Aviation Security Impact Assessment Working Group (ASIA-WG) Report to ASAC

1. Aviation Security Impact Assessment Working Group(ASIA-WG)Report to ASAC May 3, 2006

2. Aviation Security Impact Assessment WG TSA Administrator ASAC Aviation Security Advisory Committee ASIA – WG Aviation Security Impact Assessment Working Group Membership: AAAE, ACI-NA, ATA, Boeing, DHS, DOT, TSA, Airbus, ALPA, CAA, NACA, RAA, NASA RMAP - TWG (Risk Management Analysis Process - Technical Working Group) Risk and Effective/Efficient Countermeasures USCAP - TWG (U.S. Commercial Aviation Partnership – Technical Working Group) Operational/Economic Impact Analyses Membership: AAAE, ACI-NA, Airbus, ALPA, ATA, Boeing, CAA, DHS, DOT, FAA, NACA, NASA, NGATS/JPDO, RAA, TSA Membership: AAAE, ACI-NA, ATA, Boeing, DHS, DOT, TSA • ASME/RAMCAP • DHS/USC-CREATE • DHS/RNCSAA/DNDO • LANL/LED • DHS/Homeland Security Institute

3. ASIA-WG Progress • USCAP Operational/economic impact analyses: • Franz Edelman Competition • Analysis example - baseline • Analysis example - new security fee • RMAP risk management analysis process/tool development: • Initial analysis process/tool/analysis • Spiral updates

4. USCAP - Franz Edelman CompetitionPress Release • “April 3, 2006 - The Institute for Operations Research and the Management Sciences (INFORMS(R)) today announced five finalists that will compete for the 2006 Franz Edelman Award for Achievement in Operations Research. The winner of the Franz Edelman competition will be announced at a special awards banquet on Monday, May 1, 2006 • Each year, the Franz Edelman competition recognizes outstanding examples of Operations Research (O.R.)-based projects that have transformed companies, entire industries and people's lives. O.R. uses advanced analytical methods to make better decisions and is a disciplined way to improve almost any business situation in nearly any type of organization in the public or private sector. Past Franz Edelman winners have included General Motors, which used O.R. to save more than $2 billion through improved productivity at 30 assembly plants in 10 countries, and a team from the city of New Haven and Yale who won for preventing AIDS through an innovative needle exchange program… • Ranging widely in industry and geographic origin, the 2006 Franz Edelman finalists are: Animal Health Institute and Cox Associates; The US Commercial Aviation Partnership, comprising Airports Council International - North America, Air Transport Association, Department of Homeland Security, Department of Transportation, The Boeing Company, and the Transportation Security Administration; Omya Hustadmarmor and M0re Research/ Molde University College; Travelocity and Sabre Holdings; and Warner Robins Air Logistics Center and the University of Tennessee. Descriptions follow: • The US Commercial Aviation Partnership: Industry-government coalition ensures a balance between security and aviation-system performance. • Since 9/11, there has been an outpouring of support for measures aimed to increase the security of the air transport system. However, in an era of limited resources and with airlines standing on the brink of bankruptcy, it is vital government decision-makers have the right information to help them implement measures that strike the right balance between truly enhanced security and the continued vitality of the air transport system. • To meet this goal, a consortium comprising government, airlines and industry formed the US Commercial Aviation Partnership (USCAP). USCAP used Operations Research to create a unique model and analytical process that combines system dynamics with econometrics to provide a 30-year evaluation of the impacts of proposed security measures on each key stakeholder…”

5. USCAP Franz Edelman Competition Example Endorsement I am pleased that the USCAP Econometric Tool has been selected to be a finalist in the 2006 Franz Edelman Award. In 2004 I lead an independent review of the this tool so I am familiar with it's structure and general assumptions. The review was conducted at the request of Boeing and the TSA and indicates both the level of collaboration and also the approach to quality involved in the program. The USCAP Econometric Tool is an extremely broad tool developed to evaluate the operational and economic impacts of security measures considered in the wake of the September 11 events. This was and is an extremely important issue as there was no comprehensive approach to evaluate the overall cost of the many security measures proposed in this difficult time. Because of the sensitivity of the threat analysis the tool does not include a threat mitigation analysis component (eg the benefit in a classical cost benefit) but does an admirable job at evaluating cost and is an extremely useful tool at informing both policy and implementation decisions. The tool is unique in it's attempt to assess the breadth of the air transportation system and to evaluate both economic and operational effects. The tool includes a broad range of system models including those for airports, airlines, aircraft, air traffic control and others. These models include detailed sub processes including security screening and queuing, airport operations, aircraft operations etc. The tool is designed with an evolutionary structure which allows additional elements of the air transportation system to be incorporated as they become impacted by proposed measures. The tool has been used to evaluate a number of proposed security measures and has yielded unexpected insights. For example, in an evaluation of airport perimeter security and airport personnel identification policies, the frequency and number of transient personnel involved in airport construction and maintenance (which are significant) was not fully appreciated until the UACAP model was run. In summary I strongly support the USCAP Econometric Tool for the 2006 Franz Edelman Award. Sincerely, Prof. R. John Hansman Director, MIT International Center for Air Transportation Department of Aeronautics & Astronautics Massachusetts Institute of Technology

6. USCAP Analysis Example – baseline • 170 graphs and charts of key variablesare available Average security times 10 minutes Enplaned Passengers 688m (2004); 1,842m (2030) Screening employees* 45,000 (2004); 65,000 (2030) Screening lanes* 1,835 (2004); 2,527 (2030) • * Improvements over 2002 baseline • 2005 staffing required per lane improved by 12.5% • Total (25 yr) screening throughput improvement is 103%

7. USCAP Analysis Example – new security feeElasticity Values for Air Travel General Observations: • When prices go up, people travel less • When prices go down, people travel more • The relationship is close to linear, for small changes as well as large • Unfortunately for the airlines, they are not able to “sneak in” small price changes that go unnoticed (if they could, they would have done so) • The USCAP System Model includes a conservative estimate for price elasticity (-.625) • FAA used a value of -.7 for rate setting in the 1970’s • More recent studies (attached) show significantly stronger values

8. USCAP Analysis Example – new security fee Elasticity Values for Air Travel Impact of Fare changes is quite apparent in history not only when “big” changes take place, but also in the accumulation of continuous “little” changes – Long term airline ticket prices have been declining in real terms for 20+ years. USCAP regression model accounts for ~97% of long term history * Constant $ * Total Fare = Pax Revenue + Taxes, Fees, & Surcharges per Enplanement

9. USCAP Analysis Example – new security fee Elasticity Values for Air Travel • DOT Canada “Independent Review…Air Traveler Security Charge”) • Summary results of 18 “superior” studies: • Identifies 6 important categories of markets • Significant variation across categories • Long haul international business market least price sensitivity (-.265) • Short haul leisure has highest price sensitivity (-1.52) • Median value of all elasticities = -1.15 USCAP uses - 0.625 Source: Gillen et al.,. Air Travel Demand Elasticities: Concepts, Issues and Measurement, Final Report, Prepared for Department of Finance Canada, December 2002

10. USCAP Analysis Example - New Security Fees$5 fee per one way ticket D Security Charges Collected +$900m/yr (2007); +1.8b/yr (2030) D Enplaned Passengers - 3m/yr (2007); - 6m/yr (2030) D Aeronautical Revenue at the Airport -$4m/yr (2007); -$60m/yr (2030) D Airline Revenue -$700m/yr (2007); -$1.5 b/yr (2030) Note: The model behavior in 2016 and beyond is an accurate depiction of model behavior, as the two scenarios experience a different set of dynamics, stimulating different airline pricing behavior.

11. RMAP Progress • Initial analysis process/tool/analysis: • Analysis process/tool targeted for July, 2006 : • Adversary and defender perspectives/uncertainties are important • Identify total risk reduction and impacts of countermeasures • Analyze implementation sequence impacts • First “real” analysis targeted January, 2007: • From TSA “A few thoughts on how RMAP can be used …  : • Strategic risk analysis of entire aviation security system to identify key threats, vulnerabilities and consequences; and the effectiveness and efficiency of potential future countermeasure suites as measured by reduction in total risk and the impacts on the commercial aviation system • The TVC analysts embedded within the air cargo, airports, and airlines General Manager offices will be the primary users.  They will use the tool to conduct high-level cost benefit analysis of new programs, rules, or security measures.  • … Risk Management and Strategic Planning will facilitate those analyses.” • Spiral updates are anticipated

12. RMAP ProgressAdversary and defender perspectives/uncertainties are important ADVERSARY’S PERSPECTIVE DEFENDER’S PERSPECTIVE Threat analyses Attack analyses • Consequence: • Human • Direct • Indirect • Other • Consequence: • Human • Direct • Indirect • Other • Difficulty • Vulnerabilities • Resources • Time • Likelihood • Vulnerabilities • Intent/capabilities Attractiveness/Uncertainties Risks/Uncertainties Low attractiveness High risks Difficulty Likelihood High attractiveness Low risks Consequence Consequence Understand attractiveness/risks and uncertainties

13. RMAP ProgressIdentify total risk reduction and impacts of countermeasures Total risk reduction Various countermeasure suites Implementation Impacts

14. RMAP ProgressAnalyze implementation sequence impacts Total risk reduction Implementing countermeasures in best value sequence requires analysis of incremental risk reduction Implementation Impacts