Advanced Logistics Group

Reforming Civil Aviation Authorities: the why and how of effective de-linking

Reforms must target the improvement of civil aviation safety while ensuring the financial sustainability of the system

Regulatory reforms of the air transportation industry are challenging governments in their goal of effectively and efficiently providing air services within their territories. Prior to reforms of the airline industry, established practice concentrated in one body – the Civil Aviation Authority – the regulatory and services provision roles, supported by a structure of compensations that differed from country to country. This structure was generally based upon opaque cross-subsidization of less profitable or loss activities with revenues from profitable provision of services.
Over the past decades, several nations worldwide initiated the discussion of the reform of the aviation industry, and the de-linking of Civil Aviation Authorities. One of its consequences is that the airport and the air navigation services might be de-linked from the authorities and operated as fully-independent bodies that may be state agencies, state-owned corporations and even partly or fully privatized, the last being more the case in the operation of airports than in air navigation services. In fact, private funding and management is an increasing trend in the aviation sector worldwide that can only take place when the service provision is de-linked from regulation.

Why changing?

In many countries a Civil Aviation Authority model comprising regulation, safety oversight and service provision functions is still maintained. Service provision includes generally air navigation or airports’ management or both. This is a model that, under a scenario of increasing growth in air transport, may not allow for an adequate adaptation to users’ expectations and demands and can also generate conflicts of interest between regulatory and service provision functions.

The international best-practice and trend is to separate regulatory and service provision functions (including air navigation and operation of airports) to ensure adequate oversight of service providers. ICAO also recognizes that political interference in service provision tends to result in higher operating costs, inadequate funding of capacity improvements and decisions that may lead to suboptimal performance of the system. The vision of ICAO and other recognized international bodies thus calls for a state-monitored aviation system provided by autonomous entities economically-viable. Worldwide change is already taking place and those who are left behind will have an additional obstacle as competition within air transportation sector grows.

ALG
The separation of functions must target the improvement of civil aviation safety while ensuring the financial sustainability of the system

How to choose between different reform options?

The standard framework of analysis of reforms of Civil Aviation sectors has focused on the choice for separating the provision of air navigation and airport services from the Authority (regulator). Some countries have opted for de-linking the airport operation only and maintain the air navigation services within the authority, whereas others chose to simultaneously de-link both service providers keeping the two under the same organizational umbrella or separating the two into two different bodies.

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Examples of institutional arrangements

The examples above are just a few of a variety of international experiences with reforms. Post-reform, arrangements such as public-private partnerships (or PPPs) are often sought for airport operation. These include a wide range of degrees of private involvement that generally imply collaboration beyond the pure public and pure private models.

Across all these institutional models, there is a pressure to achieve reforms that promote the development of the aviation sector, while ensuring that safety standards are met and that the economic results are optimal. The final goal of any reform of the sector should be to guarantee the improvement of socioeconomic welfare.

The decision on the most adequate model for institutional reform and collaboration between the private and the public sector must be pragmatic rather than ideological. But despite general consensus on the obligation of preventing conflicts of interest between regulator and services providers, there is no common accord on how national civil aviation institutions and partnerships should be designed to support this objective. Moreover, successful approaches in specific cases may prove to be ineffective in others. Thus, when de-linking, the Consultant aims at analyzing and evaluating performance of policy options in particular frameworks, identify the best practice, and then formulate optimal policy designs and frameworks considering the particularities of the national and regional environment. One of the key aspects of this type of reform process is to ensure continuous dialogue between the different impacted stakeholders, including Ministries of Transport and Finance, Civil Aviation Authorities, service provider’s management, staff associations and airlines to name a few.

The role of the de-linking Consultant is to shed light on the best option for reform and to propose changes that foster the development of the aviation sector, while promoting safety and yielding optimal economic results, with the ultimate goal of improving socioeconomic welfare

ALG on-going work in a Civil Aviation reform for the World Bank

ALG is currently working on the “Support to the Civil Aviation reform in Zimbabwe” for the World Bank. The project aims at reforming the Civil Aviation Authority of Zimbabwe (CAAZ), by proposing the de-linking of the conflicting roles of regulator and service provider while addressing the financial sustainability of the Authority and new bodies. ALG team is working closely with the Ministry of Transport and Infrastructural Development, the Civil Aviation Authority and the World Bank to bring about the legal and regulatory framework needed for an institutional segregation. The team has also worked on similar projects in other countries such as Jamaica and Kenya and it has extensive experience in aviation institutional projects.


About the authors
Joan Miquel Vilardell (PhD, MBA and MsC in Civil Engineering) is a partner at ALG responsible for business development in Africa and Europe
Rubén Martínez is MSc in Aeronautical Engineering, PMP and Director at ALG
Alda Metrass is PhD in Transport Systems, Senior Consultant at ALG and invited Lecturer at the University of Ibagué (Colombia) and a Researcher affiliated with the CITTA – Research Centre for Territory, Transports and Environment (Portugal)
For more insights, please check www.alg-global.com or contact:
jmvilardell@alg-global.com
rmartinez@alg-global.com
armetrass@alg-gobal.com