Although the NextGen effort involves multiple government agencies and the private sector, FAA will be the entity largely responsible for implementing the policies and systems necessary for NextGen while safely operating the current air traffic control system 24 hours a day, 7 days a week. This means that FAA will be responsible for keeping a number of large NextGen systems acquisitions on budget and on schedule as it manages and sustains the current system. Historically, FAA has had serious weaknesses in its financial management as well as chronic cost and schedule difficulties with air traffic control system acquisitions. During the past few years, FAA has made significant progress in implementing businesslike processes and procedures for financial management, acquisitions, and organization structures. The implementation of these types of initiatives has improved FAA’s management of the current system and should better position the agency to manage the enormously complex transition to NextGen. However, further work remains to fully address past problems and institutionalize these changes throughout the agency, especially given the changing leadership within both FAA and its ATO. Sound financial management, including sound cost accounting and cost allocation systems, is important for the current operation of FAA and lays the foundation for the transformation to NextGen and proposed changes to the agency’s funding system laid out in the administration’s reauthorization proposal. In 1999, we placed FAA on our high-risk list for its financial management practices, 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 Congress. In 2005, we removed FAA’s financial management from our high-risk list because the agency had made significant progress, including implementing a new financial management system called Delphi and receiving unqualified opinions from auditors on its annual financial statements for fiscal years 2001 through 2005. Nonetheless, external auditors issued a qualified opinion on FAA’s fiscal year 2006 financial statement and repeated a material internal control weakness that was reported in 2005. The concerns that led to the qualified opinion stemmed from FAA’s inability to support the accuracy and completeness of its construction-in-progress account, reported in the financial statement as $4.7 billion. FAA is working to address the problem. As part of its improved financial management, FAA has developed a cost accounting system and a cost allocation methodology, which are critical to the successful implementation of the new cost-based funding system included in the administration’s reauthorization proposal. The proposal would change FAA’s financing system from one based mainly on excise taxes to one that provides a better link between revenues and the costs that users of the national airspace system impose on the system, according to the agency. FAA also says the proposal would improve revenue adequacy, equity, and efficiency. While the reauthorization proposal may address some of the equity and efficiency concerns that FAA has raised with the current funding structure, we have reported that it is not yet clear if FAA has developed a sound cost allocation methodology from which to derive the new cost-based funding. We are reviewing FAA’s cost allocation methodology and expect to issue a report later this year. FAA has also improved its financial management through increased efforts to achieve cost savings and cost avoidance throughout the agency. For example, FAA is outsourcing flight service stations and estimates a $2.2 billion savings over 12 years. Similarly, FAA is seeking savings through outsourcing its planned nationwide deployment of Automatic Dependent Surveillance-Broadcast (ADS-B), a critical element of NextGen. FAA is planning to implement ADS-B through a performance-based contract in which FAA will pay “subscription” charges for the ADS-B services and the vendor will be responsible for building and maintaining the infrastructure. (FAA also reports that the ADS-B rollout will allow the agency to remove 50 percent of its current secondary radars, saving money in the program’s baseline. The remaining radars will serve as a back-up system to ADS-B.) As for consolidating facilities, FAA is currently restructuring ATO’s administrative service areas from nine offices to three offices, which FAA estimates will save up to $460 million over 10 years. We previously reported that FAA should pursue further cost control options, such as exploring additional opportunities for contracting out services and consolidating facilities. However, we recognize that FAA faces challenges with consolidating facilities, an action that can be politically sensitive. In recognition of this sensitivity, the administration’s reauthorization proposal presents a “BRAC-like” initiative in which the Secretary of Transportation would be authorized to establish an independent, five-member commission, known as the Realignment and Consolidation of Aviation Facilities and Services Commission, to independently analyze FAA’s recommendations to realign facilities or services. The commission would then send its own recommendations to the President and Congress. In the past, we noted the importance of potential cost savings through facility consolidations; however, it must also be noted that any such consolidations must be handled through a process that solicits and considers stakeholder input throughout and fully considers the safety implications of both proposed facility closures and consolidations. A successful transition to NextGen will depend, to a great extent, on FAA’s ability to manage the acquisition and integration of multiple NextGen systems. Since 1995, we have designated FAA’s air traffic control modernization program as high risk because of systemic management and acquisition problems. However, in recent years, FAA has made significant progress toward improving its acquisition management. Realization of NextGen goals could be severely compromised if FAA’s improved processes are not institutionalized and carried over into the implementation of NextGen, which is an even more complex and ambitious undertaking than past modernization efforts. To its credit, FAA has taken a number of actions to improve its acquisition management. By creating ATO in 2003 and appointing a chief operating officer (COO) to head ATO, FAA established a new management structure and adopted more leading practices of private sector businesses to address the cost, schedule, and performance shortfalls that have plagued air traffic control acquisitions. ATO has worked to create a flatter organization, with fewer management layers, and has reported reducing executive staffing by 20 percent and total management by 16 percent. In addition, FAA uses a performance management system to hold managers responsible for the success of ATO. More specifically, to better manage its acquisitions and address problems we have identified, FAA has undertaken human capital initiatives to improve its acquisition workforce culture and build towards a results-oriented, high-performing organization; developed and applied a process improvement model to assess the maturity of its software and systems acquisitions capabilities resulting in, among other things, enhanced productivity and greater ability to predict schedules and resources; and reported that it has established a policy and guidance on using Earned Value Management (EVM) in its acquisition management system and that 19 of its major programs are currently using EVM. Institutionalizing these improvements throughout the agency will continue to be a challenge for FAA. For example, the agency has yet to implement its cost-estimating methodology, although, according to the agency, it has provided training on the methodology to employees. Furthermore, FAA has not established a policy to require use of its process improvement model on all major acquisitions for the national airspace system. Until the agency fully addresses these residual issues, it will continue to risk program management problems affecting cost, schedule, and performance. With a multibillion dollar acquisition budget, addressing these issues is as important as ever. In another effort to improve agency processes, FAA expanded its use of performance measures to track its performance. In its fiscal year 2007 portfolio of goals, FAA lists 30 performance measures. As part of our ongoing work, we are currently reviewing how FAA selects and measures two of these goals in particular: critical acquisitions on budget and critical acquisitions on schedule. FAA has reported exceeding targets for both of these measures for the past 3 fiscal years. FAA’s targets for fiscal year 2006 were to have 85 percent of critical acquisition programs within 10 percent of budget, as reflected in its capital investment plan, and to have 85 percent of critical acquisition programs on schedule. For fiscal year 2006, FAA reported that its critical acquisitions were 100 percent on budget and over 97 percent on schedule. This represents a major turnaround in a program that remains on our high-risk list. It will be important, as FAA begins to implement NextGen systems, to maintain critical acquisitions on schedule and on budget in order to meet the goal of transitioning to NextGen by 2025 and to prevent escalation of the costs of NextGen. Our ongoing work is examining FAA’s performance and reporting on its critical acquisitions, including applicable performance measures. We are also exploring FAA’s use of the most recently approved cost and schedule baselines, which may have changed significantly since the start of an acquisition, to measure program performance. Rebaselining acquisitions is an accepted practice and there are valid reasons for doing so, such as when changes in a program’s requirements fundamentally alter the acquisition and make the originally approved schedule unrealistic. Because rebaselining resets the cost and schedule variances to zero, we want to verify that FAA’s practice is not masking acquisition performance problems. We expect to issue a report on these issues later this year. While the acquisition and deployment of NextGen technology are key issues facing the agency, it will be critical for FAA to continue to maintain existing systems and phase out existing systems using a risk-based approach. The adequacy of FAA’s maintenance of existing systems was raised following a power outage and equipment failures in Southern California that caused hundreds of flight delays during the summer of 2006. Investigations by FAA and the Department of Transportation Inspector General into these incidents identified a number of underlying issues, including the age and condition of equipment. Nationwide, the number of scheduled and unscheduled outages of air traffic control equipment and ancillary support systems has been increasing (see fig. 1). Increases in the number of unscheduled outages indicate that systems are failing more frequently.