Performance and Cost Risks Disclosed, but Schedule Uncertainties Not Fully Recognized

The Secretary’s report provided a complete assessment of the major risks FAA faces in achieving the technical performance goals of the WAAS project. Performance Risks Disclosed

In discussing the risks FAA faces in developing WAAS, the Secretary’s report highlighted the vulnerability of the system’s signals to intentional or unintentional interference from electronic equipment. The Secretary’s report recognized that WAAS’ vulnerability to interference must be assessed and appropriate countermeasures must be in place before FAA can complete the transition to a satellite-based navigation system. In January 1998, FAA found that full decommissioning would result in the agency’s saving about $500 million (in net present value) over WAAS’ life cycle. The benefit-cost analysis estimated that the operators would save about $350 million by removing such equipment. Cost Risks Identified

In 1997, we expressed our concern that FAA’s cost estimates for WAAS were firm, discrete-point estimates, implying a level of precision that could not be supported, particularly early in the project’s development. The Secretary’s report addressed this concern by identifying a range of possible costs and associated probabilities. We agree with the Secretary’s report that the greatest degree of uncertainty about the WAAS cost estimates surrounds the costs of the satellites. The uncertainty exists because FAA does not yet know exactly how many additional satellites will be needed and how much the per unit costs will be. Schedule Uncertainties Not Fully Recognized

Although the Secretary’s report discussed risk factors that could affect the achievement of FAA’s schedule goals for developing WAAS, it fell short of providing a complete assessment. Aircraft operators would not realize some portion of the $350 million (in net present value) that FAA estimates operators would save by removing ground-based navigation equipment from their aircraft. If the satellite contract is not awarded by July 1998 as planned, the remainder of the schedule is likely to slip. Nonaviation benefits were excluded from FAA’s analyses. We found that our alternative cost and decommissioning assumptions alone did not cause much of a decrease in the benefit-cost ratios and net benefits. However, the exclusion of small increments of passenger time savings alone led to a $1 billion decline in net benefits. Nevertheless, when the alternative assumptions are taken together, the system’s benefits still exceed the costs by nearly a 2-to-1 ratio. Even under our alternative assumptions, WAAS’ benefits clearly outweigh its costs. Recommendation

To assist the Congress in making future funding decisions for the Wide Area Augmentation System project, we recommend that the Secretary of Transportation direct the FAA Administrator to report information to the Congress on the range of milestones for making the initial and full Wide Area Augmentation System operational and the probabilities associated with those milestones; a detailed explanation of the agency’s strategy for leasing geostationary updated benefit-cost analyses, including a comparison with alternative investments of FAA’s resources and an explanation of the effects of including small increments of passenger time savings.
Why GAO Did This Study

Pursuant to a legislative requirement, GAO reviewed the status of the Federal Aviation Administration's (FAA) Wide Area Augmentation System (WAAS) project, focusing on: (1) whether the Secretary of Transportation's report provides a complete assessment of FAA's risks in developing the WAAS project; and (2) how alternative assumptions would affect WAAS' benefit-cost analysis of January 1998.

What GAO Found

GAO noted that: (1) the Secretary's report provided a complete assessment of FAA's risks in achieving the WAAS project's performance and cost goals but not its scheduled goals; (2) in terms of system performance, the Secretary's report recognized that WAAS' vulnerability to intentional or unintentional interference from electronic equipment must be addressed; (3) in January 1998, FAA estimated that it would save about $500 million (in net present value) over the WAAS project's life cycle by fully phasing out its network of ground-based navigation aids; (4) if FAA retains some portion of this network, these benefits would decrease; (5) FAA also estimated that aircraft operators could save $350 million by removing ground-based navigation equipment from their aircraft; (6) these benefits would be reduced to the extent that operators must continue to keep such equipment on board; (7) by identifying a range of cost estimates and associated probabilities, the Secretary's report addressed GAO's past concern that FAA's firm, discrete-point cost estimates implied a level of precision that could not be supported; (8) GAO agreed with the Secretary's report that the greatest degree of uncertainty about the WAAS cost estimates relates to the costs of the geostationary communications satellites; (9) the uncertainty exists because FAA does not know exactly how many satellites will be needed and how much the per-unit costs will be; (10) the Secretary's report fell short of providing a complete assessment of the uncertainties FAA faces in achieving WAAS' schedule goals; (11) the report also did not discuss the risks to the overall schedule if FAA does not award the contract to lease the satellites by July 1998 as planned; (12) in January 1998, FAA's analysis found that the benefits to aviation from WAAS would be three times as great as its costs; (13) GAO requested that FAA recalculate its benefit-cost analysis to determine the impact of three alternative assumptions; (14) using these cost and decommissioning assumptions did not cause much of a decrease in the benefit-cost ratio or the net benefits; (15) however, the exclusion of small increments of passenger time savings had a much more significant impact; and (16) when these alternative assumptions were taken together, GAO found that the net present value of the project's net benefits decreased by more than $1 billion but were still about twice as great as the costs.