Equipping for NextGen – where does the cash come from?
On 24-11-2010, in NextGen, by steve
If anything, the LINK2000+ program in Europe has shown what a bit of free cash can achieve. Equipping aircraft for Controller/Pilot Digital Link Communications, the raison d’être of LINK2000+, was proving difficult as in the initial phases those who spent on the required avionics would see few benefits and hence there were no takers. Then, with part of the money coming from EC funds things suddenly took off and some 700 aircraft got promoted to CPDLC-enabled status.
But the funds needed to equip for NextGen (and SESAR for that matter) far exceed the budget of LINK2000+ yet the vicious circle of low initial benefits, reluctance to equip is exactly the same. It now looks that at least for NexGen, a novel solution is being offered for funding avionics upgrades.
If all goes well, airlines will be able to install NextGen avionics as soon as 2012 using the funding mechanism being offered by an investment group under the leadership of ITT Corporation. The mound of cash being made available is not trivial. The mixture of commercial borrowing and private equity is expected to cough up in excess of $ 1 billion, enough to equip most of the Part 121 aircraft on the US register.
In many a program in the past airspace users were complaining of the need to spend money on new equipment only to find that the ground infrastructure was lagging behind by years and in some case even installed elements failed to generate the expected benefits. In the NextGen financing scheme, airspace users would lease the equipment and make repayments based on the FAA successfully completing agreed milestones in the ground infrastructure.
This is a unique scheme that would enable early equippers to defer the costs until benefits start to accrue while benefits would appear earlier due to the large number of equipped aircraft earlier in the lifecycle of the project. All claims to the contrary, it is a myth that airlines would run en mass to equip for anything if there was a strong enough business case. They might walk at best but even walking would be at different speeds if they had to spend their own money up front. The funding scheme cleverly bridges this problem and enables airspace users to equip based solely on their conviction that NextGen is good for them.
Such an arrangement is important. In many NextGen and SESAR meeting, the airlines expressed their doubts about how the costs of those projects will be financed.
The arrangement in the US also has the advantage that it is independent of any government hand-out, something that was extremely unlikely to appear anyway.
The companies concerned and the investors backing them are of course not doing this out of charity. It is also in their best interest to make NectGen take-off since their own health is dependent to a large degree on a healthy US aviation industry.
When interests converge, nothing is impossible.
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Hi Steve,
I think there will always be a need for initial seeding money when we look at NextGen projects.
Let’s take the example of EGNOS and the introduction of APV procedures at European airfields.The main safety benefit can only really be derived if smaller aircraft operators adopt this new procedure. However, given the high costs of equipage many would not be able to upgrade without assistance from the EC.
What we see is ANSP’s pushing for key airlines to be the first to take advantage of these sources of funding and then help push airports to implement the relevant procedures (APV SBAS & BARO-VNAV). Once the procedures are in place more airlines are willing to self-fund the equipage costs.
Essentially what’s set in motion is the snow ball effect which over time should produced a greater industry wide benefit than the initial funding.
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Very often in the past we have seen that a kind of catch 22 situation arose and the equipage stalled. The reasons were many but usually one or two airlines took the lead precisely in the hope that other would follow and in the end, they were left out in the cold… alone. With money scarce for everybody, such pioneers are few and far between these days. Then there are of course the others who will always claim that the business case is not right for them… somethung that might very well be true if you look at individual companies when the business case is in fact true on an industry level. In the end, mandates were often used as the last resort but that is a bad solution even if effective to some extent.
High speed rail tracks and motorways are built routinely using money that is not coming in the first instance from the users of those infrastructure elements and it is over time that users pay back (some of) the investment.
I often wondered why aviation should usually be seen as the industry to be punished when it comes to using public money. True, not being dependent on hand-outs does give, in principle, some independence to the industry but the powers that would make that independence really effective are missing…
I agree that seed money (or even a bit more) should be there to get things moving. -
Alex says: Steve,
I agree Aviation seems to be the current Government whipping boy, particularly here in the UK, and it would be nice to be provided with seed money, but your comparison isn’t fair. Yes, roads are built with public money, but Government doesn’t supply bus operators with vehicles. This is a closer equivalent to the ATM situation – the ground infrastructure = roads, and the avionics = the buses. Contrary to popular opinion, Airlines are not averse to spending money. they spend loads of it, just look at all the business class flat bed relaunches to even flatter beds every few years; but they don’t like spending cash when the return is not just long, bitter experience has told them it is non existent. Address that problem, structure the system around positive returns and SESAR and NextGen have a chance of success, but ignore it and they are both dead ducks.
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Alex,
I agree in part with what you are saying but I also disagree to some extent.
When we decided to make the aircraft part of the ATM infrastructure (as it indeed had to be), a normal consequence of it was that the avionics boxes that are needed to operate in the new infrastructure became part of the infrastructure rather than being part of the aircraft as such. So the subset of avionics you use for ATM or mostly for ATM are not like the buses at all. They are more like the sensor loops under the road or the matrix boards above our heads. I think the EC money for LINK2000+ was granted in part on this basis.
That airlines equip business class with newer and newer seats and passenger entertainment systems is not proof of their willingness of spending money. It is just proof of the power of competition. This is highlighted very nicely by the different configurations of the same aircraft type in use by US airlines where you find an Atlantic version, a US domestic version and sometimes an Asia version. We flew a lot on Delta and Continental via Atlanta and Newark and in each case there was a change of aircraft. The same 767-300 and 767-400 respectively, except for the internal arrangement. There are no flat beds in the domestic version of the 767-400 first class… even though we were on a leg that was more than 10 hours.
I total agree with you that to-day’s reluctance to spend money on ATM improvements is based largely on past, butter experience. Mode S enhanced surveillance is a nice example of how the willingness of investing can be taken away once and for all. But it is also true that past bitter experience has become something used as an excuse even when it is not really relevant any more.
I see as one of the biggest hurdles the fact that the airlines demand certain things from ATM developments that are simply not realistic. The ROI of 2-3 years for example, while understandable of course, is not feasible in most cases since just getting the change over organized and implemented takes longer than that and having everyone rushing to equip the last minute simply overloads the manufacturers and workshops.
Also, the seeming inability to accept that you need certain things in place (like CPDLC) in order to set the scene for other, beneficial things to become reality hinders not only the primary enablers but also the follow on bits. I know that the claim has been made many times that the industry will accept such steps if there is proof that the follow on elements will be beneficial but in practice things just not happen that way.
Another area where airlines need to change their attitude is the way strategic ATM investments are treated. Look again at CPDLC. While there was a major delay problem, most everyone was pushing CPDLC… the moment delays eased up, support disappeared and priorities were rearranged. And I am not talking about the effects of 9/11 as that period was exceptional. I am talking about normal everyday practice. The same is true for ADS-B and others. Obviously, you cannot run an efficient and beneficial implementation campaign if the strategic priorities change every other year. Just as the airlines have learned to partially compensate for the cyclic nature of the industry and seem to order aircraft more logically than in the past, they need to understand that ATM improvements must be continued even when the pressure eases up.
Finally, let’s look at 8.33. this perennial favorite and a good example of the proverbial veterinary horse. When the ICAO EUR Regional Meeting in Vienna discussed the problem of frequency shortage and the available solutions, the industry went for 8.33 kHz for one reason only. It was seen as the cheapest… That thereby they would cement a legacy system when in fact this could have been an opportunity to go for a more advanced digital comms system was never discussed seriously. Neither IATA nor any of the other associations insisted that a more visionary approach be pursued. The claim that the digital system would not be ready in time could have been countered by saying that tidying up the existing frequency allocations would provide sufficient time to have the digital system developed. Interestingly, this same argument was used years later when part of the industry attacked 8.33… when the time came to spend money.
Anyway, there was an agreement in Vienna that 8.33 would be the European solution… and this was agreed by the airlines as well as the ANSPs. The nothing happened for a number of years although the mandate was there for all to see. When the EANPG triggered the implementation, seeing that the deadline was coming up quickly, the industry’s response was wholesale opposition. They wanted to see a new business case, they claimed lack of equipment, any number of things as long as the damn thing was kept off the aircraft.
For me, 8.33 showed exactly just how many things have been, and still are, wrong with the way ATM developments are handled generally and by the airlines in particular.
• No vision – hence accepting an inferior solution
• No action until the compliance date is almost there
• Reneging on the agreement made years earlier
• Last minute rush, no capacity in the workshops and lack of equipment
• Wanting to do something else…
• Claming that the problem was not really there (just a temporary thing)And now, several years later, the approach to SESAR is not that different. There is mistrust of the benefits (justified by past , bitter experience) and a lack of understanding of how ATM is/can be built resulting in reluctance to spend money up front (understandable from the bean counter perspective).
Is it possible to reform the airline thinking? I am not hopeful… Is it necessary, is that the best way forward? I do not think.
In my vision the airlines should be left to build their core, super efficient operation and at the same time they must be removed from the penalty box and recognized as the vital transport service providers they really are who need infrastructure support just like rail and road does. Aviation as a transport sector generates more wealth than any other sector in transportation and this should be recognized and rewarded by the community.
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Alex says:
Steve,
Well, Aviation Week did publish my letter, in pole position, so I await the flood of congratulatory emails from round the world… or not.
Bitter experience suggests that appealing to communal goodwill is less effective than calls to self interest, especially when the returns to even enthusiastic selflessness are so uncertain. I would like it not be so, but it isn’t. This is the ‘Tragedy of the commons’ (usually expressed as: the greedy benefit from every extra cow on the pasture, the loss of production of the land is born by all), only in this case it is the costs of communal action that outweigh the individual benefit, so we have under-rather than over-exploitation of the common resource. The challenge to the engineers is to produce a system that benefits (nearly) everyone almost regardless of their current state of equippage. Various SESAR Defintion Phase outputs suggested (in effect) the most promising avenues were looking for improved ATC tools. Having seen the degree of unenhanced human cognition employed in current ATC systems (= blokes staring at screens), I think they were right. Usually if you ask the right question, the engineers come up with the right answers; todays solutions are the results of the wrong questions.
Steve,
There was an item in Aviation Week on this subject a few weeks ago, and I couldn’t resist firing off the following in reply. I don’t know whether it will be published, but someone has to say it:
Sir,
Adrian Schofield’s article, Funding Fix (AW&ST Nov 1), on funding the massive NextGen avionics bill, rightly identified the problem as the lack of benefits within a reasonable timescale. European regulators believe they can mandate equipage to overcome the operators’ reluctance to re-equip. So, the suggested fix, sharing the risk between the aerospace companies and the Operators, sounds equitable, though presumably it doesn’t address foreign operators. But why not tackle the failing ATM projects directly? Never mind the time and budget issues, the fundamental flaw is that ANSPs demand near-100% equipage before they think how to produce the payback the equipage was meant to provide. Early converts are hammered. The European Mode S transponder program was typical. Original Airborne Mandate year 2000, ground interrogators a decade later, network still not complete, and the efficiency improvements? Don’t ask.
Let’s turn the development cycle on its head: Build around what the aircraft can do, not what they can’t. If the aircraft can’t transmit the data; look for it elsewhere (the humble flight plan contains more data than ANSPs know how to use). Use figures of merit if some of the data isn’t of the highest standard, and so on.
PS Isn’t the estimated bill for SESAR Avionics many times the number quoted in the NextGen funding of $1bn?