O Canada! - privatizing air traffic control

Reason, April, 1996 by Ed Carson

Our northern neighbor privatizes its air traffic control system. But privatization plans are still circling Washington.

The Canadian government - fresh from privatizing the Canadian National Railway - is selling the nation's air traffic control system to the airline industry for 1.5 billion Canadian dollars (US$1.09 billion). The deal is similar to proposals to spin off the U.S. air traffic system, but so far those plans are just getting stale.

On April 1, the Canadian government will transfer all air navigation operations, equipment, and employees to a new company, Nav Canada. The nonprofit company, comprising Canada's major airlines, private aircraft owners, the pilots union, and the air traffic employees, will rely completely on user fees to meet operating costs. Profits will be used to modernize the system. The government had been running annual deficits of CDN$200 million on the system.

Other countries, notably Germany and New Zealand, have turned their air traffic systems into government corporations. But Canada is the first country to go through with full privatization.

In Washington, the Republican congressional leadership has endorsed full privatization, and President Clinton has proposed turning the system into a government corporation. But no privatization of any kind ever left the House Transportation Committee. Instead, Congress exempted the Federal Aviation Administration from federal procurement rules.

The official story is that Transportation committee members believed the Congressional Budget Office's estimate of the government's take from selling the ATC system wasn't firm enough or high enough to justify the sale. The original CBO estimate was $18 billion, but technical changes in the model used to score the savings cut that to between $6 billion and $7 billion. Also, committee members were concerned that airline crashes in the future would be blamed on privatization.

But privatization is expected to improve airline safety. The FAA would still control and oversee airline safety regulations. And a private corporation - using debt financing and savings from making the system more efficient - would be able to upgrade the aging air traffic system, which is still using computers with vacuum tubes and has been plagued by power outages in recent months. During a six-minute control tower power outage at Pittsburgh International Airport on January 31, an air traffic controller had to use a pay phone to call other airports and tell them to hold flights to Pittsburgh.

The nonprofit company also could set salaries to entice the best personnel to our busiest airports. Uniform government salaries currently make high-cost-of-living cities such as Chicago and New York less attractive for controllers.

Political pressure, particularly from the general aviation community, was really what grounded privatization, says a Hill staffer concerned with privatization issues. He says the Aircraft Owners and Pilots Association is known on Capitol Hill as "the National Rifle Association of the skies." Private pilots are generally affluent, they reside in every congressional district, and a number of congressmen are private pilots themselves. The lobby opposes privatization because currently private pilots don't pay their full share for air traffic services.

The U.S. air traffic controllers union also opposed privatization, but their Canadian counterparts are eager to leave government service. And why? All 6,400 workers will keep their jobs at current salaries and receive 24 weeks severance pay worth an average of CDN$27,000 (US$19,620) the day the air traffic control system is transferred to the nonprofit corporation.