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Can The FAA Make Airlines Stock A Good Buy?

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Over the past ten years the government has invested over $40 billion dollars in new technology that should make air travel in the US even safer than it is now. In addition it should help to reduce some of the congestion that has plagued the skies for years.

The project is called NextGen and in addition to safety it may create a side benefit to the airlines, a substantial reduction of fuel costs. As with most government projects it is years behind schedule and billions over budget, but the results may be worth it.

As an example of the savings where the system is in use comes from Alaska Airlines and the use of the system at Seattle-Tacoma International Airport. Last year the Alaska Air said that they saved over 200,000 gallons of fuel and more than $17 million by having the system in force there. This savings could eventually be passed on to all airlines at major cities where Next Gen will be employed.

The system works by allowing the plane to follow its computer generated GPS system to guide it to the target. The pilot puts in the coordinates and the plane takes a direct path to the runway. Since all of the other planes are equipped with similar devices it acts like a “highway in the sky” where the cars are remotely controlled by the software.

Of course any Government project this good is going to have some problems.

The GAO reported earlier this spring that the NextGen system was designed with many flaws such as not taking ground that the planes fly over on their final approach into consideration. It also accused the FAA of “underperforming and over predicting” when it comes to the cost and time it will take to get the entire project complete.

The FAA said originally that NextGen would be in place no later than the end of the current decade; the GAO totally disagrees, claiming that it will take more than 20 years before the final airports are included in the project. It also maintains that the cost estimates are a joke. $40 billion is only the tip of the iceberg and with the Airlines on the hook for at least $7 billion more.

On second thought maybe it isn’t such a good idea to go out and buy airline stock based on the “projected savings”, as two of the windiest groups in the world are the ones promising the results!

Always,

Keep those stops tight.

Todd “Bubba” Horwitz


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