	Background

Before commercialization, air navigation services under government  control faced increasing strain. With commercialization, the government typically retains full or partial  ownership of the air navigation system and continues to regulate  operational safety, but an independent ANSP is responsible for operating  the system. The independent ANSP is subject to corporate financial and  accounting rules and, in line with today’s current management theories, is  generally designed as a performance-based organization—that is, an  organization that develops strategies, goals, and measures and gathers and  reports data to demonstrate its performance. For this statement, we will use “commercialization.”

	Common Characteristics of Five Commercialized ANSPs

The five commercialized ANSPs that we reviewed have a number of  common characteristics: All operate as businesses rather than as  government organizations, all focus on safety, and all are largely monopoly  providers that are subject to some form of economic review or guidelines  for setting prices. ANSPs Make and Execute Their Decisions and Follow Corporate Practices

Each ANSP makes and carries out its own strategic, operating, and  financial decisions. Before commercialization, governments funded air traffic control services  through annual appropriations from their national government. All five ANSPs collect and manage their own revenues, charging fees for  services. All five ANSPs are subject to external safety regulation. Available Data Indicate That Since Commercialization, the Five ANSPs Have Maintained Safety, Controlled Costs, and Achieved Efficiencies

Based on information from each of the ANSPs we reviewed, following  commercialization, air navigation safety has not declined, and all five  ANSPs have taken steps to control costs. For example, data  from Airways Corporation of New Zealand indicate a downward trend in  incidents involving loss of separation for the years following  commercialization. In New  Zealand, as air traffic has increased, some airspace sectors have been  subdivided so that controllers are responsible for a smaller piece of  airspace. DFS has also integrated operations and consolidated facilities. Focus on Cost Control and Operational Efficiency Has Affected User Charges

Through their cost control initiatives and modernization efforts, some of  the ANSPs have been able to lower their unit costs and, in turn, lower their  charges to major commercial airlines, which pay the largest proportion of  user fees and therefore are the primary users served by the ANSPs. Some governments have subsidized air navigation services at small,  remote, general aviation, and regional airports, viewing such services as a  public good. Initial Observations on Commercialized ANSPs

Through our research, we made a number of initial observations about the  commercialization of air navigation services in the five countries we  selected. Having a Contingency Fund Can Help, but May Not Be Sufficient, to Protect Against an Industry Downturn

Following commercialization, two changes—shifting the source of funding  from appropriations to user fees and allowing the ANSPs to borrow money  on the open market—have generally enabled commercialized ANSPs to  cover their operating and capital costs. Since user fees constitute the ANSP’s primary source of  revenue, economic monitoring and regulation by an independent third  party can protect users and ensure a fair pricing process. ICAO recognizes the need for an independent mechanism to provide  economic regulation of air navigation services. Similarly, general aviation operators may be threatened if they are  required to pay fees that cover the full costs of the air navigation services  they receive.
Why GAO Did This Study

In the past, governments worldwide owned, operated, and regulated air navigation services, viewing air traffic control as a governmental function. But as nations faced increasing financial strains, many governments decided to shift the responsibility to an independent air navigation service provider (ANSP) that operates along commercial lines. As of March 2005, 38 nations worldwide had commercialized their air navigation services, fundamentally shifting the operational and financial responsibility for providing these services from the national government to an independent commercial authority. GAO selected five ANSPs--in Australia, Canada, Germany, New Zealand, and the United Kingdom--to examine characteristics and experiences of commercialized air navigation services. These ANSPs used different ownership structures and varied in terms of their size, amount of air traffic handled, and complexity of their airspace. This testimony, which is based on ongoing work, addresses the following questions: (1) What are common characteristics of commercialized ANSPs? (2) What do available data show about how the safety, cost, and efficiency of air navigation services have changed since commercialization? (3) What are some initial observations that can be made about the commercialization of air navigation services?

What GAO Found

The five commercialized ANSPs that GAO selected for review have a number of common characteristics: Each operates as a business, making and carrying out its own strategic, operational, and financial decisions. Each generates and manages its own revenue to cover its costs, charging fees to users and borrowing funds from private markets instead of relying on annual governmental appropriations. Each has also put commercial financial and performance data systems in place. All five ANSPs have retained safety as their primary goal, and each is subject to some external safety regulation. Each ANSP is largely a monopoly provider of air navigation services and undergoes some form of economic review or follows some guidelines for setting prices. The ANSPs report that, since commercialization, each has maintained safety, controlled costs, and improved efficiency. Data from all five indicate that safety has not eroded. For example, data from New Zealand and Canada show fewer incidents involving loss of separation (the required distance between an aircraft and another object). All five ANSPs have taken steps, such as consolidating facilities, to control their operating costs. Finally, all five ANSPs have invested in new technologies that the ANSPs say have lowered their costs by increasing controllers' productivity and produced operating efficiencies, such as fewer or shorter delays. Such measures have generally resulted in lower fees for major carriers, but some smaller, formerly subsidized users now pay new or higher fees and are concerned about future costs and service. GAO's work to date suggests a number of observations about commercialized ANSPs: A contingency fund can help an ANSP cover its costs without greatly increasing user fees during an economic decline; economic regulation by an independent third party can ensure that an ANSP sets prices fairly; providing a forum for stakeholders gives attention to their needs; and special measures may be necessary to reconcile the inability of some users to pay the full costs of services at some small communities and the ANSP's need to recover its costs.