International Civil Aviation Organization

World-wide CNS/ATM Systems

Implementation Conference

Rio de Janeiro, 11 – 15 May 1998

WW/IMP–WP/16

6/2/98

Item 2

Agenda Item 2:	Institutional issues

2.1	Organizational structures at the national level, including private sector participation

ORGANIZATIONAL FORMS OF AIR NAVIGATION SERVICES

AT THE NATIONAL LEVEL

(Presented by the Secretariat)

Information Paper

Summary
This paper, in support of action paper WW/IMP-WP/4, addresses organizational forms at the national level. The paper refers first to factors that may need to be regarded by a State when deciding on the organizational form under which its air navigation services should be provided. The paper then describes three organizational forms, that is a government department, an autonomous public sector organization, a private sector organization; addresses transitional arrangements when the organizational structure is changed; and refers to basic ICAO policy and practical guidance to which the organization providing air navigation services should adhere regardless of its form. The text is based on Chapter 2 of the ICAO Manual on Air Navigation Services Economics (Doc 9161/3).

1.	General comments

1.1	The principle objective for all providers of air navigation services is to plan and operate safe and efficient services in the airspace for which the State is responsible. These services should be provided in the most effective and efficient manner possible and be focused on the needs of the users. Although a State is ultimately responsible for the provision of air navigation services, it is recognized that provision of the services can be delegated to a specific body to provide them on the State's behalf. These bodies can cover a wide range of forms at the national level from a government department, autonomous public sector agency, through corporatization to full privatization. Alternatively, the provision of these services could be delegated to a multinational entity, as described in WW/IMP-WP/17.

1.2	The decisions made by individual States as to the organizational form at the national level under which their air navigation services should operate will depend on the situation in the State concerned, the organization of airspace, and whether provision is delegated to other States. These decisions will often be strongly influenced by government policy but each State may need to have regard to the following factors:

a)	the overall framework of government and system of administration followed by the State;

b)	the legal and administrative arrangements to ensure that the State's responsibilities to uphold the relevant articles of the Chicago Convention are maintained;

c)	forecast industry activity and the sources and cost of funds required to meet related infrastructure investment needs. The options for financing capital investment will include:

1)	government finance;

2)	equity finance;

3)	debt finance; and

4)	leasing.

The choice of financing option may have a bearing on the organizational form. For example, should public sector bodies not have access to private finance markets because of public sector borrowing restrictions, access may only become possible with a change of organizational form;

d)	the requirement of the aviation industry, both international and domestic, to promote increased efficiency of their operations by the safe and efficient provision of air navigation services; and

e)	the importance of civil aviation to the State's economic and social objectives and the extent to which civil aviation has been developed to meet those needs.

2.	Organizational forms

2.1	There are three basic or core forms of organization for providing air navigation services at the national level. These are as follows:

a)	a government department that is subject to government accounting and treasury rules; its staff are employed under civil service pay and conditions;

b)	the autonomous public sector organization that is separate from an executive arm of government but the government has total ownership of the organization; and

c)	the private sector organization that is owned by private interests either totally or with the government holding a minority share.

2.2	However, these forms of organization are not mutually exclusive and a State may draw on features from one or more of them. Whichever form is chosen, an organization providing air navigation services should adhere to the Statements by the Council to Contracting States on Charges for Airports and Air Navigation Services (Doc 9082/5) and follow the guidance provided in the ICAO Manual on Air Navigation Services Economics (Doc 9161/3).

3.	A government department

3.1	Key features of this organization are:

a)	the head of the organization reports directly to the executive level of government;

b)	as an organization within government it is funded by the government, sometimes from general taxation. User charges levied for air navigation services could be retained either by the government for general purposes or by the organization; and

c)	the organization may not be subject to taxes as paid by private business.

3.2	Other factors that may be relevant are:

a)	the organization provides all types of air navigation services and may also provide related services such as search and rescue co-ordination. It would normally be responsible for the safety regulation of the aviation industry;

b)	if the government accounting system is inadequate to provide the necessary accounting information, separate accounts following commercial accounting standards and practices will be necessary;

c)	capital expenditure is subject to the government's approval process and treasury rules, and must compete with other claims for government funds; and

d)	the organization would normally not have a formal agreement regarding the provision of services to military aircraft.

4.	The autonomous public sector organization

4.1	This type of organization would normally have the following key features set out below:

a)	the government, as owner of the organization, is responsible for setting the organization's objectives and monitoring its performance;

b)	a board of directors oversees the activities of the organization. It is appointed by the government to whom the board reports;

c)	the organization is self-financing and may be required to achieve a financial return on capital employed;

d)	the organization charges for its services and uses revenue from these charges to fund operating expenses and to finance capital expenditure. Some prescribed operations (e.g. military or services to remote localities) may be exempted from charges and the cost may be borne by government;

e)	the organization applies commercial accounting standards and practices; and

f)	the organization may be subject to normal business taxes.

4.2	This model encompasses a range of organizations depending on the extent to which the organization is meant to behave like a private sector company. The following additional factors may be relevant:

a)	public sector bodies operating closely along private sector lines could still be subject to government directions or pressure to take account of wider public issues;

b)	the organization may be responsible for the safety regulation of its services and in some cases for aviation safety in general;

c)	the staff of the organization are not likely to be civil servants and may therefore not have public sector pay and conditions of service;

d)	the government would normally provide finance capital for the organization by direct loan, loan guarantee or leasing arrangements. The organization may also have access to the private capital market, although because of its public sector status, government may limit access; and

e)	the organization may be subject to the government's approval process for major capital investment.

5.	The private sector organization

5.1	Currently there is no known example of a wholly private sector organization although one State has established an organization that has similar characteristics. Setting up such an organization will require consideration of a number of factors. Air navigation services are generally provided by a monopoly and consequently a number of safeguards would need to be implemented to protect users against over-charging and to ensure that obligations are met such as freedom of access, non-discrimination between categories of users and conformity with international agreements and obligations. In particular, there is an obligation to observe ICAO policies and principles, notably those contained in the Chicago Convention and its Annexes and in the Statements by the Council to Contracting States on Charges for Airports and Air Navigation Services (Doc 9082/5). In setting up a regulatory system to oversee these safeguards, a sensible balance between the needs of the State, the users and the organization itself would need to be achieved.

5.2	Expected key features of a wholly private sector organization are likely to include the following:

a)	the organization is subject to the obligations of States under the Chicago Convention;

b)	there is a Board of Directors for the organization appointed according to its charter;

c)	the organization is self-financing, charges for its services, obtains funds from the capital market and aims to achieve a financial return;

d)	the organization applies commercial accounting standards and practices; and

e)	the organization is subject to normal business taxes.

5.3	Other factors that may be relevant are:

a)	the organization is required to comply with aviation safety regulation standards set by the responsible government body;

b)	where there is no competition in the provision of air navigation services, charges for these services would need to be subject to independent economic regulation;

c)	the organization charges for its services and uses revenue from these charges to fund operating expenses and to finance capital expenditure. Some prescribed operations (e.g. military or services to remote localities) may be exempted from charges and the costs for these prescribed services may be borne by government;

d)	arrangements for the co-ordination of civil/military traffic including common use of facilities and services, and associated financial issues, would need to be formalized and agreed with the ministers concerned; and

e)	the government represents the State at the international level. Any involvement by the private sector organization in that representation would need to be decided by the parties concerned.

6.	Transitional arrangements

6.1	The general direction of change is likely to be from a government department towards autonomous organizational forms. Before an autonomous organization can become operational its charter, or a document of a similar nature, needs to be formulated. The charter should describe the scope of the services that the organization will be responsible for providing and operating. A change of organizational form should be made in consultation with all the parties concerned.

6.2	The process of transition will depend on the circumstances and practice of each State but, in general, the transitional issues that may arise when moving from a government department are:

a)	establishment of formal relationships between the Government and the autonomous organization, including financial reporting requirements;

b)	establishment of formal relationships between the autonomous organization and the aviation safety regulation and accident investigation organizations;

c)	establishment of economic regulatory framework;

d)	identification, valuation and transfer of assets;

e)	initial financial structure;

f)	conditions of employment including pension arrangements;

g)	staffing including maintaining good labour relations during the transition period; and

h)	consultation with users and other interested parties.

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