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• SES Performance scheme: Short term measures

 

The current mechanism (Performance Scheme) which is a hybrid price-cap has not delivered the expected reduction of ATM charges paid by the airlines.

The implementation of an adequate economic regulation at European level will improve the delivery of the needed capacity at a lower cost for the airspace users.

The centrally managed system will ensure a coherent process all the way from the target setting to the delivery of the capacity. Such a system should prevent the gaming strategies currently implemented by the ANSPs while ensuring that the monopoly ATM service providers are adequately remunerated taking into account the low risk (high level of current protections) of their activities.

1. “True Costs” as the only metric for cost-effectiveness

The D.U.C (Determined Unit Cost expressed in €2009) as it is currently conceived in the regulation cannot be used to measure the genuine ANSPs’ performance as it does not reflect the many adjustments allowed by the regulation which add to the total costs actually invoiced to the airlines.

AIRE considers that the metric of the cost effectiveness target should be the “True Costs” (the total costs expressed in nominal Euro paid by the airspace users for the ATM service provision of the year under review including all adjustments (for example the traffic risk sharing)).

Furthermore, if a traffic risk sharing mechanism is maintained than the “costs exempt from risk sharing mechanism” has to be removed to keep a genuine pressure on the ANSPs’ management to drive the costs down by eliminating the current manipulations.

2. Terminal Navigation Charges subject to binding targets

The “Gate To Gate” concept which is the basic principle underpinning the Single European Sky, requires that all phases of a flight are taken into account to improve the efficiency of the ATM service provision in Europe.

AIRE insists that Terminal Navigation Charges must, like En-route charges, be submitted to binding targets. This will avoid endless discussions and manipulations regarding the activities that are submitted to or excluded from an economic regulation.

3. Risk sharing mechanism: a change of sharing key

AIRE proposes to make the traffic risk sharing key asymmetric: when the actual traffic is below the forecast, the sharing key should be changed from 30:70 to 50:50 but when the actual traffic is above the forecast, the sharing key should remain unchanged: 70% for the airspace users and 30% for the ANSPs.

The asymmetric system will reduce the current gaming strategies from the ANSPs when adopting traffic forecasts during the elaboration of the National Performance Plans.

4. Planned (invoiced) and realized investments must be reconciled and CEF funds returned to Airspace Users

4a Reconciliation between planned (invoiced) and realized investments:

The Performance and the Charging Regulations must deliver a coherent mechanism. Therefore the interdependencies between the targets -capacity and cost effectiveness- have to be taken into account.

Investments are the cornerstone of the system. It is therefore imperative to continuously proceed to a full reconciliation between planned investments invoiced to airspace users (through depreciation and cost of capital) and realized investments.

Since this reconciliation is currently not made, there are situations where capacity targets are not met, planned investments are not realized yet they are invoiced to airspace users. The absence of reconciliation poses the unacceptable risk of ANSPs double charging investments to airspace users across two reference periods and thereby generating windfall profits

AIRE requests to proceed urgently to this full reconciliation.

4b Return of CEF funds to AUs:

AIRE fully supports the paper (SSC/2017/66/16) presented by the Commission to the Single Sky Committee N°66 and in particular the following extract:
Commission Implementing Regulation (EU) No 409/2013 on the definition of common projects, the establishment of governance and the identification of incentives supporting the implementation of the European Air Traffic Management Master Plan specifies that Union funding supporting SESAR deployment shall be considered as ‘other revenue’ in accordance with the Charging Regulation.

Thus, the current legal system requires that CEF funds awarded for the implementation of common projects are deducted from the unit rates of charges under the heading of ‘other revenues’.

Practical implementation during RP2

Based on the legal provisions in place, the Commission proposes the following harmonised approach:
1) Deducting all revenues received from public authorities for the calculation of unit rates in the year N+2, with year N being the year in which the financial support was paid (separated for terminal and en-route depending on the funded project)

2) In case a project final cost assessment or audit later concludes that INEA funds have to be re-paid, it is suggested that these are recognised as negative other revenues also in N+2, with N being the year in which the funds have to be re-paid *

3) The total amounts deducted via other revenues will depend on the actual traffic. In order to ensure that the correct amount is taken into account (no more, no less) it is necessary to foresee an adjustment for the traffic (similar to the traffic adjustment currently applied to certain costs)

4) To ensure a proper reporting and transparency, the Commission will make available to NSAs and stakeholders a detailed overview of the payments by INEA (including payments through the SDM)

AIRE requests that those measures are implemented by the states without further delay and are made applicable to RP3 and subsequent reference periods.

5. A penalty scheme must be implemented

AIRE believes that the effectiveness of the Performance Scheme requires the implementation of a coherent penalty scheme for the non-delivery of the targets taking into account the trade-offs between cost effectiveness and capacity. The prohibitive delivery of over-capacity should no longer be accepted.

When ANSPs reduce their actual costs (Opex and/or Capex) without meeting their capacity target as it was the case for some ANSPs during RP1 and RP2, a penalty scheme must be implemented to cancel out the resulting undue windfall profits for the ANSPs’ concerned.

6. The protection of ANSP in case of strike must be removed

The SES regulations (390/2013 “Performance” and 391/2013 “Charging”) provide several protections to ANSPs, all of them financed by airspace users.

The first protection is that the cost of capital charged to airspace users by the ANSPs’ is regulated and therefore not subject to uncertainty. The second protection is provided through the traffic risk sharing mechanism which allows ANSPs to charge to airspace users 70% of the loss of revenues caused by the reduction of traffic (actual < 98% forecast).

On top of these protections, ANSPs benefit from a mandatory incentive scheme in the capacity KPA. These protections were meant to improve the provision of ANS and certainly not to compensate for the lack of service provision due to ANSPs’ own disruption.

AIRE proposes that when during a given year an ANSP goes on strike and for that given year the actual traffic is below the forecasted traffic, the implementation of article 13 (traffic risk sharing mechanism) in that given year is suspended for the ANSP concerned.

7. The ANSPs’ cost of capital must be reduced

The current system grants many protections to the ATM monopoly service providers (traffic risk sharing, currency exchange and pre-funding of approved investments).

AIRE requests that the WACC (weighted average cost of capital) and especially the ROE (Return On Equity) are set at an adequate and therefore reduced level taking into consideration the protections built in the system.

SES Performance scheme : RP3 Cost effectiveness target

 

8. The DUC must be capped

The average Determined Unit Cost (DUC) for 2018 of the SES states is 58,68€. This average DUC includes the far higher DUC of the “BIG 5“EU states: UK, France, Germany, Italy and Spain. These five countries represent together more than 60% of the total ATC costs .Since the implementation of FABs did not trigger cost efficiency, AIRE believes that there is a need to consider a capping of the DUC as an alternative to foster genuine performance .

AIRE recommends that as from the beginning of RP3 (2020) no individual DUC above €50 (per Total Service Unit) will be approved.

Note: This target as well as the realized figure will be assessed in terms of “True Costs” paid by the airspace users expressed in Euro (nominal).

SES Network Manager: role and cost base

 

9. The Network Manager should be able to impose measures to ANSPs

AIRE considers that the role and competences of the Network Manager as currently defined in the EC regulation 677/2011 are appropriate. However, in reality, the Network Manager is not fully implementing some of the regulations’ provisions making it more a network “analyst” than a genuine network “manager”.

We refer in particular to the Article 7.1, 7.2 , 7.3 and 7.4

The Network Manager should indeed not merely monitor the situation but should take all initiatives and impose appropriate solutions required to improve the performance of the network.

AIRE considers that the autonomy and authority of the NM must be strengthened:

  • the NM must remain an entity governed by the SES legislation
  • the governance must remain in the hands of industry
  • the Commission must play a governing supervisory role to ensure the neutrality of the NM
  • the “escalation process” foreseen in Article 7 of the Regulation must be fully implemented
  • the NM shall submit to the Commission an individual Performance Plan, and, therefore, be responsible for achieving its own Performance Plan’s Key Performance Indicators.

 

10. The Network Manager should be imposed a cost effectiveness target of -10%

The total costs of the Network Manager (around € 200 million) charged to the airspace users (cost base) are prohibitive due to the lack of productivity of Eurocontrol staff and the structural issues affecting the cost of the NM employees.

The current pension and tax obligations represent a challenge for the long term financial sustainability of the Network Manager. Altogether, they represent about 40 per cent of the cost base charged to the airspace users.

The amount of internal tax is far exceeding the tax levied for comparable employees of the European institutions. This tax as well as taxes on pensions and the “Past Benefits Obligations” (PBO) for the pension rights acquired before 2005 are significant elements in the cost base of EUROCONTROL, financed through en-route user charges.

AIRE proposes that the Commission imposes a minimum cost reduction of 10% of the NM cost base as a pre-requisite for the re-nomination of Eurocontrol as Network Manager.