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Given at a Full Committee Hearing:
Aviation Security
Tuesday, June 22 2004 - 9:30 AM - SR - 253
The Testimony of
Mr. Jim May
CEO, Air Transport Association (ATA)

UNITED STATES SENATE

The Air Transport Association of America, Inc. (ATA) greatly appreciates the opportunity to share with this Committee our thoughts and concerns regarding aviation security. Specifically, we focus today on the impact of aviation security measures on the U.S. airline industry. That impact, in a word, is massive, and it can not be ignored. It would be difficult to overstate the degree to which security has come to influence – even dominate – the commercial U.S. airline industry. While safety is always our first priority, the truth is that the airline industry is staggering under the weight of security taxes and post-9/11 security-related mandates. These staggering impositions undermine the U.S. airline industry’s ability to serve the traveling and shipping public. Congress and the Federal government cannot continue to impose new exactions and new unfunded mandates on the airlines and their customers, and expect the industry to survive – much less prosper and grow. The terrorist threat we face is a threat against the United States and its social, political and economic institutions. Terrorist acts are aimed at bringing down those institutions and undermining our way of life, not sending an airline into bankruptcy. Defending against terrorism is a matter of national defense, as Congress recognized when it passed the Aviation and Transportation Security Act. Aviation security must be funded from the U.S. Treasury and not on the back of the industry and its customers. We estimate that the direct and indirect costs of security on the airline industry now total approximately $3.8 billion annually. This includes $2.578 billion in various homeland security fees, $518 million in foregone revenue due to security mandates, and $739 million in direct security expenses imposed on the airlines. To our knowledge, no other transportation sector – indeed, no other U.S. industry – subsidizes the national security responsibilities of the government like the airlines. We firmly believe that it is in the long-term best interests of the United States that these costs be funded in exactly the same manner as other national defense priorities and we intend to continue to work in that direction. Notwithstanding the economic impact, we are proud of the significant progress in all aspects of security that has been achieved working with the Transportation Security Administration (TSA) and the Department of Homeland Security (DHS) over the past few years. Hardened cockpit doors, an expanded Federal Air Marshal program, armed flight crews, explosive detection screening and enhanced passenger screening, along with other improvements, have all contributed to a new, better layered security paradigm driven by the threat as TSA and DHS understand it. While security is very dynamic, it can be fairly said that it has come a very long way in a very short time. At the same time, as traffic returns to the pre-9/11 levels that are so important to a growing, vibrant economy, we need to be certain that we make our security system as efficient and effective as possible in order to invite and encourage growth. We must continue to make air transportation affordable and inviting to consumers in order to keep our economy strong and growing. In addition to discussing the economic impacts of aviation security, this statement addresses a number of near-term and long-term issues on which we and TSA are working – often together – to find solutions. These include TSA’s Summer Plan, TSA staffing issues, cargo security, MANPADs countermeasures, explosive detection systems and crew training. These are important and complex issues that demand careful consideration as to the best use of resources. That is why today’s hearing and the work of this Committee is so important. We welcome and appreciate the opportunity to provide our views.

I. SECURITY TAXES, FEES & EXPENSES ARE OVERWHELMING THE U.S. AIRLINE INDUSTRY The Current Situation. Earlier this month we submitted a comprehensive overview of the financial state of the U.S. airline industry to the House Aviation Subcommittee. We reported that for the three-year period 2001 – 2003, the U.S. airline industry lost $23.2 billion, and that for 2004 we expect an industry loss in excess of $3 billion. Profitability in 2005 remains uncertain. ATA’s Statement and accompanying slides can be found at: http://www.airlines.org/ga/files/State_of_the_Industry_Statement_rev.pdf, and http://www.airlines.org/ga/files/State_of_the_Industry_appendix_rev2.pdf. These disappointing results are due in large part to three factors: the extraordinary increase in fuel prices, the heavy tax burden imposed on the industry, and the growing impact of security fees, taxes and unfunded mandates.

The constant threat of terrorism has translated into an ever-growing set of new, post-9/11 security mandates imposed directly on the airlines, many of which are unfunded and must be paid for by airlines, while others cause airlines to forego significant revenue. These new mandates include maintaining “watch lists;” employing staff to verify documents at checkpoints and monitor exit lanes; conducting employee background checks; enhanced security training; modifying aircraft cabins; cargo screening; screening of private charter passengers and baggage; screening catering supplies; ramp/airplane/airfield security procedures; and crew manifest security procedures, to name just a few. The burden of security taxes, fees and costs, deserves close scrutiny. As the charts that follow illustrate, the post-9/11 mandates impose costs on the industry, both direct and indirect, that now total an estimated $3.8 billion annually. This includes $2.578 billion in homeland security fees, $518 million in forgone revenue due to security mandates, and an additional $739 million in direct security expenses imposed on the carriers. These fees and costs are not static – they continue to grow. For example, as passenger volumes grow, the September 11th (passenger) fee will grow. TSA estimates that the September 11th fee will produce $1.83 billion in FY2005. Similarly, foregone revenue will increase as capacity is expanded to match demand and new unfunded security requirements are imposed on the industry. As one former senior Administration official has observed, September 11 necessarily increased the number of unfunded mandates on air travel. Obviously security is a prime concern. But unfunded mandates allow politicians to claim credit without facing the costs. Meanwhile, many business travelers who require speed and convenience have been forced off the airlines and onto corporate jets, depriving the carriers of some of their highest-margin customers…Any industry requires sensible regulatory and tax policies to survive. Setting up a workable regulatory and tax framework for the nation’s airlines should be a top priority. The status quo won’t fly.

Without question, the aggregate impact of these fees, costs and charges has contributed significantly to the industry’s losses over the past three years. That the out-of-pocket mandates and foregone revenue items have a direct impact on the carriers’ bottom line is self-evident. It has, however, been argued by some that passenger fees, such as the $1.6-1.8 billion September 11th Fee, have no similar impact. This is not correct, as Congress itself recognized last year. As part of the Iraq War Supplemental Appropriation, Congress both noted and acted upon the correlation between user fees and what the airlines are able to collect from their customers. In a commodity business like air transportation, the more the government collects for air travel, the less airlines see on the bottom line. It is a fundamental economic principle that in a highly price-sensitive (“elastic”) environment, which fairly characterizes the airline industry, taxes are borne by the seller – not the consumer. Congress validated this principle when it suspended the September 11th Fee for four months and industry airline revenues markedly improved. New Security-Related Costs and Foregone Revenues Are on the Horizon. TSA is expected to issue a new set of cargo security regulations in the very near future. Implementing these new requirements will add further to the industry cost burden. TSA is also working on the CAPPS II program, and DHS is contemplating a significant expansion of its Advance Passenger Information System (APIS), which now requires carriers to transmit manifest information on international passengers arriving in the U.S. prior to their arrival. Implementing each of these programs can add significantly to the industry cost burden, requiring programming and computer system changes, employee training and substantially increased time that reservation agents must spend to collect additional passenger data. Some also pose a risk of fundamentally altering certain operations. In addition, several other DHS programs under way will have significant operational and cost impacts on U.S. airlines. These include the passenger name record (PNR) program that requires certain PNR data to be transmitted prior to arrival; the U.S. Visit program, which when fully functional will track the entry and exit of airline passengers arriving in this country; the crew manifest program that requires crew manifest information to be transmitted prior to arrival; the advance cargo manifest program that requires cargo information to be transmitted prior to arrival; and the known shipper program that imposes certain information requirements on carrier cargo acceptance practices. In addition, in 2003 DHS suspended the Transit Without Visa (TWOV) and International-to-International (ITI) programs, which allowed passengers to transit the U.S. at airport stopover points without formally entering the U.S. for immigration purposes. The suspension of these programs has caused U.S. airlines to lose both revenue and their competitive position for these passengers. The suspension of the TWOV and ITI programs is causing U.S. airlines to forego more than $100 million annually in revenue. Congress Must Act – Aviation Security is National Security. Even though airlines continue to dramatically revise their cost structures – often involving very painful actions for employees, management, vendors, airports, travel agents and shareholders – and achieved substantial productivity improvements, they have been unable to keep pace with the financial impact of security taxes, fees and regulatory impositions. Factors preventing airlines from doing so include the changing market paradigm, where pricing is driven by the low cost segment of the industry, and sky-high fuel prices. But these factors are, in essence, beyond the control of the airlines and Congress. What can be changed is how aviation security is funded, and the time to do that is now. As with any other national security function, aviation security must be funded out of general tax revenues. To do otherwise is to risk is the stability of a core element of our nation’s economy – the U.S. airline industry. The ASIF Should Not be Increased. The Administration has proposed a substantive change to ATSA that would more than double the ASIF. ATA has called on Congress to block this blatant tax increase. Fortunately, both the House and Senate Appropriations Committees in recent actions rejected the Administration’s proposal. We are grateful to the Committees for rejecting this ill-conceived attempt to further burden air carriers with security costs that should be borne by the government. For purposes of background, Congress determined in 2001 that airlines should subsidize TSA based on what they spent on passenger and baggage screening in CY 2000 to the extent that the “September 11th Fee” proved to be insufficient to cover the costs of TSA-provided security. TSA went through an extensive proceeding that required airlines to submit audited cost information in order to establish what the industry paid in calendar year 2000. The $315 million TSA now collects annually is based on those submissions. The Administration, by way of the pending DHS appropriations bill, would raise the amount TSA collects from airlines under ASIF by $435 million per year – to $750 million annually. This represents a tax increase of 138 percent on an industry that is excessively taxed and that is struggling to regain financial stability post-9/11. TSA and the Administration have yet to provide any real justification for the proposed ASIF increase. Instead, it is suggested that the industry is not paying its fair share. This suggestion is wrong on three counts. First, it is comparing apples and oranges. On the one hand, the ASIF represents only what the airlines paid for domestic passenger and baggage screening in CY 2000. The list of security activities covered by ASIF, on the other hand, is very extensive and includes much more than just passenger and baggage screening. It includes the Federal Air Marshal program, research and development programs, the Federal Security Director program, and the costs of deploying other Federal law enforcement personnel for aviation security. Thus, by definition the universe of TSA’s costs for aviation security is far greater than the universe of costs used to determine the ASIF. Second, it was not until carriers submitted detailed, audited statements pursuant to TSA’s rulemaking that a careful study of passenger and baggage screening costs related to domestic operations (including international flights departing the U.S.) was accomplished. TSA and the Administration are simply unhappy with the outcome of that study. Finally, as discussed above, the industry pays a significant portion of TSA’s aviation security costs. The suggestion that the airlines do not pay their “fair share” for aviation security is not supported by the facts. If the Administration’s effort does fail, as it now appears it will, it is reported that some in TSA believe there is a way to ignore this cap, notwithstanding the clear language in ATSA capping ASIF at CY 2000 passenger and baggage screening costs. Such a reading of ATSA necessarily would distort the very clear and plain language of that statue. We ask for your support to reject any such contrivance. MANPADS Countermeasures Should Not be Rushed Into Service. To date, the approach to MANPADS has focused on the wrong question: can we make existing countermeasures work in the commercial aircraft environment? This question fundamentally ignores alternative means to deal with the risks and, more importantly, ignores the imperative for systematic prioritizing of security enhancing projects. Instead, the MANPADS threat must be placed in context with other threats and analyzed accordingly. The right question is: what is the appropriate priority of the MANPADS threat relative to other security threats, and how can we best use our available resources on the highest priorities? Why is this approach important? It is critically important because deploying MANPADS countermeasures will cost anywhere from $50 billion to $100 billion just for acquisition and installation. On-going maintenance and replacement will add significantly greater annual costs. Frankly, the right offices and people in government have not yet evidenced a willingness to tackle this key question. That, in our view, creates the risk that we will see these billions of dollars expended (to the satisfaction of those who would harm the U.S.) without any understanding of the totality of risk we are dealing with and the potentially greater security benefits that could be derived from more targeted uses of limited resources. We must be disciplined and not simply throw resources at MANPADS countermeasures because we can. We should not rush to judgment until all of the facts are in and we fully understand the implications of deploying such countermeasures, including the benefits relative to other security risks we face. The starting point is recognizing that the fundamental problem is the threat of terrorism in general, and that the solution is to spend as intelligently as we can to eliminate that problem – not just focus reflexively on countering specific risks. Several major airlines volunteered to participate in the ongoing DHS study and evaluation program. They made the decision to become involved because all of us want to know the facts – despite recognizing that their involvement might be (and in some quarters has been) misconstrued as support for deployment. That participation has enhanced our understanding of the technical issues associated with the current countermeasures technologies and the concepts for applying them to commercial aviation. Based in part on that experience, we are convinced that numerous technical questions that must be answered in order to come to any conclusion about the efficacy of deploying MANPADS countermeasures at some point in the future. Some of these questions are: How effective should a system be and can that requirement be met? While a one in ten “failure” rate may be acceptable in a military environment, is it the right standard in commercial aviation?

Will the countermeasures work against all foreseeable MANPADS and similar threats?

What MTBF rate is achievable? The current rate in military setting is 300 hours. That is nowhere near the 9000 hour rate deemed adequate for the commercial environment.

What are the practical system requirements relevant to a commercial operating environment? What are the appropriate safety standards?

How will system installation and operating costs be covered? Is this national defense priority to be met by all taxpayers or just a subset of taxpayers? The answer is highly relevant to deciding what constitutes a realistic response. Estimates put the twenty year system cost for full U.S. fleet deployment above $100 billion. That estimate is dismissed by some advocates with explanations that we won’t cover the full fleet – or costs will drop. Those answers, however, just raise more questions which are not being answered. Worse still, they suggest a “regulatory creep” or “systems creep” strategy to deploy a few, and then a few more, until we end up with a decision by default. What is the plan?

Further, if only a portion of the fleet is equipped is there any reason to think our adversaries will not take that into account in target selection – and, effectively nullify any investment from the perspective of the public.

What is the USG planning to do with regard to liability as well as export control and ITAR issues?

What other technologies or techniques might have a bearing on reducing the threat exposure, such as enhanced airport perimeter security? What is being done to determine the relative priority and utility of spending for such risk reducing alternatives?

Answers to these questions are needed, in addition to solid terrorism threat analyses, in order to determine whether such countermeasures should be given priority over other measures and, indeed, other threats. When it comes to these issues, we urge this Committee to embrace the kind of fact-based, deliberate analytical approach that has been employed successfully by airlines and the FAA with respect to safety improvements. A disciplined, analytical approach will give the flying public the most effective security policies and systems with the greatest capability for defending against future acts of aviation terrorism targeted at United States.

II. TSA MUST PROMOTE EFFECTIVE AND EFFICIENT SECURITY PROCEDURES

Uncertainty about security lines deters people from flying. While TSA and the industry work together every day to minimize this effect, it remains a major reason why people have substituted cars and other transportation modes for flying, particularly for short-haul trips. TSA predicts that passenger volumes will increase from 58 million to 65 million per month during the summer, a sustained 12 percent increase in monthly volumes over 2003’s single peak month. We are already seeing security lines with wait times of 45 minutes and more at major airports, including Washington Dulles, Los Angeles International Airport, Las Vegas McCarran, and Atlanta Hartsfield. The industry worked with TSA to help develop its Summer Plan, and we are doing what we can to educate our customers on what they can do to reduce potential wait times. Also, TSA is hiring additional screeners at some airports. However, these efforts will not fully eliminate the public concern about the hassles of flying. Those concerns, which keep passengers away, will not subside until TSA has determined the number of screeners necessary to efficiently and effectively screen passengers and established processes that can move passengers through security screening in ten minutes or less on a consistent basis nationwide. It is imperative that we continue to see progress toward this goal, and Congress should insist on TSA finalizing its model to predict accurately the number of screeners needed at each airport. TSA Summer Staffing Plan and Screener Performance Standards. Recent passenger boardings and projected bookings clearly indicate that security checkpoints will experience far higher traffic levels this summer than they did last year. Monthly boardings peaked at 58-million for just one month last summer. Current projections are that 64-million monthly boardings will occur for a sustained period this summer. This level of traffic already has begun to produce significantly increased demands on checkpoints, particularly because TSA has 6,000 fewer screeners than last year. Recognizing that these increased demands will affect passenger processing times at checkpoints, representatives of the TSA, airports and airlines undertook a collaborative effort to develop and implement enhancements to passenger screening practices. Twenty-five “focus” airports were identified for this program. This joint effort has produced best practices that should translate into faster screening for our customers. This is an important accomplishment in its own right but also because it demonstrates that collaborative efforts involving TSA, airports and airlines can be successful. In addition, airlines are supplying TSA with passenger enplanement forecasts to enable TSA to test its checkpoint staffing model. The goal of this effort is to predict more precisely passenger wait times at checkpoints and thereby permit TSA to staff those locations accordingly. Staffing decisions must be based on both accurate passenger demand forecasts and realistic processing time assumptions in order for TSA to do its job effectively and efficiently. Both in the short-term and long-term, resources must be promptly and efficiently allocated to accommodate the increases in traffic we are now beginning to experience. For passenger and checked baggage screening, an appropriate performance metric is needed. Without such a basic tool, there is no accurate way to determine how screeners are performing and whether resources are being allocated effectively. TSA states that its internal guideline is an average wait time of ten minutes. We think an “average” wait time is not the right metric in this context because it will allow significantly longer wait times during peak travel times. We recommend that TSA be required to establish a maximum wait time of ten minutes per passenger. Only this standard will ensure that passenger wait times at checkpoints and baggage screening locations are kept to an absolute minimum. Such a maximum wait standard offers additional benefits. Among other things, it allows screening performance problems to be identified quickly, it encourages uniformity across the system – something passengers expect to see, and it aids Federal Security Directors (FSDs), in consultation with airlines, in making staffing adjustments. In addition, to better and more promptly meet the increased passenger levels, TSA must assess, hire and train screeners locally rather than to continue to rely upon the centralized hiring system. The current system cannot provide the responsiveness that the rebound in passenger traffic requires. Relocating personnel, while helpful as a stopgap measure, creates other issues (including cost) and problems that can be avoided. Finally, Congress must provide funding, and TSA must be prepared, to expand hiring to meet passenger growth. The 45,000 cap on the screener workforce, in fact, may not be adequate to meet actual passenger demand. There has been some recent modest passenger growth system-wide, and some analysts forecast a five percent increase in passenger traffic this year. Indeed, we are already hearing reports that security checkpoints and checked baggage screening locations are understaffed at as many as 90 of the nation’s commercial service airports. As the nation’s economy continues to recover and air carriers respond to accommodate increasing demand, TSA must have the funding and authority to hire additional screeners where and when demand exists. The TSA’s staffing model, as well as the results of the Summer Plan, should provide better information to guide Congress in determining whether the 45,000 screener cap makes sense. Beyond this Summer: TSA Recruiting and Hiring Practices. A positive evolutionary step for TSA has been the decision to begin hiring part-time employees. From the industry’s perspective, the flexibility to match screening capacity with demand is crucial to an effective and efficient system. Part-time positions allow TSA managers to have in place enough employees to meet operating and rest needs during peak travel times, thereby ensuring that screeners remain vigilant and perform their functions effectively. Screener effectiveness should not be compromised by pressures created by long lines and passenger frustration. Part-time positions maximize TSA’s limited resources by avoiding overstaffing during off-peak times of the day. An associated and important facet of this issue is providing the airport FSDs with adequate authority to make staffing-related decisions to meet the needs of their individual airports. Each airport is unique in terms of physical layout, and the ebb and flow of passengers entering its security system. To maximize effectiveness and efficiency, the FSDs should have the authority and resources to adjust staffing levels throughout the day. Further, TSA’s reliance on a centralized hiring process impedes efficient staffing. TSA should place greater reliance on FSD input regarding hiring and staffing procedures. Finally, FSDs should be required to consult with airline officials in making staffing determinations. Such consultations promote informed decision-making and result in security screening that fulfills TSA’s responsibilities while avoiding long security lines.

III. IMPROVING CARGO SECURITY The Airlines and TSA are Improving Cargo Security. Cargo security has increased substantially because airlines and TSA have worked conscientiously to improve it. Improvements have been achieved through both regulatory and voluntary initiatives. This ongoing, collaborative effort has produced important cargo security enhancements, such as: · 100-percent prohibition of the transportation on passenger aircraft of cargo from “unknown shippers.”

· Air carriers have re-verified all known shippers. · Air carriers participate in the known shipper database, which has been extensively upgraded, most recently by TSA, and utilizes data/information technology to verify cargo shippers.

· Air carriers worked with TSA and the US Postal Service to develop and implement a canine mail screening program.

· The airline industry voluntarily participated in the TSA-sponsored Aviation Security Advisory Committee (ASAC) and provided 40 recommendations to the government to improve cargo security in the areas of shipper acceptance procedures, security requirements for indirect air carriers and unified security program for all-cargo operators.

· Passenger and all-cargo air carriers implemented TSA cargo inspection/ screening measures.

· During the threat level elevation over the 2003-04 Christmas and New Years holidays, the airline industry worked collaboratively with TSA to identify and voluntarily implement measures to further enhance cargo security.

· All cargo and passenger carriers continue to participate with TSA in an explosive detection system cargo screening pilot program.

· The industry continues to push TSA for electronic trace detection cargo screening protocols (delayed by TSA but problematic in the cargo environment).

· The industry is working with TSA on an expanded canine cargo screening program.

Although these recent cargo security enhancements have been significant, we continue to push aggressively for further improvements. As noted above, the airlines have worked through TSA’s Aviation Security Advisory Committee to identify 40 cargo-security enhancement recommendations. They cover a wide range of measures. The ASAC has forwarded them to TSA for its consideration. In addition, we have supported TSA’s development of its cargo security notice of proposed rulemaking. We hope that the review of the NPRM will be completed soon so it can be promptly issued. In the meantime, we believe that serious consideration should be given to the following possible cargo security initiatives. Observers may differ about the desirability of particular proposals but they each merit thoughtful consideration: · Increase funding for research, development, and operational testing of cargo screening technology.

· Expand funding for TSA canine teams to screen cargo.

· Increase funding for deployment of additional TSA cargo inspectors to conduct random inspections of indirect air carrier facilities.

· Require mandatory security programs and training of indirect air carriers, including government background checks of employees with access to cargo.

· Provide funding for procurement and operation of security equipment to be used by carriers and TSA-approved indirect air carriers to increase the percentage of cargo inspected.

· Provide additional funding for the development of the TSA high-risk cargo targeting system.

· Require TSA to use available screeners and baggage screening technology to screen cargo.

Aviation Security Legislation. The Aviation Security Advancement Act (ASAA), S.2393, introduced recently by Senators Rockefeller, Hollings, Lautenberg and Chairman McCain, addresses many of our concerns about aviation security, and we support many of its provisions. The ASAA would require TSA to establish security standards and then measure performance against those standards; it also would formally establish a specified passenger processing metric. The ASAA would increase funding for capital security projects at airports, enhance funding for in-line baggage screening systems, and fund research into improved passenger screening systems and technology. These are all steps that ATA supports and that should both enhance aviation security – including cargo security – and improve customer movement through the system. We can also support the cargo security provisions in S. 165, the Air Cargo Security Improvement Act, sponsored by Senators Hutchison and Feinstein. These provisions would authorize TSA to develop a strategic plan to implement systems to screen, inspect cargo carried on both passenger and all-cargo aircraft. It would also enhance the known-shipper program and expand oversight of indirect air carriers.

IV. WAR RISK INSURANCE

Aviation war-risk insurance is indispensable for U.S. airlines. War-risk insurance provides coverage for acts of violence against airlines such as terrorism, hijackings and sabotage. The coverage benefits not only the airlines but also those aboard the aircraft, as well as persons on the ground and property where such third parties suffer losses that result from acts of violence against the airline. The commercial market cannot provide this coverage on terms and costs that are reasonable. A statutory extension of the existing FAA war-risk insurance program and the related act-of-terrorism liability cap thus is essential for the U.S. airline industry. Airlines literally cannot operate without war-risk insurance. Aircraft loan and lease agreements require airlines to obtain and maintain such insurance. Moreover, some foreign countries require airlines to have war-risk insurance as a condition for operating in their airspace or at their airports. As the August 31st expiration of the statutory requirement that the FAA provide war-risk insurance and the liability cap approaches, circumstances clearly warrant a further statutory extension of the FAA program and the cap: · U.S. airlines continue to represent the prime aviation target for acts of terrorism; assuring necessary insurance coverage for U.S. airlines therefore is a matter of utmost public policy importance. U.S. airlines are highly visible symbols of American society and our government’s policies. (The recent terrorist attacks in Madrid are a violent reminder of the willingness of terrorists to target prominent transportation providers.) The identification of U.S. airlines with U.S. Government policies is a compelling reason for the Government to continue to provide war-risk insurance to U.S. airlines. · Commercial aviation war-risk insurance is currently being offered on coverage terms that do not reflect the coverage realities of the post-9/11 risk environment. The amount and the terms of commercial insurance are not adequate to protect either a U.S. airline or the public from the potential financial consequences of a terrorist attack involving a commercial aircraft. · A return to the commercial market to obtain war-risk insurance could cost U.S. airlines an additional $550-$660 million in premiums annually. This estimate assumes that insurers will not assign U.S. airlines a risk premium above the rate being charged to foreign-flag airlines, most of which are regarded as far less likely terrorist targets. · The commercial market for aviation war-risk insurance remains precarious, as demonstrated in the immediate aftermath of 9/11. Because current commercial policies contain the same seven day cancellation terms that resulted in the post-9/11 aviation insurance crisis, there still is a very real risk that any act of terrorism, whether against a U.S or foreign airline, or against any other entity or structure, could trigger the withdrawal of aviation insurers from the war risk insurance market or their imposition of radical, adverse changes to commercial policies. Both results occurred in the immediate aftermath of 9/11. Were either of these outcomes to occur in the future, U.S. airlines would be forced to immediately look to the U.S. Government to provide necessary insurance coverage. · In addition, the commercial insurance marketplace is now considering introducing a new war-risk exclusion (referred to as AVN.48C), which would add the hostile use of chemical, biological, radioactive agents and electromagnetic pulse to the existing nuclear perils excluded by war-risk policies. Expanding the war risk coverage exclusion would create a very serious gap in commercial coverage. The fact that it is under active consideration is another indication of how precarious the commercial marketplace is. · U.S. airlines lost $3.6 billion in 2003; a return to the commercial market would generate a ruinous increase in costs for them. These considerations demonstrate the need to extend the statutory requirement that the FAA provide U.S. airlines aviation war-risk insurance and to extend similarly the act-of-terrorism liability cap. We urge that such an extension be through March 30, 2008 to mirror the extension of the FAA’s general authority to issue aviation insurance that was set in Vision 100.

V. SECURITY MUST BECOME INFORMATION-BASED The most effective security is based on information and knowledge – about passengers and shippers. Knowing who our passengers and shippers are will allow TSA and the airlines to focus their resources where most needed. In the end, while physical security procedures are a key element to aviation security, it is not the most effective or efficient element. The missing layer in our layered system is the foundation layer – information that will eliminate the vast majority of passengers and shippers from unnecessary scrutiny. For this reason, ATA supports the efforts by TSA and DHS to establish the CAPPS II and other information-based programs. We do so, however with two caveats. First, the privacy rights of passengers and shippers must be taken into account and appropriately protected. We believe this can, and should, be done. Second, these programs must not impose unreasonable operational or cost burdens on the airlines. Again, we think that working together with DHS and TSA, these goals can be accomplished. At this time, however, we do have some concerns about some of these programs. CAPPS II. While the promise of CAPPS II is impressive, many significant issues concerning its nature, implementation, and personal privacy implications remain unresolved. Any final judgment about CAPPS II, therefore, must await resolution of those issues. Favorable resolution of those issues will require CAPPS II to meet three basic tests. It must be efficacious, implemented economically and protect airline customers’ privacy rights. CAPPS II must be efficacious in the sense that it appreciably advances civil aviation security and does so efficiently. CAPPS II must be implemented economically in the sense that it places minimal new demands on affected third parties, such as airlines, travel agents, and global distribution systems. CAPPS II must protect airline customers’ privacy rights because they are entitled to that protection and the public will not accept the program unless those rights are safeguarded. Acceptance of CAPPS II will largely depend on the government generating public confidence, both in the United States and overseas, in the legitimacy of the system. Importantly, however, public acceptance will also depend on a very practical consideration: avoiding CAPPS II-related delays during the reservation and airport check-in processes. CAPPS II cannot be seen as contributing to the “hassle factor.” Achieving these objectives is imperative. If they are not realized, the public could come to regard CAPPS II with suspicion or hostility. All of us in the commercial aviation community have a stake in this outcome. If the public rejects CAPPS II, the very real risk could emerge that travelers will forgo the use of air transportation. Fortunately, however, Congress has created benchmarks against which all concerned can evaluate CAPPS II as it proceeds through its developmental stages. Congress in Vision 100 enacted two provisions, sections 607 and 608, which establish important pre-implementation certification and reporting requirements concerning CAPPS II. Public Law No. 108-176, December 12, 2003. Section 607 prohibits the Department of Homeland Security from proceeding beyond the test phase until the Under Secretary for Border and Transportation Security certifies to Congress that CAPPS II has met eight specified developmental, operational and personal privacy requirements. In February, The General Accounting Office submitted a report to Congress about the status of accomplishing those requirements. U.S. General Accounting Office, Aviation Security: Computer-Assisted Passenger Prescreening System Faces Significant Implementation Challenges, GAO-04-385, February 2004. Section 608 of Vision 100 required the Secretary of Homeland Security, after consulting with the Attorney General, to submit a report to Congress by March 12th about the potential effect of CAPPS II on the privacy and civil liberties of U.S. citizens. The February 2004 GAO report identified the ongoing challenges to the development of CAPPS II. The report has attracted considerable attention because it describes important CAPPS II developmental issues that remain to be completed. Nevertheless, the GAO report and Vision 100’s CAPPS II certification and reporting requirements demonstrate that authoritative evaluations of developmental, operational and privacy issues will be undertaken before CAPPS II is implemented. This Congressional-ordered scrutiny should greatly facilitate public confidence in CAPPS II as it ultimately emerges as an operating system. That public acceptance would be greatly advanced if the scope of CAPPS II were narrowed. The widespread impression is that CAPPS II is intended to assess the security risk that passengers pose and identify those who require additional security attention because of the possibility that they could commit acts of violence aboard a commercial aircraft. In fact, however, the scope of CAPPS II as presently conceived would go beyond identifying potential terrorists or hijackers. It would also include those with outstanding state or Federal arrest warrants for crimes of violence. The desirability of identifying such individuals is beyond dispute but this remains a federal law enforcement responsibility. The problem, however, is that the acceptability of CAPPS II will depend on convincing the public of its unbreakable, tightly focused purpose. Including a surveillance system for a non-terrorist category of individuals could undermine achieving that support. Implementation and application of CAPPS II will impose substantial new requirements on passengers, airlines and other reservation and distribution entities. Passenger name records do not contain all the categories of information that TSA contemplates will be required for CAPPS II. CAPPS II will consequently require airlines to change significantly their practices for acquiring information from customers. The essential implications about the anticipated CAPPS II passenger information collection requirements are: · Airline reservation systems and the reservation systems of global distribution systems and online reservation systems will have to be reprogrammed to respond to the new information collection requirements. This will create substantial new resource demands on airlines and other providers of reservation services. · Because of the necessary reservation system reprogramming and revision of reservation agent practices to accommodate CAPPS II, airlines will need to know the technical requirements for and implementation schedule of CAPPS II well in advance of its startup. TSA, however, has not yet provided airlines with specifics about the CAPPS II system architecture and initially suggested that the system would pull the required data elements from computer reservation systems. Representatives from the Office of National Risk Assessment now indicate that reservation systems will be required to push data to TSA’s CAPPS II system, which will result in additional programming and operating costs for airlines and other reservation system operators. · The required CAPPS II information, which must be collected from every passenger, will be more intrusive for the passenger than today. · Information in many instances will be obtained from passengers orally and entered manually into reservations systems. Reservation call "talk time" will increase markedly, affecting the length of time a consumer is on a reservation call and the cost of such calls to air carriers. This will not only impose greatly expanded resource demands on airlines, it will also place new demands on the time of customers. · Airlines do not control third parties, such as travel agents and online booking entities, through which the majority of air transportation is purchased. Any failure of such a party to obtain mandated information will have to be remedied at the airport, which will delay passenger processing and inconvenience customers. · Airlines are concerned about the potential international applicability of CAPPS II. This is a serious consideration which must be addressed because foreign governments presumably would be responsible for conducting additional screening of selectee passengers if CAPPS II is applied overseas. One of the foregoing points bears special emphasis: because the majority of reservations are made through third parties, most notably travel agents, airlines often do not have direct contact with the passenger until he or she arrives at the airport. This means that airlines cannot assure that information is collected from such customers at the time of reservation. Any CAPPS II rule must recognize this fundamental characteristic of airline distribution and mandate that third parties collect needed information at the time of their first contact with the customer. The failure to do so will result in serious delays for airline passengers at airport check-in, where airline customer service agents will have to collect from them the information that is necessary for CAPPS II. The foregoing is not meant to be an exhaustive explanation of the implications of the mandatory collection of CAPPS II passenger information. It is intended, instead, to underscore that changes in the reservation and passenger processing environments will have substantial consequences, including added expenses and the likelihood of increased customer processing times. Additionally, customers must be confident about the legitimacy of the government's access to, handling of and disposition of personal information that it will use in evaluating them. Legitimacy in this context intertwines both the issues of the effectiveness of the System’s privacy protections and the efficacy of CAPPS II, which we discussed above. Concern about the legitimacy of CAPPS II was evident in public comments reacting to TSA's January 15, 2003 Privacy Act-related notice of proposed rulemaking. 68 Fed. Reg. 2002 (Jan. 15, 2003); see Department of Transportation Docket OST-1996-1347, accessible at http://dms.dot.gov. TSA, to its credit, has responded to the critical public comments that it received about that proposal. TSA in its August 1, 2003 interim final Privacy Act notice clarified its intentions about the application of CAPPS II and modified several of the System's routine uses to respond to concerns expressed in those comments. See 68 Fed. Reg. 45265, 45267-68 (Aug. 1, 2003). Even with the modifications that TSA described in its interim final Privacy Act notice, however, CAPPS II will impact customer privacy interests. The implication of this is clear. If the public is not comfortable with the various facets of CAPPS II, its acceptance will be imperiled. Were that to occur, air transportation would suffer because some passengers would regard the privacy demands of CAPPS II as personally too costly to justify traveling by air. Thus, the government's development of CAPPS II personal data privacy protections should be thorough and its explanation of those measures should be clear. For these reasons, ATA has developed a statement of privacy principles for the implementation of CAPPS II. See: http://www.airlines.org/news/d.aspx?nid=7607. These principles are intended to establish for TSA basic guideposts about superintending access to and use of personal information as it proceeds with the development of CAPPS II. Their purpose is to generate a greater assurance among the public about CAPPS II’s privacy safeguards. After TSA implements these safeguards, we believe that it should clearly explain to the public who within the CAPPS II program will have access to passenger information, under what circumstances and for what purposes. TSA discussed this matter in its interim final Privacy Act notice. We foresee, however, that this will be an important, persistent concern of the public. Indeed, this predictable concern is likely to be more pronounced because of the involvement of commercial entities in the CAPPS II passenger authentication process. Such an explanation from TSA, therefore, would allay the very understandable concern about whether the scope of an authorized individual's access to and use of information will be as limited as practicable and directly tied to her or his aviation security responsibilities. TSA should also explain what penalties will be imposed for unauthorized access to or misuse of that information. We also believe that when CAPPS II is implemented the TSA needs to notify the public on its Web site and through other channels of the measures that it has undertaken to assure the privacy of passenger information. TSA is the only authoritative source of such an assurance. Consequently, providing such notices should not be the responsibility of airlines. Registered Traveler Program. In the aftermath of 9/11, ATA suggested the creation of a “trusted” traveler program. Our view then, and it continues today, is that more should be known of those presenting themselves for air transportation. Greater attention should be paid to who the passenger is, rather than continuing to rely disproportionately on the screening of objects to provide aviation security. For this reason, we were encouraged by TSA’s recent announcement that it is about to begin a three month pilot project at five cities: Washington, DC; Minneapolis-St. Paul; Boston, Los Angeles and Houston. We expect the experience gained by this pilot program will enable a permanent program to be implemented in the near future. In particular, the ability of the program to reduce passenger screening times and lines at airports must be demonstrated in order measure the success of the program. We note, however, that participants must provide TSA with sensitive personal information, including identifying biometric information, and that TSA will conduct what amounts to background checks on these individuals. Accordingly, TSA must establish an appropriate privacy policy that clearly informs participants how it will use the information it collects, including whether such information will be shared with other Federal, state or local law enforcement agencies. Further, to avoid any confusion as to ownership of the program, TSA should not require airlines to collect or transmit participant information. The transaction should be directly and exclusively between volunteer participants and TSA.

Advance Passenger Information System. The Advance Passenger Information System (APIS), a Customs and Border Protection (CBP) program, requires airlines to transmit passenger manifest information to CBP fifteen minutes after the departure of any international flight bound for the U.S. We understand that CBP is considering expanding the information it collects from passengers, extending the program to flights departing the U.S., and requiring additional data elements. We are awaiting a rulemaking from DHS outlining the updated requirements. Passenger Name Record Access. The Department of Homeland Security and the Department of State recently concluded an agreement with European Commission data protection officials to allow the Bureau of Customs and Border Protection's access to certain fields of passenger name record data for customers on flights to the United States. Those discussions, while highlighting European concerns about the adequacy of U.S. data privacy protection practices, are an important step forward in moving toward an information-based security system rather than the physical search system in place today. We hope that U.S. and EC officials can agree in their future discussions on data protection principles that will be applicable to CAPPS II when it is introduced, and the expanded APIS program discussed above, and thereby eliminate the possibility that U.S. airlines will be caught between conflicting U.S. and EC regulatory requirements. The US VISIT Program. US-VISIT is a congressionally mandated entry/exit program requiring all foreign national visa holders to be photographed and finger scanned upon arrival and prior to departure from the United States. This Fall, this requirement will be extended to all Visa Waiver Program nationals as well. The Department of Homeland Security’s broad mandate to create an integrated, automated arrival and departure system is both ambitious and critically important. Given the large number of foreign passengers who arrive and depart the U.S. daily on air carriers, it is essential to our industry and our passengers that this program operate smoothly and easily while enhancing our national security. We fully support DHS in its efforts to create and implement this program. When fully implemented, the US-VISIT entry and exit programs must be enforceable and integrated into any new technologies and programs under development at the DHS. Since the roll-out of the US-VISIT entry process on January 5th of this year, the airlines have been very pleased with its operation. We compliment the Department of Homeland Security, and specifically, Undersecretary Hutchinson and the Office of Border and Transportation Security, the US-VISIT Program Office, and the Bureau of Customs and Border Protection (CBP), for working together to carefully and completely plan for a successful implementation. Their attention to careful planning, in full consultation with all interested parties has been first rate. We look forward to continuing this cooperative approach as the exit processes are piloted beginning July 1st.

VI. ADDITIONAL ISSUES REQUIRING ATTENTION Deployment of Explosive Detection Systems. Section 110 of ATSA required all checked baggage to be screened for explosives by the end of 2002. For a variety of reasons, the expectation that this requirement could be met using bulk Explosive Detection Systems (EDS) proved to be unrealistic, and today TSA continues to work to overcome the many challenges to achieving 100% EDS screening. If TSA is to achieve 100% EDS screening of checked baggage, then the program must be fully funded in accordance with the cost sharing formulas in Section 605 of the recently enacted FAA reauthorization bill, Vision 100. Section 605 authorizes the Department of Homeland Security (DHS) to issue grants to airports for projects to put into place EDS and related systems, including baggage conveyor systems. Under Section 605, the federal share for EDS-related projects is 90% for medium and large hub airports, and 95% for smaller airports. ATA supports this program and encourages the Committee to take all steps necessary to see that it is fully funded. In particular, the proposed DHS budget for FY 2005 fails to match the federal government’s share under Vision 100; instead it proposes a federal funding level of 75% for large and medium-sized airports. ATA strongly opposes shifting these costs, and the Committee must guard against this and future efforts to diminish the federal share for EDS equipment deployment and installation. Protecting our civil aviation system is a matter of national security and a Constitutional responsibility of the Federal government. Funding of these security initiatives should reflect this. Of particular concern to ATA member airlines is funding to modify baggage conveyor systems to accommodate in-line EDS screening. Baggage conveyor systems are critical to efficient and timely baggage screening. Modifying these extremely complex systems to accommodate in-line EDS screening is complicated and expensive, and Federal funding for modifications, as Vision 100 recognizes, is necessary to achieve Congress’ objective for 100% baggage screening. Unfortunately, the proposed FY 2005 budget falls short of the funding needed for the deployment of required in-line EDS systems. Transit Without Visa and International-to-International Programs. On August 2, 2003, the DHS and the State Department suspended the visa and passport waiver programs – Transit Without Visa (TWOV) and International-to-International (ITI) – for passengers transiting but not entering the United States. Under the TWOV and ITI programs, passengers whose itineraries include a transiting stopover in the U.S. are not required to have a visa. As a result of the suspension, these passengers must now have a visa when their itineraries include a transit stop in the U.S. ATA strongly supports reinstating these programs as soon as possible. Because these programs have been suspended, passengers who would have flown U.S. airlines are flying foreign airlines because they can avoid transiting the United States. We have been working with DHS and CBP to identify program modifications that would permit these programs to be reinstated. We urge the Committee to encourage DHS to take appropriate steps to safely reinstate these programs as soon as possible. Crew Self-Defense Training. Another important security issue is that of advanced crew self-defense training. Last year’s FAA reauthorization, Vision 100, included language instructing TSA to develop and provide voluntary advanced self-defense training for those flight attendants who wish to avail themselves of that program. Currently carriers provide both basic and enhanced security training. We urge the Committee to fund TSA in FY 2005 to allow it to develop and provide the advanced self-defense training as contemplated by Vision 100. Airport Opt-out Program. ATSA authorized a pilot program under which private-company screening can be substituted on a limited basis for TSA screening. The legislation authorized five airports from different risk categories to be selected for the pilot program. The five participating airports are: Jackson Hole Airport, Wyoming; Kansas City International Airport, Missouri; Greater Rochester International Airport, New York; San Francisco International Airport, California; and Tupelo Airport, Mississippi. In addition, ATSA set forth criteria for an airport operator to apply for TSA approval to opt-out of the federal screening program as early as November 19th, 2005. A thorough review of the pilot program must be completed to assess its success to guide TSA in determining the scope and contours of an opt-out program. This is essential to all concerned—the traveling and shipping public, airports, and air carriers. The results of TSA’s assessment must be measured against several basic principles. First, private-sector security must be shown to be at least as effective as TSA-provided security. This is the indispensable metric for the opt-out program. Second, the use of contract screening cannot result in increased costs to users of the system—passengers, shippers, airports or air carriers. No one in the industry is in a position to absorb additional security-related costs. Indeed, the principal justification for the use of private vendors their ability to deliver services more economically than the government. This means that the use of contractors should not generate additional demands by the Federal Government or airport operators to fund security services. Third, vendor security services must be delivered efficiently. Efficiency encompasses security that minimizes passenger wait time at screening checkpoints, the expeditious provision of security services to shippers, streamlined administration of the program, and successful recruitment and retention of employees. Ultimately, upon completion of its assessment, TSA must establish criteria for evaluating opt-out proposals to ensure nationwide uniformity in the provision of aviation security.

CONCLUSION Congress must not waiver from its determination that aviation security is an essential component of national security; it must act consistently with that principle and fully fund aviation security from general tax revenues. The popular belief that passengers are willing to pay more for security is not borne out by the facts. Airlines are not able to pass through new taxes, fees and costs – whether for security, fuel or airport development – in what is a fiercely competitive and price-sensitive environment. The proof lies in the continuing losses the industry is piling up. Additionally, Government policies should support industry stability and growth, and permit airlines to attract needed capital. In this regard, the proposed ASIF increase should be rejected, and the FAA’s war-risk insurance program should be extended. Further, agencies must exercise their regulatory authority deliberately, and assisting the industry should be a foundation policy. Threats to security and safety must be prioritized based on a careful review of the facts, and solutions must provide a clear and justifiable benefit both on their own merits and relative to other known risks. Respectfully Submitted, Air Transport Association of America, Inc. June 22, 2004








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