Testimony 

Before the Subcommittee on Aviation, 

Senate Committee on Commerce, Science, 

and Transportation

United States General Accounting Office 

GAO

For Release on Delivery 

Expected at 9:30 a.m. EDT 

Tuesday, May 18, 2004 FEDERAL AVIATION 

ADMINISTRATION 

Challenges for 

Transforming Into a HighPerforming Organization 

Statement of JayEtta Z. Hecker, Director 

Physical Infrastructure Team 

GAO-04-770T 
www.gao.gov/cgi-bin/getrpt?GAO-04-770T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact JayEtta Z. 

Hecker at (202) 512-2834 or 

HeckerJ@gao.gov. 

Highlights of GAO-04-770T, a report to the 

Subcommittee on Aviation, Senate 

Committee on Commerce, Science, and 

Transportation 

May 18, 2004

FEDERAL AVIATION ADMINISTRATION

Challenges for Transforming Into a HighPerforming Organization 

A forecasted increase in air traffic coupled with budgetary constraints will 

challenge FAA’s ability to meet current and evolving operational needs. The 

commercial aviation industry is still recovering from financial losses 

exceeding $20 billion over the past 3 years. Many airlines cut their operating 

expenses, but FAA’s budget continued to rise (see figure). However, 

transportation tax receipts into the Airport and Airways Trust Fund, from 

which FAA draws the majority of its budget, have fallen by $2.0 billion 

(nearly 20 percent) since 1999 (in constant 2002 dollars). Cost-cutting and 

cost-control will need to be watchwords for FAA from this point forward. 

FAA has implemented many of the reforms authorized by Congress 9 years 

ago, but achieved mixed results. Despite personnel and acquisition reforms 

the agency contended were critical to modernizing the nation’s air traffic 

control (ATC) system, systemic management issues continue to contribute 

to the cost overruns, schedule delays, and performance shortfalls. FAA’s 

most current reform effort, the Air Traffic Organization (ATO) -- a new 

performance-based organization mandated by AIR-21 that is operating the 

ATC system – is just now being put in place. 

To meet its new challenges, FAA must fundamentally transform itself into a 

high-performing organization. The key characteristics and capabilities of 

high-performing organizations fall into four themes: (1) a clear, well 

articulated, and compelling mission; (2) strategic use of partnerships; (3) 

focus on the needs of clients and customers; and (4) strategic management 

of people. FAA has taken some promising steps through its new ATO to 

restructure itself like high-performing organizations, but still faces 

significant and longstanding systemic management challenges. Even modest 

organizational and operational changes at FAA can be difficult and time 

consuming. 

Changes in Air Carrier Operating Expenses vs. FAA Budget (indexed to 100) 

Over the last two decades, FAA has 

experienced difficulties meeting 

the demands of the aviation 

industry while also attempting to 

operate efficiently and effectively. 

Now, as air traffic returns to pre9/11 levels, concerns have again 

arisen as to how prepared FAA may 

be to meet increasing demands for 

capacity, safety, and efficiency. 

FAA’s air traffic control (ATC) 

modernization efforts are designed 

to enhance the national airspace 

system through the acquisition of a 

vast network of radar, navigation, 

and communication systems. Nine 

years have passed since Congress 

provided FAA with personnel and 

acquisition reforms. However, 

projects continue to experience 

cost, schedule and performance 

problems. FAA’s Air Traffic 

Organization (ATO) is its most 

current reform effort. 

Expectations are that the ATO will 

bring a performance management 

approach to ATC modernization. 

This statement focuses on three 

main questions: (1) What are some 

of the major challenges and 

demands that confront FAA? (2) 

What is the status of FAA’s 

implementation of reforms and/or 

procedural relief that Congress 

provided? and (3) What are some of

the critical success factors that will 

enable FAA to become a highperforming organization? 

GAO is making no 

recommendations. 
Page 1 GAO-04-770T 

Mr. Chairman and Members of the Subcommittee: 

We appreciate the opportunity to participate in today’s hearing to discuss 

the challenges that FAA faces both in the immediate environment and over 

the next decade. We all recall that in the summer of 2000, the air traffic 

control system lacked the capacity to handle demand efficiently, and flight 

delays produced near-gridlock conditions at several U.S. airports. A 

combination of factors — the downturn in travel caused by the general 

economic slowdown, SARS, and of course the crises instigated by the 

events of 9/11 – reduced traffic significantly and reduced pressure on the 

air traffic control system. 

Passenger traffic and airline operations are slowly returning to previous 

levels, making this an appropriate time to re-examine the status of nation’s 

aviation leadership and infrastructure and its preparations for the future of 

air transport over the next decade. FAA’s budget request for 2005 provides 

a starting point from which to review the agency’s direction. 

My statement today focuses on three main questions: (1) What are some of 

the major challenges and demands that confront FAA? (2) What is the 

status of FAA’s implementation of reforms and/or procedural relief that 

Congress provided? And (3) What are some of the critical success factors 

that will enable FAA to become a high-performing organization? Our 

statement is based on our past reports on ATC modernization and airline 

competition work—updated to reflect important milestones and recent 

interviews with key stakeholders in the aviation community, including 

several current and former FAA officials. We performed our work in 

accordance with generally accepted government auditing standards. 

In summary: 

Significant external and internal demands will challenge FAA’s ability to 

meet current operational needs and require it to adapt to meet the 

evolving needs of the aviation industry. The commercial aviation industry 

is still recovering from financial losses exceeding $20 billion over the past 

3 years. The downturn in travel has affected the Airport and Airways Trust 

Fund, from which FAA draws the majority of its budget. Transportation 

tax receipts into the Trust Fund fell by a total of $2.0 billion (19.6 percent) 

between 1999 and 2003. The overall condition of the Federal budget adds 

more pressure on FAA’s budget. Taken together, cost-cutting and costcontrol need to be watchwords for FAA from this point forward. To meet 

the demands of the aviation industry for safe, secure, and efficient 

operations and for additional capacity to meet forecasted growth, FAA will 
Page 2 GAO-04-770T 

need to continue to improve its management controls. Traditionally, FAA’s 

ability to operate efficiently and effectively – particularly regarding its air 

traffic control modernization projects — have been hampered by 

inadequate management of information technology and financial 

management controls. 

Nine years have passed since Congress provided FAA with the personnel 

and acquisition reforms the agency contended were critical to successfully 

modernizing the nation’s air traffic control (ATC) system. Despite these 

reforms, systemic management issues, including inadequate management 

controls and human capital issues continue to contribute to the cost 

overruns, schedule delays, and performance shortfalls that FAA’s major 

ATC projects have consistently experienced in the past. 

• Personnel reforms addressed three broad areas: (1) compensation and 

performance management, (2) workforce management, and (3) labor and 

employee relations. FAA has taken steps to implement a number of 

reforms in each of the three areas.1

 For example, in the area of labor and 

employee relations, FAA implemented initiatives establishing new 

partnership forums for union and nonunion employees and a new model 

work environment program.2

 However, in February 2003, we found that 

the agency had not fully incorporated elements that are important to 

effective human capital management, including data collection and 

analysis, performance goals and measures, and establishing links between 

reform goals and program goals. 

• As part of its procurement reforms, FAA introduced a new acquisition 

management system in 1996 to reduce the time and cost to deploy new 

products and services. To FAA’s credit, our work has shown 

improvements in the agency’s oversight of investment risk, tracking key 

information from the investment selection process in a management 

information system, and implementation of guidance for validating costs, 

benefits, and risks. However, in estimating the costs of new projects, FAA 

has not yet incorporated actual costs from developing related systems. 

Moreover, the agency has not yet implemented processes for evaluating 

projects after implementation in order to identify lessons learned and 

improve the investment management process. These weaknesses have 

 1

FAA’s Modernization Efforts—Past, Present, and Future (GAO-04-227T): October 30,

2003. 

2

Human Capital Management: FAA’s Reform Effort Requires a More Strategic Approach, 

GAO-03-156, February 2003. 
Page 3 GAO-04-770T 

impeded FAA’s ability to manage its investments effectively and make 

sound decisions about continuing, modifying, or canceling projects. 

• FAA’s Air Traffic Organization (ATO) is one of its most current reform 

effort. Under the leadership of a Chief Operating Officer, the ATO is a new 

performance-based organization that is operating the ATC system. While 

the ATO holds promise for laying the foundation for much needed and 

overdue organizational change, progress has been slow, and the office still 

faces significant challenges to implementing reform 

To meet the challenges of the 21st century, FAA must fundamentally 

transform itself to become a high-performing organization. Our work has 

shown that high-performing organizations have adopted management 

controls, processes, practices, and systems that are consistent with 

prevailing best practices and contribute to concrete organizational results. 

Specifically, the key characteristics and capabilities of high-performing 

organizations fall into four themes (1) a clear, well articulated, and 

compelling mission; (2) strategic use of partnerships; (3) focus on the 

needs of clients and customers; and (4) strategic management of people. 

To facilitate the transformation of federal agencies to high performing 

organizations, we have also recommended that agencies apply the Chief 

Operating Officer concept to provide long-term attention and focus on 

management issues and transformational change. FAA has begun 

implementing this concept. While FAA has taken some promising steps 

through its new ATO to restructure itself in a manner consistent with highperforming organizations, the agency still faces significant and 

longstanding systemic management challenges which must be overcome 

if it is to meet the demands and match the pace of ongoing changes in the 

aviation industry and transform itself into a world-class organization. Our 

work for more than two decades has shown that even modest 

organizational and operational changes at FAA can be difficult and time 

consuming, which underscores the difficult road ahead for FAA’s 

leadership. 

FAA faces significant demands that will challenge its ability to operate 

both in the current environment and in what it expects to encounter in the 

coming decade. With the industry still attempting to recover from the most 

tumultuous period in its history, FAA’s funding is constrained by lowered 

Airports and Airways Trust Fund receipts and increased pressure on the 

contribution from the General Fund. To meet its current and future 

operational challenges, FAA is facing demands for greater efficiency and 

Significant External 

and Internal Demands 

Will Challenge FAA’s 

Current and Evolving 

Operations 
Page 4 GAO-04-770T 

accountability. And it goes without saying that FAA must continue to meet 

demands for maintaining safety standards. 

Since 2001, the U.S. airline industry has confronted financial losses of 

previously unseen proportions. Between 2001 and 2003, the airline 

industry reported losses in excess of $20 billion. A number of factors – 

including the economic slowdown, a shift in business travel buying 

behavior, and the aftermath of the September 11, 2001 terrorist attacks—

contributed to these losses by reducing passenger and cargo volumes and 

depressing fares. The industry has reported smaller losses since 2001, but 

still may not generate net profits for 2004. 

To improve their financial position, many airlines cut costs by various 

means, notably by reducing labor expenditures and by decreasing capacity 

through cutting flight frequencies, using smaller aircraft, or eliminating 

service to some communities. According to data from the Bureau of 

Transportation Statistics, large U.S. air carriers cut their operating 

expenses by $7.8 billion from 2000 through 2002. The drop in total large air 

carrier operating expenses stands in sharp contrast to increases in FAA’s 

budget. (See Figure 1.) 

The U.S. Commercial 

Aviation Industry Is Still 

Recovering From 

Unprecedented Financial 

Chaos 
Page 5 GAO-04-770T 

Figure 1: Changes in Air Carrier Operating Expenses Compared to Changes in FAA 

Budget, 1998 – 2003 (nominal dollars, indexed to 100) 

FAA’s budget – which has increased from $9 billion in 1998 to $14 billion 

in 2004 — will be under pressure for the foreseeable future. Over the past 

10 years, FAA has received on average approximately 80 percent of its 

annual funding from the Airports and Airways Trust Fund (Trust Fund), 

which derives its receipts from taxes and fees levied on airlines and 

passengers.3

 The downturn in passenger travel, accompanied by decreases 

 3

The Trust Fund was established by the Airport and Airway Revenue Act of 1970 (P.L. 91-

258) to help fund the development of a nationwide airport and airway system and to fund 

FAA investments in air traffic control facilities. It provides all of the funding for the Airport 

Improvement Program, which provides grants for construction and safety projects at 

airports; the Facilities and Equipment account that funds technological improvements to 

the air traffic control system; and a Research, Engineering, and Development account, 

which supports aviation safety, mobility, and environmental goals. In fiscal year 2002, the 

Trust Fund provided 79 percent of the funding for FAA Operations, which represented 

almost 50 percent of Trust Fund expenditures. The Trust Fund is supported by 10 

dedicated excise taxes. In fiscal year 2002, the Trust Fund received about $10 billion in 

revenue from these taxes and interest. 

Budgetary Pressure on 

FAA Will Increase Over 

Time 
Page 6 GAO-04-770T 

in average yields, has resulted in lowered receipts into the Trust Fund. On 

average, domestic yields have fallen since 2000, and are at their lowest 

levels since 1987. As a result, the total amount of transportation taxes that 

were remitted to the Trust Fund declined by $2.0 billion (19.6 percent) 

between fiscal years 1999 and 2003 (in 2002 dollars). 

Contributions from the General Fund have averaged about 20 percent of 

FAA’s budget since 1994, but total Federal spending is under increasing 

stress because of growing budget deficits. According to the March 2004 

analysis from the Congressional Budget Office, the Federal deficit under 

the President’s fiscal 2005 budget will be $358 billion. 

Clearly, a major challenge for FAA both now and into the future will be 

cost-cutting and cost control. 

• Operating costs represent over half of FAA’s budget. For 2005, the 

Administration has requested $7.8 billion for Operations. Because salaries 

and benefits make up 73 percent of that total, restraining the growth in 

operations spending will be extremely difficult, even with improvements 

in workforce productivity. 

• Capital expenses (i.e., the Facilities and Equipment account) represent 

less than 20 percent of FAA’s budget, but virtually none of the projects 

requested for funding for 2005 is expected to generate any savings in the 

Operations account. 

• Funds for airports’ capital development have more than doubled since 

1998, rising from $1.6 billion (18.3 percent of the total) to a requested $3.5 

billion (25.1 percent of the total) in 2005. Current funding levels are 

sufficient to cover much of the estimated cost of planned capital 

development. However, building new runways is not always a practicable 

way to increase capacity. FAA must decide how to increase capacity and 

service, as well as improve system efficiency and safety. 

FAA’s ability to operate efficiently and effectively – particularly regarding 

its air traffic control modernization projects — have been hampered over 

time by inadequate management of information technology and financial 

management controls. FAA’s ATC modernization projects have 

consistently experienced cost, schedule, and performance problems that 

we and others have attributed to systemic management issues. 

Financial Pressure Adds 

Premium to Improving 

Management Controls 
Page 7 GAO-04-770T 

The effect has been extraordinary cost growth and a persistent failure to 

deploy systems. FAA initially estimated that its ATC modernization efforts 

could be completed over 10 years at a cost of $12 billion. Two decades and 

$35 billion later, FAA still has not completed key projects, and expects to 

need another $16 billion thru 2007, for a total cost of $51 billion. GAO has 

kept major FAA modernization systems on the watch list of high-risk 

federal programs since 1995. 

We believe that, in the current budget environment, cost growth and 

schedule problems with ongoing modernization efforts can have serious 

negative consequences: postponed benefits, costly interim systems, other 

systems not being funded, or a reduction in the number of units 

purchased. 

FAA recognizes that future U.S. air transport activity will likely place 

significant demands on its ability to keep the system operating. FAA’s 

most recent forecasts project significant increases in overall system 

activity by 2015. Along with increased movements of aircraft and 

passengers comes an increased workload for FAA, as well as demands for 

more efficient operations and/or an expansion of capacity. (See Table 1). 

Table 1: Forecasted Increase in Commercial Air Passengers, Operations, and FAA 

Workload 

 2003 2015 (est.)

Percent 

change

Industry activity measure Enplanements (millions) 641.4 1057.6 65.0

 Large carrier fleet 4,090 5,732 40.1

 Regional carrier fleet 2,672 4,303 61.0

FAA workload measure Instrument operations 

(millions) 

26.3 36.8 39.9

 Commercial instrument flight 

rule aircraft handled at Air 

Route Traffic Control Centers 

(millions) 

31.9 44.9 40.8

Source: FAA. 

Evidence of FAA’s inability to meet system capacity demands already 

exists from the experience at Chicago O’Hare earlier this year. To reduce 

flight delays, FAA asked American Airlines and United Airlines to reduce 

their peak scheduled operations by 7.5 percent by June 10. As Secretary 

Mineta has already recognized, unless system capacity expands, the nation 

Forecasts of Future 

Aviation Activity Add 

Further Demands for 

Immediate Improvements 

in FAA Operations 
Page 8 GAO-04-770T 

will face “...more and more O’Hares as [the] economy continues to grow, 

and as new technology and competition bring even greater demand.” It 

seems clear, however, that FAA’s Operational Evolution Plan4

, a few 

additional runways, and updating more controller workstations with the 

Standard Terminal Automation Replacement System (STARS)5

 are not the 

answer to the system’s need for capacity. We cannot pave our way to the 

year 2025. 

Over the years, systematic management issues, including inadequate 

management controls and human capital issues have contributed to the 

cost overruns, schedule delays, and performance shortfalls that FAA has 

consistently experienced in acquiring its major ATC modernization 

systems. Historically, some of the major factors impeding ATC 

acquisitions included an ineffective budget process and an inability to 

provide good cost and schedule estimates. A number of cultural problems 

including widely diffused responsibility and accountability, inadequate 

coordination, and poor contract management/oversight also slowed the 

progress of individual projects. Problems within FAA’s acquisition and 

procurement processes included an inability to obligate and spend 

appropriate funds in a timely manner, a complicated procurement and 

acquisition cycle, failure to field systems in a timely fashion, and an 

inability to field current technology systems. FAA lacked a means to 

strategically analyze and control requirements, and good cost and 

schedule estimates were often not effectively developed and integrated 

into acquisition plans. To address many of these issues, Congress passed 

legislation in 1995 exempting FAA from many of the existing Federal 

personnel and procurement laws and regulations and directed the agency 

to develop and implement new acquisition and personnel systems. More 

recently, in 2000, the Congress and the administration together provided 

for a new oversight and management structure and a new air traffic 

organization to bring the benefits of performance management to ATC 

modernization. 

 4

The Operational Evolution Plan is an ongoing 10-year plan developed by the FAA to 

increase the capacity and efficiency of the national airspace system, while enhancing safety 

and security. 

5

STARS will replace controller workstations with new color displays, processors, and 

computer software at FAA and DOD terminal air traffic control facilities—within 5 to 50 

nautical miles of an airport. 

Despite Personnel 

and Acquisition 

Reforms, Systematic 

Management Issues 

Continue to Impede 

ATC Modernization 
Page 9 GAO-04-770T 

According to FAA, burdensome government-wide human capital rules 

impeded its ability to hire, train, and deploy personnel and thereby 

hampered its capacity to manage ATC modernization projects efficiently. 

In response to these concerns, Congress granted FAA broad exemptions 

from federal personnel laws and directed the agency to develop and 

implement a new personnel management system. 

• Human capital reforms: Following the human capital exemptions granted 

by Congress in 1995, FAA initiated reforms in three primary areas: 

compensation and performance management, workforce management, 

and labor and employee relations. In the area of compensation and 

performance management, FAA introduced two initiatives—a new, more 

flexible pay system in which compensation levels are set within broad 

ranges, called pay bands, and a new performance management system 

intended to improve employees’ performance through more frequent 

feedback with no summary rating. Both new systems required an 

exemption from laws governing federal civilian personnel management 

found in title 5 of the United States Code. In the area of workforce 

management, FAA implemented a number of initiatives in 1996 through 

the establishment of agency-wide flexibilities for hiring and training 

employees. In the area of labor and employee relations, FAA established 

partnership forums for union and nonunion employees and a new model 

work environment program. Other human capital initiatives have included 

restructuring FAA’s organizational culture and implementing means to 

provide sustained leadership. 

• Organizational culture: FAA issued an organizational culture framework 

in 1997 that attempted to address some of the vertical “stovepipes” that 

conflicted with the horizontal structure of ATC acquisition team 

operations. A key piece of this framework included the establishment of 

integrated product teams in an attempt to improve collaboration among 

technical experts and users. Moreover, integrated teams have not worked 

as intended. For example, competing priorities between two key 

organizations that were part of the Wide Area Augmentation System’s 

integrated team ultimately negated its effectiveness and undermined its 

ability to meet the agency’s goals for the system. 

• Sustained leadership: Until former Administrator Garvey completed her 5-

year term in 2002,6

 FAA had been hampered by a lack of sustained 

 6

To provide FAA’s ATC modernization efforts with needed direction and stability, the 

Congress established a 5-year term for the FAA Administrator in 1994. Former 

Administrator Garvey was the first to complete a term of this length in 2002. 

FAA Has Taken Steps to 

Implement Human Capital 

Strategies, but Further 

Efforts are Needed 
Page 10 GAO-04-770T 

leadership at FAA was also problematic.7 During the first 10 years of the 

ATC modernization effort, the agency had seven different Administrators 

and Acting Administrators, whose average tenure was less than 2 years. 

Such frequent turnover at the top contributed to an agency culture that 

focused on short-term initiatives, avoided accountability, and resisted 

fundamental improvements to the acquisition process. . 

Nine years have passed since the agency received broad exemptions from 

laws governing federal civilian personnel management. While FAA has 

taken a number of steps since personnel reforms were implemented, it is 

not clear whether and to what extent these flexibilities have helped FAA 

to more effectively manage its workforce and achieve its mission. The 

agency did not initially define clear links between reform goals and 

program goals, making it difficult to fully assess the impacts of personnel 

reform. FAA has not yet fully implemented all of its human capital 

initiatives and continues to face a number of key challenges with regard to 

personnel issues. In our February 2003 report, we found that the agency 

had not fully incorporated elements that are important to effective human 

capital management into its overall reform effort, including data collection 

and analysis and establishing concrete performance goals and measures. 

Currently, the agency is still working to implement tools to keep accurate 

cost and workforce data. The new Air Traffic Organization has announced 

plans for establishing cost accounting and labor distribution systems, but 

they are not yet in place. More comprehensive cost accounting systems 

and improved labor distribution systems are necessary to maximize 

workforce productivity and to plan for anticipated controller retirements. 

More broadly, taking a more strategic approach to reform will allow the 

agency to better evaluate the effects of human capital initiatives, which it 

sees as essential to its ATC modernization effort. 

FAA established its current acquisition management system (AMS) in 1996 

following acquisition reform. The agency has reported taking steps to 

overseeing investment risk and capturing key information from the 

investment selection process in a management information system. It has 

also implemented guidance for validating costs, benefits, and risks. 

FAA has also taken steps to improve the management of its ATC 

modernization efforts. For example, it implemented an incremental, “build 

 7

Congress established a 5-year term for the FAA Administrator in 1994. 

ATC Projects Continue to 

Experience Cost, 

Schedule, and 

Performance Problems 
Page 11 GAO-04-770T 

a little, test a little” approach that improved its management by providing 

for mid-course corrections and thus helping FAA to avoid costly late-stage 

changes. In the area of management controls, FAA has (1) developed a 

blueprint for modernization (systems architecture) to manage the 

development of ATC systems; (2) established processes for selecting and 

controlling information technology investments, (3) introduced an 

integrated framework for improving software and system acquisition 

processes, and (4) improved its cost-estimating and cost-accounting 

practices. Nonetheless, ATC modernization efforts continue to experience 

cost, schedule, and performance problems. 

FAA is not yet incorporating actual costs from related system development 

efforts in its processes for estimating the costs of new projects. Further, 

the agency has not yet fully implemented processes for evaluating projects 

after implementation in order to identify lessons learned and improve the 

investment management process. Reliable cost and schedule estimates are 

essential to addressing some of the ongoing problems with ATC 

acquisitions. 

In addition to controlling cost and schedule overruns, FAA needs to take 

concrete steps to identify and eliminate redundancies in the National 

Airspace System (NAS). FAA must review its long-term ATC 

modernization priorities to assess their relative importance and feasibility 

in light of current economic constraints, security requirements, and other 

issues. The ongoing challenges facing air traffic control modernization 

efforts led Congress and the administration to create a new oversight and 

management structure through the new Air Traffic Organization (ATO) in 

order to bring the benefits of performance management to ATC 

modernization. 

The ATO was created by an executive order in 2000 to operate the air 

traffic control system. In the same year, Congress enacted legislation 

establishing the Air Traffic Services Subcommittee, a five-member board 

to oversee the ATO and a chief operating officer to manage the 

organization. The ATO was designed to bring a performance management 

approach to ATC modernization efforts. 

The Air Traffic Services Subcommittee has made some initial efforts with 

regard to the establishment of the ATO. They have taken steps to focus on 

the structure of the ATC system, including reviewing and approving 

performance metrics for the ATO, establishing a budget, and approving 

three large procurements that FAA initiated. 

Progress in Establishing 

the New Air Traffic 

Organization Has Been 

Slow 
Page 12 GAO-04-770T 

However, progress in establishing the organization has been slow, given 

that FAA received the mandate to establish the ATO nearly four years ago. 

FAA encountered difficulties finding a qualified candidate to take the 

position of chief operating officer, and did not fill the vacancy until June 

2003. The final executive positions for the organization including the VicePresidents of Safety and Communications were just filled last month. 

Key tasks for the ATO will include organizational restructuring, 

implementing effective financial management and cost-accounting 

systems, evaluating day-to-day business practices, and fostering growth 

with efficiency. Rapidly changing technology, limited financial resources, 

and the critical importance of meeting client needs will present significant 

challenges in order for the ATO to truly evolve into a high performing 

organization. 

To successfully meet the challenges of the 21st century, FAA must 

fundamentally transform its people, processes, technology, and 

environment to build a high-performing organization. Our work has shown 

that high-performing organizations have adopted management controls, 

processes, practices, and systems that are consistent with prevailing best 

practices and contribute to concrete organizational results. Specifically, 

the key characteristics and capabilities of high-performing organizations 

fall into four themes as follows: 

• A clear, well-articulated, and compelling mission. High-performing 

organizations have a clear, well-articulated, and compelling mission, 

strategic goals to achieve it and a performance management system that 

aligns with these goals to show employees how their performance can 

contribute to overall organizational results. FAA has taken its first steps 

toward creating a performance management system by aligning its goals 

and budgetary resources through its Flight Plan—blueprint for action for 

fiscal year 2004 through 2008—and its fiscal year 2005 budget submission. 

In addition, the new ATO has published both its vision and mission 

statement. 

Our past work has found that FAA’s ability to acquire new ATC 

modernization systems has been hampered by its organizational culture, 

including employee behaviors that did not reflect a strong commitment to 

mission focus. Given the central role that FAA’s employees will play in 

achieving these performance goals and overall agency results, it is critical 

for them to both embrace and implement the agency’s mission in the 

course of their daily work. In addition, our work has found regularly 

FAA’s Future Success 

Hinges on Several 

Critical Success 

Factors 
Page 13 GAO-04-770T 

communicating a clear and consistent message about the importance of 

fulfilling the organization’s mission helps engage employees, clients, 

customers, partners, and other stakeholders in achieving higher 

performance. 

• Strategic use of partnerships. Since the federal government is 

increasingly reliant on partners to achieve its outcomes, becoming a highperforming organization requires that federal agencies effectively manage 

relationships with other organizations outside of their direct control. FAA 

is currently working to forge strategic partnerships with its external 

customers in a number of ways. For example, the agency recently 

announced a program to create “express lanes in the sky” to reduce air 

traffic delays this spring and summer and is in the early stages of working 

with selected federal partners to develop a long-term plan for the national 

aerospace system (2025) and to leverage federal research funds to conduct 

mutually beneficial research. In addition, FAA has ongoing partnerships 

with the aviation community to assess and address flight safety issues 

(e.g., development of technology to prevent fuel tank explosions and to 

reduce the potential for aircraft wiring problems through development of a 

“smart circuit breaker”). 

However, our past work has shown that forging strategic partnerships 

with organizations outside of FAA can be difficult and time-consuming. 

For example, FAA’s efforts to establish voluntary data sharing agreements 

with airlines—Flight Operational Quality Assurance Program (FOQA)—

spanned more than a decade, due in part, to tremendous resistance from 

aviation community stakeholders who formed a rare alliance to oppose 

several of FAA’s proposals. In addition, when attempting to increase 

airport capacity (e.g., new runways), FAA and airport operators have 

frequently faced opposition from the residents of surrounding 

communities and environmental groups. Residents are often concerned 

about the potential for increases in airport noise, air pollutant emissions, 

and traffic congestion. 

• Focus on needs of clients and customers. Serving the needs of clients 

and customers involves identifying their needs, striving to meet them, 

measuring performance, and publicly reporting on progress to help assure 

appropriate transparency and accountability. To better serve the needs of 

its clients and customers, FAA published Flight Plan, which provides a 

vehicle for identifying needs, measuring performance, and publicly 

reporting progress. Flight Plan includes performance goals in the areas of 

safety, greater capacity, international leadership, and organizational 

excellence, which are linked to the agency’s budget and progress 

monitored through a Web-based tracking system. 
Page 14 GAO-04-770T 

However, over the years, FAA’s efforts to meet client and customer needs 

have not always been successful, and some have had a long lasting 

negative impact. FAA has had particular difficulty fielding new ATC 

modernization systems within cost, schedule and performance goals to 

meet the needs of the aviation community. Agency promises to deliver 

new capabilities to airlines via improvements to the ATC system led some 

airlines to install expensive equipment in their aircraft to position 

themselves to benefit from expected FAA services; however, when the 

agency failed to deliver on those promises, participating air carriers were 

left with equipment that they could not use—no return on their 

investment. In addition, shifting agency priorities have made it difficult for 

the aviation industry to anticipate future requirements and plan for them 

in a cost-effective manner (e.g., providing air carriers with adequate lead 

time to purchase new equipment and airframe manufacturers with lead 

time to incorporate changes into new commercial airplane designs). 

Furthermore, the absence of a full-functioning cost-accounting system 

makes it difficult for FAA to assess the actual cost of providing services to 

users of the National Airspace System. 

• Strategic management of people. Most high-performing organizations 

have strong, charismatic, visionary, and sustained leadership, the 

capability to identify what skills and competencies the employees and the 

organization need, and other key characteristics including effective 

recruiting, comprehensive training and development, retention of highperforming employees, and a streamlined hiring process. Toward this end, 

FAA has hired a Chief Operating Officer (COO) to stand up its new ATO. 

Our work on high-performing organizations has recommended use of the 

COO concept to facilitate transformational change in federal agencies and 

to provide long-term attention and focus on management issues. 

Furthermore, FAA has placed 78 percent of its workforce under a pay-forperformance system8

 and implemented a training approach for its 

acquisition workforce which reflects four of the six elements used by 

leading organizations to deliver training effectively.9

 However, it is too 

 8

Inspector General, U.S. Department of Transportation, Key Issues for the Federal Aviation 

Administration’s FY 2005 Budget, CC-2004-038 (April 22, 2004). 

9

To deliver training effectively, leading organizations’ training approaches generally include 

six elements: (1) prioritize initiatives most important to the agency; (2) demonstrate toplevel commitment and provide resources; (3) identify those who need training on specific 

initiatives and set training requirements; (4) tailor training to meet the needs of the 

workforce; (5) track training to ensure it reaches the right people; and (6) measure 

effectiveness of training. GAO found that FAA’s acquisition organization has highly 

developed processes for elements 1, 2, 4, and 5. 
Page 15 GAO-04-770T 

soon to know the extent to which these elements of effective training will 

be incorporated into the new ATO. Finally, FAA is currently conducting an 

Activity Value Analysis, a bottoms-up effort to establish a baseline of ATO 

headquarters activities and their value to stakeholders. The results of this 

analysis are intended to help FAA’s leadership target cost-cutting and cost 

savings efforts. 

Despite FAA’s efforts to date, our past work has found the agency’s 

strategic management of human capital lacking. For example, 

organizational culture issues at FAA (e.g., its vertical, stovepiped 

structure) have discouraged collaboration among technical experts and 

users of the ATC system and contributed to the agency’s inability to 

deliver new ATC systems within cost, schedule and performance goals. 

One of the most significant early challenges facing the ATO will be 

negotiating a new contract with air traffic controllers, which is due to 

expire in September 2005. The DOT IG has repeatedly noted that despite 

the importance of controllers’ jobs, that FAA simply cannot sustain the 

continued salary cost growth for this workforce, which rose from an 

average salary of $72,000 in 1998 to $106,000 in 2003. Given the 

inextricable link between FAA’s operating costs and its controller 

workforce, striking an acceptable balance between controllers’ contract 

demands and controlling spiraling operating costs will be a strong 

determinant of the ATO’s credibility both within FAA and across the 

aviation industry. 

While FAA has taken some promising steps through its new ATO to 

restructure itself in a manner consistent with high-performing 

organizations, the agency still faces significant and longstanding systemic 

management challenges. These challenges must be overcome if FAA is to 

keep pace with ongoing changes in the aviation industry and transform 

itself into a world-class organization. Our work for more than two decades 

has shown that even modest organizational, operational, and technological 

changes at FAA can be difficult and time consuming, all of which 

underscores the difficult road ahead for FAA and its new ATO. 

This concludes my statement. I would be pleased to respond to any 

questions that you or other Members of the Subcommittee may have at 

this time. 

For further information on this testimony, please contact JayEtta Hecker 

at (202) 512-2834 or by e-mail at heckerj@gao.gov. Individuals making key 
Page 16 GAO-04-770T 

contributions to this testimony include Samantha Goodman, Steven 

Martin, Beverly Norwood, and Alwynne Wilbur. 

(544088) 
This is a work of the U.S. government and is not subject to copyright protection in the 

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

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

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

reproduce this material separately. 
The General Accounting Office, the audit, evaluation and investigative arm of 

Congress, exists to support Congress in meeting its constitutional responsibilities 

and to help improve the performance and accountability of the federal 

government for the American people. GAO examines the use of public funds; 

evaluates federal programs and policies; and provides analyses, 

recommendations, and other assistance to help Congress make informed 

oversight, policy, and funding decisions. GAO’s commitment to good government 

is reflected in its core values of accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no cost is 

through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and fulltext files of current reports and testimony and an expanding archive of older 

products. The Web site features a search engine to help you locate documents 

using key words and phrases. You can print these documents in their entirety, 

including charts and other graphics. 

Each day, GAO issues a list of newly released reports, testimony, and 

correspondence. GAO posts this list, known as “Today’s Reports,” on its Web site 

daily. The list contains links to the full-text document files. To have GAO e-mail 

this list to you every afternoon, go to www.gao.gov and select “Subscribe to e-mail 

alerts” under the “Order GAO Products” heading. 

The first copy of each printed report is free. Additional copies are $2 each. A 

check or money order should be made out to the Superintendent of Documents. 

GAO also accepts VISA and Mastercard. Orders for 100 or more copies mailed to a 

single address are discounted 25 percent. Orders should be sent to: 

U.S. General Accounting Office 

441 G Street NW, Room LM 

Washington, D.C. 20548 

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm 

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470 

Jeff Nelligan, Managing Director, NelliganJ@gao.gov (202) 512-4800 

U.S. General Accounting Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

GAO’s Mission 

Obtaining Copies of 

GAO Reports and 

Testimony 

Order by Mail or Phone 

To Report Fraud, 

Waste, and Abuse in 

Federal Programs 

Public Affairs