The Infrastructure Challenge - Strong Partnerships and Solid Ground Rules

The International Air Transport Association (IATA) called for a partnership approach guided by clearly defined success factors to build the global infrastructure needed for aviation to continue supporting economic and social development.

“Aviation is a natural driver of growth—linking markets and connecting business. Demand for connectivity is rising. To meet that demand and enable aviation to deliver its economic and social benefits, investment is needed to alleviate bottlenecks in the air and on the ground. In today’s economic climate it is a potent tool to stimulate much-needed growth,” said Tony Tyler, IATA’s Director General and CEO, at the Toronto Global Forum.

IATA recently released its first 20-year passenger demand forecast. By 2034 total passenger numbers are projected to reach 7.3 billion, more than double the 3.3 billion passengers expected to take to the air this year. Recently McKinsey estimated the investment in airports required to support GDP growth will need to be some $2 trillion by 2030.

Aviation already has a significant economic footprint. Alone, airline revenues of some $750 billion account for about 1% of global GDP. When combined with aviation-related tourism, aviation accounts for 58 million jobs globally and some $2.4 trillion of economic activity (3.4% of global GDP). “And that is only the beginning. Connectivity is the vital ingredient for modern industry—to move high value products quickly, to develop global markets or to support inward investment. The economic footprint of aviation crosses almost all sectors of the economy,” said Tyler.

“The investments needed are significant, as will be their multiplier impact across the economy. They are essential for a prosperous future with a more productive economy. It’s important that we get it right. Cash-strapped governments alone don’t have the resources and are increasingly turning to the private sector. The private sector is playing and will continue to play an important role. But it is not a panacea. We have learned enough from our experiences to know that governments must set the right ground rules to ensure a successful outcome,” said Tyler.

IATA outlined several critical success factors for effective public-private partnerships when developing and operating infrastructure:

1. Rigorous cost-benefit analysis : Such analysis should determine that investments are made in the needed areas and with maximum net benefit shared among consumers, users, investors and governments.
2. Constant engagement with stakeholders/customers: Such engagement will validate the identified benefits and ensure that customer and stakeholder needs are met in the most efficient manner and with the right timing.
3. Right structure: The investment structure should be designed to ensure that efficiency gains to consumers through private participation outweigh potentially higher capital costs.
4. Good governance: Governance structures should be designed to ensure fair distribution of the benefits among consumers, users, investors and governments. This is even more critical than the ownership structure and must pay particular attention to avoiding the highly detrimental effects of excessive royalties to governments, as well as excessive shareholder returns.
5. Credible independent robust economic regulation: Most infrastructure investments are natural monopolies or have monopoly-like characteristics. To offset the negative impacts of monopolistic behavior, the independent regulator must keep the consumer interest paramount both in terms of price and service levels.

“Of course any investment in infrastructure must be environmentally sustainable. The aviation industry is committed to capping net emissions from 2020 to achieve carbon-neutral growth. And by 2050 our aim is to cut total net emissions to half of 2005 levels. In fact, infrastructure investment programs, particularly for air traffic management, will play an important role. Just one project, the Single European Sky, would save around 8 million tonnes of carbon emissions annually. And there are benefits to be gained across the world in similar programs such as NextGen in the US and Seamless Asian Skies,” said Tyler.