All their disads are non-unique – a Privatization’s inevitable internationally

AB: What makes you say that opt-out is "the next big thing?" Hernandez: I think they, the TSA and Congress, are going to realize that the money just isn't there. They have to incentivize it in some way to get more airports to join. Something has to give, and I think the first thing will be the liability, something that relieves the airports and security companies from liability, essentially putting them into a government contractor's position. It has to because there is so much data there from the pilot program that suggests they can do it more efficiently. I think a big problem with the TSA now, but they don't want to admit it, is they've probably doubled their human relations attorneys just dealing with the HR issues. They didn't expect the huge problems they're having. I think the private sector is more efficient dealing with those HR issues. AB: I recently heard some Congressional staffers suggest that by putting an in-line screening system in place at an airport you pretty much eliminate two screener positions and the system pays for itself within the first year. Have we gotten to the point that this instant bureaucracy we've created is proving to be an obstacle to getting this accomplished? Hernandez: I think the biggest thing, without pointing fingers, is that when this all came about in 2001, the total cost was grossly underestimated. Projections were based on pre-9/11 numbers when the airlines were responsible for screening and were paying dirt wages. AB: In the final analysis, it would seem that you think private screening is ultimately the direction this thing is headed. Hernandez: We have to; there are just too many inefficiencies. You may see gradual changes; perhaps you'll see a quarter of the airports switching over to a private security model and, once efficiencies are realized there, it will expand. Run it like a business instead of a bureaucracy. I wouldn't be surprised if you were to see Lockheed Martin and Covenant just come roaring down and overnight taking it over at airports. That's going to be a huge revenue-generating stream. Competition, in its pure form, is good.

Every spring, private security officers at San Francisco International Airport compete in a workplace "March Madness"-style tournament for cash prizes, some as high as $1,500. The games: finding illegal items and explosives in carry-on bags; successfully picking locks on difficult-to-open luggage; and spotting a would-be terrorist (in this case Covenant Aviation Security's president, Gerald L. Berry) on security videos. "The bonuses are pretty handsome," Berry said. "We have to be good - equal or better than the feds. So we work at it, and we incentivize." Some of the nation's biggest airports are responding to recent public outrage over security screening by weighing whether they should hire private firms such as Covenant to replace the Transportation Security Administration. Sixteen airports, including San Francisco and Kansas City International Airport, have made the switch since 2002. One Orlando airport has approved the change but needs to select a contractor, and several others are seriously considering it. The Metropolitan Washington Airports Authority, which governs Dulles International and Reagan National airports, is studying the option, spokeswoman Tara Hamilton said. For airports, the change isn't about money. At issue, airport managers and security experts say, is the unwieldy size and bureaucracy of the federal aviation security system. Private firms may be able to do the job more efficiently and with a personal touch, they argue.

I also believe that aviation security is not best served by a one-size-fits-all approach. Rather, we should allow decentralized flexibility, efficiency, cost savings, and innovations. These are things that the pilot program was intended to highlight. All that can be accomplished, as Europe and Israel have realized, without diluting any standards or lowering any requirements. As long as the highest level security standards are met or exceeded, how that is accomplished should be determined by those most closely involved at the airport operational level. While I am most pleased with the results of the pilot screening program, some will testify today that the program was overconstrained by the TSA and it never really was allowed to be experimental. We'll look at that. However, I believe that the pilot program has had a very positive effect on the provision of aviation security post-September 11. I understand that the PP5 companies were initially given limited flexibility in recruiting, hiring and training, and implementing new approaches to meet the federal operating standards, the SOPs.

Ultimately, the FAA elected to retain the system of airline-controlled screening operations while proposing increased federal involvement in research and acquisition of screening technologies such as explosive detection systems (EDS) and regulatory oversight of screening companies. Both the airlines and the airports supported this evolutionary approach that maintained the status quo with regard to airline responsibility for conducting screening operations while increasing federal involvement in the deployment of screening technologies and oversight of screening operations.

Sixteen airports currently operate successfully under the federal-private model. More airports have submitted applications, and others are considering opting out. While TSA has argued the federal-private model costs more, the agency did not properly account for private-sector cost efficiencies, federal retirement costs, taxes paid by private companies, at least partial elimination of a huge bureaucracy and more. TSA has grown from a pre-9/11 force of 16,500 screeners, that then lacked proper federal regulation or oversight, into a massive, growing force of 62,000. TSA's bureaucracy includes more than 3,500 administrative personnel in Washington and 7,000 supervisory employees throughout the nation. It would be far better for a streamlined TSA to focus on setting and checking security standards and auditing performance, rather than spending much of its time, resources and energy on managing a huge ballooning bureaucracy.

Privatization advocates often cite the conflicting role of government entities serving in the capacity of both regulator and service provider as being inherently problematic from the standpoint of accountability.28 Airport security, they argue, may be compromised by the fact that the TSA, in its role as both the regulator and the provider of aviation security, is essentially self-regulating. As such, the TSA is seen as having an inherent conflict of interest that may prevent deficiencies in its operations from being properly identified and corrected. A similar line of reasoning has been used to bolster the argument for privatizing air traffic controllers and other air traffic related functions within the FAA. Privatization advocates argue that TSA's long term role should be focused on the following functions, leaving the day-to-day airport security operations in the hands of private security firms, as the opt-out program provides for: ! Developing aviation security specifications; ! Sponsoring aviation security research and development; ! Coordinating intelligence sharing between federal agencies and the aviation community; and ! Conducting oversight and monitoring performance of a unified, airport-run security system.29 However, a system of federal oversight over privately operated airport security system does not necessarily ensure better accountability of screening operations. The federal government's ability to regulate and conduct oversight of private entities at arms-length has often been questioned, and adequate oversight is often resource intensive. For example, within aviation, deficiencies in the FAA's ability to provide adequate resources to oversee aircraft operators and maintenance repair stations has been identified in NTSB accident investigations30, Department of Transportation Inspector General's findings31, and GAO32 probes. These assessments have raised significant questions regarding the adequacy of FAA inspector staffing levels and training.

As Chris wrote yesterday, with all the problems the TSA has, it’s not entirely clear why anything would improve under private management. If anything, at least now TSA has to worry about the ire of the administration and Congress when they strip search granny, but after they’re privatized, kiss any real government oversight goodbye.

While airlines may be enjoying healthy profit margins these days, it's mainly owed to lower jet fuel prices. And they are using billions in net earnings to pay down debt. The industry still is burdened by some $70 billion in debt from post-recession bankruptcies. They are also plowing profits back into new planes. With JetBlue and other discount carriers operating, there is plenty of healthy competition in the airline industry to keep airfares in check.

The South China Morning Post reports that the pain of Malaysia Airlines' radical restructuring plan, involving the axing of 6,000 jobs, may be eased by the hope that it can follow the example of troubled Japanese and US airlines that returned to healthy profits after restructuring, a leading industry figure said.

Currently, 80 percent of the nation's air traffic is dominated by four airlines: American, United Airlines, Delta Air Lines and Southwest Airlines. After years in the red, the airline industry has been reaping healthy profit by cutting down unprofitable routes, reducing costs, and restraining growth to benefit from higher airfares. According to the Bureau of Transportation Statistics, the average domestic airfare rose 13 percent from 2009 to 2014, when adjusted for inflation.

Fortunately, the second answer is a kinder one. As discussed above, the loss of one or more dinosaur airlines doesn't mean the US public will stop flying. It means that the new breed of airline will step into their shoes, providing better service, and probably at lower cost to us as well. The worst case scenario is that passenger numbers will stay the same, and, more likely, in response to better service and better fares, passenger numbers will increase. The airlines that replace the dinosaurs will need to buy new planes and will need to hire more staff to service their expanding networks. Staff that were laid off by a dinosaur will have an equal opportunity to apply for similar jobs with the new carriers.

Boeing's quarter was "pretty good," even with the unexpected tanker costs, said Howard Rubel, a Jefferies LLC analyst who rates the stock as buy. "If you back out the charge, these were terrific numbers. I think they are doing what they need to do in terms of running the business. It's as simple as that." Annual profit will be $7.70 to $7.90 a share, Boeing said, down from the $8.20 to $8.40 range that predated the disclosure of the tanker setback. The charge was the second in a year on the plane, bringing the combined costs absorbed by Boeing on the initial fixed-price contract to $1.3 billion. Quarterly earnings excluding some pension expenses were $1.62 a share, beating the $1.37 average of 14 analysts' estimates compiled by Bloomberg. Sales of $24.5 billion exceeded analysts' $24.3 billion prediction. Boeing is still seeing healthy airline interest in its aircraft, including the 777, said Muilenburg, who ascended to the CEO post on July 1. The 777 is the world's biggest twin- engine jetliner, and lists for as much as $339.6 million, depending on the model. The company has sold out delivery positions for the jet in 2016 and is more than half sold out in 2017 with "several" potential sales campaigns under way, he said.

With that, let's turn to the business environment on slide 3. Our overall view of the business environment remains positive due to improving airline profitability and healthy global air traffic. Based on that traffic growth and strong replacement demand, our new long-term commercial market outlook forecast demand for more than 38,000 commercial aircraft over the next 20 years. That new forecast is up nearly 1,300 aircraft from last year. Customer discussions continue to focus on placing new aircraft orders or accelerating deliveries, as indicated by the favorable pace of orders in and around the Paris Air Show, and yesterday's decision by FedEx to purchase 50 767 freighters with options for 50 more. Deferral requests continue to run well below the historical average. Demand also remains strong for both the 777 and the 777X.

He did not rule out cancellation of operating license. Some of the airline have equity minus trillions of rupiah, he said. Negative equity indicated the airlines are not healthy, and such condition would weigh on their operation that could be a threat to the safety of passengers, he said. He suggested merger among the airlines but he said it is up to the airline how they would cope with their financial problem.

NEW YORK ( TheStreet ) -- Delta, seeking to lead the U.S. airline industry in every conceivable way, announced first-quarter earnings a week ago, eight days before the remaining carriers will start to follow on Wednesday. That fueled an inevitable question. "We will be interested to see if American and United follow Delta in reducing international (capacity) -- something they did in 2014 on the Atlantic," wrote Stifel analyst Joseph DeNardi, in a recent report. Four carriers including United and Southwest will report earnings Thursday; American will report Friday. Three more carriers will report next week, with JetBlue leading things off on April 28. American has already cut back a bit on its planned international growth. The carrier said in its January 8-K filing with the Securities and Exchange Commission that overall capacity would rise 2% to 3% from 2014 levels, while international capacity would rise about 1.5%. But in its April 8-K, the carrier said overall capacity would rise just 2% while international capacity would rise roughly 1%. Delta shares rose 2% on April 15, the day the carrier reported earnings and announced a 3% fourth-quarter international cutback. In general, shares have been rising ever since. For the moment, the basic premises of airline investing are that the big three carriers are being hurt by the strong dollar; strong domestic demand continues to support shares, particularly shares in domestically focused carriers, and oil prices are on the way back up.