OPERA study. Operational Requirements and Business Case. Iris public event Oct 11 th, The OPERA Consortium is SITA and SES

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1 OPERA study Operational Requirements and Business Case Iris public event Oct 11 th, 2011 The OPERA Consortium is SITA and SES OPERA Iris Public Event October 2011 slide 1 SITA

2 Disclaimer note The following data have been issued as a part of the model elaboratedfor the OPERA technico-operationalstudy. SITA and SES decline all liability in connection with any use of any information contained in this presentation. OPERA Iris Public Event October 2011 slide 2 SITA

3 About the presentation Design and Operational Requirements Business case presentation Presentation of the ecosystem: the ISSP Timeline Revenues (Top Down analysis) Elaboration of a service model (Bottom-Up analysis) Business case attractiveness OPERA Iris Public Event October 2011 slide 3 SITA

4 OPERA STUDY DESIGN AND OPERATIONAL REQUIREMENTS OPERA Iris Public Event October 2011 slide 4 SITA

5 Design and Operational Requirements Design drivers Safety (RAMS) Scalability (growth) Interoperability (with other systems) Flexibility Security Interface Quality of Service Operational drivers Safety (RAMS) Compatibility (non-interference with existing systems) Timeline Flexibility Security OPERA Iris Public Event October 2011 slide 5 SITA

6 Mandatory and Optional Coverage Areas Mandatory coverage Optional coverage OPERA Iris Public Event October 2011 slide 6 SITA

7 Influence of Orbital Position Satellites Located at 4 deg W to 31 deg E 4 degrees West 19 degrees East OPERA Iris Public Event October 2011 slide 7 SITA 5 degrees East 31 degrees East

8 OPERA STUDY ECOSYSTEM OPERA Iris Public Event October 2011 slide 8 SITA

9 Focal point for the provision of Iris Communication Services A single commercial entityacting as the provider of Iris services for all ANSPs The ISSP will be certified according to SES regulations(ec 550/2004) The ISSP willrelyuponservices providedby the DSP and the SSP Stakeholders of the ISSP are ANSPs and the industry OPERA Iris Public Event October 2011 slide 9 SITA

10 Ecosystemfor the business case Airlines AOC ATC ANSP AIRLINES pay for ANS Charges, (including COMMUNICATIONS, that become REVENUES for the ANPS, and indirectly for ISSP, DSP and SSP) Provision of ATC services (National or FAB-based) incl. COMMUNICATIONS CAPEX and OPEX in relation with Iris-related AOC SatComs DSP ISSP bulk Provision of Iris Services, including SAFETY + CERTIFICATION CAPEX and OPEX in relation with ATC SatComs (incl. Ground connectivity) bulk SSP OPERA Iris Public Event October 2011 slide 10 SITA CAPEX and OPEX in relation with Iris-related SATELLITES (ground + space segments)

11 OPERA STUDY TIMELINE OPERA Iris Public Event October 2011 slide 11 SITA

12 Main important milestones T0 estimated 2011 T0+5 T0+10 T0+15 T0+20 T0+25 T0+30 Source: ESA EC decision on COCR/2: 2016 ANSP mandate: 2020 Forward fit mandate: 2020 Retrofit mandate: 2025 Development phase Pre-operational phase Operational phase 2 scenarios: Pessimistic with plain forms Optimistic with dash lines ATC revenues ramp-up depends on ATC incentivization End of ATC revenues ramp-up with actual implementation of the ANSP mandate CAPEX OPEX MAIN HOT STANDBY COLD STANDBY INDUSTRY ESA #1 ESA s OPEX Initial operations OPERA Iris Public Event October 2011 slide 12 SITA #2 Nominal operations #3 #4 OPEX ATC REVENUES AOC REVENUES #5 #6

13 OPERA STUDY REVENUES OPERA Iris Public Event October 2011 slide 13 SITA

14 Elements framing the revenue model No extra-costs for the end-users (CRCO charges) ATC refers to cost recovery mechanisms (cf. regulation) Common Charging scheme: EC 1794/2006 (+EC1191/2010) Revenues are proportional to the volume of service units AOC grounds in price-based competition between technologies (VHF vs. SatComs) The negotiation between airlines and the DSP/CSP occurs for each route and each technology and each type of aircraft When transitioning to IP-based technologies, volume fees are abandoned and flat fees are installed OPERA Iris Public Event October 2011 slide 14 SITA

15 (Sat)COMs in ANS: revenue analysis parametric analysis OPERA Iris Public Event October 2011 slide 15 SITA

16 AOC contribution to IRIS per technology assumptionsand parameters When? TECHNOLOGIES ORP CONTINENTAL TODAY SATELLITE 100% 0% CONTINENTAL 0% 100% TOMORROW ie LEGACY SATELLITE 90% 0% NEW SATELLITE (IRIS) 10% 25% LEGACY CONTINENTAL 0% 50% NEW CONTINENTAL (LDACS) 0% 25% Yearly growth for AOC Continental (total) revenues: Z% per year Our assumption: minimum Z=5%, target value = 6% OPERA Iris Public Event October 2011 slide 16 SITA

17 Revenue ramp-up scenarios ATC revenues: The ramp-up depends on the adoption of «new» ANS applications (e.g. 4D) for specific FIRs We endorse the assumption of a «big bang» approach for each FAB, with FABEC as the first mover The adoption schedule is aligned with the ANSP mandate AOC revenues: The ramp-up depends on the availability of on-board technology, i.e. on avionics certification and equipage We endorse the assumption of adoption schemes ruled by the important issue of cost-correlation for airlines Forward-fit aligns with procurement of new aircraft Retrofit associates with late adoption schemes OPERA Iris Public Event October 2011 slide 17 SITA

18 Top-down analysis: discountedrevenues AOC through Iris SatComs 2 parametric scenarios in reference to parameters introduced for AOC revenues traffic Results depend on AOC revenues growth over the period AOC Airlines DSP bulk ATC ANSP ISSP bulk TOTAL ATC COMs Terminal + En Route through Iris SatComs PRR2010 Total discounted cumulated ATC revenues ( ) only depend on parameters introduced in the model, and range between 189M when all parameters are set at the lowest minimum (the worst of worst cases) 3.5G when all parameters are set at the maximum (the best among the best) SSP OPERA Iris Public Event October 2011 slide 18 SITA

19 Available SatComs revenue per IFR movt Our own calculations for the revenue model translate into costs per IFR movement Assumptions for the volume of IFR movements in the ECAC zone are calculated as extrapolations from ECTRL prospective scenarios (4 options: A, B, C, D) A D Scenario MIN AVERAGE MAX SIGMA A Pessimistic A Optimistic D Pessimistic D Optimistic OPERA Iris Public Event October 2011 slide 19 SITA

20 OPERA STUDY FROMCAPEX + OPEX TO SERVICE MODEL OPERA Iris Public Event October 2011 slide 20 SITA

21 NO AOC in the BOTTOM-UP analysis Bottom-Up analysis: service model Airlines ATC DSP bulk SSP ANSP ISSP bulk SERVICE MODEL DSP + SSP TOTAL SERVICE MODEL cumulated for DSP + SSP Elements associate with 2+3 satellites procured by the private industry (SSP) Only the aspects in direct relation with Iris SatComs are computed in the DSP s service model OPERA Iris Public Event October 2011 slide 21 SITA SERVICE MODEL DSP + SSP + ISSP TOTAL SERVICE MODEL cumulated for ISSP + CSP + SSP The Certification service is assessed a flat 5% of the total service model incurred by the DSP+SSP The ISSP is supposed to introduce only a cost recovery mechanims, and not profit-driven scheme

22 OPERA STUDY BUSINESS CASE ATTRACTIVENESS SENSITIVITY ANALYSIS OPERA Iris Public Event October 2011 slide 22 SITA

23 Business case effectiveness TOTAL IRIS SatComs AOC Airlines ATC TOTAL ATC COMMs IRIS SatComs PRR2010 The AOC business is driven by price-led competition between technologies. Airlines select the most costefficient technology for each route ANSP ISSP DSP SSP It is alwayspossible to find out some parameters that make the business case effective Are these parameters actually realistic? The Cost for certification is assessed as a flat 5% of the DSP + SSP service model The centralizedmodel is the most efficient configuration SSP: 2+3 GEOs+1 pair of GES DSP: only the marginal costs in relation with Iris SatComs OPERA Iris Public Event October 2011 slide 23 SITA

24 Most important variables (sensitivity analysis) The OPERA sensitivity analysis has identified the most important variables in the business case: X: Annual variation of En-Route Communication revenues in the total ANS en route revenues (ie the growth of the size of the ANS cake ); AxB: Percentage of Ground-to-Mobile DataLink communications in En-Route ANS (ie the growth of the size of the COM slice in the ANS cake ) Z: Annual variation of Continental AOC revenues (not traffic) OPERA Iris Public Event October 2011 slide 24 SITA

25 Sensitivity analysis: Main conclusions SatComs for Terminal Ground to Mobile Datalink are much more uncertain than for En-Route Ground to Mobile Datalink. The business case effectiveness depends on the increase in communication revenue shares in ANS Coms (E-R, T). It does not depend only on the growing size of the ANS revenues; it does depend on the growth rate of the COMs slice (AxB%, or FxGxH%) in the also increasing ANS revenues (X%). The increase in communication revenues shares in ANS can be afforded on the basis of productivity gains ECAC-wide (FABs). The business case effectiveness depends on ca. 30% contribution from AOC revenues. Uncertainties and risks for AOC and ATC do not compare. OPERA Iris Public Event October 2011 slide 25 SITA

26 Conclusions about PPPs: PPPs are not relevant for this ecosystem In PPPs, current construction or availability risks are traded against the uncertainty about revenues There is no economic justification for PPPs with Iris SatComs: Demand risks in ATC only depend on the issue of the mandate that impacts the whole project. Construction risks, and Availability risks are null because ESA endorses the SatComs for ATS concept validation costs, and the first CAPEX. The transfer of ownership from ESA to the industry for the 1 st CAPEX requires contractual modalities that look like a PPP, require the investigation of PPP-like issues, yet are NOTa PPP contract because it remains a service model contract. OPERA Iris Public Event October 2011 slide 26 SITA