Emma Kelly/RIO DE JANEIRO
Building blocks for worldwide implementation of communications, navigation and surveillance/air traffic management (CNS/ATM) systems are in place, but one crucial element remains.
"It's up to us to provide the muscle - money - to put the building blocks together," Jack Howell, director of the International Civil Aviation Organisation's (ICAO) Air Navigation Bureau told 800-plus delegates at ICAO's Worldwide CNS/ATM Systems Implementation Conference in Rio de Janeiro, Brazil.
The conference clearly highlighted that, while many parts of the world are well on their way to implementing CNS/ATM, it will never be a global system unless the finance problems faced by developing states are resolved.
CNS/ATM is vital for development of the aviation industry into the next century, bringing with it cost savings, capacity increases, safety improvements and environmental benefits. It must be a global system to reap the promised benefits, but financing remains the key hurdle.
TECHNOLOGY IS IN PLACE
The technology for global implementation is in place and the plan of action - ICAO's Global Air Navigation Plan for CNS/ATM Systems - is complete. Implementation is a two-horse race, however, with the leaders being those states which are having few problems obtaining funds for CNS/ATM projects, while developing states which are not so financially attractive to lenders trail behind. As the Nepal delegate told the conference: "The success of global CNS/ ATM implementation will not be measured by the fastest horse in the race, but by the slowest."
Potential sources of funding for CNS/ATM programmes will vary from state to state, ICAO concedes. The organisation suggests numerous sources which could be explored, including contributions from national or foreign governments and bilateral organisations, development banks and funds such as the United Nations Development Programme. There are also commercial sources such as debt financing, depreciation and retained profits from the operation of air navigation services, bond issues, equity financing and leasing, rather than purchasing, of buildings and technical equipment. Cost recovery would be via user charges.
CNS/ATM is an attractive investment for financial institutions and the aviation community has a good case to put to potential lenders, ICAO believes. "I think you will find that, with sound cost recovery and financial management of air navigation services in place, enhanced in some aspects through co-operative arrangements, CNS/ATM makes good business sense to any investor," says Dr Assad Kotaite, president of the ICAO Council.
Financial institutions are aware of CNS/ ATM investment opportunities. "There's an interest there in the financial community, but it has to be developed. Aviation investment is often seen as big and risky, but you need to make the financial community comfortable with that risk," says Dr Donald Bunker, CNS/ATM financing advisor.
To comfort financiers, any CNS/ATM programme must include a comprehensive business case. Full cost-benefit analysis must be conducted for any CNS/ATM development, says Andre Auer, president of the European Civil Aviation Conference. In addition, appropriate cost recovery mechanisms must be in place to make the investment even more attractive.
There are solutions to financing problems which have already been tried and tested in other industries, says Bertrand Millot, head of the aviation sector at the European Bank of Reconstruction and Development (EBRD), which has invested $400 million in aviation projects. The EBRD has been involved in Russian efforts to implement CNS/ATM, which has seen installation of a workstation at Magadan in the Russian Far East.
The key criteria in any air traffic management project, suggests the EBRD, include self-sustainability, a reasonably assured level of revenue, transparency and accountability in revenue generation, transparency in procurement and no political interference. Loans to a state or state-owned company are constrained by the state's borrowing capacity and the credit worthiness of the ATM service provider.
To overcome this problem, an alternative is to provide a loan for a specific project to be paid back from the cashflow of that particular programme. The EBRD's approach advocates the establishment of a special purpose company which enters into agreements with the ATM service provider, equipment suppliers and finance lenders.
ICAO believes that the air navigation service providers that will have the best access to money markets for CNS/ATM funding are those that are autonomous, as autonomy brings with it financial freedom. "With the growing demand being placed on financial self-sufficiency, states around the world have been reviewing the organisational structure under which their air navigation services are operated, which has led to increased financial and operational autonomy at the national level and increased international co-operation," says the organisation.
SOLUTIONS AVAILABLE
ICAO believes that states that have not already done so should establish autonomous authorities to operate their air navigation services. Such an authority need not be privatised, says ICAO, but an independent entity or body established to operate certain facilities and provide specific services, and granted the operational and financial freedoms to carry out its functions.
Autonomy is accompanied by corporate or commercial-type management and can result in improved operational efficiency and managerial control, ICAO argues, in addition to improved control over revenue flows, in terms of their generation and in servicing debt obligations.
Nav Canada is a good example of an air navigation service provider that has successfully made the transition from a government organisation to the private sector, says ICAO. The decision to privatise Canada's air traffic services was made in April 1996. Six months later the transaction was closed and, from this November, Nav Canada will be funded solely by user fees.
This is an "excellent template" for other service providers, says Duncan McCallum, vice-president of the Royal Bank of Canada, which arranged financing for the privatisation. "Nav Canada is a self-contained unit, completely separate from the Government, with no shareholders, so all of the money raised goes straight to air navigation services provision," he says.
Among elements which make an air traffic control corporation attractive to financiers, McCallum says, are that the corporation provides an essential service, has a secure monopoly and the ability to set rates and to collect charges.
Individual states need not work alone to resolve their financing problems. ICAO advocates the development of regional or global co-operative ventures to provide system components. International co-operative ventures have normally proved to be cost-effective, says ICAO, resulting in more efficient air navigation services at lower cost than if states were to finance the services themselves.
States can also benefit from co-operation through participating in a multinational charges collection agency, it says. The organisation says that states should also consider requesting ICAO to administer cost-recovery schemes for CNS/ATM components or to provide other administrative services for co-operative ventures in the provision of CNS/ATM components or air navigation services.
For developing states, however, raising financing for CNS/ATM programmes is not so easy. African nations, in particular, are well aware of the problems they face in keeping up in the implementation race. They realise the importance of CNS/ATM execution, but low traffic density and other demands for finance mean that states in Africa will not be able to attract financing through ICAO-advised means.
CNS/ATM is a golden opportunity to address the well-publicised deficiencies of the air traffic systems in Africa and other developing nations. "We must ensure that Africa is not left out of this initiative to implement CNS/ATM globally. Africa does not come here begging, but seeking assistance," said the delegate from Ghana at the Rio conference, while the Zimbabwe delegation recognised that "-it is imperative that a mechanism be put in place for those states in need. We appreciate that the rest of the world is moving ahead".
Because of their problems in raising finance for CNS/ATM programmes, African states have called on financial institutions and developed states to extend concessionary funding for at least the initial stages of implementation in the developing states. This funding could be made available through bilateral programmes and development banks, they suggest.
In response to developing nations' requests at the Rio conference, ICAO has agreed to expedite studies into the establishment of an international aviation monetary fund to assist their CNS/ATM programmes. An action paper urging ICAO to establish a fund, presented at the Rio conference by Bolivia and Pakistan, received widespread support from developing nations, particularly African states.
AVIATION FUND INTEREST
Although the proposal for an aviation fund has been around for some years, Bolivia and Pakistan have created renewed interest in the plan. The proposed fund could not only finance aviation projects, but also act as "an international watchdog", ensuring that aviation is not "mismanaged", the paper's authors suggest.
ICAO's efforts to promote safety by removing worldwide aviation deficiencies have suffered from a lack of resources, they believe. ICAO has been unable to eliminate shortcomings at airports and in navigation services caused by a lack of regular funding for its technical co-operation programme and because many states are unable to provide their own financing to remove such deficiencies, they state.
An aviation monetary fund could eliminate these problems and could monitor aviation policy worldwide. The paper suggests that an international aviation fund is required partly because of the decline of the United Nations Development Programme (UNDP) as a funding source for aviation, the paper suggests. "As it was not exclusively for aviation, the management of UNDP chose to turn the tap off and turned its attention to other priorities as perceived by it. International civil aviation cannot afford to be dependent on such fickle sources of funding. The proposed aviation fund will not be different from the UNDP in so far as the method of voluntary subscription to the fund is concerned. Nevertheless it will, if it comes about, be vastly more reliable for aviation," says the paper.
Pakistan and Bolivia suggest that two models could be considered for the fund. Firstly, a mechanism such as the International Monetary Fund (IMF) and secondly, a bank similar in structure to the International Bank for Reconstruction and Development, which is the main lending institution of the World Bank.
Although developing states have welcomed ICAO's revisit to the monetary fund idea, some believe existing sources of funding should be explored first.
The International Air Transport Association suggests the best way forward is to identify what infrastructure is needed by developing states, to decide how much it will cost and then to determine the best forms of financing, "We need to identify the costs and revenues and we will have a much easier problem to deal with," it says.
Source: Flight International
