International Civil Aviation Organization

World-wide CNS/ATM Systems

Implementation Conference

Rio de Janeiro, 11 – 15 May 1998

International Civil Aviation Organization

World-wide CNS/ATM Systems

Implementation Conference

Rio de Janeiro, 11 – 15 May 1998

WW/IMP–WP/21

13/2/98

Item 3.3

Agenda Item 3:	Financial matters

3.3	Comparison of implementation options

COMPARISON OF IMPLEMENTATION OPTIONS - OVERVIEW

(Presented by the Secretariat)

Information Paper

SUMMARY

This paper, in support of action paper WW/IMP-WP/7, provides a financial comparison of options for the implementation of CNS/ATM. Net Present Value (NPV) estimates can be developed for alternative implementation plans and equipment configurations in order to assess which particular strategy is the most cost effective. Similarly the economic impact of extending or shortening the period during which services are provided by both the current system and the new system (in parallel) can be assessed.

Since the primary influence on investment decisions are financial in nature, alternative business cases will play a major role in the implementation decision process; some business case studies are presented in WW/IMP-WP/20.

1.	Introduction

1.1	The decision by States as to whether and when to enter into financial commitment necessary to implement CNS/ATM should be proceeded by appropriate economic analysis in order to establish a cost-effective implementation strategy, taking into account the economic impact on service providers, aircraft operators, passengers and shippers. In addition, each service provider or user may carry out its own business case evaluation. The need for credible business cases to guide CNS/ATM investment is important to bring business and financial organizations into consensus on CNS/ATM implementation.

2.

2.1	The implementation options to be considered by a State, sub-region or a region will depend on a number of factors including:

•	The range and age of current ground-based facilities

•	The type of aircraft utilizing the airspace and how they are equipped

•	The traffic flows in the region and their expected rates of growth

•	The relative costs of some of the CNS/ATM components

•	The cost of maintaining existing equipment

2.2	Before a financial comparison of various implementation options can be undertaken each State will need to identify what category it fits into with regard to airspace type. These are defined by geographic factors and traffic density. Examples are:

a)	continental airspace with low-density traffic;

b)	continental airspace with high-density traffic;

c)	oceanic airspace with low-density traffic;

d)	oceanic airspace with high-density traffic;

e)	terminal airspace with low-density traffic; and

f)	terminal airspace with high-density traffic.

For each of the navigation, communications and surveillance functions the evolution from the existing systems to the new systems will vary depending on the type of airspace identified. In some remote areas, the services provided by the current system are limited because the facilities are scarce or absent, a situation that might continue (at least in some areas) if CNS/ATM is not implemented. The new satellite systems will be especially beneficial to the quality of service in these areas.

2.3	A State would normally have air traffic control (ATC) responsibility for more than one type of airspace, each with different CNS/ATM requirements. Cost-benefit analyses might be undertaken for each type of airspace, but it may be more appropriate to merge the airspaces and carry out one analysis for the combined airspace.

2.4	For example, in oceanic and remote areas, the communications element of CNS/ATM will clearly be aeronautical mobile-satellite service (AMSS). In some of the higher-density continental airspaces, however, AMSS may be much less cost-effective for data communications than very high frequency (VHF) data or Mode S (which are both line-of-sight systems) because the operating costs of the latter two are low and their capital costs can be shared among many users. For this type of airspace, providers may wish to compare the relative costs of VHF and Mode S for data communication before proceeding with their implementation of CNS/ATM. This comparison should, however, take into account the fact that a secondary surveillance radar ( SSR) Mode S facility may provide both surveillance and data link services. Since an SSR Mode S data link system can also provide surveillance, it is difficult to allocate the common costs of the system between the two functions. It may therefore be more appropriate to examine the options for providing both surveillance and data link services.

2.5	There are various possible equipment options within the CNS/ATM concept for providing surveillance and data link in high-density continental airspaces. The cost-effectiveness of the options will depend on the existing facilities. It is suggested that States undertake a comparative analysis of the two options which are the most promising in the circumstances. For each of the two options, it is necessary to identify the additional expenditures associated with servicing the specific airspace segment being investigated. For example, VHF data may be collocated with VHF voice, sharing some of the costs of facilities; furthermore, SSR Mode A/C facilities may already be in place. Another potentially attractive option for data link and surveillance in some airspaces is VHF data plus automatic dependent surveillance (ADS). States may decide to compare this option with VHF data/SSR Mode A/C.

2.6	More detailed specifications of the systems and equipment configurations on board aircraft and on the ground must be developed by operational and technical experts. The required quantities of equipment for each airspace can then be estimated and costs derived.

2.7	Implementation of CNS/ATM may require expenditure on ground components of the aeronautical telecommunications network (ATN). The ATN provides for the transfer of data between communications subnetworks, accommodating differences in the technologies and protocols which apply in these subnetworks. ATN routers, which must observe common inter-networking conventions and standards, select ground and aeronautical subnetworks based on user-specified communication requirements and subnetwork availability.

2.8	Development of air traffic management (ATM) systems and automation in air traffic control centres is another aspect of CNS/ATM implementation. Automation in air traffic control centres involves data processing and communications and requires computer hardware and software. It is used to support air traffic services (ATS), air traffic flow management (ATFM) and airspace management (ASM), which together make up the function of ATM. Expenditure in these areas may be linked closely with the evolution of the CNS systems and may be necessary to achieve the benefits expected from the total system.

3.

3.1	The basis for the development of a business case needs to take into account alternative equipment configurations suitable for each combination of air space and traffic density concerned as discussed above. Such analysis should be carried out at State, sub-regional or regional levels.

3.2	For example the ICAO Global Air Navigation Plan for CNS/ATM Systems (Global Plan) describes a methodology of identifying homogenous ATM areas. The basis of developing a global, integrated ATM system will be an agreed to structure of homogeneous ATM areas and major international traffic flows. These areas and flows can be seen as the thread tying together the various elements of the world-wide aviation infrastructure into a global system. The Global Plan lists several of these. It is suggested that, further identification of these areas and traffic flows should be carried out by Planning and Implementation Regional Groups (PIRGs) in collaboration with the aircraft operators, reflecting the latter's requirements. Considering the communications, navigation and surveillance elements of the CNS/ATM systems infrastructure to support air traffic management, it is necessary for each region to first ascertain the ATM objectives for a given homogeneous ATM area or major international traffic flow, then determine which of the technical elements and implementation options that would most appropriately and cost effectively meet the ATM objectives for that area or traffic flow.

3.3	A step-by-step approach to planning ATM requirements and CNS infrastructure is described in Chapter 3 of the ICAO Global Air Navigation Plan for CNS/ATM Systems, Volume I.

3.4	Once the alternative equipment configurations have been identified for the appropriate combination of region/airspace and traffic density concerned, the costs of the alternative configurations need to be estimated.

3.5	The costs involved can be broken down into two main categories. Investment costs, which require airlines to purchase the necessary avionics equipments and ATC providers to invest in workstations and communications hardware are one aspect. In addition, there are on-going operational costs involved in equipment maintenance and the user charges associated with the use of data links as well as training requirements.

3.6	The major benefits derived from the implementation of CNS/ATM include a significant improvement in airspace capacity as a result of being able to safely reduce separation standards, and efficiency improvements resulting from more direct routing of aircraft and the increased ability to allow aircraft to operate their preferred flight plan. These improvements result in time savings, which in turn result in fuel savings and hence a reduction in airline direct operating costs (DOCs).

4.

4.1	The development of a business case for the implementation of CNS/ATM by a service provider or a user involves taking financial cost-benefit analysis a step further. In particular, changes in revenues resulting from changes in the prices of the product or service sold by the organization must be taken into account. It is generally expected that CNS/ATM will facilitate reduced operating costs and a lower price for the service provided. From the point of view of a specific organization, assessment of the net financial impact (in present value terms) must include not only the implementation cost and operating cost savings (which are included in the cost-benefit analysis) but also consequent changes in revenues.

4.2	For a service provider and State, a business case evaluation must include the impact on revenues of changes in en route charges associated with the implementation of CNS/ATM. Assuming that the service provider is currently covering its costs with the present technology systems, the basic issue is for the service provider to be satisfied that the changes in revenues expected from the planned changes to en route charges will match the net change in costs (measured by the cost-benefit analysis). However, if the service provider is not currently covering its operating costs from revenues, or if the relationship between costs and revenues is not being monitored (e.g. if costs are met from the government budget and revenues are treated independently as general government revenues), then the air traffic management services are not being provided on a commercial basis. Even in these circumstances it is recommended that a business case evaluation be conducted to assess the financial impact on the service provider of the new systems.

4.3	For an air carrier, a business case evaluation would include (among other factors) assumptions about the impact on its costs of expected changes in route charges and the impact on revenues of changes in air carrier fares and rates, where these changes are associated with the implementation of CNS/ATM. These impacts are in addition to the direct investment costs and operating cost savings attributable to the new systems and identified in the cost-benefit analysis. The impact of route charges will depend on the outcome of the policies and evaluations of the service providers. Assumptions about fares and rates will reflect competitive pressures in air travel and freight markets.

4.4	The following points have to be borne in mind in the development of alternative business plans for efficient implementation.

•	All States, air space users, ATC service providers, and ATM equipment suppliers do not have the same motivations and benefits.

•	Transition to the new system will be a gradual process and occur at different rates across each air space and region concerned.

•	New technologies will complement rather than replace existing technologies.

•	Multi-national co-operation among provider States and users will be essential to minimize investment costs, compatibility and avoid duplication of effort.

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