Aeropolitics – Transportation Issues, Policies and R&D Series

Book Review by Erwin von der Steinen

Aeropolitics, by Professor Dr, Ruwantissa Abeyratne, is a both a provocative and demanding book. In a way, it is three books in one. That is, there is the stated theme that defines ‘aeropolitics’ as the governance processes of air transport to be viewed from a global perspective, including consideration of the increasing impact of transnational interests and stakeholders on policy formulation and execution. Second, it is an extensive and intensive review of the functioning of the International Civil Aviation Organization (ICAO), for whom the author has served in executive capacities. Third, there is a large number of diverse issue discussions, some of which could be termed mini-case studies.

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Book Review: Managing the Skies – Public Policy, Organization and Financing of Air Traffic Management

A book review by Ruwantissa Abeyratne

managing_the_skiesThis book, authored by two distinguished experts on the subject of air traffic management and finance and economics respectively, reflects a balanced blend of professional experience and academic research. This fusion serves the reader well in obtaining a thorough understanding of air traffic management in the introduction to the book, which acts as an enabler towards understanding a wide spectrum of air traffic systems and their complex technical aspects, which are explained in clear, unpretentious and eminently comprehensible language.

Column: Economic Oversight of Airports and Air Navigation Services

By Ruwantissa Abeyratne

Introduction
The ICAO Conference on the Economics of Airports and Air Navigation Services (CEANS)2 was held in Montreal from 15 to 20 September 2008. The main purpose of CEANS was to learn from the experiences of the commercialization and privatization processes of the airports and air navigation services industries and further develop and refine ICAO policies. There were three main areas of discussion at the Conference: economic oversight; performance management; and consultation among users. The Conference agreed to submit to the Council of ICAO crucial recommendations for international civil aviation which will take cooperation between the air transport, airport and air navigation services industries to a higher level and increase the efficiency and cost-effectiveness in the provision and operation of airports and air navigation services around the world. These recommendations are calculated to serve the aviation industry expeditiously in coping with the current challenges that air transport faces.

The current policies of the International Civil Aviation Organization3 on charges for airports and air navigation services stemmed from the recommendations of the Conference on the Economics of Airports and Air Navigation Services (ANSConf 2000) which were endorsed by the Council of ICAO4. ANSConf 2000, which was held in Montreal on 19-28 June 2000, came to the conclusion that the profile of basic cost recovery policy may need to be raised.5 It was recommended by the Conference that this measure could be adopted within the parameters of existing policy calling for revenues from charges levied on international civil aviation and would only be applied towards defraying the costs of facilities and services provided for international civil aviation. It was also recommended that revenues from other sources than charges on air traffic shall be taken into account before the cost basis for charges on air traffic is determined. ICAO advised the Conference that airports and air navigation services may produce sufficient revenues to exceed all operating costs and so provide for a reasonable return on assets to contribute towards necessary capital improvements. Of course, the governing principle would be that consultation with users shall take place before significant changes in charging systems or levels of charges are introduced.6

The baseline of ICAO’s policies on charges lies in Article 15 of the Convention on International Civil Aviation7, the basic philosophy of which is that every airport in a Contracting State which is open to public use by its national aircraft shall likewise be open under uniform conditions to the aircraft of all the other Contracting States. It also requires that uniform conditions shall apply to the use, by aircraft of every Contracting State, of all air navigation facilities, including radio and meteorological services,8 which may be provided for public use for the safety and expedition of air navigation9. Article 15 subsumes three fundamental postulates:

a) uniform conditions should apply in the use of facilities provided by airports and air navigation services;

b) aircraft operators should be charged on a non discriminatory basis; and

c) no charges should be levied for the mere transit over, entry into or exit from the departure of a Contracting State.

Current ICAO policy also recognizes that the financial situation of airports and air navigation services are in a constant state of evolution and the financial situation of the primary users, the scheduled airlines, generally fluctuates with the performance of national, regional and global economies.10 Accordingly, the ICAO Council recommends that States permit the imposition of charges only for services and functions which are provided for, directly related to, or ultimately beneficial for, civil aviation operations. States are therefore encouraged to refrain from imposing charges which discriminate against international civil aviation in relation to other modes of transport11.

ICAO’s policies are at best only authoritative in practice and, from a legal perspective, are rendered destitute of effect by the acknowledged lack of enforcement power afflicting them. In this context it is curious that, six decades after the establishment of ICAO some still refer to its powers and functions12. There are some others who allude to ICAO’s mandate. The fact is that ICAO has only aims and objectives, recognized by the Chicago Convention13 which established the Organization14. Broadly, those aims and objectives are to develop the principles and techniques of international air navigation and to foster the planning and development of international air transport. In effect, this bifurcation implicitly reflects the agreement of the international community of States which signed the Chicago Convention that ICAO could adopt Standards in the technical fields of air navigation and could only offer guidelines in the economic field.

This situation brings to bear the compelling need for ICAO to find some way of monitoring States with a view to encouraging them to put into practice its economic policies. This was precisely one of the aims of the ICAO CEANS Conference.

CEANS AND ECONOMIC OVERSIGHT
A Conference of ICAO on the Economics of Airports and Air Navigation Services (CEANS), which was held in Montreal from 15 to 20 September 2008, agreed to submit to the Council of ICAO crucial recommendations for international civil aviation which will take cooperation between the air transport, airport and air navigation services industries to a higher level and increase the efficiency and cost-effectiveness in the provision and operation of airports and air navigation services around the world. These recommendations are calculated to serve the aviation industry expeditiously in coping with the current challenges that air transport faces.

Furthermore, it was the view of CEANS that the recommendations will make ICAO’s policies on charges, which regulate the relationship between airports and air navigation services providers (ANSPs) on the one hand, and airlines and other airport and airspace users on the other, more authoritative in practice. The enhanced cooperation suggested by these recommendations would strengthen policies on States’ economic oversight responsibility, requirements on implementation of performance management systems by all airports and ANSPs, and the establishment of a clearly defined, regular consultation process by all airports and ANSPs. At the same time, they recommend that States enshrine the main principles of non-discrimination, cost-relatedness, transparency and consultation with users in their national legislation, regulations or policies as well as all air services agreements between States15.

One of the fundamental premises addressed by CEANS is that the protection of users against the potential abuse of dominant position by airports and air navigation services providers is the primary responsibility of the State and could be discharged by the exercise of economic oversight. It was suggested during the discussions that such oversight could be effectively carried out by diligent monitoring by a State of the commercial and operational practices of service providers.

The ICAO Perspective
The ICAO Secretariat, in submitting its views on economic oversight to the Conference, commenced with the fundamental postulate that the State is ultimately responsible for protecting the interests of users through economic oversight defined the term “economic oversight” as monitoring by a State of the commercial and operational practices of service providers16. It was suggested that economic oversight may take several different forms, from a light-handed approach (such as the reliance on competition law) to more direct regulatory interventions in the economic decisions of service providers. It is interesting that the Secretariat took a direct and clear position that States may perform their economic oversight function through economic regulation, either through legislation or rule-making, and/or the establishment of a regulatory mechanism17.

It was also argued that the objectives of economic oversight could include: ensuring that there is no abuse of dominant position by service providers; ensuring non-discrimination and transparency in the application of charges; providing incentives for service providers and users to reach agreements on charges; ensuring that appropriate performance management systems are developed and implemented by service providers and assuring investments in capacity to meet future demand. The priority for each objective may vary depending on the specific circumstances in each State, and there should be a balance between such public policy objectives and the efforts of the autonomous/private entities to obtain the optimal effects of commercialization or privatization.

The Conference was advised that there were already several modalities in Doc 908218, paragraph 15 of which recommends that States establish an independent mechanism for the economic regulation of airports and air navigation services. This provision suggests that such a mechanism would oversee economic, commercial and financial practices and its objectives could be drawn or adopted from, but need not be limited to certain principles19. The Secretariat also drew the attention of the Conference to the Manual on Air Navigation Services Economics20 and the Airports Economics Manual21 which suggest such modalities of economic oversight as a) application of competition law; b) fallback regulation, whereby regulatory interventions are limited to situations when the behaviour of the regulated entity breaches publicly-stated acceptable bounds; c) institutional arrangements such as requirements on consultation with users (often supplemented by arbitration/dispute resolution procedures), information disclosure, and a particular ownership, control and financial structure; d) a third-party advisory commission, whereby a group of interested parties reviews pricing, investment and service levels proposals; e) contract regulation, whereby the State grants a contract, or concession, to provide airport or air navigation services under certain conditions; f) incentive-based or price-cap regulation; and g) cost of service or rate of return regulation.

Other views
During CEANS, one delegation suggested that regional organisations can provide the necessary resources for States that do not have their own capacity to adequately perform economic oversight functions. It recommended that there should be mechanisms for ICAO to work with such regional organizations through the development of guidance material. Another delegation put forward the view that there was a compelling need for regulatory interventions to be measured and applied in a manner proportionate to the specific circumstances. Yet another delegation underscored the need for economic regulation and urged States to implement the ICAO Assembly Resolution A 36-1522 regarding economic regulation of international air transport.

Delegates were unanimous in the view that economic oversight of airports and air navigation services is a necessary State responsibility with the promotion of an appropriate balance amongst safety, security and facilitation, environmental and economic issues. The overall package of economic instruments should provide net economic benefits for all developing countries and preferential measures for the Least Developed Countries in particular. There was also the view of one delegation that the role of the States in economic oversight in the form of legislation or through the establishment of an appropriate regulatory mechanism to resolve the issues on the increase of the cost of aviation fuel was vital while another stressed that applying similar forms of economic oversight to airports and ANSPs ignores the differences between the two types of service providers, in particular their divergent degree of competition. 

Therefore, it was contended that the proposed amendment of Doc 9082 should be consistent with the underlying assumption that airports do not per se have a dominant market position. The suggestion was also made that any regulatory interventions should be kept at a minimum, be subject to a cost-benefit analysis, and ensure sufficient investment to meet future demand.

Conclusions of the Conference
There was discussion during CEANS where some delegations suggested that, in order to “give teeth” to ICAO policy, there be a recommendation in Doc 9082 to the effect that amendment to Doc 9082 should be incorporated by States in their national legislation. It is submitted that such a measure would tantamount to treading uncharted and dangerous ground. While it is one thing to assert that the only way that ICAO policies could be implemented is for States to opt incorporating such principles in their legislation, it is something quite different to recommend that States go ahead and do so.

As a necessary compromise and in order to reach a balance, the Conference broadly recognized the need for economic oversight in the increasingly commercialized and privatized environment for airports and air navigation services. It considered a number of suggestions that were made by the delegates for improving the proposed new text for Doc 9082. The following conclusions were reached by the Conference:

a) States should bear in mind that economic oversight is the responsibility of States with the objectives, inter alia, to prevent the risk that a service provider could abuse its dominant position, to ensure non-discrimination and transparency in the application of charges, to encourage consultation with users, to ensure the development of
appropriate performance management systems, and to ascertain that capacity meets current and future demand, in balance with the efforts of the autonomous/private entities to obtain the optimal effects of commercialization or privatization;

b) States should select the appropriate form of economic oversight according to their specific circumstances, while keeping regulatory interventions at a minimum and as required. When deciding an appropriate form of economic oversight, the degree of competition, the costs and benefits related to alternative oversight forms, as well as the legal, institutional and governance frameworks should be taken into consideration;

c) States should consider adoption of a regional approach to economic oversight where individual States lack the capacity to adequately perform economic oversight
functions; and

d) ICAO should amend Doc 9082 to clarify the purpose and scope of economic oversight for airports and air navigation services with reference to its different forms and the selection of the most appropriate form of oversight23.

Conclusion
The main purpose of CEANS was for ICAO member States to discuss revisions to existing policy and guidance material on the economics of airports and air navigation services and to request the Council to incorporate such revisions in Doc 9082. The ICAO Council, at its eleventh meeting of the 185th Session on 14 November 2008, took up for consideration the CEANS Report and approved all the recommendations contained in the Report. Accordingly, the ICAO Secretariat will proceed to produce a new version of Doc 9082.

It is expected that these new revisions would assist States in ensuring improved performance of airports and air navigation service providers and ensure transparency and consultation in the implementation of ICAO policy in their territories.

1 The author is a senior official at the International Civil Aviation Organization. He has written this article in his personal capacity and views herein should not be attributed to his position at the ICAO Secretariat.
2 CEANS was attended by 520 delegates from 104 States and 19 international organizations.

3 ICAO is the specialized agency of the United Nations handling issues of international civil aviation. ICAO was established by the Convention on International Civil Aviation, signed at Chicago on 7 December 1944 (Chicago Convention). The overarching objectives of ICAO, as contained in Article 44 of the Convention is to develop the principles and techniques of international air navigation and to foster the planning and development of international air transport so as to meet the needs of the peoples for safe, regular, efficient and economical air transport. ICAO has 190 member States, who become members of ICAO by ratifying or otherwise issuing notice of adherence to the Chicago Convention.

4 See Report of the conference on the economics of airports and air navigation services: air transport infrastructure for the 21st century. Montreal, 19-28 June 2000. Doc 9764, ANSConf 2000. ICAO: Montreal, 2000. For a discussion on ANSConf 2000 see Ruwantissa I.R. Abeyratne, Revenue and Investment Management of Privatized Airports and Air Navigation Services: a Regulatory Perspective, Journal of Air Transport Management, Vol.7; 2001: p. 217-230.
5ANSConf-WP/4 at para. 5.1.
6Id. para. 5.3. ICAO’s recommendations to ANSConf 2000 were both timely and practical, given the evolving fabric of economic forces which now govern airports and air navigation services. The recommendations also stimulate some reflection on the complexities of financing principles now applicable to the services provided by airports and air navigation services providers. In substance, the issue of costing and pricing of services would be dependent upon underlying practices and economic factors as the bunching of aviation and non aviation revenues and their effect on the overall pricing policy relating to airports and air navigation services and a significant paradigm shift from Article 15 of the Chicago Convention.
7 Convention on International Civil Aviation, signed at Chicago on 7 December 1944, ICAO Doc 7300/9 Ninth Edition: 2006.
8Article 28 of the Chicago Convention calls on each Contracting State, so far as it may find practicable, to provide airport and air navigation facilities, in accordance with the standards and practices recommended or established in pursuance of the Convention.
9 Article 15 also provides that any charges that may be imposed or permitted to be imposed by a Contracting State for the use of such airports and air navigation facilities by the aircraft of any other Contracting State shall not be higher: as to aircraft not engaged in scheduled international air services, than those that would be paid by its national aircraft of the same class engaged in similar operations; and as to aircraft engaged in scheduled international air services, than those that would be paid by its national aircraft engaged in similar international air services.

10 ICAO’s Policies on Charges for Airports and Air Navigation Services, ICAO Doc 9082/7, Seventh Edition: 2004, paragraph 7 at p. 3.
11 Id. Paragraph 8. Paragraph 9 that follows states that the Council is concerned over the proliferation of charges on air traffic and notes that the imposition of charges in one jurisdiction can lead to the introduction of charges in another jurisdiction.
12 David MacKenzie, ICAO, A History of the International Civil Aviation Organization, University of Toronto Press: 2008, Preface at 1.
13 Supra, note 6.
14 Id. Article 43. This article provides that an organization to be named the International Civil
Aviation Organization is formed by the Convention. It is made of an Assembly, a Council, and such other bodies as may be necessary.
15 Other essential features of the recommendations of the Conference are: more flexibility for commercialized airports and ANSPs in setting charges; support for separation of regulation from service provision; the application of good governance through best practices; and the efficient and cost-effective implementation of the global Air Traffic Management (ATM) concept.
16 Economic Oversight, CEANS-WP/4, 16/4/08
17 Id. 1.
18 Supra, note 9.
19 The principles alluded to in paragraph 15 are: ensure non-discrimination in the application of charges; ensure there is no overcharging or other anti-competitive practice or abuse of dominant position; ensure transparency as well as the availability and presentation of all financial data required to determine the basis for charges; assess and encourage efficiency and efficacy in the operation of providers; establish and review standards, quality and level of services provided; monitor and encourage investments to meet future demand; and ensure user views are adequately taken into account.
20 Manual on Air Navigation Services Economics, Doc 9161/3, Third Edition, 1997.
21 Airport Economics Manual, Doc 9562, Second Edition: 2006.
22 A 36-15, Consolidated Statement of continuing policies in the air transport field, Assembly Resolutions in Force, Doc 9902, at III-I.
23 Draft Report on Agenda Item 1.1., Economic Oversight, CEANS-WP/73, 16/9/08, Draft Report on Agenda Item 1.1.

Book Review: National Interest and International Aviation

A book review by Ruwantissa Abeyratne

National Interest and International AviationThis is the first book of an author who has produced numerous studies and written many articles on civil aviation. As the author states at the outset, this is not an academic study, but rather a set of observations and findings based on general education and extensive experience gained as a consultant and expert on the impact of international relations on aviation. As such, the reader can look forward to a substantive discourse on an important area of civil aviation that is continuing to draw the interest of the international community.

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