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/23

2/3/98

Item 3

Agenda Item 3:	Financial matters

3.5	ICAO's cost recovery policy

INTERNATIONAL COST RECOVERY POLICY

(Presented by the Secretariat)

Information Paper

SUMMARY

This paper, in support of action paper WW/IMP-WP/8, addresses international cost recovery policy for the implementation of CNS/ATM systems and other air navigation services as defined in the Chicago Convention and expressed by the ICAO Council.

1.	International cost recovery policy in the context of CNS/ATM systems

1.1	The Statement of ICAO Policy on CNS/ATM Systems Implementation and Operation approved by the Council confirms that from an international cost recovery viewpoint the principles that apply to the air navigation services (and airport) infrastructure are equally applicable to CNS/ATM systems since the latter form part of that infrastructure. Article 15 of the Chicago Convention and the Council Statements in Doc 9082 are therefore addressed below.

2.	Article 15 of the Convention on International Civil Aviation

2.1	Article 15 of the Chicago Convention sets out the following three basic principles:

-	uniform conditions shall apply to the use of airport and air navigation facilities in a Contracting State by aircraft of all other Contracting States;

-	the charges imposed by a Contracting State for the use of such airports or air navigation facilities shall not be higher for aircraft of other Contracting States than those paid by its national aircraft engaged in similar international operations; and

-	no charge shall be imposed by any Contracting State solely for the right of transit over or entry into or exit from its territory of any aircraft of a Contracting State or persons or property thereon.

While the first two of these principles do not appear to have given rise to misunderstandings, the third has in some instances been interpreted to mean that no charges are to be levied when an aircraft flies into, out of or over a State. That, however, is not the intent of this principle since all States are fully within their rights to recover the costs of the services they provide to aircraft operators through charges. The substance of this principle is in fact that a State should not charge solely for granting an authorization for a flight into, out of or over its territory.

2.2	Two other aspects are also addressed in Article 15. The first is that States shall publish all their airport and air navigation services charges, and also communicate them to ICAO. This information is collected and published by ICAO at intervals in the Manual of Airport and Air Navigation Facility Tariffs (Doc 7100, for which CD-ROM and/or on-line versions are currently under consideration). Article 15 also provides for ICAO, upon representation by an interested Contracting State, to review charges imposed and make recommendations thereon to the State or States concerned.

3.	Statement by the council on charges for air navigation services

3.1	Basic aspects

3.1.1	Additional and more detailed policy guidance in the area of airport and air navigation services charges is provided in the Statements by the Council to Contracting States on Charges for Airports and Air Navigation Services, the current edition of which is contained in Doc 9082/5. There are two Statements, one addressing airport charges and the other air navigation services charges. The contents of the Statements have been revised periodically by the Council following major international conferences on airport and air navigation services economics and management, the last of which was held in 1991 (the next being scheduled for 2000), with amendments published when required. However, the basic philosophy and principles expressed in the Statements, that is fairness and equity in the determination and sharing of air navigation services costs, have remained unchanged over the years.

3.1.2	The Council Statements differ in status from the Chicago Convention in that an ICAO Contracting State is not bound to adhere to the Statement's provisions and recommendations, unlike the articles of the Chicago Convention. However, since the recommendations in the Council Statements have been developed by major international conferences, there is a strong moral obligation for States to ensure that their air navigation services cost recovery practices conform to the policies and philosophy set out in the Statements. This appears to be the general practice amongst ICAO's Contracting States.

3.1.3	The principles contained in the Statement by the Council on Charges for Air Navigation Services address such subjects as the cost basis for air navigation services charges, allocation of air navigation services costs among aeronautical users, air navigation services charging systems, approach and aerodrome control charges, route air navigation services charges, charges for air navigation services used by aircraft when not over the provider State, and consultation with users regarding charges and air navigation services planning.

3.2	Organizational aspects

3.2.1	In the introductory text the Council Statement advises that where this is in the best interest of providers and users, governments may wish to explore the possibility of establishing autonomous authorities to operate their air navigation services, recognizing that in some circumstances a single authority may operate both airports and air navigation services, and that the authority may be in the form of an autonomous civil aviation authority. The Council also encourages international co-operation in the provision and operation of air navigation services where this is beneficial for the providers and users concerned (Doc 9082/5, paragraph 27).

3.3	Balance of interests of providers of air navigation services and users

3.3.1	An important recommendation in the Council Statement is that States exercise caution in their general policy on charges for air navigation services and take into consideration the effect on users, in particular air carriers which may need to adjust their tariffs to deal with or absorb increased costs arising from new or higher charges. Also, the Statement observes that there should be a balance between the respective interests of providers of air navigation services and airlines and therefore States should encourage a greater level of co-operation between them (paragraph 29).

3.4	Consultation with users regarding charges and air navigation services planning

3.4.1	The Council Statement attaches much importance to providers of air navigation services giving advance notice to and consulting with principal users directly or through their representative bodies when any significant review of existing charges or the imposition of new charges is contemplated. Consultation, the Statement further advises, implies discussions between users and providers in an attempt to reach general agreement on any proposed charges, and that failing such agreement governments would continue to be free to impose the charges concerned (paragraph 45). The Statement also observes that when major new air navigation services are being planned, it is desirable that the regular users or their representative organizations be consulted as early as practicable. Moreover, users, particularly airlines, should either directly or through their representative bodies provide advance planning data relating to their aircraft and special facilities they desire, on a 5 to 10-year forecast basis (paragraph 46).

3.5	Proliferation of charges on air traffic

3.5.1	Concern is expressed in the Council Statement (paragraph 30) over the proliferation of charges on air traffic, and the retaliatory effects this could lead to, it being recommended that States should (i) impose charges only for services and functions which are required for international civil aviation; and (ii) refrain from imposing charges which discriminate against international civil aviation in relation to other modes of international transport (paragraph 30). More specifically this addresses situations where charges would be levied on international civil aviation for certain services provided, while other modes of international transport would not be charged for the same type of services.

3.6	The cost basis for air navigation services charges, charging systems and collection of charges

3.6.1	A general principle expressed in the Statement is that where air navigation services are provided for international use, the providers may require the users to pay their share of the related costs, but international civil aviation should not be asked to meet costs which are not properly allocable to it (paragraph 32); also that the cost to be shared is the full cost of providing the air navigation services, including interest on capital investment and depreciation (paragraph 34 (i)).

3.6.2	Moreover, the costs to be taken into account should be those assessed in relation to the facilities and services, including satellite services, provided for and implemented under the ICAO Regional Air Navigation Plan(s), supplemented where necessary pursuant to recommendations made by the relevant ICAO Regional Air Navigation Meeting, as approved by the Council. Any other facilities and services, unless provided at the request of operators, should be excluded (paragraph 34 (ii)).

3.6.3	Other principles and recommendations of particular relevance in the context of the cost basis for air navigation services charges, charging systems and the collection of charges are:

a)	that States are encouraged to maintain accounts for the air navigation services they provide in a manner which ensures that air navigation services charges levied on international civil aviation are properly cost-based (paragraph 32);

b)	that air navigation services may produce sufficient revenues to exceed all direct and indirect operating costs and so provide for a reasonable return on assets (before tax and cost of capital) to contribute towards necessary capital improvements (paragraph 34 (iv));

c)	that the allocation of air navigation services costs among aeronautical users should be carried out in a manner equitable to all users, and the proportions of cost attributable to international civil aviation and other utilization of the facilities and services (including domestic civil aviation, State or other exempted aircraft, non-aeronautical users) should be determined in such a way as to ensure that no users are burdened with costs not properly allocable to them according to sound accounting principles (paragraph 36);

d)	that the charges should not be imposed in such a way as to discourage the use of facilities and services necessary for safety or the introduction of new aids and techniques (paragraph 37 (ii));

e)	that approach and aerodrome control charges, whether a part of the landing charges or levied separately, should as far as possible be a single element of the landing charge or a single charge per flight and could take aircraft weight into account but less than in direct proportion (paragraph 39);

f)	that route air navigation services charges should essentially be based on distance flown and aircraft weight but that weight should be taken into account less than proportionately (paragraph 40); and

g)	that all users may be required to pay their share of the costs of providing air navigation services regardless of whether or not the utilization takes place over the territory of the provider State (paragraph 42).

3.7	Currency aspects

3.7.1	The Council Statement recommends that under normal circumstances, user charges should be expressed and payable in the local currency of the State concerned, but that under special circumstances, for example where economic conditions are not stable, when user charges are denominated in other than local currency, airlines could apply the currency of denomination using the same exchange rate for their local ticket sales; also that remittance problems be resolved. However, it is also recognized that when route air navigation services charges are billed on a regional basis (that is on behalf of several States or by a jointly operated agency) it may be advantageous to both users and providers to denominate and pay charges in a single convertible currency (paragraph 38 (iv)).

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