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April 05, 2011

Guaranteed NextGen Results . . . or it's Free!

At times this blog touches on arcane aspects of transportation policy. Previous entries have dealt with the NextGen aviation system, presented by the marketing departments solution providers of various industrial vendors as the Next Best Thing that will move aviation into the future.



Posts have included Runways as Constraints and a New York NextGen metaphor. We talked about solving the ATC Delay Problem, reframing the topic as the Airline Scheduled Delay Problem and suggesting,
The airlines and the airports have been overbooking the runways just like the airlines overbook seats on their planes. They do it because it's cost-effective; the profits go to the airlines and airports, and the costs go to the traveling public and the economy. When too many show up, they bump some back to the next hour, and so on, and so on.


In this analysis of NextGen we looked at a comparison of Costs and Benefits provided by Robert May, who is a NextGen shill advocate:

I'd like to point out that the costs exceed the benefits through at least the year 2027, in this chart prepared by somebody trying to put the best face possible on NextGen.

Just because the costs exceed the benefits doesn't mean NextGen isn't profitable; the industry will find great profit when if they can sell these gizmos. The people who pay for the gizmos, and the economy overall, will be at a net loss.

Everything I know about Nextgen and Delays

Great technology. Expensive. Not a replacement. Won't fix delays. Runways are the constraint. Airlines and airports intentionally overbook runways.


Gosh, that was easy. 152 characters, less than a text message. I don't dislike NextGen; I do have a problem with industry misleading the American public. Here's a set of recommendations for actually eliminating most airline / airport delays.

Selling the Dream

There are several challenges facing any salesman who needs to sell NextGen solutions. NextGen won't be backwards-compatible with existing, proven aviation equipment. It's as if the 1990s cellphone companies were selling phones that could call other cellphones but couldn't call landline phones. The benefits are subtle and limited; the costs are very high. Given this dog of a situation, salesmen respond with rhetoric and try to sell the sizzle, not the steak.

Whenever they can, the salesmen describe the existing system as outdated 1960's technology. As a taxpayer and passenger, I don't mind that we're using a reliable, time-tested, evolved system that's been paid for. Industry's sales pitch requires describing the status quo as hopelessly outdated.

As a species we've only been flying for a little over 100 years. To describe anything in aviation as "same old same old" is ludicrous. We've been using roads for millenia and I don't see anybody saying, "Roads? That's so 1410!"

Paying for the Dream

How does industry and their hired hands convince somebody, anybody to pay for it? How does industry move from pitching gizmos to selling the dream?

Scorched Earth

The first approach was to cost-justify the NextGen expense by claiming that it would replace all ground-based navigation systems and all ground-based radars. We could throw out all the old stuff, stop maintaining the buildings, and we wouldn't need maintenance people.

That was a good marketing pitch, and the spreadsheets ended up with usable numbers, but the reality was quite different: the Defense Department insists on maintaining the ground-based radars, the existing aircraft fleet requires a ground-based navigation system, and - by the way - the Chinese are capable of disabling satellites, NextGen is vulnerable to fifty-year solar events, and in most applications the (legacy, old, outdated) ground-based systems have lower weather minimums that NextGen. The scorched-earth value proposition didn't kick.

Economic Stimulus

The second approach to getting somebody to buy NextGen was positioning this big-ticket purchase as a new wave economic stimulus and an infrastructure investment, much in the way that we're rebuilding bridges and highways. This proposition didn't sell either.

Bailout

The third approach to getting somebody to buy NextGen was positioning it as the savior of the American airline industry; our economy needs the airlines, they're Too Big To Fail, let's bail them out and keep them operating by having the government buy the gizmos for the airlines, and for the business jets, and screw those little puddlejumpers. Instead of "first come, first served" let's talk about "best equipped, best served" - now, that's a tagline for a gizmo sale!

This was an attempt to gloss over the fact that except for a few early adopters, most airlines have decided they're not going to spend their money on NextGen; they'll accept it if somebody else buys it for them, but they're not rushing to invest in it themselves. This approach didn't succeed either, and the fact that airlines won't buy NextGen with their own money is generally understood now.

Complex Derivative Financing

Industry's newest approach to selling NextGen, which is beginning to look like a white elephant with a tattoo saying "Solution in Search of A Sucker", is to use complex derivative financing to pay for the gizmos, because the inscrutability of derivatives is socially acceptable and we're running out of ways to sell this stuff - which, again, nobody will buy with their own money.

Industry is no longer developing innovative solutions; they're now searching for innovative financing techniques to get somebody to commit to buying these gizmos. From today's Wall Street Journal, "New Way to Upgrade Air Control", (also: Bloomberg)
On Monday, ITT and Nexa Capital Partners LLC are expected to announce proposals to use about $150 million in federal loan guarantees as seed money to establish a larger, self-sustaining fund to pay for installing upgraded equipment on potentially thousands of U.S. airliners.

The goal is to help carriers fund their piece of a delay-plagued effort by the Federal Aviation Administration to create a satellite-based traffic control network.

Expected to cost more than $40 billion overall, the next-generation solution has been stymied by a persistent reluctance by airlines to invest billions of dollars to upgrade airborne devices. Now, after years of delays and futile industry lobbying for direct federal aid, ITT and its partner believe they have found the key to overcoming airline resistance.

ITT Chairman Steven Loranger has championed the loan-guarantee fund despite initial disinterest—and sometimes even hostility—from various industry players. The most unusual aspect is that airlines would gradually repay the cost of equipping planes only after they start reaping fuel and schedule benefits.

Nexa Capital's managing partner, Russell Chew, a former senior FAA and JetBlue official, said in an interview that the proposed fund is unique because it is pegged to the FAA's ability to deliver on promised benefits. If the rollout of NextGen falters due to a lack of agency or congressional support, airlines essentially would be off the hook for repaying the loans.

It might work. There's a sucker born every minute. More coming.

3 comments:

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