Federal Aviation Administration: Challenges Facing the Agency in Fiscal Year 2008 and Beyond
Published: 2007-02-14T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: FAA operates one of the safest air transportation systems in the world. It is, however, a system under strain. The skies over America are becoming more crowded every day. FAA faces the daunting task of safely integrating a growing influx of passengers and aircraft into the system and simultaneously leading the transition to the Next Generation Air Transportation System (NextGen)--a complicated effort to modernize the system. FAA's broad responsibilities to maintain and modernize the nation's air transportation system must be met in an uncertain budgetary and long-term fiscal environment. GAO's concerns about financing the nation's transportation system, including aviation, led GAO to designate this issue as high-risk.
section_title: What GAO Found
paragraphs: To ensure continued safety within the national airspace system, FAA is using risk-based, data-driven safety programs to oversee the industry; however, the agency faces data and human resource challenges that affect its ability to fully implement these programs. GAO has previously recommended that FAA improve the accuracy and completeness of the safety data and analysis of that data needed to monitor safety trends, fully implement its safety programs, and assess their effectiveness to determine if they are focused on the greatest safety risk. FAA has made progress in this area but more remains to be done. FAA's ability to oversee the aviation industry will be further affected by its ability to hire, train, and deploy its primary workforce of safety inspectors, engineers, and air traffic controllers. The expansion of FAA's oversight program for air carriers will result in workload shifts for its inspectors that will make it important for FAA to improve its staffing process. In addition, the agency estimates that it will lose about 70 percent of the air traffic controller workforce over the next 10 years, primarily due to retirements. FAA has made significant progress in implementing management processes and systems that use leading practices of private sector businesses; however, further work remains to institutionalize these efforts. For example, new and improved acquisition processes and oversight have contributed to FAA meeting its acquisition cost and schedule goals for the last three years. Additional work remains, though--FAA received a qualified opinion on its most recent financial audit as a result of lack of support for the accuracy of about $4.7 billion for equipment. Moreover, GAO has previously recommended that FAA should undertake additional efforts to consolidate its facilities and outsource some of its services to further cut costs. Some key challenges for the transition to NextGen include completing the design and cost estimates for NextGen and proposing how that cost will be funded. FAA will also need to assess its capacity to handle the technical and contract management expertise that will be required to oversee the implementation of NextGen. FAA estimates that the total cost for planned airport development that is eligible for funding from the Airport Improvement Program (AIP) will be about $42 billion for 2007 through 2011. FAA's budget request for fiscal year 2008 proposes significant cuts in AIP. These cuts, along with changes to the way AIP is allocated among airports and possible increases in the cap on passenger ticket charges for airport projects, could have implications for the amount of funding available for planned airport development, especially at small airports. Additionally, the taxes that fund the Airport and Airway Trust Fund are scheduled to expire at the end of fiscal year 2007. Until Congress reauthorizes those taxes, FAA's ability to carry out programs related to airport development as well as some other programs throughout the agency may be in jeopardy, compounding the safety and management challenges facing FAA.

section_title: Letter
paragraphs: I appreciate the opportunity to testify before you today as you consider  the Administration’s budget proposal for the Federal Aviation  Administration (FAA) for fiscal year 2008. FAA operates one of the safest  air transportation systems in the world. It is, however, a system under  strain. The skies over America are becoming more crowded every day.  Demand for air travel has increased in recent years, with over 740 million  passengers flying in fiscal year 2006, climbing toward an estimated 1  billion passengers per year in 2015, according to FAA estimates. These  passengers are expected to find more choices of aircraft in the years  ahead, ranging from the jumbo Airbus A380 that can hold more than 500  passengers, to very light jets that might transport 6 or fewer passengers on  any given flight. Already with increasing demand has come an increase in  flight arrival delays; such delays are nearing the levels of 2000, a year in  which 1 in 4 flights reached its destination behind schedule. And although  the system remains extraordinarily safe, if the current accident rate  continues while air traffic potentially triples in the next 20 years, this  country would see nine fatal commercial accidents each year, on average.  FAA thus faces the daunting task of safely integrating this expected influx  of passengers and aircraft into the system and simultaneously leading the  transition to the Next Generation Air Transportation System (NextGen)— an enormously complicated endeavor to transform the air traffic control  system.
FAA’s broad responsibilities to maintain and modernize the nation’s air  transportation system must be met in an uncertain budgetary and long- term fiscal environment. We recently reported that the federal  government’s financial condition and fiscal outlook are worse than many  may understand. Additionally, our concerns about financing the nation’s  transportation system, including the aviation system, led us to designate  this issue as high-risk. These circumstances provide the context for my  testimony today. In particular, I will focus on some of the key challenges  and issues facing FAA and the Congress as the fiscal year 2008 budget for  FAA is considered. These challenges and issues are related to (1) ensuring  the continued safe operation of the nation’s airspace system, (2)  continuing to improve FAA’s internal management while leading the  transition to NextGen, and (3) funding issues concerning capital  improvements for airports and FAA’s reauthorization. My statement is  based on our recent reports and updates that we obtained through  interviewing FAA officials and reviewing their documentation. We  conducted this work in accordance with generally accepted government  auditing standards.
To maintain and expand the margin of safety within the national airspace  system, FAA is using risk-based, data-driven safety programs to oversee  the industry; however, the agency faces data and human resource  challenges that affect its ability to fully implement these programs. These  challenges are especially important in light of the agency not meeting its  performance target for commercial air carrier safety for fiscal year 2006  because of recent fatal accidents and predictions of greatly increased air  travel. FAA’s approaches to safety require that the agency obtain accurate  and complete data to monitor safety trends, fully implement its safety  programs, and assess their effectiveness to determine if they are focused  on the greatest safety risk. We have previously recommended that FAA  improve the accuracy and completeness of its safety data and its analysis  of that data. FAA has made progress in this area but more work remains.  FAA’s ability to oversee the aviation industry and ensure a safe national air  space system will be further affected by its ability to hire, train, and deploy  its primary workforce of safety inspectors, engineers, and air traffic  controllers. The expansion of its oversight program for air carriers will  result in workload shifts for its inspector workforce that will make it  important for FAA to improve its staffing process and address its lack of a  staffing model. In addition, the agency estimates that it will lose more than  10,000, or about 70 percent, of the air traffic controller workforce over the  next 10 years, primarily due to retirements. In recent years, air traffic  controllers have been retiring at a faster rate than FAA anticipated,  exacerbating this hiring challenge.
FAA has made significant progress in implementing management  processes and systems that use leading practices of private sector  businesses; however, further work remains to institutionalize these efforts.  FAA’s progress led us to remove its financial management from our high- risk list. Similarly, new and improved acquisition processes and oversight  have contributed to FAA reporting that it has met its acquisition cost and  schedule goals for the last three years. Nonetheless, making and  institutionalizing further improvements in acquisition and investment  management are still needed. For example, while FAA has established a  cost estimating methodology for investments, it has not implemented it. In  addition, during the last two fiscal years, FAA has reported cost savings  and cost avoidance of $99.1 million and $81.9 million, respectively.  Additional work remains, though—FAA received a qualified opinion on its  most recent financial audit as a result of the agency’s inability to support  the accuracy and completeness of about $4.7 billion for equipment  reported in the financial statements. Moreover, as we have previously  recommended, FAA should undertake additional efforts to consolidate its  facilities and outsource some of its services to further cut costs. FAA’s  focus on maintaining and improving its record of internal achievement will  be further tested as it joins with its partners in the Joint Planning and  Development Office in transitioning from planning to implementing  NextGen. Some key challenges for the transition include completing the  design and cost estimates for NextGen and proposing how that cost will be  funded, especially in view of reduced funding for applied aeronautical  research, which is necessary to achieve some critical NextGen  capabilities. FAA will also need to assess if it has the necessary expertise  to handle the technical and contract management that will be required to  oversee the implementation of NextGen.
Related to the challenge of modernizing the air traffic control system, FAA  faces the challenge of ensuring that the nation’s 3,400 airports develop the  capacity to safely and efficiently handle the projected growth in the  demand for air travel. FAA estimates that the total cost for planned airport  development that is eligible for funding from the Airport Improvement  Program (AIP) will be about $42 billion for 2007 through 2011. FAA  administers the AIP, which provides federal funds for capital development  projects at the entire range of the nation’s airports. In its fiscal year 2008  budget proposal, the Administration has proposed reducing funding for  AIP grants and changing the allocation formula. Other changes being  considered by FAA could increase available funds for airport  development. The net effect of all these changes on the amount of funding  available for planned airport development is uncertain. Additionally, the  excise taxes that fund the Airport and Airway Trust Fund, such as those  on ticket purchases by airline passengers and aviation fuel, are scheduled  to expire at the end of fiscal year 2007. Avoiding a lapse in revenue to the  trust fund in fiscal year 2008 will require Congressional action. About 80  percent of the budget request for FAA would be funded by the trust fund  and the remainder by the general fund. Without a continued flow of funds  to the trust fund, FAA’s ability to carry out AIP and other programs  throughout the agency may be in jeopardy, compounding the safety and  management challenges facing the agency.
subsections: section_title: FAA Faces Challenges in Ensuring the Safe and Efficient Operation of the Nation’s Airspace System
paragraphs: Aviation safety is a priority goal for FAA. That priority is reflected in the  Administration’s budget for fiscal year 2008, which requests $1.9 billion to  promote aviation safety and efficiency. To the credit of FAA and the  aviation industry, U.S. commercial aviation has had an extraordinary  safety record in recent years. In 1997, FAA established a goal to reduce the  commercial fatal accident rate by 80 percent in 10 years and for many  years the agency has made incremental progress toward that goal.  However, increased air traffic, leading to congestion and delays, is  straining the efficiency and potentially the safety of the nation’s airspace  system. Moreover, while commercial aviation safety trends have been  positive over the last several years, FAA did not meet its performance  target for commercial aviation accidents last year and does not expect to  meet its target for 2007. If air traffic triples as expected over the next two  decades and the accident rate of recent years is unchanged, there would  be nine fatal commercial aviation accidents each year, on average.
To maintain a safe and efficient airspace system, especially if substantial  growth in the industry materializes, it will be important for FAA to have  well-established, efficient, and effective processes in place to provide an  early warning of hazards that can lead to accidents. It will also need a  skilled workforce to implement these processes. FAA is moving to a  system safety approach to oversight and has established risk-based, data- driven safety programs to oversee the industry and a workforce that  includes approximately 4,500 safety inspectors and engineers to  implement those programs, about 15,420 air traffic controllers, and nearly  7,200 technicians responsible for maintaining FAA’s air traffic control  equipment and facilities. In addition, FAA leverages its inspector and  engineer workforce through its “designee” programs, in which about  13,400 private individuals and over 200 organizations have been delegated  to act on the agency’s behalf. Our recent work has identified data  limitations and human resource challenges facing the agency that affect its  ability to implement these programs and oversee aviation safety.
subsections: section_title: Data Limitations Affect FAA’s Ability to Manage Risk
paragraphs: FAA’s ability to identify and respond to trends and early warnings of safety  problems and to manage risk is limited by incomplete and inaccurate data.  While FAA has developed risk-based processes for monitoring and  inspecting the aviation industry, in some cases, the implementation of  those processes is hampered by the lack of reliable and complete data,  which are important for identifying and mitigating safety risks. In other  cases, FAA does not fully utilize the data it collects by evaluating or  analyzing it for nationwide safety trends.
For example, FAA does not collect actual flight activity data for general  aviation operators and air taxis. Instead, the agency uses an annual survey  to query a sample of registered aircraft owners about the activity of their  aircraft during the previous year. The National Transportation Safety  Board (NTSB) noted a number of problems with these data, such as  historically low response rates, and concluded that FAA’s data do not  accurately portray changes in general aviation activity. As a result, FAA  lacks information to monitor the rate of general aviation accidents, which  decreased from 1,715 in 2002 to about 1,500 in 2006. (See fig. 1.) Therefore,  the agency cannot meaningfully evaluate changes in the number of general  aviation accidents or determine the effect of its general aviation safety  initiatives. NTSB made a number of recommendations to FAA to improve  the accuracy of the survey data, such as improving the currency of aircraft  owner contact information.
As another example, FAA does not collect basic data to measure changes  in the air ambulance industry, such as flight hours or number of trips  flown. From 1998 through 2005, the air ambulance industry averaged 11  accidents per year, peaking at 18 accidents in 2003. (See fig. 2.) Without  data about the number of flights or flight hours, FAA and the air  ambulance industry are unable to identify whether the increased number  of accidents has resulted in an increased accident rate, or whether it is a  reflection of growth in the industry. Data describing the safety trends of  the industry are essential to understanding the impact of FAA efforts to  improve air ambulance safety.
In addition, while FAA receives important data, including self-reporting of  safety violations, through its partnership programs with industry, the  agency does not evaluate this information for nationwide trends.  According to FAA officials, the Aviation Safety Action Program, Aviation  Safety Reporting Program, and Voluntary Disclosure Reporting Program  allow the agency to be aware of many more safety incidents than are  discovered during inspections and surveillance. Although FAA tracks the  actions taken to resolve the individual safety violations that it learns about  through these programs, it does not evaluate such information in the  aggregate to identify trends in violations and their potential cause in order  to improve safety. We recommended that FAA develop a continuous  evaluative process for its industry partnership programs, and use it to  create measurable performance goals for the programs and track  performance towards those goals. FAA has not taken these actions, but  has begun to address other data issues.
FAA recognizes the critical nature of the issues associated with its data.  To address its data limitations, FAA is in the early stages of planning the  Aviation Safety Information Analysis and Sharing system—a  comprehensive new data system that is expected to provide the agency  with access to a vast amount of safety data that reside with entities such  as NTSB and industry partners including airlines and repair stations.  Working with the National Aeronautics and Space Administration (NASA),  FAA began planning for the new system in 2006. Because this activity is in  the early planning stages, our concerns about FAA’s data remain relevant.  The fiscal year 2008 budget for FAA proposes $32 million for safety  databases and computer systems. As FAA prioritizes the activities that it  undertakes with such funds, it will be important to continue addressing  these critical data limitations.
section_title: FAA Faces Workload Challenges for its Safety Inspectors
paragraphs: Changes to FAA’s oversight programs, such as the planned rapid  expansion of the Air Transportation Oversight System (ATOS), from 16 air  carriers in 2005 to approximately 115 air carriers by the end of 2007, will  pose workload challenges for FAA’s safety inspector workforce of about  3,600. As FAA moves air carriers under the ATOS program, it will also  move inspectors to the program. As of January 2007, the 51 air carriers in  ATOS were overseen by 829 safety inspectors. Unlike other FAA  inspection programs, ATOS inspectors are dedicated to an air carrier and  generally cannot be used to inspect other entities. Inspectors who are not  part of ATOS, on the other hand, have duties in addition to inspecting air  carriers—such as overseeing repair stations, designees, and aviation  schools, and investigating accidents. In prior work, we found that about 75  percent of the non-ATOS inspectors had responsibility for more than 3  entities and about half had responsibility for more than 15. In addition, we  found that ATOS requires more inspectors per airline than the traditional  inspection approach. As inspectors are transitioned to ATOS, the  remaining inspectors will have to add those other entities to their  workload. With the expansion of ATOS that will continue into fiscal year  2008, it will be important to monitor the magnitude of the shift in  resources and the effect it may have on FAA’s overall capability to oversee  the industry.
Part of the challenge that FAA faces with regard to safety inspectors is  improving its process for determining staffing needs. This is especially  important as oversight activities and workload shifts with the expansion of  ATOS and other program changes, yet FAA lacks staffing standards for  safety inspectors. The National Academy of Sciences, under a  congressional mandate, recently completed a study for FAA that analyzed  FAA’s staffing processes for safety inspectors. The study identified a  number of issues that FAA must address when developing a staffing model  for safety inspectors. For instance, the study included concerns that the  current staffing process does not focus resources in the areas of greatest  need and the match between individual inspectors’ technical knowledge  and the facilities and operations they oversee is not always optimal. The  study recommended a process for FAA to follow to develop a staffing  model and identified key factors—such as changes in aircraft and systems,  changes in FAA oversight practices including a shift to a system safety  approach through programs like ATOS and increasing the use of  designees, and new knowledge and skill demands—that should be  considered in developing the model. In response to the Academy’s  recommendations, FAA expects to develop a staffing model, but the  agency does not have a specific timeframe for initiating this effort. With  nearly $1 billion of the fiscal year 2008 budget request for FAA covering  personnel compensation and benefits for aviation safety and operations,  these workload and staffing challenges are critical to address.
section_title: Hiring and Training Air Traffic Controllers Remains a Challenge
paragraphs: During the coming decade, FAA will need to hire and train thousands of  air traffic controllers to replace those who will retire and leave for other  reasons. FAA estimated it will lose 10,291 controllers, or about 70 percent  of the controller workforce, during fiscal years 2006 through 2015,  primarily due to retirements. To replace these controllers and  accommodate increases in air traffic while accounting for expected  productivity increases, FAA plans to hire a total of 11,800 new controllers  from fiscal year 2006 through 2015. In fiscal year 2006, FAA hired 1,116  controllers. The Administration’s budget for fiscal year 2008 proposes  about $4.4 billion for salaries and benefits for the air traffic organization  account, which includes FAA’s large air traffic controller workforce. The  fiscal year 2008 proposal includes FAA’s plans to hire 1,420 air traffic  controllers, which would bring the total number of air traffic controllers to  about 15,000. Figure 3 shows the estimated losses each year as well as the  number of planned hires.
Recent events may exacerbate the hiring situation. Data indicate that  controllers are retiring at a faster rate than FAA anticipated. FAA  projected 341 retirements for fiscal year 2005; 465 controllers actually  retired—36 percent more than FAA’s estimate. Similarly, in fiscal year  2006, 25 percent more controllers retired than FAA projected. To meet its  hiring target of 930 controllers in fiscal year 2006, FAA shifted about 200 of  its planned hires from fiscal year 2007 to fiscal year 2006 by speeding up  the initial screening and training process. According to FAA, it is on track  to hire between 1,300 and 1,400 controllers in fiscal year 2007. To keep on  track, FAA has recently expanded its hiring sources, which had focused on  individuals with prior FAA or Department of Defense (DOD) air traffic  control experience and graduates from FAA’s collegiate training initiative  program, to include the general public. This strategy is needed, according  to FAA officials, because DOD has recently become less of a hiring source  for controllers due to military incentives for retaining controllers and  higher salaries than FAA’s entry-level salary.
It is also important for FAA to ensure that air traffic control facilities have  adequate staffing based on their unique traffic demands and the accuracy  of FAA’s retirement forecast. Historically, FAA has computed staffing  standards, which are the number of controllers needed on a systemwide  basis, but distribution of these totals to the facility level was a negotiated  process. The staffing standards did not take into account the significant  differences in complexity and workload among FAA’s 300 terminal and  enroute control facilities, which can lead to staffing imbalances. FAA has  begun developing and implementing new staffing standards that use an  algorithm that incorporates traffic levels and complexity of traffic at the  facility level to determine the number of air traffic controllers needed,  according to an FAA official. As FAA further refines its process for  determining controller staffing needs, the ultimate objective is to assess  the traffic level and complexity on a sector-by-sector basis to develop  more accurate controller staffing requirements. This process is in the early  stages of implementation and it is too early to assess the outcome. Such  staffing standards for air traffic controllers as well as safety inspectors are  important to ensure that FAA deploys its resources for fiscal year 2008 and  later years in a cost-effective and risk-based manner.
section_title: FAA Faces Challenges in Furthering and Institutionalizing Management Improvements While Moving Toward Implementing NextGen
paragraphs: FAA has made significant progress in implementing management  processes that use leading practices of private sector businesses, but  further work remains to fully address past problems. Historically, those  problems included chronic cost and schedule difficulties associated with  operating and modernizing the nation’s air traffic control system as well as  weaknesses in FAA’s financial management. In 1995, we declared FAA’s  air traffic control modernization program a high-risk initiative because of  its cost, complexity, and systemic management and acquisition problems.  In 1999, we also placed FAA on the high-risk list for financial management,  noting weaknesses that rendered the agency vulnerable to fraud, waste,  and abuse by undermining its ability to manage operations and limiting the  reliability of financial information provided to the Congress. FAA has  made significant progress in both areas and we removed FAA’s financial  management from our high risk list in 2005. However, additional work is  needed in managing its acquisitions and finances and is crucial to  developing a sustainable capability for delivering priority systems on  budget and on time. In addition, FAA, in partnership with other federal  agencies, is embarking on the development of NextGen—one of the  federal government’s most complex and comprehensive undertakings in  recent times. FAA faces challenges associated with moving forward from  planning to implementing NextGen.
subsections: section_title: Progress Has Been Made but Further Work Remains to Institutionalize Recent Management Improvements
paragraphs: FAA has taken actions to operate in a more business-like manner and  enable the agency to more economically and efficiently manage the $14.1  billion requested for its fiscal year 2008 budget. Since we designated FAA  financial management as high-risk in 1999, FAA has made significant  improvements, including implementing a new financial management  system called Delphi and developing a cost accounting system.  Additionally, FAA received unqualified opinions from auditors on its  annual financial statements for fiscal years 2001 through 2005, in spite of  material internal control weaknesses that the auditors identified. This  progress led us to remove FAA financial management from our high risk  list in 2005.
Nonetheless, external auditors issued a qualified opinion on FAA’s fiscal  year 2006 financial statements for the first time since 2000 and repeated a  material internal control weakness that was reported in 2005. The opinion  and internal control report stemmed from FAA’s inability to support the  accuracy and completeness of the construction-in-progress account,  reported in the financial statements as $4.7 billion. Difficulties with this  account, which includes costs for projects such as radars, runway  guidance systems, and aviation safety and security systems, have been a  longstanding concern. FAA has begun work to address this problem.  However, it will be important for FAA to develop a systematic solution to  this problem, so that it does not recur.
FAA’s efforts towards improved financial management also include  establishing a cost control and cost reduction program. According to  agency officials, each line of business—such as FAA’s Air Traffic  Organization (ATO), which is responsible for managing and modernizing  the air traffic control system—is annually required to propose at least one  cost control initiative, and the Administrator tracks and reviews progress  on these initiatives monthly. According to FAA, these initiatives have  yielded a total of $99.1 million in cost savings and $81.9 million in cost  avoidance for fiscal years 2005 and 2006. Additional cost control efforts  include outsourcing flight service stations, which FAA estimates will save  $2.2 billion over 10 years, and restructuring its administrative service areas  from 9 separate offices to 3, which FAA estimates will save up to $460  million over 10 years. We have ongoing work that is assessing FAA’s cost  control strategy and identifying additional cost savings opportunities that  may exist. For example, we have previously reported the need for FAA to  pursue further cost control options, such as exploring additional  opportunities for consolidating facilities and contracting out more of its  services.
FAA has taken steps to improve its software acquisition and investment  management processes and for the last 3 years has reported meeting its  cost and schedule targets for the acquisition of major systems, including  air traffic control systems. These improvements are particularly  important since FAA plans to spend about $9.4 billion from fiscal year  2007 through fiscal year 2011 to upgrade and replace air traffic control  systems. To better manage its information technology investments,  including its software intensive air traffic control systems, and address  problems we have identified, FAA has changed its acquisition  management guidance to require review of all investments—new systems  as well as systems in service. In addition, FAA has established a cost  estimating methodology for its investments. FAA has also developed and  applied a process improvement model to assess the maturity of its  software and systems capabilities resulting in, among other things,  enhanced productivity and greater ability to predict schedules and  resources. Further, FAA has made progress in expanding its enterprise  architecture—a comprehensive guide to its plans for acquiring new  systems—to include the initial requirements for NextGen.
However, making further improvements and institutionalizing them  throughout the agency will continue to be a challenge for FAA. For  example, FAA’s acquisition management guidance does not clearly  indicate whether the reviews of in-service systems include reevaluations  of projects’ alignment with strategic goals and objectives, as we  recommended. In addition, the agency has yet to implement its cost  estimating methodology. Furthermore, FAA has not established a policy to  require use of its process improvement model on all major acquisitions for  the national air space system. Additionally, as FAA begins to detail the  scope and system requirements of NextGen, it will be important to adapt  and expand the enterprise architecture for the national air space system to  guide these future plans. Until the agency fully addresses these residual  issues, it will continue to risk program management problems affecting  cost, schedule, and performance. With a multi-billion dollar acquisition  budget, addressing these actions are as critical as ever.
Institutionalizing these financial, acquisition, and information technology  improvements will be a challenge for FAA, especially in view of the  imminent departure of the Chief Operating Officer later this month and the  departure of the Administrator, who will reach the end of her 5-year term  this September. We have reported that the experiences of successful  transformations and change management initiatives in large public and  private organizations suggest that it can take 5 to 7 years or more until  such initiatives are fully implemented and cultures are transformed in a  sustainable manner. Such changes require focused, full-time attention  from senior leadership and a dedicated team.
section_title: Progress Continues to Be Made in Planning for NextGen, but Challenges to Successful Implementation Remain
paragraphs: Work to determine the capabilities and requirements that will be needed  for NextGen and to produce a comprehensive vision for that system is  nearing completion; however, given the staggering complexity of this  ambitious effort to modernize and transform the air traffic control system  over the next two decades, it will not be easy to move from planning to  implementation. To plan NextGen, Congress authorized the creation of the  Joint Planning and Development Office (JPDO) in 2003. JDPO is housed  within FAA and the Administration’s fiscal year 2008 budget includes $14.3  million to support JPDO. To carry out its planning function, JPDO is  required to operate in conjunction with multiple government agencies.  JPDO’s approach requires unprecedented collaboration and consensus  among many stakeholders—federal and nonfederal—about necessary  system capabilities, equipment, procedures, and regulations. Recently,  JPDO has made progress in developing key planning documents, including  a cost estimate for NextGen. However, as efforts move forward to  implement NextGen, it will be important to identify the source and funding  for completion of intermediate technology development and determine  how FAA can best manage the complex implementation and integration of  NextGen technologies. Without a timely transition to NextGen capabilities,  JPDO officials estimate a future gap between the demand for air  transportation and available capacity that could cost the U.S. economy  billions of dollars annually.
subsections: section_title: JPDO Has Made Progress toward Finalizing Key Planning Documents and Developing a Cost Estimate
paragraphs: FAA and the other JPDO partners have been working to refine the vision  for NextGen and achieve a general consensus on that vision. The bulk of  JPDO’s planning has been to develop three critical documents—a concept  of operations, enterprise architecture, and operational improvement  roadmaps. Once these key documents are completed in the next few  months, it will be important to synchronize them with partner agency  planning documents, including FAA’s implementation plan for NextGen— the Operational Evolution Partnership (OEP)—and to continue to use the  documents to drive agency budget decisions. The OEP is intended as a  comprehensive description of how the agency will implement NextGen,  including the required technologies, procedures, and resources. JPDO is  continuing to work with the Office of Management and Budget (OMB) to  develop a unified, cross-agency program for NextGen funding requests.
Given the criticality of NextGen, another important planning document— possibly the most important for Congress—is a comprehensive estimate of  the costs to JPDO partner agencies, particularly FAA, for the required  research, development, systems acquisitions, and systems integration.  Such an estimate does not yet exist. As we reported in November 2006, a  limited, preliminary cost estimate concluded that FAA’s budget under a  NextGen scenario would average about $15 billion per year through 2025,  or about $1 billion more annually (in today’s dollars) than FAA’s fiscal  year 2006 appropriation. A JPDO official told us they have submitted a  limited NextGen cost estimate to OMB with the 2008 budget request. As of  February 9, 2007, JPDO had not publicly released its cost estimate for  NextGen. According to the Department of Transportation, the  Administration’s budget for fiscal year 2008 includes $175 million to  support key FAA investments in NextGen.
According to JPDO officials, their current estimate focuses only on the  near-term capital needs for FAA’s ATO portfolio. To develop what they  believed would be a more accurate cost estimate, JPDO also focused on  the funding necessary to achieve only the capabilities of the NextGen  system around 2016, rather than the long-term 2025 capabilities. JPDO  then laid out the major systems and investments required by ATO to  achieve the mid-term vision and the related costs for ATO.
While JPDO’s new estimate will be a step toward understanding the costs  of NextGen, this estimate is still incomplete. Much work remains to  develop a comprehensive cost estimate for NextGen that includes the  costs to the rest of FAA (beyond ATO), the other JPDO partner agencies,  and industry. A JPDO official told us the agency is working to develop a  comprehensive estimate and plans to have one ready to submit with the  2009 budget request. This comprehensive estimate is intended to describe  the business case for NextGen and detail the investments that will be  required by all the JPDO partner agencies to achieve the NextGen vision  by 2025.
section_title: Both JPDO and FAA Face Challenges as NextGen Moves from Planning to Implementation
paragraphs: The successful implementation of NextGen will depend, in part, on  resolving the uncertainty over which entities will fund and conduct the  research and development necessary to achieve some key NextGen  capabilities and to support the operational roadmaps. In the past, a  significant portion of aeronautics research and development, including  intermediate technology development, has been performed by NASA.  However, our analysis of NASA’s aeronautics research budget and  proposed funding shows a 30 percent decline, in constant 2005 dollars,  from fiscal year 2005 to fiscal year 2011. To its credit, NASA plans to focus  its research on the needs of NextGen. However, NASA is also moving  toward a focus on fundamental research and away from developmental  work and demonstration projects. FAA has determined that research gaps  now exist as a result of both NASA’s cuts to aeronautical research funding  and the expanded requirements for NextGen coming from JPDO. These  gaps are in the activities of applied research and development—activities  that will be required to implement new policies, demonstrate new  capabilities, set parameters for certification of new systems, and develop  technologies for transfer to industry.
It will be important for both FAA and JPDO to find ways, in the near term,  to keep the necessary research and development on track to support  implementation of NextGen by 2025. In 2006, officials from FAA and JPDO  initiated an assessment of NextGen research and development  requirements. Their goal was to identify specific research initiatives that  were not currently funded, but which they said must be initiated no later  than fiscal year 2009 to comply with the operational roadmaps. The  preliminary findings from this assessment led to increased budget requests  for FAA to help lessen the research and development gaps. However,  JPDO officials noted that a research and development gap remains, with  items in the research and development pipeline that need funding to take  them from concept to development. Other options for addressing the gap  are for JPDO and FAA to further explore ways to leverage the research  being conducted in other agencies or to partner with industry or academia.  For example, JPDO and FAA have already identified research within DOD  on alternative fuels that, with a modest investment, could be leveraged to  include civil aviation. Currently, it is unknown how all of the significant  research and development activities inherent in the transition to NextGen  will be conducted or funded.
Another issue with regard to NextGen implementation will be FAA’s  ability to manage the systems acquisitions and integration needed to  implement a system as broad and complex as NextGen. In the past, a lack  of expertise contributed to weaknesses in FAA’s management of air traffic  control modernization efforts. Industry experts with whom we have  spoken continue to question whether FAA will have the technical  expertise needed to implement NextGen. In November, we recommended  that FAA examine its strengths and weaknesses with regard to the  technical expertise and contract management expertise that will be  required to define, implement, and integrate the numerous complex  programs inherent in the transition to NextGen. In response to our  recommendation, FAA is considering convening a blue ribbon panel to  study this issue and make recommendations to the agency about how to  best proceed with its management and oversight of the implementation of  NextGen. We believe that such a panel could help FAA begin to address  this challenge.
section_title: Funding Issues May Affect Airports’ Investment and Other FAA Programs
paragraphs: As it modernizes the national airspace system to meet the nation’s future  air transportation needs, FAA must not only transform the air traffic  control system, but also work with airport operators to provide increased  capacity at airports to safely handle the projected growth in the demand  for air travel. This latter responsibility will include overseeing airports’  efforts to adapt their infrastructure to accommodate the introduction of  very light jets, and in the case of the largest airports, the new large Airbus  A380. Airports are an integral part of the nation’s transportation system  and maintaining their safety and efficiency is an important FAA  responsibility. To this end, FAA administers the Airport Improvement  Program (AIP), which provides federal funds for development projects at  the entire range of the nation’s 3,400 airports—from small general aviation  airports to the very largest that handle several million passengers per year.  The Administration has proposed cuts in AIP funding and is considering  possible changes to the AIP allocation formula as well as increasing the  cap on passenger facility charges for airport development projects. Any  change in the level or allocation of these funds could have implications for  funding airport capital projects. Not only AIP grants but also portions of  other FAA programs receive funds from the Airport and Airway Trust  Fund, which is largely financed by excise taxes on ticket purchases by  airline passengers and aviation fuel. Since these taxes are scheduled to  expire at the end of September 2007, ensuring that there is no lapse in  revenue to the trust fund will require Congressional action. Without a  continued flow of funds to the trust fund, FAA’s ability to carry out AIP  and other programs during fiscal year 2008 may be in jeopardy.
subsections: section_title: FAA’s Recent Estimate of Planned Capital Development Similar to Past Estimate
paragraphs: FAA estimates the total cost for planned airport projects that are eligible  for AIP funding, including runways, taxiways, and noise mitigation and  reduction efforts, will be about $42 billion for fiscal years 2007 through  2011. This estimate is little changed from the agency’s last estimate in  2004 for the period 2005 to 2009. FAA’s current estimate indicates that  over half of the planned development will occur at large and medium hub  airports. The Airports Council International—North America (ACI-NA)  also provides estimates of planned airport development. ACI-NA includes  both AIP-eligible projects and ineligible projects and, as a result, has  higher estimates.
Historically, airports have received funding for capital development from a  variety of sources. As we reported in 2003, the single largest source of  financing for airports is tax-exempt bonds, followed by AIP grants and  passenger facility charges. Tax exempt bonds are currently supported by  airport revenue and, in some cases, by passenger facility charges. Access  to these funding sources varies according to airports’ size and funding  capabilities. Large and medium hub airports depend primarily on tax- exempt bonds, while the smaller airports rely principally on AIP grants.  Passenger facility charges are a particularly important source of capital for  large and medium hub airports because they have the majority of  commercial service passengers.
section_title: FAA Funding Proposals Would Change How Airport Development is Financed
paragraphs: The Administration has proposed changing the federal role in financing  airport development in its fiscal year 2008 budget proposal, which also  includes a reauthorization proposal for FAA that will be submitted later  this month. Funding for AIP grants would be reduced and the allocation  formula changed. The Administration’s reauthorization proposal is  expected to provide details on these proposed changes. It is, therefore,  currently unclear how a number of issues will be addressed.
The reauthorization proposal may clarify the impact on smaller airports,  which received about two-thirds of AIP grants in fiscal year 2004. As noted  earlier in my statement, smaller airports rely primarily on AIP grants for  capital funding. In recent years, statutory changes in the distribution of  AIP grants have increased the share to smaller airports. However, under  the fiscal year 2008 budget proposal, funding changes would especially  impact smaller airports if the current allocation formulas are unchanged in  the forthcoming reauthorization proposal. First, primary airport  entitlements under AIP would be cut in half from the fiscal year 2006  level. In turn, the small airport fund, which is funded from AIP entitlement  amounts that large and medium hub airports must turn back if they impose  passenger facility charges, would also be reduced by half. Second, state  entitlements for non-primary commercial service and general aviation  airports would be reduced from 20 percent to 18.5 percent of total AIP  obligations. Finally, discretionary set aside grants for reliever airports  would be eliminated under the fiscal year 2008 budget proposal. Table 1  shows the effect on the amounts available for various types of AIP grants  at different funding levels including the $2.75 billion requested in the  Administration’s budget and the actual funding level for fiscal year 2006.
To help offset any reductions in AIP grants, FAA is also considering  allowing airports to collect more revenue from passenger facility charges,  which large airports generally prefer. Airlines, however, have been  generally opposed to an increase in these charges because they have little  control in how passenger facility charges are spent and because they  believe these charges reduce passenger demand for air travel.  Nonetheless, if airports were to increase charges, additional airport  revenue could be generated. Increasing the cap on passenger facilities  charges would primarily benefit larger airports because these charges are  a function of passenger traffic. However, as already noted, under AIP,  large airports that collect passenger facility charges must forfeit a certain  percentage of their AIP formula funds. These forfeited funds are  subsequently divided between the small airport fund, which is to receive  87.5 percent, and the discretionary fund, which is to receive 12.5 percent.  Thus, under current law, smaller airports would benefit indirectly from  any increases in passenger facility charges and help offset reductions in  AIP funding.
section_title: FAA and the Congress Will Face a Challenge Funding FAA Programs in Fiscal Year 2008 if Reauthorization is Not Timely
paragraphs: With the excise taxes that fund the Airport and Airway Trust Fund  scheduled to expire at the end of fiscal year 2007, Congress will need to  act if there is to be no lapse in revenue to the trust fund to fund FAA. If the  taxes are neither reauthorized by that time nor replaced by other revenue  sources for the trust fund, the only revenues to the trust fund will be  interest earned on the fund’s cash balance. FAA estimates that two  previous lapses in 1996-1997 resulted in the trust fund not receiving about  $5 billion in revenue.
As of the end of fiscal year 2006, the trust fund’s uncommitted balance— surplus revenues in the trust fund against which no commitments, in the  form of budget authority, have been made—was less than $2 billion. The  Administration’s budget proposal projects that the uncommitted balance  will be about $2 billion at the end of fiscal year 2007. If today’s level of  monthly tax revenue continues, a 2- to 3-month lapse in fiscal year 2008  could reduce the revenue to the trust fund enough to cause the  uncommitted balance to fall to zero in fiscal year 2008. Most of FAA’s  funding comes from the trust fund—the fiscal year 2008 budget request for  FAA proposes about 80 percent of the agency’s funding from the trust fund  with the remainder from the general fund. If the trust fund balance falls to  zero, continuation of FAA’s programs—including efforts to address some  of the safety and management challenges that I have discussed—would  depend on providing additional general revenues.
section_title: GAO Contact and Staff Acknowledgments
paragraphs: For further information on this testimony, please contact Dr. Gerald L.  Dillingham at (202) 512-2834 or dillinghamg@gao.gov. Individuals making  key contributions to this testimony include Paul Aussendorf, Jay Cherlow,  Jessica Evans, Colin Fallon, Carol Henn, Ed Laughlin, Ed Menoche, Faye  Morrison, Colleen Phillips, Taylor Reeves, Richard Scott, Teresa Spisak,  and Larry Thomas.
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