Corporatisation of Air Navigation Services in India. A feasibility study By Great Lakes Institute of Management

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Transcription:

Corporatisation of Air Navigation Services in India A feasibility study By Great Lakes Institute of Management

Overview Introduction Global Scenario An Outlook Indian Scenario Recommendations on corporatisation of ATC in India Review of other committee recommendations

Introduction Air transport makes possible the rapid movement of millions of people and billions of dollars worth of goods. More than 4 million people are directly employed by the industry throughout the world World energy demand, supply and prices are critically important both to economic progress and to the cost of air travel. Demand for air transport services also depend on more specific developments such as the growth of international & domestic tourism, globalization and the growing integration and interpenetration of economies

Availability of physical and social infrastructure is central to sustainable economic growth. The health of the nation s economy depends on the transportation system that moves people and goods efficiently. Air transport is extremely vital for economic development Internationally airlines are a $400 billion industry generating $1.3 trillion in economic activity. In India, according to NCAER estimates, foreign exchange transactions of $22.5 billion are directly facilitated by civil aviation and another $96 billion indirectly through aviation related services. This study focuses on making Indian Air Traffic Management, world class

Global Trends Many countries initiated the process of corporatisation of ATC Country Corp Name Year of Corp. Functions ATC Funding Source Thailand AeroThai 1948 ATC 100% user fees New Zealand Airways Corp. 1987 ATC 100% user fees Australia CCA 1988 ATC + reg. Mostly user fees Switzerland Swill SOntrol 1988 ATC 100% user fees Portugal ANA 1992 ATC + airports 100% user fees Czech Rep. ATC Admin. 1993 ATC mostly user fees Germany DFS 1993 ATC 100% user fees Latvia LGS 1993 ATC 100% user fees South Africa AT&NS Co. 1993 ATC 100% user fees Ukraine UK SATSE 1993 ATC transition Austria Austria Control 1994 ATC +reg. 60% = user fees Ireland IAA 1994 ATC + reg. 100% user fees Russia Magadan Aero Control 1995 ATC transition Canada Nav Canada 1996 ATC 100% user fees United Kingdom NATS 1972/1996 ATC mostly user fees Singapore CAACommercis n.a. ATC + airports&reg. 100% user fees

Global Trends contd The CAA s (Australia) FIR serves 11% of the world airspace. The ATC system is highly automated and integrated. They are able to offer increased service delivery levels and safety levels at more cost effective rates. Operating Costs have consistently come down.

Global Trends contd Number of autonomous providers of air navigation services has grown into a very significant number now and control more than 80% of air traffic in the world. The International Civil Aviation Organization (ICAO) has been a proponent of the concept of commercialized air navigation service providers, which was already reporting on their benefits more than 30 years ago. ICAO means that the organization should have greater freedom in conducting its financial affairs, infrastructure funding, etc., and it should be self-financing, subject to the usual business taxes, and be required to seek a return on capital.

Global Trends contd In its initial year of operation in 1993, the corporatised German Air Navigation Services (DFS) reduced ATC charges by 25%. User charges in New Zealand have declined by 30% in real terms since corporatisation in 1987. Charges in Australia have fallen by 15% in real terms. Substantial gains in efficiency led to lower charges

What is happening? There has been a paradigm shift in what the market now seeks in terms of quality products and level of service. Nowhere is this more obvious than in the Air Transport Sector where the shift is towards low fares, low costs, better services and higher efficiencies. To achieve better service & high efficiency levels, it is imperative to have a restructuring of the whole Air Traffic Management Services

Why did ANS corporatise world over? Corporatisation gave them Financial Independence. This gave them the ability to manage their funds and cash flow better Had a direct positive effect on the bottom line Facilitated the process of technology upgrade. Easier & efficient Purchase Procedures This Indeed improved the aviation safety* Increased their efficiencies Gains in efficiency led to better management of the traffic and phenomenal reduction in delays due to Air Traffic This has saved billions of dollars for both the airlines and the passengers User charges went down by 15% to 30% Lowering of user charges had a great impact on the overall airlines industry

The Indian Scenario India s GDP is posting at over 8% Export services growth 100+ % Direct foreign exchange transactions by civil aviation - $22.5 billion and $96 billion indirectly through related services In India, airports facilitate 40% of foreign trade (against 75% in China) and 95% of foreign tourism. India's $11.3 billion travel and tourism industry, which largely depends on civil aviation, supports $ 23.8 billion in related economic activities

The Indian Scenario In India, Airports Authority of India (AAI), a government constituted organization is currently entrusted with the responsibility of creating, upgrading, maintaining and managing Civil Aviation infrastructure both on the ground and air space in the country. AAI controls and manages the entire Indian Airspace (excluding the special user airspace) extending beyond the territorial limits of the country, as accepted by international Civil Aviation Organization. The structure of the AAI is shown below:

The Indian Scenario AAI responsibilities Management of Indian Airspace Route Navigation Facilities of aircraft in the Indian Airspace Operation & Maintenance of Airports 1) Runways, Taxiways & Aprons 2) Terminal Buildings Design & Construction of New Terminals Upgradation of Existing Terminal Buildings Development & Management of Cargo Terminals at Airports.

The Indian Scenario India provides Air Traffic Service over an area of 6 million sq km (approx) which includes 3.8 million sq km of oceanic airspace. Propelled by growth of the economy and liberalization, the aviation sector in India experienced an unprecedented growth in the corresponding period. The estimated total passenger throughput for all airports in India in 2008-09 grew to 109 million from 40 million in 2000-01 and freight tonnage from 0.80 million to 1.70 million tons in the same period There are 15 scheduled operator's permit holders including two regional ones and two in the cargo category, with 419 aircraft endorsed on their permits. The number of non-scheduled operator's permit holders in different categories, namely passenger, cargo and charter, has gone up to 118, with 332 aircraft endorsed on their permit Passengers carried by domestic airlines from January-April, 2010 were 162.82 lakhs as against 133.41 lakhs in the corresponding period of year 2009 thereby registering a growth of 22.05%.The total domestic passengers carried by the scheduled Airlines of India in the month of April, 2010 was 41.88 lakhs.

The Indian Opportunity India has highest percentage of people in age group of 20-50, among its 50 million strong middle class, with high earning potential Low-cost carriers that are offering exceptionally low airfare that can be compared with railway AC fares Currently India attracts 3.2 million tourists every year, while China gets 10 times the number Tourism industry registered a growth rate of 17.3% in foreign tourist arrivals

The Indian Oppurtunity India China Population 1.1 B 1.4 B Middle class 300 M 400 M Passengers 20 M 140 M Aircraft 215 800

The Indian Shortcomings Poor infrastructure in airports, shortage of pilots, engineers, ATC staff and steady increase in ATF prices, which account for 40 per cent of the cost of operation in India Low cost players have problems with turn-around-time The airlines have also been asking the AAI to ensure quicker landings as an airline has to incur an additional fuel cost of $150+ per aircraft for every extra minute it keeps its planes flying before landing Airport charges are 62% higher than international levels and fuel prices are also higher. Example: The Flight Data Processing System at the Delhi airport was short listed for an upgrade 15 years ago. The process took 10 years and by the time the company that manufactured the processors Data General shut shop. Owing to globalization, ATS is subject to Safety Audit of International Standard and as a result 32% of over flights may utilize China, Mongolia airspace due to lack of modernization/open sky policy and will cause revenue loss of almost 36% to AAI

Need for Corporatization in India Corporatisation will give Financial Independence. Facilitate the process of technology upgrade. Easier & efficient Purchase Procedures To improve the aviation safety Increase efficiency of ATC User charges will go down significantly With an independent board of directors in place, who comprise of all the stakeholders, the ATC would be able to make faster decisions and would not be constrained due to governmental budgetary regulations

Need for Corporatisation in India Boost international trade and tourism and enhance the country's image in the comity of nations; Plan airport capacity ahead of demand, in order to handle an increasing volume of air traffic and to garner the maximum share of traffic in the region; Create airport facilities to make the airport user friendly and achieve higher level of customer satisfaction. Total safety and security of aircraft operations by the introduction of state-of-art air traffic, security and related services;

Need for Corporatisation in India Provide multi-modal linkages; Provide a market orientation to the present structure, bridge the resource gap and encourage greater efficiency and enterprise in the operation of airports, through the introduction of private capital and management skills; Foster the development of a strong airport infrastructure, maintaining a balance between the need for economic viability and the objective of equitable regional dispersal of infrastructural facilities;

Need for Corporatisation in India special emphasis on the development of infrastructure for remote and inaccessible areas, especially the north east, the hilly and island regions; encourage transparency and clarity in the decisionmaking processes of government and its public sector units.

Advantages Corporatised body is one that exists outside of the Government Civil Service and has certain commercial freedoms to act in the provision of services The activities are overseen by Boards of Directors, their finances are subject to external audit and they are required to produce Annual Reports and Accounts bringing transparency to management, staff, owners & customers. Realization that the ATC s are service providers in the same manner that many other organizations in aviation are service providers.

Advantages Corporatised organizations are typically free to borrow on the capital markets without the constraint of government spending limits. ANS provider has the responsibility for safety of its services & must demonstrate that it is meeting the safety requirements of the regulator through conformance with formal methods and procedures.

Naresh Chandra Committee report A road map for the civil aviation sector, 2003 It is reported that under the existing arrangement, wherein both airports and ATC services are controlled by a single organisation (i.e. AAI), ATC services often remain neglected on account of inadequate attention from the top management. Hence, there is an urgent need to review the current practice and evolve an effective mechanism to provide ATC services that are commensurate with the international best practices and standards. ATC services be hived off from the current jurisdiction of AAI and, in line with the international trends, constituted as a separate corporate entity (say, ATC Corporation). Around the same time, there is increasing realisation that ATC services are distinct from airport services and, accordingly, better provided as part of an integrated airspace management system rather than merely focusing on services at individual airports.

Other Reports Govt. of India should recognize due importance of ATC profession and accord special status to it preferably by examining the feasibility of de-linking ATS from the normal organizational set-up and creating an independent cadre to be governed by separate provisions. - Justice Lahoti Court of Inquiry report, 1996.But beginning in the late 1980s, the same problems that plague our ATC system inadequate or uncertain financial resources, poor cost-accounting, crippling bureaucratic rules on personnel and procurement, etc. led to a growing wave of reform. One after another, starting with New Zealand, ATC operations were restructured as commercial corporations, either wholly owned by government or as nonprofits controlled by the various aviation stakeholders Testimony of Robert W. Poole, Jr., Senate Commerce Committee, USA, September 14, 2000, Reason Public Policy Institute

Proposed Organization Structure The corporatised entity could be completely owned by the government but will have at the apex a Board of Directors that represents all the important constitutents for the air traffic services. The recommended board should consist of 1. 2 Directors appointed by airlines, business and general aviation 2. 4 Directors appointed by Government 3. 2 Directors appointed by the Unions 4. 2 independent, unrelated Directors chosen by the Board 5. A Chief Executive Officer chosen by the Board

Proposed Organization Structure The board will be responsible to the Ministry of Civil Aviation Ministry Of Civil Aviation Board Of Directors CEO

Proposed Organization Structure The Corporate structure CEO Director Finance Director HR Director Marketing & Business Devepmt Director Technology & Infrastructure Director ATM

Proposed Organization Structure The operational level structure Director ATM Head ATC Head Operations Support GM (West) GM (East) GM Eng Services GM IT Support GM (North) GM (South) GM Installations & Maintenance GM Telecom Network Services

Thank you