A case for ATC 'route charging' in the US

In almost all countries worldwide, air navigation service providers (ANSPs) charge for their servicesfor overflight, en-route, and terminal-area servicesjust as airports charge for landings. In this country, the possibility that IFR flights might one day be paid for directly, rather than indirectly via taxes on fuel and passenger tickets, generates concerns that our ANSP (presumably a commercialized version of the current Air Traffic Organization) would have to create a "costly new bureaucracy" to handle billing and collections.
Some years ago I pointed out in this newsletter that the ATO itself already charges for overflights (flights which fly through U.S. airspace without landing or taking off here). Charges are made for such flights in either Oceanic or En-route airspace, as the case may be. When I inquired of the agency what sort of staff this billing required (in 2007), I was informed that it took 2.5 full-time equivalents, since most of the work is done by software, using information from each flight plan. I was not able to obtain a unit cost for the billing and collection operation, but with only 2.5 people involved, it couldn't be much.

Needless to say, scaling that up to cover, say, all IFR turbine flights within U.S. airspace would be a different proposition in terms of volume, but economies of scale would be likely, making the unit cost even lower than for the current overflights charging operation. But if the ATO were actually commercialized, instead of doing this function in-house, it might decide to outsource it. In my 2007 article I suggested that American Express, MasterCard, or Visa have excellent track records in large-scale billing and collections. But I recently learned of another provider, one specifically focused on aviation and already doing billing and collections for ANSP and airports worldwide.

That provider is a division of the International Air Transport Association (IATA), called Enhancement & Financing Services. According to an informative article in Air Traffic Technology International 2013, E&F Services was launched 20 years ago, primarily to serve airports and ANSPs in developing countries. Currently it collects about $2 billion a year on behalf of 55 customers around the world. The Airports Authority of India, which provides airports and the ANSP in that country, is among E&F's larger customers.

E&F provides a complete package of services that include invoicing, collections, and settlement (including a proven dispute-resolution process). E&F first validates the billing data provided by the ANSP or airport. Then it produces the invoices, which are posted on a secure IATA site for airlines and other customers to retrieve. The article did not provide details on collections, but reports that "E&F collects the charges through its highly secure and efficient financial settlement systems." It also provides comprehensive accounting, reconciliation, and reporting to its clients.

Thus, the idea that direct charges for ATC would add large costs of collection seems highly unlikely. Since practically all ATC services worldwide are being charged for except ours, nobody would have to reinvent the wheel to provide cost-effective billing and collections. Best practices from the ANSPs of Australia, Canada, Germany, and the U.K. could be emulated to expand the ATO's current overflights billing system. Or the process could be outsourced. Far from being a problem, this should be one of the easiest functions to do efficiently in the revamped organization.

This article was featured in ATC Reform News by Bob Poole.
Update from this article from 05 Dec 2012:

My article on IATAs billing system for ATC charges, offered to air navigation services providers worldwide, brought a number of responses and spurred some further research on my part. Clearly, with some 200 ANSPs worldwide that charge for ATC services (including our own ATOs overflight charges), there are economies of scale both for ANSPs (not having to deal directly with large numbers of airlines and business jet operators) and aircraft operators flying internationally (American Airlines tells me they deal with about 45 different ANSPs).

The director of Eurocontrols Central Route Charges Office, Adriaan Heerbaart, kindly reminded me about CRCOs role as the other major provider of ATC billing services for multiple ANSPs. This system was set up in 1971 to collect overflight charges for Eurocontrol member states. Today, CRCO provides calculation, billing, and collection services for 39 Eurocontrol members. An aircraft operator in airspace covered by this system receives one bill no matter how many states have been overflown. Heerbaart told me that overall the system costs just 0.24% of the amount billeda great illustration of the economies of scale possible in ATC billing and collections. Building on these scale economies, the CRCO also offers billing for air navigation charges to non-member states on the basis of bilateral agreements.

I also learned that one of the pioneer commercialized ANSPsAirways New Zealandhas marketed its successful Flight Yield ATC billing system to a number of other countries in recent years, including China, Fiji, Papua New Guinea, and Saudi Arabia. Nav Canada created a billing system during its start-up years, as Canada switched from a ticket tax to ATC fees as the funding source for air traffic control. With extensive North Atlantic airspace and lots of polar-route overflights in addition to domestic and cross-border services, Nav Canada issues about 50,000 bills per year, from a 12-person billing department. Thus far, it has not offered billing services to other ANSPs, but would consider doing so if there were interest from others. Nav Canadas Jeff Perchard reminded me that piston general aviation planes in Canada typically do not pay transaction fees if less than three tonnes (6,612 lbs.) gross weight. They pay a single annual fee, which is $68 a year for planes of two tonnes (4,408 lbs.) or less. (The only other charge for piston GA is a $10 daily charge to use any of Canadas seven largest airports.)

Were the United States to commercialize the ATO, the huge ATC fee transaction volume would make possible significant economies of scale, of at least the same magnitude as those enjoyed by the Eurocontrol and IATA systems. Once it was up and running, the ATO billing system would be in an excellent position to offer billing services to neighboring ANSPs in the Caribbean and Latin America.

I also heard from a colleague at the International Civil Aviation Organization who pointed me to the ICAO Manual on Air Navigation Services Economics (Doc. 9161). Chapter 7 of this document includes a section D, Collection of Charges, which outlines the principles and guidelines that member states ANSPs should follow in creating and operating ATC billing and collection systems.

Bottom line: ATC billing and collections is not exactly rocket science. Its a well-established global practice in which there are major economies of scale. As a late-comer to this field, the ATO would have a wealth of global experience and expertise to draw upon.
Bob Poole
Reason Foundation


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