North Dakota 16,562 25,221 11,490 8,263 10,980

Ohio 112,015 51,601 45,691 46,374 33,843

Oklahoma 39,238 19,780 8,678 14,949 5,240

Oregon 46,605 31,655 9,847 16,138 17,682

Pennsylvania 109,388 62,343 34,011 57,544 63,025

Rhode Island 12,409 9,547 11,705 10,813 2,692

South Carolina 39,194 18,895 11,792 22,926 15,419

South Dakota 15,440 10,466 12,301 8,893 10,112

Tennessee 46,373 58,638 39,237 36,477 34,885

Texas 192,738 127,046 111,585 103,308 98,154

Utah 21,396 39,235 14,328 8,808 12,910

Vermont 2,767 5,487 1,157 4,141 5,219

Virginia 76,647 75,555 41,109 31,069 21,733

Washington 62,798 34,023 35,498 44,454 18,405

West Virginia 18,562 18,564 7,400 12,592 19,564

Wisconsin 39,971 27,541 26,278 25,512 30,406

Wyoming 25,679 16,446 14,972 7,871 9,337

American Samoa 17,845 5,374 241 676 1,329

Guam 368 3,653 3,399 10,341 1,260

Northern Mariana Island 13,017 5,455 1,610 4,027 3,272

Puerto Rico 9,022 6,399 9,179 7,163 10,482

Trust Territory of Pacific - - 138 27 479

Virgin Islands 20,094 5,056 2,411 9,231 2,384

Administration 64,731 58,542 55,196 75,680 52,075

 Totals $ 2,933,542 $ 2,178,576 $ 1,375,293 $ 1,612,867 $ 1,436,541

FAA makes project grants for airport planning and development under the Airport Improvement Program

(AIP) to maintain a safe and efficient nationwide system of public-use airports that meets both present

and future needs of civil aeronautics. FAA works to improve the infrastructure of the nation's airports,

in cooperation with airport authorities, local and state governments, and metropolitan planning authorities.

Stewardship Investment

FEDERAL AVIATION ADMINISTRATION

U.S. Department of Transportation

For the Fiscal Years Ended September 30 (continued)

Airport Improvement Program

Non Federal Physical Property
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

97 

Expenditures 2002 2001 2000 1999 1998

Applied Research $ 59,150 $ 120,395 $ 99,777 $ 118,834 $ 103,274

Development 603 3,419 7,175 18,358 48,237

R&D Plant 44,480 46,988 12,800 14,290 11,254

Administration 3,020 10,130 46,219 36,466 54,179

Total $ 107,253 $ 180,932 $ 165,971 $ 187,948 $ 216,944

FAA conducts research and provides the essential air traffic control infrastructure to meet increasing

demands for higher levels of system safety, security, and efficiency.

Research priorities include aircraft structures and materials; fire and cabin safety; crash injury-protection;

explosive detection systems; improved in-flight icing and ground de-icing operations; better tools to

predict and warn of weather hazards, turbulence, and wake vortices; aviation medicine; and human factors.

NOTE: The FY 1999 amounts reported above are based on actual amounts and differ from those reported in

FY 1999, which were based on estimates.

For the Fiscal Years Ended September 30

U.S. Department of Transportation

Federal Aviation Administration

Stewardship Investment

Research and Development
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

REQUIRED SUPPLEMENTARY INFORMATION

98 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

99 

Asset

Method Condition*

FY 2002 FY 2001 FY 2000 FY 1999 FY1998

Buildings Condition Assessment 4&5 $ 73,741 $ 50,568 $ 30,971 $ 17,539 $ 18,214

Survey

Other Structures and Facilities Condition Assessment 4&5 13,843 22,928 59,290 37,442 1,231

Survey

Total $ 73 87,584 $ 90 ,496 $ ,261 $ 54,981 $ 19,445

* Condition Rating Scale: 1: Excellent; 2: Good; 3: Fair; 4: Poor; 5: Very Poor

Information on FAA’s deferred maintenance is based on condition assessment survey (annual inspection).

 Standards (orders) are provided for evaluating the fixed assets condition. These standards are combined with

FAA’s 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 in 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.

Category

Costs to Return to

Acceptable Condition

For the Fiscal Years Ended September 30

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

Supplementary Information

Deferred Maintenance
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

100 

Intragovernmental Assets

Agency

Accounts Receivable,

Advances, 

Prepayments, and

Other

Fund Balance 

with Treasury Investments

Department of the Treasury $ 27 $ 2,539,304 $ 11,213,447

Department of Agriculture 141 - -

Department of Commerce 258 - -

Department of the Interior 5,498 - -

Department of Justice 65 - -

Department of State 4,750 - -

Department of the Army 5,574 - -

Department of the Navy 6,075 - -

General Services Administration 334 - -

Department of the Air Force 12,098 - -

National Aeronautics & Space Admin. 1,585 - -

Department of Energy 20 - -

Department of Defense 3,634 - -

Department of Transportation 228,028 - -

US Secret Service 170 - -

Other Agencies 31,171 - -

Total $ 299,428 $ 2,539,304 $ 11,213,447

Intragovernmental Liabilities

Agency

 Employee Related 

and Other 

 Accounts

Payable 

Department of the Treasury $ 105,428 $ -

Department of Agriculture 7,225 -

Department of Commerce 931 -

Department of the Interior 99 23

Department of Justice 99 -

Department of Labor 199,639 -

Department of State 126 -

Department of the Navy 347 60

General Services Administration 816 3,109

Department of the Air Force 3,441 40

National Aeronautics & Space Admin. 807 -

National Science Foundation 9 -

Office of Personnel Management 52,033 32

Department of Energy 42 -

Department of Education 42 -

Department of Health and Human Services 15 15

Department of Defense 205 1,076

Department of Transportation 22,752 3,387

Federal Emergency Management Agency 220 -

Social Security Administration 12,462 -

US Secret Service - 214

Other Agencies 78,773 28,226

$ 485,511 $ 36,182

As of September 30, 2002

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

Supplementary Information

Intragovernmental Balances
Federal Aviation Administration 

FY 2002 Performance and Accountability Report

101 

Intragovernmental Expenses and Revenues

Agency Expenses Revenues

Department of the Treasury* $ 68,427 $ 2,518

Department of Agriculture 98 98

Department of Commerce 8,024 8,024

Department of Energy 18 18

Department of Education 22 22

Department of the Interior 1,066 1,066

Department of Justice 1,303 1,303

Department of Labor - FECA* 89,022 -

Department of the Navy 10,883 10,883

Department of State 62 62

Office of Personnel Management* 1,174,790 798

Department of the Army 5,321 5,321

General Services Administration 508 508

Department of the Air Force 17,436 17,436

Environmental Protection Agency 1,422 1,422

Federal Emergency Management Agency 3,166 3,166

Department of Health and Human Services 91 91

National Aeronautics and Space Administration 5,044 5,044

Department of Defense 40,277 40,277

Department of Transportation 224,019 224,019

U.S. Secret Service 400 400

Other Agencies 606 606

Total Expenses $ 1,652,005 $ 323,082

* Represents imputed costs funded by other agencies

on behalf of FAA and/or employee-related expenses.

Intragovernmental Non-Exchange Revenue

Transfers-Out Transfers-In

Executive Office of the President $ - $ 87,500

General Services Administration 26,970 -

Department of Transportation 67,482 (16,123)

Other Agencies - 20,250

Total $ 94,452 $ 91,627

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

Supplementary Information

For the Fiscal Year Ended September 30, 2002

Intragovernmental Transactions
Airport & Trust Fund

Airway Trust Fund Trust Fund Research, Aviation

Trust Fund Grants-in-Aid Facilities & Eng. & Insurance Franchise 

Budgetary Resources Corpus to Airports Equipment Development Revolving Fund Operations 

Budget Authority

Appropriations Received $ (1,378,427) $ 2,125,000 $ 3,026,595 $ 245,000 $ - $ - $ 7,128,000 

Contract Authority - 3,300,000 - - - - - 

Net Transfers - - - - - - 400 

Unobligated Balances

Beginning of period 10,111,046 302,331 553,845 19,400 88,241 28,620 173,897 

Net transfers, actual - - - - - - 118,000 

Spending Authority From Offsetting Collections

Earned

Collected - - 141,068 4,043 75,566 293,167 775,344 

Receivable from Federal sources - - 37,508 (987) - 958 211,674 

Change in unfilled customer orders

Advanced received - - 22,492 - - 23,076 - 

Without advance from Federal sources - - (30,153) 913 - 867 25,797 

Transfers from trust funds - - - - - - 33,000 

Subtotal 8,732,619 5,727,331 3,751,355 268,369 163,807 346,688 8,466,112 

Recoveries of prior year obligations - 84,936 148,600 8,374 2 - 68,961 

Permanently not available - (2,251,720) (44,317) (161) - - (66,194) 

 Total Budgetary Resources $ 8,732,619 $ 3,560,547 $ 2 3,855,638 $ 76,582 $ 163,809 $ 8, 346,688 $ 468,879 

U. S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

Schedule of Budgetary Resources by Major Fund Type

As of September 30, 2002

102
Airport & Trust Fund

Airway Trust Fund Trust Fund Research, Aviation

Trust Fund Grants-in-Aid Facilities & Eng. & Insurance Franchise 

Status of Budgetary Resources Corpus to Airports Equipment Development Revolving Fund Operations 

Obligations Incurred

Direct $ 36 $ 3,559,653 $ 3,230,733 $ 251,426 $ 61,448 $ 290,106 $ 7,352,260 

Reimbursable - - 83,418 3,969 - - 963,786 

Subtotal 36 3,559,653 3,314,151 255,395 61,448 290,106 8,316,046 

Unobligated Balances-Available

Apportioned - 277 489,095 16,039 59,389 56,582 100,921 

Exempt from apportionment 8,732,583 - - - - - - 

Unobligated Balances-Not Available - 617 52,392 5,148 42,972 - 51,912 

Total Status of Budgetary Resources $ 8,732,619 $ 3,560,547 $ 27 3,855,638 $ 6,582 $ 163,809 $ 8,46 346,688 $ 8,879 

Relationship of Obligations to Outlays

Obligated Balance, net Beg. Of Period $ - $ 4,378,147 $ 16 1,730,817 $ 3,192 $ 127 $ 45,993 $ 930,987 

Obligated Balance, Net-End of period

Accounts receivable $ - $ - $ (80,029) $ (7,579) $ - $ (4,644) $ (253,626) 

Unfilled customer orders from Federal sources - - (33,864) (3,667) - (867) (53,676) 

Undelivered orders - 4,988,837 1,683,975 181,915 49 66,150 524,052 

Accounts payable - 3,865 418,728 35,278 5,094 10,164 545,536 

Total obligated balance, net, end of period $ - $ 4,992,702 $ 20 1,988,810 $ 5,947 $ 5,143 $ 70,803 $ 762,286 

Outlays 

Disbursements $ 36 $ 2,860,162 $ 2,900,203 $ 204,339 $ 56,429 $ 263,472 $ 13,951,695 

Collections - - (163,559) (4,043) (75,566) (316,243) (6,581,724) 

Subtotal 36 2,860,162 2,736,644 200,296 (19,137) (52,771) 7,369,971 

Less: Offsetting receipts 105 - - - - - - 

Net Outlays $ (69) $ 2,860,162 $ 20 2,736,644 $ 0,296 $ (19,137) $ 7,36 (52,771) $ 9,971 

(continued)

U. S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

Schedule of Budgetary Resources by Major Fund Type

As of September 30, 2002

103 
Federal Aviation Administration 

FY 2002 Performance and Accountability Report 

ADMINISTRATIVE SERVICES FRANCHISE FUND 

Background 

The FAA Administrative Services Franchise Fund (Franchise Fund) was authorized under Public Law 104-205, 

Department of Transportation and Related Agencies Appropriation Act, 1997. The franchise program is 

designed to create competition within the public sector in the performance of a wide variety of support services. 

It allows for the establishment of an environment to maximize the use of internal resources through the 

consolidation and joint-use of like functions and the recognition of economies of scale and efficiencies 

associated with the competitive offering of services to other Government agencies. 

Objective 

The objective of the Franchise Fund is to enhance the support provided to the core programmatic mission

functions within FAA. Benefits of the franchise fund are derived incrementally over time through efficiencies 

and economies of scale associated with development of partnerships and consolidation of like functions plus the 

addition of new customers. Efforts in the franchise are directed toward identifying the most efficient and cost 

effective methods to provide support services, and this is consistent with the current Presidents’ Management

Agenda initiative relating to competitive sourcing. 

Services 

The Franchise Fund offers a wide variety of services. These include accounting, payroll, travel, duplicating,

multi-media, information technology, and international and management training. In FY 2001, the fund was

expanded to include logistics and materiel management functions at the FAA Logistics Center and aircraft

maintenance functions in the Office of Aviation System Standards. The customer base includes both DOT and 

non-DOT government agencies. 

Prior Period Adjustments 

The Franchise Fund financial statements as of, and for the year ended, September 30, 2001 have been restated 

to reduce earned revenue by $11.7 million because it represents future (unearned) revenue. This restatement 

increased Other Liabilities and Net Cost of Operations, and decreased Earned Revenues and Cumulative Results 

of Operations. The effect of this restatement has been eliminated in the consolidated financial statements of the

FAA. 

104
Federal Aviation Administration 

FY 2002 Performance and Accountability Report 

2002 2001

As Restated

Assets

 Intragovernmental

 Fund Balance with Treasury $ 127,297 $ 74,525

 Accounts Receivable, Net 2,676 3,686

 Other - 93

 Total Intragovernmental Assets 129,973 78,304

 Accounts Receivable, Net 1,914 (60)

 Inventory and Related Property, Net 402,336 438,101

 General Property, Plant, and Equipment, Net 4,011 48,260

 Other Assets 4 17

Total Assets $ 538,238 $ 564,622

Liabilities

 Intragovernmental Liabilities:

 Accounts Payable $ 5 $ -

 Other Intragovernmental Liabilities 67,088 74,884

 Total Intragovernmental Liabilities 67,093 74,884

 Accounts Payable 10,380 10,340

 Other Liabilities 16,366 13,997

Total Liabilities 93,839 99,221

Net Position Balances:

 Cumulative Results of Operations 444,399 465,401

Total Net Position 444,399 465,401

Total Liabilities and Net Position $ 538,238 $ 564,622

As of September 30

U. S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

FRANCHISE FUND

BALANCE SHEET

105
Federal Aviation Administration 

FY 2002 Performance and Accountability Report 

2002 2001

As Restated

Programs

Intragovernmental Costs $ 306,287 $ 203,470

Less Earned Revenues (284,220) (197,245)

Net Program Costs 22,067 6,225

Net Cost of Operations $ 22,067 $ 6,225

September 30

U. S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

FRANCHISE FUND

STATEMENT OF NET COST

For the Years Ended

106
Federal Aviation Administration 

FY 2002 Performance and Accountability Report 

Cumulative Results

of Operations

Beginning Balance $ 477,101

Prior period adjustment (11,700)

Other Financing Sources

Transfers-in/out without reimbursement (4,328)

Imputed financing from costs absorbed by others 5,387

Other 6

Total Financing Sources 1,065

Net Cost of Operations 22,067

Ending Balance $ 444,399

For the Fiscal Year Ended September 30, 2002

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

FRANCHISE FUND

STATEMENT OF CHANGES IN NET POSITION

107
Federal Aviation Administration 

FY 2002 Performance and Accountability Report 

OTHER ACCOMPANYING INFORMATION

108
Federal Aviation Administration 

FY 2002 Performance and Accountability Report 

NET COST BY STRATEGIC GOAL AREA 

In an effort to better link actual costs to performance goals, the FAA is presenting a supplemental schedule of

net cost for the first time in FY 2002, in which costs by program are allocated to agency strategic goals. FAA’s 

long-term plan is to link costs to projects, and projects to goals, to improve understanding of the cost associated 

with FAA mission and programs. 

Following are net costs for the year ended September 30, 2002, allocated to agency strategic goals. 

System Organizational

Line of Business Programs Safety Efficiency Excellence Security Other Total

Air Traffic Services $ 6,566,283 $ 552,982 $ 110,411 $ 6,989 $ - $ 7,236,665

Regulation & Certification 923,493 - - - - 923,493

Research & Acquisitions 128,306 318,073 - 68,483 - 514,862

Airports 809,005 1,725,897 - 398,640 - 2,933,542

Civil Aviation Security 83,118 - - 530,792 - 613,910

Commercial Space Transportation 11,361 - - - - 11,361

Non Line of Business Programs

Regional and Center Operations

and Other Programs - - - - 215,875 215,875

Costs Not Assigned to Programs - - - - 50,622 50,622

Earned Revenues Not Assigned

 To Programs - - - - (56,411) (56,411)

Net Cost of Operations $ 8,521,566 $ 2,596,952 $ 110,411 $ 1,004,904 $ 210,086 $ 12,443,919

Strategic Goal Areas

U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION

CONSOLIDATED SCHEDULE OF NET COST BY STRATEGIC GOAL AREA

For the Year-Ended September 30, 2002

109
Federal Aviation Administration 

FY 2002 Performance and Accountability Report 

TRANSPORTATION SECURITY ADMINISTRATION 

The Aviation and Transportation Security Act (Public Law 107-71) was enacted on November 19, 2001. It

established the Transportation Security Administration (TSA) and transferred the Civil Aviation Security 

functions and responsibilities of the FAA to the TSA not later than 3 months after the date of enactment. The 

TSA assumed responsibility for the Civil Aviation Security functions from the FAA on February 13, 2002. 

The Civil Aviation Security program within FAA’s Statement of Net Cost includes $611.6 million of net cost 

for the period February 13 to September 30, 2002, related to security functions that were transferred to the TSA 

on February 13, 2002, but continued to be funded from FAA’s direct appropriations. 

In addition, equipment and construction in progress associated with Civil Aviation Security functions have been 

earmarked for transfer from FAA to the TSA. September 30, 2002 balances associated with this equipment and 

construction in progress included on FAA’s Consolidated Balance Sheets, were as follows: 

Future Equipment Transfers to TSA Amount 

 Acquisition value $635,617

Accumulated depreciation 87,778

Net book value $547,839

Equipment count (unaudited) 2,475 

Of the acquisition and net book values reported above, $184.5 million represents construction in progress. 

110
Federal Aviation Administration 

FY 2002 Performance and Accountability Report 

GLOSSARY OF ACRONYMS 

A 

AIP Airport Improvement Program 

AMASS Airport Movement Area Safety System 

ASAP Aviation Safety Action Program 

ASDE Airport Surface Detection Equipment 

ATCSCC ATC Systems Control Center 

ATOS Air Transportation Oversight System 

ATS Air Traffic Services

C 

CAS Cost Accounting System 

CFIT Controlled Flight Into Terrain 

CFO Chief Financial Officer 

CTAS Center/TRACON Automation System 

D 

DOT Department of Transportation 

E 

EIS Environmental Impact Statement 

F 

F&E Facilities and Equipment 

FAA Federal Aviation Administration 

FAST Final Approach Spacing Tool 

FFP1 Free Flight Phase 1 

FFP2 Free Flight Phase 2 

FOQA Flight Operations Quality Assurance 

FY Fiscal Year 

G 

GA General Aviation 

GAO General Accounting Office

GPS Global Positioning System

I 

ICAO International Civil Aviation Organization

N 

NAS National Airspace System

NASA National Aeronautics and Space Administration 

O 

OEP Operational Evolution Plan

OIG Office of the Inspector General, Department of Transportation 

OMB Office of Management and Budget 

111
Federal Aviation Administration 

FY 2002 Performance and Accountability Report 

P 

PFAST Passive Final Approach Spacing Tool 

PFC Passenger Facility Charge 

PP&E Property, Plant, and Equipment 

Q 

QAR Quality Assurance Review Process 

R 

RE&D Research, Engineering, and Development 

RESTORE Revitalizing Existing Structures, Technology, and Operational Resources 

S 

STAR Standard Terminal Arrival Route 

STARS Standard Terminal Automation Replacement System 

T 

TRACON Terminal Radar Approach Control 

TSA Transportation Security Administration 

U 

URET User Request Evaluation Tool 

INTERNET LINKS 

Federal Aviation Administration: www.faa.gov

FAA Offices: www1.faa.gov/index.cfm/1038

FAA Regional Offices and Centers: www1.faa.gov/index.cfm/1040

FAA Operational Evolution Plan (OEP): www1.faa.gov/programs/oep

National Transportation Library: http://ntl.bts.gov

U.S. Department of Transportation: www.dot.gov

ACKNOWLEDGMENTS

This Performance and Accountability Report is the culmination of the hard work and 

sustained commitment of hundreds of individuals involved in the audit and financial 

statement preparation process, and in monitoring and reporting on the status of FAA’s 

performance results. The Office of Financial Services would like to acknowledge and convey 

our sincere thanks to these individuals, and to those throughout the FAA who reviewed this 

report and provided their comments and suggestions. 

112
Federal Aviation Administration 

FY 2002 Performance and Accountability Report 

113

WE WELCOME YOUR COMMENTS!

Thank you for your interest in FAA’s FY 2002 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 Internet at www2.faa.gov/aba/html_fm/finst.html