October 26, 2005
Mr. Morales: Good morning and welcome to The Business of Government Hour. I'm Albert Morales, your host and managing partner of The IBM Center for The Business of Government. We created the center in 1998 to encourage discussion and research into new approaches to improving government effectiveness. You can find out more about the center by visiting us on the web at www.businessofgovernment.org.
The Business of Government Radio Hour features a conversation about management with a government executive who is changing the way government does business. Our special guest this morning is Russell Chew, chief operating officer of the Air Traffic Organization at the Federal Aviation Administration. Good morning, Russ.
Mr. Chew: Good morning.
Mr. Morales: And joining us in our conversation, also from IBM, is Pete Boyer. Good morning, Pete.
Mr. Boyer: Good morning.
Mr. Morales: Russ, can you please describe to us the mission of the FAA and, more specifically, of the Air Traffic Organization, otherwise known as ATO?
Mr. Chew: Well, sure. The FAA is really here to provide the safest and the most efficient airspace system in the world. Now, about 80 percent of the FAA is the Air Traffic Organization, and the Air Traffic Organization really is the one that provides service to those who use the national airspace system. And there's a lot of services that are provided. The most common one that everyone thinks about is air traffic control, but the reality is there's a lot of other service as well. There's weather briefings, there's navigation signals, communications systems and things like that. In fact, what people don't know is that the Air Traffic Organization is, in many ways, a large telecommunications company within itself. We have things like microwave towers and things so that we can effect communications among all our of various facilities and communications from those facilities to the pilots who are using the system.
Mr. Boyer: Is this primarily a U.S.-based organization or are there people internationally also?
Mr. Chew: Well, there's U.S. interests internationally, like in Puerto Rico, Guam -- where we actually provide services there as well. But for the most part, most of the services are in the United States.
Mr. Boyer: Your listeners may not know that you're relatively new to the FAA and, in fact, relatively new to government service. Can you tell us a little bit about your career?
Mr. Chew: Yeah, I'm actually new to government -- completely new to government. I started off in the private sector. I did my undergraduate studies at Stanford University, I did my graduate studies at University of Southern California, and got interested in aviation while I was in school and actually completed most of my private pilot's license through my flight instructor while I was in undergraduate and graduate school. Following that, I came out and went on into the non-Schedule 121 cargo industry and ended up flying charter Lear jets. And from there, I got hired to American Airlines, and I spent about 18 years at American Airlines. And at American Airlines, I started out as a pilot, but within a couple of years, I was -- started into management there. And I started in pilot management at a crew base, ultimately ending up in systems and development because I have a background in many of studies in information technology. And that led to regulatory business and ultimately running the daily operation at American Airlines; that's where I actually ended up before coming to the government.
Mr. Boyer: You talked about ATO being about 80 percent of the FAA. What's the size and budget of your specific organization?
Mr. Chew: So the Air Traffic Organization is about 35,000 people. About 17,000 of those are actually in the -- kind of the traffic side of the business. About 7,000 or so are in the maintenance, engineering, infrastructure part of the business. It's different than the private sector -- we look in terms of budgets -- but it's -- in terms of budgets, it's about a $9-billion organization annually. About 6-1/2 of that is our operating budget, and about 2-1/2, or a little less than that, is our capital budget. We operate about 50,000 flights a day -- or we handle about 50,000 flights a day. About 30, 35,000, depending on how busy the day is, are our air carrier flights.
Mr. Boyer: Russ, that's an impressive organization. Can you tell us more about your responsibilities and duties as a COO and how you support the mission of the ATO?
Mr. Chew: Well, being the first chief operating officer for the FAA -- and really, the Air Traffic Organization is only a couple of years old -- my role was mainly to bring businesslike practice into what was a government organization that was really in the service business. The service model, which is a business model that's age-old, is a model based on the fact that you have customers that you're delivering services to and that you have owners that have certain expectations of what the characteristics and quality of that service is. Then you have employees, for the most part, are responsible for delivering the actual service itself.
Now, in the service model, the balance between those three main stakeholders in that model is a very important balance to reach. What you find out when you really look at how government runs is not necessarily the clarity of what a service model is and why those three things have to be in balance. You instead have one of them taking priority over another, depending on the budget, the pressure on the budget, the political environment at the time, what's happening externally in security and safety, and a lot of perceptions. And so to keep your eye on the ball and to move the business forward, you really have to have discipline around what exactly you define as your business and how you execute it, and that is not a characteristic of a typical -- or I shouldn't say "any typical" because I don' t know. I'm new to the government, and this is the only government agency I've been involved with, but when I arrived, after three or four months of assessment, it became pretty clear that a standard discipline around a business model was not there. The organization tend to react on an annual basis to the priorities that just happened to be present that year, and it was very hard for it to execute a strategy for the long term.
Mr. Boyer: Shifting the discussion to performance-based organizations, why is this type of change needed within the government?
Mr. Chew: Well, I think about 10 years ago or so, the FAA came under a lot of criticism. About that time, there was a system called the Advanced Automation System, and it really was supposed to be the air traffic system of the future. And it failed. I mean, they shut the program down around the mid-90s and had spent what was purported to be about $2 billion or more on that program. And so following that in the late 90s or the year 2000, there was an alarming increase in the number of passenger delays. If you remember the scare stories or horror stories of being on an airplane and being stranded in that airplane for hours and hours waiting to take off or waiting to get to a gate or sitting in the terminal, those horror stories were rampant in the summer of '99, the summer of 2000.
And so, it was during that time, really, that there was a commission that was established to look at that, and this Congressional study determined that they should create an organization that was performance-based organization, because they saw that as the solution to these problems, and that the FAA establish a chief operating officer to run that. And hence the Air Traffic Organization was born. Since then, and even during that time, there was also a recognition that the operating costs of the organization were rising -- in fact, they were rising even though traffic was falling after 9/11 -- so all those factors put together really motivated everyone to try to do something different.
Mr. Morales: Russ, you use terms such as "performance-based organizations" and "service-provider model." What's been one of the greatest challenges in bringing these concepts and this lexicon to your role now in the government?
Mr. Chew: Well, the government process itself. Now, even though we have both personnel reform and procurement reform with the FAA, the way those are designed are -- were still designed around what I would call government process, and that process is based upon how money flows in the government and how priorities flow. Now, typically, a government organization is personality-driven because we elect officials and things like that and fairly risk-averse because anyone appointed to run an agency or to run anything in the government is sometimes measured by not the output of the organization, but managing to stay out of trouble with the organization because there are a lot of political things and oversight that occur that could damage one's future -- and particularly if you're a political appointee. So a performance-based organization is intended to supersede that. To go from a risk-averse culture to a performance-based metrics-driven culture is a very, very important aspect of the Air Traffic Organization but is very, very difficult to actually achieve in the government process-oriented organization.
Mr. Morales: Great. How is the ATO becoming a performance-based organization? We will ask COO Russell Chew to share with us when the conversation about management continues on The Business of Government Hour.
Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with FAA Chief Operating Officer Russell Chew. Also joining us in our conversation is Pete Boyer.
Russell, in our earlier segment, you described your desire in moving ATO to a performance-based businesslike organization. Can you tell us more specifically what you mean by "businesslike performance-based organization"?
Mr. Chew: Sure. The -- a business -- I mean, any successful business has a strategy that surrounds what it does, and those businesses that are most successful can execute that strategy with precision and can keep that going year after year after year. And it really provides the focus, that really drives the business and everyone in it.
When you look at that the Air Traffic Organization set out to do, it was really to get a focus around not just one element of its business, like capacity, or one element, like safety, but all the elements of the business so that on a comprehensive basis, every wheel, every dollar, every resource, every gear that's turning in that organization is turning the right way and in the same direction. Now, that's hard to do when you're either large, complex, or sprawling all over the United States, which we are all of the above. And so what we set out to do was set up a balanced scorecard approach to that strategy. Now, of course, it's anchored in the service model with customers and owners -- what I call owners -- where I came from, it was called shareholders, but here call them owners -- and employees. And in the balanced scorecard process, you couple that by setting up what exactly are your goals for each of those constituents, and then you define the processes with which you grind out the output and measure that output and see if you're making progress.
So setting that up is not a trivial exercise. I mean, that is a very difficult exercise because you can't do that at the top only, you have to do that through the whole organization. Now, so far, we've -- the organization is only about a year-and-a-half old, and we have the strategy at the executive layer, and it's really built around four pathways. First of all, operating excellence, which is, we need operate safely and efficiently, and we have to deliver those kinds of things the owners expect; they expect a safe operation, they expect an efficient operation. The customers expect their efficiency and their level of service to be what they want, and the employees are expected to be taken care of so they can deliver that service. Then you set up those processes and develop metrics for every one of those.
The second pathway is financial management, which really didn't exist before. We had budget management. So we want to manage costs, not just budgets. To do that, you have to actually use a cost accounting system to understand your costs. Now, financial management is more about managing costs forward, investing in things that can help reduce your costs while you're improving your service. That means all your capital programs have to be joined up with the operation. In addition to financial management as a pathway, the organizational change that we put in place actually merged the capital programs and those who managed it with the operating units that deliver the service. Before the organization, those two were separate, and when they're separate, those who buy the equipment aren't connected with those who have to use it and deliver the service, and what happens is you waste a lot of money on things you don't need, and you don't have enough money on the things you do need. And the capital program's not moving the metric, which is ultimately moved by the operation, not by those who buy the equipment.
Mr. Boyer: Russell, I do what to probe this concept of financial management a little bit more, but just to clarify, you use terms such as "customer," you use terms such as a "shareholder/owner," and you use terms such as "employees." I think I get the employees ones, and I think most of our listeners probably got that one, but can you describe to us, when you use the term "customer" and you use the term "shareholder/owner," who are you referring to?
Mr. Chew: That's a good question because when I got to the organization, nobody knew who the customer was, or there was a lot of differing opinion who they are. We use -- in this business, we use "customer" as any entity who actually consumes the service we provide directly. So if it's an airline who uses the system to run a business, the airline is the customer. If it's in general aviation, where there's a pilot who actually owns the airplane that's flying through the system and using its services, then it's that pilot as the owner of that airplane. Our customers are varied as well. I mean, the -- actually, the military is a customer of ours. In many ways, we're partners, so the military has kind of a dual status in the model. But certainly while the military provides services to our customers at some sites, we actually provide a lot of services to the military because a lot of military airplanes fly in the system at any given time.
The owners are those who actually control what they want out of the system, and they're, for the most part, represented by the three branches of government, although two of them stand out -- the administration -- the Executive Branch -- and the Legislative Branch. Now, the challenge, as I think -- and this is where the ambiguity in government ownership comes about -- is that the administrative -- or the Executive Branch and the Legislative Branch don't necessarily agree on what our priorities should be. And so they come to some compromise, usually that culminates in an authorization and an appropriation of funds to the various activities that we have. Our challenge is that those appropriations are not performance-based, and so we have to convert those programs and those funding streams to a performance-based organization, and that's very, very challenging. Now, what we're setting up is the processes on how to do that, and financial management is all about that.
So customers really are the ones who receive the service, and the owners are the ones who dictate what we're supposed to be doing with the service and what we're supposed to be funding as part of the service, and really, ownership ultimately then becomes the American citizen, who ultimately funds this thing through taxes.
Mr. Morales: You used the word "compromise," and I was reminded of a saying that says that flying is a lot like a group of compromises moving in tight formation.
Let me come back to financial management. We understand that the focus in 2005 has been to push management budgeting and reporting and accountability down to the program managers within FAA using new cost accounting and labor distribution reports. How has this effort changed the operational activities and outcomes within your organization?
Mr. Chew: Well, the first thing is actually pushing that down doesn't change it. Pushing it down to -- not just program management, but all managers, whether they're in the field or at headquarters, is a byproduct of the process we use to get to results. So if you become a results-based organization or a performance-based organization, you actually have to set up processes that make it most efficient. If you try to manage the budget from Washington, D.C. -- where most of your people are actually in the field -- I use the analogy that you manage with an ax. You make a decision at a high level, and while you may achieve ultimately -- you want to control or cut costs here or improve or enhance funding somewhere else -- you do it with an ax, and there's a lot of collateral damage in that, and there's a lot of waste and inefficiency that goes along with it.
The idea behind driving things down, not just in budgets, but also in accountability, is to manage that at a lower level. But you can't just give them the money and say, spend it however you think is right, you have to set up a lot of targets and guidelines and metrics so they understand what their goal is. And that's why you need a scorecard that goes all the way down to that level. And you actually can't push that responsibility or accountability down until you actually get the money connected with it so people have a budget to work with, and they understand what their responsibility is with producing results with that budget that they're giving. We're several years away from really achieving all that. We have pushed at least down one level already. We have 10 service units in the Air Traffic Organization; some include things like terminal -- that's the -- you know, the control towers and terminal radar control facilities. Then we have en route, and there's 22 en route air traffic control centers. That's under two separate lines of business, and each vice president has been given a budget now, and they have to manage that budget, and they're also given goals to reach.
That's actually a collaborative process at the executive level. We've actually formed an executive council which is composed of the 10 vice presidents of our service units, and this is new. Rather than the COO making all the decisions, the executive council, which is this group of 10 vice presidents, have to deliberate on all the strategic decisions for the organization so that it's not one person, who could leave -- right? -- and bring someone in new, making all the decisions, but, in fact, a collaborative balance between the needs of the 10 service units.
Mr. Boyer: Well, Russ, as you previously mentioned, the FAA publishes quarterly performance measures and ranks itself on a scorecard. How do the performance metrics contribute to operational efficiencies and what kind results are you seeing?
Mr. Chew: The FAA has a scorecard that's quarterly, but the FAA scorecard is not comprehensive. What we have underneath that is an ATO scorecard, if you want to call it that. So the organization itself has a comprehensive business plan that feeds the flight plan, which is reported quarterly. Now, our business plan -- because it's comprehensive -- is fairly large, and in fact, we have a dashboard at the executive level of the dozen or so metrics that we look at on a monthly basis and we track. And then every level has that same scorecard, and they have metrics that contribute to that. We're already starting to see -- because we're focusing on it -- improvements in the quality of service we provide. That includes things like airport capacity -- to make sure that we are providing capacity and making it available -- airport efficiency, or how well we actually deliver traffic at the rates that call; productivity, or how many people it takes to deliver how many flights; overhead rates, or how many people we have in overhead versus people who are delivering service; and what we call the line organization. Our direct employees we define, for instance, as the people who deliver the service -- that's a controller or technician -- and the first-line supervisors. Everyone else is considered overhead or indirect. We're managing those ratios.
So once you put those metrics in place, and you drive them down and you say, I want you to come up with ways to improve those ratios, then the managers at every level begin to work toward that, and just the focus alone and the fact that you decided to measure it actually starts to change the behavior in the organization. Now, that only is good for a year or so, after which you really have to think about innovative ways to do that, and of course, that's where capital spending comes in. Capital spending isn't just to spend on incremental improvement in the quality of the service; the capital spending has to be there also to improve your cost ratios so that you can continue to provide the service -- a better service -- with more safety, more quality of service, at an ever-decreasing unit costs.
Mr. Boyer: Now, clearly the topics we've discussed so far require a large amount of cooperation from the employees of the ATO. How do you encourage your team to change, and what kind of steps is the ATO taking to motivate staff to change?
Mr. Chew: So -- the answer's really it's a -- like any changed management effort that you put forth. There's two elements to it; there's a top-down element and a bottom-up element, and they're different. You don't actually directly motivate employees, but you have to actually tell a story that fulfills the needs for employees to understand and behave differently. And it really kind of boils down to three things, and in government, what I found, there's actually a fourth one there.
The first thing is, you have to tell them why you're doing this, and it has to be a compelling reason because people, by nature, don't really want to change. You know, why would I want to change who my boss is and all the things that make them comfortable with -- gee, I'm successful today, you might change something that might make me unsuccessful in the future. So you have to give them a pretty compelling reason to change. Our reason was that our budgets were increasing and the available funds were decreasing, and so if we didn't change the way we worked, we didn't have a sustainable way of projecting our future other than for asking for more money, which really wasn't happening. And we looked at -- in spite of the fact we were asking for all this money over the last 10 or 12 years, we really never gotten it. And so there's been a slow degenerative spiral on the number of people in the organization, which has been retreating away.
So that's the first part, is just to tell the story. Then you have to tell them what you want me to do, and that's of course where this balanced scorecard comes into place. Well, we want you to move these metrics and to get them to understand that things we're going to measure are things that are very, very well-defined. Metrics has never been a weakness of the FAA, it's just they had so many, and they would focus on different ones, depending on what the priority was that year. We're trying to create a system of really basic fundamental metrics for the business that will transcend those changes. They'll always be there.
Now, once you -- once they feel like, well, we better change, and you tell them what is it they need to do, you always have to ask and answer the basic question. Every employee's going to say, what's in it for me. And so you have to give them a reason to move from where they were to where you want them to go on an individual basis. That's the most challenging. And the way you accomplish that is through a lot of communication, and to make them uncomfortable where they are today. So we set out to create that level of discomfort. Now, the restructuring itself does that automatically -- you restructure, and everybody's boss changes -- but we restructured in a massive way. This kind of massive reorganization takes a long time, it can take five or ten years to really achieve. But it makes everyone very, very uncomfortable and very, very anxious. But through that, you give them a light at the end of the tunnel, and that becomes something that they would like. You have to put in recognition systems, you have to put in what I call safety systems -- what we call psychological safety is something that will make them feel better. And we're in that process now. If you were to look at the organization today, you would find they're still in a very anxious stage, and we have a window of opportunity when they're in that anxious stage to bring them to the other side.
Now, the fourth part is what I would call more of a government-oriented characteristic of changed management. There's a tendency to look at political leaders as transient, one party to the next, one election to the next, one Congress to the next, one year to the next. And you have to overcome the natural tendency to wait it out. Now, that's difficult to do because they're right, there is transience to it. So in our messaging, you have to convince them that whatever the situation is, it's going to be here after these particular leaders are gone and no matter what administration's in place. And if you can convince them that that's the case and that the only solution is for them to take action and for them to be part of the solution, then you've actually established a way to solve that fourth characteristic of change management. Now, that is -- that's not easy to do, but it's absolutely essential to do.
Mr. Morales: This is great advice for any organization going through the massive change that yours is.
How's the FAA handling outsourcing? We will ask FAA COO Russell Chew to share his experience when the conversation about management continues on The Business of Government Hour.
Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with FAA Chief Operating Officer Russell Chew. Also joining us in our conversation is Pete Boyer.
Russ, in the last segment, we spoke a lot about the significant changes going on over at ATO, specifically the organizational changes. Can you be more specific and describe some of those to us?
Mr. Chew: Sure. I mean, organizationally, splitting the lines of business in to things that made sense from the customer point of view was the first step because most government organizations tend to be organized in what we do. You'd have a section on weather, you'd have a section on traffic, you'd have a section on procurement, and moving those and merging those in a sense so that they were oriented along very specific output was an important part. And that's still actually very hard for them to understand. For instance, a terminal or a control tower or a terminal radar control facility is really more about through-put to and from an airport. And so you would measure their performance in terms of the number of operations, takeoffs and landings per hour. En route, which manages the upper airspace, is more about how much controlled flight hours that you can produce per person or for so many dollars. And so the actual metric that you use to measure their performance is different.
Another one was flight service; flight service used to be kind of buried as a suborganization on a geographic basis under an air traffic control center, which managed upper airspace. Well, those services were very different; they provided weather briefings, weather reports, advisories to general aviation pilots and some corporate pilots and some military pilots as they flew over that airspace or landed at an airport that didn't have a control tower, but had some flight service personnel there. And so they had a very different type of output, which is the quality of the weather briefing, how many weather briefings an hour that you were able to disseminate, electronic dissemination of that kind of information, processing of flight plans from general aviation on electronic way or a manual process, and flight service was particularly problematic because being kind of a lower priority for an en route center, their facilities suffered more, their staffing suffered more, their equipment and technology was suffering a lot.
Mr. Boyer: Russ, much like the rest of the federal government, I would imagine that FAA is facing potential turnover problems with its air traffic controllers, perhaps as an aging workforce issue or for a variety of other issues. What is your human capital strategy to address this expected turnover in the workforce?
Mr. Chew: Well, you know, actually, this problem has been approaching for some time. It's pretty well known that in 1981, all the air traffic controllers were fired by the President of the United States. Back then, they were represented by a union called PATCO, I think it was. Following that, a lot of new people were hired, and of course, they were hired all around the same age because there were age restrictions on the hiring of air traffic controllers. And so we're facing a wave of retirements in our air traffic control work group, and also our technicians -- not as much, but our technicians that keep all the infrastructure running. And that wave of air traffic control retirements that are on the horizon -- because there is a mandatory retirement age for controllers -- is here now. And even though we've known it for some time that it was coming -- because it's not run like a business, but it's run on a reactive basis -- they would hire as many as the budget would allow. So what we set out to do was create a workforce plan, and the first thing you have to do is actually create a workforce model that has a lot of fidelity to it, that can estimate with some degree of accuracy the number of retirements, where they're going to occur and be able to be updated on an ongoing basis. So it has to be a dynamic model.
So we set out to do that the very first year that we started the ATO, and last December produced the first workforce plan for controllers. And it's very important because it projects retirements out for the next 10 years, and what you find out is more than half -- or, actually, over 70 percent of the controllers will actually become eligible to retire in the next 10 years, so you have a very, very important task to take on, which is how do you get controllers hired, trained, and certified to replace those who are going to retire. And it's a very, very specific skill you need to train to, and the talent that they have to have. And so your screening processes, your recruitment processes are all part of that plan. For us, the plan includes having to train to certification in a terminal in two years and in a radar/en route facility in three years. And that's very challenging for us because in the past, it's taken longer than that. So we have to apply better training disciplines around how we train and how we certify and how we get them the experience they need so that they can be certified in that amount of time. And for us, that's very important, otherwise we'll end up with too many trainees at a facility and not enough certified people, and then we'll have to slow the traffic down so that we don't have any kind of problems with the quality of our service.
Mr. Boyer: Russ, on a related topic, we understand the FAA has outsourced the automated flight service stations. Could you describe this for our listeners, and specifically, what has been your experience with competitive sourcing and what have been the results to date?
Mr. Chew: Yeah, there's a lot of interesting things that surround this, and there's a lot of myth versus reality on what outsourcing means to any government agency. The FAA actually for years has outsourced many things -- I mean, we don't own our own telephone lines and things -- and over the course of time have established certain efficiencies by sourcing competitively different service infrastructure things that we have going on. But the reason this one was so visible is because this was one of the services that the outside customer actually wants, and very visibly, we deliver. And this was the weather briefings that I mentioned that we created its own line of business. And so once you create your own line of business and you understand those costs, the outside world looks at it and says, well, why is that so expensive for that kind of service that you're giving us, and hence, the focus on A76.
Now, oddly enough, it began long before the Air Traffic Organization was actually established, this notion that this was a service that even could be considered in a competitive sourcing. We would still control the service, but rather than delivering it with our own people, we would have and hold a contractor potentially accountable for it. And you ran a competition. You ran a competition by forming your own internal bidder, what we call the most efficient organization. So we try to compete against the outside bidders and see whether or not we can do a better job, as good a job as an outside bidder. So the outcome of a competitive sourcing initiative is either an external source will do it better and so you select one, or your internal organization can do it better, and you get a more efficient internal organization. So there's a good outcome either way.
Now, obviously, this means that you really have to be careful in what you set up as the requirements for these -- this initiative and what kind of quality of service do you have, what kind of escalating procedures you have to remedy problems that you might have, and metrics on how you would measure the quality of the service you're providing. So we set out to do that, and the competitive sourcing was set up. We had set up a most efficient organization, and when the selection time came, the winner of the bidding process was Lockheed Martin. And not too long ago, that was actually executed and, that service today is now being provided by Lockheed Martin through us -- or by us -- by -- under our control. Now, we're measuring their quality of service, and the initial results are quite promising that the average wait time on a phone call is down and the average number of dropped calls is down. So the quality of the service is improving so far. The transition will take the better part of 18 months to complete, but in that time, at the end of that 18 months, the service will be virtually completely provided by Lockheed Martin with our oversight. The expected reduced cost is very significant. Over 10 years, the savings -- is being tracked, but the savings is expected to be over $2 billion.
Mr. Boyer: Now, with this experience and these results, what advice would you give to other agencies that are considering outsourcing one of their functions of their organizations?
Mr. Chew: Take care of your people. One of the most important things you need to do is exercise all avenues you have to provide a soft landing for the employees. Now, that's difficult to do because, generally speaking, the savings that you're going to get are based not just on the technology and the facilities -- which, in our case, was getting very old -- but also in a reduced number of people because you're going to be productive. We worked very hard with Lockheed Martin to try to guarantee as many jobs for our people as we could. We put in early retirement provisions, we put in what we call priority selection processes to make sure that anyone who was being displaced by this initiative would be the first to be considered for a job that might open in the FAA -- any part of the FAA, not just the Air Traffic Organization -- and will continue to provide some priority to those, if they were to be displaced, when Lockheed Martin continues to become more efficient that any open positions we have in the FAA and the Air Traffic Organizations for which they're qualified, that they would get priority in being reviewed for that -- considered for that position.
All of those things are important because if you don't, I think there'll be a lot of people -- a lot of owners and potentially even some customers who would say, you're not -- you know, this is not good and -- for anyone and you ought to -- they'll try to stop it, which, of course, there's always going to be those who try to stop it. But you know, you really can't stop progress. Even if this one didn't happen, sometime in the future when the world passes you by that far, there's going to be a lot of demand that we spend taxpayers' dollars more efficiently. So I don't see A76 as an end point; it's kind of a continuous process of improvement where you can use an A76-like initiative to help improve your own efficiency, even if it's not an outside bidder who wins.
The circular that A76 really describes -- I mean, we call it A76, it's really competitive sourcing -- has been changed over the years to try to make sure that we take care of our employees and to make sure that there are enough controls around it so that we don't arbitrarily outsource things that we really shouldn't or wouldn't be good as outsourcing alternatives. So my advice would be take care of your people, one, and two, follow the circular closely because it'll help protect you from making mistakes in the process.
Mr. Morales: That's great advice. What does the future hold for the Federal Aviation Administration? We will ask Chief Operating Officer Russell Chew to peer into his crystal ball when the conversation about management continues on The Business of Government Hour.
Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Russell Chew, chief operating officer of the Federal Aviation Administration. Also joining us in our conversation is Pete Boyer.
Russ, we understand that the ATO is aligning capital investment with operations. Why is this alignment being made, and how will it affect the future of ATO and the future of air travel?
Mr. Chew: Well, that -- you know, the future of any business lies with its capital programs, and that's what capital's all about. It's about funding things that can change your business forward, and that business affects not only the quality of the service you provide, but the costs that are associated with those services. Aligning capital and operations was about making sure that every capital dollar we spend has an important and a measurable effect on what's going to happen to the operation and the quality of service forward. We spent a lot of money on a lot of things. I mentioned we spend over $2 billion a year in capital. Now, if you think about that, in the private sector, how many operations or how many businesses do you known of that have about 6-1/2 or about $7 billion in revenue and spend $2 billion in capital? That's a lot of capital. Well, we have a very large infrastructure, and that infrastructure is deteriorating. Most of the facilities we have are very, very old, and they need to be restored, replaced, or consolidated in some way. Those are all the things you look forward because all of these are long-term investments, and whatever you invest in today, you're kind of stuck with for the next 25 years. So making those investments wisely is important to the future of the organization, more importantly to the future of the quality of the services it provides, and the demands that are going to be placed upon it in the future.
Mr. Boyer: How will the performance-based approach you described -- setting goals, developing metrics to measure your progress towards these goals and others -- affect the decisions about future capital investment?
Mr. Chew: Well, what we've done is we've taken the balanced scorecard and used those pathways I mentioned earlier to rank and rate our capital programs. That way, we take our capital portfolio and balance it across all the requirements for the business strategy going forward. That really wasn't done before; capital projects in the past were rated upon what effect it would have on the customer, and that was it. So if you looked at our capital programs prior to Air Traffic Organization's establishment, they didn't really have anything to do with reducing our unit cost at all. And of course, that impacts your ability to continue to provide services into the future -- unless you assume there's an endless stream of capital at an ever-increasing rate, which, of course, is not a good assumption in these days with the federal deficits that are out there.
Mr. Morales: Interesting.
Mr. Boyer: Russ, we had a fascinating conversation at the break around your career. I'm curious, how has your experiences served you in carrying out this role now as an agent of change at the FAA?
Mr. Chew: Well, coming from an airline business, change is every year.
Mr. Boyer: That's certainly true.
Mr. Chew: There are challenges every day, every month, every year, and I have been lucky to be part of a very dynamic business where the business models are challenged -- the basic business model is challenged every few years. That's what's really transformed my company that I came from, American Airlines, in 1983 from, even then, on the brink of bankruptcy to the hub-and-spoke models, which is now changing. You saw computer reservation systems use frequent flyer miles -- things like that -- as ways of changing their model of customer loyalty and market share and things like that. Well, that's all changed.
Now, contrast that to the government where, really, things are meant not to change. In fact, I think most processes are designed to make sure change doesn't happen to quickly, and for good reason in many cases. That kind of experience, when you bring it to a government agency, can be very beneficial because you're going to try to invoke a culture of change, continuous improvement into a culture of status quo. So I found my experience to be very applicable to what we're trying to accomplish with the new Air Traffic Organization.
Mr. Boyer: Russ, you've been now with the government for just a few years. What advice would you give a person who's thinking about starting a career in public service?
Mr. Chew: That's a good question. I'd say buckle your seat belt.
Mr. Boyer: Buckle your seat belt, that's great.
Mr. Chew: You're in for a rough and a challenging ride. In some ways, it's very frustrating, but in other ways, it's very, very rewarding. One of the things that always impressed me, whenever I go around and talk to all the people in the organization, is how committed they are to the mission -- and it's my commitment as well to public service -- that we're here for a greater purpose than ourselves, and that's what I would leave anyone with as far as what it's like to be in public service. It's very rewarding because literally, the country's future is at stake, and you're going to have an impact.
Mr. Morales: That's fantastic. We've reached the end of our time, and that'll have to be our last question. First, I want to thank you for fitting us into your busy schedule today. Second, Peter and I would also like to thank you for your service to the public as your current role and also to thank you for your service in the airline industry.
Mr. Chew: Well, thank you very much for the opportunity to talk about this. Of course, I have a lot of passion around it. And actually, if you're interested in some of the inner workings of what we're doing in the Air Traffic Organization, you can go to our website, which is at ato.faa.gov, and we allow public access to that currently, and you can learn a lot about what we're trying to accomplish.
Mr. Morales: Great. This has been The Business of Government Hour featuring a conversation with Russell Chew, chief operating officer of the Air Traffic Organization of the Federal Aviation Administration. Be sure to visit us on the web at www.businessofgovernment.org. There you can learn more about our programs and get a transcript of today's fascinating conversation. Once again, that's www.businessofgovernment.org.
As you enjoy the rest of the day, please take time to remember the men and women of our armed and civil services abroad who can't hear this morning's show on how we're improving their government, but who deserve our unconditional respect and support.
For The Business of Government Hour, I'm Albert Morales. Thank you for listening.