September 18, 2002
Nav Canada’s Striking Success
Last fall’s terrorist attacks inspired a new respect for government institutions, not surprisingly in light of their crucial role in public safety. Police, firefighters and soldiers bask in this glow, but another, less publicized group had its moment of triumph on September 11. The unsung heroes were our air traffic controllers, the people who work for Nav Canada. The agency has achieved a stellar track record since it was commercialized in 1996, an achievement with important implications for public policy in general.
Our response to the 9/11 crisis, where we recovered some 239 international aircraft that were over the ocean and diverted roughly 1,500 aircraft that were in our airspace . . . safely and efficiently, with absolutely no operating irregularities, is just astounding,” Andy Vasarin, NavCan’s vice-president of operations recently told Wings magazine. This singular performance under extreme stress is just one part of the NavCan success story.
In 1994, Transport Minister Doug Young announced plans to sell a significant portion of his department’s assets. The subsequent deregulation and privatization of airlines, airports, railways and ports in Canada – although not without hiccups – produced measurable benefits. Transport services became more affordable, millions more people flew and the CNR turned into a profitable, expansive North American rail giant.
The model for remaking NavCan was adapted from New Zealand, which commercialized its air traffic control function in 1987 and gained both lower prices and more efficient service. The Canadian agency was sucking $200 million a year from the federal budget and delays and cost overruns were plaguing a computer refit. In a sale that netted $1.4 billion, the control of the company moved to a consortium of airlines, business aircraft owners, pilots and air traffic employees on November 1, 1996.
Air traffic management functions as a natural monopoly, so the service can’t be improved by means of competition. Governments initially owned and operated virtually every country’s navigation service. “The rigidities of civil service control,” notes Wings, tended to produce systems that were unresponsive to customer requirements and in which capital expenditures were tied to political rather than operational goals.” How can you make such monopolies excel? One method is to separate the operation from direct political control and subject it to the rigor of profit and loss incentives.
In a new Frontier Centre paper, titled Nav Canada - A Model For Commercializing Public Enterprises, Robert W. Poole, Jr. and Viggo Butler discuss the principles and the legal structure that steered NavCan into a high performance mode (see www.fcpp.org). In its newly commercialized garb, the agency quickly proved the value of separating its operations from direct government ownership and control. By the fall of 1999, it had increased its efficiency by 32%, lowered its charges to airlines by 33%, increased its average salaries by 33% and trimmed 14% excess managerial and administrative staff.
About two dozen countries have shed direct state control of air navigation over the last 15 years. Poole and Butler attribute NavCan’s radical performance improvement – it’s now the best in the world – to its innovative corporate structure. Nav Canada’s] most important feature . . is the concept of a stakeholder board. This approach ensures that the different interests of, say, major airlines, low-fare airlines, regional airlines, cargo carriers, corporate jets, air taxis, and light plane owners are all taken seriously in the corporation’s decision-making, without any of these interests being able to dictate to the others.”
A supporter of corporatizing these entities, which it calls “autonomous authorities,” the International Civil Aviation Organization has published “how-to” guidelines for setting them up. They include:
Based on the empirical evidence so far,” Poole and Butler write, “the ICAO believes that such autonomous air navigation service providers are likely to be more efficient, more dynamic, and more business-like than their government-run counterparts, and more attractive to banks and other lenders.”
NavCan took full advantage of its new autonomy. New technology increased landing efficiency by as much as 30%, saving airports the cost of new runways. Enhanced radars will save airlines $170 million in the next 15 years by letting them fly at more fuel-efficient altitudes with less rerouting. New software permits controllers to discover and resolve ground delays quickly. Long-delayed automated flight-data processors will enable the agency to expand its market reach. User fees are now fairer to commercial and recreational fliers.
Although NavCan offloaded about 1,000 employees, mostly middle managers, retirement packages and lateral transfers to other departments smoothed the transition. The operational workforce, better trained and their efficiency spurred by a gain-sharing program, actually increased in high traffic locations.
The changes in NavCan’s structure have transformed it into a world-class operation that far outshines its technologically ramshackle government counterpart in the U.S. Its remarkable success should spur second thoughts about the way we operate other sleepy state monopolies, particularly healthcare and education.
The next time you happen by that strange-looking black building out in St. James, tip your hat to the 350 Winnipeggers who work there.
Thanks, folks, and keep up the good work.
Related Items:Policy Series Paper - Nav Canada - A Model For Commercializing Public Enterprises
The Frontier Centre for Public Policy
is an independent public policy think tank whose mission is "to broaden the debate on our future through public policy research and education and to explore positive changes within our public institutions that support economic growth and opportunity."