Privatisation / Commercialisation

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Privatisation / Commercialisation

32ND ANNUAL CONFERENCE, Christchurch, NZ, 19-23 April 1993

WP No. 111

Privatisation / Commercialisation

Introduction

The new catch phrase in aviation today is “privatisation”. In Air Traffic Control we use the term to refer to a transfer of ATC services from a state owned to a private enterprise. No discussion of this matter can begin without first defining some terms. Privatisation of Air Traffic Control refers to the process by which the functions and/or assets of Air Traffic Control are transferred from a government department to either the private sector or to a company or corporation owned either partly or fully by the government, but operating independently of total government control (Coopers & Lybrand).

The dictionary defines them as such:

Private Enterprise:

  1. Business activities unregulated by state ownership or control; privately owned business in general.
  2. A privately owned business enterprise, especially one operating under a system of free enterprise or laissez-faire capitalism.

Commercialise:

  1. To make commercial; apply methods of business to.
  2. a) To exploit, do, or make mainly for financial gain.
    b) To sacrifice the quality of for profit.

Crown Corporation:

In Canada, a government owned company.

The type of commercialisation considered appropriate for ATC is one that incorporates the first meaning under commercialise above. The meanings in 2a and 2b above are inappropriate for a safety related field.

There are many factors driving the forces of change in air traffic control today:

  1. Scarcity of resources;
  2. Inadequate services;
  3. Successful examples of commercialisation/privatisation;
  4. Future needs;
  5. A desire to reduce the size of the public service;
  6. A desire to become more efficient;
  7. The users’ wish to have more say on how their tax money is spent;
  8. The users’ wish to change from a mentality that pursues safety at any cost to one that embraces sound commercial practices such as cost/benefit accounting;
  9. The desire to escape the restrictions of the public service.

If one is not proposing a complete privatisation of the industry, then the preferred term is “commercialisation”. This term allows for the regulation of the industry by government and is therefore preferred by the author in the preparation of this paper. Before one can meaningfully discuss the merits and pitfalls of commercialisation, one has to decide what type of enterprise to form, and the degree of commercialisation sought. One must also consider the rules and legislation pertaining to such a venture in one’s country. Commercialisation may not be a possible alternative in some places. Restrictions may take the form of legislation that may have to be changed, or other factors such as military control of airspace.

Discussion

Commercialisation may appear in many forms; crown-corporations, separate operating agencies, fully private companies, shared ownership (public/private), public utilities, marketing boards etc. Each of these forms may vary in the degree of privatisation, from one that is fully owned by the state, to one that is partially owned by the state in varying degrees, to one where the state has no ownership of the enterprise. In most cases the degree of control the state maintains is directly related to the degree of ownership enjoyed by the state.


Characteristics of Some Organisations

 

SUBJECT PUBLIC UTILITY / SEPARATE AGENCY CROWN CORPORATION SEPARATE OPERATING AGENCY
Management Structure Governed by BOD. Managed by a president/CEO Governed by BOD. Managed by a president/CEO A Department appointed Manager. Reports to Department
Financing of Operation Borrowing of money on open market through sale of corporate bonds etc.  Assets of the corporation used as collateral.  Deficit carried by corp. Borrowing of money from money market guaranteed by Govt.  Borrowing is normally limited by legislation Operated as a profit centre responsible to the Department. Utilises Department resources
Source of Revenue User fees. Grants to maintain level of safety User fees. Grants to maintain level of safety Possibly user fees or through taxation
Liabilities Corp. carries liability.  Could be limited by legislation. Or Crown carries liability Crown carries liability Governed by the Crown Liabilities Act.
Collective Bargaining Same as private industry. Expanded bargaining for classification standards etc. Same as private industry. Expanded bargaining for classification standards etc. Same as Government
Pension Plan New plan negotiated and managed, some countries, possible to retain current plan Must decide to form new plan or continue government plan No change to government plan
Government Benefits All things negotiable Must make choice of status quo or negotiating new agreements No changes
Job Security Negotiable Negotiable  Government constantly downsizing (negotiated)
Hiring of Staff Negotiable and governed by country’s laws Negotiable and governed by country’s laws According to Government rules
Discharge, Demotions, Promotions Negotiable and governed by country’s laws Negotiable and governed by country’s laws Redress procedures within legislation for public servants
Transfers Employer’s prerogative, provisions to be negotiated Employer’s prerogative, provisions to be negotiated As exists in Government
Contracting Out Negotiable Negotiable As exists in Government
Technological Change Protection as per laws in Country Protection as per laws in Country Protection as exists in Government
Terms and Conditions of Employment in Collective Agreement Negotiable Negotiable  Status Quo
Health and Safety Regulations Same as Government Same as Government  Status Quo
Leave of Absence Negotiable Negotiable As per Government Guidelines
Loss of License, Early Negotiable Negotiable  Negotiated as per current agreements

 


Advantages for Controllers

Proponents of commercialisation tout the following advantages for controllers. Their biggest selling point is the claim that the system would receive better funding, enabling quicker responses to the needs of controllers when addressing problems of poor equipment. This would ultimately lead to more efficiency and greater morale. They also claim privatisation would reduce or eliminate political interference. This may not be true in all countries, and provided the aims of the company do not go against the wishes of the controllers, this could definitely be an asset.

Experience shows that privatisation leads to streamlining of management. This improves controller involvement, communication and decision making input, leading to increased influence and control over one’s environment, thereby reducing frustration. Commercialisation may allow the uniqueness of the ATC profession to be recognised on its own merits. Negotiations would no longer be restricted because of a fear that any gains made by the ATC associations would also be demanded by other bargaining groups in the public sector. Free collective bargaining can increase morale and productivity.


Disadvantages for Controllers

While most experts agree that commercialisation will make money available to purchase new equipment, few address the issue of compensating the controllers and other employees. The economy of a country would directly impact on the enterprise, at times limiting its financial resources. (To guard against this, borrowing mechanisms would have to be in place.)

During the transition from a state owned to a commercial enterprise, experience shows that concessions may be sought from controllers on matters such as hours of work, rationalisation or reduction of the number of facilities, etc. Given the present climate of diminished revenues, many airline employees are forced to give concessions and take pay cuts. One can reasonably say then that in similar conditions employees of the enterprise may have to do the same. Therefore it is important that controllers maintain solidarity to protect their benefits.

During the transition period, all terms and conditions of employment become negotiable. This means associations will have to do a lot of work to ensure their members are able to retain their present terms and conditions of employment. Steps must be taken to ensure protection of salary and benefits such as; early retirement, pensions, medical/health plans, vacation leave, hours of work, sick-leave, relocation agreements, social leave (care of preschool age children, maternity leave, etc.), promotion by merit or seniority, grievance procedures, loss of license schemes and so on. Virtually every benefit enjoyed by the controllers either through a collective agreement, legislation, letters of understanding, department policy, etc., all become negotiable.

Difficulties may arise if you are negotiating with the new enterprise while you are still governed by the restrictions you face under your present administration. Here I am referring to things such as your ability to go on strike to protect your hard fought for benefits.


Advantages for System and Industry

The major advantages for the industry relate to matters of finance. This may be the only way the industry can get away from constant under funding of the system. Monies generated by the enterprise would no longer have to compete with or be funnelled out to other government initiatives. Consultation with users would increase affording them greater say on how their money is going to be spent. The other obvious advantages are the increased responsiveness to changes in market demand, the reduced time to acquire new equipment, and the rationalisation of such purchases. Enhancements to the Air Navigation System would be based, on sound business principles such as benefit/cost analysis. Improvements would be sought with regard to cost even in safety matters.


Disadvantages for System and Industry

After discussions in SC4, no relevant disadvantages were identified.


Other Factors

It would be prudent to require the government to continue its role of regulator in determining the level of service to be provided by the enterprise. This would ensure continued service to smaller communities and users, and also could be a benefit in maintaining the level of safety. Once the enterprise is up and running, there will most likely be a decision made about diversification of the business. This should be treated with care, it could be good or bad depending on what else the enterprise is planning on becoming involved with. Indeed one can see that acquiring a money losing airline or other venture could lead us into what we face today with money being used for other than improving the Air Navigation System.

There are few if any academic studies into the effects of commercialisation on controllers. The only existing case study examines the situation in New Zealand, however the ILO is presently considering a study on the effects of privatisation on the wages of controllers.

Conclusions

Privatisation may lead to more immediate improvements to equipment and service, however it is not totally without risk. In fact in some cases the decision to stay the same may carry greater risks. As governments’ try to wrestle with diminishing resources and increased debt, there is less and less available to the ANS. The dilemma one faces is whether to stay in government and watch the problems get worse or to privatise and perhaps improve one’s situation.

Once a decision is reached to pursue privatisation, one must decide if the national legislation allows such enterprises, and what structure and format it will have. This can be a complicated issue. One has to consider the economic and political climate and decide the timing of change. Legislation must be established to determine issues such as liability, financing, profitability and the accountability of the enterprise. Proper safeguards should be built into the new structure to ensure that commercial matters do not hold sway over operational and safety matters.

Controller participation should be encouraged as per IFATCA policy 4.1.1.1.:

“MAs […] should participate in the determination of their conditions of employment, and the conception, planning, and implementation of premises, technical equipment and procedures concerning the ATC system.”

 

Privatisation becomes an attractive option when you are able to retain the government as legislator and regulator of safety and service levels. This alleviates the bigger concerns and allows one to enjoy the benefits of commercialisation. More experience is needed to draw conclusions about the advantages and disadvantages of commercialisation. Effects of privatisation in other transport industries conducted by the ILO are available and should be researched, to determine the possible effects on the working conditions of controllers. Impacts of commercialisation must be carefully evaluated to determine the degree of effect contributed by privatisation versus other factors.

Recommendations

Privatisation of Air Traffic Control refers to the process by which the functions and/or assets of Air Traffic Control are transferred from a government department to either the private sector or to a company or corporation owned either partly or fully by the government, but operating independently of total government control (Coopers & Lybrand).

The safety and quality levels of the Air Traffic Services system shall not be compromised by privatisation/commercialisation.

IFATCA should monitor the effects of privatisation/commercialisation on ATCOs’ working conditions in co-operation with the ILO.

References

The Benefits of Commercialising ATC Organisations, Presentation by Dr. Christopher J. Smith, Air Transport Practice Leader, Coopers & Lybrand Europe.

Paper Presented to the Air Transport Action Group, by Andrew J. Makin, Chief Executive, Airways Corporation of New Zealand, June 11th, 1992, in Seattle.

An Independent Air Navigation System, Transcripts from the Canadian Business Aircraft Association’s 1992 Convention and Trade Show, Vancouver, May 6th, 1992.

Air Navigation Services – Should They be Commercialised?, an article by Ronald Bell president of Freelance IV Collaborative – Aviation Consulting Limited, that appeared in Leading Edge magazine, Issue 1.

Implications of the Options for the Operation of the Air Navigation System, Canadian Air Traffic Control Association, 1992.

Last Update: September 20, 2020  

December 22, 2019   266   Jean-Francois Lepage    1993    

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