5 October 2012

Yesterday it was remarked that our regulators believe they operate the most “flexible” civil aviation regulatory system in the globe.  This one comment was almost enough to make “the boots” trip and fall.  In our world the issue is most definitely not “flexibility” but about identifying the hazards, analyzing the risks, identifying the most appropriate mitigations, putting in place good treatment plans,  and constantly communicating and consulting in a dynamic and ever changing world.

You will notice no mention of the word “flexible”. Our Civil Aviation Act and Rules when written around twenty years ago unleashed a massive improvement in productivity but sadly over time parts of the Act have become dated and Rules in a number of areas simply have not kept pace with the change whether it be in technology, the way we do business or in the way we think about the next generation of safety and economic gain.

Most countries are now rising to the challenge, even that powerhouse of aviation Namibia has looked to New Zealand expertise to design its regulatory framework.  However in applying that New Zealand based expertise you can see the author, one Peter O’Brien, has contextualized the framework to ensure that the operating environment is highly competitive both at home and internationally

It is this passion for creating the most competitive aviation environment whether it be relative to other modes of transport in New Zealand or internationally that seems absent from our regulator’s thinking.

An example to the forefront of “boots thinking” are the announced but yet to be formally published new charges for CAA services.  The most significant increases in licensing medicals and hourly rate charges are designed to eliminate as far as possible cross subsidization.  In economist speak this is a good thing because I don’t want to pay for something I don’t need or want.

However cross subsidization is an inextricable feature of the competitive world we live in. Your mission is to extract that extra dollar from wherever you can.  Our regulator of course does operate in a competitive world – they are monopolies and with monopolies cross subsidization is a no go. Of course coupled with this philosophy is normally the concept of ability to pay – a term which to our knowledge has not been explored in CAA’s most recent pricing consultstions

The “boots” being the good economist she is (yes the terrible secret is out) thought we should critically examine the proposition that CAA is a monopolist. In most respects they are however New Zealand CAR 121 operators can deliver all their services via the Australian registry.  This would lower their payments to CAA as they would not be using CAA services.  Under the Trans Tasman Mutual Recognition Agreement New Zealand pilots and Engineers could do all of their qualifications and medicals if necessary in Australia.  In fact today we have more New Zealand Pilots doing their ATPL in Australia than New Zealand merely because our environment is “uncompetitive”.

Returning to the issue of cross subsidization CAA has always been very clear that the primary reason why our medical/license and hourly rate charges are increasing is because they must remove cross subsidization.  In a monopoly market we think if  this is to the primary pricing philosophy then it should apply to all “customers” not just some.

In looking at the CAA’s recently published statement of Intent one of the biggest cross subsidies going is Industry of government services.  Around $1m of the proposed $30m collected from industry goes to paying for services consumed by government.  These services are called “public good” services and cover such things as providing advice to Minister’s, attending international meetings, rules development and the like.  It is most unusual, in any regulated operating environment in New Zealand or around the world, that industry pays for such things.

And this now gets to the nub of the issue that the competitive environment – domestic or international has not been a central consideration in setting charges yet it is the most critical consideration if we are to achieve our growth and sustainability objectives.

From these comments you can anticipate that we will continue to vigorously debate with all government agencies aspects of their performance which affect the industry’s performance. What we will not do however is engage in a public slanging match.  At the end of the day the rest of the world is rapidly shifting towards open and highly competitive economies and we in this part of the globe must be far more fleet footed.

It’s interesting for example the Brits have just done a deal with their equivalent of our Aviation New Zealand to establish a four year framework of funding and activities.

An Australian medical certificate (Pilots,ATC) costs $A75 per transaction compared to the proposed $315 for NZ; a PPL license issue costs $80 in Australia, $230 in New Zealand.  I think you get the picture!!!

Our key competitors do not impose GST on foreign training.  While New Zealand is making very small tentative steps towards recognizing that foreign pilot training in certain circumstances should be exempt imagine what a wholesale exemption would do for the New Zealand economy.  

To trade our way out of the black hole requires some innovative thinking.  We’ve responded recently to Minister Joyce suggesting we work from common and understood data bases as opposed to “nonsense in nonsense out” click here We hope this will gain some traction as there’s a definite willingness on the part of most government agencies to look toward solutions. 

CAA’s decision to substantially increase charges is seen to a degree as a solution the caveat is that there must be an exponential improvement in their performance and value for money delivered to industry. We have no doubt that these considerations are to the forefront of the Chairman, members of the Board and Director’s minds.  
 

Until we speak again take care and stay risk aware Red boots

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What's coming up?

 

Orient Aviation October click here some great stuff on pilot training

LanzaTech lands $15m in new funding click here Lanza Tech are the recipients of the Richard Pearse Award for innovation and Excellence

AIA members deals