trevorkd
30th Jul 2002, 21:30
Trevor Abrahams
Chief Executive Officer
South African Civil Aviation Authority
“Tell no lies. Claim no easy victories”
Amilcar Cabral, Guerrilla Leader, Guinea Bissau
The recent CAA notice of its intentions to increase the fees for the services and products provided by the CAA has understandably evoked considerable debate. It has unfortunately given rise to more vitriolic, misrepresentations and downright dishonesty than would allow for a constructive engagement on the issue. The reality is somewhat further from the “facts” which some have been pandered in the name of awakening the industry to challenge the actions of the CAA.
There can be no questioning the difficult trading conditions, which confront the industry as a whole and the potential threat that escalating costs across the board will decimate if not deal a deathblow to general aviation. The CAA has no such intention and the circulation of the discussion document on fee increases was intended to evoke a constructive debate rather than the tirades which obscure real issues and opportunities for reaching a common understanding and approach to these challenges. We remain committed to finding a working solution to obtaining adequate funding for an effective CAA from whatever plausible source we are able to identify.
“The past is malleable and flexible, changing as our recollection interprets and re-explains what has happened.” Peter Berger
The CAA was established in October 1998 as a self-financing autonomous regulator WITH the explicit support of the industry. Who may you say is the industry? I certainly met with industry representatives from CAASA, Aeroclub, AOPA, ALPA, etc., in the September 1998 CARCOM where I not only confirmed progress in establishing the CAA, but obtained approval for the new fees which were to be introduced in January 1999. Moreover, I personally met with these elected representatives and presented a 5-year budget (based on annual fee increases) to all these industry representatives, some of them now leading the charge against the CAA.
The forecast income from user fees and levy charges (fuel and passenger levies) do not differ significantly from what we are now proposing (see data below). Surprisingly, I did not get any petition or angry letter then from these leaders. Not only was the concept of an autonomous CAA funded by the industry supported by the industry leaders, but the estimated costs and consequent fee increases were shared with them without any of the rushing to the trenches, which we have recently seen in some quarters. These increases included a clear three-year staffing plan increasing the 104 staff from the DCA who moved over to the CAA to 265 in year three. These staffing levels were based on international comparisons given the deficiencies in the oversight exercised by the DCA as identified by ICAO in their assessment in 1997.
As the change from the virtual subsidy for our licenses, AOC’s, etc. by the taxpayer under the DCA to the industry funded autonomous CAA was extremely large, the government agreed to a declining subsidy phased out over three years, i.e. ending March 2002. While the initial 5-year financial model was based upon annual fee increases to make up for the declining state subsidy, no fee increases have been implemented since the fees published in 1998.
“The future has a way of arriving unannounced”. George F. Will
Notwithstanding the fact that the CAA remains understaffed (180 at present compared to the revised target of 251 for an industry as at present in RSA), the current situation as a self-funded organization is clearly unsustainable.
· There is no longer any government subsidy.
· There has been no increase in user fees since 1998 (look at what has happened to other fees since then).
· There has been no increase in the fuel levy (R0.015 per litre applicable to all non-scheduled aviation) since 1998.
· CAA staff levels have increased since 1998.
· The cumulative impact of inflation alone has increased costs to the CAA by approximately 33% since 1998.
So how do we meet our legislative and ICAO obligations with declining revenue in real terms? What did the industry leaders agree to in the course of the establishment of the CAA?
Meeting our ICAO Obligations
The CAA engaged Deloitte and Touche to conduct an activity based costing (ABC) study, which examined each activity, conducted by the CAA and subsequently costed each product and service. The ABC study identifies the organizational operating costs, associates those costs with the work activities performed, and finally associates work activities performed with the products and services produced. ABC has been used successfully in the private sector and has been used increasingly by other Government agencies to determine the costs of their programs, processes, products, and services.
The results of this study, which understandably pointed to significant increases, given the absence of any fee increases since 1998 and the state subsidy falling away were then shared with the industry for comment. This is consistent with the general tenor of our democracy as reflected in the South African Aviation Authority Act. We intended to engage the industry on these proposals and did in fact receive a number of responses. At no stage was the study presented as a fait accompli. Indeed, during the presentation, the audience were reminded repeatedly of the process to be followed once they have submitted their views. In brief, the CAA is required, in terms of its submission for the legislative changes to the Minister to include the industry comment, and to indicate how it has dealt with these comments.
All stakeholders were made aware that what was being presented to them was:
1. A first step in the consultative process.
2. The study figures were undiluted and would be revisited to take into account a number of issues including the present difficult economic conditions, the “peaks and valleys” that appeared, and the inadvisability of too sudden an implementation process.
3. The representatives should communicate the presentation to their stakeholders within an agreed period. The CAA repeatedly invited the industry response via the representatives or directly to the CAA, as it will help to shape the end product.
4. The roll out date of July and hence required the timeous response from the industry.
5. Ministerial approval is still needed (Ministry of Transport as well as Ministry of Finance)
Comments received from the stakeholders were few, but they were very helpful in that they certainly helped to inform possible ways in which the pricing model could be applied in a way that might better serve the industry and accomplish the states international treaty obligations in re civil aviation. It is disappointing that more comments seem to be directed at the media than arrived at the CAA.
The CAA management reviewed the responses and explored ways in which the required increases could be ameliorated. We do not have the power to change the basis on which the CAA was established with industry support. The CAA then tabled a revised proposal at our regular Industry-CAA meeting on the 6th June 2002,which essentially phased in most of the increases over a seven-year period to cover the full costs of the service/product at that point and an increase in the passenger levy on scheduled airlines from R4 to R7 per departure. We have to date received little in the form of responses to this proposal, except indirect acknowledgement from some who now claim responsibility for this “back tracking”. These proposals have hence been sent to the minister for promulgation, public notice in the Government Gazette and implementation from 1 August 2002.
I should hasten to add that the revised proposals is a genuine attempt by the CAA management to address industry concerns in the context of a depressed industry while still meeting our legislative and ICAO obligations. I also believe that there are efficiency gains, which we can squeeze out of our operations, particularly with greater use of IT based-operations, rather than the paper-based organization as at present. This will act to drive down our unit costs, which will be passed onto the cost of service in the future. The shrill cries of victory emanating from some quarters should be viewed as no more than self-aggrandisement by some of the worst purveyors of misinformation and hatchet reporting.
I am also on record as raising the issue of the user-pay model to cover the entire costs of the civilian aviation regulator, particularly non-commercial general aviation, with the Minister and the Parliamentary Portfolio Committee on Transport. We are scheduled to take these discussions further with the National Treasury shortly.
What can we Expect
The resultant increases are clearly a far cry from the full values generated by the ABC study. The details for each service and product are posted on the CAA web site. The seven-year phase-in is, however, based on a regular annual increase, unless an alternative funding stream is identified. The resultant increases in revenue flows in user fees and levy revenue is virtually the same as presented to the industry leaders in 1998 as illustrated in the graph below.
Read on: Click on headline banner "CAA FEE INCREASE: BEYOND THE HUE AND CRY" and read further (www.caa.co.za)
Chief Executive Officer
South African Civil Aviation Authority
“Tell no lies. Claim no easy victories”
Amilcar Cabral, Guerrilla Leader, Guinea Bissau
The recent CAA notice of its intentions to increase the fees for the services and products provided by the CAA has understandably evoked considerable debate. It has unfortunately given rise to more vitriolic, misrepresentations and downright dishonesty than would allow for a constructive engagement on the issue. The reality is somewhat further from the “facts” which some have been pandered in the name of awakening the industry to challenge the actions of the CAA.
There can be no questioning the difficult trading conditions, which confront the industry as a whole and the potential threat that escalating costs across the board will decimate if not deal a deathblow to general aviation. The CAA has no such intention and the circulation of the discussion document on fee increases was intended to evoke a constructive debate rather than the tirades which obscure real issues and opportunities for reaching a common understanding and approach to these challenges. We remain committed to finding a working solution to obtaining adequate funding for an effective CAA from whatever plausible source we are able to identify.
“The past is malleable and flexible, changing as our recollection interprets and re-explains what has happened.” Peter Berger
The CAA was established in October 1998 as a self-financing autonomous regulator WITH the explicit support of the industry. Who may you say is the industry? I certainly met with industry representatives from CAASA, Aeroclub, AOPA, ALPA, etc., in the September 1998 CARCOM where I not only confirmed progress in establishing the CAA, but obtained approval for the new fees which were to be introduced in January 1999. Moreover, I personally met with these elected representatives and presented a 5-year budget (based on annual fee increases) to all these industry representatives, some of them now leading the charge against the CAA.
The forecast income from user fees and levy charges (fuel and passenger levies) do not differ significantly from what we are now proposing (see data below). Surprisingly, I did not get any petition or angry letter then from these leaders. Not only was the concept of an autonomous CAA funded by the industry supported by the industry leaders, but the estimated costs and consequent fee increases were shared with them without any of the rushing to the trenches, which we have recently seen in some quarters. These increases included a clear three-year staffing plan increasing the 104 staff from the DCA who moved over to the CAA to 265 in year three. These staffing levels were based on international comparisons given the deficiencies in the oversight exercised by the DCA as identified by ICAO in their assessment in 1997.
As the change from the virtual subsidy for our licenses, AOC’s, etc. by the taxpayer under the DCA to the industry funded autonomous CAA was extremely large, the government agreed to a declining subsidy phased out over three years, i.e. ending March 2002. While the initial 5-year financial model was based upon annual fee increases to make up for the declining state subsidy, no fee increases have been implemented since the fees published in 1998.
“The future has a way of arriving unannounced”. George F. Will
Notwithstanding the fact that the CAA remains understaffed (180 at present compared to the revised target of 251 for an industry as at present in RSA), the current situation as a self-funded organization is clearly unsustainable.
· There is no longer any government subsidy.
· There has been no increase in user fees since 1998 (look at what has happened to other fees since then).
· There has been no increase in the fuel levy (R0.015 per litre applicable to all non-scheduled aviation) since 1998.
· CAA staff levels have increased since 1998.
· The cumulative impact of inflation alone has increased costs to the CAA by approximately 33% since 1998.
So how do we meet our legislative and ICAO obligations with declining revenue in real terms? What did the industry leaders agree to in the course of the establishment of the CAA?
Meeting our ICAO Obligations
The CAA engaged Deloitte and Touche to conduct an activity based costing (ABC) study, which examined each activity, conducted by the CAA and subsequently costed each product and service. The ABC study identifies the organizational operating costs, associates those costs with the work activities performed, and finally associates work activities performed with the products and services produced. ABC has been used successfully in the private sector and has been used increasingly by other Government agencies to determine the costs of their programs, processes, products, and services.
The results of this study, which understandably pointed to significant increases, given the absence of any fee increases since 1998 and the state subsidy falling away were then shared with the industry for comment. This is consistent with the general tenor of our democracy as reflected in the South African Aviation Authority Act. We intended to engage the industry on these proposals and did in fact receive a number of responses. At no stage was the study presented as a fait accompli. Indeed, during the presentation, the audience were reminded repeatedly of the process to be followed once they have submitted their views. In brief, the CAA is required, in terms of its submission for the legislative changes to the Minister to include the industry comment, and to indicate how it has dealt with these comments.
All stakeholders were made aware that what was being presented to them was:
1. A first step in the consultative process.
2. The study figures were undiluted and would be revisited to take into account a number of issues including the present difficult economic conditions, the “peaks and valleys” that appeared, and the inadvisability of too sudden an implementation process.
3. The representatives should communicate the presentation to their stakeholders within an agreed period. The CAA repeatedly invited the industry response via the representatives or directly to the CAA, as it will help to shape the end product.
4. The roll out date of July and hence required the timeous response from the industry.
5. Ministerial approval is still needed (Ministry of Transport as well as Ministry of Finance)
Comments received from the stakeholders were few, but they were very helpful in that they certainly helped to inform possible ways in which the pricing model could be applied in a way that might better serve the industry and accomplish the states international treaty obligations in re civil aviation. It is disappointing that more comments seem to be directed at the media than arrived at the CAA.
The CAA management reviewed the responses and explored ways in which the required increases could be ameliorated. We do not have the power to change the basis on which the CAA was established with industry support. The CAA then tabled a revised proposal at our regular Industry-CAA meeting on the 6th June 2002,which essentially phased in most of the increases over a seven-year period to cover the full costs of the service/product at that point and an increase in the passenger levy on scheduled airlines from R4 to R7 per departure. We have to date received little in the form of responses to this proposal, except indirect acknowledgement from some who now claim responsibility for this “back tracking”. These proposals have hence been sent to the minister for promulgation, public notice in the Government Gazette and implementation from 1 August 2002.
I should hasten to add that the revised proposals is a genuine attempt by the CAA management to address industry concerns in the context of a depressed industry while still meeting our legislative and ICAO obligations. I also believe that there are efficiency gains, which we can squeeze out of our operations, particularly with greater use of IT based-operations, rather than the paper-based organization as at present. This will act to drive down our unit costs, which will be passed onto the cost of service in the future. The shrill cries of victory emanating from some quarters should be viewed as no more than self-aggrandisement by some of the worst purveyors of misinformation and hatchet reporting.
I am also on record as raising the issue of the user-pay model to cover the entire costs of the civilian aviation regulator, particularly non-commercial general aviation, with the Minister and the Parliamentary Portfolio Committee on Transport. We are scheduled to take these discussions further with the National Treasury shortly.
What can we Expect
The resultant increases are clearly a far cry from the full values generated by the ABC study. The details for each service and product are posted on the CAA web site. The seven-year phase-in is, however, based on a regular annual increase, unless an alternative funding stream is identified. The resultant increases in revenue flows in user fees and levy revenue is virtually the same as presented to the industry leaders in 1998 as illustrated in the graph below.
Read on: Click on headline banner "CAA FEE INCREASE: BEYOND THE HUE AND CRY" and read further (www.caa.co.za)