Transcript www.jonesday.com

EXECUTIVE ROUNDTABLE SERIES
KEY LEGAL CONSIDERATIONS GOVERNING
THE NEXT GENERATION AIR TRANSPORT SYSTEM
Financing NextGen Infrastructure and Services -Exploring the Changing Role of the Private Sector
Moderator: Elizabeth H. Evans, Partner, Banking and Finance – Jones Day, New York
Speakers: Graham Lake, Director General – Civil Air Navigation Services (CANSO);
Dr. Michael Fairbanks, Senior Consultant – Helios;
Bruce Lev, Managing Director – Loeb Partners; Vice Chairman – Airdat LLC;
Philippe Delelis, Partner, Government Regulation – Jones Day, Paris
June 3, 2010
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Potential Sources of Financing for
NextGen and SESAR
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Equity
Bonds
Lease Financing
Vendor Financing
Public Subsidy (e.g. grants, research funding)
Debt (private sector)
Debt (public sector)
• e.g. World Bank, European Investment Bank,
U.S. Export-Import Bank
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Civil Aviation Agencies (“CAAs)/Government
Air Navigation Service Providers (“ANSPs)
• CAAs and Government ANSPs continue to control
many of largest commercial opportunities for
aerospace clients
• Government procurement systems
• FAA procurement process
• European procurement processes
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Variations in ANSP Ownership
• 100% State = Government Department
• 100% State shareholding = “Corporatized”
• 100% Privatized shareholder = No State Control
• Mixed Shareholding = Public-Private Partnership
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Each ANSP is Unique
• Each national ANSP model:
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results from domestic politics;
• is determined by local regulations on infrastructure and
ownership; and
• is dependent on State finances and liberalization policies.
• Each ANSP = product of a unique national environment
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Variations in ANSP Funding Methods
• Air Navigation Charges
- Cost recovery = ICAO policy**
• Taxes
- political, not cost related
• Royalties
- used as a barrier to entry
• General Funds
- charge not related to service
• Joint Financing System
- used for oceanic airspace
** Note many states do not comply with ICAO Standards in this respect.
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Private Participation in NextGen
• What is the extent and nature of private sector
interest in financing NextGen and SESAR?
• To what extent should (and will) CAAs and
government ANSPs permit third parties to sell
services and products directly to aircraft operators
that were traditionally provided by the agencies
themselves?
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Private Investor Perspective
• What is the appeal of this space relative to sectors
with comparable risk profiles?
• What institutional and legal barriers have inhibited
private sector investment in air traffic management?
• What changes have been observed recently?
• Improvements or set-backs?
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Required Regulatory Approval
• Because air transportation services have significant
safety implications, third parties require regulatory
approval and (depending upon the jurisdiction)
enabling action by governmental entities.
• Do governmental agencies have a disincentive to
keep procedures and services in-house in order
to protect governmental jobs?
• What other barriers are there to private sector
investment in air traffic management?
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Technology vs. Regulation
• Is there a distinction for what types of services and
infrastructure should be publicly-financed versus privatelyfinanced?
• Consider: Required Navigational Precision Routes (“RNP”)
allow aircraft to fly the safest, most efficient approach to
airports.
• Acceptance of RNP technology has been more successful
in areas of world where outsourcing of this function has
been accepted: e.g. Australia and China.
• Recently, Airways New Zealand permitted Flight NZ978 to
use advanced RNP technology and instrument approach
procedure to land its Sydney-Roturua Service despite cloud
level down to just above 300 feet.
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Technology vs. Regulation
• Airways New Zealand’s expertise and utilization of the
internationally adopted design, standards, combined with Air
New Zealand’s excellent track record with RNP flight
operations resulted in first ICAO-compliant RNP AR approach
in New Zealand.
• Weather conditions were well below any of the traditional
approach aid minimums (heavy rain and low cloud cover).
• Flight would not have landed without RNP and new approval
level.
• “Crew were very impressed with the performance of the aircraft
and the effectiveness of procedure.”
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Technology vs. Regulation
• Are U.S. and European policy markets taking meaningful steps
to lower regulatory barriers?
• Have there been recent changes in enabling regulations?
• What strategies should companies offering innovative
communication, navigation and surveillance services for
aviation follow to engage governmental regulators and
facilitate approvals?
• What strategies should investors consider when entering
sectors that have traditionally been government monopolies or
dominated by state-owned/affiliated enterprises?
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Case Study: Airdat
• Aircraft are equipped with sensors that measure
various parameters (including temperature,
humidity, wind) resulting in far more accurate
weather forecast than that provided by traditional
meteorological organizations.
• How does Airdat’s service fit within NextGen and
SESAR Concepts?
• How should policy makers in the US and Europe
for NextGen and SESAR engage private markets?
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Appropriate Regulation
• Key to enabling access to innovative technology in
NextGen sector is for CAAs and ICAO to issue
appropriate enabling regulations in a timely manner
that set minimum performance and safety
standards.
• What other industries have undergone a
transformation from public to private?
• What lessons can be learned in terms of regulatory
and legal considerations?
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Financing Opportunities
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Financing the ANSP
• What are broad trends in ANSP financing globally? How
has this evolved in the last ten years?
Financing Ground Control Systems
• Has the private sector assumed a greater role?
Retrofitting Existing Fleet
• How do third parties get airlines to consider improved
technology? Is this process affected by the level of CAA
or government ANSP support?
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Public Private Partnerships
• Equipage Funds
• How have these arrangements evolved?
• Airport Sponsor Bonds
• What has been the impact of the economic down
turn?
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Ring-fencing Overflight Receivables
• Public vs. private finance
• ECA-supported transactions
• Security interest issues
• Sovereign immunity issues
• Agreements of Eurocontrol, IATA
• Agreements of government ANSPs
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Economic Climate
• Do the fiscal/budgetary problems in Europe and the
US materially change the prospects for private
investment in air traffic management service
provision?
• Do you expect this to also impact ANSP financing?
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Economic Climate vs. Actual Climate
• SESAR and Iceland: What can be learned from the volcanic
ash?
• “A volcano erupts in mid-north Atlantic and...
suddenly our world is turned upside down and all eyes are
on Air Traffic Control, as the apparent decision makers
somehow responsible for closing airports, closing airspace
and generally and inexplicably denying a large part of the
world its hereto unquestionable right to travel by air
whenever wherever.”
Graham Lake’s Canso Blog
April 21, 2010
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Economic Climate vs. Actual Climate
• Has Single European Sky been propelled to the top
of the agenda by an obscure volcano in Iceland?
• “Such events show that only true working partnerships make
things happen.”
Graham Lake’s Canso Blog
April 21, 2010
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Single Logistical and Dynamic Airspace
Management System
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How close are we?
In Europe?
In North America?
In Asia?
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