GRA, Incorporated David Ballard, Senior Economist 115 West Avenue • Jenkintown, PA 19046 • USA

1. 2nd Annual NEXTOR GMU FAA Workshop Innovations in NAS-Wide Simulation In Support of NextGen Benefits Analysis Advances in Monetization of Benefits January 28, 2010 GRA, Incorporated David Ballard, Senior Economist 115 West Avenue • Jenkintown, PA 19046 • USA bdballard@gra-inc.com 215 884 7500

2. Overview • Acknowledgement of IPSA Team Members and Team Environment • NextGen Performance Improvements • ATM Improvements and Changes in Use of System • ATM as One of Many Inputs for System Users and Decision-Making • Benefits as User “Harvesting” of Performance Improvements under Specific Scenarios • Advances in Benefits Monetization • Environmental Implications of Aviation Growth and NextGen Capabilities • Benefits for High Performance GA Users • Assessing Benefits for Travelers and the Broader Economy • Airlines and NextGen – Beneficiaries or Intermediaries? • Partners in either case • What’s Next?

3. IPSA Team Leadership and Members GRA, Incorporated

4. NextGen provides numerous NAS performance improvements 1 3 Through High Density Operations, new runways, and other operational improvements, airport capacities increased 40 to 60%, allowing increased throughput while maintaining reasonable Demand/Capacity ratios 4 Through Trajectory Based Operations, satellite navigation, data communications, and other operational improvements, en route capacities increased 70% to 95% Future individual aircraft (airframes, engines) and ATC exhibit: 32 dB noise reduction (cumulative) 33% reduction in fuel burn 60% reduction in emissions X NextGen Baseline 2 Delays attributable to Weather reduced by over 40% through improved airport capacity in Weather, improved aircraft capability in Weather, and advances in probabilistic decision making Noise Exposure NextGen Noise Exposure Baseline

5. Primary benefit opportunities for NextGen performance are increased throughput and reduced average delay BaselineCapacity NextGen Capacity Average Delay Capacity Increase Due to NextGen Baseline Projected Delay/Throughput Accommodate Growth A C Reduce Delay Increased Throughput Possible with Same Average Delay as Baseline D B Reduced Delay Possible with Unchanged Throughput Number of Flights Feasible Projected Throughput with NextGen Feasible Projected Throughput, Baseline Future without NextGen • This analysis is predicated on the fundamental capacity tradeoff between throughput (quantity of service) and delay (quality of service) in the NAS

6. What Must Operators Take into Account? Operator Costs and Inputs Fuel Labor Airport costs Ownership/overhead ATC Infrastructure and Operations Delay costs Market Features Demand Competitive environment Environmental constraints ANSP policies and “rules of the road”

7. Depending on circumstances affecting other inputs and parameters, NAS users will “harvest” the NextGen capabilities in different ways BaselineCapacity NextGen Capacity Average Delay Capacity Increase Due to NextGen Baseline Projected Delay/Throughput Accommodate Growth A C Reduce Delay Increased Throughput Possible with Same Average Delay as Baseline B Reduced Delay Possible with Unchanged Throughput Number of Flights Feasible Projected Throughput with NextGen Feasible Projected Throughput, Baseline Future without NextGen • The response by airlines and other system users to NextGen capabilities (opportunities for delay savings and increased throughput) will determine the ultimate levels of improved performance

8. Valuing NextGen requires, in part, valuing possible scenarios individually BaselineCapacity NextGen Capacity Average Delay Capacity Increase Due to NextGen Baseline Projected Delay/Throughput Accommodate Growth A C Reduce Delay Increased Throughput Possible with Same Average Delay as Baseline D B Operating Point Analyzed Reduced Delay Possible with Unchanged Throughput Number of Flights Feasible Projected Throughput with NextGen Feasible Projected Throughput, Baseline Future without NextGen • D, the “operating point analyzed,” arises from modeling choices about parameter settings for the simulation tools – D is not directly chosen • Points shown (A through D) are simulation results but the curves are notional – actually tracing a curve requires repeated simulation runs

9. Note that some scenarios may rely on different combinations or uses of NextGen components or alternatives, giving rise to different capacities BaselineCapacity NextGen(s) Capacities Average Delay Capacity Increase(s) Due to NextGen(s) Baseline Projected Delay/Throughput Accommodate Growth A C Reduce Delay Increased Throughput Possible with Same Average Delay as Baseline B Reduced Delay Possible with Unchanged Throughput Number of Flights Feasible Projected Throughput with NextGen Feasible Projected Throughput, Baseline Future without NextGen • Examples of factors that might lead to different capacity curves include greater use of secondary airports, differing levels of avionics equipage or capability, or differences in policy environments or “rules of the road”

10. Advances – Environmental Implications • Environmental implications of NextGen improvements are complex, controversial, of interest to many parties and depend on the future policy treatment of environmental mitigation across all sources • IPSA is treating aviation environmental impacts through increasing collaboration and coordination (through the JPDO Environmental Working Group) with FAA AEE and its Aviation Environmental Portfolio Management Tool (APMT), which is under development by several universities and contractors. • This coordination will involve use of a common set of methodologies and parameters for measuring and valuing the relevant inventories

11. Advances – HPGA Users • Focus has been on • Delay savings for these users based on simulated flight trajectories with and without NextGen • Analysis of user activity at the airport level has increased understanding of where HPGA aircraft customarily operate, which affects where and how NextGen equipage issues arise for these users

12. Advances – Passenger Benefits BaselineCapacity NextGen Capacity Average Delay Capacity Increase Due to NextGen Baseline Projected Delay/Throughput Accommodate Growth A C Reduce Delay Increased Throughput Possible with Same Average Delay as Baseline D B Operating Point Analyzed Reduced Delay Possible with Unchanged Throughput Annual RPMs Number of Flights Feasible Projected Throughput with NextGen Feasible Projected Throughput, Baseline Future without NextGen • Depending on operator choices about “harvesting” NextGen capabilities, passengers may benefit from an increased availability of flights with unchanged average delay (service quality), at point C, improved service quality (reduced delay) on an unchanged level of seat availability at point B, or from additional flights and improved average delays, at an intermediate point like D, the “operating point analyzed” shown above. • There are relatively straightforward ways to value (from the passenger perspective) an outcome at point C (increased consumer surplus due to fares lower than they would be otherwise) or an outcome at point B (reduced average delay valued using the average value of passenger time), but how can intermediate points be assessed?

13. Advances – Passenger Benefits BaselineCapacity NextGen Capacity Average Delay Capacity Increase Due to NextGen Baseline Projected Delay/Throughput Accommodate Growth A C Reduce Delay Increased Throughput Possible with Same Average Delay as Baseline D B Operating Point Analyzed Reduced Delay Possible with Unchanged Throughput Annual RPMs Number of Flights Feasible Projected Throughput with NextGen Feasible Projected Throughput, Baseline Future without NextGen • Depending on operator choices about “harvesting” NextGen capabilities, passengers may benefit from an increased availability of flights with unchanged average delay (service quality), at point C, improved service quality (reduced delay) on an unchanged level of seat availability at point B, or from additional flights and improved average delays, at an intermediate point like D, the “operating point analyzed” shown above. • There are relatively straightforward ways to value (from the passenger perspective) an outcome at point C (increased consumer surplus due to fares lower than they would be otherwise) or an outcome at point B (reduced average delay valued using the average value of passenger time), but how can intermediate points be assessed?

14. Calculating the Hybrid Value BaselineCapacity NextGen Capacity Average Delay c G Y a a x Capacity b WITHOUT INVESTMENT: Baseline Projected Delay/Throughput Increase Due to NextGen Investment Accommodate Growth A C Reduce Delay AFTER NEXTGEN INVESTMENT: Increased Throughput is Possible with No Additional Average Delay D B AFTER NEXTGEN INVESTMENT: Reduced Delay is Possible for Unchanged Throughput Operating Point Analyzed Level of NAS Activity (Ops, flights, RPMs,….) Feasible Projected Throughput, Baseline Future w/o NextGen Stakeholders can employ the increased capability offered by NextGen in a range of ways. Parameters chosen for simulating NextGen infrastructure, ATM and operational characteristics in this analysis resulted in the system operating at “point 2.5” which combines increased throughput with decreased average delays • Key • a annual throughput, baseline feasible (Point A) • a average delay, baseline infrastructure with feasible throughput (Point A) • b average delay, NextGen infrastructure with baseline throughput (Point B) • G annual throughput, NextGen infrastructure at approximate level of average delay a (Point C) • x average delay associated with Point D • Y annual throughput associated with Point D • Valuation • Using the reduction in average delay associated with operating unchanged throughput through a more capable NextGen system, using on the passenger value of time (PVT), the value of time savings at Point D is denoted VT = Value(B) • Using the reduction in average real yield associated with bringing increased throughput to market, the value to passengers at Point C is the aggregation of savings on RPMs sold at reduced average real yield (the consumer surplus method), denoted CS = Value(C) • The value of capabilities and operational outcomes leading to Point D is calculated as a weighted sum of these two “corner” valuations: • Value at interior points can also be calculated.

15. Advances – Benefits to the Broader Economy • Not currently a part of IPSA approach • Other researchers (Harback, et.al. from Mitre-CAASD, Jeffrey Cohen from University of Hartford) have looked at Computable General Equilibrium (CGE) approaches to estimating the impact on GDP of aviation or transportation infrastructure investment. • This is not the same thing as “economic impact” • Work is still preliminary for aviation – concern is that aviation is such a small sector within entire economy

16. Advances – Implications/Benefits for Airlines • NextGen enables operational improvements to airline NAS users across a variety of metrics • Increased flight opportunities • Reduced flight delays • Reduced fuel requirements (more direct and precise flight trajectories) • Lowers cost per flight • Reduces environmental impacts • Are airlines beneficiaries or just intermediaries that transfer the capabilities (“harvest”) enabled by NextGen investments to final users of the NAS (passengers, shippers, broader population)? • Given current and anticipated institutional arrangements, the incentives of airlines and other users to make necessary NextGen investments – their “NextGen business case” – must be understood and taken account of by policymakers (e.g., RTCA TF5)

17. What’s in Operators’ “Big Picture?” Operator Costs and Inputs Fuel Labor Airport costs Ownership/overhead ATC Infrastructure and Operations Delay costs Market Features Demand Competitive environment Environmental constraints ANSP policies and “rules of the road”

18. Next Steps • Stakeholder business cases • Rationale and pace of equipage for specific users • Active and ongoing engagement of stakeholders as NextGen is designed and deployed • Scenarios within which NextGen is deployed • Economic growth/input costs • Environmental constraints • Alternative far term formulations for NextGen • Equipage requirements • Variations in infrastructure deployment or use

19. Thank You NEXTOR Asilomar -- April 15, 2009 GRA, Incorporated