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THE l980S: A DECADE OF REVITALIZATON FOR AVIATION Dr. Bill Wilkins Associate Administrator for Policy and International Affairs Federal Aviation Administration Thank you for the opportunity to speak at this meeting. I bring you greetings from Administrator Langhorne Bond and his wishes that you have a productive session. Today I want to share with you some views about the future of air transportation from the viewpoint of the FAA's Policy and International Aviation Affairs organization, which I head. API, as it is called in the agency, has among its functions policy analysts, planning, an! international aviation affairs. As such, we may have many of the economists and systems planners of the agency within our organization. There are relatively fewer engineers among us than you would find elsewhere in the FAA. The sngineering and regulatory parts of the agency are well represented by other people on your program who will be here all week. I bring to you today the perceptions of an economist regarding the future of aviation. Over the last several decades aviation has grown to maturity. Air travel, whether in a large jet transport or small private plane, is no longer the novelty or adventure that it once was. Aviat!on--and the opportunity it offers for safe, high-speed, long-distance travel—is a part of everyday life. The safety, comfort, and convenience it provides are taken for granted by most of the population. The air transportation industry has evolved to the point where it serves many markets encompassing a broad cross section of society. Along with this growth to maturity has come the establishment of a large infrastructure that we refer to as the National Aviation System. A network of airports, navigation systems, and air traffic control facilities have been built to serve the hundreds of thousands of aircraft that now operate in the United States. Aircraft technology has advanced to levels of sophistication that few even dreamed of not so many years ago. What has evolved is a complex, 7l

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interrelated system of people, procedures, and capital plant that demands a careful balance of a multitude of variables and, I believe, cooperation among all system elements i.e., government, industry, and users. Let me reinforce a point that was partially addressed earlier today—which is one of the advantages or disadvantages of speaking later in the program. As aviation has grown to maturity in the United States it has also advanced substantially in the other industrialized nations of the world. Since at least the mid-l940s, the United States, has held a dominant, if not unassailable, position in the international aviation community. Although the United States clearly remains the leader in aviation, the era of our overwhelming dominance in the world marketplace and international forums is disappearing. We must now negotiate and compromise to a degree unknown for generations. This has been much on our minds because the 23rd Assembly of the International Civil Aviation Organization will be held in September and October. Looking around this room I would guess that most of us grew up and did some of our most productive work during the time period that started as the great depression turned into World War II and ended with the close of the l960s. That was a period of time when the leadership role of the United States was so clear it became easy to believe this was normal. Instead of being normal, it was, perhaps, a historical accident born of the prostration of our allies and former foes as well as our own strength. It was a dominance that we would not reasonably expect to happen in other times and other places. Much has changed since that era—and not just in aviation. For example, the international monetary system created at Bretton Woods at the end of World War II has been substantially changed in the last few years. The United States dollar no longer serves as the world's only reserve and trading currency. The military hegemony of the United States has been challenged in many parts of the globe. Similiar industrial examples could be drawn, many of them automobiles, steel, electronics, and oil. The U.S.-based system of pricing world oil, which worked for a generation, has changed dramatically with the emergence of OPEC. We could draw on many examples, not just in the field of aviation, that illustrate challenges of the leadership role of the United States. As a mature industry, aviation is now in much the same position as the other modes of transportation. In the federal government, as in the private markets, aviation must compete for a share of the limited resources available to the transportation sector. This becomes more important when viewed from the perspective of the substantial capital investments needed in the near future for replacement of ground equipment in the federal portion of the National Aviation System. In the early development of the aviation system, most of our capital investment was focused upon addition of new equipment to the inventory. Now, however, we are entering a phase that will require large capital investments in replacement equipment—leading to either less net expansion of the system or substantially increased funding levels. 72

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In these times of increasing scrutiny ?nd fiscal conservatism it will, indeed, be a difficult task to obtain substantial funding increases from general tax revenues. Even the often heralded trust fund "surplus" will cover only a fraction of the expected needs. We must find ""ess costly, more efficient ways of doing things. We must do more by developing the technologies that help our people work more productively. Cost and resource problems are becoming increasingly critical throughout the aviation community. Much of the capital plant of the airlines has reached the point where it will require replacement. Several years ago the capital needs of major airlines for the decade from 1976 to 1985 were estimated at $20 to $30 billion. Furthermore, it was estimated that they could more than double that amount for the period from 1976 through 1990. These estimates recognized that, in the mid-1980s, the airline industry would be entering its first major equipment replacement cycle since jet transports replaced piston engine aircraft. Although this was recognized as a major challenge, until recently most industry analysts believed that the airlines could "work out" any cash flow and balance sheet problems to provide the needed captial. The last few years have added new dimensions to the problem. Inflation has reached higher-than-expected levels. Fuel costs have soared. Competition has intensified as newcomers challenge the established major airlines. In l978 the average total cost per available passenger seat mile was less than 7 cents. Today, a conservative estimate is that this figure will be over l6 cents by l990. The cost of fuel is taking an increasing proportion of the operating cost dollar for the airlines. Based upon reported data, in l973 the cost of fuel was about l0 percent of total operating costs. Even with the efficiency and load factor improvements we have seen since then, this figure has risen to the point that when jet fuel prices reach $l.00 per gallon—which is not hard to imagine—it will drive fuel costs up to more than 30 percent of total operating costs. General aviation faces a twofold problem with respect to aviation gasoline, part of which has been discussed today—cost and availability. In June l980 the national average selling price for aviation gasoline was around $l.65 per gallon. This is a large out-of-pocket expense for many general aviation operators, but the problem of high fuel costs is shared by the airlines, commuters, and general aviation alike. The special problem faced by general aviation is the availability of aviation gasoline. Spot shortages at airports can be expected, and, in fact, some spot shortages and troubles with deliveries have already been reported to us. I am interested in this problem and have personally visited with some managers of refineries who discussed the problem of small lot production mentioned earlier. This is going to be an increasing problem for general aviation operators. As a military enthusiast and pilot, I believe we have a problem of perception among the nonflying public and, indeed, with those who fly only on airliners. As long as there remains the 73

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perception of general aviation as an instrument of pleasure—and perhaps even conspicuous consumption—it will have problems in maintaining the political power to ensure its share of fuel supplies. Thus, there is no question Ln my mind that we need aircraft that are nore efficient. In an environment of increased competition, this need has become even more acute for the airlines. With operating costs rising faster than the airlines can cover them, earnings have suffered. You have already heard this problem discussed aarlLer today. These losses, which appear to have continued throughout the second quarter—although complete data are not yat available—impair the ability of the airlines to finance new equipment from internal sources. Furthermore, they weaken the competitive position of the airlines for obtaining external financing through the capital markets. In the midst of this troublesome situation, it now appears that, based on a recent Air Transport Association study, upwards of $80 billion may be needed by the airlines over the next decade to finance new passenger aircraft. This Increase in estimated capital needs is a result of several factors, including strong growth in passenger demand, higher than expected inflation, pressure to reduce noise levels, and, of course, rising operating costs. The question is whether sufficient capital will be available to meet these needs. Earlier in this meeting we heard Fred Bradley document the sources of financing from which these capital funds must come. Viewing it somewhat differently—in economic terms—for at least a generation we have looked to economic growth and rising productivity to provide needed investment capital. In the future, rapid economic growth simply may not be available to produce major amounts of investment capital. If that is the case, rising proiuctivity becomes an even more important source. One of the functions of the API organization is to develop and publish the FAA's aviation activity forecasts. Our long-term forecasts support the need for new aircraft. Admittedly, the short-term outlook is for little or no Lncrease in most activity levels until we begin to recover from the current recession. As a result, our most recent predictions reflect somewhat less jrowth for the decade ahead than the forecasts we published last /ear. We are predicting an overall 5 percent annual growth rate in passenger miles. That amounts to a 50 percent total increase by the end of the decade, with the l980 activity remaining at about the l979 level. We predict only a modest increase of about 20 percent in U.S. air carrier operations over that same period. This lower rate results from a continuing shift to larger passenger capacity for air carrier transport aircraft. On the other hand, we axpect total air taxi and commuter operations to nearly double by l990. This reflects the continued rapid growth in this area as air carriers restructure their routes. Commuter airlines are expected to move into the opening market opportunities on less dense routes, usually with more frequent schedules in smaller aircraft. We expect general aviation itinerant operations to increase a total of about 44 percent over the next decade, which is a slightly higher rate than the 30-percent increase over the last decade. We are 74

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predicting an approximately 63-percent increase to nearly 60 million hours for general aviation activity and an increase in the fleet of just over l00,000 aircraft. An interesting aspect of the forecast for general aviation is that we expect a larger share of the growth in the more sophisticated aircraft—the turboprops and jet aircraft. Their portion of the total flight hours is expected to grow from the current level of 9 percent to about l3 percent by l990. Another interesting but not totally unexpected facet is that local and training flights appear to have been suppressed more than itinerant flights by the rapid fuel price increases. We also expect that high fuel prices will hold personal flying to a lower growth rate than business flying. In our forecasts military operations are expscted to remain constant through l990. One segment of aviation with significant growth potential is rotorcraft. Our most recent forecast is for the United States civil fleet to increase from 5800 to ll,l00 rotorcraft by l992. That is a growth of 9l percent. To summarize what our individual forecasts are saying, we expect aviation to continue to grow faster than the general economy, but at a slower rate than we predicted last year before the recession. In the commercial intarcity passenger market, aviation has and will continue to be dominant. I see no fundamental change there. But commuter-type operations and, perhaps, business use of general aviation will show greater growth than the larger airlines and personal use of general aviation. When we pull together all of these individual projections we see some trends emerging that may be at olds with each other. We see a steady growth in traffic demand placed upon the system. This demand will lead to more congestion in the system, particularly at the major hubs. On the other hand, we see rapidly rising operating costs—with soaring fuel costs as the major contributor—increasing the pressures for much more efficient aircraft and expeditious traffic movement. To deal effectively with this situation we will have to either make substantial capital investments in the national aviation system or face the possibility that constraints must be imposed. It seems necessary to make one more comment on that idea. Both Secretary of Transportation Neil Goldschmidt and FAA Administrator Langhorne Bond have made statements about that, some of which I think may have been misinterpreted. The point is that, if 'S/e have growth and if we are not able to accommodate that growth through the capital investments needed to keep pace with it, then constraints might have to be imposed. No policy of constraining growth has been announced by either Secretary Goldschmidt or Administrator 3ond. Looking at the investment needs of the aviation system and the airline industry, it appears that there may be a shortfall of available capital over the coming decade. Looking to the international arena, we see our former position of leadership being challenged and eroded as competition becomes increasingly fierce. All in all, I believe you have to draw the conclusion that the l980s will be an interesting decade. What does all of this imply for the future direction of aeronauti- 75

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cal research and development? I believe this outlook leads us to several areas of research and development that merit attention. Safety, of course, is our major concern. The greatest single cause of accidents in the system is human error. We need to know more about the human element in the system. We need to know more about the interfaces between the pilot and his aircraft, other aircraft in the system, and the traffic controller. And we need to know more about how the pilot himself deals with various situations. We must better understand the human element to be able to cope with, and hopefully prevent, the human error. Fuel efficiency is another major area. We need more fuel efficient aircraft. We must develop more fuel efficient technologies in aircraft design, powerplants, and operating procedures. It seems likely that one of the major areas for research is that of operations. I think someone should be looking at alternative fuels for aviation. Since the fuel usage for all varieties of aviation is only about 4 percent of total domestic petroleum use, it is not a driving force in the marketplace. Therefore, I am tempted to ask: If NASA doesn't do this, who will? Another area for attention is the emerging short haul, low density markets. The commuter airlines are moving into the market opportunities made available as the air carriers and local airlines restructure their routes. Since the commuter airlines generally use smaller aircraft than the air carriers and locals, there is a large market emerging for small transport aircraft—sort of a middle market between the general aviation aircraft and the large, high technology aircraft of the airlines. Although there is some activity in the area of 20- to 40-seat aircraft, I believe there is a need for better designs and more technology advances in both that range and the 60- to l20-seat range. Overlaying all of these areas is the fundamental concern that we develop cost-affordable technologies. Increasing attention must be given to the ability of the government, the airlines, and the users to pay for improvements. Future aviation technologies must be developed with greater consideration for their acquisition and operating costs. In light of the vast long-term investment needs of the system, rapidly escalating operating costs, and the general mood of fiscal conservatism—none of which is likely, in my view, to disappear—we must put much greater emphasis on developing technologies that are efficient and affordable. Thank you. 76