AD-AO85 210 FEDERAL AVIATION ADMINISTRATION WASHINGTON DC OFFICE -ETC F/G 5/11ANNUAL FAA FORECAST CONFERENCE PROCEEDINGS (STH) .(U)OCT 79

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Table of Contents 'I- Page

X'Part I-Introduction .................. 2

FAA Forecasting Initiative Overview .......... 4Part 2-Proceedings .................. 6Foundations for Aviation Growth............ 7

Quentin TaylorForecasting in an Interactive Environment ... 9

Gene MercerPolicy Issues in Today's Environment 1

Moderator: Pamela Kruzic ... 1

Airline Deregulation...................... 14Ray Pulsifer

Fuel................................. .17Robert M. Griswold

Safety ............................. ... 20Guy E. Hairston, Jr.

Environment.................... ....... 22- - Clarles L:7Elkins

/ Airline Financing ........................ 25Theodore Shen -

Foc-us on Commuters .... .. 28Introduction by: Dr. Bill ilkins

-Luncheon SpqAker Duane Eke:dahi'Z Opportunities for Avtai-Grwb---_

Access io~in Today's Environment ~... .... 34AcsinFor Moderator: Bernard Hannan

IVTI,3 Airports ............................. 35DDC :i~Clifton A. Moore

Commuters ........................... 3',U.. icati Robert A. Jenkins

General Aviation ........................ 39Ms. Thon Griffith

Air Carrier ............................. 41TT Sheldon C. Srulevitch

Manufacturing .......................... 43i. . James T. Burton

** New Technology ........................ 46

Di .jt : Daniel R. Perley

.4.Part 3-Quetions and Discussions ... 50ALA..

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Proceedings Summary Airline Association of America indicated that the com-muter airlines are now serving 630 airports with sched.

Deregulation, fuel, capacity, policy alterna- uled passenger service, 850 airports if air cargo serviceDTeseweregultesue, g iv piy ateonat is included. Optimism, he says, can be drawn fromtives: These were the issues given primary attention at examples such as Air Wisconsin which began service

the Fifth Annual Federal Aviation Administration (FAA) between Appleton, Wisconsin and Chicago when aForecast Conference. As in previous years, the atten- local service carrier exited that market. Air Wisconsin isdees at the conference represented the diverse interests now among the largest of the 200 commuter airlines inand organizations within the aviation community. At the country.the end of the one day session, agreement seemed to Perhaps not envisioned at the time of dereg-exist among panelists and participants that aviation will ulation is the high demand now existing for new equip-overcome the pressing issues of today and expand the ment among all carriers, large and small. The timing of

services it provides the country. t among pres lr . Th e of of

The events and trends that plague aviation this demand, predicts Mr. Theodore Shen, of Donald-

today represent both challenges and opportunities. son, Lufkin, Jenrette, will result in corporate realign-Whitod ay et tments among the major carriers. He expects that someWhile it may be difficult to foresee their ultimate effect of the financially weaker cariers will have to retreat aon aviation, the panelists suggested a number of out- little and shrink to a level supportable by their capital

comes involving a restructuring of elements within the resources.aviation community. A few wished forecasters good Overall, however, Mr. Shen feels that thisluck in their attempt to track the changes that seem at replacement cycle comes at a good time for the trunkhand. carriers. Deregulation gives the carriers the degree ofMr. Quentin Taylor, Deputy Administrator flexibility they need to get their houses in order to meetoftheir financial requirements. If deregulation had oc-ference. He stressed that aviation has attained a level in curred ten years ago, the required changes would have

size and maturity where it is now as susceptible as any been accomplished without the discipline imposed by

other industry to the major forces affecting the country. high fuel prices and the capital constraints of today. TenThe challenges to aviation come principally in the ypolicy, economic and environmental areas. years ago weak carriers as well as strong carriers had

Given the many issues now confronting excess financial and equipment resources. Today, onlya few trunk carriers enjoy that advantage.

aviation, he asked: "Will aviation grow?" The answer The commuter carriers have placed orderswas: "Without a doubt." But a considerable amount of Tecmue areshv lcdodrwha:e wihou aoubt." uta ronsideAble amounttio for new equipment of a value matching the value of thechange will accompany that growth. As one indication existing fleet. The loan guaranty provisions of theof the magnitude of the change to come he cited the exsigfetThlonuanyprvinsftemanyhe marketueth change had a e cred sce deregulation legislation have facilitated these ordersmany market changes that had already occurred since .deregulation. greatly. The smaller size of the airplanes in the com-

deelaio. GnMremuter fleet as compared to the air carriers allows theMr. Gene Mercer, Chief of the Aviation commuters to serve small markets in a timely and fuel

Forecast Branch, FAA Office of Aviation Policy, out- efficient manner. But, as both Mr. Ekedahl and Mr.lined the principal series in the 1979 FAA National Robert A. Jenkins Allegheny Airlines, pointed out, theyForecast. Responding to the challenges enumerated by can do so only if the additional regulatory burden beingMr. Taylor, Mr. Mercer stressed that FAA aviation fore- impos on the ommutresuno be oerlycasters could remain current on these changes only imposed on the commuters does not become overlyctrould reeactin currete omnit c geast onerous. These economic and safety regulations havethrough interaction with the community of forecast the potential of forcing the commuters to grow, empha-users and aviation planners. size longer haul markets and abandon the smaller cities

Mr. Robert M. Griswold of Shell Oil empha- as the only means of carrying the economic burden. Ifsized that aviation itself has to be considered in the this occurs, Mr. Jenkins predicts that a new fourth levelbroadest context. Thus, Mr. Griswold discussed the fuel of carrier may have to come into being to handle theproblems of aviation in competitive terms. There are kiof rfi may h yave r smao coarrtb ing to an the

only so many barrels of crude oil available; they must be responsive.

shared by all petroleum product users.

The Airline Deregulation Act of 1978 wascited by several panelists as a policy decision with bothexpected and unexpected results. While the major air-lines have reacted pretty much as predicted, accordingto Mr. Sheldon C. Srulevitch of Braniff Airlines, thetimetable for major effects envisioned under deregula-tion has been greatly shortened. Even with inclusion ofthe time period of ad-hoc deregulation that precededthe legislation, the changes that have occurred in aircarrier markets and schedules have been tremendous.

Market exits by the large carriers have beenfollowed by expansion of commuter carriers into manyof these areas. Mr. Duane Ekedahl of the Commuter

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Mr. Clifton A. Moore of the Los Angeles De- be given to interruption of the chains of events that pWpartment of Airports is acutely aware that the consoli- cede all accidents. Manufacturers, pilots, airports anddation now underway among the large carriers and the their communities, air carriers, aviation users, andexpansion of commuter operations are going to create government must work together-interactively-toproblems for airport operators. By and large, airports achieve perfect safety.are dependent on users' fees for their survival. The The issues of deregulation, fuel, capacitysmaller commuter airplanes cannot be assessed the and policy alternatives are creating an atmosphere ofsame landing fees as a 747. Yet, there is not a significant ever-increasing uncertainty. Aviation forecasters, plan-difference in the cost of services the airports have to ners and policy makers will be challenged. It is they whoprovide the two aircraft. The two types of aircraft can- must anticipate what aviation will look like as a result ofnot be segregated by airport since the air carriers and actions not yet taken. The conference was an opportu-commuters depend on each other for passengers. nity for forecasters and forecast users to explore the

The problem of facilities is further magni- outlines of what the future might bring.fled by the demands of general aviation. As Mr. Mercerindicated, this is by far the largest segment of aviation.Ms. Thon Griffith of the Ninety-Nines, Inc. provided adefinition of general aviation that clearly poses the *&& w a&-,problem: General aviation is an alternative means oftransportation. Corporate users of aviation are increas-ingly turning to general aviation because it is cost- ,effective and the most flexible means of travel available.

General aviation has more than 7,000 pub-lic use airports available to it. However, as primary air-ports across the country become congested, generalaviation is being pushed to smaller airports. In manycases, these airports are less convenient and offer fewerservices than are available at the larger airports. Conse-quently, Ms. Griffith asks that a campaign be under-taken to point out general aviation's need for relieverairport support to the entire country.

A factor that should not be overlooked isthat aviation depends on a set of institutional relations FAA Forecastingfor its existence and continued growth. The internal Initiatrelationships-between manufacturers, airports, avia- I i ve Overviewtion users and regulators-are well established and visi-ble to the entire aviation community. But the external The issues confronting aviation discussed atrelations-between communities and aircraft users as the conference demand attention from the aviationwell as airports-are less well established. They are real forecasting staff at the FAA. The Airline Deregulationand need the same degree of maintenance as any piece Act became one year old on the day after the con-of equipment according to Mr. Charles L. Elkins of the ference. The speakers at the conference agreed thatEnvironmental Protection Agency. Noise pollution is deregulation has increased the tempo of change withinhis particular worry at this time. He reminded the audi- several segments of aviation. While deregulation hasence that everyone in aviation has to help resolve this removed one layer of control over aviation, escalatingissue if airports are to be kept open. Communities fuel cost and availability problems amount to a newcannot be bought-off since there is no guaranty that form of regulation: "Regulation by the gas pump." Asfuture residents will abide by an earlier agreement. indicated by the speaker on the financial prospects ofFurthermore, the degradation of property values with- the trunk air carriers, economic uncertainty has as greatout just compensation, such as that associated with an effect on aviation as on any other industry. The effectnoise pollution, is prohibited by the Constitution of the may be greater since this is a period of large scale invest-United States. Laws simply passed by the Congress ments on the part of commercial air carriers.cannot circumvent that protection. Now in its sixth year, the Forecasting Initia-

In the end, it was General Guy E. Hairston of tive sponsored by the FAA Office of Aviation Policy wasthe Air Line Pilots Association who pointed out the high undertaken as a means of capturing the increasing ratestandards against which aviation must work. Safety is and importance of change within aviation. Its goal is tothe bottom line, not a question of numbers. No trip to improve the quality and utility of the forecasts used bythe cemetery because of an aviation fatality is a worth- the agency and other aviation planners. While the FAAwhile trip. forecasts are produced for use within the agency, much

A perfect accident record and a stronger of the data and information used in developing theindustry can be achieved only if the entire community forecasts must come from external sources. Conse-works together and approaches safety from a compre- quently, greater involvement on the part of the avia-hensive perspective. No one and nothing in aviation tion community in the process Is a means of Improvingcan be absolutely fault-free. So, greater emphasis has to the quality of the forecasts. Producing forecasts that are

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used outside the agency as well as inside becomes an in- is of interest to aviation planners at the state level is thecentive for more broad-based participation in the fore- use of acoustical aircraft counters. A sampling method-casting process. The entire aviation community gains ology for use with the counters is being developed thatfrom the greater reliability of the forecasts and from the will permit more accurate estimation of general aviationelimination of redundancy of forecasts. operations at non-towered airports.

Overall, the activities conducted as a part ofThe Outreach Program was established to the Forecasting Initiative seek to make available highbiiTothe fOureating Process est e o quality information for use by aviation forecasters and: ~bring into the forecasting process the best available plnesGinthgrwgUebuctatesihnad

information on events, constraints and opportunitiesgrowing uncertainties within andinvolving all segments of aviation. The annual forecast surrounding aviation, this information is perhaps moreconference is one of the events used to achieve this important today than at any time in the past. Interactioncojence Tsonothe ev o n ts ed y r eetis among forecasters, forecast users and the aviationobjective. The evaluations provided by representatives community is the critical base upon which improve-of aviation service providers, aviation planners and ments in available information will continue to begovernment officials provide the FAA a reading on the made. The Forecasting Initiative isa means of fosteringforecast's anticipated reliability and credibility as well as

guidance on areas of special concern for the following cooperative-rather than duplicative-forecasting ef-

year's forecast. forts and, not incidentally, more reliable forecasts forFor example, the issues of future fuel price long term planning.

and availability continue to be of significant concern toaviation forecasters this year. Fuel price has a tremen-dous effect on air carrier cost of operations. Projectionsof air carrier costs, in turn, are one of the more highlyweighted variables used in forecasting air carrier activity.In the case of general aviation, fuel cost is the maincomponent of total variable cost. Variable cost is signifi- A

cantly related to whether general aviation aircraft areflown or parked on the apron. Consequently, consider-able effort will be expended this year following up onthe insights on the fuel situation gained at the con-ference in order that next year's forecast reflect theevents of this year and the likely path of fuel prices in thefollowing years.

The Outreach Program also includes a seriesof seminars and workshops held throughout the coun-try that focus on specific issues or problem areas. TheFY 1980 scheduled seminars are designed to fosterresolution of particular local issues of importance to thehub forecasts for Phoenix, Arizona, Minneapolis, Min-nesota and Portland, Oregon. These seminars haveproven to be valuable tools in obtaining broad com-munity participation in the discussion of aviation facili-ties needed by these metropolitan areas in the future.

The workshops provide an introduction intothe aviation forecasting process to Federal, state andlocal officials. Improvements in data collection andincreased forecast utility are the primary topics at thesesessions. This year particular attention is being given tothe workload reductions made possible through theinteractive capability of the FAA Terminal Area Fore-cast Data System. Several states are making use of thiscapability for their own purposes and to update theTerminal Area Forecasts for facilities within their states.

Improved Data BasesThe extent and accuracy of the data bases

used in forecasting is a constant issue for FAA fore-casters. The Outreach Program addresses the problemby increasing the involvement of those who are mostknowledgeable about aviation activity in a particulararea. A number of other projects are more directlyinvolved in increasing the data available for input to theforecasting process. One area under investigation that

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VII6

Foundations for Aviation ahead we try to see. It loses precision the farther aheadGrowth we look. What I see today is a mature aviation industry.It has the capability and size to participate fully In themarketplace domestically and abroad. But because ofits size, economic, political and social factors and eventswhich have an impact on other industries also have animpact on aviation.

In the past, civil aviation has enjoyed aprotected status, with considerable support and over-sight provided by the Federal Government. Those daysare gone. At least in economic terms, providers ofaviation service must now reckon with and respond tomarket forces without the help and protection of theGovernment. Planners usually have had ample warning

Quentin Taylor on changes in marketplace policy coming from eitherDeputy Administrator the Government or the airlines. We could watch peti-Federal Aviation tions wend their way through the Civil AeronauticsAdministration Board. Deregulation has eliminated that lead time.

_Now we have to deal with phenomena suchas Orlando, Florida. Before deregulation, service to

Mr. Taylor presents the welcoming remarks to the Orlando was the province of four carriers. Today, thatconference. He defines the purpose of the conference city's airport accommodates twenty. Using that experi-as an exploration into what American aviation may look ence as an indicator, and that of a number of other citieslike in the year 1991. The future of aviation rests not as well, the future promises to keep us all on our toes.only on actions to be taken by the aviation community, We must increase our awareness of from where impor-but also on changes that may occur in the economic, tant policy changes might issue. This is particularlypolicy and environmental arenas. important at the local level where economic changes

Let me begin by simply letting you know how can have an immediate and profound impact onindividual communities and airports.surprised I am at the attendance and interest in this kind But as far as the National Forecast is con-

of event. Over the years, as I have moved around the cerned, policy changes created by the marketplaceUnited States in aviation circles, I have often been have less impact. That is because the National Forecastimpressed, or depressed I suppose, about the absence does not focus on specific route segments. Neverthe-of planning, the absence of even thinking about our less, FAA hub and terminal area forecasting effortsfuture in aviation. I am driven by the thought that most leA are a fore dynamicpeople live for today in terms of economics and really already are feeling the impact of a more dynamic

feel that there's just no way to get a grasp on the future marketplace.as fr a avatin isconernd. bviosly ths frumThe cost and availability of energy is, of

as far as aviation is concerned. Obviously, this forum course, the dominant economic issue facing aviation.demonstrates to me that it is not necessarily true. We do We know the cost is going up. The problem is: How canhave our concerns regarding the future of aviation and we utilize the available fuel most efficiently and conser-we are working diligently to define that future in vatively? We've designated this week as Energy Conser-reasonable and rational terms. vation Week at the FAA. Special programs are empha-

We are here today to explore whatAmerican sizing both the need for conservation and what hasaviation may look like over the next 12 years. Will it been achieved in this area.grow? Without a doubt. But, how fast will it grow? Whatevents will influence that growth? And, perhaps mostsignificantly, how will aviation affect our lives?

The 1979 FAA Aviation Forecasts for FiscalYears 1980-1991 we've just published provides onepossible set of answers to these questions. I emphasizeI"possible," because your reactions and comments, andmost critically, the actions of all members of the aviationcommunity during the coming years must inevitablychange that forecast as we home in on the year 1991.So, in reality, our goal for this conference is to begin, notend, the discussion on the state of the aviation in theyear 1991.Uncertainty and Change

A lot is happening that we know will pro-foundly affect aviation. But our crystal ball becomescloudy as to what that impact might be the farther

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Aviation, the air carriers in particular, is Where we now must concentrate is on thedoing a lot to conserve fuel supplies. In 1978, with 64.1 quality of the information and data going into themillion more passenger enplanements and a 13.8 process-not only the numbers, but also the eventspercent increase in revenue ton-miles of cargo carried which may constrain or accelerate aviation growth inthan in 1973, the domestic passenger and cargo the future. We need a wide communications net-andairlines are using only three percent more fuel. I think wecertainly haveit here-to capture this information asthat if all of us in this industry and in all public sectors soon as possible. Only through effective interactionwere as effective as the airlines have been in fuel with the aviation community can we avoid surprisesconservation, the nation would soon regain control inherent in weaker forecasting techniques.over its energy supplies. The Terminal Area Forecasts are an excel-

Now, although energy dominates our imme- lent basis for this interaction. They are highly specificdiate attention, general economic conditions are not far and focus on individual airports. A lot of the changes webehind. It is bad enough to be in the aviation forecast- expect will occur in the coming years will be measureding business as we are, but I wonder at how many sleep- first at individual airports. Growth among the commuterless nights the economic forecasters must suffer. I think carriers, market entry or exit decisions on the part of thewe can agree that we do not know with any degree of airlines, environmental constraints, and utilization pat-certainty what the state of the economy will be in the terns within the general aviation fleet all manifest them-coming years. We may not even agree on its state today. selves initially at the local level.However, since the economic forecasts others generate If we held to only a national perspective, weplay an important role in our aviation forecasts, we would miss these changes. A lot of change can occur-cannot ignore general economic issues. growth in one area cancelling constrained operations

Right now, the economic outlook is less than elsewhere-without having an impact on the overallbright. Our baseline aviation forecasts are also less than National Forecast. But, if we do not pay attention toenthusiastic. But I have faith in aviation. I believe that these relatively small changes, we are very likely to missevents in the coming year will allow us to project more some future changes affecting the National Forecast.optimistically in our future forecasts. That is, the industry The sum of the Terminal Area Forecasts iswill be a great deal more healthy than perhaps we now equal to the National Forecast. From changes made atimagine it could be. the local level to these forecasts, we will be able to spot

In addition to contending with evolving patterns before they manifest themselves at the nationalpolicy issues and economic uncertainties, we must now level. Thus, to accomplish our objective of having aalso incorporate environmental demands in our plan- reliable forecast upon which the FAA can do its plan-ning. Noise abatement and pollution control are ele- ning, we need your input. In return, we offer our fore-ments that we must work into our planning cycles, casts for your use.These elements are important and are here to stay. Again, let me say personally and also profes-

First Step in Planning sionally I am delighted to see your interest here. I amthat are very much delighted to have your input. I am delighted to knowGiven the uncertainties to arecastinguih that this dialogue will be healthy and complete. Again,

with us, there is much that we have to do. Forecasting is thank you for listening to me. I look forward to completea critical part-in fact, the first step-in planning under exchanges which will allow a great deal more accuracyuncertainty. Your participation at this conference sug- in our forecasts of aviation's future. Thank You.

gests that I probably do not need to convince you of this

fact. We have to know what might happen if the aviationindustries are to continue developing and if the FAA isto provide effective service to the aviation communityand to the flying public.

So, as you know, forecasting cannot beeffective or hope for accuracy when done in a vacuum.This conference, the hub forecast seminars, and thetechnical workshops run by Mr. Gene Mercer and hisstaff are more important today than they have everbeen. The importance of planning is magnified underuncertainty.

At the moment, we are confident of thecapability of our forecasting technology. This year, we .have integrated our three major forecasts-the Nationaland the Terminal Area Forecasts as well as the currenthub forecasts-in an effort to present a consistentpicture. The. combined output of the three forecastseries represents probably as much detailed informa-tion as our limited resources allow us to provide to theaviation community. It's not perfect. But, it Is perhapsamong the better devices, the better documents, thebetter means of prognostication in the United States.

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Forecasting In an of the hub forecasts that we have developed this yeari w ... . --- o=,,- '- = are internally consistent with the National Forecast and i

Interactive Environment the Terminal Area Forecast. tFOne of the major problems the Office of

Aviation Policy has faced in developing forecasts is theproblem of developing individual facility forecasts-thedisaggregation problem. They are required by theagency for manpower planning. Historically, nationalgrowth factors were applied to each segment of theindustry, right across the board at all facilities. Werecognized that this was not a satisfactory approach.

In developing the new Terminal Area Fore-cast and the individual regional hub forecasts, we havedeveloped a combination top-down, bottom-up fore-Gene Mercer casting approach. By doing this we recognize that there

Chief, Aviation Forecast are areas of the country where aviation is growing at aBranchFral more rapid rate than the national rate and there areFedeiniravtion areas of the country where the growth is not asAdministration spectacular.

We are, in effect, approaching the time whenThe days when aviation forecasting was a simple, ivory we can say that this is what the national forecast impliestower exercise are gone. That is the message Mr. Mercer for each of the 4,000 airports in the Terminal Areabrings to the conference as he outlines the 1979 FAA Forecast. Now, if these implications were certainties,National Aviation Forecast. Each series the FAA now then our forecasts would represent truth, beauty andforecasts is surrounded by issues that will have a pro- wisdom. We know better. There are still problems to befound impact on the series in the future. It is only solved.through effective interaction among forecasters, fore- This year's forecast is based on less Federalcast users and their communites that reliable and intervention in the marketplace. We've attempted tocredible forecasts may be produced. deal with each of the uncertainties in the economy, in

policy and environmental issues and to translate theseI would like to talk to you today about the into impact on aviation growth. We have attempted in

1980 through 1991 FAA Aviation Forecast. We have the Terminal Area Forecast to translate this down totranslated many of the uncertainties Mr. Taylor has specific locations. We recognize that there are airsidetalked to us about this morning into actual forecast capacity and utilization problems. There are groundnumbers that appear in the forecast document. access problems at airports also. All of these factors

I would like to reiterate his call for more influence the basic relationship: Aviation growth is tiedinteraction in the development of the forecasting pro- to the growth of the general economy.cess. We are here today at this conference to get your As Mr. Taylor mentioned, the outlook for theinput into what you think is going to happen in this general economy is not good at this particular time.world we live in; and, to get your perception of how the Therefore, this year's aviation forecast is slightly lowerfuture growth of aviation will be affected. than we projected last year.

Integrated Forecasting There is a new phenomenon that has occur-We are constantly striving to improve the red in the industry: Aviation is no longer a luxury, it's a

accuracy of our forecast models. We feel that we are necessary part of life. The general public has recog-using the latest forecasting techniques. We are satisfied nized this. To the family that is utilizing an air carrier towith most of the models that we have developed. We fly across the country either for leisure time or to visitare receiving the output in a form that is usable to the family, air transportation is no longer a luxury. It is aaviation community. Consequently, there will be less necessary portion of that trip. To the businessman whoeffort spent on improving forecast models in the coming must use the commuter or air taxi to make a connectionyear and ,-'ore effort devoted to establishing communi- to an air carrier flight, the use of that commuter or aircations and to developing a feedback process in order taxi is not a luxury, it is a necessity. To the business corn-to receive and use your input in the development of the munity, the use of general aviation aircraft is a necessity.individual forecasts. Forecasting cannot be performed It is no longer a luxury.in an ivory tower. So, to improve the accuracy and the Recognizing the speed of change, we havereliability of the forecasts we do need your input, to remember that forecasts have very short half-lives.

Three of the major forecasts that we prepared We'll know more about 1991 next year than we knowthis year-the National, the Terminal Area Forecast this year. Therefore, forecasting must be iterative, it

and regional hub forecasts-all utilize a common set of must be constantly updated. We no longer have the

assumptions. That is, the activity data for airports in the luxury of developing facility plans based on five-year

Terminal Area Forecast are tied to the National Fore- old forecasts. Planning must incorporate a continuous

cast totals that we have projected for 1991. Also, each process in response to our changing views of the future.The planning cycle must accommodate these changes.

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We also recognize that to be effective and re-liable, forecasting has to be interactive. We have to havecommentary from the people that are in the fieldworking at individual facilities, the entire aviation com-munity and the general public. That's one of thereasons we're here today.

This morning's panelists will discuss some ofthe major issues that we are facing from the deregula-tion, fuel, safety, environment and financial areas. Thisafternoon's panelists will discuss the opportunities foraviation growth recognizing the challenges that currentlyface aviation.

The National ForecastThe basic assumptions of our forecast were

developed by the Wharton Econometric ForecastingAssociates. We utilized various parameters developedby Wharton in our forecast models. We also utilize otherforecasting services-Chase and DRI-as checks on shown spectacular growth over the last two years. Wethe impacts of Wharton's assumptions on our forecasts. do not anticipate that this growth can be sustained over

We develop a baseline forecast that is our the long-term. The trend will be to a more moderatebest estimate of what we think is going to happen to growth over the long-term period. However, it will stillaviation in the next twelve years for use by the agency. far outstrip growth in the gross national product.This input is vital to the FAA in developing budgets for The air carrier industry is faced with deregu-the next fiscal year and to begin long-term facility lation. Consequently, our forecasts will be influencedplanning. dramatically by individual policy decision of individual

We recognize, however, that as planners carriers. They are able to move now into or out ofand as operators of the aviation system you need to markets practically overnight. We have seen the impacthave some parameters in your planning. Therefore, we of this type of activity-the dynamic marketplace-asinclude a set of scenarios in the National Forecast. One Mr. Taylor mentioned.assumes that there will be a period of stagflation. The Look at Reno, Nevada in 1977. There wereother assumes that there will be a period of rapid 700 thousand enplanements that year. In 1978, thatgrowth. We feel that these are reasonable brackets went up by 45 percent and, in 1979, it looks like it'saround the baseline forecast that appears in this year's going up another 40 or 50 percent. A doubling of thedocument. number of enplanements at Reno in a two-year time

To illustrate how these economic indicators frame. A great deal of this growth is due to the develop-impact our aviation forecasts we have picked as an ment of new hotels at Reno.example the oil and gas deflator. In the baseline fore- That air transportation is able to capitalizecast we have assumed that the price of fuel to the on this growth and institute new service at that airport toaviation industry will increase to 597 by 1991, based accommodate the growth and bring the passengers toon 100 in 1972. With this kind of increase, closely Reno as quickly as it has is a reflection of deregulation.paralleling the inflation rate over that time period, we We would anticipate that over the forecast period, therewould anticipate that general aviation operations at will be many more Renos and many more Orlandos.FAA towers will increase to 76 million operations, up There also will be many communities that will lose airfrom about 55 million today. However, if the price of carrier service and receive substitute commuter airfuel and oil outstrips the inflation rate, then we would carrier service. This implies specific facility problems atanticipate little or no growth in general aviation. If there these individual airports.is some breakthrough in fuel technology, where the The largest growing segment of the aviationprice of fuel increases at a slower rate than the inflation community over the last six years has been the airrate, we would anticipate a great increase in general commuters. As a result of deregulation there are manyaviation-particularly local-flying, more opportunities open to commuters. As certificated

We have indicated some of our individual route air carriers move out of specific markets, theseforecasts on the overview charts along the wall. I'm not markets become available to the commuter carriers.going to go through all of the forecasts that apppear in Also under deregulation, the commuters areyour document. However, to give you some indication eligible for loan guarantees. We are already seeing thatof what we think is going to happen to aviation over the this will stimulate the growth of the commuter industry.next twelve years. I will discuss certain of the indicators Right at the present time, the commuter industry isfor each of the segments of the aviation community. undergoing rapid growth. Many new commuters are

We are projecting air carrier growth at 4.9 starting up. In the near-term, there will be a period ofpercent annually from 1979 through 1991. As a result some instability in the industry. However, over theof deregulation and many of the actions that have been longer term, as this segment of the industry becomes ataken by the aviation community, the air carriers have stronger part of the national transportation system, we

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anticipate that commuter air carrier management oper-ations will become more stable.

The commuters are also eligible for subsidypayments under the new legislation enacted by theCongress in October of 1978. This subsidy paymentwill be routed through the local community. Therefore,we anticipate that there will be a great deal of inter-action between the airlines and the communities indeveloping the necessary facilities to accommodate thenew commuter service at these locations to provide theessential air transportation specified by the law.

The largest segment of aviation is generalaviation. An indication of the relative size of generalaviation: Of approximately 200 thousand aircraft flyingtoday, 193 thousand of these are general aviation air-craft. We assume that over 50 percent of flying ingeneral aviation today is conducted for business pur-poses.

We anticipate that over the forecast periodthe size of the general aviation fleet will grow by 3.9percent annually, reaching about 304 thousand aircraftby 1991. You can compare this to the growth in the aircarrier fleet's size. It will increase from 2.6 thousand to3.2 thousand aircraft, a 1.7 percent annual growth. Thegrowth of general aviation means facility problems atthe local level. There is competition for land usebetween aviation and shopping centers or housingdevelopments. As recognition of aviation as a necessityspreads, it will be able to effectively compete for this pilot sophistication evolves, we see more and moreland at the local level. pilots becoming instrument rated. Therefore, the instru-

The FAA is primarily concerned with aviation ment operations projection is for a 3.9 percent annualsafety. As a result of the projected increase in general growth rate and the enroute center projection is for aaviation flying, we anticipate that there will be additional 3.5 percent annual growth rate, a higher rate of growthregulatory actions taken to ensure aircraft safety. A few than that expected for actual operations.years ago the FAA, recognizing the congestion over the Today, approximately 50 percent of the traf-major air carrier airports, instituted the Terminal Con- fic handled by a center is air carrier. Most of the growthtrol Areas and the Terminal Radar Service Areas. that is going to occur at the enroute centers will be

Following the crash in San Diego last year, general aviation and air commuter growth rather thanthe FAA put out a notice that they were going to expand air carrier.the number of Terminal Control Areas and TerminalRadar Service Areas to many more airports across the The FAA Forecasting Focuscountry, as well as to lower the positive control airspace We would like to emphasize that the fore-ceiling on enroute flying. Upon evaluation this was cast numbers are based on a specific set of assumptionsrevised. However. in the future, as congestion increases, about what is going to happen in the economy; what'sI anticipate that there will be further regulatory action in going to happen as far as the environment is concerned;this direction, what's going to happen among the policy considerations

We also might mention that of the four top of the individual carriers: and, in the regulatory field.busiest airports in the United States in terms of number Therefore, when you look at the numbers in the fore-of operations, three are basically general aviation cast document, use them with care. All forecasts areairports. Van Nuys, Long Beach and Santa Ana are subject to change. Forecasting is a continuous process.exceeded in number, of operations only by O'Hare in You must look at the assumptions used to see if they areChicago. So. in the future, not only may we be talking consistent with what is actually happening.about reliever airports for the major air carrier terminals, We will continue our emphasis of improvingwe may have to start talking also about reliever airports our forecasts by attempting to achieve internal con-for major general aviation facilities. sistency among the various forecasts issued by the FAA.

How do these activity forecast translate into The sophisticated technology is not enough. We haveFAA workload? We see operations at FAA towers in- touseaforecastnotonlyasaplanningdocumentbutascreasing at a three percent annual growth rate from 71 a communication tool.million in 1979 up to approximately 100 million The Terminal Area Forecast or the hub fore-

operations in the year 1991. casts are perhaps the most effective communicationAs new technology is developed and put on- tools because they deal with local airports and local

line by the general aviation community and as greater communities. Through these forecasts, we are able to

11

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spot trends occurring at the local community level andsee how these trends are going to impact our futurenational forecasts. To improve our forecasting effort-to make our forecasting more reliable-we have tohave this interaction with the aviation community. Wecannot do it alone. That's the purpose of this conference,the seminars and the workshops we hold throughoutthe country: to receive your input into the forecastingprocess.

Our goal is to utilize the best informationand best data available in developing forecasts. Much ofthe information and data that we need is informationand data developed at the local level. Only you can tellus about the capacity problems at a specific airport inyour area. Only you can talk about the access problems.When we were developing the Los Angeles hub fore-cast, we found out from the local community through aseminar that there was an airport access problem limit-ing airport growth at Los Angeles International to 40million passengers per year. This dramatically changedthe distribution of traffic as we projected it in ourforecast. We show a great deal of traffic diverting toOntario in Los Angeles and eventually the develop-ment of a new airport in Palmdale.

There is no alternative to forecaster-plannerinteraction. We have to do it together. The question isnot whether aviation will grow, but where and howaviation is going to grow and in what time period we aregoing to reach new levels of activity. In addition toproviding a planning tool, we expect our forecasts willfoster discussion of the issues faced by aviation at thenational and local levels.

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TodayIs Eniromn

- Office of Aviation Policy

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Airline Deregulation serices. This is a very long-term trend beginning in the1920s. It has continued, except for brief periods, to thepresent time. The fundamental reason for this relativedecline-worldwide, not just in the U.S.- is that theinput-output or productivity ratio of the airline industryhas improved at a faster rate than it has in otherindustries. This has been caused by a rate-of-change intechnology greater for air transportation and for avia-tion generally than for other productive activities. Forthis reason the basic question that should be addressed

Ray Pulsifer is whether the rate of technological change will hold toAssociate Director the level that it has enjoyed more or less continuouslyLicensing Programs and for 50 years.

Policy Development The major contributor to technologicalBureau of Domestic change in aviation has derived from military R&D. ItAviation would appear that as the military investment shifts awayCivil Aerotiautics Board from fixed-wing design, the relative throw-off to civil

aviation will decline. Therefore, I would argue that inAirline deregulation, its history and some possible con- the future it is unlikely that the airlines can sustain ansequences, is the topic of Mr. Pulsifer's presentation. input-output ratio that will improve at its historical rate,While he does not argue with much of the pessimism and that, relative to other industries, the rate enjoyed bywith which many see the future of aviation, he can air transportation will decline. In turn, this means thatforesee a more positive future tied to the changes and the price of air travel will not continue to decline,opportunities that face aviation, relative to all other goods and services, at the same rate

and therefore the high historical growth rate will not beThank you. What I've done basically is sustained. On the other hand there are some sugges-

review the forecast beginning on page 38 of the main tions for the government to finance civil aircraft R&D.document. I don't have any particular quarrel with the Whether or not this comes to pass, it seems clear thatuse of Wharton and other long-term forecasts that are deregulation will favorably affect productivity.based on income, population and other macro indices As far as short-haul travel is concerned,of the economy. And I personally have no basis to which may be defined as distances to 300 miles, the

disagree with the general pessimism that most long- automobile has enjoyed, historically, a comparativeterm forecasters manifest at this time-that the great advantage over air that had been improving in the threepost-war boom is over and we are in a period of at least decades following World War II. So, by-and-large.

retrenchment, and possibly worse; and that this will go short-haul air travel did not grow at the rate of long-haulon for at least a decade. air travel until the 1970s when the automobile ceased

On the other hand. I personally can't believe to enjoy increases in its relative advantage.that that is inevitably true. There are too many things Today, the question with respect to the

that could happen to change things radically and very future of short-haul air travel is whether it will grow

quickly. One that is predictable is the favorable impact rapidly or very, very rapidly. That depends on whether

of higher energy prices. Obviously tremendous innova- the comparative cost relationship between surface andtion will be stimulated in all sectors of the economy, not air travel changes. The slightest shift in the ratio

least of which will be conservation measures. This can between the cost of surface and the cost of air in favor ofthrow off all of the long-term demand forecasts of the oil air will cause an explosive growth in short-haul aircompanies or anyone else. But, as I said, I cannot offer travel. And not just small aircraft commuter operations

any specific alternative to the Wharton long-term pessi- in thin markets at small points, but also in the kind ofmism. And, of course, I agree that airline traffic growth operation that has become successful in Texas and

will more or less respond to what happens in the general shortly will be tried at Midway in Chicago: Large jet

economy. So that if the general economy is down, then operations, operated by a specialist carrier which, by

airline traffic growth will be down and vice versa, reason of the volume carried, can offer prices that arecompetitive with some substantial fraction of surface

Relative Prices and Aviation travel.Where I differ with the FAA forecast is in its If there is no change, we can expect a status-

failure to focus on relative prices. The real question pre- quo in terms of growth, which isn't bad, by the way. Butsented by this forecast is not what will happen to us as a if there is a shift that does not favor air, that favors theresult of macro conditions in the general economy, but automobile, then relatively short-haul air travel will notrather, can the airline industry out-perform the general grow at its present rate and could decline.economy? To me, that is reducible to a basic question of My own hunch is that technological changerelative prices-is the price of air travel going to go up or in respect to the automobile will quickly out-pace thedown relative to the average price of all other goods and rate of such change in aviation. We can expect a 50 mileservices? Historically, airline ticket prices have declined per gallon automobile probably within five years as ain real terms relative to the price of all other goods and standard vehicle, and we can expect other technological

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changes in the automobile that will cause it to be moreefficient, relatively. But I can be wrong on that.

Now, as far as long-haul travel is concerned,there is no modal competition for air travel. It is the onlyefficient way to travel long distances. So the maincompetitors of long-haul travel are substitutes, particu-larly for discretionary travel. If the price of a camper de-clines relative to the price of taking a vacation by air,people will shift to buying campers. The demand for dis-cretionary travel in long-haul markets will be vitallyaffected by the price relationship of air transportation toall other goods and services.

As far as the business traveler is concerned,you heard an earlier speaker say that some people haveto travel. But even here there are substitutes-clearly,there are going to be major technological changes intelecommunications. You may have seen the veryeffective ads of AT&T on TV recently advisingbusinesses to "do it by long distance and save the travelcosts." As the pace of telecommunication technologicaldevelopment accelerates over the next decade, I wouldexpect that the business air-travel growth rate will fallsomewhat behind on a relative basis.

Impact of DeregulationNow, all of this is not a pessimistic forecast.

There are countervailing tendencies- principally, de-regulation. This is a complex question, but I'd like tosurvey for you what has happened in the last threeyears, from roughly 1975, when the regulatory reformmovement started, to date. What has happened is thatthe airlines have become significantly more efficient.The best indicators of this are that average load-factorshave increased significantly; that the seating density on It is very difficult to decide exactly what con-any given type of aircraft has been increased; and, that tribution more liberal economic policies have made tothe aircraft utilization rates of the combined fleet have the enormous productivity gains that the airlines haveimproved. These have allowed enormous productivity enjoyed in the last three years. But it does seem fair togains, and have permitted the airlines to simultaneously say that there probably are not many more gains to bereduce average prices and increase profits. made in respect to load-factor and aircraft utilization. If

It is also true, however, that hese changes we are to enjoy additional gains from greater efficienciesoccurred largely under the old, protective law, although through deregulation by allowing the airlines to respondin a period when the policies under that law were being to ever changing market conditions, they will probablychanged radically by Chairman Kahn and others. The come in the long-term from fundamentally differentchanges also occurred during what is probably a cyclical ways of doing business. Here, we can only speculate.expansion in air travel because of general economicconditions. Possible Carrier Responses

One scholar in this field, the author ofAirlineRegulation in America, William A. Jordan, whose bookcompared the efficiency level of PSA to the efficiencylevel of the interstate carriers under protective regu-lation, suggested that the existing airlines would gradu-ally evolve into specialists employing perhaps one typeof aircraft, and perhaps even specializing in a given typeof market. There would be major productivity gainsfrom such specialization. So far, that hasn't happenedto any great degree, but we do know that it is a verydifferentiated market out there.

There are, for example, major markets com-posed of large volumes of discretionary travelers. Thesetravelers are highly price-sensitive and probably for areally low price would be willing to sit In 747s con-figured to 500 seats, the permissible limit for that air-

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craft. How many markets are there of this kind? We do We don't know what all those possible direc-know that they exist in Europe, in the so-called inclusive tions are as yet. It may well be that very little change willtour sector of the air travel market. We do know that if take place. And if so, the improvements in productivitythe cost of discretionary travel is to be lowered to rock deriving directly from deregulation may be minimal. I'dbottom, aircraft will have to be seat-configured to the simply like to end this by recalling that even amonghighest density. Based on the European experience it is those advocating deregulation during the great debatelikely that the retail side of the business will have to be that was carried on between 1975 and 1978, evenconsiderably changed from what it is now-traffic will among those people, there was considerable disagree-be prepackaged and aircraft operated virtually at full up ment. You had some people arguing that although theload-factors. Only then can you achieve the lowest cost government's influence on airline efficiency was nega-which would be attractive to discretionary travelers. tive, it was minimally negative. But there were also

There are other aspects of the airline busi- people like Prof. Keeler who said, at least with respect toness that we can't really foresee in terms of possible the denser long-haul routes, that government regulationstructural changes. 0. Roy Chalk, the founder in the caused efficiency to be 50 percent less than it other-1940s of Trans-Caribbean Airlines that specialized in wise would have been. So time will tell. There are very

low fare travel between New York and Puerto Rico, is few left who would argue, however, that economicproposing to form an airline and acquire wide-bodied reguation of the kind practiced by the CAB-which is

equipment. He will farm out his maintenance to the generally characterized as "protective" regulation-

lowest priced specialist maintenance facility. He's going added to efficiency. I don't think there are any people

to have all his retailing and marketing done by agents. like that left, although I think I see a couple in the

He's going to rent his pilots from a rent-a-pilot firm in audience.New York. So, he is going to run the whole thing with 49 So, the question is only how much more effi-

employees. Whether that's feasible or not remains to be cient the airlines may become as a result of deregu-

seen. lation. It may be just a little bit, it also may be a great

But what seems clear is this: If it is cheaper to deal. But to the extent that they are more efficient and

run an airline that way, if it is cheaper on the average to that airline prices are less than they would otherwise be

contract your maintenance out, and if it is cheaper on relative to the prices of all other goods and services, we

the average to sell your tickets through some entity with can expect an increase in demand in air transportation

which you contract and, indeed, if it's cheaper to hire beyond the level that changes in the general economy

pilots from a rent-a-pilot organization, then the industry would give us. Thank you.under deregulation will gradually evolve in thosedirections.

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Fuel I'm basically going to be talking about barrels,a much more common unit than gallons in use in theindustry. The FAA forecast is in gallons. The reason weuse barrels is that we are not smart enough to carry allthose zeroes out the right 'land side. This way we canwork with small numbers.

The numbers I have show demand for kero-jet fuel rising from 831 thousand barrels per day in1977 to 855 in 1980. If you go through a littlearithmetic, you'll see that there is not much differencebetween what the FAA is saying in gallons and what Iam saying in barrels.

Beside making my reading life a little easier,the use of barrels per day also reminds me that there is

Robert M. Griswold competition for the light distillate part of the barrel. WeManager of Airline Sales really can't just talk about the domestic airlines. WeShell Oil have to talk about the heating portion of the barrel-

that is, number-one kerosene and number-two heatingThe issue of fuel dominates our concerns well beyond oil. Although the amont used for heating is declining, itaviation alone. Aviation competes for its ...w xgainst a still comes from the light distillate part of the barrel. Anumber of other users who get their fuel ' the same little bit of the barrel also goes to transit.part of the barrel. As a consequence, Mr. u1 ,,wold asks The biggest chunk of the barrel, of course,that events and trends outside of aviation also be goes to the domestic carriers, with a smaller amount forconsidered in aviation forecasts. Lower automobile the international and foreign flag carriers, general avia-gasoline consumption and more fuel efficient genera- tion and the military. You cannot just zero in on thetion of airplanes are seen as contributing to a possible domestic airlines by themselves, as much 'as we wouldeased fuel situation for users of jet fuel. He is not like to. All of these guys are competing for part of theoptimistic in the case of aviation gasoline, action._We view the military portion of kero-jet

demand as essentially flat. No growth. There is one un-Greetings to all of you. I feel very much at certaintyI have to inject at this point. At the present timehome here. This is Houston weather you are having the military uses more naphtha-jet than it uses kero-jet.

toda. Im srrytha I an' brig geatoptmis toyou Should they convert entirely to kero-jet, then we willtoday, and so I don't know what your reaction will be have a monumental problem. Pressure for that conver-when I'm through. But I'll try go give you a perspective. sion is coming from Europe and NATO. If the con-It's not the Shell Oil Company perspective, it's not the version does take place, then all that naphtha-jetoil industry perspective, it's not my perspective. You demand will be added to the kero-jet part of the barrel.might say it's somewhat of a consensus.

I'll cover the data with you very quickly in the General aviation will grow. I only want tolimited time that I have. I might say that if any of you make one comment. That is, I don't think I would be ashave interest in any of the material that I go over, I'd be optimistic as the FAA is in its forecast. That forecastvery happy to send it to you. All you would need to do is seems to indicate five year growth rates on the order ofgive Ms. Kruzic your business card and 'l send it on to eight or nine percent from 1980 to 1985 and 1985 to

Msu.KricyubuiescranI'lsnit oyou. 1990. I personally think that these rates will not beSo, let's start out. Let's get into what I'm attained. The price of fuel will rise and I wonder how

going to dwell on: Fuel price and availability I think much more general aviation will be willing to pay. Whatthat's what this group would most logically be con- is the price elasticity of fuel within general aviation?cered with. I was very pleased when Mr. Taylor made The bottom line of the whole thing is, ob-

note of the fact that this week is energy week at FAA. viously, crude oil. With demand at around 885 thou-Fuel Supply and Demand sand barrels a day, we see a gap in refining capacity.

What I'm trying to do is sketch out for you a The only way the country is currently meeting thelook at supply and demand. I'm going to talk first about demand is through imports, not of crude, but of finisheddemand as we see it and I'll try to come back into the product. Finished kerosene, jet fuel. Today, the countryFAA forecast. I have a different perspective on the fuel is importing about 50 to 60 thousand barrels per day.portion of the forecast. I'm not saying your forecast is So, we have a shortfall to start with. According to somewrong and I'm not saying that I am right. I think the scenarios I could make, that shortfall could get worse.message really is that the future has many uncertainties. Again, what is the price elasticity factor? I can't answerThat really is the bottom line. I think that if I could tell that. I don't know. But it will certainly have an impact. Ityou for sure what's going to happen-if I could-I'm is another addition to our uncertainties.sure Mr. Carter would have me over there today.

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Now, who is importing this finished product A Comparison of Forecastsand why? Fortunately or unfortunately, depending on Now, let me get to the part that I think is ofwhom you are talking about, there really are very few the most interest to all of you: A comparison of the fore-players in the game who have made the investment in casts. I'll start with the current Air Transport Associa-capacity to actually make kero-jet fuel. Forty-two per- tion forecast. At this point we really do have to look atcent of total refinery capacity belongs to the six major international as well as domestic fuel demand. I'm surerefiners. The bulk (80 percent) of all kero-jet is produced that the reason why the FAA forecast does not includeby this small group. The smaller players produce the international demand is that it is very difficult to get.other 20 percent. They are not reported to either the ATA or to the Civil

Now, do I think this will change? Well, I hope Aeronautics Board. Foreign flag carriers are under noit does. We do see some evidence, particularly with the obligation to report their fuel.deregulation of turbine fuel that occurred in February, In any case, the ATA forecast is a good place1979, that some of these other people are starting to to start. I think my only comment is that the ATAget into the game. We are going to need them. So, we forecast may be a bit optimistic. It is a compilation ofstrongly endorse their making the investment and individual carrier forecasts. Undoubtedly, there is opti-getting into the ballgame. mism here due to deregulation. But let me begin with

The major importers of kero-jet fuel at the their forecast.moment are Chevron, Exxon, Texaco and Shell. The First, what I have done is adjust the ATApattern of imports over the past three years, measured domestic plus international fuel demand numbers tomonthly, is quite erratic, due largely to tanker move- account for that fuel that goes unreported to either ATAments. But overall the trend is toward fewer imports. or CAB. Having made that adjustment, the 1980 ATA

Why? Because turbine fuel is very tight fuel demand number is approximately 15 billion gallonsworldwide. You cannot get term contracts, generally of turbine fuel. Just to completely confuse everyone, Ispeaking. So, most of these people have to go into the have gone back to gallons. This is so that we can makespot market and this is certainly not a very happy situa- the comparison to the FAA numbers.tion.

We are importing about 20 thousand barrelsa day-very high priced stuff. Even though we all knowwhat's happening to prices in this country, pricesaround the world are well above the prevailing priceshere.

The demand I have talked about so far isrelatively unconstrained. If we carry that out to 1990 itwould appear that the U.S. will have to import 8.86million barrels of crude plus 4.0 million barrels ofproduct per day in 1990. Well, the big questions are:Can we do it and will it be available? I can't answer thateither.

But, I think we are all aware that PresidentCarter has proposed to limit imports. So, what wouldthat mean? Of course we do not know what theCongress will finally come up with, but the currentimport limit under discussion in 8.2 million barrels in1985. That represents a real shortfall from uncon-strained demand. Thus, we have another uncertaintyand one that will present a real challenge to all of 'Ls.

One of the things I hasten to add here is thatwe are not complete pessimists. It appea, - to us that thedemand for motor gasoline-that's 50 percent of thebarrel right there-has peaked in this country. Gasolinesales are off this year by about four percent.

You are familiar with the reasons. We thinkit'll be another one percent off next year. That is just aguess. Price elasticity, smaller cars, better mileage arethings that are contributing.

If that pattern holds, then that part of thebarrel may be diverted elsewhere. So, it is not as com-pletely dark and dismal as you might feel.

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The hump forecast by ATA reflects theexpectation of results from what is currently happeningto the industry: Deregulation, the bilateral treaties, theBermuda II type treaties, and so forth.

Now if I compare the FAA forecast and whatmight be called the Shell forecast, it's not official, I see

figure is 9.6 and ours is a little over 12 billion gallons of

fuel. The difference is that my number includes theinternational demand plus the adjustment. So, all in all,I, as a layman, have to agree pretty much with the FAAforecast up to the mid-1980s.

At that point I see something happening thatI am not sure is in the FAA report. It seems to me thatout in the years 1986-1988 there is a possibility of thecurve flattening out and, perhaps, even dropping a bit.The reason this might happen is the impact of more fuelefficient engines used in the new generation-the 757,767, and so forth-aircraft. They will be 25 to 30 per-cent more efficient.

We think there is a good chance of this hap-pening. However, I can tell you right now, another com-pany has a forecast showing the demand curve goingup just like the FAA forecast. So, now you know why wehave horse races: Because not everybody agrees. But ina preliminary sense, I throw these numbers out becauseI think it's something worth studying. We certainly arenot through with these numbers. They really are prelim-inary. But it does appear to us that there will be enoughof a change in the population of the fleet to have thishappen. Demand may not drop off, but we think itpossibly could drop off or, certainly, flatten out. If ithappens it would be very significant.

Because of what we have talked about andafter a good look at the oil and gas deflator, I can't quar-rel with it, I'm afraid that overall I have to be more pes-simistic than the FAA forecast. That means I would tendto align myself with the stagflation scenario. But that'sonly one man's opinion.

August fuel prices were 166 percent ofJanuary prices and it's now October. Before long youcan take a couple more wraps around the pole on top ofthat. The bottom line, of course, is crude oil both interms of availability and economics. And I don't thinkanyone in the country can predict what the OPECcountries are going to do. We can't predict what con-straints will be imposed on imports, but I have to believethat there will be some constraints in that area. So there

kare all kinds of negatives.The positives are what is happening in

motor fuel and what may happen in the aircraft fleet.Thus, the summation of my remarks is that I am nottotally pessimistic and not all optimistic. I think there isa balance here. That is what makes forecasting so muchfun. You know it is just full of uncertainties. You do thebest you can. I would only urge you to investigate apossible change in the complexion of the fleet. Thankyou very much.

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Safetya comment that we're in a mature industry. I think that is atruth that needs to be reflected upon. Because "mature"no doubt is good if it means confident, organized andformidable. But it's probably not so good if it meansdull, too settled, not technically dynamic, not innova-tive in management and other arenas. We don't want tobecome too mature. It reminds me of an old doublebreasted suit company that keeps turning out suits anddoesn't recognize that times have changed. So, if youare in too mature an organization, kind of stir it up alittle bit.

Guy E. Hairston, Jr. Growing Public ConcernDrE.rsn JNow, to address aviation safety more specifi-Director cally. These thoughts may have occurred to you or youegieng amay disagree with me. But, for many years, the public

Department has held the aviation industry in high esteem-almostA e s iin awe. Commercial air travel is the safest mode of

travel-a common attitude."No number is a good number" when accidents and Perhaps those of us in the business haveloss of life are the subject according to Mr. Hairston. The congratulated ourselves too much on the statistics andaccidents of the past year and the contiruing concern of on the safety trends which have been good, positive andthe public over them indicate that safety is an issue for improving. Perhaps we've become a little satisfied, may-even the safest form of travel. Safety cannot be ignored. be a little too mature, by looking at the safety record.All systems, human and mechanical have to undergo And I hesitate to suggest it but, maybe even a littleconstant inspection and improvement, smug. But now after the last 13 months, and after two

major air carrier disasters in San Diego and Chicago, II think this is the first time that they've taken would submit to you, based on letters we have received,

the risk of inviting a member of an AFL-CIO affiliated the comments we get-and I'm talking about every-labor union to address this establishment. I appreciate body from the taxi cab driver to the sales clerk, to the gasthe two very thoughtful presentations which we have station attendant-that the public is having deep sec-just heard, and I am pleased to join you today. ond thoughts. Their perceptions are no longer the

I presume most of you know that the Air Line same.Pilots Association maintains a full-time staff of engineers, In both of these recent disasters, we didn'tabout 16 or 17, most of whom are also pilots. We work have one headline and a story that faded away in threesolely on safety related matters. We talk safety, think or four days. We had days and days of headlines.safety, preach safety to anyone who will listen or to Morning and afternoon editions. Lead stories on the TVanyone who will help us. And I would invite any of you network news every night. It didn't go away. Theseat any time to contact the air safety staff; call me. We'll stories brought back in everybody's mind their ownbe happy to discuss any aspect of aviation safety with experience and their own memories. Teneriffe, cargoyou. Each day our staff is working on a multitude of doors, Paris and every air crash anyone had ever heardconcerns in safety, many of them rminor. But some of of. Even now, a fairly routine engine shut down willthem are important and major. And, of course, the make about page two or three in the news and willAssociation has a very large air safety organization probably get a mention on the evening TV reports.made up of pilot members of ALPA. They are very Added to that, last year, 1978, there was a substantialactive and we hear from them quite often. rise in general aviation fatalities. More than 16 hun-

There's obviously no more delicate subject dred. Now that's ridiculous.to talk about at this time than air safety. I'd like to make I don't think we need to review the details ofone or two comments on the forecast and then I'll these recent disasters, but there are a number ofaddress some of the specific aviation safety issues as important points of which I think those of us in thetime may permit, and also subjects you might be industry must be aware. Possibly some of us thoughtinterested in raising during the discussion period. First that public concern would pass and that these crashesof all, I think we ought to congratulate Mr. Mercer and would be forgotten. It hasn't and they won't. Publicthe others who participated in the development of this comment and public interest continue high. There areforecast. It does seem reasonable and understandable, many examples of this.Perhaps we ought to congratulate them for the audacity Last night, as I was leaving my office, I pickedin making a forecast at all. Because when you consider up the top two letters in my basket. We get these every-the kind of industry that we are in, forecasting is not day. I can't resist reading them, a couple of them at leasteasy. It is very hard to see the future. in part. Here's one from a man in New York. "I'm writing

I do observe that the forecast included a pro- to you about my concern for the people in these majorjection of increased FAA interest and actions related to airlines around the U.S. and the lack of effort to protectair safety, regulatory and otherwise. I'm sure that's cor- these people. I am angry and frustrated, I've written therect. One other thing I observed: Mr. Taylor made the FAA, the Senators of NewYork Stateand myCongress-

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man. The only person helping me is my Congressman. I of places each of them could have been stopped.am trying to stress the need for collision avoidance Individual and systems failures across-the-board causedsystems on board planes, along with advanced radar these accidents.systems." Here's a plug for our host. "The FAA is still I hesitate to bring up a detail but we have hadplaying games and, to my point of view, not concerned one disaster with a tower full of people in San Diego. Ifwith safety of the aviation public." I should get this letter anyone had looked over their shoulder.... If you'dover to Mr. Taylor. "I would like to know your opinion been up in that tower in San Diego, you would haveon how pilots feel about flying without the safety they known where that mid-air was-and there were onlydeserve. How can they fly day after day when they know two planes in the air. Incredible. Added to the imperfec-the FAA is not concerned with their safety? Why have tions of human beings, materials, etc., we know we'rethey not gone on strike to protest the lack of concern? going to have air traffic control imperfections, wind andVery truly yours." weather hazards, and greatly increased air traffic densi-

Another one. You'll see a second concern in ties. So it will not be easy to achieve our safety goals.this one. "I am a senior at Central High School, and I'm Probably the number one concern of thewriting a research paper on airline safety as part of my airline pilot is the danger of mid-air collisions. Secondindependent study. The type of information I need most only to the overall concern of air traffic control in gener-will be changes in airline safety and precautions now al. But take a look at the near mid-airs, 1975-1978.taken and any safety developments, any charts, data, People who study these statistics tell me that it's not agraphs, etc. I've noticed that in the last year airline safety reporting phenomenon but a true phenomenon. Therehas become a big issue and I find it very interesting to were approximately 269 near mid-airs in 1975; inwrite on. Sincerely." 1976,373; in 1977,384; and 1978,503. In the firstsix

What does this all mean to you and me, to months of this year, nearly 300. That is not to say ourthose of us in the industry, and for air safety in the system isn't pretty good. But we have serious problems.1980s? I would suggest to you that it may mean a dif- Any one of those could have been another disaster.

Tference in our conduct of business in the next decade. A We've been pushing for a collision avoid-major factor in aviation will be the public interest ance system for years. It is a long time in coming.

Aviation is becoming better understood, the Take a look at airports and their facilities,mysteries are going away. Some of the terminology is another major concern of air carrier pilots. A Concordebecoming known to the man on the street. They are pilot came to the office the other day, just after landingconcerned and they are letting people know about it. So at Dulles after a trans-Atlantic flight. On his approachI would suggest, that we should expect more and more he requested an ILS; no ILS was available. He requestedpublic and media attention. a runway with a visual approach slope indicator, no

Fostering Better Safety VASI was available.So, obviously the message on air safety is: He asked us what kind of airport Dulles was

We can't afford to be smug or satisfied. It's time to take a supposed to be. It is not just any airport but the majorgood hard critical look at ourselves. We need to airport at our nation's capitol. I think that is somewhatestablish some very tough, extremely high safety goals characteristic. How many airports do you know withand we should attain them. In this next decade, we poor approach lighting, etc? We could go into dozens ofshouldn't have one or two major air carrier disasters these problems.every year. We should have zero air carrier accidents. Let me close by saying that air safety will beWe should go years without a major air carrier accident. the major issue in aviation in the 1980s. Within the in-That would get the public perception where it ought to dustry perhaps, safety has always been the major issue.be. General aviation fatalities cannot be counted in the Now it will be the major issue in the public mind. Allthousands or the hundreds. Let's count them on two systems and all factors, more than ever before, will behands or, maybe, take off one shoe. and should be examined again and again. Air traffic

I don't think it's necessary to remind this au- control systems, aircraft systems, ground facilities, alldience that mishaps and accidents and disasters are facets of design, manufacturing, maintenance. Again,never the result of a momentary lapse in one indivi- our goals should be high, very high. Zero air carrierdual-like some lightning-strike out of the blue. They disasters and dramatically decreased general aviationare failures of an entire system, an approach, our fatalities. We should achieve these goals soon.Cer-overall management. tainly by the end of the 1980s. Thank you very much.

Oversight with a systems management ap-proach is the only way to overcome the problems. Weknow we are going to have failures. We know there willbe human failures, questionable pilot judgement, mate-rial failures; even the best materials delivered in the planhave flaws in them. And because humans are involved,there obviously will be maintenance and manufactur-ing problems. And there will be less than optimumdesigns put into manufacturing. That doesn't mean thatall of these things can't be remedied and fixed. You takea look at these air disasters and you'll find any number

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IEnvironment al relationships between airports and their neighbors,

between the airlines and the airport, between themanufacturers and the airlines.

These relationships can rust up just likeequipment. A little rust doesn't hurt, a whole lot of rustcan bring the system down. I would argue that there isvery little maintenance or upgrading at this time withregard to these institutional relationships, partly be-cause no one is in charge of it. These relationships seemto be subject to the whims of various parties and to theeconomic forces of the moment.

Charles L Elkina Now, what I'd like to do is give you a fewDeputy Assistant examples of what I think are bad signs in theseAdministrator for Noise relationships, and how I think these relationships areControl Programs going down-hill. But you can judge for yourself. Let meU.S. Environmental state right up front that the EPA is not a regulator of this

.. Protection Agency industry in any way. If we were talking about thetrucking industry or the motorcycle industry, I'm a

Using an analogy to the maintenance of capital equip- regulator in that sense. I can tell you a lot more aboutment, Mr. Elkins develops the argument that aviation the economic health of those industries. I have to studydepends on institutional relationships that require the them because I affect them. This is not true of the airlinesame care as the most sophisticated equipment. If industry and the total air transportation system. So, letaviation does not respect and help improve the rela- me ask some questions of those of you who perhapstionships existing among airports and their communi- know more about this than 1.ties, only problems can result. The political pressure for First of all, what is the first red flag? Well, Inoise reduction from airports has Constitutional sup- think the first one is deregulation. This activity, which Iport. think most of us are happy to see, from the point of view

of the economy, has the potential of destroying the very

Good Morning. Well, I guess rm the environ- small amount of progress that has been made in thement "freak" on the agenda today. I thought seriously past reaching accommodations between airports and

of giving one of my normal fire and brimstone speeches, their neighbors.telling you the environment is going down the drain and I recently heard a noise control official at athat all of us morally should do something about it- major airport indicate that last year they had a 20that we have a moral commitment, an obligation to do percent increase in traffic. This is not unusual across thesomething about it. And if I did a good job of that, it country as we have heard here today. In this case it is

might be a memorable talk. But I figured if you really having an impact particularly on the airport's nightwanted that, you could have gotten a better version at restrictions. Now, you can say: "Well gee, you couldchurch on Sunday. have a 100 percent increase in traffic and it would only

I thought I'd try to deal with a more practical increase the noise in the neighborhoods by threesubject. Perhaps I'm not as qualified to talk about it. But, decibels. And what's three decibels?" That is an argu-

I'll try anyway, and maybe you can ask some questions. ment that I don't think really holds up in the politicalMy subject is the impact of environmental control on arena.the economic health of this industry. Will the industry At this one particular airport I'm speaking of,th conmic heand prosper, or not? they had worked out an arrangement with the carriers

who had served the community in the past. TheseWe all know that, in theory, noise and these airlines agreed to limit their nighttime flights. New

other environmental pollutants are economic con- carriers who weren't part of the deal are coming in now.straints on the industry. Today, I think it's fair to say they Why shouldn't they fly in there at five o'clock in theare minor constraints. Will they be minor tomorrow orin 1991? Really, how much harassment can this indus- morning to position their aircraft for the next day? The

try take, given all the other harassments and difficulties point is that a few flights at night can destroy the rela-tat wake, sethe orer an sm ss te istes tionship that the airport proprietor has worked years tothat we see before sply s edsnoteally se develop with his surrounding communities. It doesn'tproblem as being simply solved, not really serious take a doubling of the traffic to wipe out those years ofenough to be considered when you consider the fuel t ouarwork.crisis and the problems of deregulation? As we see the industry grow, are we going to

Institutional Relations see more of the medium hubs and the small airportsWell, I have a basic thesis I'd like to lay out in taking on more of the traffic? If so, does this mean that

the form of an analogy. It is important to maintain one's neighbors who in the past didn't know they had a noisecapital equipment in this industry and to upgrade it. I problem suddenly find they've got one? And to those ofwould argue that it's equally important to maintain and you who have had to deal with some of these outragedupgrade the institutional relationships among the vari- citizens: Do you know that the most vociferous of themous parties in this industry. I'm talking about institution- all are the ones that didn't have any flights over them

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last year, but suddenly begin to have some? You can say Acceptance of the Environmentto them: "Gee, It's nothing here compared to what it is Is this an issue to be dealt with by arguinglike living next to JFK, or O'Hare." That doesn't cut any and changing votes in the Congress? We all have aice with them. They are concerned about the fact that Constitutional right to go up there and petition ourthey didn't have any last year and now they've got Congressman. Agencies do that as much as privateflights. Particularly of course, if they are at night. OK, citizens do. But the problem is that one Constitutionalthat's one red flag where I see things going down-hill. right is in conflict with another Constitutional right That

Another one is the very intense lobbying that is, citizens should have just compensation tor propertywe've had here in this city for the last couple years with which is taken away from them. Keep in mind that thethe Congress. The airline industry is seeking waivers to real pressure by these neighbors of airports is not justthe FAA regulations which would bring the fleet into because they have some rights under some law thatcompliance with certain noise regulations by 1985. 1 Congress has passed which can be changed tomorrow.don't want to open up the debate whether or not the Their right falls under the Constitution of the UnitedFAA regulation is good or bad. I want to make another States. No matter what the Congress does to try to wipepoint here. out that ability to sue, Congress is up against the Consti-

Let's look at the argument. The FAA has tution and it is impossible to change the Constitutionproposed retrofit. Many members of the industry see simply by vote of the Congress.this as not as effective as it might be. The industry has Now you know some airlines have decidedargued for new aircraft on the basis of their fuel that this approach to the FAA regulation-of trying toefficiency and improved noise characteristics. Of course get the waivers-is short-sighted. They have begunthis approach has a multi-billion dollar price tag. Then, seeking retrofit and re-engineering of their aircraft. Butthey've argued that, well of course, they don't have that that is certainly not unanimous.much money to buy the airplanes. Therefore, they need A couple more red flags. One is the veryan extension of the deadline or an outright exemption. strong signal being sent to the Federal Government: "If

I would only suggest to you that if this were in anybody is going to be regulated, it shouldn't be me. Itanother field beside noise and beside air transpor- should be someone else." We all, I think, realize that thetation-let's say, a firm that is under pressure from EPA air transportation system case is a classic case whereor a state agency to clean up its air and water-the people point fingers at the other guy. We see the air-situation would be very different. If that firm said to the ports arguing: "Don't regulate us, don't make us do any-regulator. "Well, you want me to put this precipitator on thing for noise control. The problem is with the airlinesmy smoke stack and you know that it doesn't really and the manufacturers. If they just get those airplanesclean up the dirt nearly as much as a new plant would. I quieter and get the fleet changed over, we'd be OK."really ought to build a new plant but you know I don't On the other hand, because of some activehave the money to build a new plant. Therefore, I'm not airports, we're trying to deal with a problem whichgoing to do anything." That kind of argument is rejected hasn't been dealt with at the national level. ATA isout of hand. And yet, it is being entertained very arguing to keep those airports controlled. "They mayfavorably on Capitol Hill. do something crazy and really mess up the system.

My main point here is not to argue whether After all, we are a national system, not a system just forretrofit is worth it or not. I'm sure many of you have Chicago, or just for San Francisco. So, let's regulateopinions on this. What I'm trying to ask is whether this those airports to keep them from getting out of control.approach on the Hill by the airline industry is indicative But of course, don't regulate us, the airlines." We've gotof an attitude which is going to do some of these everybody pointing the finger at everybody else. Thisrelationships harm in the future. has been going on for years, as we know. Those of you

who follow this know it doesn't seem to be gettingbetter.

Unfortunately, each party is trying to solve aproblem which really is caused by the other partyrefusing to compromise. In the meantime, we have themanufacturers building and the airlines buying what areknown as stage-two aircraft. Those are the noisier air-craft. The manufacturers are making a bundle off of

... them because they've already covered their investment

costs. One would think that there is no problem withbuying stage-two aircraft in 1979! But in fact, all youhave to do is draw a graph of what the fleet is going tolook like between now and the year 2000, or beyond.These aircraft that are being bought today are goingto dominate the noise environment around our airports

\ X', for many years to come. They're going to be the sorei thumbs that stand out.

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Resolving the Problem I guess what I'm saying from where I sit-andWe have a situation where we all are con- it is a limited perspective, I realize-is that we seem to

scious of the noise problem. Yet the marketplace is be taking our short-term gains and sacrificing the long-driving us away from a solution. The retrofit replace- term health of the industry because of what we're doingment rule with which you are familiar, along with other to the institutional relationships among the main actors.rules which the FAA has promulgated and enforced, All, I think, have to cooperate if we're going to solve thiswill bring about a significant dip in the number of people problem. I believe we're running our relationships intowho are exposed to noise around the nation's airports. the ground, instead of doing the preventative mainte-In fact, perhaps a dip as low as 60 percent of the 1975 nance on them that they really need.levels. That's quite an achievement. But unfortunately, I think people are becoming increasinglyright after 1985, assuming everybody does meet that intolerant of the promises of better things to comecompliance date-and the Congress hasn't spoken on because they haven't seen them coming. I think, at leastthat issue yet-it starts right back up. The stage-two air- in the environmental field, law suits are becoming morecraft which we are buying today aren't going to help popular, and I see no reason why they shouldn't be. Weany. are left with the aircraft engine manufacturers, the

A couple more points. Th; cities and the airlines, the airports, the cities, the counties, and the air-counties-you've all met those people-say that if port neighbors, all acting independently to protect theirnobody else is trying, why should they? Why don't they own interests. That, I guess, is what I would do if Itake care of their tax base? As a result even those far-out thought no one else was protecting me. But, it would beairports like Dulles and Dallas are beginning to have awfully nice if somehow people would get together andpressure from communities that say: "We see resi- decide to protect the system instead of just protectingdences going right up where we all know they shouldn't themselves.go." Maybe these problems are not serious

And then, of course, there are the citizens. enough and will not be by 1990 to do anything to theThey say that the system is not going to provide them system. I leave that judgment up to you. I'm sorry toany relief. So, they resort to the courts. The courts have bring such a doomsday approach. I guess my closingbeen somewhat favorable, and [ would guess, they may point would be that, in the past, the Federal Govern-be more favorable in the future, as they see lack of ment has been somewhat of a "caretaker"-that's theaction by the other parties. wrong word-a "helper" in regard to this industry by

Law suits are really a very backward way of watching out for problems. We see a trend of: "Leavesolving this problem. In many cases, paying people this to the marketplace and let the industry think formoney so they won't sue, doesn't guarantee that a itself in the environmental area." I think that theperson who moves into the house after them won't sue. challenge to the entire system is to see who steps intoI would only say that from the Environmental Protection the breach, or whether the system is left to degrade.Agency's point of view, the court system has its limita-tions. If we try solving complex technological andpolitical problems by taking them to court, many of uswill be dissatisfied with the results.

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Airline Financing year-in and year-out basis, we're assuming a "nomwna&ized" industry load-factor of 62 percent-but at a muchhigher rate of hours/day aircraft utilization and seatingdensity than is presently being achieved. Another as-sumption, that now appears to be too low, is our pro-jection that aircraft prices will inflate at an eight percentannual rate.

Airlines' Current AircraftNow let's turn to a quick summary of our

findings. First, because a very substantial portion of theairlines' current fleet is already economically obsoleteor is rapidly approaching economic obsolescence, theairlines are entering their largest fleet replacement,heonagiDrecn cycle ever. This is the first major replacement cycle

Donaldson, Lufkin, since the late 1950s and early 1960s when piston fleetsoln , were being converted into jet fleets.

At the same time, the airlines no longer havethe luxury, as they may have had six or seven years ago,A "very substantial portion of the airlines' current fleet is to draw on the capacity excesses in the good part of

already economically obsolete or is rapidly approach- their fleet. The "good" part of the fleet is now pretty fullying economic obsolescence.., "says Mr. Shen. As a re- utilized. Whereas six or seven years ago fleets weresuit, the airlines are beginning a major capital invest- seriously underutilized-many of us can recall thement cycle. Unlike twenty years ago, this cycle comes at proliferation of "piano bars" and "coach lounges"-a time of high equipment utilization rates. Mr. Shen pre- now they are being pretty fully utilized. As a conse-dicts that the corporate configuration now existing quence, as we look into the next five- to ten-year period,among the trunk carriers will be changed when the and particularly into the 1982 to 1987 period, it is clearcycle has run its course. that there will be a really dramatic ballooning of capital

expenditure requirements for the industry. TranslatingI'd like to provide you with a Wall Street per- those enormous capital expenditure requirements intospective on the financing requirements of the airline carrier-by-carrier cash flow projections, we concludeindustry over the next five to ten years and some of the that the industry will soon experience capital con-structural changes we think these requirements imply. straints that will result in a protracted period of capacityFrom the previous speakers we have already heard tightness.about a number of important constraints with respect tofuel, safety and noise. Unfortunately, I'm going to have Fuel Efficiencyto talk about yet one other constraint, that is. a severe What I'd like to do now is develop theseconstraint on capital. points in somewhat greater detail. The key to the

Our analytical approach to forecasting the economic obsolescence that the airlines are encounter-financing requirements of the airlines differs somewhat ing in their fleets is fuel. A very large portion of the fleetfrom many others in that we prepare our analyses for currently consists of 707s, DC8s and 727-100s. Theseinstitutional lenders and investors. We can't really get aircraft were designed for ten-cent-per-gallon fuel, notaway with theoretial "top-down" analyses. Rather, we for today's fuel prices which are rapidly approaching amust analyze from the "bottom-up." We have to assess dollar per gallon.each individual carrier's own financial strengths and A secondary consideration is physical aging.weaknesses, corporate strategy and, in the end, finan- The airlines really haven't had major replacementcial capabilities or constraints. Ultimately, we are held activity in their fleets since the early- to mid-1960s,accountable by our clients for the accuracy of our spe- mainly because of the absence of major technologicalcific projections, breakthroughs in aircraft design. As a consequence,

What I'd like to do is quickly touch on a few many planes are simply getting old, particularly as we* key assumptions that underlie our fleet and capital re- move into the the 1980s. Finally, Federal noise. stand-

quirements forecast for the 1980s; then, run through a ards require full compliance phased over the nextsummary of the tlook thatwe see; and, finally, discuss several years and, as long as they stay in effect, thesein slightly more tail what the key components of our standards add further to the pressure for fleet replace-analyses are and me of the key implications we see ment.for the future, I would reiterate, though, that fuel ineffici-

Our kE assumptions in trying to forecast ency is the chief cause of the replacement cycle. In thisfleet and capital r. Uirements include annual domestic regard, every dollar per barrel increase in the price ofairline traffic gro of about six percent over the next crude oil merely serves to accelerate the timing of thesix to eight years: flecting the limited potential for replacement cycle as well as the onset of capital andfurther load-factor mprovements sustainable on a capacity constraints.

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Requirement for Capital ingredient of a cash flow analysis, we have assumed thatIn our projections of capital expenditures we the airlines will experience major improvements in their

have taken into account individual carrier financial return on capital from roughly a six percent average inconstraints. Unlike most forecasting techniques, we the past to somewhat around ten percent over the nexthave not used a mechanical model that mindlessly eight years. In addition, we have assumed substantialreplaces every plane when it reaches a particular age- upgrading of fleet utilization in order to reduce capitalfor example, 20 years. Rather, we've looked at the eco- expenditure requirements. Further contributing to anomic efficiency of each individual aircraft type within potential understatement of capital requirements wasthe context of a carrier's fleet and route structure. We our assumption that the weak carriers will be able tohave also looked at the financial capabilities of each achieve only partial replacement of their inefficient air-carrier. craft. And finally, we've assumed some fairly significant

For the U.S. trunk industry we have projected releveraging of balance sheets on the part of weak30 billion dollars in capital expenditures over the 1978 carriers.to 1985 period. That is a fairly hefty amount of money Despite all of these assumptions,we've con-and, yet, is a figure that is probably somewhat lower cluded that the prospective external financing burden,than the airframe manufacturers are projecting. Never- particularly in respect to its implications for carryingtheless, after integrating this conservative projection costs of debt and leases, is so onerous that the domesticinto a carrier-by-carrier cash flow analysis we find that trunk industry is headed for fairly severe capital con-the industry will encounter a 10 to 13 billion dollar straints. There are a number of individual carriers, as I'll"financing gap" between now and 1985. mention shortly, that are major exceptions to this

That is the gap between cash that can be generalization. But on an industry basis, because ofgenerated from internal operations, on Lhe one hand, capital constraints, we anticipate very tight capacityand cash requirements necessitated by capital expendi- constraints to be in effect during the early- to mid-tures, on the other. This 10 to 13 billion dollar financing 1980s.gap will have to be made up by external financingprovided by lenders, equity investors, lessors, manufac- Implications of Capital Constraintsturers, etc. Three implications of this prospect deserve

We find this to be a huge financing burden emphasis. The first is a rather perverse one. As nega-and potentially even an understatement because the tive as the prospect of capital constraints may sound, weassumptions that led to this projection were deliberately feel that the implications for profitability are actually"generous" toward the carriers. I have already men- quite bullish. We are forecasting a fairly significanttioned a very conservative projection of aircraft price in- secular improvement in profitability among the domes-flation. With respect to profit generation, which is a key tic trunk carriers at least by the early- to mid-1980s. We

think that this results from a number of considerations,most importantly capacity tightness.

Capacity tightness will insure that asset utili-zation will have to be even further upgraded than italready has been. This applies to load-factor, hours-per-day utilization, and seating density. In addition,capacity tightness will force a less destructive mode ofcompetitive behavior in the industry, particularly inrespect to pricing and scheduling. From the standpointof Wall Street observers of the industry, most of theabsurd competitive practices of the industry-for ex-ample, scheduling to maximize market share ratherthan profits; and, pricing just to increase "bodies" perairplane without any thought or focus on profitabilityper flight-really are an outgrowth of the chronicexcesses from which the industry has been sufferingsince the late 1960s and, basically, from which it hassuffered on and off over the decades.

A second key implication is that because ofmajor intra-industry disparities amo-ig individual car-riers-that is, between the weak cirriers and strongcarriers-we expect significant corrpetitive restructur-ing in the industry. Among the individual carriers there

e are major differences in respect to tho key determinantsof capital adequacy. Those three k determinants arethe quality of fleet, the strength ofcash flow, and the

strength of balance sheets (i.e., Jorrowing power).Based on our projections, there ap a number of weakcarriers that will be forced to unde.,o relative shrinkage

26

over the next five to ten years-that is, to reduce the The third major implication of the prospectscale of their route structures. Some are already facing of capital constraints is that deregulation can be quiteup to this prospect and are trying to form corporate constructive for the industry, at least in the presence ofstrategies to anticipate shrinkage pressures, which for- capital constraints. In sharp contrast, the introductiontunately won't become intense until the 1983-1985 of deregulation eight or ten years ago could have beenperiod but which are, nonetheless, inevitable, truly disastrous for the industry. It would have come at a

Interestingly, the strong carriers such as time of tremendously excessive capital and capacityNorthwest Airlines and Delta Air Lines face unprece- resources that could have led to very destructive com-dented competitive opportunity. The strong carriers of petitive practices. Coming now, however, at a timethe 1980s will, in fact, be the same carriers that have when the airlines are developing increasingly tightenedbeen strong during the past two decades. However, in capacity positions, deregulation should actually be verythe past, financial strength has never really been constructive.translated into competitive advantage because all car- It permits carriers to redeploy assets. Iters-strong and weak alike-have had too much capi- creates route and pricing flexibility at a time when thattal and capacity available to them. Therefore, it did the flexibility is badly needed. Meanwhile, capital constraintsstrong carriers very little good to have even more capital limit the potential for aggressive expansion at a timeto acquire even more excess capacity. In the future, when capital-constrained carriers most need to havethough, carriers like Delta and Northwest have major some degree of competitive peace and stability tonew advantages to exploit. In an environment in which achieve route restructuring and asset deployment.the bulk of the industry will be constrained with respect Finally, for the weak carriers deregulation affords theto capital and capacity, these carriers' virtually unlimited crucial opportunity to exit from markets and accom-resources will create a distinct competitive advantage. plish shrinkage.How these carriers' managements exploit their new In summary, the impact of deregulation iscompetitive advantage remains to be seen, but the highly dependent on the availability of capital andstrategic flexibilities permitted by deregulation certainly capacity at a given time. Mercifully for the trunk air-provide unprecedented opportunity. - lines, the introduction of deregulation after decades of

The carriers in the middle-neither the very restrictive regulation coincides with the emergencestrongest nor the weakest-are not under pressure to of capital constraints, and this coincidence should thusshrink, but will nevertheless become capital-constrained, result in a happy outcome for most carriers. And thoseIn place of their traditional preoccupation with market carriers that don't achieve a happy ending are at leastexpansion, there will be a new focus on the redeploy- given an opportunity to develop one. On that upbeatment of limited assets out of marginal areas and into note, I conclude my remarks. Thank you.more profitable opportunities.

I. Z ",_

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- - - - -- -- - - - -- . . . .

IusOn Omiuters

introduction by:Dr. Bill WilkinsAssociate Administratorfor Policy and InternationalAviation AffairsFederal AviationAdministration

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Focus on Commuters Status of the CommutersThe commuter profile now, if you were to

look at it based on last year's statistics, is kind ofinteresting. The typical flight would have six passengers.It would have an 111 mile stage length and the averagefare would be $40. The commuter route configurationis typically hub-spoke. We estimate that 80 percent ofour passengers are interline passengers. We are in thebusiness of taking people to the primary hubs or otherprimary airports for connections with the major carriers.This is the business of the commuters.

Forty-five percent of our passengers, in fact,enplane at the primary hubs, inspite of the fact that we

Duane Ekedahl are recognized as the category of carrier serving smallPresident communities. This suggests that the hub-spoke config-Commuter Airline uration is real. People are coming in, connecting, andAssociation of America going onward as we expect they are.

Some 200 air carriers comprise the com-The commuters have made tremendous gains as a con- muter segment of aviation: the fastest growth segmentsequence of the economic deregulation of the large air today. Our figures show that over the past approxi-carriers. Mr. Ekedahl provides an overview of where mately ten-year period we have grown at a rate of 10that segment of aviation is today. The future prospects percent per year. In 1978, our passenger enplanementsof these smaller carriers is clouded by increasing grew 17 percent, the year of biggest growth. The car-economic and other regulation, fuel availability more go segment of the industry grew 28 percent. In 1978,than price, and access to the airways and terminals at we broke the ten million passenger barrier. We are nowthe hubs that are important to all commercial carriers, carrying in excess of ten million passengers a year. I

think you are familiar with these figures. We also serve

I want to compliment the Holiday Inn here seven out of ten airports in the U.S. that handlefor anticipating this conference and setting this room u? scheduled air service.like an airplane. I asked Bob Jenkins of Allegheny It is interesting to note that the commutersCommuter if much was said this morning about the serve a total of 630 airports in the country-that is,commuters because I was unable to be at your earlier passenger airports. Of that 630 airports, 359 are totallysession. He said no. I wasn't sure what that meant; dependent upon commuter service for their link towhether you just didn't care orwhetheryou were saving national air transportation. This compares, for example,that for me. I guess I'll asume the latter, to the trunk carriers who serve a total of 190 airports.

I think it might be very appropriate at this Ten of those airports are entirely dependent upon trunktime to focus on the commuters for a few minutes. Cer- airlines for their air service. Including cargo commutertainly all of aviation has been impacted in extraor- operations, we serve a total of 850 airports in the U.S.dinary ways by deregulation. I expect it would be fair to One quarter of all U.S. air carrier operations aresay that no segment of the industry has been effected as commuter operations. So, this segment of small car-dramatically as the commuters have been. I would like iers, statistically, is envolving into a significant part ofto share with you our view of just how we see ourselves the national transportation system. I hope you agreeas an industry; as a segment of aviation; and the with that and I'm sure you do.problems facing us in the future. For commuters, it's been a very very dramatic

First of all, the Deregulation Act really con- year, unprecedented in the history of this industry.fuses the definition of commuter. It used to be a very Commuters were from the very beginning a vital part ofsimple definition. Anybody who was exempt from the deregulation as it unfolded in the Congress. Indeed, in401 certificate, Part 298 exempt, was a commuter. You many cases, commuters were held up as the argumentflew with small aircraft, smaller than 30 passengers. for deregulation.That was a pretty straight forward definition. Today, Congress recognized that with deregulationsome 20 members of our Association are 401 certi- would come an expanded role for commuters. With

f ficated air carriers. Obviously, we are now flying larger deregulation would also come a withdrawal from cer-aircraft. What we attempt to do is mold this segment tam markets by the larger carriers who, obviously, couldinto a unit by defining commuter as those carriers who place their equipment in more efficient markets. Con-fly primarily commuter type aircraft; that is, aircraft that gress anticipated this by building into that act severalhave less than 60 seats. That is the category that very important features to stimulate the growth ofincludes those carriers who are now certificated, such as commuters. The first of these was to increase the air-Air Wisconsin and many other carriers, craft size that I've mentioned to you.

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A second important provision was the loanguaranty provision. You recall that the act stipulatedthat commuters, for the first time, would be eligible foraircraft loan guarantees, Federal loan guarantees. Italso set aside monies specifically for commuter use,which we think was very important. Obviously, onelocal service carrier financing one large jet could wipeout, maybe ten commuter loans. The set-aside forcommuter aircraft was 50 million dollars in fiscal 1979and 150 million dollars for fiscal 1980.

We estimated that the orders placed for newaircraft by the commuter carriers in the year sincederegulation equal the entire value of the existingcommuter fleet. Many of these aircraft will not bedelivered for two to three years becausq those are thekinds of delivery times we're now experiencing on someaircraft. But that suggests, again, that the commutersegment is moving and is capable of filling the voidsanticipated by Congress.

Joint FaresAnother important element in the act was

that commuters were, for the first time, assured thatthey, too, in an equal way, would participate in jointfares. Up until this point the commuters were not a part Now, perhaps somewhat predictably, shortlyof the mandatory joint fare system. I think you know after this became enacted, the Civil Aeronautics Boardthat a joint fare is simply the combination of two announced that it was going to examine the entire jointindividual segment fares, minus a terminal charge. You fare structure. Indeed, it suggested that they mightreally only have one terminal charge on a connecting decide that there will not be a mandatory system forflight. So the terminal charge is dropped out and you establishing and dividing revenues and joint fares.then have a joint fare. Basically that's how it works. The The notion of the Board is to turn joint faresact goes a step further, though. loose and free, just like everything else is becoming

Under the phase four formula, the division more free and more loose. It is a very tempting concept.of revenues favor the short-haul carrier. This is to Let the two parties come together and negotiate a jointstimulate air service to small communities in the nation fare. Let them negotiate a division of revenues. It has awhich were losing air service. Originally, the commuters lot of appeal. Well, it doesn't to us, I'll tell you that.were not included in that. Well, Congress put the The problem is that it is a David and Goliathcommuters in there and it's a very important considera- negotiation. You know we were not created equal. Wetion in the growth of this industry.We think that it is only were created small. We can't be any bigger than 60

fair and logical that if there is a system, that commuters passengers. Historically, this has been the problem inbe a part in the construction and division of these joint negotiating joint fares.fares. We think the system should be free. We

think the individual segments should be determined byfree market forces. When you bring them together,however, there should be a system that's consistent.Joint fares have been a very important thing for us andthey seem to be in place now. It has helped stimulate thegrowth of commuters.

Essential Air ServiceCongress, in voting to approve deregulation,

assured small communities in the country that theywould have uninterrupted air service. It, in effect,guaranteed air service to any point receiving air servicefrom a certificated carrier at the same time the act wasenacted. For any airport that had lost service in the priorten years, the Board would examine their eligibility forsuch guaranteed service. That's the CAB Essential AirService Program. If necessary, the Federal Governmentwill underwrite service at minimum levels to thosecommunities. It was determined in the act that com-muters would be eligible for this subsidy. This createdsome interesting reactions among the commuters.

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,.... . I

I'd say a good many of the commuters thinkthat subsidy is like the plague: Once you've touched it,you got it, you never get rid of it, and it's to be avoided atall costs. I think many other commuters see that it'sgoing to be necessary for many of these isolated points.In any event, commuters are now eligible to competefor subsidy on certain routes. It is not a subsidy of theairlines, it's a subsidy of the routes.

It's interesting to take a look at what hap-pened before deregulation. In the 12 years prior to de-regulation, there were 172 points in this country thatlost service by certificated carriers. In the year sincederegulation, 130 cities have been served notice by thecertificated carriers of intent to withdraw. Going back tothose 172 points that lost service prior to deregulation,140 of those are now served by commuter air carriers.

Of the 130 that have received notice of with-drawal in the past year, at 79 of those cities thisrepresents the last certificated carrier at that point. At50 of those points, there's already a commuter aircarrier providing service. So in essence, we now have asituation where there will be 190 cities in this countrywho formerly had service from certificated air carriersthat are now receiving service from commuter aircarriers, around 45 cents a gallon, are paying up to 80 cents a

The Civil Aeronautics Board likes to look at gallon now. These are figures that I hear from the fieldthe fact that there has been an increase in the number of and believe are representative. The spot market forflights at all airports across the country by nine percent. commuters is up around $1.20. It varies, of course. It isAt non-hub airports the increase in the number of a tremendous increase in cost to be absorbed.flights is 10.4 percent. This suggests that the withdrawal More than price, our concern is availability,of service from the small cities to the big cities hasn't however. During our problems this summer when corn-been all that precipitous, or at least, that the void is muters were being cut-back and a couple of the essen-being filled by commuters and that commuters are tial air service points were in danger of losing service, Idemonstrating they indeed can do the job. got a call from the Department of Energy saying:

"Duane, we have some fuel for you; it's in Kansas City."Challenges to the Commuters Well, what are we going to do? Send a Beech 99 toI don't envy you the task of attempting to Kansas City to tanker fuel back to Jamestown, ND? It's4 forecast commuter growth. There is a tremendous not going to work. We've got problems that perhaps the

optimism within the commuter segment of the industry, majors don't have. We can't move to the fuel. Fuel hasOn the other hand, there are some problems that we to be widely distributed and available.face. Id like to close by touching on three of those. Do you have any idea how much jet fuel weWhile they are problems, they also might hold out use? Our fleet is largely turbo-prop-maybe two-thirdsopportunities for this industry. These are the difficult turbo-prop. How much of the total aviation fuel is usedvariables to deal with in determining the future of the by the commuters that serve 850 airports in thiscommuters. country, provide the only link to the national system for

The first one won't surprise you; in my view, close to 400 airports? It's one-half of a percent of the jetit's the Achilles heel of our segment of the industry. That fuel. One-half of a percent! The total jet fuel consump-is fuel availability and fuel pricing. This summer, when tion in the first six months went up only six percent. Isn'tthere was a cut-back in fuel availability, the commuter there some mechanism to get this amount of fuel to thesegment of the industry had a particularly difficult time commuter carriers?adjusting. The price of fuel to commuters has increased What about replacement markets? How aredramatically as it has to other segments of the industry. I we going to go in and replace air service when the car-think the commuters might be more dependent on spot rier who leaves the market typically takes his fuel withmarket fuel than the major carriers and that it hurts him? How can you replace service when there is no fuelthem more. there? The argument is: do you want an allocation? Do

Typically, a commuter is notified of a fuel in- you want special treatment? On the other hand, isn't itcrease by telephone, and it is effective immediately. The the role of the Department of Energy to see to it thatcommuter can't adjust his fares right away. He's on these special situations are handled?interline agreements, on joint fares. It takes time for his With respect to replacement markets, thefares to adjust to meet this dramatic cost increase. Civil Aeronautics Board and DOE have gotten together.

Our carriers, who at the beginning of the There's a letter of agreement between those agencies.year were paying on contract for jet fuel something There's going to be some attempt made to see that the

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exiting carrier leaves fuel behind so that a commuter ties. What do people think about flying small airplanes?carrier can serve that market. That seems to us to be Why do communities fight to keep the major carriers inperfectly logical, place when they have an alternative in commuter

The other side of the fuel question is this, service which is timely and more frequent and muchhowever. As the price of fuel rises, the opportunities for better for them over the long run?commuters are also increased. The economic impact of I have a story I'll tell you. I do some testing onfuel on the larger aircraft is such that it becomes more how people feel about large airplanes or small air-and more difficult for them to serve the short-haul planes. Quite by accident, I tested my mother-in-law.markets. And we are talking now not of small communi- She had come to Washington from Allentown on Altairties feeding primary hubs, but hub-to-hub short-haul and I was interested in how she felt about the smallmarkets. airplane. She loved it. I asked her how did she feel in

Take a look at some of the largest commuters that plane compared to the big planes. She said: "Thosein terms of passenger enplanements. You'll see that big planes scare me. In small planes I know somethingperhaps the top three are exactly in those markets. can be done in case of trouble and that there's some-Prinair San Juan to St. Thomas. Golden West: San body there in control of the plane." She's a pretty goodDiego to Los Angeles. Ransome Airlines: Philadelphia mother-in-law; I must say that.to Washington. All short-haul markets that do not lend We would conclude that there is necessarilythemselves to large aircraft. We see this as a very sig- a consumer problem. I think we feel that in many ofnificant factor in the future development of this industry, these communities that are transferring from the large

You recall that commuters are largely hub- planes to commuter planes after the large carrier servesspoke operators. They're bringing passengers into the notice of withdrawal, it is a prestige factor as much asprimary airports to put them on the bigger airplanes. anything.This is nice for everybody. But what happens if the History is going to repeat itself. In 1967,commuter can't get into the primary airport? Airport North Central was providing two flights a day reluctant-access is obviously a constraint on our future unless we ly to a small town in Wisconsin. They were enplaningcan come up with some answers to that problem. 6,000 passengers a year. So they pulled out of that

We're not talking just about airway access town. A small commuter moved in and started provid-problems, we're talking about terminal problems. Find ing roundtrip service between Appleton, Wisconsin andthe commuter terminal in some of our major airports, Chicago. They moved their frequency up to 11 flightsfind it! It's time, as someone said, to get the commuters per day. The enplanements are now 42,000 passengersout of the closet, get them out from under the stair- per year, not 6,000 passengers a year. And that, ofwells. This is a very serious problem. The airport course is Air Wisconsin, one of the leading air carriers.manager at one of the major airports in a mid-western A commuter in Maryland has over 45 thou-city showed with great pride the new plan for expan- sand passengers per year in a replacement market, asion of his airport with wonderful new commuter facili- 500 percent increase over a ten year period. That'sties. Those facilities were located beyond the cargo sec- Henson Aviation, the Allegheny commuter based intion. Since our passengers are primarily interline pas- Hagerstown. These stories can repeat themselves manysengers, this is a constraint, many times across the country.

Airway congestion is also a problem. Thethought of a bidding system for slots at airports abso-lutely runs cold chills up our backs, as you can wellimagine. The short-haul operator is obviously penalizedin any bidding system.

On the airway congestion side there is alsogood news. We, have for some time felt that separateaccess procedures are perfectly logical for these con-gested major airports. After all a commuter really onlyrequires two to three thousand feet of runway, not tenthousand feet. He flies at different altitudes and atdifferent speeds. His pilots have flown that airport prob-ably six times a day, they know it intimately. Why notseparate access at airports?

At this time, here at Washington's NationalAirport there is an FAA experiment underway with oneof our commuters, using STOL aircraft and entirelyseparate access. We are following that with greatinterest. We hope that coming out of this will be someanswers that will apply to other primary airports acrossthe country.

The final point I'd like to make with respectto constraints we see on the industry is simply the ques-tion of the acceptance of commuters by the communi-

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It seems clear to us that the key is frequencyand timing of service, and that once communitiesexperience commuter service, they are going to love it.Now there are problems, and the Bakersfield case is oneexample. I think that all things considered, however,deregulation has moved fairly smoothly. Commutersare demonstrating their ability to move into these re-placement markets.

The safety question is one which we shouldaddress. You in this room know perhaps that theNational Transportation Safety Board has announcedhearings on commuter safety to occur the first of theyear. We would simply say this: Obviously, as was statedthis morning, there is no number that is a good numberon safety. On the other hand, there are numbers thatconfuse. For example, comparing, as the NTSB has atendency to do, data on the basis of a 100 millionpassenger miles creates an unfair impression. Forexample, if you were to load a 747 and fly it acrosscountry, the passenger miles generated by the flightwould be very large. Taking our typical commuter, itwould take a thousand operations to be equivalent insafety for that one cross-country 747 flight in terms ofpassenger miles. Another element here is that we tendto be compared with what is really the very highest levelof safety in public transportation in the world.

I want to say that we believe that the newPart 135, the development of which we in the industryhave worked on for four years, will lead to an evenhigher level of safety for commuters. We agree and arepleased the Administrator of the FAA has testifiedbefore Congress that when compared to Part 21 whichapplies to the larger aircraft, Part 135 provides for anequivalent level of safety among the commuters. We, ofcourse, are dedicated to working toward that end.

It's a bit of irony that with deregulation ofaviation generally, we're getting re-regulation of thecommuters. This is a problem. As commuters become arecognized part of the system there will be more andmore regulation of commuters. Obviously, some of thisis good. It can mean, however, that commuters will losethe flexibility to move quickly and to innovate. Thechallenge that now exists is to assure that this segmentof the industry-an industry which has carried out amission that others could not accomplish withoutsubsidy; an industry which has been an innovator, hasbeen able to move quickly-is accepted into the nation-

t al transportation system without the kind of regulationwhich will cause the loss of its dynamism.

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S33

Opportunilefor Aviati~n GrowthinToday'Ps Ekwfronment

Moeatr

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SAirports Landlide CapacityYou mentioned that it had been referred to

in a report that Los Angeles has a 40 million annualpassenger restriction based on landside capacity. Justso that it is understood, that is a planning objective andis based upon a rather comprehensive analysis that wasdone several years ago of the street traffic in a ratherlarge area surrounding the airport.

The study did show that at about the timethat the LA airport reached 40 million annual capac-ity-despite all the investments that could be made interms of two new freeways, street widenings, new trafficcontrol signals and other things-the streets simply

Clifton A. Moore reached the point of saturation and couldn't handle anyGeneral Manager more vehicles. We must remember that only 25 percentLos Angeles of the traffic in that environment comes from or goes toDepartment of Airports the airport; 75 percent is still local traffic for other

reasons. So, while it is not intended to be an absoluteLos Angeles airports and all other major airports have restriction, it does indicate that when we get the 40the continuing responsibility to serve the needs of air millionth passenger, there's a good chance that we'llcommerce. It is a responsibility Mr. Moore indicates will have a very difficult time on the surface streets. Thisbe challenged by the growth of general aviation and the year we will probably be somewhere between 36 andcommuter airlines. They use a large proportion of an 37 million passengers, so we're not going to have veryairport's capacity but do not bear the same users fees long to go to find out-unless there's a marked changenow borne by the major air carriers. It is very difficult for in the program.him to see a way out of the dilemma posed by their Mrs. Armstrong, the President of the Airportoperations at an airport that must be self-supporting. Commission is here with me. I don't see her but I know

she is out in the audience. She and I recently visited theI'm really pleased to be here today. I'm not LA City Council to talk about this. I asked the City

sure just how much airports really can contribute to a Council: "What do you want me to do as the manager offorecasting conference. We are more on the receiving your enterprise here when the 40 millionth passengerend of the forecast rather than on the end which is nor- arrives? Do you want me to lie down on the runway ormally critiquing it. But I do have a few thoughts with close it from November to January first and then startregard to the forecasts. I think sharing them with you over?" We got the best suggestion we've had yet. One oftoday might be of some value, the Councilmen said: "Stop counting." So my sugges-

I'm reminded of the old story of the Army tion to you in regard to your forecast is: Please stopgeneral in World War II who received a call from the counting the passengers and we won't have any troublefront lines that our own troops were being bombarded whatsoever. There's no restiction on operations.by our artillery. I suspect a forecast is something like-this Seriously though, we will have and thestory. The general, having received this alarm that the major airports of this nation will have the continuingAmerican troops were being bombarded by American need to serve the needs of the air commerce. There's noartillery, started contacting the various artillery enplace- question about it. The economies of the various areasments. He finally got one that he thought was the cul- depend entirely on air commerce. We're the only nationprit. He said: "This is General Jones. To whom am I in the world that was foolish enough to let our otherspeaking?" "This is Sargeant Smith, General." The back-up transportation systems fall into decay andgeneral said: "I'd like to know, Sargeant, where those disrepute. We're trying to make it come back but I don'tshells are going that are leaving there." "I don't know, know if we ever will. Therefore, we're utterly dependentGeneral, but they are leaving here in fine shape.'That is on the national air transportation system for a viablepretty much what a forecast is like. I mean you start out economy. There s no question that we're going toand it goes some place. You hope it gets there all right, continue to serve those needs and to ty to do a good

Needless to say, FAA forecasting has been job.rather good over the years and has served as a founda- We're also going to provide environmentaltion for a lot of work done In the airports area. I'm sure programs that operate concurrently to enable us toit's not been perfect, like most forecasts, provide relief for the communities that are seriously im-

I'm sure every time they do one it will be pacted by the movements of air commerce. Those pro-better than the last one. So, I'm sure this one is better grams are going forward slowly-far too slowly for thethan last year's and, rest assured from the airports communities-but still achieving some benefits.standpoint, we will study it carefully and use the inputsin evaluating our own positions.

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Economic Challenges to Airport Looking at where this forecast might take us:We see as a result of your analysis and others For the first time, I think, in a long time, we're finding

that general aviation and commuter aircraft are among that the public is in a position of making choices. Thethe bigger challenges that we face. There is no question public-because of the compounded effect of inflationthat the acquisition rate of general aviation airplanes on many different prices-now is deciding, as wasand their demand for use of airspace poses a dramatic described earlier, whether to take a vacation or not,challenge to everyone involved both in the airport and whether to spend that money for travel or for somein the airway systems. other purpose. When fares were relatively low com-

The rapid rise of commuters certainly im- pared to income and when choices were freer, theposes a problem on us. At one time in LAX, commuters decision was generally made to do both at one time orhad a profile that went something like this. If I'm a little another, maybe in sequence. Now, that's nolongeroff on the numbers, I'm not far off. At one time they true. We are beginning to find a situation where people,were 36 percent of the operations, carried slightly in fact, are not taking air trips.under six percent of the passengers and provided less This has shown up in LA's own statistics. Forthan one percent of the revenues. Now, that may not example, the month of August: While our internationalsound too bad to you. However, when you operate an travel which reflects the hard currencies of Europe andenterprise which is entirely self-supporting, which gets the Orient, was up 18 percent; domestic traffic wasno public money except the small amount we get out of down almost two percent, and the traffic to Honoluluthe ADAP funds from time to time, and you have overseas was down also almost two percent. The netsomeone chewing up a third of the capacity and effect was almost a stalemate, a total increase of 0.2contributing less than one percent of the revenues, percent. That is the lowest number we've had in LA inyou've got a problem. six or seven years, I'm not sure how long, except for

Therefore, we feel that we have to watch major strike situations. That's compared month-to-very carefully what happens in the commuter business month in the previous year. I understand that Septem-and how it is handled. We recognize that it is an interline ber looks like a two percent increase, total for allservice; one which is of great benefit to the traveling passengers.passenger, one which must be accommodated. But I Also, what we're finding in the business forthink we have to approach it cautiously and wisely. We the first time is resistance by businessmen to traveling inmust Intergrate it in such a way that we can have many the high density seating configurations that have ap-of the benefits and as few of the negatives of the system peared everywhere in the fleet. I just came back into thisas possible. country on a TWA flight-I guess TWA won't mind if I

We desperately need general aviation re- say that-with all coach configuration on the 707 fromliever airports in certain areas of the country. We need Europe. Let me tell you, I don't recommend that forthem and we need them located in such a way that they anybody my size nor anyone quite a bit smaller than Iare attractive to the general aviation user, in close am. Unless you like a straight jacket, it's really a veryproximity to the area that he wishes to go to. At the unhappy experience. I expect that this will cause a lot ofsame time, they should not detract from the main air people who are making optional business trips not tochannels serving the commercial facilities that are so make them. They will choose a telephone, the tele-badly saturated at the present time. graph or some other form of communication as an

36

alternative. Because, unless their company policy issuch that they can fly in first class, they are not going tofind it desirable to make a trip that up to now seemedperfectly OK. It will be a matter of personal choice.

The sum and total of the whole thing, how-ever, is very largely what you have in your forecast.There will be a continued period of growth in theunknowns such as fuel that we've heard several viewson today. All I know as a matter of direct experience isthat certain airlines already have had to cancel flights,brought about by deregulation and brought about bythe new freer international policy. A good example isContinental not being able to fly some of its flights toTaipei and also withdrawing from the Washington toDenver market. Not because they didn't want to flyWashington to Denver and not because they didn'tthink there was a market, but because they simplycouldn't get a fuel quota for that period of time.

Now, how long that's going to go on, I don'tknow. How many airlines are affected, I don't know. Isuspect more than the airlines will probably admitpublicly. We have an unknown factor that will continueto affect the business for the next few years. I think all ofus just will be watching and trying to figure its effects.

From the our parochial view in LA, we'regoing to provide new runways in Ontario which isalready under construction. We're going to try toprovide a new airport in Palmdale if we can ever get thestate to stop studying the subject. A hundred milliondollars later they want to study it, again, after we'vealready bought that much land.

The question of another new airport insouthern California is being addressed in the hopes offinding a new. location, either a military field or anentirely new site somewhere south of the LA Countyarea. It does appear as though a consensus may bedeveloping for the attempt to build a new airport in theharbor adjacent to the Orange County coastline. If, infact, that political consensus does develop, I'm suremany people in the aviation business will work veryhard to get the airport itself built.

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t I.

Consumer protection provisions. The Alle-gheny Commuters carry about 22 percent of the totalpassenger traffic on commuter airlines in the U.S. Ourcommuters have been living up to and fulfilling thedenied boarding compensation provision, and provid-ing for no smoking sections and the various improvedconsumer protection elements. But I expect that manycommuters won't be able to do that simply because ofthe facilities required and the expense involved.

Another area where we see a growing amountof regulation is the increase in the scope and detailrequired by the CAB on financial and traffic reporting.When a commuter acquires dormant route authority,

Robert A. Jenkins replacing a certificated carrier, the CAB imposes theseVice President more restrictive financial and accounting requirementsCommuter Services because the commuter then becomes a quasi-certifi-Allegheny Airlines cated carrier. While that may be required, it simply in-

creases the cost to the short-haul operator.Mr. Jenkins follows up on some of the points made over Mr. Ekedahl covered the joint fare problemlunch by Mr. Ekedahl. A not unreasonable scenario for which up to now has been a boon to the commuters. Ifthe future, according to Mr. Jenkins, is the development the commuters lose the ability to participate in the divi-of a fourth level among air carriers as regulations force sion of joint fares at a favorable fare pro-rate, it means athe commuters to grow as a means of covering newly considerable reduction in revenue.imposed regulatory burdens. Against all this background, I think that you

see the possibilities of increased-cost. Commuters areWe're behind schedule. No good airline likes growing into markets that regional airlines have aban-

to operate behind schedule, so I want to help you catch doned, and acquiring large aircraft to do the job. We'reup. Because Duane Ekedahl made such a good speech talking about the aircraft of $75,000 to $100,000 per

at lunch, he didn't really leave much to talk about in the seat. An obvious question that arises is: If thecommuter airline area. However, I will cover a couple of A v qion tat asis: Iesubjects that I think need further emphasis and this goes ated aircraft in these markets, how are the commuterto some of the possibly bleak prospects for the com- airlines going to be profitable operating new aircraftmuter industry. Everything so far has been really rosy. while carrying the debt servicing that this entails? IThere has been painted a very bright picture for the suspect that the alternative is that history will repeatfuture of the commuter airline industry. But I want to itself and that present day commuters will have to growtalk about some of the problems that I se in the futurefor the commuter airlines, in order to survive, enter long-haul markets and aban-

Nrte otmutoo ailngs ago, eardon the small cities. We may see a cycle repeating itselfNot too long ago, I heard an address by a all over again. It's just possible that we'll see a fourth-senior CAB attorney of another carrier. He spoke on level commuter carrier system developing.the subject of deregulation. He termed it re-regulation.He talked about how certain of the rules on routes andfares were relaxed but that there were many other newregulations added. So it is with the commuter industry.

The commuter industry is becoming mature.It is growing into a new area of responsibility and alongwith this new responsibility comes more restrictiveregulations. I share with Duane Ekedahl the source ofcomfort in the new FAA Part 135 operating regulations.We applaud the efforts of the FAA to improve the safetyof the commuter industry. We feel it is very importantand long overdue. However, I also expect that thiswill mean the demise of some commuter operators.They will just disappear because they won't measureup. That's probably good for the industry.

Cost Pressures on CommutersThe second area that I see as a problem goes

to the various cost elements. One of these is the possi-bility that security screening will be required, imposingthe same requirements on commuters as the large trunkand regional airlines have today. That is a financialburden that many commuters just won't be able to take.

381. _ _ _ _ _ _,__ _ _ _ _ _ _ _ _ _ _

General Aviation Allow me to relate to you a recent eacnp4'"

from my own log book-an occurrence which can bomultiplied by the thousands every day of the year. Ourflight began at John Wayne Airport, Santa Ana, CA at7:00 am. The passengers were the executive VPs ofcompanies A & B. Forty-five minutes later we toucheddown at BFL. I dropped off the VP of Company B so hecould attend to some city planning problems-thenpicked up the district manager and superintendentfrom company A. We hopped over the mountains toMojave-a thirty minute flight. At Mojave those threemen met regarding some construction problems. Twoand a half hours later, with the problems solved-time

Ms Thon Griffith out for lunch-and with the original passengers aboard,President we were back in Santa Ana.The Ninety Nines, Inc. Those two men each had time to return to their offices,

open their mail, make telephone calls, and go home atMs. Griffith presents a strong case for general aviation their regular time. To have accomplished that by airlineas an alternative means of travel. The problems of fuel, obviously would not have been possible. To have donereliever airports and facility improvements have a it by automobile would have required approximatelytremendous impact on the quality of services general 800 miles and 18 hours of executive time devotedaviation can provide the nation. For these reasons, as solely to travel-and they probably would have hadwell as the size of the fleet, general aviation deserves hotel expenses and meals. The companies were highlygreater support from all levels of government, pleased with the substantial savings effected by using

the company plane.When I was invited to speak to you, I Before returning to the forecast once again,

promptly and graciously declined. Thousands of gener- let me further establish the need for, and importance of,al aviation pilots send good money back here to the general aviation. In other nations, the government paysvarious associations which represent us. Any number of for training pilots. In the U.S. the individual struggles,individuals from one association or another would have with increasing difficulty I might add, to pay for his ownbeen far more qualified than I to speak to you today. training. The cost of the food you consume would be farHowever, Mr. Hannan, quick as lightning, refused my higher if it were not for thousands of aerial applicators.refusal. So I began to research the subject-and it has Air ambulances are needed to transport people frombeen interesting, remote areas to modem medical facilities. Business

I talked to many who are here in the audi- relies heavily on the flexibility of general aviation.ence today. I talked to fixed base operators; to instruc- Families going on vacation with limited travel time ortors; to other corporate pilots and to just plain vanilla wishing to visit grandmother on a three-day holidaypilots. All are people who work to save general aviation may be able to do so only with the assistance of generaland to save airports. So what you are going to hear is a aviation.collection of thoughts-we seem to be quite parallel in I'm a frequent user of the airlines. When I

j our thinking regarding the future of general aviation, board an airliner, I see businessmen and women withA general theme appears to run through the briefcases in hand, or travelers, vacationers, going to,

comments I read in the FAA Forecast, General Aviation or, returning from some place, carrying or wearing theirsection ... the thought that the FAA displays a lack of souvenirs. I see families going to visit grandmother.understanding of the nature-the need for-and the They are all doing the same thing that the generalproblems of-various segments of general aviation. For aviation pilots and passengers are doing. The principalexample: the forecast opening statement refers to difference is that general aviation can depart from anygeneral aviation as personal flying for business or one of the 7,000 airports in the United States. I saidpleasure. Isn't airline flying conducted for business or 7,000 because those are the ones open to the public. Aspleasure? you know there are 12,000 to 13,000 airports in the

Another point made to me is that the FAA United States. Airlines are limited to approximatelyspeaks to the issue of fuel costs, but does not speak to 400 airports served by air carriers. This greater per-the issue of cost effectiveness, in terms of fuel, as well sonal mobility for not only people, but for light cargo asas savings of executive time that general aviation often well, accounts for the increasing importance of generalprovides over airlines or surface transportation modes. aviation.You see, general aivation is an alternative use, it is notan add-on.

39

I - '

Constraints on Growth tained through a stdpped-up public refatibnm eqfort byThe FAA forecast is concerned with the rate the FAA and the general aViation communit.-Sipce then

and extent of our growth. First let's examine some of the general aviation commuinity Is no an organized entitythings that will cause general aviation not to grow: The with funoing to condcct research for facts to present toFAA has presented to the Congress recommendations the general public, the major effort mustcome from thewhich will change the current seven cent per gallon fuel FAA. It was designated by Congress to be the meansto:tax to an ad valorem tax of ten percent. They further promote aviation. Three: The public and especialI theproposed excise taxes on all new aircraft and avionics'of news media must understan4 that general aviationsix percent. All to be contributed to the Airways and pilots have the competence atqd equipment to qperateAirportsTrust Fund. They have then proposed substan- in any environment and communities must beeducatedtial diversion of the trust fund monies to the main- to the economic advantage of an airport. Too often thetenance and operating budget of the FAA. leaders in a community are anti-aviaion. We need'the

General aviation suffers in two ways from FAA's help! Four The FAA must support the construc-this proposal. The most obvious injury will be in the sub- tion and improvement of general aviation facilities. Itstantial increase in the operating costs of general must reduce red tape in ADAP and steamline theaviation aircraft. It may well take the hundreds of sales- process by which sponsors can fund these processes.men out of their light aircraft and put them back in General aviation benefits our nation's econ-automobiles. It may cause smaller companies such as omy, contributing more than a quarter of a million jobs.those for which I fly, to eliminate their aircraft entirely. and $10 billionto the gross national product GeneralThe increase in operating costs will raisethe cost of food aviation substantially helps the U.S. balance of trade byfor all of us and will make the training of our future building and exporting $500 million worth of generalpilots-both general aviation and airline pilots-vastly aviation equipment every year.more expensive. Pleasure flying may become practi- General aviation operates over 98% of allcally non-existent. aircraft registered in the United States. We transport

The second way in which general aviation about one-third of the total number of passengers.will be affected will be by the diversion of trust fund General aviation uses only eight tenths of one percentmoney to FAA maintenance and operation. This mon- of the total fuel consumed in all modes of transporta-ey is badly needed for the upgrading of the 6,300 public tion!use airports not served by the airlines and for the con, So-will general aviation grow because it isstruction of essential reliever airports in the hub areas, a cost effective means of transporting people andIn spite of the surplus in the aviation trust fund, it is well goods? I think so, if it is encouraged through thedocumented that the airport needs are twice as great as construction of needed facilities; if provisions are madethe current level of authorizations. A hundred million for safe operations which are realistic, but' ot overlydollars will be released over the next four years for costly; if the public is made aware through a positiveimprovement of the nation's reliever airport system, but approach to the media and with the FAA's help; and, ifnearly 4.3 billion has accumulated in that fund! regulations affecting general aviation are reasonable

It is disturbing to me to see that the backlog and realistic. -if these happen, then we can expectof Airport Development Aid Program applications has general aviation to grow as forecast and meet thebeen growing steadily from $930 million in April 1978 demands of the people who use this means of travel forto the present when it is over $1 billion. This is happen- business and pleasure. Thank you for your attention.ing despite the General Accounting Office's statementthat for the decade of 1980 to 1990 they will need over$10 billion to develop the national system of airports.

If the Administration is successful in im-posing these punitive taxes on general aviation throughtheir proposed legislation and they continue to sit ontheir hands in the area of expediting the flow of trustmonies into general aviation construction, rehabilita-tion and improvement, it will inhibit the growth ofgeneral aviation. It also may well trigger its slide intothe relative obscurity it already enjoys in other less 4developed nations.

Fostering General AviationSome positive steps can be taken to assist

the growth of this important segment of our over-alltransportation program. One: If the FAA forecast ofnew general aviation airports to open in the 1980s is tobe realized, there must be a change in Congressionalpolicy to allow trust fund monies to assist the privatelyowned public use airports. Two: The reliever airportsand other new general aviation facilities can only be ob-

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Air C rrierDeregulation was supposed to be a slowgradual blessing for the public and for the airlines. Now

a year has passed. Route deregulation has been any-thing but slow. In fact, I'm predicting that when the car-riers come up in January, 1980 to pick their wild cardroute, there won't be any wild cards. People won't needto request anything because they'll have everything.

In the past year, it's only taken from 60 to 90days for any carrier to get any route it basically wantedin the domestic system. We had multiple awards of aroute, we had exemptions, we had route realignmentsas well as the "ask for, you shall receive" awards. In fact,

Sheldon C. Srulevltch many ofthe so called "protected routes"-which cameSenior Vice President under the act now have effective competition. EvenMarket Planning within the first year, when they were supposed to beBraniff International protected. All this came about in the "slow, gradual"

, Airlines . decontrolling process. And just think, the CAB still hascontrol on routes.

Mr. Srulevitch eviahiates the past year, since the pas. What are we seeing now that deregulation issage 'of deregulation, from his perspective within one of one year old? Usually a child of one starts walking. Well,the major air carriers. Deregulation was supposed to be it looks like the airlines started to run before theya slow -and gradual process. It hiasbeen anything but walked. Big and little carriers are pulling out of cities, asslow. The airlines have restructured their routes to such you all heard. It's not so much the pulling out of cities,a degree that its hard to see farther restructuring in the but they are also pulling out of segments. You don'tcoming year. While deregulation has brought rapid hear very much about that. The carriers are droppingchange in the past year, changing marketing patterns routes much faster than they are dropping cities. It isand regulations to reduce airport congestion as well as- much harder to measure the number or routes they arefuel costs are factors that have not, as yet, run their dropping as compared to the number of cities they arecourse. dropping.

The large carriers are going on to the moreI'm glad to see that the optimism that pre- profitable routes of the small carriers. This is hap-

vails throughout this whole morning didn't scare every- pening and we can see it will be happening this winter.body away. Now comes the good news. We see many of the major carriers pushing towards the

In the letter Mr. Hannan suggested that I golden areas of the sun belt.might critique the forecast. Well, after reviewing the Small carers are giving the appearance thatforecast, I decided that I was definitely not qualified, they are getting bigger, but are they really? I just hap-since in the days when I did forecasting, it was very sim- pen to haveAviation Daily here for October 18th. OnepIe. I took 0 and D data or some other traffic data, went of the headlines: "United furloughs 195 pilots, andthree to five years back, and then put a straight line on it. more expected." "American's third quarter earnings'If we decided we wanted to be conservative, we leta dip drop to 2.8 million." This is from 90.1 million figure.come in every once in a while, and knock a point or two And Southwest, the darling of the Texas experiment,off here and there. We submitted that as a forecast. posts an earnings drop of 28 percent in the thirdStrangely enough it was fairly accurate. quarter.

The forecasts of today are getting much We don't talk about PSA anymore, do we?more involved. We have employment, consumer price PSA must have done something wrong. Just so youindex and disposable personal income. And GNP. Yes, don't think I'm prejudiced, Braniff made 15 millionwe also used GNP every once in a while when we really dollars in the third quarter of 1978. In third quarter ofwanted to get sophisticated. Well, speaking to all these 1979 we had a negative figure of nine million dollars.forecasters, I'd rather go where angels fear not to We didn't do everything right either. Well, deregulationtread-stay away from forecasting for a few minutes. I'd is a horse that has been kicked quite a bit. We will justrather talk to you about what I call the real-time present have to see what the second year will bring about.happening-what affect the anticipated trends in air Problem of Lead Timestravel will have. Let's look at fare deregulation for a moment.Adapting under Deregulation It seems strange that if you wanted to lower the fare you

First, let's start out with our famous one, the could get short-notice approval in one day. But underone year old baby, deregulation. Darwin tells us that deregulation when you try to raise the fare, even thoughthose species which adapt to new conditions survive, costs are beyond control-the airlies do not controlWell, I can guarantee you that Braniff will survive and fuel costs-it takes at least two months for increases.I'm sure that all the other airlines will survive to a cer- We expect the next fuel increase on Novem.'tain extent. ber 1. Today happens to be October 24 and I don't

41

think it came out today. Even if it did, it still gives only British Airport Authority what time they can leave. Thatsix or seven days notice to the general public. I could go kind of figures out which time you can arrive. Now youon about deregulation; but in short, it's only one year have to bid for that arrival time on a sealed bid basis toold. So let's see what happens when it grows up. go through customs as well as landing at the airport

Let's talk about fuel for a minute and other itself.things very high on the subject list. About the only thing We've seen some strange organizations with-I can say that you haven't heard or read is that I feel in the airline industry, but it looks like we're going towhen aviation fuel getsto a dollar a gallon, the fuel com- have to have to merge the scheduling and financingpanies would do very well to change their price struc- department together. Someday we'll see slots traded onture. Wouldn't it be nice to say it's 14 cents a pound or the commodity market. But that's what we are lookingseven pounds per dollar? I mean, we're in a competi- for, free enterprise.tive market now. Let's go and be competitive and say Now, I'm glad we got the good stuff out ofseven pounds per dollar and maybe we can get it for 99 the way. In closing, I'd like to read an excerpt from acents. If we get real lucky. letter. It's from a large travel agent group: "Dear Braniff,

Let me put fuel in a better perspective. It It would now appear that open commissions will be apresently costs Braniff $202 of fuel costs to fly a reality by early 1980. Accordingly, we invite you topassenger on a Boeing 747 from Dallas to London, submit a proposal for an undertaking by you and usfiguring a 65 percent load factor; $202 ber round trip. whereby we will emphasize the promotion of your

Our present budget fare, which has stimu- airline during the first half of 1980, as discussed inlated the market and which is a very popular fare, is greater detail... ." I will skip down. "In exchange for a$400. You are all forecasters: Guess what's going to higher commission, we are prepared to undertake a sig-happen to the price of that fare? It has to go up. And that nificant coordinated marketing effort on behalf of thosewill definitely effect its popularity. carriers who choose to work with us."

Labor is the other big cost center, but I won't For quite a while, they have been saying thatget into detail about that, because that's something I commission rates may go as high as 40 percent. It'sreally don't know anything about. It just seems that going to be interesting to be in this business figuring thatlabor and fuel are presently fighting it out to see which is fuel, going up, will be accounting for 30 to 40 percent ofthe largest cost center, which can be the biggest our expenses and labor also 30 to 40 percent of ourexpense. And this is happening when mutual aid is out expenses. That's in the neighborhood of 75 percent ofand strikes are in. our expenses already. On top of that commissions willSlot Allocation Systems be somewhere, possibly in the range of 40 percent?

Profit margins get very small! What about the invest-It isn't that things are getting tough enough ment bankers and how they will view the airlines?for the airlines, as fuel and labor costs go up. But now, n ow, at I'v giey all the brie.Now, that I've given you all the bright side. Iwe're coming up with a new system, apparently a "big thnweohaeoror uotfousWeaebrother" system for slot allocations at the controlled air- things to do. We will survive. We have gone through thisports. The airlines will have to buy the right to operate in before. It just sor en tha e gon through tibefore. It just so happens that we're going through it in aor out at a certain time in these congested, controlled time when there's a recession. There can be rewards inairports. I suggest we buy only the arrivals. Might corner this business for operating during the trying times asthe market that way. But really. It won't take a long time well as operating during a very up time. Thank you.for a good idea to spread.

Can you imagine how it is going to be for thecommuter or the big airline Braniff, for that matter, tooperate and try to bid for a five o'clock departure fromChicago to Kansas City, when it is trying to bid againstUnited Airlines who wants to operate a 747 at the sametime from Chicago to LAX?

Since a lot of you are from the Washingtonarea, I wonder, without really knowing Eastern's pro-fitability structure, how profitable the shuttle will bewhen it has to buy or bid on every slot. Knowing it has tokeep continuity of its schedules, just think how youcould hold them up knowing that they want to go everyhour on the hour. Will it boil down to the fact that short-haul operations will operate only at seven in the morn-ing and ten at night? Well, that can't be. The short-hauls,as we all know, feed the long-hauls. So I guess we're in aCatch-22 situation.

And as I said, a good idea doesn't take longto spread. Our friends at the Treasury Department saidthat it sounds like a great idea. They're going to use thatfor customs' clearance. Well just think how interestingit's going to be to schedule. Airlines are told by the

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Manufacturing course, we've talked today at length about fuel. We'vetalked about costs.

What that means to the airplane designer isthat you start looking at things that you didn't look atwhen fuel was 11 cents a gallon. Crew size and main-tainability of the airplane are important things to the air-lines because of the cost of labor. And the fuel costeffects the aerodynamic shape of the airplane. Noisecontrol is something that we must improve. It's a happycircumstance that the engine, the same engine that

-tends to produce better fuel economy tends to produceless noise. So, some things at least are looking better.

What I'd like to do is go through some op-James T. Burton portunities now with a chart that we use at Douglas. OnDirector the graph, the vertical scale represents the number ofCommercial Marketing seats in an airplane. The horizontal scale represents theDouglas AircraftCompany distance, or the range, that the airplane has to fly. You

can see that we have some airplanes that are filled inUsing the aircraft of his company as examples, Mr. solid black.Burton provides an overview of what commercial air- The DC-10 series, our domestic version ofcraft will look like in the years to come. The new air- the airplane; the series 30 and 40 which are the inter-planes will look very similar to current jets to the continental airplanes with about the same number ofunpracticed eye. However, they will incorporate a passengers, but more range; the DC-9, the standard 30number of new technologies to lower fuel consump- & series 50, are filled in. That's an airplane in produc-tion and to increase capacity. tion; the DC-9 Super 80, about which I'll have some-

thing more to say in the next slide or two. Around theseWell, Barney sent me the same letter he sent airplanes are some cross-hatched airplanes. These are

everybody else and I thought I was going to come in on the drawing board, or are ones that we have a fairlyhere and talk about forecasts. We do forecasts at firm idea of what they would be. The one here called theDouglas. Some of our forecasters are in the room and Super 80SF: "SF' for either short field or for shortthey gave me elaborate details about our models. I can fuselage. It's an adaptation of the same technologytell you that l am happy I don't have to comment on the that's in the DC-9 Super 80, but for shorter field lengths;forecast because we are always wrong. I suspect that for special markets such as the Japanese situationthis forecast is wrong etoo, where there are a lot of 1,200 meter runways that were

But if it gives anybody any comfort, we think put in during the war. They can't be lengthened, butthat while the stagflation scenario is about right for the need more service than you can get out of the YS11.first five years, we're thinking that resumption of normal Our SF can stand for short fuselage given the samegrowth is going to happen after 1986. We plan our busi- weight as the regular DC-9-80, achieving greater range.ness that way. There are attractive markets for an airplane like that, in

about the 130 seat category.Aircraft for the 1980. Above that we have two airplanes we call the

Let's look at some pictures of airplanes: ATMR. The initials stand for Advanced TechnologyThese airplanes are going to look pretty much like air- Medium Range. I hope we change that very soon. It'splanes we've seen for a lot of years now. I'll show you not a very jazzy name for a marketing person to talkwhat is different about them and how they meet some of about. Then, up above the DC-10 we see airplanes inthe challenges that have been thrown at us by the oil the 400 seat category and more airplanes out furtherindustry, the EPA, the airlines and everybody else with a lot of range that we have categorized as the 60today. series DC-I0's.

Just for a start, this applies to the Douglas The Douglas Aircraft Company, and all air-Aircraft Company and McDonnell-Douglas. It's proba- craft companies now, has always had a habit of stretch-bly generally true for the other manufacturers. I don't ing airplanes. The DC-3 was actually a stretch of thepretend to speak for them. I don't really know what's in DC-2. And the DC-2 was a stretch of the DC- 1. The DC-their plans over and above what they've announced. 7C, which is the last of our propeller airplanes, is aMcDonnell-Douglas has its own character, its own way stretch of the DC-7, which was the stretch of the DC-6B;of doing business and it's different from Boeing or which is the stretch of the '6, which is the stretch of theLockheed. We want to stay different. '4. We have DC-8s in at least three lengths; DC-9s, now

The issue of growth that we're all discussing in four lengths.today, deregulation, effects aircraft design. It effects the Taking advantage of power as it comessize and range of airplanes that can capitalize on the along, as the engine people can give us more thrust, wegrowth and deregulation opportunities that the airlines put more seats in the airplane. That's a good way tosee. Inflation is with us. We, in our scenario, expect It to make the airplane more efficient. Your airplane milecontinue to be with us at rather elevated rates. Of costs go up quite slowly but your seat mile costs come

43

down quite rapidly. The idea has never left our minds A parallel in the wide-body fleet then mightsince the thirties when the DC-3 was born. When the be an airplane family that looks like this. Our long rangeDC-10 was laid out in the 1960s, even then, we made series 62 burning some 91 thousand pounds of fuel forroom for that airplane to grow. It's about time to actually a 25 hundred nautical mile mission while a 747 has toexecute that now. bum 117 thousand pounds of fuel for that same

What we have is a family of airplanes that mission. The 63 bums some seven percent more thandevelop from the DC-10. With some standard improve- the 62 but carries about the same revenue as a 747. Butments, the '10 can be stretched 40 feet, or about 80 to the 747 has to bum 28 percent more fuel to do that.90 seats, and give you about the same range as our The same comparison is made here on adomestic DC- 10 with the inter-continental wing and seat basis, so you can see as Boeing most certainly must:weight combination. With the modified wing, some Stretch the 747 and get these same economies backother tricks and higher thrust engines we can increase because they are inherent in the airplane. But thecapacity from about 270 passengers up to about 393 in airplane will have to go up in size to something like 600our 63 series. With some more range but at a sacrifice of passengers to make that happen. And when the marketseats to about 353, we have a version we call the 62, is right, I am sure that that it is a logical and obviousvery much like a DC-8 Series 62 for airplane buffs. thing for the Boeing Company to do-or for Lockheed

Or, with the same high-lift system and power or for any other manufacturer. Airbus is talking aboutwe can add fuel to the airplane and make what we call a that too.very long range airplane and serve routes of over6,000 So stretching planes is economical. It hasnautical miles. These are the same routes that are being low development costs. It's not quite that simple, but theserved non-stop by the Boeing 747SP, but with the investment is low and the pay-off is high. So stretchingeconomy of three engines instead of four, less wing DC-10s seems to be in the cards for McDonnell-area, less weight, less fuel and so forth. So the DC-10 Douglas.

stretch family looks attractive and especially so in view The next airplane is a photograph. This is theof today's fuel prices. first, or the prototype, of the first actual production

On this chart we're comparing fuel per trip model of the DC-9 Super 80. It's out on the compasson the left and fuel per seat on the right, with the 747 in rose at Long Beach.This airplane's first flight was lastthe blue column here. We're essentially able to do with Thursday at noon. It flew from Long Beach down tothe three engine airplane what Boeing did with the 727 Yuma,Arizona where we have our flight test opera-series. It eventually grew to be about as big as the 707. tions. It's a stretch of the DC-9 using Pratt-Whitney re-That plane does many of the missions that the 707 fanned engines with lower noise levels, higher thrustcould, but with three engines instead of four. Of course and lower fuel consumption-all the kinds of thingsit has been a tremendous success. we're all looking for. Here is a relatively old airframe.

New life is being pumped into it with refrained engines.They meet the noise and fuel requirements.

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Compared here are several airplanes that Active clearance'control, full authority power manags.can do about the same job. The numbers are the ment and variable geometry and things like that arenumber of seat miles that you can get out of a gallon of helpful and add a percent here, a percent there.kerosene. The DC-9 produces something like 50. In Metallic structues: we're thinking and haveother words, we get about 40 percent more seat miles demonstrated adhesive bonding rather than *letedout of a DC-9-50 per pound of fuel or per gallon of fuel, structures. We're looking at isogrid window panebthan the 727 or early DC-9 models. That's the kind of hogged out of a piece of metal by numerical controlthing that makes a lot of sense now. A 40 percent machines, very much the same technology thatimprovement is big money when fuel becomes some- McDonnell uses in building fighters. Superplastic form-thing like 40 percent of the cost of operating the air- ing, improved aluminum steel alloys, powdered metal-plane in direct terms. lurgy. Those kinds of things are all under consideration

Low noise is also a feature of the DC-9 for use in various parts of the airplane.Super 80. This is a stage-three airplane. For those of Non-metallic structures, composites; carbonyou who don't really know the difference, here are graphite type of structures. We are experimenting, cer-some footprints laid over a runway. The little x here at tainly in secondary structures such as gear doors, fair-the cross mark is either the point at which the aircraft ings, control devices, floor beams and so forth. The DC-releases its brakes or the point at which it touches down 9-80 has composite nacelles on it. The DC-10s areon the runway. So aircraft are landing by coming in flying with composite rudders. Very strong, very lightfrom the left hand side of the screen and taking off weight kinds of things that can reduce the weight of thetowards the right. airplane and reduce fuel consumption. In active control

What we've done is plotted the geographi- systems: Wing load alleviation, longitudinal stabilitycal area within which anybody that lives in that area gets control, augmentated center of gravity management ina 100 effective decibel noise level or more. Right at the flight. Not quite as exotic as the Concorde maybe, butedge it's exactly 100. Everything inside is more, every- something to keep the airplane light and efficient. All ofthing outside is less. Now, for a thousand-mile trip a 707 these things we believe can contribute and will.or DC-8 effects about six square miles of territory This kind of technology can reduce the fuelaround the airport with that noise level, a pretty awful consumption or increase the efficiency of the airplane

noise. A 727 effects about five, a better airplane for that by over 30 percent over what the typical day-in, day-outkind of a route. The DC-9 or a 737 about three, carrying 727 or DC-9 flying the line today is getting. That kind offewer passengers, of course. The modern airplanes, the fuel efficiency is we believe very attractive.Super 80, less than one mile and a DC- 10 less than one In addition, we didn't want Cliff Moore tomile, too. The engine people are helping us and we're have to sit in that seat that he had to fly back frombeating the noise problem as well as the fuel problem at Europe in and die of discomfort. The ATMR as it's nowthe same time. conceived has a wide cabin. It has two aisles. These

Applying New Technologies seats are about one inch wider than in the DC-8, 707, or

I'd like to take a little time to talk about an air- 727. About the same as a DC-9 seat. Two seats are nextplane you have heard less about than the stretch DC- 10 to the windows, an 18 inch aisle, two seats in the center,or the DC-9 Super 80. Now the Advanced Technology very much like the first class of the DC-10 or L-1011,Medium Range aircraft doesn't look very advanced. Its another 18 inch aisle and two seats over there. So Mr.Mediu Rai neiraft daoest ooh viey aanhe, tst Moore won't have to have somebody on either side ofa fairly conventional layout from the view that the artist him as he flies across the Atlantic. Of course, this is notselected for this picture. But in reality, although the anAtati1arlaeadvancements in this airplane are hard to see from the an Atlantic airplane.

outside, they really do contribute to the airplane's Thank you.

economy and usefulness.Here is some of the technology that we are

exercising that make it an advanced technology air-plane. In aerodynamics, we are talking about supercriti-cal airfoils, of course. Anybody that designs a jetairplane today to fly in the mach .80 or higher rangewould do that.

The business jet community has discoveredwinglets, and tacks them onto everything. We thinkthere may be something there in reducing drag andwing weight

Improved high lift systems such as flaps andleading edge devices can be built to give better take-offand landing performance. Horizontal tail airfoils andsize are effected by augmented stability controls. In pro-pulsion, the engine companies are coming to the partywith things like single crystal blades which can takehigher heat and be more efficient in the use of fuel.

45

........ * .,

New Te hlnIc / takeoff and landing services (MCTOL); intercity shortNew...e ...... gy takeoff and landing services; commuter service withsmall aircraft; airport to airport shuttle service withsmaller aircraft but higher frequency; specialized char-ter services such as educational airlines; large-scalesmall-package operations; and, intercity service withlighter-than-air aircraft.

This panel's theme, "Opportunities for Avia-tion Growth in Today's Environment", seemed parti-cularly appropriate for the exposure of early results for

N, what is being termed modified CTOL The intention isto close some of the service gaps perceived in theCanadian environment and provide the basis for amore integrated and more functional national air ser-

Daniel R. Perley vice.Omnium ConsultantsScience Council of Canada MCOSevcScience__Counci____ fanada Modified conventional takeoff and landing

(MCTOL) service is a concept which makes use of 100Mr. Perley reports on an investigation his firm is con- to 120 seat aircraft equipped for short field perfor-ducting to define an aircraft that can meet the needs mance and rapid turnaround on short routes whereand requirements for downtown-to-downtown service present vehicles of this size are suboptimal but wherein the 150-200 mile range. The aircraft they have traffic is too great to allow small first generation STOLdefined will provide a bridge between current short- equipment to be effective. At present, the replacementrange airliners to second generation STOL aircraft. of a 100 seat aircraft with a smaller vehicle reduces

passenger comfort, renders a slower flight speed, givesMr. Chairman, on behalf of the Science increased seat mile costs and increases the number of

Council of Canada, I wish to extend their thanks to you aircraft movements required to move the same numberand the Federal Aviation Administration for the oppor- of people.tunity to participate in your program. Larger aircraft may improve seat mile costs

The Science Council of Canada is a national but in a 150 to 300 statute mile route this is not neces-advisory body which, after appropriate assessment, sarily the case. They provide equal or superior pas-makes recommendations to the Federal Government senger appeal and make effective use of runway slotson: (a) How Canada can best use science and tech- but require longer runways and tend not to toleratenology for public benefit; and (b) On how Canada's high-cycle operation as well as smaller vehicles. Thescientific and technological resources should be devel- 747SR is the only really large vehicle now in useoped for that purpose. Areas of concern include re- designed to be effective on a sector under 200 statutesearch priorities and long term planning and partici- miles, although current L-101 1 and DC-10 aircraft dopation in international scientific or technological affairs. operate on fairly short trips. The 757, 767 and other

The Science Council's interest in transporta- new aircraft will be somewhat better in short stages.tion dates back to the early 1970s. It has released threetransportation-related reports including: A CanadianSTOL Air Transport System-a major program; Aero-nautics-highway to the future; and, a survey of Cana-dian activity in transportation R&D.

In 1977 with the prospect of impendingenergy constraints, capacity imbalances and increasedfinancial stringencies within the Canadian transporta-tion industry, the Science Council was encouragedonce again to investigate the national transportationsystem. A transportation study group and a steeringcommittee were formed. Their mandate: To discover,define and promote R&D, industrial and institution/management opportunities in intercity passenger andfreight transport.

Omnium Consultants on the Science Coun-cil's behalf have broken new ground in an area theyhave chosen to call supplementary air services. Thesemay be generally defined as downtown-to-downtownand various other services which fall outside of currentconventional takeoff and landing services (CTOL).Seven supplementary air services were defined. Theyinclude: Intercity service with modified conventional

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The DeHavilland DHC-7 or "Dash 7" hassuccessfully proven STOL technology. It is bringing it tothe U.S. commuter airlines now and provides a firmbase for future development. Second generation STOLvehicles will serve both feeder routes and, in their largervariants, mainline short-haul routes. They will offersuperior comfort, speed, seat-mile economy, noise andemission performance standards compared to today'sSTOL aircraft. However, it is doubtful that they will beon the market, in any number, before the 1988-1992period.

We feel there is now a need for a 100 to 120seat hybrid-technology aircraft to provide a bridge frompresent operational short-range airliners, with theirhigher fuel consumption and noise level, to secondgeneration STOL At the present time many new air-craft are being developed for the 30 to 80 seat range;these include the DeHavilland Dash X and Dash 7-200Iand -300 series aircraft, the BAE- 146 and others. Thereis also considerable development occurring above the150 seat level including the DC-9-80,757,767, A-310,possible ATMR, and so on.

There is, in our opinion, not as much being Service Definitiondone in the 80 to 120 seat range. McDonnell Douglas is The clientele of this service is projected tolooking closely at a short-body DC-9-80 and Boeing is consist mainly of business and other frequent travelerslooking at re-engineering the 737, but both efforts moving in high density corridors who are time sensitivecommence with older aircraft-nothing totally new is and who do not carry a lot of luggage. Rerouting re-happening even when the Super F28 is considered. servations would be made through normal channels.While we would like to see a new 100 seat vehicle Ground transportation would normally be by means ofemerge we recognize that such a vehicle might well be free connector buses serving major metropolitan andovertaken by a pure jet short-range STOL "mainliner" satellite pick-up points. Customers would have theearly in its life. It is therefore accepted that our conept option of making their own way to the airport. MCTOLmust be based on a 100 seat vehicle which could be would connect large airports to large airports, large air-diverted to other profitable uses whenever the second ports to small airports and STOLports, STOLportsgeneration STOL arrives, which are STOL network hubs to other such STOL-

ports.In this way, the effectiveness of a STOL com-

muter service could be augmented by reducing the totaltrip time of a passenger who originated in one smallcenter and terminates in another one. This means thatthe STOL hubs would not be located at the city's majorairport. Every flight which directly connects the STOLhub in cities A and B is a 100 seat flight that will not haveto be operated between the two large airports.

One's first response to this is that there mustbe a proven traffic flow between STOLports A and B orthe vehicle will be operated at a loss. We accept thisargument but would refer to various works performedby Lockheed and others who determined that onemajor problem with the STOL concept is that manypeople-even business travelers-are not travelingdowntown to downtown. Each metropolitan regionmust be broken into many segments to determine theXY O/D where X is a zone in city A andY isa zone in cityB. Zones can be then assigned to a small airport.

Passengers may be ticketed off-airport, onthe connector bus orby a self-serve ticketing machine atthe gate. Luggage would be carried to the aircraft andplaced in enlarged overhead bins. No boarding passwould be required to enplane and ticket coupons wouldbe lifted prior to takeoff. Meal and beverage servicewould be offered as on present CTOL flights.

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Aircraft feet in total. This takeoff distance assumes a fullA 100 to 120 seat derivation of a current air- passenger load, limited fuel and limited cargo and a

craft would form the basis of the MCTOL vehicle and a 150 to 200 statute mile mission; it should be empha-high use of advanced composites would be required. sized that these parameters exceed those of even theWhile a substantial fuel capacity would be provided to relatively high powered DC9-80SF. It is also recog-give the operator flexibility, fuel would normally be nized that such high-power takeoffs will burn more fueltraded for takeoff performance due to the short mis- than conventional takeoffs. This is a design necessity.sion. Very large overhead luggage bins would be By having such performance, MCTOL air-required as not all MCTOL flights would offer checked- craft will be able to provide such improved service-baggage service and soon all such service would be closer to where people live and want to go-that it willavailable only to those arriving 15 minutes before flight reduce automobile useage considerably and boost totaltime. Other passengers could arrive right up until the air traffic by substantial amounts. Steep approach andclosing of the aircraft door. A very fast (10-15 minute) takeoff angles would be used and the aircraft wouldturnaround would be essential and the major changes have to have cruise capability up to the 500 mph level.required would be an increased fuelling and provision- The community acceptability of MCTOLing rate. service is obviously crucial to the type of consideration

High lift devices wuld be utilized and it might policy makers will give it. The DHC-7 operates in thebe possible to fit active controls as well. There would be 50-60 EPNDB range and has been acceptable. Carefulthree major design goals: economical operation planning, construction of new runways and other mea-through use of a high bypass fanjet engine; quietest sures will be needed to introduce MCTOL operations

* economically feasible operation; and, attractive field into future STOLports or present community airportsperformance. serving suburbs.

Seat mile costs of the MCTOL vehicle would Objections of one sort or another are a vir-have to be as close to those of present (or even pro- tual certainty. Even the DHC-7 is facing stiff objectionsjected) 150-200 seat vehicle as possible. It is recog- at Toronto Island airport. It should be noted, however,nized that they will not match these costs, especially that MCTOL service can cut passenger trip time andwithin the short stages we considered, but there must be cost over CTOL or even STOL and better serve part ofa substantial improvement over present 100 seat air- the airline market. If aircraft design, new engines andcraft. MCTOL would use a 3,500 to ,.,800 foot takeoff good operational strategies can be co-ordinated,under most conditions: under 1000 feet elevation and MCTOL is a possibility.86°F. The runway provided would be less than 5,000

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L 71----------

MarketBusiness travelers who are time sensitive

and other frequent travelers will benefit positively fromMCTOL service and could be encouraged to use it. Onthe 300 mile Montreal-Toronto sector, the highest den-sity city pair in Canada, we estimate that this servicewould save the traveler 35 minutes of a total trip of 135minutes operating from Malton to Dorval.

This assumes a STOL takeoff and landingstrategy, but not one dollar spent on new runways orairports. This is a greater saving than a DHC-7 STOLoperation from Victoria STOLport to Toronto IslandSTOLPOrt can offer. It will not carry STOL's premiumticket price, at least for the present, eliminating the pros-pect of spending one to two hundred million dollars onnew STOL facilities.

It will not relieve Malton congestion butthere are two possible steps to do this. Movement ofsmall business and private aircraft in and out of Maltonmay be restricted as they presently comprise the majori-ty of movements. Suburban satellite airports may bedeveloped to serve as terminals for one or both ends ofany particular MCTOL flight thus relieving the strain onMalton and Dorval. While the first strategy may be morerelevant to Canada, where there are still small aircraft tobe removed than to the U.S., the second is relevant toboth countries.

This service will give the full-fare rider a fast-er, cheaper trip. It will give a more comfortable ride thanone on a present STOL airliner. It will remove him fromthe hoards of discount-fare passengers, allowing an on-board service more tailored to his needs.

So, there is a market for MCTOL service onthe major high density routes in Canada. To date appli-cations on 11 prime city pairs have been identified. By1988, this number is expected to have increased to 27.While the U.S. market has not been investigated, it isour expectation that the advantages perceived forCanada would be shared in many cases in the UnitedStates. We would be most receptive to your commentsand criticisms of the MCTOL concept.

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Question:ie thGiven the fuel situation and other uncertain-ties, is there a possibility you may change your forecaston a quarterly basis?Mr. Mercer.

The forecast we issued in September of1979 was actually finalized in June. We had to finalizeour forecast in June in order to meet the budget plan-ning cycle for fiscal year 1981. This forecast is to beused as a basis for our fiscal 1981 budget. We publish itin September and present it to Congress in Februaryand March. It is a basis for our manpower planning forthe following fiscal years. Therefore, we can't change it

fofficially until after that point. However, any time thatthere is a change in the economic outlook, we do runthose changes through our forecast model. We doadvise our management of the implications of the neweconomic outlook so that they are aware of what ishappening.

The only time when we have ever changedour forecast was when the oil embargo hit. At that time

Question: we had to withdraw our September forecast and reissueMr. Mercer, you mentioned development of a new forecast to go to the Hill. It was just a ridiculous

additional Terminal Control Areas and increased con- forecast at that particular point. But barring dramatictrolled airspace. Can you tell us where and when it changes, we won't officially change this forecast untilmight happen? next September when we publish our new one for the

next fiscal year.Mr. Mercer.

No, all we know is that there were four addi- Question:tional TCAs established this year. There is still some dis- Then, how can we get access to the latestcussion of whether or not there will be additional forecasts?Terminal Radar Service Areas. It will be done on a case Mr. Mercer.by case basis. It will be evaluated with local communi- We have many many people calling us to askties before any further action is taken to expand any what we think is happening on a current basis. We pro-controlled airspace. I don't think there is any discussion vide a short term forecasting model that's available on aon lowering of the positive control airspace at this time. current basis to our field people and also to a number ofMr. Taylor. states and consulting firms. They have subscribed to

The issue of lowering the floor on the posi- that service through a time-sharing computer system.tive controlled airspace has been put on the shelf for re- All you have to do is get a user number. So, feel free toconsideration. Our air traffic people as well as others call our office anytime and ask us what we are looking atare examining the airspace as a whole issue, nationally, and we will be glad to let you know what we seeto see what changes might be made in the near future to happening.accommodate the growth that we know is coming.More specifically, I would not anticipate any major, orfor that matter any minor, modifications in the nearfuture.Mr. Mercer.

I might add that the current aviation forecastis utilizing the assumption of no change in the positivecontrol airspace floor through 1991. We changed theforecast when the rule was withdrawn.Question

What is the possibility of lowering the cri-terion level for qualification of new towers?Mr. Mercer.

I'm not aware of anything that might changethe criteria for towers. Tom Messier is here and I be-lieve his office establishes criteria for FAA facilities. Idon't think there is any serious thought being given tolowering the criteria for the establishment of towers.

Can you tell me from where your estimate of50 percent business utilization of general aviationcomes? How does aviation compare to other modes?

Mr. Mercer:.Our management systems department gath-

ers the information on a survey basis. We have also con-ducted a number of surveys ourselves within our ownoffice. It is through such sources that we found outabout the growing trend toward business use of flying.How this compares to other modes I don't know. Wehave not done a great deal of work in looking at theother modes. Perhaps we should. But I really don'tknow how it compares with the railroad, or the water-ways or the automobile.

Questio:Is your present forecast constrained by the

possible non-availability of fuel?

Mr. Mercer.No. The only constraint we have built into

the forecast is our price constraint. We assume thatthere will be an adequate supply of fuel at a price. In thestagflation scenario we do assume that there will be spotshortages around the country, but no serious cutback inthe use of fuel. The higher energy prices under stag- Question:flation, as you saw from our chart, does dramatically im- I'd just like to clarify General Hairston's com-pact general aviation, particularly local flying. ment. You have to look at the sixteen hundred facilities

Question: from another standpoint also. First of all, ten percent ofAbout the 30 billion dollar figure for new that number was accredited to the San Diego accident

equipment: Is that just trunk requirements? In constant We all know that shouldn't have been there and it wasdollars? there because it was an intrastate carrier.

Mr. Shen: General Hairston:I forgot to mention that one of the key bene- I hope that doesn't mean you like the number.

ficiaries of this trend is the commercial airframe manu- Do you like that number? No, I agree with you. If youfacturing industry and their suppliers. The answer is push all the statistics in the world, I still don't think thatthat the 30 billion dollars is just for the domestic trunks. going to the cemetery sixteen hundred times is a goodIt is in current dollars with eight percent inflation built- idea.in. Question

Mr. Griswold, you spoke primarily about theair carrier fleet. I wonder what your expectations arewith respect to general aviation in terms both of avia-tion and kerosene.Mr. Griswold

I mentioned at the beginning that I felt thatthe FAA forecast seems to me to be a little optimistic. Ofcourse if s a much smaller part of the total fuel picture,

but I do feel that the eight or nine percent growth that'scontemplated here is optimistic. The reason I say that isthat price is going to be a very decisive factor. Certainly,for the general aviation participant it's going to bemeaningful. ! think that this is really the sole determi-nant. I think many of you are aware avgas is in tightsupply; it's running head-to-head with motor gasoline.That's the problem. Just to give you a rule of thumb, forevery gallon of avgas that the industry produces theysacrifice two gallons of non-leaded fuel.

-* U.S. GOVAN~NT MINTING OFFICa 1W 0- 62-794117M flS ON 3-1

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