Creating sustainable value from aviation assets

Airports continue to form an essential part of our way of life, as well as being a central pillar to a nation’s sustainable economic growth. In the Middle East, passenger numbers are expected to grow from 200 million today to 300 million in 2019, and some 440 million in 2029 (source: ACI). Nevertheless the growth in demand for air travel should not come at any price and a balance must be achieved between the economic benefits, the cost of construction and the environmental effects of increased air travel.

Creating sustainable value from aviation assets is driven by:

• A vision and plan for long-term sustainable growth
• Transaction solutions that maximise asset value and reduce risk of investment
• Achieving the best possible outcome through a commercial approach to capital delivery
• A sustainable asset management strategy that improves efficiency and protects asset value
• Quantifying the environmental impact

With two billion people within 2.5 hours by air from the Middle East and 80% of the world's population within 8 hours (source: Aviation ME), it makes the Middle East a strategic gateway for air travel.

Understanding the strategic drivers for development and the operational requirements of any sized airport is crucial to assessing the asset and its ability to support future demand.

Enabling a vision and plan for long-term sustainable growth

Critically an airport master plan needs to encompass the long-term vision of an airport and accommodate traffic forecast growth, as well as enabling efficient operations that meet the expected passenger experience. This also needs to be balanced with the environmental effects of air travel whilst ensuring the airport provides financial viability.

Fully aligning the master plan with the business plan and multiple stakeholder requirements is key to the successful development of an airport. However, we often find that too much focus is placed on design and the technical solution, resulting in a misalignment with the operation of the airport and the commercial revenues and income opportunities.

Maximising an airport portfolio also requires in-depth understanding of diversification into non-aeronautical income streams, including airport city developments and retail strategies, as well as the opportunities presented at multi-modal transportation hubs.

Our clients frequently ask us:

• How can I determine the optimal time to invest?
• Am I maximising the commercial revenues that are available?
• How can I improve safety, operational efficiency and reduce expenditure?
• How can I plan my asset so that it is flexible and meets stakeholders' needs?

Matching the anticipated passenger demand with the developmental need of the airport will optimise capital, operational and revenue expenditure, as well as income streams.

Transaction solutions that maximise asset value and reduce risk of investment

The buying and selling of airports represent both opportunity and risk to both parties undertaking the transaction. Optimising asset ownership requires a thorough and detailed understanding of the drivers and performance indicators of airport assets.

The price of an aviation asset undergoing either privatisation or private sale is often set by:

• The anticipated rate of growth that the airport is likely to receive in terms of airline and passenger demand
• The catchment area, demographics, transportation links and local economy
• The ability to grow and expand facilities to meet forecast growth
• The asset management and financial exit strategy to be employed by the purchaser over the period of tenure
• The ability to finance the ownership and asset management strategy
• The anticipated aeronautical and commercial revenue that can be generated based on the demand.

Due to the complex nature of aviation transactions an integrated approach right from master-planning, business case planning and traffic forecasting to technical and contractual risk management is fundamental.

A commercial approach to capital delivery

Delivering complex aviation assets, phasing of construction to match forecast demand and developing large infrastructures in an operational environment requires innovative approaches to delivery.

To enable this, clients should have in place:

• A strategy that aligns business and operational needs supported by effective risk management
• Real time reporting and management information that separates Capex, Opex, Revex, contingencies and design scope
• An optimal plan for alternative funding sources
• Cost savings and efficiency in capital expenditure programmes
• An intelligent commercial strategy that optimises the use of procurement, tendering and contracting procedures to drive value from the supply chain.

A sustainable asset management strategy improves efficiency and protects asset value

We have seen airport operations coming under extreme pressures to perform at higher levels of efficiency, whether this is maximising throughput or having the flexibility to operate under extreme conditions, such as big calendar events or severe weather conditions. This puts considerable strain on the asset and the way in which it is managed. Understanding the operation and how best to utilise the asset through innovations, contingency procedures and new technology enables cost savings and efficiencies to be realised.

Maximum benefits will be derived from:

• Aligning the asset management policy and strategy with business needs and objectives as well as the capital available
• Best value whole life maintenance and facilities management delivery that identifies replacement costs and prioritises Capex and Opex provision
• Quantifying the cost of delay with appropriate mitigation strategies
• Creating effective supply chains that drive maximum efficiency
• A corporate social responsibility and sustainability strategy that delivers bottom line value.

Quantifying the environmental impact

Across the globe we are all coming to terms with the issue of climate change and the role of carbon emissions as a cause. According to a report by the Intergovernmental Panel on Climate Change (2001), aviation contributes to 2% of the global manmade CO² emissions. It is estimated that airport activities account for up to 5% of total aviation emissions.

Airports and other aviation industry stakeholders are seeking to address the challenge of climate change and have developed a wide range of activities to reduce carbon emissions linked to airport operations. These emissions mainly stem from energy use in airport buildings and infrastructure, transport to and from airports, airside vehicles, aircraft ground movements and energy consumption and refrigerants.

More frequently we are being asked:

• How does the summer / winter flight schedule impact on my carbon foot print?
• What is the contribution of ground handlers or other stakeholders to the overall carbon footprint?
• Are there operational procedures or changes that can be made to improve efficiency and reduce emissions and CO²?
• Which master plan options offer the lowest carbon contribution?

Airports and airlines should essentially quantify the environmental impact of the airport and the assessment of different development and operational options to achieve the best possible outcome from their investment.

About EC Harris

EC Harris is a leading international built asset consultancy generating positive outcomes for our clients in addressing their business opportunities and challenges.

Active in a wide range of market sectors, including Aviation, we have advised many international clients on how to make the most from their investment and expenditure in creating, developing, operating, using and owning airports across the world.

Combining our experience, relationships and skills, we have the ability to deliver business solutions required by both publically and privately owned airports, its operators, acquirers and vendors when dealing with all forms of the aviation asset.