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By GREGORY DL MORRIS, an independent business journalist with more than 20 years' experience covering finance, industry and commerce worldwide.

Brokers serving the aviation sector say that even after a final determination is set, there will still be a great deal of uncertainty about the details, but they laud underwriters for stepping up and offering supplemental coverage at reasonable rates, so capacity is not a problem. In any case, the closures will not affect major commercial airports, but will still have a strong knock-on effect on services and businesses at those airports and the regions they serve.

The U.S. Contract Tower Association issued a statement in which executive director J. Spencer Dickerson stated, "The prospect of closing nearly [two hundred] contract towers nationwide because of sequestration is inconceivable given the very real impact it would have nationwide, and yet it appears to be a real possibility." According to the trade group, the towers to be closed represent half the towers in the country.

Whenever a final determination of closures is made "airport operating authorities have basically three options," says Brad Meinhardt, area president and managing director of aviation for AIS Gallagher, in Las Vegas. "They can simply operate as a non-controlled airfield, they can hire the controller contractor, or they can hire their own ATC [air traffic control] personnel. The catch is that standard coverages under which municipalities or airport authorities operate all specifically exclude ATC. However, the industry is moving rapidly to offer extended coverage and generally being very fair about pricing."

Meinhardt, a pilot himself, noted that Ace is a major underwriter in the market, with Berkeley another broad aviation underwriter but not as big in the control sector. "Ace already underwrites the FAA program, so they know the market and the risks. They have stepped up and offered very reasonable rates. The limit of $10 million carries a premium of $20,000, with $5 million at $16,000 and sleep insurance of $2 million at $12,500. Berkeley is offering $5 million limits for up to $15,000. The carriers are not being opportunistic, the coverage is extremely affordable. Still, a lot of municipalities and authorities are struggling, and even at modest rates, this is an expense that was not on their budget for this year."

The National Air Traffic Controllers Association issued a comprehensive report on the impact of the FAA budget cuts on the entire aviation system. It did not mince words: "If these cuts proceed as scheduled, the consequences would begin to result in noticeable operational impacts in mid-April. Tower closures and controller furloughs will significantly reduce the capacity of the national airspace system, negatively affecting the flying public, as well as business and military operations, in numerous ways. A reduction in air traffic control services will ultimately result in fewer flights in the air and increased delays on the tarmac, creating a ripple effect that will hurt the airlines, pilots, flight attendants, private aviation, airport employees, passengers, and all businesses that depend on a vibrant aviation sector, such as those that use air services to transport their goods. These aviation cuts will also negatively affect local communities and their economies, which depend on aviation to attract business."

March 20, 2013

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