1. Development of Air Transport Opportunities and Challenges
Presentation to the ECA Transport Sector
16 June 2003
Charles E. Schlumberger

2. Content of Presentation
Air Transport and the World Bank
The Air Transport Sector - Opportunities
The Air Transport Sector - Challenges
Liberalization and Privatization
Aviation Safety – ICAO Findings
Aviation Safety - Regional and National Tasks
Air Transport Development Projects
Conclusions

3. World Bank Commitment (%) and Projects by Sector 2003 - 2005
Total Commitments 2003/05 = $ 57.2 billion
Number of Projects 2003/05 = 880

4. The World Bank Transport Sector Objectives
Reduce poverty and increase economic growth by improving access to markets, employment and services
Assist our clients to adjust to new roles for the public and private sectors
Assist our clients to adopt innovative financial and management techniques
Facilitate trade through the removal and/or streamlining of regulations and promoting regional integration

5. Air Transport and the World Bank Overall Goal for Air Transport
Overall Goal: Develop safe, secure, reliable, cost-effective and environmentally responsible air transport service to improve accessibility and affordability for all sections of the population, in support of social and economic growth.

6. Air Transport and the World Bank Estimated Portfolio on Air Transport
Current commitments of transport sector
About US$ 7 billion (12% of Bank PF)
Estimated portfolio of Air Transport
Africa: about US$ 35 million (FY 2003)
Others: ? maybe another US$ 35 million
Overall estimate: about only 1% in value of Air Transport projects in transport sector

7. Air Transport and the World Bank Increased consideration for Air Transport?
Policy advice and only little infrastructure investment
Policy on Liberalization, Safety Oversight
Privatization of airlines and airports
But, future increased investments in infrastructure
Traditionally imbedded in different sectors (e.g. PSD)
Small components of PSD or multi-sector program
But, new global standards for safety oversight and infrastructure call for more specialized projects
Impact of non-compliance of developing countries will be more severe in a global air transport industry

8. The Air Transport Sector Opportunities for Developing Countries
Air Transport as an industry
1,600 million passengers, 30 million tons of cargo, 3.9 million jobs, 1% of World GDP
Crucial of local private sector
40% (value) of goods transported by air
foreign direct investments -> reliable transport
Tourism the World largest industry
Tourism will continue to grow with the related air transport sector - > strongest growth and impact expected in developing countries

9. The Air Transport Sector The Challenge - the worst crisis ever
USA: industry wide struggle for survival, 3 major carriers face bankruptcy (industry lost $36 billion in three years, $100 billion debt, only $2.5 billion total market capitalization - $15 billion Government aid).
Europe: after massive restructuring, still over 100 airliners and far too fragmented.
Asia-Pacific: spectacular market growth hides major structural problems.
West-Africa & Latin America: industry “at its final stages”, 1/3 of Latin American Carriers bankrupt

10. The Air Transport Sector Evolution of the Regulatory Environment
FROM scenario
Bilateral agreements (protecting the flag carrier interests)
Civil Aviation Law with all the details inside (rigidity)
State as Service Provider
TOWARDS - A modern concept
Multilateral agreements - Open skies policy (protecting the country’s interests)
Regional Liberalization
Frame Laws and details in updated regulations
The State as Regulator

11. The Air Transport Sector Liberalization & Privatization to blame?
Liberalization: development takes time (USA 20 years) and has victims, falling yields even before liberalization, no way back (USA, Europe, Africa etc.)
Privatization: competition among private sector participants is more efficient, but more cruel:
Cost of saving the national airline for developing countries not sustainable.
Merger and disappearance of smaller airlines, which cannot compete even if former Flag Carrier

12. The Air Transport Sector Priorities for Development
Air Transport Safety: not a public health issue, but:
High accident rates – high cost (insurance, financing, code sharing)
Open skies (US) unilateral until IASA Cat. 1
Air Transport Security: not law enforcement issue:
High cost for infrastructure and carriers (ICAO)
Non-compliance will hinder access to international markets (USA, Europe)
Economic Regulation for liberalization, especially for dispute settlement and competition rules

13. The Air Transport Sector Liberalization and Regional Projects
Worldwide liberalization of Air Transport and increased Safety and Security responsibilities require for many States to consider a regional approach:
Economic regulation: harmonization, competition rules, dispute settlement etc., regulatory body
Safety & Security Oversight: Capacity building at national level and regional safety programs (COSCAP) leading to safety agency (ACSA)

14. ICAO SAFETY OVERSIGHT SYSTEM CRITICAL ELEMENTS Lack of Effective Implementation (%)
GLOBAL/178 – 28.5%
ESAF/21 – 40.2%
EUR/NAT/51 – 19.65%
APAC/33 – 24.9%
MID/17 – 30.52%
WACAF/21 – 49.37%
NACC/21 – 24.04%
SAM/13 – 23.24% 10 20 30 40 50 60 70
Primary
Aviation
Legislation
Specific
Operating
Regulations
CAA Structure &
Safety Oversight
Functions
Technical
Guidance
Material
Qualified
Personnel
Licensing &
Certification
Obligations
Continued
Surveillance
Resolution
of Safety
Issues

15. Association between ICAO audit findings and regional accident rates80
Audit Findings – Lack of Effective Implementation of SARPs, (178 audit reports)
Accident rates per departures - scheduled (International and Domestic, 1996) 70
Accident rates per departures - scheduled (International and Domestic, 2000) 60 50 40 30 20 10
Asia and Pacific
Region
Eastern and
Southern African
Region
European and
N. Atlantic
Region
Middle East
Region
N. / C. American
and Caribbean
Region
Southern American
Region
Western and
Central African
Region

16. Aviation Safety - Regional and National Tasks
Regional (Agency)
Training and maintaining expert pool (inspectors)
Safety inspections
Auditing safety compliance
Arbitration on safety matters
Harmonization of primary aviation law & regulation
Standardization of safety oversight guidance material
National (CAA)
Training (local needs)
Inspections (where the State has the means and capacity)
Issuing licenses& certificates (Personnel, Air Carriers)
Enforcement of laws, regulations, procedures etc.
Adoption of harmonized aviation regulations and of guidance material

17. Aviation Safety - Regional and National Initial Funding
Regional (Agency)
Existing organization funds with income (e.g.COCESNA)
Grant of International Organization (IDB, WB)
Bilateral support (FAA, EU)
Challenge: Establish a sustainable mechanism for long-term funding (e.g. air navigation fees)
National (CAA)
Allocation of public funds and income of operations (landing/ air navigation fees)
Loans of International Organization (IDB, WB)
Bilateral support (FAA, EU)
Challenge: Establish permanent allocation of public funds

18. Aviation Safety - Regional and National Permanent Funding
Regional (Agency)
Funding directly from users, not from States (Air Carriers)
Perform some exclusive tasks only at regional level
Maintain well paid personnel that performs more tasks than they would at national level (e.g. inspectors)
No further support needed, self-sustainable agency
National (CAA)
CAA has own budget allocation and appropriate spending authority
Well defined mission and transparent expenditures
If public finances inefficient: National aviation income allocated directly to CAA
Permanent public funding ensured

19. Air Transport and the World Bank Development Projects of Air Transport
Policy advice and knowledge transfer: regulatory reforms (aviation code, regulations), capacity building (CAA), airline restructuring and privatization, and commercialization of airport operations.
Partnerships: ICAO, FAA, EU on projects and policy
Financing of Infrastructure: airports, runways, CNS equipment, GNSS, security equipment (fencing etc.)
Private Sector Funding: aircraft acquisition (IFC), foreign investment guarantee (MIGA)

20. Air Transport and the World Bank Benchmarks of Compliance
Topic
ICAO
FAA
TSA
ECAC
Safety
Audits (all countries)
IASA certification
Audits in preparation
Security
Audits (1st in 2002)
Airport assessment
Proposed assessment
Airport certificate
(Infrastructure, fire, crash equipment)
Planned in 2004
Planned for US carrier
destinations
CNS (Comm., Nav.& Surveillance)
Planned for 2005+
Impact and signification
Country ranking
No US flights from country
No US flights from airport
Unclear, but cost involved

21. Conclusions
Air Transport, traditionally a small sector, increasingly plays a key role for economic development
The Bank supports client countries in Air Transport development projects (policy & infrastructure)
The global industry in distress and increased requirements for compliance represent a major challenge for developing countries
Priorities for development are Regulatory Reform, Safety & Security as well as Infrastructure Investments
Increased expectations and higher demand for support for Air Transport projects to the Bank and other organizations