International Civil Aviation Organization

World-wide CNS/ATM Systems

Implementation Conference

Rio de Janeiro, 11 – 15 May 1998

Agenda Item 3:	Financial matters

CNS/ATM

FROM A BUSINESS CASE PERSPECTIVE

by

BRIAN KENDAL

AIRSERVICES AUSTRALIA

SLIDE 1	-	WORLD REVOLVING

THANK YOU FOR THAT KIND INTRODUCTION MR CHAIRMAN, GOOD MORNING/AFTERNOON LADIES AND GENTLEMEN.

AS THE WORLD OF CNS/ATM REVOLVES BEFORE OUR EYES THE FOCUS HAS TURNED THIS WEEK TO THIS MEETING HERE IN RIO, BRAZIL WHERE WE SEEK TO UNDERSTAND THE NATURE OF THIS NEW TECHNOLOGY, THE IMPACTS IT IS HAVING ON AVIATION AND THE IMPORTANCE IN DEALING WITH THE FINANCING AND FUNDING ISSUES.

IN THIS REGARD MY PRESENTATION.....

SLIDE 2	-	WORLD + PRESENTATION TITLE

LOOKS AT THE WORLD OF CNS/ATM FROM A BUSINESS CASE OR COST BENEFIT PERSPECTIVE AND IN PARTICULAR THE BUSINESS CASE APPROACH TAKEN BY AUSTRALIA.......

SLIDE 3	-	THE AUSTRALIAN APPROACH

IN SELECTING FROM THE CNS/ATM CATALOGUE THOSE ELEMENTS AND APPLICATIONS WHICH WILL DELIVER OPERATIONAL ENHANCEMENTS AND ECONOMIC BENEFITS TO ITS AVIATION CUSTOMERS.

SLIDE 4	-	MAN WITH?

AND WHY IS IT IMPORTANT TO UNDERTAKE BUSINESS CASE ANALYSIS?

WELL THE ANSWER IS SIMPLE. WE DO IT TO DEMONSTRATE TO THE PROVIDERS OF AIR NAVIGATION SERVICES, THE AIRLINES AND THE FINANCIAL INSTITUTIONS......

SLIDE 5	-	COSTS + BENEFITS

THAT THE BENEFITS OF IMPLEMENTATION WILL BE GREATER THAN THE COSTS, PROVIDING POSITIVE RETURNS ON INVESTMENTS, INVESTMENT WHICH CAN BE RECOVERED THROUGH USER CHARGES. INVESTMENTS WHICH FINANCIAL INSTITUTIONS WILL.....

SLIDE 6	-	MAN + LIGHT BULB

CLEARLY SEE AS WORTHY OF THEIR SUPPORT.

HOWEVER, BEFORE WE LOOK AT THE BUSINESS CASE APPROACH IN DETAIL LET'S VISIT THE SUPERMARKET OF CNS/ATM.......

SLIDE 7	-	SUPERMARKET OF CNS/ATM

AND WHAT A WONDERFUL SUPERMARKET IT IS.

SLIDE 8	-	USE MOUSE TO OPEN THE DOOR

WE HAVE	:	SATELLITE TRANSPONDERS

:	ADS

:	WAAS

:	CPDLC

:	CNS/ATM ATS CENTRES

:	LAAS AND SO THE LIST GOES ON.....

AND WOULDN'T IT BE NICE TO BUY ONE OR SEVERAL OF EACH. LETS GO SHOPPING

[NOTE: USE MOUSE TO GO SHOPPING]

SLIDE 9	-	STACKS OF MONEY

BUT AT WHAT COST. FOR THESE ITEMS ARE NOT CHEAP.

SLIDE 10	-	BUSINESS CASES FOR CNS/ATM

HOWEVER, UNLIKE THE DEDICATED SHOPPER WITH THE UNLIMITED CREDIT CARD WE IN THE AVIATION INDUSTRY HAVE TO ADOPT A MORE PROFESSIONAL AND BUSINESS LIKE APPROACH.....

FOR FUNDS AND FINANCING ARE NOT UNLIMITED AND COSTS NEED TO BE RECOVERED. OUR DECISIONS AFFECT NOT ONLY US BUT ALSO MANY OTHERS WHO ARE OUR PARTNERS IN AVIATION.

WE NEED TO INVOLVE ALL OF THE BUSINESS PARTNERS:

SLIDE 11	-	BUSINESS PARTNERS

-	AIRPORT OWNERS	(AERODROME)

-	THE AIRLINES	(ACFT ON THE SLIDE)

-	ATS PROVIDERS	(CONTROL CENTRE)

-	SAFETY REGULATORS	(BUILDING WITH REGULATOR)

-	FINANCIAL INSTITUTIONS	(BANK)

-	ICAO	(BUILDING WITH ICAO LTRS)

-	MANUFACTURERS

AND MANY OTHERS TO NUMEROUS TO MENTION.

SLIDE 12	-	SUCCESS THROUGH PARTNERSHIPS

RECOGNISING THAT SUCCESS WILL ONLY BE ACHIEVED THROUGH CO- OPERATIVE PARTNERSHIPS; BASED ON COMMERCIAL BUSINESS PRACTICES.....

WHAT I CALL SUCCESS THROUGH PARTNERSHIPS

WHERE GROUPS, PARTNERS, STAKEHOLDERS WORK TOGETHER IN A SPIRIT OF COOPERATION FOR THE MUTUAL BENEFIT OF ALL; HOWEVER ALSO RECOGNISING THAT IN TODAYS COMMERCIAL WORLD GOODWILL BY ITSELF WILL NOT ALWAYS WIN THE DAY; THAT IN MANY INSTANCES THE EXISTENCE OF A WELL FOUNDED ROBUST BUSINESS CASE CAN OFTEN BE THE DECIDING FACTOR.

ACCEPTING THIS REQUIREMENT, LETS LOOK NOW AT THE AUSTRALIAN APPROACH TO BUSINESS CASES.......

SLIDE 13	-	MAN ASCENDING STAIRS

AND THE STEPS WHICH NEED TO BE TAKEN TO ACHIEVE A FINAL BUSINESS CASE LEADING TO A SUCCESSFUL OUTCOME.

NOW LETS LOOK AT EACH STEP ONE AT A TIME AND THERE ARE 7 STEPS IN TOTAL.

IDENTIFY THE OPERATIONAL REQUIREMENTS.

HERE IT IS IMPORTANT TO ENSURE THAT WHAT WE ARE PLANNING WILL INDEED DELIVER THE OPERATIONAL REQUIREMENTS AND BENEFITS WHICH OUR CUSTOMERS ARE ASKING FOR.

DEVELOP TECHNICAL OPTIONS. RECOGNISING THAT QUITE OFTEN OPERATIONAL BENEFITS CAN BE DELIVERED IN A VARIETY OF WAYS WHICH MAY INVOLVE DIFFERENT TECHNOLOGIES AND THUS DIFFERENT COSTS. THEREFORE, IT IS IMPORTANT TO IDENTIFY AND DEVELOP THE VARIOUS OPTIONS FOR CONSIDERATION AND EVALUATION.

IDENTIFICATION OF STAKEHOLDERS.

THIS ITEM IS CRITICAL TO ANY PROJECT OR PROCESS AND WHILE MOST OF THIS STEP WILL HAVE ALREADY OCCURRED, IT IS NOT UNTIL YOU HAVE DEVELOPED THE TECHNICAL OPTIONS THAT YOU ARE IN A POSITION TO FEEL CONFIDENT THAT YOU HAVE IDENTIFIED ALL OF THE STAKEHOLDERS. THAT IS WHY THIS STEP IS INCLUDED HERE.

QUANTIFY COSTS/BENEFITS

IN THIS STEP IT IS IMPORTANT TO CAPTURE THE COST AND BENEFITS FOR ALL OF THE STAKEHOLDER GROUPS AND NOT JUST THE COSTS AND BENEFITS FOR OURSELVES.

RUN COST/BENEFIT MODEL

AT THIS STEP WE NEED TO RUN THE ECONOMIC COST BENEFIT MODEL FOR EACH OF THE TECHNICAL OPTIONS BEING CONSIDERED.

ONCE WE HAVE THE RESULTS FROM THIS PROCESS WE CAN RANK THE OPTIONS AND SELECT THE WINNER BEARING IN MIND THE ECONOMIC, TECHNICAL AND INSTITUTIONAL FACTORS ASSOCIATED WITH EACH OPTION

AND FINALLY WE THEN

SUBMIT FOR FINANCING AND APPROVAL

NOW LETS LOOK AT A COUPLE OF PRACTICAL EXAMPLES TO SEE WHAT THE RESULTS WERE. WE WILL LOOK FIRST AT A SIMPLE EXAMPLE AND THEN A MORE COMPLEX EXAMPLE.

LETS TAKE THE SIMPLE EXAMPLE OF A FLEX TRACK.

SLIDE 24 & 25	-	FIXED ROUTE + FLEX TRACK

IN THIS CASE WE WILL LOOK AT THE LOS ANGELES TO SYDNEY ROUTE.

THE FIXED ROUTE GENERALLY SPEAKING IS THE SHORTEST DISTANCE BETWEEN THE TWO LOCATIONS. WHEREAS THE FLEX TRACK IS THE TRACK WHICH TAKES THE LEAST FLIGHT TIME; THE TRACK WHICH PROVIDES THE MOST FAVOURABLE WIND AND FLIGHT TEMPERATURE CONDITIONS FOR THAT FLIGHT. ON A TYPICAL DAY THE FLEX TRACK FROM LOS ANGELES TO SYDNEY CAN SAVE AROUND 15 MINUTES. THIS SAVING CAN BE USED BY THE AIRLINES TO ACHIEVE SIGNFICANT ECONOMIC BENEFITS FOR THEMSELVES.

IN THIS CASE THE WORK WAS CARRIED OUT BY THE INFORMAL SOUTH PACIFIC AIR TRAFFIC SERVICES COORDINATING GROUP (ISPACG).

SLIDE 26	-	ISPACG

IN THIS GROUP THE SERVICE PROVIDERS AND USERS PARTICIPATE TOGETHER IN PARTNERSHIP TO DEVELOP THE INITIATIVES AND FOLLOW THE STEPS THROUGH TO IMPLEMENTATION. THIS WAS ESSENTIALLY A SIMPLE EXAMPLE AND THE COSTS WERE SO SMALL IN COMPARISON TO THE BENEFITS THAT FINANCING WAS ACCOMMODATED WITHIN NORMAL SERVICE PROVIDERS AND USERS OPERATING BUDGETS AND SPECIAL FINANCING WAS NOT REQUIRED. BUT ESSENTIALLY ALL OF THE STEPS WERE FOLLOWED WITHIN THE GROUP TO ACHIEVE THIS SUCCESSFUL OUTCOME.

AND IT WAS THE WORK STARTED WITH THIS SIMPLE INITIATIVE WITHIN ISPACG WHICH HIGHLIGHTED THE POTENTIAL BENEFITS FROM THE NEW CNS/ATM TECHNOLOGY AND IN TURN LED TO THE INTRODUCTION OF THE FANS 1 AND FANS A PACKAGES TO THE WORLD OF CNS/ATM.

SLIDE 27	-	FANS1/A

HOWEVER, NOT ALL EXAMPLES ARE SO SIMPLE, SO LETS LOOK NOW AT A MORE COMPLEX CASE.......

SLIDE 28	-	CNSS AUGMENTATION SYSTEMS TECHNICAL AUDIT AND COST BENEFIT ANALYSIS

THE PRIMARY AIM OF THIS INITIATIVE WAS TO IDENTIFY AND RECOMMEND THE MOST COST BENEFICIAL AND LEAST RISK GNSS AUGMENTATION SYSTEM THAT WOULD BE ACCEPTABLE TO AUSTRALIA'S CIVIL AVIATION OPERATIONAL REQUIREMENTS, AS WELL AS BEING INTERNATIONALLY COMPATIBLE AND INTEROPERABLE.

NOW LETS LOOK AT THE RESULTS.

SLIDE 29	-	RESULTS

THE BUSINESS CASE INDICATED THAT FOR AN INVESTMENT OF APPROXIMATELY $A40-60 MILLION, LEADING TO SOLE MEANS IMPLEMENTATION OF GNSS WITHIN AUSTRALIAN AIRSPACE.

THERE WERE

PROJECTED ANNUAL SAVINGS FOR AIRSERVICES OF $A20 MILLION PER ANNUM (A PAYBACK OF 2-3 YEARS).

AND AN ANNUAL ECONOMIC BENEFIT TO ALL AUSTRALIAN REGISTERED AVIATION OPERATORS (AIR CARRIERS AND GENERAL AVIATION) WAS PROJECTED AT OVER $A35 MILLION PER ANNUM.

BENEFITS FOR OTHER INTERNATIONAL OPERATORS WITHIN AUSTRALIAN AIRSPACE WERE NOT QUANTIFIED BUT WERE EXPECTED TO BE SIGNIFICANT

NOW THIS STUDY IS STILL ONGOING FOR THERE ARE A NUMBER OF RECENT DEVELOPMENTS WHICH WILL NEED TO BE CONSIDERED BEFORE ANY FINAL DECISIONS ARE TAKEN.

THIS PROJECT FOLLOWED THE STEPS IN DETAIL AND THE FINAL BUSINESS CASE CONSISTED OF SEVERAL VOLUMES, REFLECTING THE COMPLEXITY OF THE INITIATIVE AND THE LEVEL OF INVOLVEMENT BY ALL OF THE STAKEHOLDERS.

SLIDE 30	-	THE AUSTRALIAN BUSINESS CASE APPROACH

LETS LOOK AT THOSE STEPS AGAIN. THOSE WERE THE STEPS FOLLOWED IN THE GNSS STUDY WITH THE FINAL STEP OF FINANCING AND APPROVAL YET TO HAPPEN.

BEFORE CONCLUDING THIS PRESENTATION, MR. CHAIRMAN, I WOULD LIKE TO RAISE BRIEFLY THE CONCEPT OF THE MULTI MODAL BUSINESS CASE......

SLIDE 31	-	MULTI MODAL BUSINESS CASE

WHERE THE BENEFICIARIES IN TRANSPORT ARE NOT JUST AVIATION BUT ALSO:

SLIDE 32	-

-	ROAD TRANSPORT

-	RAILWAYS AND

-	SHIPPING

IN THESE CASES IT IS APPROPRIATE NOT ONLY TO IDENTIFY THE BENEFITS BUT ALSO TO SHARE THE COSTS BETWEEN THE VARIOUS TRANSPORT SEGMENTS. AUSTRALIA IS PRESENTLY DEVELOPING ITS METHODOLOGY FOR MULTI MODAL BUSINESS CASES AND HAS ALREADY PUT THE CONCEPT TO THE ASIAN PACIFIC ECONOMIC COOPERATION (APEC) TRANSPORTATION WORKING GROUP. THIS BUSINESS CASE METHODOLOGY WILL REQUIRE ADDITIONAL STEPS TO THOSE WE HAVE DISCUSSED TODAY; HOWEVER, THAT IS A MATTER FOR FUTURE THOUGHT AND CONSIDERATION.

SLIDE 33	-	WORLD SPINNING

MR CHAIRMAN, THERE ARE A NUMBER OF METHODOLOGIES IN PLACE AROUND THE WORLD WHICH CAN BE USED FOR THE PURPOSE OF CONDUCTING BUSINESS CASES. WHAT WE HAVE LOOKED AT TODAY IS THE IMPORTANCE OF BUSINESS CASES IN THE DECISION MAKING AND FINANCING PROCESSES AND THE APPROACH ADOPTED BY AUSTRALIA; AN APPROACH THAT HAS WORKED WELL FOR US.

HOWEVER, EACH COUNTRY MAY NEED TO TAILOR ITS BUSINESS CASE METHODOLOGY TO MEET ITS OWN NEEDS OR THE NEEDS OF OTHER STAKEHOLDERS AND PARTNERS IN THEIR AREA OF OPERATION. THE AUSTRALIAN METHODOLOGY IS JUST ONE MODEL FOR COUNTRIES TO CONSIDER.

WHAT IS IMPORTANT AND HOPEFULLY WHAT THIS PRESENTATION HAS ACHIEVED IS A RECOGNITION OF THE IMPORTANCE OF UNDERTAKING BUSINESS CASE STUDIES TO DEMONSTRATE TO THE PROVIDERS OF AIR NAVIGATION SERVICES, THE AIRLINES AND FINANCIAL INSTITUTIONS THAT PROPOSALS AND INVESTMENTS ARE SOUNDLY BASED AND WORTHY OF THEIR SERIOUS CONSIDERATION IN TRUE COMMERCIAL TERMS.

SLIDE 34	-	AIRSERVICES AUSTRALIA LOGO

THANK YOU LADIES AND GENTLEMEN.

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