Economic Assessment H.V. SUDARSHAN H.V. SUDARSHAN International Civil Aviation Organization International Civil Aviation Organization Workshop on the development

Economic AssessmentEconomic Assessment

H.V. SUDARSHANH.V. SUDARSHAN International Civil Aviation OrganizationInternational Civil Aviation Organization

Workshop on the development of Workshop on the development of

National Performance Framework for National Performance Framework for

Air Navigation SystemsAir Navigation Systems

(Nadi, Fiji, 28 March-1 April 2011(Nadi, Fiji, 28 March-1 April 2011))

NPF/SIP/2011-WP/15

2

Economic aspects of Global ATM Economic aspects of Global ATM System System CostsCosts BenefitsBenefits Business CaseBusiness Case Funding Funding Cost recoveryCost recovery

Organizational formatOrganizational format Legal issuesLegal issues

Presentation outlinePresentation outline

3

States should strive for the efficient and cost-effective States should strive for the efficient and cost-effective implementation of the global ATM operational concept, implementation of the global ATM operational concept, using the using the GANP as the implementation planning documentGANP as the implementation planning document, , through international cooperation and collaboration within through international cooperation and collaboration within the ATM community; andthe ATM community; and

States should consider facilitating implementation of the States should consider facilitating implementation of the global ATM operational concept by adopting, where global ATM operational concept by adopting, where appropriate, a appropriate, a regional approach regional approach in order to enhance in order to enhance transparency, efficiency, fairness, comparability and transparency, efficiency, fairness, comparability and predictability of the costs of air transport infrastructurepredictability of the costs of air transport infrastructure

Economic and organizational aspects related to implementation of Global ATM Operational concept

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ICAO should continue to ICAO should continue to monitor developments in monitor developments in economic and organizational aspects economic and organizational aspects related to the global related to the global ATM operational concept and the GANP, in order toATM operational concept and the GANP, in order to

determine whether additional policies and guidance on determine whether additional policies and guidance on this subject will be necessary in the future; andthis subject will be necessary in the future; and

ICAO should undertake a case study on the provision of ICAO should undertake a case study on the provision of certain services by private third-party providers certain services by private third-party providers and and develop a draft service level agreement for possible use by develop a draft service level agreement for possible use by NSPs, to ensure that private third-party providers NSPs, to ensure that private third-party providers perform in line with recognized safety and performance perform in line with recognized safety and performance requirements.requirements.

Economic and organizational aspects related to implementation of Global ATM Operational concept

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Air Navigation infrastructure to Air Navigation infrastructure to Support ATM Operational Support ATM Operational ConceptConcept

System elements:System elements: ATMATM CNSCNS AIMAIM AGAAGA METMET

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Equipage (Hardware/Software)Equipage (Hardware/Software)Capital Capital CostsCosts

RecurringRecurring CostsCosts

CommunicationCommunication

Ground-ground data and voice Ground-ground data and voice communication (such as VSAT network)communication (such as VSAT network)

VHF dataVHF data//voice digital radiovoice digital radio

HF data linkHF data link

AMSS data/voice linkAMSS data/voice link

ATN (end-systems, gateways, routers)ATN (end-systems, gateways, routers)

(1/3)

Identification of costs in establishingIdentification of costs in establishing CNS/ATM systems infrastructure …CNS/ATM systems infrastructure …

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NavigationNavigation

GNSSGNSS

(GPS/GLONASS/GALELEO)(GPS/GLONASS/GALELEO)

ABASABAS

GBAS (monitoring station GBAS (monitoring station including data link)including data link)

SBAS (master station, monitoring SBAS (master station, monitoring station GEO overlay uplink)station GEO overlay uplink) (2/3)

Identification of costs in establishingIdentification of costs in establishing CNS/ATM systems infrastructureCNS/ATM systems infrastructure … …

8(3/3)



SurveillanceSurveillance

SSR Mode A/CSSR Mode A/C

SSR Mode SSSR Mode S

ADS –C situation displayADS –C situation display

ADS-BADS-B

MultilaterationMultilateration

Air traffic managementAir traffic management

Decision support systems Decision support systems

Identification of costs in establishingIdentification of costs in establishing CNS/ATM systems infrastructureCNS/ATM systems infrastructure

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Cost/ Benefit ItemCost/ Benefit Item CAACAAAircraft Aircraft

OperatorsOperatorsPassengersPassengers TotalsTotals

Costs of CNS/ATM SystemsCosts of CNS/ATM Systems

Equipment costsEquipment costs

GroundGround

AircraftAircraft

TrainingTraining

Purchases from Purchases from intermediate intermediate service providersservice providers

TOTALTOTAL

XX

XX

XX

C1C1

XX

XX

XX

C2C2

——

——

——

CC

Allocation of costs ... Allocation of costs ...

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Resolution A32-19 provides guidelines.Resolution A32-19 provides guidelines.

Cost allocation issues Cost allocation issues multi-modal servicesmulti-modal services allocation optionsallocation options

Allocation of costsAllocation of costs Aeronautical and non-aeronauticalAeronautical and non-aeronautical Airport and en-route operationsAirport and en-route operations Commercial and non-commercial usersCommercial and non-commercial users

ICAO to continue its efforts in this area with a ICAO to continue its efforts in this area with a more comprehensive studymore comprehensive study

Allocation of CostsAllocation of Costs

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StatesStates Service providersService providers Airspace usersAirspace users

Capital investmentCapital investmentWho is responsible?Who is responsible?

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Again, how much?Again, how much?

Depends on theDepends on theimplementation options!implementation options!

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Capital costCapital cost —— US $ 6.5 US $ 6.5 billionbillion

Operating costOperating cost —— US $ 1.0 US $ 1.0 billion billion per annumper annum

Benefit/Cost ratio ranging Benefit/Cost ratio ranging from 5.2 to 6.6from 5.2 to 6.6

Global economics –Global economics – CNS/ATM systems CNS/ATM systems (FANS report)(FANS report)

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General trend in the variationGeneral trend in the variationof the main factors of the ATM systemof the main factors of the ATM system

XX

XX

XX

N — collision risk

F — fuel conservation

E — material expenditure

T — time

NN

FF

EE00 (traditional system) (traditional system)

E1 (future system)

LossLoss

TT00 T1

T

GainGain

XX

XX

XX

XX

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Cost/Benefit ItemCost/Benefit Item CAACAAAircraft Aircraft

OperatorsOperatorsPassengersPassengers TotalsTotals

Benefits of CNS/ATMBenefits of CNS/ATMAvoided equipment Avoided equipment costscosts(Present technology)(Present technology)

GroundGround

AircraftAircraft

Efficiency Efficiency improvementsimprovements

Passenger time Passenger time savingssavings

TOTALTOTAL

XX

——

XX

——

B1B1

——

XX

XX

——

B2B2

——

——

——

XX

B3B3 BB

Allocation of benefits Allocation of benefits

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AircraftAircraftOperatorOperator

EfficienciesEfficiencies

CAACAAPresentPresent

technologytechnologyEquipmentEquipment

(avoided (avoided cost)cost)

AirlinesAirlinesPresentPresent

technologytechnologyAvionicsAvionics

(avoided cost)(avoided cost)

Benefit shares (FANS report)Benefit shares (FANS report)

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Route optimization (time, fuel)Route optimization (time, fuel) Optimum altitudesOptimum altitudes Dynamic aircraft route planningDynamic aircraft route planning More alternate airportsMore alternate airports Reduced contingency fuelReduced contingency fuel Possible reduced crewingPossible reduced crewing Increased aircraft utilizationIncreased aircraft utilization Greater payload capabilityGreater payload capability Greater revenue generationGreater revenue generation

Airline benefitsAirline benefits

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Improved level of serviceImproved level of service Consolidation of facilitiesConsolidation of facilities Reduced maintenance costsReduced maintenance costs Avoided capital costsAvoided capital costs

State benefitsState benefits

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Increased airports capacityIncreased airports capacity Improved airside managementImproved airside management Decrease in diversions in instrument Decrease in diversions in instrument

meteorological conditionsmeteorological conditions Enhanced revenuesEnhanced revenues Happy passengersHappy passengers

Airports benefits

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The study to address the following:The study to address the following:

financial viabilityfinancial viability

implementation optionsimplementation options(operational/technical/organizational)(operational/technical/organizational)

Guidance material for Business case Guidance material for Business case model for CNS/ATM is available on model for CNS/ATM is available on ICAONETICAONET

Cost/Benefit studies Cost/Benefit studies ......

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Cost/Benefit studies Measure of economic viabilityMeasure of economic viability

Net present value (preferred option)Net present value (preferred option) Cost-effectiveCost-effective Least costLeast cost SnapshotSnapshot Utility valueUtility value Pay-off periodPay-off period

Sensitivity analysisSensitivity analysis Analysis to ensure wide fluctuations in changing Analysis to ensure wide fluctuations in changing

data conditions are taken into accountdata conditions are taken into account Validate the model using the best judgment Validate the model using the best judgment

(Refer to ICAO Circular 257 and Circular 278 (Refer to ICAO Circular 257 and Circular 278 for more information)for more information)

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Who should perform cost/benefit studies?Who should perform cost/benefit studies?

Global evaluationGlobal evaluation StatesStates Service providersService providers Users (aircraft operators)Users (aircraft operators)

What is a business case?What is a business case?

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DefinitionsDefinitions A tool supporting planning and decision-making A tool supporting planning and decision-making

that can be used by public as well as private that can be used by public as well as private entities entities

For a public entity, a business case is a For a public entity, a business case is a substantiated argument for a public project, a substantiated argument for a public project, a policy or a program proposal requiring a policy or a program proposal requiring a resource allocation and/or investment, often resource allocation and/or investment, often including a financial commitment;including a financial commitment;

For a private entity, a business case can be For a private entity, a business case can be developed to assist decisions on capital developed to assist decisions on capital investment, product/service development, investment, product/service development, changes to business processes, contracts, special changes to business processes, contracts, special pricing, partnerships, etc.pricing, partnerships, etc.

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Other definitions …Other definitions …

““A 'business case' is a form of advice A 'business case' is a form of advice to executive decision-makers. It is a to executive decision-makers. It is a substantiated argument for a project, substantiated argument for a project, policy or program proposal requiring policy or program proposal requiring a resource investment, often a resource investment, often including a financial commitment.”including a financial commitment.”

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Other definitions …Other definitions … ““A management tool that supports planning and A management tool that supports planning and

decision-making for an investment by positioning the decision-making for an investment by positioning the investment decision in the context of business investment decision in the context of business objectives. The business case is a proposal and provides objectives. The business case is a proposal and provides an analysis of all the costs, benefits and risks associated an analysis of all the costs, benefits and risks associated with the proposed investment and offers reasonable with the proposed investment and offers reasonable alternatives.”alternatives.”11

“ “Before making a final decision to proceed with Before making a final decision to proceed with project, management needs to satisfy itself that three project, management needs to satisfy itself that three basic questions have been properly answered:basic questions have been properly answered: Why are we doing this?Why are we doing this? What will it cost?What will it cost? What business value do we expect to achieve?”What business value do we expect to achieve?”

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Business case ProcessBusiness case Process

RiskRisk AnalysisAnalysis

Financial Financial AnalysisAnalysis

Provider/UserProvider/User

– StateState– Sub-regionalSub-regional– RegionalRegional

Cost/Cost/BenefitBenefit

AnalysisAnalysis

Business caseBusiness case

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What is the difference What is the difference between a business casebetween a business case

and a business plan?and a business plan? A business case: A business case:

is specific to a project, a policy or a program proposal, is specific to a project, a policy or a program proposal, andand

covers the lifecycle of the proposal;covers the lifecycle of the proposal;

A business planA business plan normally covers an entire organization or enterprise, normally covers an entire organization or enterprise,

and and

is limited in time (typically 3 to 5 years)is limited in time (typically 3 to 5 years)

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Why do we need a business Why do we need a business case?case?

To convince the target audience:To convince the target audience: of the need for the proposalof the need for the proposal of the feasibility of the proposalof the feasibility of the proposal that the proposal is cost effective and that the proposal is cost effective and

beneficialbeneficial that the proposal is financially viablethat the proposal is financially viable that the risks involved are manageablethat the risks involved are manageable

To be able to prioritize proposalsTo be able to prioritize proposals

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When do we need a business case? ...When do we need a business case? ... For every project, policy or program proposal, For every project, policy or program proposal,

except when the project has to be implemented at except when the project has to be implemented at any cost and regardless of the risks involvedany cost and regardless of the risks involved

Particularly needed when:Particularly needed when: reluctance to the proposal is foreseen;reluctance to the proposal is foreseen; the proposal is expected to have a significant the proposal is expected to have a significant

impact on either internal infrastructure impact on either internal infrastructure arrangements or the delivery of services;arrangements or the delivery of services;

the proposal brings substantial change in the way the proposal brings substantial change in the way things are done and/or will require a significant things are done and/or will require a significant allocation or reallocation of resources.allocation or reallocation of resources.

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Content of a business caseContent of a business case

The main sections of a business case The main sections of a business case are:are: Description of the proposalDescription of the proposal Identification of the stakeholders / partnersIdentification of the stakeholders / partners Cost-benefit analysisCost-benefit analysis Financial analysisFinancial analysis Risk analysis and managementRisk analysis and management

(1/3)

Funding… Sources of financing include:Sources of financing include:

Contribution from governments (national or Contribution from governments (national or foreign) foreign)

Commercial sources (debt financing) Commercial sources (debt financing) Accumulated excess of revenues over costs Accumulated excess of revenues over costs

(profits)(profits) BondsBonds Equity financing (share capital)Equity financing (share capital) LeasingLeasing

Investment recovery through the Investment recovery through the medium of user chargesmedium of user charges

Revenues from airport and air Revenues from airport and air navigation charges to be applied solely navigation charges to be applied solely towards defraying the airport and air towards defraying the airport and air navigation facilitiesnavigation facilities

FFinancial institutions are encouraged to inancial institutions are encouraged to extend preferential funding through:extend preferential funding through: bilateral programmesbilateral programmes development banksdevelopment banks

(2/3)

Funding …Funding …

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Regional cooperation among service Regional cooperation among service providersproviders

To consider funding options such as:To consider funding options such as:

ICAO implementation mechanismICAO implementation mechanism

bilateral and multilateral bilateral and multilateral cooperation programmescooperation programmes

international organizationsinternational organizations

development banksdevelopment banks

(3/3)

FundingFunding

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Cost RecoveryCost Recovery

Cost allocation and cost recovery Cost allocation and cost recovery principles are set forth in ICAO principles are set forth in ICAO Document 9082Document 9082

Methods of cost recoveryMethods of cost recovery Direct collection from usersDirect collection from users Joint charges collection agencyJoint charges collection agency Delegation to external agencyDelegation to external agency

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LevelLevel Type of OrganizationType of Organization

NationalNational Government departmentGovernment department

Autonomous public sector undertakingAutonomous public sector undertaking

Private organizationPrivate organization

Multinational/Multinational/

Subregional/Subregional/

RegionalRegional

Service provided by one governmentService provided by one government

Service provided by group governmentService provided by group government

Organization with own legal responsibilityOrganization with own legal responsibility

GlobalGlobal Service provided by one governmentService provided by one government

Service provided by group governmentService provided by group government

Organization with own legal responsibilityOrganization with own legal responsibility

Organizational format for serviceOrganizational format for service providers of air navigation systemsproviders of air navigation systems

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CNS/ATM Systems CNS/ATM Systems ElementsElements

National National SystemsSystems

Multinational/Multinational/Subregional/Subregional/

Regional SystemsRegional Systems

GlobalGlobalSystemsSystems

COMMUNICATIONCOMMUNICATION

Ground/ground Ground/ground data and voice data and voice communicationcommunication

XX XX

VHF data/voiceVHF data/voice XX

HF dataHF data XX

AMSS data/voiceAMSS data/voice XX

ATN ATN XX XX(1/4)

Approach to establishingApproach to establishing CNS/ATM CNS/ATM systems infrastructure …systems infrastructure …

38

CNS/ATM CNS/ATM Systems Systems ElementsElements





NAVIGATIONNAVIGATION

GPS/GLONASS/GPS/GLONASS/

GALILEOGALILEO

XX

GNSS OverlayGNSS Overlay XX

ABASABAS XX

GBASGBAS XX

SBASSBAS XX XX

(2/4)

Approach to establishingApproach to establishing CNS/ATM CNS/ATM systems infrastructure …systems infrastructure …

39

CNS/ATM CNS/ATM Systems ElementsSystems Elements





SURVEILLANCESURVEILLANCE

SSR Mode A/CSSR Mode A/C XX

SSR Mode SSSR Mode S XX

ADS -CADS -C XX

ADS-BADS-B

Multilateration Multilateration

XX

XX(3/4)

Approach to establishingApproach to establishing CNS/ATM CNS/ATM systems infrastructuresystems infrastructure … …

40

CNS/ATM Systems CNS/ATM Systems ElementsElements





Air Traffic Air Traffic ManagementManagement

Airspace Airspace managementmanagement

XX XX

Air traffic controlAir traffic control XX XX

Air traffic flow Air traffic flow managementmanagement

XX XX

Decision support Decision support systemssystems

XX

(4/4)

Approach to establishingApproach to establishing CNS/ATM CNS/ATM systems infrastructuresystems infrastructure

It has been generally agreed that It has been generally agreed that there is no legal obstacle to the there is no legal obstacle to the implementation of CNS/ATM implementation of CNS/ATM systems and that there is nothing systems and that there is nothing inherent in CNS/ATM systems that inherent in CNS/ATM systems that is inconsistent with the Chicago is inconsistent with the Chicago ConventionConvention

41

Legal issues …Legal issues …

It is generally concluded that:It is generally concluded that: GNSS shall be compatible with GNSS shall be compatible with

international law, including the Chicago international law, including the Chicago Convention, its Annexes and the relevant Convention, its Annexes and the relevant rules applicable to outer space activitiesrules applicable to outer space activities

the integrity of any legal framework for the integrity of any legal framework for the implementation and operation of the implementation and operation of GNSS requires observance of GNSS requires observance of fundamental principles, which should be fundamental principles, which should be established in a charterestablished in a charter

42

Legal issuesLegal issues

ReaffirmsReaffirms that there is no need to amend the that there is no need to amend the Chicago Convention for the implementation of Chicago Convention for the implementation of CNS/ATM systems;CNS/ATM systems;

InvitesInvites Contracting States to consider using Contracting States to consider using regional organizations to develop mechanisms regional organizations to develop mechanisms necessary, that are consistent with the Chicago necessary, that are consistent with the Chicago convention, to address any legal or institutional convention, to address any legal or institutional issues; andissues; and

DirectsDirects the Secretary General to monitor and, the Secretary General to monitor and, where appropriate, assist in the development of where appropriate, assist in the development of contractual frameworks to which parties may contractual frameworks to which parties may accedeaccede.. 43

Final decision by the A35 in October 2004Final decision by the A35 in October 2004

–– A Practical Way Forward on Legal and A Practical Way Forward on Legal and Institutional Aspects of CNS/ATM SystemsInstitutional Aspects of CNS/ATM Systems (A35-3)(A35-3)

–– END END ––

Documents

Economic Assessment H.V. SUDARSHAN H.V. SUDARSHAN International Civil Aviation Organization International Civil Aviation Organization Workshop on the development