Economic Assessment
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Transcript of Economic Assessment
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
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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
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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 todetermine 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 ConceptSupport ATM Operational ConceptSystem 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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Equipage (Hardware/Software)Equipage (Hardware/Software) Capital Capital CostsCosts
RecurringRecurring CostsCosts
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 … …
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Equipage (Hardware/Software)Equipage (Hardware/Software) Capital Capital CostsCosts
RecurringRecurring CostsCosts
SurveillanceSurveillanceSSR Mode A/CSSR Mode A/CSSR Mode SSSR Mode SADS –C situation displayADS –C situation displayADS-BADS-BMultilaterationMultilaterationAir 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 CAACAA Aircraft Aircraft OperatorsOperators PassengersPassengers TotalsTotals
Costs of CNS/ATM SystemsCosts of CNS/ATM Systems
Equipment costsEquipment costsGroundGroundAircraftAircraft
TrainingTraining
Purchases from Purchases from intermediate intermediate service providersservice providers
TOTALTOTAL
XX
XX
XX
C1C1
XXXX
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
XXXX
N — collision riskF — fuel conservationE — material expenditureT — 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 CAACAA Aircraft Aircraft OperatorsOperators PassengersPassengers TotalsTotals
Benefits of CNS/ATMBenefits of CNS/ATMAvoided equipment Avoided equipment costscosts(Present technology)(Present technology)
GroundGroundAircraftAircraft
Efficiency Efficiency improvementsimprovementsPassenger time Passenger time savingssavingsTOTALTOTAL
XX——XX
——
B1B1
——XXXX
——
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 objectives. investment decision in the context of business objectives. The business case is a proposal and provides an analysis The business case is a proposal and provides an analysis of all the costs, benefits and risks associated with the of all the costs, benefits and risks associated with the proposed investment and offers reasonable proposed investment and offers reasonable alternatives.”alternatives.”11
“ “Before making a final decision to proceed with project, Before making a final decision to proceed with project, management needs to satisfy itself that three basic management needs to satisfy itself that three basic questions have been properly answered: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 beneficialthat the proposal is cost effective and beneficial 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 departmentAutonomous public sector undertakingAutonomous public sector undertakingPrivate organizationPrivate organization
Multinational/Multinational/Subregional/Subregional/RegionalRegional
Service provided by one governmentService provided by one governmentService provided by group governmentService provided by group governmentOrganization with own legal responsibilityOrganization with own legal responsibility
GlobalGlobal Service provided by one governmentService provided by one governmentService provided by group governmentService provided by group governmentOrganization 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 …
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CNS/ATM CNS/ATM Systems Systems
ElementsElements
National National SystemsSystems
Multinational/Multinational/Subregional/Subregional/
Regional SystemsRegional Systems
GlobalGlobalSystemsSystems
NAVIGATIONNAVIGATIONGPS/GLONASS/GPS/GLONASS/
GALILEOGALILEOXX
GNSS OverlayGNSS Overlay XXABASABAS XXGBASGBAS XXSBASSBAS XX XX
(2/4)
Approach to establishingApproach to establishing CNS/ATM CNS/ATM systems infrastructure …systems infrastructure …
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CNS/ATM CNS/ATM Systems ElementsSystems Elements
National National SystemsSystems
Multinational/Multinational/Subregional/Subregional/
Regional SystemsRegional Systems
GlobalGlobalSystemsSystems
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 … …
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CNS/ATM Systems CNS/ATM Systems ElementsElements
National National SystemsSystems
Multinational/Multinational/Subregional/Subregional/
Regional SystemsRegional Systems
GlobalGlobalSystemsSystems
Air Traffic Air Traffic ManagementManagementAirspace Airspace managementmanagement
XX XX
Air traffic controlAir traffic control XX XXAir 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
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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
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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 ––