Before commercialization, air navigation services under government control faced increasing strains. Many were underfunded, as evidenced by freezes on air traffic controllers’ wages and insufficient funds to replace aging technologies. Technology replacement programs often cost more, took longer, and delivered less than promised, and stakeholders complained about performance and customer service. In some instances, the country as a whole faced widespread fiscal problems and the commercialization of air navigation services was simply part of a larger movement to reform government enterprises. For instance, the New Zealand government established 14 state-owned enterprises in 1987, including air navigation services, rail services, and postal services. The government also reformed electricity as a state-owned enterprise in 1994 and telecommunications in 2004. Although fiscal problems often drove the commercialization of air navigation services, commercialization was generally intended not only to relieve the government of a fiscal responsibility but also to free the ANSP from some governmental constraints. According to the International Civil Aviation Organization (ICAO), a commercialized ANSP, whether wholly or partly owned by the government or fully privatized, should function as an autonomous body and, compared with a government organization, should have greater freedom from the government in conducting its financial affairs and developing infrastructure funding. In addition, it should be self- financing, subject to the usual business taxes, and required to seek a return on capital. According to ICAO, the government should still regulate the safety of the ANSP’s operations, but the ANSP should be encouraged to be as competitive, efficient, and cost-effective as any other commercial business. In the five countries whose air navigation services we reviewed, the ANSP continued to provide nationwide services after commercialization and, with limited exceptions, remained the sole provider of air navigation services. Table 1 summarizes information on the size and scope of the five ANSPs in our review. Each ANSP generally offers en route, approach control, and terminal (or aerodrome control) air traffic services. Although definitions of these terms may vary slightly among ANSPs, the terms generally signify the same broad functions. Specifically, en route services guide an aircraft while it is operating at cruising elevations and outside terminal airspace. Approach control services apply during departure—immediately after the aircraft has taken off and while it is climbing from the origination airport—and during arrival—when the aircraft is descending to the destination airport toward the end of the flight. Terminal or aerodrome control services are provided while the aircraft is close to the airport from which it is arriving or departing. However, in some countries, the ANSP may not be the sole provider of approach control and terminal services. All but Germany’s DFS also offer oceanic air navigation services. All five ANSPs are responsible for providing air navigation services to both civil and military aviation. In addition, the ANSPs may offer other air navigation-related services, such as meteorological, training, and consulting services, and charge for these services. The five commercialized ANSPs are affiliated with one or more international aviation-related organizations. The governments of all five ANPS are members of ICAO and, therefore, all five ANSPs adhere to ICAO principles. All five ANSPS are also members of the Civil Air Navigation Services Organization (CANSO), a voluntary international trade organization whose mission is to represent the interests of commercialized ANSPs. In addition, the UK and Germany are members of EUROCONTROL, a European organization responsible for regulating the safety of air navigation, monitoring the performance of air traffic management systems, and developing a seamless air traffic management system in Europe. EUROCONTROL is mandated to develop implementing rules for the European Union’s “Single European Sky” initiative, a legislative package approved by the European Parliament in January 2004. One of these implementing rules specifies that each member state is to develop an independent safety and economic regulatory authority to oversee its ANSP. The UK established such an authority before commercialization, and Germany is planning to develop one. The five commercialized ANSPs that we reviewed have a number of common characteristics: First, all focus on safely moving aircraft. Second, despite differences in ownership structures, all operate as businesses rather than as government organizations and are self-financing. Third, all are largely monopoly providers that are subject to some form of price- setting constraint achieved through economic review or procedural guidelines. For all five commercialized ANSPs, the safe movement of aircraft remains the primary goal. In some instances, government policy requires that the ANSP consider safety in any and all decisions affecting operations and service. For example, according to DFS officials, German legislation requires DFS to observe ICAO’s standards and recommended safety practices, as well as adhere to the objectives and policies of international organizations in which the German government participates, such as EUROCONTROL. Similarly, in Canada, legislation requires NAV CANADA to maintain a fixed level of safe operations. According to Transport Canada, the safety regulator, the Minister of Transport has the authority to direct NAV CANADA to maintain or increase levels of service in the interest of safety. Although NAV CANADA can alter operations in accordance with business principles, it must demonstrate that the changes meet the required level of safety through an aeronautical risk assessment. All five ANSPs are subject to external safety regulation. A separate authority conducts safety regulation and issues relevant certificates or licenses to air traffic controllers and technicians. In New Zealand, for example, the Civil Aviation Authority (CAA) is an independent regulatory authority that, among other things, establishes civil aviation safety and security standards and monitors adherence to those standards. CAA carries out accident and incident investigations and uses information from these investigations to establish an industrywide safety picture and develop safety initiatives ranging from educational campaigns to increased monitoring and regulatory action. In Australia, the Civil Aviation Safety Authority regulates and promotes aviation safety, and the Australian Transport Safety Bureau investigates aircraft accidents, incidents, and safety deficiencies within the aviation system, according to Airservices Australia. In Canada, NAV CANADA and the government, through Transport Canada, share responsibility for the safety of the national civil air navigation system. Under a performance-based approach to safety regulation, known as the relations management approach, Transport Canada, as the regulator, establishes the requirements in law and standards, and NAV CANADA, as the operator, must demonstrate compliance by measuring and reporting on program results. Transport Canada, among other things, conducts audits, adjudicates safety issues raised by stakeholders, and licenses air traffic controllers. All five selected ANSPs have also established formal safety programs. For example, DFS and NATS apply a systematic Safety Management System, in accordance with EUROCONTROL’s safety requirements, to all of their operational activities. This system forms the basis for risk assessment, safety assurance, safety control, and safety monitoring through standards that comply with national and international obligations. DFS’s Safety Management System was also certified by the German Ministry of Transport in 2004. Similarly, Airservices Australia employs a systemic Safety Management System that complies with national and international requirements. To promote safety, the system requires activities such as operational risk assessments, surveillance, audits, and incident investigations. The five commercialized ANSPs vary in the extent to which they are owned by the government—wholly, partially, or not at all. (See table 2.) Three of these ANSPs—Airservices Australia; Airways Corporation of New Zealand, Ltd.; and DFS—are state-owned corporations (i.e., companies wholly owned by the government). The UK’s NATS is a public-private partnership (i.e., a cooperative venture between the public and private sectors that is designed to meet defined public needs) with the risks and rewards divided between both parties. The government holds the largest share of NATS (49 percent), and the remaining shares are divided among a consortium of seven UK airlines (42 percent), NATS staff (5 percent), and a private airport company (4 percent). By 2006, Germany plans to change the ownership of DFS, selling 74.9 percent of its equity to private investors and reorganizing it as a public-private partnership, along the lines followed in the UK. NAV CANADA is a nonshare capital, private corporation—that is, it has “members” instead of shareholders. The corporation has 4 members representing government, airlines, noncommercial users, and the unions. These 4 members appoint 10 of the 15 board directors: 4 are appointed by the airline industry, 3 by the government, 2 by employees such as air traffic controllers and engineers, and 1 by general and business aviation. These 10 directors appoint another 4 based on expertise and the chief executive officer. Before commercialization, members of the two ANSPs that are not wholly owned by their government, NATS and NAV CANADA, “purchased” some or all of the ANSP assets from the government. Although the UK government retained the largest share of NATS, the second-largest owner, the consortium of seven UK airlines known as “The Airline Group,” provided approximately $1.4 billion, according to information from the National Audit Office, including about $112.2 million from the group’s own resources and the remainder from a loan taken out with a consortium led by four major banks. The group used this sum to acquire NATS and meet associated transaction costs, leaving cash assets of approximately $6.0 million in the business. In total, the government received an estimated $1.3 billion in cash proceeds from the transaction. NAV CANADA purchased all of the ANSP assets from the Canadian government. Instead of going through a formal competitive bidding process, it negotiated a selling price with the government, and purchased the air navigation system in 1996 for about $1.5 billion, using a $2.9 billion line of credit provided by a syndicate of banks at the time of the purchase.