Financing Aviation Infrastructure

Tehran, 20‐23 February 2017

Infrastructure Management ProgrammeICAO’s infrastructure management programme aims at enhancing and promoting sustainable development of infrastructure for the provision and operation of airports and air navigation services.

The programme offers solutions to: • improve organizational and managerial capability of providers; • reduce the financing burden on governments; • protect user’s interests;• allow early benefits of new technologies• facilitate access to funding for long-term investment needs.

Existing ICAO Policies

ICAO’s documents have been updated with new editions of:• Doc 9082, ICAO’s Policies on Charges for Airports and Air Navigation Services (Ninth Edition in 2012)• Doc 9562, Airport Economics Manual (Third Edition in 2013)• Doc 9161, Manual on Air Navigation Services Economics (Fifth Edition in 2013)

3

The Aviation System Block Upgrades (ASBUs)Global systems engineering approach that allows all Member States toadvance their air navigation capacities based on their specificoperational requirements.

It is organized around 4 main Performance Improvement Areas (PIAs):1. Airport Operations2. Globally Interoperable Systems & Data3. Optimum Capacity & Flexible Flights 4. Efficient Flight Paths

Implementation of the Aviation System Block Upgrades (ASBU)The implementation of the ASBU will impact both airports and air navigation services providers

• Need to finance the implementation of the ASBU (Aviation System Block Upgrades)• Coordination between ICAO and ACI• Horizontal working group between the ICAO Air Transport Bureau and Air Navigation Bureau

to coordinate the MDWG-ASBU (Multi Disciplinary Working Group on the Aviation System Block Upgrades)

AirportsAir Navigation 

Services Providers (ANSPs)

Infrastructure Management1‐ Economic Oversight

Economic oversight

Definition:

“The function by which a State supervises commercial and operational practices of an airport.”

Objectives of economic oversight• minimize the risk that airports could engage in anti-

competitive practices or abuse any dominant position they may have

• ensure non-discrimination and transparency in the application of charges

• ascertain that investments in capacity meet current and future demand in a cost-effective manner

• protect the interests of passengers and other end-users

Possible forms of economic oversightfrom a light-handed approach to a more robust approach:• application of competition law• fallback regulation• institutional requirements• price cap regulation (“incentive-based regulation”)• rate of return regulation (“cost of service regulation”)

Best practices for economic oversight

• transparent• efficient • cost-effective manner• keeping regulatory interventions at a minimum

and as required• costs and benefits analysis related to the

particular form of economic oversight

Implementation of economic oversight• Surveys on status of implementation of

ICAO’s policies on charges• Of 79 States that responded (representing

86% of world traffic), 61% confirmed they have implemented economic oversight for airports

Source: survey published for the 38th ICAO Assembly

Source: survey published for the 38th ICAO Assembly

79 States

2‐ User ChargesCharge: levy designed  and applied specifically to recover the costs of providing facilities and services for civil aviation.

Financing schemes

Debt financingBorrowing money from an outside source with the promise to return the principal, in addition to an agreed‐upon level of interest.

Advantages

• Maintain ownership• Borrower can run the business however 

they choose without outside interference• Tax deduction: principal and interest 

expenses are classified as business expenses.

Disadvantages

• Repayments: if business fails, there is still an obligation to make payments

• High rate: depends on macroeconomic conditions, history with the banks, credit rating

• Chas flow: ensure that business income will suffice for loan repayments

Borrowing from Commercial Banks

• Most common method of financing for medium to long term 

• Central Bank interests rate are currently very low

• Most of ANSPs are government backed: loans are treated as sovereign loans and discount from market rates

Borrowing from Development Banks

• Institutions have provisions to lend with specialized terms, conditions and rates.

Bond financingDebt investment in which an investor loans money to an entity (corporate or Government) that borrows the funds for a defined period of time. Bonds are issued by companies, municipalities or States to finance a variety of projects.

Advantages

• lower borrowing costs if the credit rating of the project is sufficiently strong

• Direct access to the debt of individual and institutions rather than using commercial lenders as intermediaries

• Commonly used for re‐financing

Disadvantages

• Less flexibility than debt financing• Limited usage for initial project financing

Equity financingEquity financing is the process of raising capital through the sale of shares in an enterprise

Advantages

• No required to pay back if no profits• Absence of monthly loan payments can 

free up significant working capital for the business

• No credit rating requirements

Disadvantages

• No longer retain sole control of your business

• Investors will be entitled to a share of the profits

• Investors have a say in the running of the business

Infrastructure ManagementPublic‐Private Participation (PPP)

• Wide range of PPPs of different structures where the private sector delivers a public project/service

• PPP is an ownership and management structure in which the private and public sectors both participate.

• PPP refer to arrangements where the private sector supplies infrastructure assets and services that traditionally have been provided by the Government.

• Provide private financing for infrastructure investment without immediately adding to Government borrowing and debt.

ICAO’s definition of PPPs (Doc 9980)

• PPP balance the short term political imperatives and long-term investment priorities.

• PPPs make project affordable• PPPs maximize the use of private sector skills• Risks are allocated to the party best able to manage or absord

each particular risk• PPPs deliver budgetary certainty• Quality service has to be maintained• The public sector pays when services are delivered

Key advantages of PPPs

• Public sector needs sufficient capacity and skills to adopt the PPP approach

• PPPs imply a loss of management control by the public sector• The private sector has a highest cost of finance• PPPs are long-term relatively inflexible structures• Risk has tendency to revert on the taxpayer

Challenges or disadvantages of PPPs

ICAO’s provisions relative to PPPs in Airports (1/2)

When considering the commercialization or privatization of airports and ANSPs, States should bear in mind that they are ultimately responsible for safety, security and economic oversight of these entities.

Doc 9082

ICAO’s provisions relative to PPPs in Airports (2/2)

Privatization should not in any way diminish the State’s requirement to fulfil its international obligations, notably those contained in the Chicago Convention, its Annexes and in air services agreements, and to observe ICAO’s policies on charges in Doc 9082.

Doc 9562

Added value of PPPs for Airports• PPP can increase the quality, the efficiency and the

competitiveness of public services.• It can supplement limited public sector capacities and

raise additional finance in an environment of budgetary restrictions.

• The best use of private sector operational efficiencies can speed up infrastructure development.

ICAO is promoting PPPs• ICAO dedicated webpage on PPPs:

http://www.icao.int/sustainability/Pages/im-ppp.aspx

• Visibility on the 1st page of ICAO website

• Case Studies posted on the website

• Article in the ICAO Journal (Winter 2015-16 Edition)

Map of ICAO Member States 

having contracted PPPs for their 

airports

Source: Airports Council International (ACI)July 2015

27

Proportion of airports (inside) and corresponding passenger traffic (outside) 

by ownership model (2013)

Source: ACI (ACI Airport Economics Survey – 2014)

A majority of airports (71%) are public in that they are owned exclusively by a government, irrespective of the growing interest in private‐sector financing and management of airports. They handle 67% of global traffic.

Taking into account both fully privatized airports and those operated under PPPs, 33% of global airport traffic is managed and/or financed by private stakeholders. 

28

Proportion of airports by regulatory till and ownership model (2013)

Source: ACI (ACI Airport Economics Survey – 2014)

Privately held airports tend to be more compatible with a dual‐till revenue structure.

It is more typical to see a single‐till system under public ownership or PPP model of ownership. 

29

On PPPs’ matters, ICAO is collaborating with several Organizations dedicated on development, such as*:

*: non exhaustive

and is willing to foster the collaboration with different stakeholders involved in PPPs.