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Aviation Enterprise Management
Course Design
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Advisory Council
Chairman
io
Dr Parag Diwan
Members
Dr S R Das
VP – Academic Affairs
Dr Sanjay Mittal
Professor – IIT Kanpur
SLM Development Team
Prof V K Nangia
IIT Roorkee
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Wg Cdr P K Gupta
Dr Ashish Bhardwaj
CIO
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Dr Anirban Sengupta
Dean
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Dr Kamal Bansal
Dean
Dr Joji Rao
Dr Neeraj Anand
Dr K K Pandey
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Print Production
Mr A N Sinha
Sr Manager – Printing
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Mr Kapil Mehra
Manager – Material
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Author
P S Senguttuvan
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All rights reserved. No part of this work may be reproduced in any form, by mimeograph or any other means,
without permission in writing from MPower Applied Learning Enterprise.
Course Code: MBAI-902D
(c
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Course Name: Aviation Enterprise Management
Version: July 2013
© MPower Applied Learning Enterprise
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UNIT 20: Case Study
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Contents
Block-I
Introduction to Aviation Enterprise .............................................................................. 3
Unit 2
Airport Naming and Services....................................................................................... 13
Unit 3
Aviation Management Strategies ................................................................................ 25
Unit 4
Strategic Management Process.................................................................................... 37
Unit 5
Case Studies.................................................................................................................. 49
Block-II
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Unit 1
Stakeholders in Aviation.............................................................................................. 57
Unit 7
Business Models ........................................................................................................... 75
Unit 8
Legal Environment of Business ................................................................................... 85
Unit 9
Business Innovation ................................................................................................... 103
Unit 10
Case Study .................................................................................................................. 115
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Unit 6
Block-III
Strategic Airport Planning......................................................................................... 121
Unit 12
Strategic Planning Benefits ....................................................................................... 135
Unit 13
Airport Infrastructure ................................................................................................ 151
Unit 14
Passenger Terminals .................................................................................................. 161
Unit 15
Case Study .................................................................................................................. 177
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Unit 11
Block-IV
Role of Regulatory Bodies .......................................................................................... 183
Unit 17
Capital Finance for Airport Business........................................................................ 195
Unit 18
Airlines Business Model............................................................................................. 209
Unit 19
Procedure to Start New Airlines................................................................................ 225
Unit 20
Case Study .................................................................................................................. 239
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Unit 16
Aviation Enterprise Management
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Block-V
Capital Infrastructure Requirement for Airlines ..................................................... 245
Unit 22
Capital Finance for Airlines....................................................................................... 259
Unit 23
Aviation Financial Institutions.................................................................................. 273
Unit 24
Aviation Insurance ..................................................................................................... 283
Unit 25
Case Study .................................................................................................................. 297
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Unit 21
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Glossary ............................................................................................................................................ 301
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UNIT 1: Introduction to Aviation Enterprise
1
Notes
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BLOCK-I
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Detailed Contents
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Aviation Enterprise Management
2
Notes
UNIT
1: INTRODUCTION TO AVIATION
___________________
ENTERPRISE
UNIT 3: AVIATION MANAGEMENT STRATEGIES
Introduction
___________________
Introduction
Definitions of Strategy
n/
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An Airport
Competitive Strategies in Aviation Management
___________________
Terminology
Process Frameworks of Airlines
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Airport Structure
___________________
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UNIT 2: AIRPORT NAMING AND SERVICES
___________________
Introduction
ct
Growth and Opportunities
Evolution of Airport
___________________
UNIT 4: STRATEGIC MANAGEMENT PROCESS
Introduction
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Scanning the Aviation Environment
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Airport Designation and Naming
Analysing the Aviation Organization
___________________
Role and Scope of Activity of the Airport Enterprise
Airport Capacity
Formulating the Corporate Strategy
Formulating the Business Strategy
Airlines
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Implementing the Corporate and Business
Strategies through the Formulation of Functional
Strategies
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UNIT 5: CASE STUDIES
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UNIT 1: Introduction to Aviation Enterprise
Unit 1
3
Notes
Activity
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Introduction to Aviation Enterprise
Objectives
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An Airport
\
Airport Structure
\
Evolution of Airport
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After completion of this unit, the students will be aware of the following
topics:
\
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Introduction
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Aviation is the design, development, production, operation, and use
of aircraft, especially heavier-than-air aircraft.
India's domestic aviation market expansion has been the strongest
in the world – tripling in the past five years, according to the
International Air Transport Association’s (IATA) report.
India is currently the ninth largest aviation market in the world,
ot
fo
India's domestic air traffic grew at a rate, which is the second
highest after Brazil, according to global figures for June 2011,
compiled by IATA. The country's domestic traffic grew by 14 per
cent in the same period as against Brazil's 15.1 per cent.
,N
An Airport
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An airport is a location where aircraft such as fixed-wing aircraft,
helicopters, and blimps take off and land. Aircraft may be stored or
maintained at an airport. An airport consists of at least one surface
such as a runway for a plane to take off and land, a helipad, or
water for takeoffs and landings, and often includes buildings such
as control towers, hangars and terminal buildings.
Larger airports may have docks and ramps, air traffic control,
passenger facilities such as restaurants and lounges, and
emergency services. A military airport is known as an
airbase or air station.
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Write
an article on the concept
___________________
of an airport and the
___________________
terminology
used
while
discussing about airport.
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Aviation Enterprise Management
4
Notes
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The terms aerodrome, airfield, and airstrip may also be used to
refer to airports, and the terms heliport, seaplane base, and STOL
port refer to airports dedicated exclusively to helicopters,
seaplanes, or short take-off and landing aircraft.
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Terminology
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Figure 1.1: An Airport
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In colloquial use, the terms airport and aerodrome are often
interchanged. However, in general, the term airport may imply or
confer a certain stature upon the aviation facility that an
aerodrome may not have achieved. In some jurisdictions, airport is
a legal term of art reserved exclusively for those aerodromes
certified or licensed as airports by the relevant national aviation
authority after meeting specified certification criteria or regulatory
requirements.
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That is to say, all airports are aerodromes, but not all aerodromes
are airports. In jurisdictions where there is no legal distinction
between aerodrome and airport, which term to use in the name of
an aerodrome may be a commercial decision.
Airport is used particularly to denote areas where air transport
passengers are carried, especially where movement occurs on a
considerable scale and always where full-time customs facilities
are available.
Airport Structure
Airports are divided into landside and airside areas. Landside
areas include parking lots, public transportation train stations,
tank farms and access roads. Airside areas include all areas
accessible to aircraft, including runways, taxiways, ramps and
Sa
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UNIT 1: Introduction to Aviation Enterprise
tank farms. Access from landside areas to airside areas is tightly
controlled at most airports.
5
Notes
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Figure 1.2: Airport Structure
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Passengers on commercial flights access airside areas through
terminals, where they can purchase tickets, clear security check, or
claim luggage and board aircraft through gates. The waiting areas
which provide passenger access to aircraft are typically called
concourses, although this term is often used interchangeably with
terminal.
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The area where aircraft park next to a terminal to load passengers
and baggage is known as a ramp (or "the tarmac"). Parking areas
for aircraft away from terminals are called aprons.
Figure 1.3: Infrastructure of Airport
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Some airport structures include on-site hotels built within or
attached to a terminal building. Airport hotels have grown popular
due to their convenience for transient passengers and easy
accessibility to the airport terminal. Many airport hotels also have
agreements with airlines to provide overnight lodging for displaced
passengers.
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Airports with international flights have customs and immigration
facilities. However, as some countries have agreements that allow
travel between them without customs and immigrations, such
facilities are not a definitive need for an international airport.
International flights often require a higher level of physical
security, although in recent years, many countries have adopted
the same level of security for international and domestic travel.
n/
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Airports can be towered or non-towered, depending on air traffic
density and available funds. Due to their high capacity and busy
airspace, many international airports have air traffic control
located on site.
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Aviation Enterprise Management
"Floating airports" are being designed which could be located out
at sea and which would use designs such as pneumatic stabilized
platform technology.
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Domestic Airport
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A domestic airport is an airport which handles only domestic
flights or flights within the same country. Domestic airports don't
have customs and immigration facilities and are therefore
incapable of handling flights to or from a foreign airport.
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These airports normally have short runways which are sufficient
to handle short/medium haul aircraft and regional air traffic. They
have in many countries not had any security check/metal detector,
but such checks have been added in recent years.
Most municipal airports in Canada and the United States are of
this classification. At international airports in Canada, there are
domestic terminals that handle flights within Canada (flying from
one Canadian city to another).
In the UK an example of a domestic airport is Plymouth Airport,
which formerly operated frequent flights to other UK airports.
Despite being the smallest UK airport, it was the main hub for Air
Southwest until the airline pulled out of the airport in July 2011 as
part of the airlines closure due in September 2011.
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UNIT 1: Introduction to Aviation Enterprise
7
Several small countries do not have any public domestic airports,
or even public domestic flights, e.g. Belgium.
Notes
Activity
Present
an assignment on the
___________________
evolution of airports.
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n/
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A regional airport is an airport serving traffic within a relatively
small or lightly populated geographical area. A regional airport
usually does not have customs and immigration facilities to process
traffic between countries. In Canada regional airports usually
service connections within Canada and some flights to the United
States. A few U.S. regional airports, some of which actually call
themselves international airports, may have customs and
immigration facilities staffed on an as-needed basis, but the vast
majority serve domestic traffic only.
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Regional Airport
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Aircraft using these airports tend to be smaller business jets,
private aircraft and regional airliners of both turboprop propelled
and regional jetliner varieties. These flights usually go a shorter
distance to a larger regional hub.
Evolution of Airport
ot
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The requirements for aerodromes, or airports, have increased in
complexity and scale since the earliest days of flying. Before
World War II the landing and takeoff distance of most passengertransport aircraft was at most 650 yards (600 meters). Additional
clear areas were provided for blind landings or bad-weather runs
but the total area involved rarely exceeded 500 acres (200
hectares).
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It was not until the general introduction of heavy monoplanes for
transport, such as the Douglas DC-3, during the late 1930s that
extensive takeoff and landing distances were needed. Even then,
the prewar airfields at New York City (La Guardia), London
(Croydon), Paris (Le Bourget), and Berlin (Tempelhof) were laid
out on sites close to the city centres. Because even transport
aircraft of the period were relatively light, paved runways were a
rarity. Croydon, Tempelhof, and Le Bourget, for example, all
operated from grass strips only. Early airports were also major
centres of leisure activity, often attracting more visitors than
passengers.
In 1939 La Guardia Airport attracted almost a quarter-million
visitors per month, reaching a peak of 7,000 in one day, compared
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Much long-distance air transport was handled by the large
seaplanes known as flying boats or clippers. These aircraft though
slow and of limited range, offered a level of comfort that was
necessary for long-distance travel. Air terminal facilities were
necessarily constructed close to large, open stretches of water. La
Guardia Airport and Santos Dumont Airport in Rio de Janeiro are
examples of airports that still operate on sites originally chosen for
their ability to handle large seaplanes. The large facilities at
Southampton Water in the United Kingdom have now
disappeared, but the artificial lake at Linate Airport near Milan,
Italy, is still to be found close to the present administration
facilities.
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The status of prewar airports as major social centres was reflected
in their design, especially where the requirements of catering,
observation decks, and parking were paramount. Indeed, the
requirements of aircraft and passengers were not at all dominant
at early airfields.
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with a maximum daily throughput of only 3,000 passengers.
In 1929 Berlin’s airport reported 750,000 visitors and boasted a
restaurant that could seat 3,000 people on the roof of the passenger
terminal.
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Aviation Enterprise Management
ot
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The vast majority of airfields throughout the world are still
relatively simple facilities. Even now, many have unpaved
runways or at most lightly paved runways with tiny terminal or
administration buildings, a rudimentary control tower, and crude
landing aids. Such facilities can deal only with light aircraft and a
negligible flow of passengers or freight.
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Heavy air traffic, on the other hand, is now almost entirely
handled by sophisticated airport facilities that can accommodate
the needs of crew, passengers, and freight and the great range of
aircraft types that have evolved to meet the needs of modern air
transport and general aviation.
Approximately 50 airports around the world now handle more than
10 million passengers per year; half of these are in the United
States. Six airports regularly move 30 million passengers on a
yearly basis — Chicago’s O’Hare International Airport alone
handling 60 million. In order to meet the increasing demand for air
travel, large transport aircraft powered by multiple jet and
turboprop engines have been built.
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UNIT 1: Introduction to Aviation Enterprise
9
Such aircraft require extensive ground facilities, runways,
Notes
handling facilities, access to car parking and public transport,
___________________
lighting, navigational and approach aids, and various support
___________________
facilities
___________________
such
as
catering,
meteorology,
and
governmental
inspection.
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taxiways, fire-fighting and rescue services, passenger- and cargo-
In order to be attractively convenient, the complex of activities
and facilities that make up a modern airport must be located
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ct
sufficiently close to the main centres of world population. At the
io
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environmental problems associated with the noise of large
___________________
aircraft and the activities of large numbers of passengers,
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workers, and visitors do not become intolerable to the cities that
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same time, they must be adequately distant, so that the
are served.
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Check Your Progress
Fill in the blanks:
1. ................... is an airport which handles only domestic
flights or flights within the same country.
fo
2. ................... is an airport serving traffic within a
relatively small or lightly populated geographical area.
ot
Summary
Aviation is the design, development, production, operation, and use
,N
of aircraft, especially heavier-than-air aircraft.
India's domestic aviation market expansion has been the strongest
in the world - tripling in the past five years, according to the
ES
International Air Transport Association’s (IATA) report.
Larger airports may have docks and ramps, air traffic control,
passenger
such
services.
UP
emergency
facilities
as
restaurants
A military airport
is
and lounges,
known
and
as
airbase or air station.
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Lesson End Activity
Make a presentation on the introduction to aviation enterprises.
an
10
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Aviation Enterprise Management
Keywords
Notes
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Landside Areas: These include parking lots,
transportation train stations, tank farms and access roads.
public
n/
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Airside Areas: These include all areas accessible to aircraft,
including runways, taxiways, ramps and tank farms.
io
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Airport: It is a location where aircraft such as fixed-wing aircraft,
helicopters, and blimps take off and land.
Concourses: The waiting areas which provide passenger access to
aircraft.
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Aprons: Parking areas for aircraft away from terminals.
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Ramp: The area where aircraft park next to a terminal to load
passengers and baggage.
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Questions for Discussion
What do you mean by airport?
2.
What do you mean by airport evolution?
3.
Write short note on “Aviation in India”.
4.
Explain the structure of an airport.
fo
1.
Further Readings
ot
Books
,N
Julie, Rodwell, (2003), Essentials of Aviation Management: A Guide
for Aviation Service Business. Kendall Hunt Publishing Company
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Speciale, Raymond, (2006), Fundamentals of Aviation Law.
McGraw Hill Inc.
T. Wells, Alexander, (2004), Airport Planning & Management.
McGraw Hill
Frock, Roger, Changing How the World Does Business: Fedex's
Incredible Journey to Success - The Inside Story, Berrett Koehler
Publishers Inc.
J. Sheehan, John, (2003), Business & Corporate Aviation
Management: On Demand Air Travel. McGraw Hill Inc.
Castro, Raoul, Corporate Aviation Management. Southern Illinois
University Press
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UNIT 1: Introduction to Aviation Enterprise
11
A. Kinnison, Harry, (2004), Aviation Maintenance Management.
McGraw Hill Inc.
Notes
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Web Readings
___________________
http://www.airliners.net/aviationforums/non_aviation/read.main/1958823/
___________________
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http://books.google.com/books/about/Designing_and_executing_stra
tegy_in_avia.html?id=CJXshJc_IpIC
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http://books.google.com/books/about/Essentials_of_aviation_manag
ement.html?id=jjfUv6s8LdsC
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http://books.google.com/books/about/Aviation_maintenance_manag
ement.html?id=ZuCJgUSm9ncC
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Aviation Enterprise Management
12
Notes
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n/
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UNIT 2: Airport Naming and Services
Unit 2
13
Notes
Airport Naming and Services
___________________
___________________
n/
___________________
Objectives
___________________
\
Airport designation and naming
\
Role and Scope of Activity of the Airport Enterprise
\
Airport Capacity
\
Airlines
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After completion of this unit, the students will be aware of the following
topics:
___________________
ct
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___________________
Introduction
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Airports are uniquely represented by their International Air
Transport Association airport code and ICAO airport code. An
International Air Transport Association (IATA) airport code is
often an abbreviation of the airport's common name, particularly
older ones, such as PHL for Philadelphia International Airport. An
airport sometimes retains its previous IATA code when its name,
or even when its location is changed.
Airport Designation and Naming
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The name of the airport itself can be its location, such as San
Francisco International Airport. It can be named after some public
figure, commonly a politician, e.g. Paris-Charles de Gaulle Airport,
or a person associated with the region it serves or prominent
figures in aviation history, such as Norman Y. Mineta San Jose
International Airport, Will Rogers World Airport, John Wayne
International Airport, Liverpool John Lennon Airport, Rio de
Janeiro-Galeão International Airport, Jorge Chavez International
Airport, Tehran Imam Khomeini International Airport, or more
recently, Belfast City Airport was renamed George Best Belfast
City Airport in memory of the football star born in Northern
Ireland.
(c
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Some airports have unofficial names, possibly so widely circulated
that its official name is little used or even known.
___________________
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___________________
___________________
___________________
___________________
___________________
n/
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Airport names may include the word "International", reflecting
their ability to handle international aviation traffic, although the
airport may not actually operate any such flights; an example is
Texel International Airport. Some airports with international
immigration facilities may also choose to drop the word from their
airport names (e.g. Perth Airport, Singapore Changi Airport).
Low Cost Airports
io
Notes
In the early years of the 21st century, low cost terminals, or even
entire airports have been built to cater for discount airlines such as
Ryanair.
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Aviation Enterprise Management
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Airport security normally requires baggage checks, metal
screenings of individual persons, and rules against any object that
could be used as a weapon. Since the September 11, 2001 attacks,
airport security has been dramatically increased.
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Airport Security
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Check Your Progress
Fill in the blanks:
fo
1. Airport names may include the word ...................
reflecting their ability to handle international aviation
traffic, although the airport may not actually operate
any such flights.
,N
ot
2. ................... normally requires baggage checks, metal
screenings of individual persons, and rules against any
object that could be used as a weapon.
(c
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Role and Scope of Activity of the Airport Enterprise
Airports are an essential part of the air transport system. They
playa vital role not only within the macro environment of
transportation, but also in the process of increasing the quality of
life of their regional economies directly participating in wealth
creation. They can thus be considered as leading players in regards
to economic, productive, tourist and commercial upgrades of a
territory, thanks to the 'multiplier effect' in the number of
potential business transactions they may stimulate.
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UNIT 2: Airport Naming and Services
Airport as a Public Utility
15
Notes
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n/
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ct
Utilities (e.g. electric distribution utilities) require high capital
investments for system construction. Duplication of system
infrastructure is considered inefficient and as a result utilities
operate in some monopolistic form. For instance, the definition of
an electric utility makes the distinction that it is a monopoly: An
electric utility is “any organization, municipality or state agency
with a monopoly franchise that sells electric energy to end-use
customers”.
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Utility ownership is either public (federal, state, or municipal) or
private. In the cases of private ownership, strict regulation is in
place to ensure that the monopolistic situation is not used to
charge excessive prices. Utility regulation exists “to assure to
ultimate consumers the best possible service at reasonable cost”.
For example, quality electricity distribution service is defined as
“the uninterrupted flow of current and the ability to maintain
constant frequency voltage within the limits that will ensure
satisfactory performance of the consumer’s equipment and
appliances”.
ot
fo
Public utilities have a number of different stakeholders, including
shareholders/creditors (if applicable), government regulators, and
customers. Given this operating situation, a utility’s performance
of its mission cannot be gauged only by its ability to generate
profits. Instead, the interests and considerations of all of the
utility’s stakeholders must be considered in evaluating the utility’s
performance, in particular in the cases where utilities are under
some form of government ownership.
UP
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Similarly, airports exist to provide a quality service to regional
businesses and residents at a reasonable price, while generally
operating in a monopolistic (or semi-monopolistic) environment.
All major airports are maximum publicly owned enterprises
financed by a combination of public and private funds, and are
barred from generating a financial surplus.
Rather than
comparing profitability, airports’ performance must, similar to
other public utilities, be gauged by their ability to meet the
interests of all of its stakeholders.
(c
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Products and Services
Most major airports provide commercial outlets for products and
services. Most of these companies, many of which are
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
n/
___________________
internationally known brands, are located within the departure
areas. These include clothing boutiques and restaurants. Prices
charged for items sold at these outlets are generally higher than
those outside the airport. However, some airports now regulate
costs to keep them comparable to "street prices". This term is
misleading as prices often match the manufacturers' suggested
retail price (MSRP) but are almost never discounted.
Apart from major fast food chains, some airport restaurants offer
regional cuisine specialties for those in transit so that they may
sample local food or culture without leaving the airport.
io
Notes
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16
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Aviation Enterprise Management
Premium and VIP Services
___________________
Airports may also contain premium and VIP services. The
premium and VIP services may include express check-in, dedicated
check-in counters, separate departures and/or arrivals lounge,
priority boarding, separate air bridges, and priority baggage
handling.
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___________________
fo
These services are usually reserved for First and Business class
passengers, premium frequent flyers, and members of the airline's
clubs. Premium services may sometimes be open to passengers
who are members of a different airline's frequent flyer program.
This can sometimes be part of a reciprocal deal, as when multiple
airlines are part of the same alliance, or as a ploy to attract
premium customers away from rival airlines.
(c
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ot
Sometimes these premium services will be offered to a
non-premium passenger if the airline has made a mistake in
handling of the passenger, such as unreasonable delays or
mishandling of checked baggage.
Airline lounges frequently offer free or reduced cost food, as well as
alcoholic and non-alcoholic beverages. Lounges themselves
typically have seating, showers, quiet areas, televisions, computer,
WiFi and Internet access, and power outlets that passengers may
use for their electronic equipment. Some airline lounges employ
baristas, bartenders and gourmet chefs.
Airlines sometimes operate multiple lounges within the one airport
terminal allowing ultra-premium customers, such as first class
customers, additional services, which are not available to other
premium customers. Multiple lounges may also prevent
overcrowding of the lounge facilities.
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UNIT 2: Airport Naming and Services
Cargo and Freight Services
17
Notes
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___________________
n/
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___________________
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In addition to people, airports move cargo around the clock. Cargo
airlines often have their own on-site and adjacent infrastructure to
transfer parcels between ground and air. Cargo Terminal Facilities
International airports need areas where export cargo has to be
stored after customs clearance and prior to loading on the aircraft.
Similarly import cargo that is offloaded needs to be in bond before
the consignee decides to take delivery. Areas have to be kept aside
for examination of export and import cargo by the airport
authorities. Designated areas or sheds may be given to airlines or
freight forward ring agencies. Every cargo terminal has a landside
and an airside. The landside is where the exporters and importers
through either their agents or by themselves deliver or collect
shipments while the airside is where loads are moved to or from
the aircraft. In addition cargo terminals are divided into distinct
areas – export, import and interline or transhipment
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Support Services
Aircraft maintenance, pilot services, aircraft rental, and hangar
rental are most often performed by a fixed base operator (FBO). At
major airports, particularly those used as hubs, airlines may
operate their own support facilities.
Airport Access
,N
ot
fo
Some airports, typically military airbases, have long runways used
as emergency landing sites. Many airbases have arresting
equipment for fast aircraft, known as arresting gear – a strong
cable suspended just above the runway and attached to a hydraulic
reduction gear mechanism. Together with the landing aircraft's
arresting hook, it is used in situations where the aircraft's brakes
would be insufficient by themselves.
(c
)
UP
ES
Many large airports are located near railway trunk routes for
seamless connection of multimodal transport, for instance
Frankfurt Airport, Amsterdam Airport Schiphol, London Heathrow
Airport, London Gatwick Airport and London Stansted Airport.
It is also common to connect an airport and a city with rapid
transit, light rail lines or other non-road public transport systems,
for instance the AirTrain JFK at John F. Kennedy International
Airport in New York and the Silver Line T at Boston's Logan
International Airport by the Massachusetts Bay Transportation
Authority (MBTA). Such a connection lowers risk of missed flights
___________________
___________________
___________________
___________________
18
Notes
Activity
Write
an article on the
___________________
capacity of airport.
___________________
Sa
le
Aviation Enterprise Management
due to traffic congestion. Large airports usually have access also
through controlled-access highways ('freeways' or 'motorways')
from which motor vehicles enter either the departure loop or the
arrival loop.
Internal Transport
___________________
The distances passengers need to move within a large airport can
be substantial. It is common for airports to provide moving
walkways
and
buses.
The
Hartsfield–Jackson
Atlanta
International Airport has a tram that takes people through the
concourses and baggage claim. Major airports with more than one
terminal offer inter-terminal transportation, such as Mexico City
International Airport, where the domestic building of Terminal 1 is
connected by Aerotrén to Terminal 2, on the other side of the
airport.
___________________
___________________
___________________
___________________
io
ct
___________________
ro
du
___________________
n/
___________________
fo
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As a logical consequence of this, it seems narrow-minded to
associate too closely airports with the concept of aerodromes,
where historically aircraft simply landed and were parked. On the
contrary, airports encompass a number of operational and
commercial processes, with inherent complexities in their
management and coordination phases. This seems truer in the
current situation of increasing environmental turbulence and
broadening competitive pressures.
(c
)
UP
ES
,N
ot
We may, thus, look at airports as real enterprises, their goal being
long-term profit generation that can both sustain independent
development and reward stakeholders. We can further break down
the current mission of airport-enterprises within five highly
correlated pillars of action.
Check Your Progress
Fill in the blanks:
1. Aircraft maintenance, pilot services, aircraft rental, and
hangar rental are most often performed by a ...................
2. Many airbases have arresting equipment for fast
aircraft, known as ...................
Airport Capacity
The various facilities at an airport are designed to cope adequately
with the anticipated flow of passengers and cargo. The flow that
Notes
___________________
___________________
n/
___________________
___________________
___________________
___________________
ot
fo
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ro
du
ct
At smaller one-runway airports, limits to capacity usually occur in
the terminal areas, since the operational capacity of a single
runway with adequate taxiways is quite large. When passenger
volumes reach approximately 25 million per year, a single runway
is no longer adequate to handle the number of aircraft movements
that take place during peak periods. At this point at least one
additional runway, permitting simultaneous operation, is required.
Airports with two simultaneous runways should be able to handle
approximately 55 to 65 million passengers per year, and here, too,
the main capacity problems are related to the provision of
adequate terminal space. Runways are estimated to have
operational capacities of well over one million aircraft movements
per year and annual passenger movements in excess of 100 million.
The main capacity constraints of such facilities are in the provision
of sufficient airspace for controlled aircraft movements and in the
provision of adequate access facilities. It is likely that many of the
world’s largest airports will face access problems before they reach
the operational capacity of their runways.
19
io
any particular facility can accommodate without serious
inconvenience to the users is considered to be its capacity. Limits
on the traffic that can reasonably be accommodated at an airport
are reached in a number of ways. These include air traffic delays to
landing and takeoff movements; congestion on runways, taxiways,
and aprons; crowding and delays in terminal buildings; or severe
congestion in such access facilities as parking areas, internal
roads, and public transport.
Sa
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UNIT 2: Airport Naming and Services
,N
Airlines
UP
ES
An airline provides air transport services for travelling passengers
and freight. Airlines lease or own their aircraft with which to
supply these services and may form partnerships or alliances with
other airlines for mutual benefit. Generally, airline companies are
recognized with an air operating certificate or license issued by a
governmental aviation body.
(c
)
Airlines vary from those with a single aircraft carrying mail or
cargo, through full-service international airlines operating
hundreds of aircraft. Airline services can be categorized as being
intercontinental, intra-continental, domestic, regional, or
international, and may be operated as scheduled services or
charters.
___________________
___________________
___________________
___________________
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Aviation Enterprise Management
20
Notes
___________________
___________________
n/
___________________
io
___________________
___________________
___________________
___________________
Indian airlines reported a continuous growth trend and a strong
domestic passenger growth rate of 22.3 per cent in July 2011.
Passenger traffic has grown at 18 per cent year on year (y-o-y)
basis and the year 2010 closed at 90 million passengers both
domestic and international. India is the fastest growing aviation
market and expected to be within 4-5 big aviation markets by 2020
and 3rd in terms of domestic market after US and China.
rR
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___________________
Indian Airlines
ro
du
___________________
ct
___________________
ot
fo
In July 2011, airlines in India handled 5 million domestic
passengers, according to data released by the Directorate General
Civil Aviation (DGCA) on September 12, 2011, marking the 11th
consecutive month of double-digit growth. India’s domestic market
has witnessed passenger growth for 26 consecutive months now.
In July 2011, India’s airlines handled 1.3 million international
passengers, an increase of 8.5 per cent y-o-y, according to DGCA.
(c
)
UP
ES
,N
Passengers carried by domestic airlines during Jan-Aug 2011 were
39.63 million as against 33.41 million during the corresponding
period of previous year thereby registering a growth of 18.6 per
cent, according to data released by DGCA.
India is expected to cross the 450 million mark of domestic
passengers by 2020. During the last two decades from a fleet of
only about 100, the scheduled operators now have reached 435
aircrafts connecting the nation and the world.
Private carriers are anticipated to post a combined profit of US$
350–US$ 400 million for the fiscal years 2011-12, as reported by
Centre for Asia Pacific Aviation (CAPA) India, in its 2011-12 Aviation Industry outlook. Domestic capacity is also projected to
grow by 12-14 per cent for the assessment period.
Sa
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UNIT 2: Airport Naming and Services
Functions of Airlines at the Airport
21
The most important and critical area of the airlines function is the
Notes
airport Handling. Critical because if the flight leaves on schedule
___________________
and the passenger are attended in a professional way, the image of
___________________
passenger, who can turn out to be an influential passenger can be
___________________
n/
the airlines is enhanced. A small error in handling an irate
Generally for the reservation of the seat the passenger depend
___________________
___________________
ct
upon on their travel agent or some one else to purchase the ticket
io
___________________
a disaster for the airlines.
___________________
the “E-ticketing” is a reality. But for the travel, the passenger
___________________
himself/herself is present at the airport. Passenger are very
___________________
ro
du
for them. In the days of IT tickets are being booked on internet and
sensitive and they expect full attention from the time they enter
into the building and till they reach their destination. They want
quick, flawless and efficient service.
rR
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One of the basic reasons for the passenger to travel by air is that
they area time conscious and don’t want to waste their time and
energy. In case of any delay to flight their travel programme get
jeopardized.
To ensure, this part of the airlines functioning is done in a
fo
professional manner the activities of the airport are grouped into
two:
Non-technical
z
Technical
ot
z
,N
Non-technical are performed by the
Commercial or the passenger handling unit
z
Security
z
Catering
ES
z
UP
Technical activities are performed by the following departments:
Engineering
z
Ground Handling
z
Operation
(c
)
z
z
In flight services
___________________
22
Check Your Progress
Notes
Fill in the blanks:
___________________
1. ................... are estimated to have operational capacities
of well over one million aircraft movements per year and
annual passenger movements in excess of 100 million.
___________________
n/
___________________
___________________
io
2. The most important and critical area of the airlines
function is the ...................
___________________
___________________
___________________
Summary
An International Air Transport Association (IATA) airport code is
often an abbreviation of the airport's common name, particularly
older ones, such as PHL for Philadelphia International Airport. An
airport sometimes retains its previous IATA code when its name,
or even when its location is changed.
ro
du
___________________
ct
___________________
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Aviation Enterprise Management
fo
rR
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Airport names may include the word "International", reflecting
their ability to handle international aviation traffic, although the
airport may not actually operate any such flights; an example is
Texel International Airport. Some airports with international
immigration facilities may also choose to drop the word from their
airport names (e.g. Perth Airport, Singapore Changi Airport).
Lesson End Activity
ot
Gather more information on the naming of airport and various
airport services.
(c
)
UP
ES
,N
Keywords
Airport: An airport is a location where aircraft such as fixed-wing
aircraft, helicopters, and blimps take off and land.
Airlines: An airline provides air transport services for travelling
passengers and freight.
Airport Security: It normally requires baggage checks, metal
screenings of individual persons, and rules against any object that
could be used as a weapon.
Electric Utility: It is “any organization, municipality or state
agency with a monopoly franchise that sells electric energy to enduse customers”.
Sa
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UNIT 2: Airport Naming and Services
Questions for Discussion
23
Notes
1.
Explain the process of airport designation and naming.
2.
Discuss the role and scope of activity of the airport enterprise.
3.
Describe the concept of airport capacity.
4.
Explain the concept of airlines. Also, explain the functions of
airlines at the airport.
___________________
___________________
n/
___________________
io
___________________
___________________
Further Readings
ct
___________________
___________________
ro
du
Books
Julie, Rodwell, (2003), Essentials of Aviation Management: A Guide
for Aviation Service Business. Kendall Hunt Publishing Company
Speciale, Raymond, (2006), Fundamentals of Aviation Law.
McGraw Hill Inc.
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T. Wells, Alexander, (2004), Airport Planning & Management,
McGraw Hill
Frock, Roger. Changing How the World Does Business: Fedex's
Incredible Journey to Success - The Inside Story, Berrett Koehler
Publishers Inc.
fo
J. Sheehan, John, (2003), Business & Corporate Aviation
Management: On Demand Air Travel. McGraw Hill Inc.
ot
Castro, Raoul, Corporate Aviation Management, Southern Illinois
University Press
Web Readings
,N
A. Kinnison, Harry, (2004), Aviation Maintenance Management.
McGraw Hill Inc.
ES
http://www.airliners.net/aviationforums/non_aviation/read.main/1958823/
UP
http://books.google.com/books/about/Essentials_of_aviation_manag
ement.html?id=jjfUv6s8LdsC
http://books.google.com/books/about/Designing_and_executing_stra
tegy_in_avia.html?id=CJXshJc_IpIC
(c
)
http://books.google.com/books/about/Aviation_maintenance_manag
ement.html?id=ZuCJgUSm9ncC
___________________
___________________
___________________
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Aviation Enterprise Management
24
Notes
___________________
___________________
n/
___________________
io
___________________
___________________
ct
___________________
___________________
ro
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___________________
___________________
(c
)
UP
ES
,N
ot
fo
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___________________
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UNIT 3: Aviation Management Strategies
Unit 3
25
Notes
Aviation Management Strategies
___________________
___________________
n/
___________________
Objectives
___________________
\
Definition of Strategy
\
Competitive Strategies in Aviation Management
\
Process Frameworks of Airlines
\
Growth and Opportunities
io
After completion of this unit, the students will be aware of the following
topics:
___________________
ct
___________________
ro
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___________________
Introduction
,N
ot
fo
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ep
Strategy is the overall plan of a firm deploying its resources to
establish a favourable position and compete successfully against its
rivals. Strategy describes a framework for charting a course of
action. It explicates an approach for the company that builds on its
strengths and is a good fit with the firm’s external environment.
It is basically intended to help firms achieve competitive
advantage. Competitive advantage allows a firm to gain an edge
over rivals when competing. Competitive advantage comes from a
firm’s unique ability to perform activities more distinctively and
more effectively than rivals. A firm’s distinctive competence or
unique ability here implies, those special capabilities, skills,
technologies or resources that enable a firm to distinguish itself
from its rivals and create competitive advantage (such as superior
quality, design skills, low-cost manufacturing, superior
distribution etc.).
(c
)
UP
ES
The term ‘terrain’ is highly relevant in explaining the concept of
strategy more clearly. From a business sense, terrain refers to
markets, segments and products used to win over customers. The
essence of strategy is to match strengths and distinctive
competence with terrain in such a way that one’s own business
enjoys a competitive advantage over rivals competing in the same
terrain. The basic premise of strategy, as things stand now, is that
an adversary can defeat a rival – even a larger, more powerful one
– if it can manoeuvre a battle or engagement onto a terrain
favourable to its own capabilities. The term ‘capability’ refers to
___________________
___________________
___________________
26
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Aviation Enterprise Management
the ability or capacity of a bundle of resources deployed by a firm
to perform an activity (Pitts and Lie).
Notes
Activity
Prepare
a report on the
___________________
competitive
strategies
in
___________________
aviation
management.
Definitions of Strategy
A Chandler: “The determination of the long-term goals of an
___________________
enterprise, and the adoption of courses of action and the allocation
___________________
of resources necessary for carrying out these goals”.
___________________
G Saloner et al, Strategy provides a framework for guiding the
___________________
choice of actions. It is a broad articulation of the kinds of products
io
ct
the organisation will produce, the basis on which its products will
compete with those of its competitors, and the types of resources and
ro
du
___________________
n/
___________________
___________________
capabilities the firm must have or develop to implement the strategy
___________________
successfully.
Mintzberg, “Strategy represents a fundamental congruence between
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external opportunity and internal capability”.
T Ansoff, “Strategic decisions are primarily concerned with external
rather than internal problems of the firm and specifically with the
selection of the product mix the firm will produce and the markets
to which it will sell”.
fo
Boston Consulting Group, “Strategy is a deliberate search for a
plan of action that will develop a business’s competitive advantage
and compound it…. The objective is to enlarge the scope of your
ot
advantage, which can only happen at someone’s expense”.
,N
Competitive Strategies in Aviation Management
Competitive Strategies means that a company is doing something
(c
)
UP
ES
unique, opting for different operational activities than its
competitors. If a company does not have competitive strategy then
it does not need to have any strategy at all.
Michael porter suggested that a company’s overall competitive
strategy consist of the business approach and initiatives it engages
in
to
attract
new
customers,
withstand
the
competitive
environment and strengthen its competitive market position.
Porter said that corporate strategies can be observed to see to fit
into three classifications, or a combination of three.
Sa
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UNIT 3: Aviation Management Strategies
Corporate Level Strategy
27
___________________
___________________
n/
___________________
___________________
___________________
___________________
ct
Corporate level strategy pertains to the organisation as a whole
and the combination of business units and product lines that make
up the corporate entity. It addresses the overall strategy that an
organisation will follow. The process generally involves selecting a
grand strategy and using portfolio strategy approaches to
determine the types of businesses in which the organisation should
be engaged.
Notes
io
The corporate strategy establishes the overall direction that a
company wants to follow.
ro
du
Grand strategy is the general plan of major action by which a
firm intends to achieve its long-term goals. It provides basic
direction for the strategic actions of a firm. Grand strategies fall
into four general categories: growth/expansion, stability,
retrenchment and combination.
Growth/Expansion Strategy: Organisations generally seek
growth in sales, market share or some other measure as a
primary objective. When growth becomes a passion and
organisations try to seek sizeable growth (as against slow and
steady growth), it takes the shape of an expansion strategy.
The firm tries to redefine the business, enter new businesses
that are related or unrelated or look at its product portfolio
more intensely. The firm can have as many alternatives as it
wants by changing the mix of products, markets and functions.
Thus, the growth opportunities may come internally or
externally. Internal growth possibilities may be exploited
through intensification or diversification. External growth
options include mergers, take-overs and joint ventures.
z
Stability Strategy: A stability strategy involves maintaining
the status quo or growing in a methodical, but slow, manner.
The firm follows a safety-oriented, status-quo-type strategy
without effecting any major changes in its present operations.
The resources are put on existing operations to achieve
moderate, incremental growth. As such, the primary focus is
on current products, markets and functions, maintaining the
same level of effort as at present.
z
Retrenchment Strategy: It is a corporate level, defensive
strategy followed by a firm when its performance is
disappointing or when its survival is at stake. When a firm is
(c
)
UP
ES
,N
ot
fo
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z
___________________
___________________
___________________
___________________
28
confronted with a precipitous drop in demand for its products
and services, it is forced to effect across-the-board cuts in
personnel and expenditures. Retrenchment strategy, as such,
is adopted out of necessity, not by deliberate choice.
Notes
___________________
___________________
z
io
___________________
___________________
ct
___________________
___________________
ro
du
___________________
___________________
___________________
Combination Strategies: Large, diversified organisations
generally use a mixture of stability, expansion or
retrenchment strategies either simultaneously (at the same
time in various businesses) or sequentially (at different times
in the same business). For example, growth could be achieved
by an organisation through acquisition of new businesses or
divesting itself of unprofitable ventures. Depending on
situational demands, therefore, an organisation can employ
various strategies to survive, grow and remain profitable.
n/
___________________
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Aviation Enterprise Management
Business Level Strategy
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Business level strategy deals with how a particular business
competes. The principal focus is on meeting competition, protecting
market share and earning profit at the business unit level. The
strategies of growth, stability and retrenchment, discussed above,
apply at the business level as well as the corporate level, but they
are accomplished through competitive actions rather than by the
acquisition or divestment of other businesses.
fo
Functional Level Strategy
(c
)
UP
ES
,N
ot
Functional Strategies are formulated by specialists in each area of
a business such as marketing, production, finance, human
resources and research and development. Functional strategies
outline the action plans that must be put into practice to execute
business level strategy. Business level and functional specialists
must coordinate their activities to ensure that the strategies
pursued by them are consistent and lead to achievement of overall
goals.
z
Research and Development Strategy: Businesses cannot
grow and survive without new products. It is the role of R&D
specialists to generate new product ideas, nurture them
carefully and develop them fully into commercially viable
propositions. Where innovation proves to be a costly exercise,
imitation could also be tried as a fruitful option. Many
Japanese electronics companies were quite successful in
copying American technology and by avoiding R&D costs,
Sa
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UNIT 3: Aviation Management Strategies
improved their competitive strength significantly (Certo and
Peter).
___________________
___________________
n/
Financial Strategy: It deals with financial planning,
evaluating investment proposals, securing funds for various
investments and controlling financial resources. Thus raising
funds, acquiring assets, allocating funds to operations, using
funds efficiently, etc. are all part of this strategy.
___________________
___________________
___________________
___________________
Human Resource Strategy: HR Strategy deals with hiring,
training, assessing, developing, rewarding, motivating and
retaining the number and types of employees required to run
the business effectively. Internal (union contracts, productivity
indices, labour turnover, absenteeism, accidents etc.) and
external factors (labour laws, sons of the soil, reservation,
equal employment opportunity, employment of children and
women etc.) need to be carefully evaluated while formulating
HR strategies.
ot
fo
z
Marketing Strategy: It deals with strategies relating to
product, pricing, distribution and promotion of a company’s
offerings. Important issues here cover what type of products,
at what prices, through which distribution channel and by the
use of which promotional tool and sales force etc.
rR
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z
ro
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ct
z
Operations Strategy: This strategy outlines steps to keep
costs under check and improve operational efficiency. The
focus is on arriving at decisions regarding plant layout, plant
capacity, production processes, inventory management etc.
Notes
io
z
29
Fill in the blanks:
,N
Check Your Progress
ES
1. ................... is the overall plan of a firm deploying its
resources to establish a favourable position and compete
successfully against its rivals.
UP
2. ...................refers to markets, segments and products
used to win over customers.
3. ...................provides a framework for guiding the choice
of actions.
(c
)
4. ...................deals with financial planning, evaluating
investment proposals, securing funds for various
investments and controlling financial resources.
___________________
___________________
___________________
___________________
30
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Aviation Enterprise Management
Process Frameworks of Airlines
Write
an article on the process
___________________
frameworks of airlines.
___________________
___________________
Aviation can be considered as one of the most complex industries of
all, not just from a technological, but also from a managerial point
of view. Today aviation managers are facing tough managerial and
strategic challenges.
n/
Notes
Activity
Passenger Processing
___________________
Technology is driving innovation and breaking new ground in
passenger processing at both ends of the journey. Airports, airlines
and ground handlers can deliver the autonomy their customers
want through:
___________________
ct
___________________
z
Online booking
z
Self-service check-in and boarding
z
Streamlined baggage handling facilities
___________________
___________________
ro
du
___________________
io
___________________
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The Airlines practice has been the fastest growing practice.
Aviation enterprises have airlines, airports and travel companies,
spread across the long distances. Architects, project managers and
engineers are located on customer and enterprises’ premises.
fo
The Airlines practice has consistently been successful in creating
an environment of collaboration with customers, bringing in
innovative ideas and demonstrating an unparalleled ability to
execute.
(c
)
UP
ES
,N
ot
The global airline industry has been subject to constant change
over the last decade leading to new business models, business
entities and formations, large scale changes in the distribution
environment, fluctuating passenger load, and tremendous pressure
on margins. While the industry has looked to adjust to the
changes and poise itself to gear up for long-term passenger growth,
fluctuations in fuel prices, recessionary economic climate, and
disruptive innovations looming on the horizon are adding to the
challenges.
Under these circumstances, airline companies across the world are
forced to look inwards, be it to cut operational costs or identify
channels to protect and enhance revenue streams.
Growth and Opportunities
Air travel remains a large and growing industry. It facilitates
economic growth, world trade, international investment and
Sa
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UNIT 3: Aviation Management Strategies
tourism and is therefore central to the globalization taking place in
many other industries.
Notes
___________________
___________________
n/
___________________
io
___________________
___________________
___________________
ro
du
ct
In the past decade 2001 to 2010, air travel has grown by 7% per
year. Travel for both business and leisure purposes grew strongly
worldwide. Scheduled airlines carried 1.5 billion passengers in
2010. In the leisure market, the availability of large aircraft such
as the Boeing 747 made it convenient and affordable for people to
travel further to new and exotic destinations. Governments in
developing countries realized the benefits of tourism to their
national economies and spurred the development of resorts and
infrastructure to lure tourists from the prosperous countries in
Western Europe and North America. As the economies of
developing countries grow, their own citizens are already becoming
the new international tourists of the future.
31
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Business travel has also grown as companies become increasingly
international in terms of their investments, their supply and
production chains and their customers. The rapid growth of world
trade in goods and services and international direct investment
have also contributed to growth in business travel.
UP
ES
,N
ot
fo
Worldwide, IATA, International Air Transport Association,
forecasts international air travel to grow by an average 6.6% a
year to the end of the year 2010 and over 5% a year from 2000 to
2010. These rates are similar to those of the past ten years.
According to IAIA survey in Europe and North America, where the
air travel market is already highly developed, slower growth of 4%6% is expected. The most dynamic growth is centred on the
Asia/Pacific region, where fast-growing trade and investment are
coupled with rising domestic prosperity. Air travel for the region
has been rising by up to 9% a year and is forecast to continue to
grow rapidly, although the Asian financial crisis in 1997 and 1998
will put the brakes on growth for a year or two. In terms of total
passenger trips, however, the main air travel markets of the future
will continue to be in and between Europe, North America and
Asia.
(c
)
Airlines' profitability is closely tied to economic growth and trade.
During the first half of the 1990s, the industry suffered not only
from world recession but travel was further depressed by the Gulf
War. In 1991 the number of international passengers dropped for
the first time. The financial difficulties were exacerbated by
airlines over-ordering aircraft in the boom years of the late 1980s,
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
To meet the requirements of their increasingly discerning
customers, some airlines have to invest heavily in the quality of
service that they offer, both on the ground and in the air.
Ticketless travel, new interactive entertainment systems, and
more comfortable seating are just some of the product
enhancements being introduced to attract and retain customers.
rR
ep
___________________
Since then, airlines have had to recognize the need for radical
change to ensure their survival and prosperity. Many have tried to
cut costs aggressively, to reduce capacity growth and to increase
load factors. At a time of renewed economic growth, such actions
have returned the industry as a whole to profitability: IATA
airlines' profits were $5bn in 1996, less than 2% of total revenues.
This is below the level IATA believes is necessary for airlines to
reduce their debt, build reserves and sustain investment levels.
In addition, many airlines remain unprofitable.
n/
___________________
io
___________________
leading to significant excess capacity in the market. IATA's
member airlines suffered cumulative net losses of $20.4bn in the
years from 1990 to 1994.
ct
Notes
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32
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Aviation Enterprise Management
ot
fo
A number of factors are forcing airlines to become more efficient.
In Europe, the European Union (EU) has ruled that governments
should not be allowed to subsidize their loss-making airlines.
Elsewhere too, governments' concerns over their own finances and
recognition of the benefits of privatization have led to a gradual
transfer of ownership of airlines from the state to the private
sector. In order to appeal to prospective shareholders, the airlines
have to become more efficient and competitive.
(c
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,N
Deregulation is also stimulating competition, such as that from
small, low-cost carriers. The US led the way in 1978 and Europe is
following suit. The EU's final stage of deregulation took effect in
April 1997, allowing an airline from one member state to fly
passengers within another member's domestic market. Beyond
Europe too, 'open skies' agreements are beginning to dismantle
some of the regulations governing which carriers can fly on certain
routes. Nevertheless, the aviation industry is characterized by
strong nationalist sentiments towards domestic 'flag carriers'.
In many parts of the world, airlines will therefore continue to face
limitations on where they can fly and restrictions on their
ownership of foreign carriers.
Despite this, the airline industry has proceeded along the path
towards globalization and consolidation, characteristics associated
Notes
___________________
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n/
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___________________
___________________
Check Your Progress
Fill in the blanks:
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The outlook for the air travel industry is one of strong growth.
Forecasts suggest that the number of passengers will increase 37%
approximately more in compression to 2011 by 2012. For airlines,
the future will hold many challenges. Successful airlines will be
those that continue to tackle their costs and improve their
products, thereby securing a strong presence in the key world
aviation markets.
33
io
with the normal development of many other industries. It has done
this through the establishment of alliances and partnerships
between airlines, linking their networks to expand access to their
customers. Hundreds of airlines have entered into alliances,
ranging from marketing agreements and code-shares to franchises
and equity transfers.
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UNIT 3: Aviation Management Strategies
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1. Today aviation managers are facing tough managerial
and ................... challenges.
2. Competitive advantage comes from a firm’s unique
ability to perform activities more ................... and more
................... than rivals.
ot
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3. ................... agreements are beginning to dismantle
some of the regulations governing which carriers can fly
on certain routes.
Summary
(c
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,N
The essence of strategy lies in striking a harmonious balance
between a firm’s distinctive skills and capabilities and the
external environment in which it operates. When the firm is
able to perform activities more effectively than its rivals, it stays
ahead in the race and emerges as a leader. Strategic planning
and strategic management enables a firm to formulate and
implement such winning game plans over a period of time.
While the aviation strategic management process presented in
this unit appears to be particularly relevant for business
organization, it can very well be used in the large number of
government-owned
organizations
and
not-for-profit
organizations comprising the aviation supply chain.
___________________
___________________
___________________
___________________
34
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Aviation Enterprise Management
Lesson End Activity
Notes
___________________
Collect more information on the strategies of aviation management
and make a presentation from it.
___________________
Keywords
___________________
Strategy: Strategy represents a fundamental congruence between
external opportunity and internal capability.
___________________
___________________
___________________
___________________
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Competitive Advantage: Competitive advantage arises when a
firm is able to perform an activity that is distinct or different from
that of its rivals.
ct
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___________________
n/
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Corporate Level Strategy: Corporate level strategy pertains to
the organisation as a whole and the combination of business units
and product lines that make up the corporate entity.
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Strategic Management: Strategic management is a process of
formulating, implementing and evaluating cross-functional
decisions that enable an organisation to achieve its objectives.
Questions for Discussion
1. Define the term strategy.
fo
2. Describe strategy concept in detail.
3. Explain various levels of strategy in detail.
4. Discuss the process frameworks of Airlines.
,N
ot
5. Describe the growth and opportunities for management
strategies.
(c
)
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Further Readings
Books
Julie, Rodwell, (2003), Essentials of Aviation Management: A Guide
for Aviation Service Business. Kendall Hunt Publishing Company
Speciale, Raymond, (2006), Fundamentals of Aviation Law.
McGraw Hill
T. Wells, Alexander, (2004), Airport Planning & Management
McGraw Hill Frock, Roger. Changing How the World Does
Business: Fedex's Incredible Journey to Success - The Inside Story.
Berrett Koehler Publishers
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UNIT 3: Aviation Management Strategies
35
J. Sheehan, John, (2003), Business & Corporate Aviation
Management: On Demand Air Travel. McGraw Hill
Notes
Castro, Raoul, Corporate Aviation Management, Southern Illinois
University Press
___________________
A. Kinnison, Harry, (2004), Aviation Maintenance Management,
McGraw Hill
___________________
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___________________
___________________
Web Readings
___________________
ct
http://www.airliners.net/aviationforums/non_aviation/read.main/1958823/
___________________
___________________
http://books.google.com/books/about/Designing_and_executing_stra
tegy_in_avia.html?id=CJXshJc_IpIC
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http://books.google.com/books/about/Essentials_of_aviation_manag
ement.html?id=jjfUv6s8LdsC
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http://books.google.com/books/about/Aviation_maintenance_manag
ement.html?id=ZuCJgUSm9ncC
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36
Notes
___________________
___________________
n/
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___________________
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ct
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___________________
(c
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UNIT 4: Strategic Management Process
Unit 4
37
Notes
Activity
Strategic Management Process
Write
an article on scanning
___________________
the aviation environment.
___________________
n/
___________________
Objectives
___________________
io
After completion of this unit, the students will be aware of the following
topics:
___________________
\
Scanning the aviation environment
\
Analysing the aviation organization
\
Formulating the corporate strategy
\
Formulating the business strategy
\
Implementing the corporate and business strategies through the
formulation of functional strategies
ct
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Introduction
The steps of the aviation strategic management process include:
Scanning the aviation environment
2.
Analysing the aviation organization
3.
Formulating the corporate strategy
4.
Formulating the business strategy
5.
Implementing the corporate and business strategies through
the formulation of functional strategies.
ot
fo
1.
,N
Let’s discuss each of the above in detail
Scanning the Aviation Environment
(c
)
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While strategists are concerned with the organization as a whole,
they are also preoccupied with the environment in which their
organization operates. Environmental scanning is therefore an
important step of the strategic management process. What does
environmental scanning entail? How does the strategist go about
it? The external environment, or the “world out there”, is a fairly
broad concept. Aviation strategy makers need to know where to
start. The aviation strategic management framework provides
them with a conceptual representation of the environment in
which their organization operates. In other words, the framework
tells aviation strategists where to start.
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
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___________________
Most strategic management textbook authors agree that the
external environment should be conceptualized in two levels: the
general environment and the industry environment. There is an
important distinction to be made between these two levels of
environment. While the competitive efforts of a given aviation
organization are unlikely to have an impact on the general
environment, they could very well change the rules of the game in
the industry environment. For example, companies that do
business in the aviation industry cannot do much about oil prices,
economic downturns, or information technology innovations. In
essence all they can do is carefully scan these various components
of the general environment to detect trends, evaluate their
potential impact on their companies, and act accordingly. The
industry environment is another story. The story of doing things
differently which applies to carriers such as Southwest and
Ryanair, for example, have considerably modified the competitive
dynamics of the airline industry in recent years as, the
abovementioned airlines have successfully practiced a new
business model.
ct
Notes
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Aviation Enterprise Management
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In his seminal article published in the Harvard Business Review in
1979, Michael Porter invited strategists to open their mind and
embrace a broad definition of the industry environment. The key
message conveyed by the well-known five forces model was that
direct competitors were not the only players that companies had to
worry about. Indeed, Porter explained very well how potentials
entrants, companies offering substitute products, buyers, and
suppliers could drive industry profitability down. The five forces
model is extremely useful for aviation strategy makers, as it
invites them to broadly define the industry environment in which
their organization operates. For example, substitutes to air
transportation, such as on-line discussions or video conferencing,
are available to business travellers. Hence, providers of such
substitute services should be in the aviation strategy makers’
radar screen and, if this line of reasoning is extended, various air
transportation service providers, from airlines to travel agencies
etc. are in fact competing with many other “substitute” services
available to consumers.
Most strategy textbooks emphasize that the analysis of the general
and industry environment leads the strategist to the identification
of opportunities and threats. Opportunities are typically defined as
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UNIT 4: Strategic Management Process
“positive external environment trends or changes that may help
39
the organization improve its performance” while threats are just
Notes
the opposite namely “negative external trends or changes that may
___________________
hinder the organization’s performance” (Coulter, 2002, p. 76).
However, it could be argued that not all strategy textbook authors
___________________
___________________
discovered during the external analysis. This is unfortunate
___________________
strategy creation. What are key success factors? Simply stated,
___________________
___________________
ct
they are the rules of the games that companies should follow if
io
because the clear identification of key success factors is central to
n/
insist enough on the key success factors that should also be
they want to survive in their industries. Key success factors are
___________________
___________________
(Thompson and Strickland, 2003, p. 106). They relate to the
___________________
characteristics of the product or service offered (for example:
___________________
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the reason why buyers choose between competing brands
objective quality, perceived quality, technological leadership, etc.)
and to the way the product or service is offered (for example,
warranty,
distribution
network,
etc.).
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availability,
The
understanding of key success factors currently poses a real
challenge to some players in the airline industry, as the reasons
why travellers choose between competing carriers and even
between surface and air travel are not all that clear. This is
fo
somewhat problematic given that, as will be demonstrated below,
key success factors identification is an important pre-requisite to
the formulation of a successful business strategy.
useful
to
manage
ot
The tools and techniques for external analysis are particularly
strategically
in
the
aviation
industry.
,N
Reciprocally, there are plenty of illustrations of the strategic
management framework in the aviation industry. For example, the
deregulation process of the U.S. airline that was initiated in 1978
ES
posed a considerable threat on legacy carriers and, as such, is a
very good example of the impact of the regulatory component of the
general environment on the organization. The response of legacy
UP
carriers to the new threats in the general environment was to put
in place hub-and-spoke systems, acquire feeder airlines, and
develop code-sharing agreements in order to create entry barriers.
The other elements of the aviation strategic management process
(c
)
that are going to be reviewed in the next sections will help
understand the strategic nature of these moves.
40
Check Your Progress
Notes
Activity
Fill in the blanks:
Make
a brief report on
___________________
analyzing
the
aviation
___________________
organization.
List all the
factors that are analysed
___________________
under this.
___________________
n/
1. ................... are typically defined as “positive external
environment trends or changes that may help the
organization improve its performance”.
io
2. While ................... are just the opposite namely
“negative external trends or changes that may hinder
the organization’s performance”.
___________________
___________________
Although the external analysis and the internal analysis are
discussed in two different sub-sections, they happen
simultaneously. Indeed, it is the tacit knowledge of what his or her
organization is good (or not particularly good) at that impels the
strategist to identify a given trend as an opportunity (or as a
threat).
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___________________
Analysing the Aviation Organization
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How can the strategist proceed to perform an internal analysis?
Just as a conceptual representation of the environment was needed
to guide the external analysis, a model of the organization is
needed to conduct the internal analysis. Porter’s (1985) value chain
model serves very well this purpose and this constitutes further
evidence of the importance of this author’s contribution to the field
of strategy.
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Porter has argued that a network of discrete activities lies under
any competitive advantage (1985, 1991). His value chain model
distinguishes between two types of activities conducted in
companies, namely primary activities and support activities.
Primary activities are related to the raison d’être of the
organization. An aircraft manufacturer’s primary activities would
include inbound logistics, operations, outbound logistics, sales and
marketing, as well as service. In the case of an airline that offers
air transport services that are “produced” and “consumed”
simultaneously, inbound logistics, operations and outbound
logistics could be grouped together. Support or peripheral activities
include procurement, technological development, human resource
management, and infrastructure. Infrastructure activities can be
loosely defined and may include managerial aspects that are not
housed in any function but relate to the organization as a whole,
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UNIT 4: Strategic Management Process
such as legal and regulatory affairs, or the general management of
the organization.
Notes
___________________
___________________
n/
___________________
io
___________________
___________________
___________________
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The value chain model is a flexible and powerful tool. It is flexible
because it can be adapted to any firms as the strategists can cut
out the organization to be analysed in the set of primary and
support activities that best represents it. It is powerful because it
allows the strategist to get to the heart of things and to reach deep
organizational levels of analysis. As such the value chain model
reveals the day-to-day running of the organization and invites
strategy makers to design a number of precise questions in relation
with each activity. For example, the following questions can be
asked when reviewing the procurement activities: Have we
developed alternate sources for obtaining needed resources? Are
resources procured in a timely fashion? Are they at acceptable
quality levels? (Coulter, 2002, p. 134) It should be noted, however,
that it is the awareness of the characteristics of external
environment in which the organization operates that allows
strategists to determine if specific activities are conducted in a
superior way or not within their own organization. This is a
further indication that the external analysis and the internal
analysis are in fact conducted simultaneously.
41
(c
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The internal analysis performed with the value chain model leads
the strategist to identify strengths and weaknesses. Strengths and
weaknesses are rather old strategy concepts. However, since the
publication of Barney’s highly influential article in 1991, the
resource-based view (RBV) has made its way in most strategy
textbook. The key premise of RBV is that a firm’s resources are
more important than the industry competitive forces in developing
competitive advantage. A firm should therefore select a strategy
that best allow it to utilize its resources and capabilities. RBV
vocabulary includes terms such as resources, capabilities,
strengths, and competencies that are not that easy to define.
Explaining the differences between these terms is the daily
struggle of modern strategy instructors. Scarbrough (1998)
amongst others pointed out the tautological character of RBV,
arguing that its message boils down to saying that organizations
are good because they are good. Beyond its limited explanatory
power, another problem with RBV is that is seems to give more
importance to the internal analysis than to the external analysis.
RBV invites strategists to put considerable efforts into defining
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
Despite its limitations, the resource-based view is extremely useful
for aviation strategy makers as it helps them understand that
strengths or capabilities need to be hard to imitate in order to be
used as competitive advantage. RBV authors argue that the
reasons why a capability is hard to imitate maybe historical,
ambiguous and socially complex. In other words, hard-to-imitate
capabilities are developed almost by chance as the result of
complex interactions between organizational members. For
example, it has been argued that the secret of low cost carriers’
success is explained by their strong organizational culture.
However, digging a bit further and looking back at the early days
of Southwest during which one of its founders, Herb Kelleher, was
defending the company in court and working very hard to obtain
permission to offer air transport services, a more specific
explanation for Southwest success may be found. An argument can
be made that the courtroom fights contributed to transform
Kelleher into an organizational hero setting the example for every
organizational member to profoundly dedicate himself or herself to
the organization. Such hard to copy capabilities are developed over
time and cannot be easily emulated. The resource-based view does
offer potentially rich explanations for the success or failure of
airline companies.
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___________________
company’s capabilities and this may divert their attention from
internal weaknesses and negative external forces. Indeed, some
authors have argued that it is time for a pendulum swing, time to
realise again that environmental forces play an important part in
the sustainability of competitive advantage (Hoskisson et al.,
1999).
ct
Notes
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Aviation Enterprise Management
One of the main purposes for conducting an external analysis is
the identification of key success factors, namely the rules of the
game in the industry. Furthermore, strategists need to evaluate
the extent to which their company’s capabilities match the key
success factors. One can only guess how successful would be an
aviation organization able to match key success factors with
competences that would be hard to copy by competitors. However,
this represents a considerable challenge at present in the airline
industry because, as mentioned earlier, the reasons why travellers
choose between competing carriers and even between surface and
air travel are not as clear as they used to be.
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UNIT 4: Strategic Management Process
43
Check Your Progress
Notes
Fill in the blanks:
___________________
1. ................... activities can be loosely defined and may
include managerial aspects that are not housed in any
function but relate to the organization as a whole, such
as legal and regulatory affairs, or the general
management of the organization.
Formulating the Corporate Strategy
n/
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io
___________________
___________________
ct
___________________
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2. The value chain model is a flexible ................... because
it can be adapted to any firms as the strategists can cut
out the organization to be analysed in the set of primary
and support activities that best represents it.
___________________
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The plans, policies, and actions that constitute a strategy are
concerned with the organization as a whole. However, different
strategies exist at different levels of the organization. Indeed,
strategy can be formally envisioned as a hierarchy reflecting the
organizational structure of multidivisional corporations (Grant,
1998). The corporate strategy states the general direction that the
organization will follow. It is formulated at corporate level
(headquarters office) and determines the business sectors in which
the organization will operate as well as the scope of the activities
in each of the business sectors. Formulating a corporate strategy
consists of choosing among the following options: growth, stability,
and renewal. When a company choose to grow, it can aim at
increasing its sales in the business sector in which it is already
active. This is called concentration. Company can also choose to
diversify in business sectors that are either related or unrelated to
their core business.
(c
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The external and internal analysis will determine the choice of
corporate strategy. For example, the external analysis may have
allowed strategists to identify potential new markets for their
company’s products or services. Furthermore, the internal analysis
might have revealed that the company has sufficient capacity to
serve new markets. In such a case, growth would seem a natural
choice. The development of hub-and-spoke systems and
acquisitions of regional airlines by legacy carriers in response to
the threat posed by deregulation was an example of growth by
concentration. However, a combination of negative trends in the
___________________
___________________
___________________
___________________
Notes
Activity
Present
a document on the
___________________
formulating procedure of a
___________________
business
strategy.
business environment (economic downturn, September 2001
terrorist attacks, and fuel prices, to name a few) are still forcing
legacy carriers to pursue renewal strategies, which may include,
re-engineering, divestment or in more extreme cases, bankruptcy.
Check Your Progress
___________________
n/
44
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Aviation Enterprise Management
Fill in the blanks:
___________________
1. ................... states the general direction that the
organization will follow.
io
___________________
ct
___________________
2. The ................... and ................... analysis will determine
the choice of corporate strategy.
___________________
___________________
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___________________
Formulating the Business Strategy
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Whereas the business sectors in which the firm will be active is
selected at the corporate strategy level, business strategy decisions
dictate how each business unit will compete in their specific sector.
Porter (1980) has argued for the existence of two types of
competitive advantage which can be combined with either a broad
or limited competitive scope to create four well-known business
strategies: cost leadership, differentiation, focused low-cost and
differentiation. While in his early work Porter insisted strongly on
the danger of being stuck in the middle of low cost and
differentiation, advances in manufacturing technologies that have
allowed firms to resolve the productivity – quality dilemma, have
eventually lead him to revisit his early idea (Porter, 1990).
Interestingly, when presenting Porter’s generic competitive
strategies, most strategy textbooks now offer a fifth choice, namely
the “integrated low-cost differentiation strategy” (Coulter, 2002) or
the “best-cost provider strategy” (Thompson and Strickland, 2004).
Many low cost carriers such as JetBlue and WestJet are pursuing
in reality an integrated low-cost differentiation strategy, allowing
travellers to enjoy both a nice flying experience and low fares
(Dostaler and Flouris, 2006). In comparison, the typically lowercost regional subsidiaries of legacy carriers such as American
Eagle or Air Canada Jazz are much closer to the cost leadership
strategy as defined by Porter, trading-off service quality for low
fares.
It is easy to understand that companies pursuing a cost leadership
strategy try to offer lower prices than competitors. Differentiation,
45
Notes
Activity
io
n/
With___________________
the help of internet, find
out more on Implementing the
___________________
Corporate
and
Business
Strategies
through
the
___________________
Formulation of Functional
Strategies.
___________________
___________________
___________________
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however, is not as self-explaining as cost leadership. Pursuing a
differentiation strategy means offering a product or a service for
which customers are willing to pay more. How can that be? How
can a product or a service be valued more than another by
customers? This happens when companies succeed in using the key
success factors identified during the external analysis as bases of
differentiation. As mentioned earlier, key success factors are rules
of the game in terms of the characteristics of the product or service
offered, and the way it should be offered, in the business sector
where the organization operates. Designing a successful
differentiation strategy is extremely challenging for airlines
because key success factors in the airline industry are difficult to
identify.
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UNIT 4: Strategic Management Process
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It is often necessary to move up the supply chain to discover
potential bases of differentiation. For example, the features of new
generation aircraft such as the Airbus 380 and the Boeing
Dreamliner will allow airlines to differentiate the air
transportation services that they will offer to their customers.
Check Your Progress
Fill in the blanks:
fo
1. Designing a successful ................... strategy is extremely
challenging for airlines because key success factors in
the airline industry are difficult to identify.
ot
2. Differentiation, however, is not as self-explaining as
....................
,N
Implementing the Corporate and Business Strategies
through the Formulation of Functional Strategies
ES
We can observe the implementation in the following process flow:
Step 1: Invitation
UP
Step 2: Formation
Step 3: Implementation
Step 4: Assessment
(c
)
So far, we have discussed the two highest levels of the hierarchy of
strategies, namely corporate and business strategies. These two
levels reinforce each other as corporate strategy dictates the choice
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
The above discussion seemed to imply that when formulating
corporate and business strategies, managers may choose out from
a “menu” of generic options. The literature on functional strategies
is much less content centred and therefore in keeping with the
Harvard approach to business policy, which considers each
company situation as unique (Greiner et al., 2003). Combined to
form what is fashionably referred to as a “business model,”
functional strategies are typically defined as “the short-term goaloriented decisions and actions of the organization’s various
functional units” (Coulter, 2002, p. 163).
n/
___________________
io
___________________
of business sectors to be in and the business strategy specifies how
the organization will compete in each of the chosen business
sectors. The lowest level of this hierarchy of plans reveals the
instrumental character of functional strategies designed to support
the implementation of the business and corporate strategies.
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Aviation Enterprise Management
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Marketing strategy, human resource strategy, research and
development strategy, and operations strategy are examples of
functional strategies. A human resource strategy will consist of a set
of decisions regarding staffing, training, compensation, performance
appraisal, etc. Airline’s human resource strategy needs to be
particularly well-designed given that air transport services are
produced and consumed simultaneously: defective service cannot be
produced and repaired afterwards. Therefore, employees need to be
well-trained and inspired by a strong organizational culture. Every
functional strategy should be formulated in a way that is congruent
with the business and corporate strategies. Indeed, a successful
strategic management process should lead to the formulation of the
right strategy and should also result in the congruence between the
various levels of strategy. This is how the strategic management
process can help aviation organizations to achieve high strategic and
financial performance.
Check Your Progress
Fill in the blanks:
1. ................... strategy will consist of a set of decisions
regarding staffing, training, compensation, performance
appraisal, etc.
2. Every functional strategy should be formulated in a way
that is congruent with the ................... and ...................
strategies.
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UNIT 4: Strategic Management Process
Summary
47
___________________
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While the competitive efforts of a given aviation organization are
unlikely to have an impact on the general environment, they could
very well change the rules of the game in the industry
environment. For example, companies that do business in the
aviation industry cannot do much about oil prices, economic
downturns, or information technology innovations.
Notes
io
Environmental scanning is therefore an important step of the
strategic management process. What does environmental scanning
entail? How does the strategist go about it? The external
environment, or the “world out there”, is a fairly broad concept.
Aviation strategy makers need to know where to start.
Lesson End Activity
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Create a presentation on the strategic management process
illustrating the steps of the process diagrams and flowcharts.
Keywords
Opportunities: The positive external environment trends or
changes that may help the organization improve its performance.
fo
Threats: The negative external trends or changes that may hinder
the organization’s performance.
ot
Key Success Factors: These are the reason why buyers choose
between competing brands.
,N
Primary Activities: These are related to the raison d’être of the
organization. An aircraft manufacturer’s primary activities would
include inbound logistics, operations, outbound logistics, sales and
marketing, as well as service.
UP
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Infrastructure Activities: They can be loosely defined and may
include managerial aspects that are not housed in any function but
relate to the organization as a whole.
Questions for Discussion
1. Write short notes on:
(c
)
(a) Scanning aviation environment.
(b) Analysing the aviation organization
(c) Formulating the business strategy.
___________________
___________________
___________________
___________________
48
Sa
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Aviation Enterprise Management
2. Explain the relevance of formulating the corporate strategy.
Notes
___________________
___________________
3. Describe the procedure of implementing the corporate and
business strategies through the formulation of functional
strategies.
___________________
___________________
___________________
___________________
io
___________________
Books
Julie, Rodwell, (2003), Essentials of Aviation Management: A Guide
for Aviation Service Business. Kendall Hunt Publishing Company
ct
___________________
Further Readings
Speciale, Raymond, (2006), Fundamentals of Aviation Law.
McGraw Hill
ro
du
___________________
n/
___________________
T. Wells, Alexander, (2004), Airport Planning & Management.
McGraw Hill
rR
ep
Frock, Roger, Changing How the World Does Business: Fedex's
Incredible Journey to Success - The Inside Story, Berrett Koehler
Publishers
J. Sheehan, John, (2003), Business & Corporate Aviation
Management: On Demand Air Travel. McGraw Hill
fo
Castro, Raoul, Corporate Aviation Management. Southern Illinois
University Press
ot
A. Kinnison, Harry, (2004), Aviation Maintenance Management.
McGraw Hill
Web Readings
(c
)
UP
ES
,N
http://www.airliners.net/aviationforums/non_aviation/read.main/1958823/
http://books.google.com/books/about/Essentials_of_aviation_manag
ement.html?id=jjfUv6s8LdsC
http://books.google.com/books/about/Designing_and_executing_stra
tegy_in_avia.html?id=CJXshJc_IpIC
http://books.google.com/books/about/Aviation_maintenance_manag
ement.html?id=ZuCJgUSm9ncC
Sa
le
UNIT 5: Case Studies
Unit 5
49
Notes
Case Studies
___________________
___________________
n/
___________________
Objectives
___________________
io
After analyzing these cases, the student will have an appreciation of the
concept of topics studied in this Block.
___________________
The Aims of Fatigue Risk Management Training
ro
du
Case Study 1: Fatigue Management Strategies for Aviation
Workers
ct
___________________
rR
ep
The challenges posed by fatigue in transport industries have been
recognised for some time. A decade ago, the House of
Representatives Standing Committee on Communication,
Transport and the Arts conducted an inquiry into managing
fatigue in transport in Australia. The resulting report, entitled
‘Beyond the Midnight Oil: Managing Fatigue in the Transport
Industry’ noted that fatigue in transport is a problem that must
be addressed by governments, by transport companies and by
workers in the transport industry.
ot
fo
There was recognition in the report that it was unrealistic to wind
back the advances and opportunities created by the 24 hour a day
global economy, but that it was essential that responsibility be
taken for the potential costs associated with these developments.
It was concluded, “fatigue in transport probably cannot always be
avoided, but it can be managed” (Foreword, p. vii).
ES
,N
The report included aviation industry-specific recommendations,
including that fatigue management should be a basic requirement
for air operators, including aircraft maintenance activities, and
that the management of fatigue should be a component of safety
audits.
(c
)
UP
The Civil Aviation Safety Authority is committed to improving
aviation safety through the management of fatigue-related risks.
To this end, a set of tools has been developed to support the
Australian aviation industry. This support extends to elements of
Fatigue Risk Management Systems (FRMS) or to assist operators
and individuals understand their obligations in a prescriptive
regime.
An important part of any system consists of training all
employees about the safety hazards of fatigue and how effectively
Contd…
___________________
___________________
___________________
___________________
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Aviation Enterprise Management
50
to manage them. Various training materials have been developed
to achieve this goal. This fatigue risk management guidance was
designed with the business needs of participating organisations in
mind. In addition, the program attempts to move beyond simply
raising awareness. The program is designed to promote the
development of skills relevant to fatigue risk management.
Notes
___________________
___________________
n/
___________________
Managing human resources has always been a demanding task.
Now, as we become more aware of the implications of fatigue,
industry must acknowledge the needs of employees who work in
demanding roles; who work outside the Monday-to-Friday, 9-to-5
schedule; and/or have very active lives when they are not at work.
Shift workers are not the only workers at risk of fatigue at work.
There are many pressures and opportunities in today’s society to
sacrifice sleep for other activities.
io
___________________
___________________
ct
___________________
___________________
ro
du
___________________
___________________
Nevertheless, the incidence and variety of non-traditional work
schedules appear to be increasing. Shift work can have benefits
for both employers and employees. However, scheduling decisions
made without a thorough knowledge of the performance, safety
and social impacts of such work schedules could result in unsafe
shift arrangements that compromise any potential benefits.
rR
ep
___________________
A fatigue risk management tool as part of a Crew
Management System
fo
ENGLEWOOD, Colo., 5 Jan. 2011. Jeppesen has integrated
fatigue risk management (FRM) functionality with its Crew
Management System solution suite, as part of its work to prevent
and reduce fatigue risk in crew planning and operation.
(c
)
UP
ES
,N
ot
The FRM solution takes into consideration crew members'
predicted levels of fatigue when generating and maintaining crew
schedules. Predictions of crew alertness and fatigue risk are based
on the Boeing Alertness Model (BAM), developed jointly by
Boeing and Jeppesen. The modular design of the solution also
allows airline operators to make use of alternative alertness
models if desired.
Jeppesen recently released a related Apple iPhone mobile
application, called CrewAlert, which gives the user an insight into
how sleep science applies to crew schedules. CrewAlert is
intended for use by crew schedulers, crew members, government
regulators, and scientists to determine predicted levels of
alertness. CrewAlert also allows for data, collected in actual
operations, to be fed back into an airline's Fatigue Risk
Management System for purposes of correlation with other pilot
data and further refinement of the FRM model.
Contd…
Notes
___________________
___________________
n/
___________________
io
___________________
___________________
___________________
ro
du
Data generated by an FRM assessment, including alertness and
risk information, is processed by Jeppesen crew planning
optimization software when generating crew pairings and rosters
for operators. This data is also available to crew planners to
control and monitor fatigue risk during manual roster
maintenance and day-of-operation changes.
51
ct
"To help address a high-profile industry safety issue, Boeing and
Jeppesen joined together to develop and successfully integrate
FRM functionality into the Jeppesen Crew Management System,"
says Tim Huegel, director, Jeppesen Portfolio Management,
Aviation. "For years, rules implemented at company, regulatory,
and union levels limited duty times of crew with the intent of
managing fatigue. Our fatigue management solutions – with the
integration of industry-recognized alertness models into our crew
management software, plus the CrewAlert mobile application –
now allow airlines and their crew to enhance flight safety and
maintain efficient operations."
Sa
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UNIT 5: Case Studies
ot
fo
rR
ep
The FRM solutions were developed in advance of new aviation
industry regulations requiring operators to implement fatigue
risk management systems as part of crew management
operations, replacing existing regulations on flight time
limitations (FTL). To research the issue and to develop FRM
solutions that would meet operator requirements, Jeppesen and
Boeing conducted a joint study of European, U.S., and Chinese
FTL models, entitled "Flight Time Limits and Fatigue Risk
Management: A Comparison of Three Regulatory Approaches."
The study is available for viewing through the Jeppesen FRM
solutions Website.
Questions
,N
1. What are some of the personal difficulties that you or some of
your co-workers have experienced because of shift work or
non-traditional working hours?
ES
2. Can you think of positive and negative effects of shift work
schedules on health, lifestyle, safety and well-being?
(c
)
UP
Source: http://www.casa.gov.au/wcmswr/_assets/main/aoc/fatigue/fatigue_toolkit_strategies.pdf
___________________
___________________
___________________
___________________
52
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Aviation Enterprise Management
Case Study 2: Businesses Waking up to the Benefits of
Napping
Notes
Tell your boss: A quick bit of sleep can actually make you
more productive
___________________
___________________
From Thomas Edison and Winston Churchill to Bill Clinton and
George Costanza, the nap has had many famous champions and
with good reason. Ever since sleep scientist David Dinges helped
found the modern science of napping in the early '80s at the
University of Pennsylvania School of Medicine, short periods of
sleep have been shown to improve alertness, memory, motor
skills, decision-making, and mood, all the while cutting down on
stress, carelessness, and even heart disease.
n/
___________________
io
___________________
___________________
ct
___________________
___________________
ro
du
___________________
With Americans averaging fewer than seven hours of sleep per
night — and around 20 percent suffering from sleepiness during
the day, according to a recent Stanford University study — many
companies have turned to the humble nap in an attempt to stave
off billions in lost productivity each year. Following the rise of
workplace perks like lactation rooms, gyms, and child-care
facilities, Nike workers now have access to nap-friendly "quiet
rooms" that can also be used for meditation.
___________________
rR
ep
___________________
Google, a forerunner in employee perks, has a number of
futuristic napping pods scattered throughout its Mountain View
campus.
(c
)
UP
ES
,N
ot
fo
Jawa, a small mobile technology company in Scottsdale, Ariz., has
two resting rooms — one with a similar pod, the other with an
old-fashioned couch—that are popular among programmers
working long hours. Many airlines, including Continental and
British Airways, allow pilots to sleep during long international
flights while colleagues take over the controls. (The practice is
prohibited for domestic flights by the Federal Aviation
Administration.) Other companies, such as Ben & Jerry's, have no
official policy but provide unofficial space for the practice and
don't bat an eye when someone spends an extra half hour
snoozing in the massage room. "If you have employees working
16-hour days, you want to give them an opportunity to take a
power nap," says Melissa Gierginger, a spokeswoman for Jawa.
"Over the last few years, there's been a lot of focus on exercise and
nutrition, but adequate sleep is arguably the most important
element of productivity," says Christopher Lindholst, co-founder
of MetroNaps, which markets a napping chair called the
EnergyPod to such companies as Google, Procter & Gamble, and
Cisco Systems.
Contd…
Sa
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UNIT 5: Case Studies
53
"Tiny naps are much more refreshing than people tend to realize,"
said Jim Horne, director of the Sleep Research Centre at
Loughborough University in England. "A short nap in the
afternoon will get rid of sleepiness without interfering with night
time sleep." That said, it's best not to depend on napping as a
permanent replacement for lost sleep. "On occasion it will get you
over the hump, but whether it gets you back to peak is an open
question," says Dr. Roger Rosa, a senior scientist at the National
Institute for Occupational Safety and Health.
___________________
___________________
n/
___________________
___________________
io
Questions
Notes
___________________
ro
du
1. Consider three forms of well-being and describe their
contribution to your own overall level of well-being.
ct
___________________
2. Read and analyse the case. What do you infer from it?
(c
)
UP
ES
,N
ot
fo
rR
ep
Source: http://www.casa.gov.au/wcmswr/_assets/main/aoc/fatigue/fatigue_toolkit_strategies.pdf
___________________
___________________
___________________
___________________
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Aviation Enterprise Management
54
Notes
___________________
___________________
n/
___________________
io
___________________
___________________
ct
___________________
___________________
ro
du
___________________
___________________
(c
)
UP
ES
,N
ot
fo
rR
ep
___________________
Sa
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UNIT 6: Stakeholders in Aviation
55
Notes
___________________
___________________
n/
___________________
io
___________________
___________________
ct
___________________
rR
ep
ro
du
___________________
(c
)
UP
ES
,N
ot
fo
BLOCK-II
___________________
___________________
___________________
Detailed Contents
56
Notes
UNIT
6: STAKEHOLDERS IN AVIATION
___________________
z
Introduction
___________________
z
Passengers
___________________
z
Business and Commerce Organizations
___________________
z
Air Carriers
___________________
z
General Aviation Users
___________________
z
Airport Organizations
UNIT 8: LEGAL ENVIRONMENT OF BUSINESS
___________________
Concessionaires
z
___________________
Service Providers
z
___________________
Employees
z
Federal Government
z
Local Government
z
Communities Affected by Airport Operations
z
NGOs, such as Environmental Bodies
z
Parking Operators and Ground Transportation
Providers
z
Types of Companies
io
z
Introduction
z
Insight for Business Innovation
z
Innovation Failure
z
Innovation for Revenue Generation
rR
ep
fo
z
Concept of Business Models
z
Business and its Environment
z
Relationship between Business and its Environment
ot
Introduction
,N
n/
Forms of Business Organisation
UNIT 10: CASE STUDY
z
ES
z
ct
z
UP
Introduction
ro
du
___________________
Investors and Bond-holders
(c
)
z
UNIT 9: BUSINESS INNOVATION
z
UNIT 7: BUSINESS MODELS
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Aviation Enterprise Management
Sa
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UNIT 6: Stakeholders in Aviation
Unit 6
57
Notes
Stakeholders in Aviation
___________________
___________________
n/
___________________
Objectives
___________________
\
Passengers
\
Business and Commerce
\
Air Carriers
\
Airport Organization
\
Investors and Bond-Holders
\
Service Providers
\
Employees
\
Federal Government
\
Communities Affected by Airport Operations
io
After completion of this unit, the students will be aware of the following
topics:
___________________
ct
___________________
rR
ep
ro
du
___________________
Introduction
fo
With the airport operating as a public utility, an inventory of
airport stakeholders and their objectives is required to form the
basis for evaluating the airport’s performance.
ot
A stakeholder is defined as “any group or individual who can affect
or is affected by the achievement of the organization’s objectives”.
UP
ES
,N
Airports are of significant economic importance to regional
businesses and to the quality of life of residents by providing
access to safe, secure, rapid, affordable air transportation services.
At the major U.S. airports, regional airport authorities operate the
airports as public utilities providing infrastructure to service
providers and their supply chain under “revenue neutral” financial
regulations. As public entities with no stockholder profit motives,
the airport authorities are obliged to work to balance the interests
of all of their stakeholders to build the airport infrastructure, lease
space to service providers, and ensure that the service providers
collaborate to provide seamless, safe, secure service to the
consumers of air travel services.
(c
)
Comprehensive list of stakeholders include:
z
Passengers
z
Business and Commerce Organisations
___________________
___________________
___________________
58
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Aviation Enterprise Management
Air carriers
z
General aviation users
z
Airport organizations
___________________
z
Investors bond-holders
___________________
z
Concessionaires
___________________
z
Service providers
___________________
z
Employees
___________________
z
Federal Government
___________________
z
Local government
z
Communities affected by airport operations
z
NGOs, such as environmental bodies
z
Parking operators and ground transportation providers
z
Airport suppliers
___________________
io
ct
ro
du
___________________
rR
ep
Write
an article on passengers
___________________
as stakeholders in aviation.
___________________
n/
z
Notes
Activity
Passengers
Arriving passengers
ot
1.
fo
For passengers, the airport provides a transition point between the
ground and air transportation modes, or a connection point
between two flights. Different sub-types of passengers have been
identified:
Originating passengers
3.
Transfer passengers
4.
International and domestic passengers
5.
Charter and low-fare airline passengers
6.
Shuttle/commuter passengers
(c
)
UP
ES
,N
2.
These passenger types are not mutually exclusive; rather, an
individual passenger may be a member of more than one subtype
of passenger categories. Arriving and originating passengers are
commonly referred to as origin and destination (O&D) passengers.
Independent of the passenger classifications according to the above
attributes, the passengers may be viewed in two different
capacities in the context of this analysis. First, passengers can be
viewed as participants in the economic system, either as business
Passengers as Economic Participants: Passengers may
participate in the economic system in one of several ways:
Notes
___________________
___________________
n/
___________________
___________________
___________________
___________________
ct
1.
59
io
travellers or as tourist/leisure travellers, purchasing services from
airport service providers and interacting in different ways with
local businesses and the local community. Second, passengers can
be viewed as individual travellers that have expectations about
receiving quality services, and passing through the airport system
in a convenient manner. These two perspectives have different
implications on the goals for the airports and will be treated
separately in the following subsections.
Sa
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UNIT 6: Stakeholders in Aviation
ro
du
(a) As origin leisure/personal travellers: These are passengers
from the local community that use the airport as their
departure point for leisure or other personal travel.
rR
ep
(b) As origin business travellers: These are travellers
representing local businesses, using the airport as their
departure point.
(c) As destination leisure/personal travellers: These are
visitors to the region, for tourism or other personal
purposes.
(d) As destination business travellers: These are business
travellers coming to visit local businesses.
fo
Each type of passenger has a different impact on the local
region.
ES
,N
ot
If the airport’s traffic is heavily geared toward O&D traffic,
then demand at the airport is more heavily dictated by the
local economy. In contrast, significant connecting (transfer)
passenger levels are less sensitive to the performance of the
local economy, but those traffic volumes may represent
vulnerability for the airport since they are to a greater degree
dictated by a carrier’s viability and route decisions.
(c
)
UP
Passengers contribute toward the financing of airport capital
improvement projects through Passenger Facility Charges
(PFCs) of estimated value per passenger. PFCs are paid
directly by passengers through airline tickets and proceeds
must be used for capital improvements at the airport that
collected them.
___________________
___________________
___________________
___________________
60
The goals for passengers as economic participants relates to
the cost of travel: Providing access to low airfares is a key
objective for the airport in the view of air passengers.
Notes
Activity
2.
Passenger as Travellers: When considering the passengers
as travellers as a stakeholder group, the focus is on the
passenger as an individual. The goal of the airport from the
individual passenger viewpoint is “moving passengers quickly
and conveniently to where they need to go” This view considers
the airport as a transit point from one mode of transportation
to another, or as a connection point between two different
flights. Ensuring on-time performance was raised as the most
important aspect to achieving this objective.
n/
___________________
io
___________________
___________________
ct
___________________
___________________
___________________
___________________
ro
du
Develop
a draft on business
___________________
and commerce in aviation.
___________________
Sa
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Aviation Enterprise Management
Check Your Progress
___________________
Fill in the blanks:
rR
ep
1. ................... is defined as “any group or individual who
can affect or is affected by the achievement of the
organization’s objectives”.
fo
2. For passengers, the airport provides a transition point
between the ................... and or a connection point
between two flights.
Business and Commerce Organizations
(c
)
UP
ES
,N
ot
These include Tourism, Arts, Sports, and Education Organizations.
The organizations that in various ways are customers of the
airport have been summarized as “business, commerce, tourism,
arts, sports, and education organizations”. Some organizations are
direct users of the airport by importing or exporting services (i.e.
business travellers) and goods (raw materials or finished goods).
Other organizations are indirect customers of the airport as a
result of their customers (e.g. tourists) travelling through the
airport. The term “organizations” is used to encompass both
for-profit and not-for-profit organizations. The airport serves as an
engine of business activity for the organizations in the region. The
airport drives and supports economic activity in several different
ways, including both through business activities directly at the
airport and through business activities throughout the regional
economy. Underlying goals for maximizing this economic activity
include maximizing passenger volumes and traffic at the airport
Sa
le
UNIT 6: Stakeholders in Aviation
as well as maximizing the number of destinations served and the
frequency of those services.
n/
___________________
___________________
___________________
ct
ro
du
Small certified carriers: These carriers fly aircraft that
carry less than 61 passengers, carry less than 18,000 pounds,
and do not conduct international operations.
Commuter carriers: These are air taxis with a published
schedule of at least five weekly round trips between at least
two airports.
rR
ep
3.
Large certified carriers: These carriers have a certificate to
carry 61 passengers or more, payload equal to or greater than
18,000 pounds, or conduct international operations.
___________________
io
Air carriers provide the air transportation service from the
airports. Air carriers include both passenger and cargo carriers
and are classified into three subcategories:
2.
Notes
Activity
Present
an assignment on air
___________________
carriers in aviation.
___________________
Air Carriers
1.
61
Air carriers select airports based on the passenger demand for
service to/from the airports (i.e. revenue generation potential) and
based on the cost of operating at the airport.
ot
fo
The airlines have the objective of achieving high yields, (Doganis
2002; p. 16). Airports serve the role of providing access to high
yield markets. Attractive airports ensure low cost of air carrier
operations at the airport. This includes both minimizing direct fees
charged to air carriers through the maximization of
non-aeronautical revenues and minimizing costs incurred by air
carriers through delay on the ground.
UP
ES
,N
An airport may serve either as a hub for a carrier, with a high
portion of that carrier’s flights operating to/from the airport, or as
a non-hub airport with a lower portion of flights for a given carrier.
In either situation, the airport should act as an efficient
hub/connection point, contributing to ensuring air carriers’ on-time
performance. In addition, it is the expectation of air carriers that
airports ensure safety of operations on the airport surface.
General Aviation Users
(c
)
General aviation encompasses many types of aviation outside the
air carrier definition, including:
1.
Air taxi operators
2.
Corporate-executive transportation
___________________
___________________
___________________
___________________
62
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Aviation Enterprise Management
Flight instruction
4.
Aircraft rental
5.
Aerial application
___________________
6.
Aerial observation
___________________
7.
Business
___________________
8.
Pleasure
___________________
Many goals applied to general aviation in terms of on-time
performance, low costs, and safety. However, a representative of a
business aviation organization defined the primary goal of airports
as serving as access point to the national air transportation system
by providing good availability and high capabilities in terms of
instrumentation and services.
___________________
___________________
___________________
io
ct
___________________
ro
du
Make
a report on airport
___________________
organization as a stakeholder
___________________
in aviation.
n/
3.
Notes
Activity
Check Your Progress
rR
ep
Fill in the blanks:
1. The airport serves as an ................... of business activity
for the organizations in the region.
fo
2. Air carriers include both ................... and ...................
carriers.
Airport Organizations
ot
The airport organizational structure varies and can be comprised
of an individual airport or as a group of airports managed by the
same organization. The airport organization is overseen by a board
,N
appointed by local governments.
In larger airports or systems of airports, a common feature is that
(c
)
UP
ES
the organization includes a separation of operating units which
carry out on-going management of airport operations, and they are
separate from staff units which have responsibility for (among
several other areas) infrastructure development
The airport itself pays for some capital infrastructure projects.
Airport operating revenues come from sources such as landing fees,
terminal leases and proceeds from concessions sales. This revenue
is used to pay for the airport’s operating expense, but any surplus
can be used to contribute toward capital improvements. A set of
goals for the airport organization can be derived from studying
Sa
le
UNIT 6: Stakeholders in Aviation
airports’ strategic plans and objectives and from interviewing
63
airport management experts.
Notes
___________________
the airport is to provide access to high quality in services to its
___________________
region. Other goals, such as ensuring strong financial performance
___________________
end” in that they enable the airport to achieve this overarching
goal.
___________________
(a) Achieve high security and safety
(b) Grow revenue and manage costs
(c) Drive economic growth
rR
ep
(d) Grow passenger numbers
___________________
ro
du
Excel in airport management: This goal includes:
ct
___________________
A summary view of the airport’s goals is presented as:
1.
(e) Provide access to a high number of destinations and a
high frequency of service. This goal relates immediately to
the primary objective of the airport described above.
Airport management must also achieve a balance where
sufficient infrastructure capacity exists for handling traffic
fo
while capacity is at the same time not over-built. Additionally,
a key objective for airports is to maximize non-aeronautical
ot
revenues since that provides diversified revenues and allows
for keeping usage charges to air carriers low, thereby
,N
potentially attracting more traffic.
2.
Provide high levels of customer service: This goal includes
ensuring a good experience for both passengers and other
Develop
ES
customers
3.
___________________
io
and high operational efficiency, are considered as “means to an
n/
The primary objective (sometimes referred to as the “mission”) of
environmentally
sustainable
practices
and
minimize noise: This goal includes minimizing emissions,
UP
energy consumption, etc., within the airport. Some airports,
such as Sea-Tac, are also beginning to expand their focus by
considering greenhouse gas emissions not only from the
airport-controlled operations but also from airlines and other
(c
)
tenants as well as the public. Related to this is the goal of
minimizing airport-related noise.
___________________
___________________
___________________
64
Notes
Activity
Develop
a document showing
___________________
the importance of investors
and ___________________
bond-holders.
4.
Develop high-performing employee teams: This goal
relates to developing effective and skilled employees and
maximizing employee engagement.
5.
Enhance competitive advantage: This goal includes
providing competitive user rates and protecting the airport’s
physical infrastructure. Some of these goals may be in
competition with each other.
n/
___________________
io
___________________
___________________
___________________
___________________
The latter two goals would be aided by promoting and developing
access to public transportation access modes to the airport such as
bus or rail. However, the goal of maximizing non-aeronautical
revenue is better served by maximizing revenue-generation in the
form of parking revenue from private vehicles. In such instances,
airport management must balance the competing priorities in
order to accomplish the goals of the airport.
rR
ep
___________________
ct
___________________
For instance, the goal of maximizing non-aeronautical revenue can
conflict with the goal of developing environmentally sustainability
and providing a good experience for passengers.
ro
du
___________________
Sa
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Aviation Enterprise Management
Check Your Progress
Fill in the blanks:
fo
1. The primary objective (sometimes referred to as the
“mission”) of the airport is to provide access to
................... in services
,N
ot
2. The goal of maximizing non-aeronautical revenue can
conflict with the goal of developing ................... and
providing a good experience for passengers
(c
)
UP
ES
Investors and Bond-holders
The majority of airport debt is of the General Airport Revenue Bond
(GARB) type. GARB means that the bond is backed by revenues
generated from airport operations and not backed by any
government funding source. The credit ratings agencies Moody’s,
Standard and Poor’s, and Fitch Ratings participate in this system by
assigning grades of investment quality to the airports’ bonds. The
ratings agencies’ ratings affect the interest rates and terms of the
bonds. A large number of factors impact the bond ratings, including:
1.
Historical and projected population growth
2.
Historical and projected employment expansion and mix
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UNIT 6: Stakeholders in Aviation
65
3.
Passenger growth
4.
Airport utilization trends
5.
Portion of origin and destination (O&D) traffic
6.
The importance of the facility to the overall US system of
airports
Notes
___________________
8.
Airfield capacity and attractiveness of facilities
9.
Debt burden and carrying costs
n/
Whether the airport is in a favourable geographic location
___________________
___________________
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7.
___________________
___________________
ct
___________________
___________________
11. The role of the airport in the dominant carrier’s network
___________________
12. The level of legal flexibility for the airport to change the rates
it charges air carriers
___________________
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10. Financial strength of carriers with a lot of connecting traffic,
and their level of commitment to the airport
Concessionaires
fo
Airport concessionaires operate passenger services in terminal
buildings and may include food and beverage services, retail
services, and hotels. Concessions operators pay the airport
organization a fixed annual fee and/or a percentage of gross
revenues.
,N
ot
Considering the concessions operators’ objective of maximizing
profits, the goals of the airport for these operators are deduced to
be maximizing passenger volumes and minimizing the fees paid to
the airport organization.
Check Your Progress
Fill in the blanks:
UP
ES
1. ................... means that the bond is backed by revenues
generated from airport operations and not backed by
any government funding source.
2. The ratings agencies’ ratings affect the ................... and
................... of the bonds.
(c
)
Service Providers
The service providers are private operators that offer services to
air carriers and general aviation users. Independent operators may
___________________
66
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Aviation Enterprise Management
___________________
Services provided include:
___________________
1.
Supply of aviation fuel and oil
___________________
2.
Baggage handling and sorting
___________________
3.
Loading and unloading of aircraft
___________________
4.
Interior cleaning of aircraft
___________________
5.
Toilet and water service
6.
Passenger transport to/from remote stands
7.
Catering transport
8.
Routine inspection and maintenance of aircraft at the stands
9.
Aircraft starting, marshalling, and parking
___________________
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ct
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___________________
n/
___________________
supply these services (e.g. fixed-base operators, FBOs), but some of
the services may also be provided by the airport operator, the
airline itself, or by another airline.
Notes
10. Aircraft de-icing
11. Passenger handling (e.g. ticketing and check-in)
12. Cargo and mail handling
13. Information services
fo
14. Preparation of handling and load-control documents
15. Supervisory or administrative duties
(c
)
UP
ES
,N
ot
Similar to concessionaires, independent service providers pay a fee
to the airport organization which is typically a percentage of gross
revenues. In a parallel to concessionaires, service provider goals for
the airport would include maximizing traffic volumes and
minimizing the fees paid to the airport organization.
Employees
The employee category includes both direct employees of the
airports organization as well as employees of companies operating
at the airport, such as concessions operators. Some employees are
organized into unions, such as the Service Employees
International Union and Unite Here. The objective of the airport
from the perspective of those unions is to provide secure jobs,
wages, and benefits.
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UNIT 6: Stakeholders in Aviation
67
Check Your Progress
Notes
Activity
Fill in the blanks:
Prepare
a report on the role of
___________________
federal government and the
local___________________
government
as
a
stakeholder in aviation.
___________________
n/
1. ................... are private operators that offer services to
air carriers and general aviation users.
2. The employee category includes both ...................
employees of the airports organization as well as
employees of companies operating at the airport, such as
...................
io
___________________
___________________
ct
___________________
___________________
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Federal Government
The federal government participates in the airport system in three
different roles: (i) As a bill-payer, (ii) as an operator, and (iii) as a
regulator. Each of these roles will be addressed here.
ot
fo
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In terms of the government’s role as a bill payer for the system, the
Airports Improvement Program (AIP) is administered by the FAA
and its funding comes from the Airport and Airway Trust Fund,
which in turn is funded by user fees and fuel taxes. AIP funds can
be applied toward projects that “support aircraft operations
including runways, taxiways, aprons, noise abatement, land
purchase, and safety, emergency or snow removal equipment”. In
order to be eligible for AIP funding, airports must be part of the
National Plan of Integrated Airport Systems (NPIAS), which
imposes requirements on the airport for legal and financial
compliance. The NPIAS has two goals:
To ensure that airports are able to accommodate the growth in
travel.
z
To keep airports up to standards for the aircraft that uses
them.
,N
z
ES
The government’s role as airport operators includes three different
agencies:
FAA: The FAA is the operator of ramp, ground, local, and
departure/arrival air traffic control services.
2.
Transportation Security Administration (TSA): The TSA
provides passenger and baggage security screening services.
The TSA states that it is the goal for its baggage screening
operations to screen for explosives and other dangerous items
while maximizing efficiency. This can be translated to state
(c
)
UP
1.
___________________
___________________
___________________
68
that it is the goal for the airport to ensure secure
transportation of people and goods while minimizing the
impact of security measures on legitimate travellers and
goods.
Notes
___________________
___________________
3.
Customs and Border Protection (CBP): The CBP is
responsible for operating passport control and customs
inspections at international airports. The CBP states that it is
its mission to protect “our nation’s borders from terrorism,
human and drug smuggling, illegal migration, and agricultural
pests while simultaneously facilitating the flow of legitimate
travel and trade” Just as for the TSA, this can be translated to
state that it is the goal for the airport to ensure secure
transportation of people and goods while minimizing the
impact of security measures on legitimate travellers and
goods.
n/
___________________
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___________________
ct
___________________
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___________________
___________________
___________________
fo
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Lastly, the federal government is a regulator of the airports
system. Airports that are included in the NPIAS are subject to a
number of federal regulations that are enforced by the FAA and
the Transportation Security Administration. The regulations apply
to both the airport infrastructure as well as to service providers
within the airport systems. The purpose of these rules is to ensure
the safe and efficient operations of public-use airports.
Local Government
(c
)
UP
ES
,N
ot
US airports are with few exceptions not private, profit making
enterprises. Instead, airports are typically owned and operated by
public entities such as cities, counties, or local airport authorities.
The government owners in the form of city and local governments
are represented by an airport board which is responsible for the
strategic direction of the airport and for appointing airport
management.
The local government is supported in an advisory role by federally
funded Metropolitan Planning Organizations (MPOs) who are
charged with assisting in planning for aviation and other
transportation infrastructure for the local region.
State and local government also contribute as bill-payers for
capital improvement projects.
The objectives of the airport from the point of view of the local
government is representative of those of the local community it
Short-term impact from
renovation of airports.
construction,
expansion,
and
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1.
Sustained impact in the form of jobs at the airport (direct
impact) and off-airport jobs that result from the “multiplier
effect” of the income generated by employees at the airport.
3.
Stimulus of the local economy as a result of firms and
individuals having air transportation services at their disposal.
4.
Spurring other economic development by crossing thresholds
for economies of scale, scope, and density.
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2.
ot
fo
Related to the objective of maximizing economic effects is providing
maximum access to air services that connect the region to the
country and the world. This involves maximizing the number of
destinations served and the frequency of those services.
,N
Communities Affected by Airport Operations
UP
ES
The interest of communities affected by airport operations is
represented by the local government which was elected by the
constituents of those communities. Hence, the goals of the airport
for these communities are broadly aligned with the goals described
for the local government in the preceding section, including
maximizing economic impact, maximizing destinations served and
frequency, and minimizing emissions and noise.
However, it should be noted that for individual groups of
community members, the objectives of the airport may be different
for others. According to Smith (Smith 1979; p. 47), “how much
people suffer from this growing nuisance depends largely on where
they live, which may have no bearing on how much they benefit
(c
)
Notes
___________________
___________________
n/
___________________
___________________
___________________
___________________
ct
One form of positive impact of the airport is in the shape of
economic effects. There is significant literature on the economic
impact of airports. However, many studies are sponsored by the
airports authorities themselves, making them “more political than
analytical” (Cooper 1990). Although there may be no definitive
measure of the economic impact of airports, a structure for the
types of impacts of airports to their regional communities has
proposed:
69
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represents and involves both maximizing its positive effects while
minimizing its negative effects as described in the subsequent
paragraphs.
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UNIT 6: Stakeholders in Aviation
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
The adverse effects of airports result from several sources,
including air traffic, ground vehicles on the airport, and vehicles
providing ground transportation to travellers. The adverse effects
include:
n/
___________________
io
___________________
from the airport.” From this reasoning, residents near the airport
can be considered a particularly significant subset of the overall
group of communities affected by airport operations.
1.
Noise
2.
Air quality
3.
Water quality
4.
Hazardous waste emissions
5.
Other externalities, including increased automobile traffic
congestion
ct
Notes
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Aviation Enterprise Management
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NGOs, such as Environmental Bodies
ot
fo
Non-governmental organizations, such as environmental bodies,
fall in the category of “airport interest groups”. Although they state
that “there are many national organizational and regional
organizations that are deeply interested in the operation of
airports”. Wells and Young (Wells & Young 2003; pp. 22-24) only
list NGOs that can be considered “pro-aviation”, such as the
Aerospace Industries Association, the Airports Council
International – North America, and the International Air
Transportation Association.
(c
)
UP
ES
,N
However, interest groups with other interests also exist, such as
environmental bodies (Upham 2003). The US Citizens Aviation
Watch is such an organization, which is “dedicated to protecting
the health, safety and welfare of individuals and communities that
are affected by the air transport industry”
This indicates that there is no general description of the goal of
airports representing all NGOs.
Parking Operators and Ground Transportation
Providers
Ground transportation providers include rail service, taxicabs,
buses, shuttles, rental cars, and limousines, while parking services
Sa
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UNIT 6: Stakeholders in Aviation
may be provided both on and off the airport, and either by the
71
airports organization or by private enterprises. From airport
Notes
management’s point of view, the desirable distribution between
___________________
different modes of transportation will vary dependent upon the
___________________
individual airport’s context.
revenues for parking operators and ground transportation
providers will be maximized through high passenger volumes and
___________________
io
Similar to concessionaires and airport service providers, the
n/
___________________
___________________
___________________
ct
(where applicable) low fees paid to the airport.
___________________
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Check Your Progress
Fill in the blanks:
1. The federal government participates in the airport
system in three different roles: ..................., ...................
and ...................
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2. ................... is the operator of ramp, ground, local, and
departure/arrival air traffic control services.
Summary
fo
A stakeholder is defined as “any group or individual who can affect
or is affected by the achievement of the organization’s objectives”.
,N
ot
Airports are of significant economic importance to regional
businesses and to the quality of life of residents by providing access
to safe, secure, rapid, affordable air transportation services. At the
major U.S. airports, regional airport authorities operate the airports
as public utilities providing infrastructure to service providers and
their supply chain under “revenue neutral” financial regulations.
ES
Lesson End Activity
UP
Collect more information on the stakeholders in aviation and make
a chart on their respective roles and how they are affected by the
airport operations.
Keywords
(c
)
Stakeholder: It is defined as any group or individual who can
affect or is affected by the achievement of the organization’s
objectives.
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
Small Certified Carriers: These carriers fly aircraft that carry
less than 61 passengers, carry less than 18,000 pounds, and do not
conduct international operations.
n/
___________________
Commuter Carriers: These are air taxis with a published
schedule of at least five weekly round trips between at least two
airports.
io
___________________
Large Certified Carriers: These carriers have a certificate to
carry 61 passengers or more, payload equal to or greater than
18,000 pounds, or conduct international operations.
ct
Notes
General Airport Revenue Bond (GARB): It means that the bond
is backed by revenues generated from airport operations and not
backed by any government funding source.
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Aviation Enterprise Management
___________________
Questions for Discussion
Write short notes on:
rR
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1.
(a) Passengers
(b) Business and Commerce
(c) Service Providers
(d) Employees
Explain Air Carriers as the stakeholders in aviation.
3.
fo
2.
4.
Describe the investors and bond-holders in aviation.
5.
“Federal Government is a stakeholder in aviation”. Comment.
,N
ot
Discuss the role of the Airport Organization in aviation.
(c
)
UP
ES
6.
Explain the communities affected by airport operations.
Further Readings
Books
Julie, Rodwell, (2003), Essentials of Aviation Management: A Guide
for Aviation Service Business. Kendall Hunt Publishing Company
Speciale, Raymond, (2006), Fundamentals of Aviation Law,
McGraw Hill Inc.
T. Wells, Alexander, (2004), Airport Planning & Management,
McGraw Hill
Frock, Roger, Changing How the World Does Business: Fedex's
Incredible Journey to Success - The Inside Story, Berrett Koehler
Publishers
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UNIT 6: Stakeholders in Aviation
73
Notes
___________________
J. Sheehan, John, (2003), Business & Corporate Aviation
Management: On Demand Air Travel. McGraw Hill
___________________
Castro, Raoul, Corporate Aviation Management, Southern Illinois
University Press
___________________
http://www.airliners.net/aviationforums/non_aviation/read.main/1958823/
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Web Readings
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http://books.google.com/books/about/Essentials_of_aviation_manag
ement.html?id=jjfUv6s8LdsC
http://books.google.com/books/about/Designing_and_executing_stra
tegy_in_avia.html?id=CJXshJc_IpIC
UP
ES
,N
ot
fo
http://books.google.com/books/about/Aviation_maintenance_manag
ement.html?id=ZuCJgUSm9ncC
(c
)
n/
io
___________________
___________________
ct
A. Kinnison, Harry, (2004), Aviation Maintenance Management,
McGraw Hill
___________________
___________________
___________________
___________________
___________________
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74
Notes
___________________
___________________
n/
___________________
io
___________________
___________________
ct
___________________
___________________
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___________________
___________________
(c
)
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UNIT 7: Business Models
Unit 7
75
Notes
Activity
Business Models
Construct
a report on the
___________________
business models in aviation
___________________
sector.
n/
___________________
Objectives
___________________
\
Concept of Business Models
\
Business and Its Environment
\
Relationship between Business and Its Environment
io
After completion of this unit, the students will be aware of the following
topics:
___________________
ct
___________________
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___________________
Introduction
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Business models are used to describe and classify businesses, but
they are also used by managers inside companies to explore
possibilities for future development. Also, well known business
models operate as recipes for creative managers. Business models
are also referred to in some instances within the context of
accounting for purposes of public reporting.
fo
Concept of Business Models
ES
,N
ot
The business model is simply a working description that includes
the general details about the operations of a business. The
components that are contained within a business model will
address all functions of a business, including such factors as the
expenses, revenues, operating strategies, corporate structure, and
sales and marketing procedures. Generally speaking, anything
that has to do with the day to day functionality of the corporation
can be said to be part of the business model.
(c
)
UP
As part of the business model, there is a need to address internal
factors that relate to the ongoing operation of the company. This
will involve defining the departments and divisions within the
company, along with the procedures that govern the creation of
positions and job responsibilities within each department.
Management of all the departments is also an important
component of the business model, as is the definitions of the
responsibilities of the executives within the organization. Business
operations such as manufacturing facilities, defining the
___________________
___________________
___________________
76
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Aviation Enterprise Management
production process, and allowing for the labour needs to produce
the products are also part of the business model.
___________________
___________________
___________________
___________________
___________________
Business operations, sales and marketing concerns and forecasts,
labour costs, and organizational structure are all essential
components of the business model. Operating with a
comprehensive model helps a company to maintain focus on a core
mission, while periodic reviews and updates help to keep the
business model relevant to current economic conditions and
consumer demands.
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___________________
n/
___________________
io
___________________
External factors also are part of a comprehensive business model.
Chief among these elements is defining the target consumer
audience for the goods and services produced by the corporation.
This one single element of identifying the target audience will
influence the form and function of both the marketing and sales
efforts of the company, which in turn will impact the overall cost to
produce each unit of a product. The business model will take this
information into consideration and set retail pricing that will allow
the company to operate at a profit, assuming a certain level of
sales is realized consistently.
ct
Present
an assignment on the
___________________
business environments and
the ___________________
segment constituting it.
ro
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Notes
Activity
Check Your Progress
Fill in the blanks:
fo
1. The business model is simply a ................... that includes
the general details about the operations of a business.
,N
ot
2. ................... also are part of a comprehensive business
model.
(c
)
UP
ES
Business and Its Environment
Business is as old as civilisation itself. Also, it is the greatest thing
in the world as no development could have taken place in the
absence of business. Business provides to the society the things it
needs in order to survive, enjoy life and improve its material and
social well-being. Besides, it undertakes productive utilisation of
wealth-producing resources of the society. It also leads to
innovation and improvements in production process and thus
enriches the life of people by enhancing the functional capacity of
the available resources.
Industrial revolution and the development in the fields of
communication, transportation, automation and the energy sources
Notes
___________________
___________________
n/
___________________
___________________
___________________
___________________
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ct
Today business enterprises dominate our lives. There was a time
when business played very insignificant role in economic, social,
political and technological affairs but now it plays a very
significant one. It is not too much to say that the wealth of a
country is, to a great extent, created and controlled by business.
This gives business and executives thereof the “enormous power”
to affect the lives of different segments of society, such as
customers, employees, shareholders, etc.
77
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have influenced the life in a big way. Organisations engaged in
business have grown in size; some of them beyond any
expectations. The budgets of some of the multinational
corporations today exceed the budgets of the States where they are
operating.
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UNIT 7: Business Models
Environment of Business
,N
ot
fo
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Systems approach considers business unit as an open system
which has continuous interaction with its external environment for
its survival and growth. Thus, a business unit exchanges
information, materials and other resources with the environment.
It gets inputs such as materials, capital, energy, human resources,
and information from the environment. The inputs are
transformed into goods and services which are supplied as outputs
to the environment. Inputs of a system are the outputs of other
systems and similarly its outputs are the inputs of other systems.
Thus, all systems have interaction with a variety of other systems
in the environment and also with the environmental suprasystem.
That is why it is essential for business to understand their
external environment and take steps to cope with the changing
environment.
UP
ES
Business environment means the sum of all external forces and
conditions that influence business and potentially affects its
performance. These forces include economic factors, socio-cultural
factors, politico-legal factors, suppliers of capital and materials,
labour organisations, customers, regulating agencies, government,
technology, etc.
(c
)
Some of the environmental factors impose several constraints on
the business enterprise, whereas some others act as facilitators. In
fact, the same factor may impose some obligations and also bestow
certain privileges on business.
___________________
___________________
___________________
___________________
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Aviation Enterprise Management
78
Notes
___________________
___________________
n/
___________________
io
___________________
___________________
ct
___________________
___________________
Figure 7.1: Business and its Environment
___________________
In any case, they have considerable impact and influence on the
scope and direction of business activities. In fact, the performance
of the business unit is to a great extent determined by these
external forces.
___________________
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___________________
ot
fo
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While interacting with the environment, business has to take
certain decisions, which are partly controlled by the external
forces. Many a time, business has to identify itself completely with
the environment and fit in with environmental framework. It is to
be noted that while business is affected by its environment, it also
affects its environment. Though it has very little control over its
environment, nevertheless it does affect the different segments of
the environment, some of them very significantly. These
environmental factors constantly change, and therefore, business
must adapt itself in order to survive and prosper.
(c
)
UP
ES
,N
Also, the relationship between business and its environment is one
of mutual benefit and therefore, it has been shown as a two-way
relationship in Figure 7.2. This may be referred to as a ‘symbiotic
relationship’ as business functions in such a way that it both takes
from and gives nurture to the various segments of its environment.
Only through such a relationship, a business can survive and
prosper. Otherwise it will starve and wither away. Thus, business
is influenced and shaped by its environment and also influences
the segments which come into contact with it. In the latter sense
business has also been an instrument of change.
Segments Constituting Environment of Business
Business cannot function in isolation or in a vacuum.
Its environment has, more or less, a direct bearing on its success or
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UNIT 7: Business Models
otherwise. Business is a part of the total environment in which we
live, being influenced by it, while being a force in influencing it.
Notes
___________________
___________________
___________________
n/
As presented in Figure 7.2, social, political, scientific and
technological and economic systems make up the external
environment which has a tremendous impact on the development
and growth of business.
79
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___________________
___________________
ct
___________________
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___________________
Figure 7.2: Relationship between Business and its Environment
fo
The environment of business comprises several segments which
may be classified as under:
Social environment: Comprising customers and employees
as well as social institutions which obtain benefit from
business or provide benefit to it.
z
Economic environment: The economic environment
encompasses the whole economy, the various economic
institutions, including the competing business enterprise with
which business has to deal. The economic environment is set
by the type of national economic system including the nature
of property rights, ownerships of means of production,
production relations, role of planning, functions of price
mechanism, etc. The government influences the economic
environment of business through economic planning, monetary
policies, fiscal policies and budgets, industrial regulations,
business laws, controls on prices and wages and commercial
policies affecting export and import. For instance, if the
government announces a cut in the excise duty on motor
(c
)
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ES
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ot
z
___________________
___________________
___________________
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Aviation Enterprise Management
80
vehicles, the sales of business firms manufacturing motor
vehicles will go up. Similarly, if the government exempts
export units from income-tax, such business units will get a
boost.
Notes
___________________
___________________
The economic environment of business also includes all
markets in which it buys and sells, raises funds, gets labour,
etc. The business is invariably influenced by the conditions of
various markets. For instance, if there is uncertainty in the
capital market, it will not be advisable to go in for a public
issue because of the risk of poor response.
n/
___________________
___________________
___________________
___________________
z
Politico-legal environment: The politico-legal environment
of business comprises political and legal institutions of the
country including the government and the legislature which
regulate business activity, and draws upon the resources of
business in the form of taxes, donations, etc.
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___________________
ct
io
___________________
___________________
The politico-legal environment provides the legal framework
within which business is to function. Business is influenced by
political organisations, political stability, government’s
intervention in business, constitutional provisions affecting
business, foreign policy, etc. As a result of the government’s
policy of restricting the growth of multinational corporations
(MNCs) in the country, pursued in the late seventies, the
bottling and sale of Coca Cola was discontinued in India.
However, in 1989, the government allowed another MNC Pepsi
Cola to enter the Indian market to give boost to the food
processing industry. Again in 1991 the government revised its
industrial policy which liberalised licensing, imports and
exports and inflow of foreign capital and technology into the
country. The trend towards globalisation and signing of GATT
agreement in 1993 posed new challenges and created new
vistas of growth for the Indian business.
(c
)
UP
ES
,N
ot
fo
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___________________
Stability of the government is also an important factor from
the point of view of growth of business. Business persons
prefer to start new units in those areas where there is political
stability and where rule of law prevails. Legal environment
determined by various laws and court decisions also put
pressure on business. For instance, several tanneries in
Kanpur were ordered to be closed down by the Supreme Court,
as they were polluting the Holy Ganges. Also, the Supreme
Court passed on order for the closure of iron foundaries around
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UNIT 7: Business Models
the famous Taj Mahal because air pollution caused by them
had an adverse impact on the beauty of Taj Mahal.
___________________
___________________
n/
___________________
___________________
io
Technological Environment: Technological environment of
business comprises the know-how and production and
management technology available to business at any point or
during a particular period of time. The state of technology
plays an important role in determining the type and quality of
goods and services to be produced and the type of plant and
equipment to be used. Nowadays, the pace of technological
change is very fast. Technological environment influences
business firms in terms of investment on technology,
consistent application of technology and the effects of
technology on markets. Therefore, every business organisation
has to be actively engaged in technological forecasting.
Advancement in automation, information technology will
create challenging situations for business firms in the not too
distant future.
Notes
___________________
___________________
International Environment: The forces in the international
environment may have adverse or favourable impact on
business. For example, the disintegration of USSR caused
great miseries for Indian exporters in the early nineties. Not
only their investment was blocked, further exports were also
hindered. This compelled the Indian business persons to
explore new export markets. Because of liberalisation of
industrial licensing by developing nations and reduction of
economic barriers between nations as a result of GATT
agreement, 1993, several changes seem to be imminent in the
near future. Multilateral trading among the nations will
increase. The role of WTO, IMF, WB and other international
institutions will change and new economic order will take
place leading to globalisation of economies.
ES
,N
ot
fo
z
rR
ep
ro
du
ct
z
81
UP
The entry of MNCs into a country is not only associated with
the inflow of technical know-how and capital, but it may also
pose threat to the home industries. The units having
collaboration with the multinationals may stand to gain, but
others may have to face competition in the domestic market.
(c
)
Relationship between Business and Its Environment
The environment in which business is placed can also be described
from another angle. There are various interest groups which
___________________
___________________
___________________
___________________
Notes
___________________
___________________
___________________
contribute to the continuity and prosperity of business. These
groups include consumers, employees, owners, creditors, suppliers,
distributors and dealers, competitors, the Governments, etc. The
survival and growth of business will depend upon its relations with
all these interest groups. These interest groups (also known as
“Publics”) can be external.
n/
82
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Aviation Enterprise Management
___________________
io
Check Your Progress
___________________
Fill in the blanks:
___________________
ct
1. ................... environment encompasses the whole
economy, the various economic institutions, including
the competing business enterprise with which business
has to deal.
___________________
ro
du
___________________
___________________
2. ................... environment provides the legal framework
within which business is to function.
___________________
rR
ep
3. ................... environment of business comprises the
know-how and production and management technology
available to business at any point or during a particular
period of time.
Summary
,N
ot
fo
The main business goals of the organization, e.g. strategic business
objectives, critical success factors and key performance indicators,
should be included by a holistic business model approach. There
should be a clear cause and effect linkages between the
competencies, desired outcomes and performance measurements
e.g. scorecards.
(c
)
UP
ES
Lesson End Activity
Create a collage on the business and its environments segments.
Keywords
Business Model: The business model is simply a working
description that includes the general details about the operations
of a business.
Business: Business is as old as civilisation itself. Also, it is the
greatest thing in the world as no development could have taken
place in the absence of business.
Economic Environment: The economic environment is set by the
type of national economic system including the nature of property
rights, ownerships of means of production, production relations,
role of planning, functions of price mechanism, etc.
83
Notes
___________________
___________________
n/
___________________
Questions for Discussion
___________________
What do you mean by business model?
2.
Describe the environment of business.
3.
Explain the relationship between business and environment.
4.
Write short notes on:
io
1.
___________________
ct
___________________
ro
du
(a) Politico-legal environment
(b) Social environment
rR
ep
(c) International environment
Further Readings
Books
Julie, Rodwell, (2003), Essentials of Aviation Management: A Guide
for Aviation Service Business. Kendall Hunt Publishing Company
fo
Speciale, Raymond, (2006), Fundamentals of Aviation Law,
McGraw Hill
ot
T. Wells, Alexander, (2004), Airport Planning & Management.
McGraw Hill
,N
Frock, Roger. Changing How the World Does Business: Fedex's
Incredible Journey to Success - The Inside Story. Berrett Koehler
Publishers
ES
J. Sheehan, John, (2003), Business & Corporate Aviation
Management: On Demand Air Travel. McGraw Hill
Castro, Raoul, Corporate Aviation Management, Southern Illinois
University Press
UP
A. Kinnison, Harry, (2004), Aviation Maintenance Management.
McGraw Hill
Web Readings
http://www.airliners.net/aviationforums/non_aviation/read.main/1958823/
(c
)
Sa
le
UNIT 7: Business Models
___________________
___________________
___________________
___________________
84
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Aviation Enterprise Management
http://books.google.com/books/about/Essentials_of_aviation_manag
ement.html?id=jjfUv6s8LdsC
___________________
___________________
___________________
http://books.google.com/books/about/Designing_and_executing_stra
tegy_in_avia.html?id=CJXshJc_IpIC
http://books.google.com/books/about/Aviation_maintenance_manag
ement.html?id=ZuCJgUSm9ncC
n/
___________________
io
Notes
___________________
ct
___________________
___________________
ro
du
___________________
___________________
(c
)
UP
ES
,N
ot
fo
rR
ep
___________________
Sa
le
UNIT 8: Legal Environment of Business
Unit 8
85
Notes
Legal Environment of Business
___________________
___________________
n/
___________________
Objectives
___________________
Forms of Business Organisation
\
Types of Companies
\
Private and Public Companies
___________________
___________________
ct
\
io
After completion of this unit, the students will be aware of the following
topics:
ro
du
___________________
Introduction
fo
rR
ep
The law is almost a universal human need. No society can exist
without a legal order. We need institutions and a framework of
rules and regulations to provide firmness to our mutual relations.
Without law, there would be complete anarchy in society. That is
why we regard rule of law as the essence of civilised society.
It provides certainty to our relationships. It emphasizes that laws
ought to be general in character so that there is no arbitrariness in
their exercise. It also emphasizes complete equality before law and
equal conformity to law by officials and individuals.
UP
ES
,N
ot
Law and business are closely related disciplines. They complement
each other. Law is a major factor in business decision making.
Almost every aspect of business is regulated by law. Even the
installation of a business unit itself may involve observance of
some legal provision or the other. For instance, in the case of a
company, the various provisions of the Companies Act, 1956 and
other allied laws are to be complied with for incorporation and
commencement of business. The contracts entered into by business
with others may be held to be void or may be against public policy.
Certain business practices may amount to monopolistic, restrictive
or unfair trade practices. Products supplied may be defective.
There may be deficiency in the service provided by business. The
agreement between a manufacturer and his dealers may defeat the
provisions of some law or the other.
(c
)
Sometimes the law may require business to provide certain
facilities to its employees, even when the contract does not provide
therefore. For instance, the provisions of labour welfare laws
___________________
___________________
___________________
86
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Aviation Enterprise Management
impose a legal obligation on employers to provide certain benefits
to their workers.
Notes
Activity
Prepare
a list of the various
___________________
forms of organization with
their___________________
features.
Forms of Business Organisation
There are various forms of business organization and these are:
___________________
z
Sole Proprietorship
___________________
z
Joint Hindu Family Firm
z
Partnership Firm
___________________
___________________
io
Forms of business organization are legal forms in which a business
enterprise may be organized and operated.
These forms of organization refer to such aspects as ownership,
risk bearing, control and distribution of profit. Any one of the
above mentioned forms may be adopted for establishing a business,
but usually one form is more suitable than other for a particular
enterprise. The choice will depend on various factors like the
nature of business, the objective, the capital required, the scale of
operations, state control, legal requirements and so on.
rR
ep
___________________
ct
___________________
ro
du
___________________
n/
___________________
Sole Proprietorship
fo
A sole proprietorship or one man’s business is a form of business
organization owned and managed by a single person. He is entitled
to receive all the profits and bears all risk of ownership.
ot
Features of Sole Proprietorship
The important features of sole proprietorship are:
The business is owned and controlled by only one person.
z
The risk is borne by a single person and hence he derives the
total benefit.
z
The liability of the owner of the business is unlimited.
It means that his personal assets are also liable to be attached
for the payment of the liabilities of the business.
z
The business firm has no separate legal entity apart from that
of the proprietor, and so the business lacks perpetuity.
z
To set up sole proprietorship, no legal formalities are
necessary, but there may be legal restrictions on the setting up
of particular type of business.
(c
)
UP
ES
,N
z
The proprietor may take the help of members of his Family in
running the business.
Notes
___________________
___________________
___________________
Joint Hindu Family
___________________
___________________
___________________
ct
The Joint Hindu Family, also known as Hindu Undivided Family
(HUF) is a non-corporate form of business organization. It is a firm
belonging to a Joint Hindu Family. It comes into existence by the
operations of law and not out of contract.
n/
z
87
The proprietor has complete freedom of action and he himself
takes decisions relating to his firm.
io
z
Sa
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UNIT 8: Legal Environment of Business
fo
rR
ep
ro
du
In Hindu Law, there are two schools of thought, viz. Dayabhaga
which is applicable in Bengal and Assam, and Mitakshara which is
applicable in the rest of India. According to Mitakshara School, the
property of the Joint Hindu Family is inherited by a Hindu Family
from his father, grandfather and great grandfather, thus three
successive generations in male line (son, grandson and great
grandson) can simultaneously inherit the ancestral propriety. They
are called co-parceners in interest and the senior most member of
the Family is called karta. The Hindu Succession Act, 1956 has
extended to the line of coparceners’ interest to female relatives of
the deceased co-parcener or male relative climbing through such
female relatives. Under the Dayabagha law the male heirs become
members only on the death of the father.
ot
Features of Joint Hindu Family
,N
Some of the important features of the Joint Hindu Family are as
follows:
The business is generally managed by the father or some other
senior member of the Family, he is called the Karta or the
manager.
z
Except the Karta, no other member of the family has any right
of participation in the management of a Joint Hindu Family
firm.
z
The other members of the family cannot question the authority
of the Karta and their only remedy is to get the family
dissolved by mutual agreement.
UP
ES
z
If the Karta has misappropriated the funds of the business, he
has to compensate the other coparceners to the extent of their
share in the Joint property of the family.
(c
)
z
___________________
___________________
___________________
___________________
z
For managing the business, the Karta has the power to borrow
funds, but the other coparceners are liable only to the extent of
their share in the business. In other words, the authority is
limited.
z
The death of any member of the family does not dissolve the
business of the family.
z
Dissolution of the Joint Hindu Family can take place only
though mutual agreement.
___________________
___________________
___________________
___________________
___________________
ct
___________________
n/
Notes
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Partnership Form of Organization
___________________
Generally when a proprietor finds it’s difficult to handle the
problems of expansion, he thinks of taking a partner. In other
words, once a business grows beyond the capacity of a sole
proprietorship and or a Joint Hindu Family, it becomes unarguably
necessary to form partnership. It means that partnership grows
out of the limitations of one-man business in terms of limited
financial resources, limited managerial ability and unlimited risk.
Partnership represents the second stage in the evolution of
ownership forms.
___________________
rR
ep
___________________
ro
du
___________________
fo
Section 4 of the Partnership Act, 1932 defines Partnership as “the
relation between persons who have agreed to share the profits of a
business carried on by all or any of them acting for all”.
Features of Partnership
Simple procedure of formation: The formation of
partnership does not involve any complicated legal formalities.
By an oral or written agreement, a Partnership can be created.
Even the registration of the agreement is not compulsory.
,N
ot
z
Capital: The capital of a partnership is contributed by the
partners but it is not necessary that all the partners should
contribute equally. Some may become partners without
contributing any capital. This happens when such partners
have special skills, abilities or experience. The partnership
firm can also raise additional funds by borrowing from banks
and others.
z
Control: The control is exercised jointly by all the partners.
No major decision can be taken without consent of all the
partners. However, in some firms, there may partners known
(c
)
UP
ES
z
Sa
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UNIT 8: Legal Environment of Business
as sleeping or dormant partners who do not take an active part
in the conduct of the business.
n/
Construct
a chart on the
___________________
different types of companies.
Also___________________
include their features,
advantages
and
___________________
disadvantages.
___________________
io
Duration of partnership: The duration of the partnership
may be fixed or may not be fixed by the partners. In case
duration is fixed, it is called as “partnership for a fixed term.
When the fixed period is over, the partnership comes to an
end.
Notes
Activity
___________________
___________________
ct
z
Management: Every partner has a right to take part in the
management of the firm. But generally, the partnership Deed
may provide that one or more than one partner will look after
the management of the affairs of the firm. Sometimes the deed
may provide for the division of responsibilities among the
different partners depending upon their specialization.
ro
du
z
89
Unlimited Liability: The liability of each partner in respect
of the firm is unlimited. It is also joint and several and,
therefore any one of the partner can be asked to clear the
firm’s debts in case the assets of the firm are inadequate for it.
z
No separate legal entity: The partnership firm has no
independent legal existence apart from that of the persons who
constitute it. Partnership is dissolved when any partner dies
or retires. Thus it lacks continuity.
z
Restriction on transfer of share: A partner cannot transfer
his share to an outsider without the consent of all the other
partners.
ot
fo
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ep
z
Check Your Progress
,N
Fill in the blanks:
................... or one man’s business is a form of business
organization owned and managed by a single person.
2.
................... is also known as Hindu Undivided Family
(HUF).
3.
................... as “the relation between persons who have
agreed to share the profits of a business carried on by
all or any of them acting for all”.
UP
ES
1.
(c
)
Types of Companies
Companies can be classified into three categories according to the
mode of incorporation. If a company is incorporated by a charter
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
The liability of members of a registered company may be limited or
unlimited (s.12). It may be limited by shares, or by guarantee or by
both (i.e., shares and guarantee).
A company limited by shares is a registered company having the
liability of its members limited by its memorandum of association
to the amount, if any, unpaid on the shares respectively held by
them. The amount remaining unpaid on the shares can be called
up at any time – during the lifetime of the company or at the time
of winding up. However, a shareholder cannot be called upon to
pay more than the amount remaining unpaid on his shares. His
personal assets cannot be called upon for the payment of the
liabilities of the company, if nothing remains to be paid on the
shares purchased by him. Such a company is also known as a
‘Share Company.’
fo
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ep
___________________
n/
___________________
io
___________________
granted by the monarch, it is called a Chartered Company and is
regulated by that charter. For example, the East India Company
came into being by the grant of a Royal Charter. Such types of
companies do not exist in India. A company which is created by a
special Act of the Legislature is called a Statutory Company and is
governed by the provisions of that Act. The State Bank of India
and the Industrial Finance Corporation of India are two examples
of statutory companies. A company brought into existence by
registration of certain documents under the Companies Act, 1956
is called Registered Company.
ct
Notes
ro
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Aviation Enterprise Management
(c
)
UP
ES
,N
ot
A company limited by guarantee is one having the liability of its
members limited by the memorandum to such amount as the
members may respectively undertake by the memorandum to
contribute to the assets of the company in the event of its being
wound up. Such a company is also known as ‘guarantee company’.
The liability of the members of a guarantee company is limited by
a stipulated sum mentioned in the memorandum. The guaranteed
amount can be called up by the company from the members only at
the time of winding up if the liabilities of the company exceed its
assets.
A pure ‘guarantee company’ does not have a share capital. The
working funds, if required, are raised from source like fees,
donations, subsidy, endowments, grants, subscriptions and the
like. Such a company is generally formed for the purpose of
promotion of art, science, culture, charity, sport, commerce or for
some similar purpose.
91
Notes
___________________
___________________
n/
___________________
io
___________________
___________________
___________________
ct
A company limited by shares as well as by guarantee is a hybrid
form of company which combines elements of the guarantee and
the share company. Such a company raises its initial capital from
its shareholders; while the normal working funds are provided
form other sources such as fees, charges, subscription, etc. Every
member of such a company is subject to a two-fold liability, i.e., the
guarantee which may become effective in the winding up of the
company and the liability to pay up to the nominal amount of his
share which may become effective during the lifetime of the
company or at the time of winding up.
Sa
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UNIT 8: Legal Environment of Business
fo
Private and Public Companies
rR
ep
ro
du
An unlimited company is a company not having any limit on the
liability of its members. The members of such a company are
liable, in the event of its being wound up, to the full extent of their
fortunes to meet the obligations of the company. However, the
members are not liable to the company’s creditors. The company,
being a separate legal entity from the persons who constitute it, is
liable to its creditors. If the creditors cannot obtain payment from
the company, they may petition the court for the winding up of the
company. The Liquidator will then call upon the members to
contribute to the assets of the company without limitation of their
liability for the payment of the debts of the company.
ot
Either of the above kinds of companies (i.e., a limited liability
company and an unlimited liability company) may be private or
public (s.12).
ES
,N
A private company can be formed by merely two persons by
subscribing their names to the Memorandum of Association.
It means a company which has a minimum paid-up capital of one
lakh rupees or such higher paid up capital as may be prescribed;
and by its Articles:
Restricts the rights of its members to transfer shares;
z
Limits the number of its members to fifty, excluding its
employee-members or past employee-members; provided that
where two or more persons hold one or more shares in a
company jointly, they shall, for the purpose of this definition,
be treated as a single member;
(c
)
UP
z
z
Prohibits an invitation to the public to subscribe to its shares
and debentures; and
___________________
___________________
___________________
___________________
92
z
___________________
___________________
___________________
___________________
___________________
___________________
rR
ep
___________________
n/
___________________
A public company means a company which (a) is not a private
company; (b) has a minimum paid-up capital of `5 lakhs or such
higher paid-up capital as may be prescribed; (c) is a private
company which is a subsidiary of a company which is not a private
company. Section 12 prescribes the minimum number of members
as seven who have to subscribe their names to the memorandum of
association but there is no restriction with regard to the maximum
number of members of a public company. A public company may or
may not invite public to subscribe to its share capital. In case, it
decides to invite public to subscribe to its share capital, then it has
to issue a prospectus. In case, it decides not to invite public to
subscribe to its share capital and arranges the capital privately
then it need not issue a prospectus; it has simply to submit a
statement in lieu of prospectus with the Registrar of Companies at
least three days before it can make allotment of shares. The
articles of such a company do not contain provisions restricting the
right of members to transfer their shares. Under the Securities
(Contracts) Regulation Act, 1956, shares and debentures of public
companies only are capable of being dealt in on a stock exchange.
io
___________________
ct
___________________
Prohibits any invitation or acceptance of deposits from persons
other than its members, directors or their relatives.
ro
du
Notes
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Aviation Enterprise Management
fo
Listed Public Company [s. 2 (23)]: It means a public company
which has any of its securities listed on any recognised stock
exchange.
ot
Distinction between Private and Public Company
(c
)
UP
ES
,N
Following are the main points of distinction between a private and
a public company:
z
In the case of a private company minimum number of persons
to form a company is two while it is seven in the case of a
public company.
z
In case of a private company the maximum number of
members must not exceed fifty whereas there is no such
restriction on the maximum number of members in case of a
public company.
z
In private company the right to transfer shares is restricted,
whereas in case of public company the shares are freely
transferable.
z
A private company need not hold a statutory meeting but a
public company must hold a statutory meeting and file a
statutory report with the Registrar.
The directors of a private company are not required to file with
the Registrar written consent to act as directors or sign the
memorandum of association or enter into a contract for their
qualification shares. But the directors of a public company
must file with the Registrar their written consent to act as
directors, must sign the memorandum and must enter into a
contract for their qualification shares.
rR
ep
ro
du
z
Notes
___________________
___________________
___________________
n/
A private company can commence business immediately after
receiving the certificate of incorporation, while a public
company can commence business only when it receives a
certificate to commence business from the Registrar.
93
___________________
io
z
A private company cannot issue a prospectus, while a public
company may, through prospectus, invite the general public to
subscribe for its shares or debentures.
___________________
___________________
ct
z
Sa
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UNIT 8: Legal Environment of Business
Directors of a private company may be appointed by a single
resolution, but it is not so in case of a public company.
z
Directors of a private company are not required to retire by
rotation, but in case of a public company, at least two-third of
the directors must retire by rotation.
z
The number of directors in a private company may be
increased to any extent without the permission of the Central
Government, but in case of a public company if the number of
directors is to be more than twelve then the approval of the
Central Government is necessary.
z
Two members have to be personally present to form the
quorum in a private company but in a public company this
number is five members.
z
In a private company, there are no restrictions on managerial
remuneration.
z
In addition to the above, a private company enjoys some
special privileges. A public company enjoys no such privileges.
z
A private company cannot issue share warrants.
UP
ES
,N
ot
fo
z
(c
)
Special Privileges and Exemptions Available to a Private Company
A private company enjoys certain special privileges which are not
available to a public company. It is so because in a private
___________________
___________________
___________________
___________________
Notes
___________________
___________________
___________________
company the money is raised from few people and generally they
belong to the same family or group or are close friends. Therefore,
not much public interest is involved therein. But in case of public
companies where the money is raised from general public and the
number is quite large, it is necessary to safeguard their interests,
hence several restrictions are imposed on public companies.
n/
94
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Following are the special privileges available to a private company:
___________________
z
A private company can be formed with only two members [s.12
(1)].
z
A private company can proceed to allot shares without waiting
for the minimum subscription (s.69). The reason is that a
private company is not required to offer shares to the public.
z
A private company is not required to issue a prospectus.
Therefore, it can allot shares without issuing a prospectus or
delivering to the Registrar a statement in lieu of prospectus
[s.70 )3)].
z
A private company need not offer further issue of shares to the
existing shareholders, i.e., a private company is free to allot
new issue to outsiders [s.81(3)].
z
A private company can issue any kind of shares and allow
disproportionate voting rights since Ss. 85 to 89 of the Act are
not applicable to it. [s.90(2)].
___________________
z
fo
___________________
ct
___________________
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du
___________________
rR
ep
___________________
io
___________________
z
It need not have an index of members [s.151 (1)].
z
A private company is not required to hold a statutory meeting
or to file a statutory report with the Registrar of Companies
[s.165 (10)].
z
Only two members, who are personally present at the meeting,
shall form the quorum unless the articles provide for a larger
number [s.174 (1)].
z
In case of a private company, poll can be demanded by one
person present in person or by proxy, if not more than seven
persons are present; if the number present is more than seven,
two members present in person or by proxy can demand a poll
[s.179 (1) (b)].
z
A private company need have a minimum of two directors only
[s.252 (2)].
(c
)
UP
ES
,N
ot
A private company can commence business immediately after
its incorporation [s.149 (7)].
95
z
The directors of a private company need not file their written
consent to act as directors or to take up their qualification
share (Ss.264 & 266).
z
The directors of a private company need not retire by rotation
(s.255).
Directors of a private company can vote on a contract in which
they are interested (s.300).
z
A private company is exempted from restrictions regarding
managerial remuneration.
rR
ep
z
fo
Loss of Privileges by a Private Company: Section 43 provides
that if a private company contravenes any of the three conditions
included in its Articles as per s.3(1) (iii), then it will be treated as if
it is a public company and it will then result in loss of privileges
and exemptions to which it is normally entitled to.
,N
ot
The provison to s.43 states that if the contravention of any of the
three restrictions contained in the articles was accidental, or if the
Central Government is satisfied that it is just and equitable to
grant relief, it may relieve the company from these consequences
on the application by the company or any other interested person.
ES
Conversion of Private Company into a Public Company
UP
Section 44 provides for conversion of a private company into a
public company. The procedure is:
The company in general meeting must pass a special
resolution altering its articles in such a manner that they no
longer include the provisions of s.3(1) (iii) which are required
to be included in the articles of a private company. On the date
of the passing of the resolution, the company ceases to be a
private company and becomes a public company.
(c
)
z
Make
a report on the
___________________
procedure for private company
___________________
to convert
into public company
and vice-versa.
___________________
___________________
___________________
___________________
ct
Where a new director is to be appointed, a special notice of
fourteen days is required. This provision is not applicable to a
private company, unless it is a subsidiary of a public company
[s.257 (2)].
ro
du
z
Section 266 dealing with restrictions on appointment or
advertisement of directors is not applicable to a private
company [s.266 (5) (b)].
Notes
Activity
n/
All the directors may be appointed by a single resolution.
io
z
z
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UNIT 8: Legal Environment of Business
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___________________
___________________
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96
z
Notes
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Within thirty days of the passing of the special resolution
altering the articles, the company shall file with the Registrar
___________________
(i)
___________________
(ii) a prospectus or a statement in lieu of prospectus.
If default is made in filing the resolution and the prospectus or
the statement in lieu of prospectus, the company and every
officer in default shall be liable to a fine upto `5,000 for every
day of default.
z
If the number of members is below seven, steps should be
taken to increase it to at least seven whilst the number of
directors should be increased to at least three, if there are only
two directors.
z
The word ‘Private’ is to be deleted before the word ‘Limited’ in
the name.
___________________
___________________
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___________________
a printed or type-written copy of the special resolution and
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Conversion of Public Company into a Private Company
The company in general meeting has to pass special resolution
for altering the articles so as to include therein the necessary
restrictions, limitations and prohibitions and to delete any
provision inconsistent with the restrictions. For instance, a
private company has to put certain restrictions on the right of
members to transfer their shares.
(c
)
UP
ES
,N
ot
z
fo
There is no direct or express provision in the Act for the conversion
of a public company into a private company except a reference in
the proviso to s.31(1). A public company having a share capital and
membership within the limits imposed upon private companies by
s.3(1) (iii), may become a private company by following the
procedure as given below:
z
The word ‘Private’ should be added before ‘Limited’.
z
The approval of the Central Government to the alteration in
the articles for converting a public company into a private
company should be obtained.
z
Within one month of the date of the receipt of the order of
approval, a printed copy of the altered articles must be filed
with the Registrar.
z
With thirty days of the passing of the special resolution, a
printed or type-written copy thereof should be filed with the
Registrar.
Sa
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UNIT 8: Legal Environment of Business
Holding and Subsidiary Companies
97
Where a company has control over another company, it is known
as the Holding Company and the company over which control is
exercised is called the Subsidiary Company. A company is deemed
to be under the control of another if:
Notes
___________________
___________________
The other company holds more than half in nominal value of
its equity share capital (where a company had preference
shareholders, before commencement of this Act, enjoying
voting rights with that of equity shareholders, for the purpose
of control, holding company should enjoy more than half of the
total voting power);
io
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___________________
___________________
___________________
It is a subsidiary of a third company which itself is a
subsidiary of the controlling company. For example, where
company ‘B’ is a subsidiary of company ‘A’ and company ‘C’ is a
subsidiary of company ‘B’, then company ‘C’ shall be a
subsidiary of company ‘A’. If company ‘D’ is a subsidiary of
company ‘C’, then company ‘D’ shall also be a subsidiary of
company ‘B’ and consequently also of company ‘A’.
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z
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That other controls the composition of its Board of Directors;
or
n/
___________________
z
fo
Thus, in order to be holding company, a company must either
control the composition of the Board of Directors or hold more than
half of the nominal value of the equity share capital of another
company.
UP
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However, shares held or power exercisable by any person as a
nominee of that other company shall be treated as held or
exercisable by the said company. Thus, the shares held or power
exercisable by a subsidiary shall be treated as ‘held’ or ‘exercisable’
by the holding company. For example, ‘B’ and ‘C’, are subsidiaries
of company ‘A’, and both of them hold together more than half of
the equity share capital of company ‘D’ then ‘D’ shall be deemed to
be a subsidiary of ‘A’ although it has not made any direct
investment nor ‘B’ or ‘C’ singly hold more than 50% shares, in the
company ‘D’.
One-man Company
(c
)
A member may hold virtually the entire share capital of a
company. Such a company is known as a ‘one-man company’. This
can happen both in a private company and a public company. The
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98
Notes
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other member/members of the company may be holding just one
share each. Such other members may be just dummies for the
purpose of fulfilling the requirements of law as regards minimum
membership [Salomon v. Salomon & Co. Ltd.].
Foreign Company
___________________
Foreign Company is a company incorporated in a country outside
India and has a place of business in India.
___________________
___________________
___________________
___________________
io
However, where not less than 50% of the paid-up share capital
(whether equity or preference or partly equity and partly
preference) of a company incorporated outside India and having an
established place of business in India, is held by one or more
citizens of India or by one or more Indian bodies corporate, such
company shall comply with such of the provisions of the Act as may
be prescribed with regard to the business carried on by it in India.
ct
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Joint Ventures
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n/
___________________
ot
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A joint venture entails establishing a firm that is jointly owned by
two or more otherwise independent firms. Fuji-Xerox for example,
was set up as a joint venture between Xerox and Fuji Photo.
Establishing a joint venture with a foreign firm has long been
popular mode for entering a new market. The most typical joint
venture is a 50/50 venture, in which there are two parties, each of
which holds a 50 per cent ownership stake and contributes a team
of managers to share operating control.
Check Your Progress
(c
)
UP
ES
,N
Fill in the blanks:
1. If a company is incorporated by a charter granted by the
monarch, it is called a ...................
2. A company which is created by a special Act of the
Legislature is called a ...................
3. A company brought into existence by registration of
certain documents under the Companies Act, 1956 is
called ...................
4. Where a company has control over another company, it
is known as the ...................
5. The company over which control is exercised is called
the ...................
Contd…
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UNIT 8: Legal Environment of Business
99
6. A member may hold virtually the entire share capital of
a company. Such a company is known as a ...................
Notes
7. ................... is a company incorporated in a country
outside India and has a place of business in India.
___________________
8. ................... entails establishing a firm that is jointly
owned by two or more otherwise independent firms.
___________________
n/
___________________
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Summary
ct
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Law and business are closely related disciplines. They complement
each other. Law is a major factor in business decision making.
Almost every aspect of business is regulated by law. Even the
installation of a business unit itself may involve observance of
some legal provision or the other. For instance, in the case of a
company, the various provisions of the Companies Act, 1956 and
other allied laws are to be complied with for incorporation and
commencement of business.
Lesson End Activity
fo
Create an informative presentation on the various forms of
organisation and different types of companies.
Keywords
,N
ot
A Sole Proprietorship: A sole proprietorship or one man’s
business is a form of business organization owned and managed by
a single person.
Chartered Company: It is a company incorporated by a charter
granted by the monarch.
ES
Statutory Company: It is a company which is created by a special
Act of the Legislature.
UP
Registered Company: A company brought into existence by
registration of certain documents under the Companies Act, 1956.
Unlimited Company: It is a company not having any limit on the
liability of its members.
(c
)
Holding Company: Where a company has control over another
company.
Subsidiary Company: The company over which control is
exercised.
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100
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One-man Company: A member may hold virtually the entire
share capital of a company.
___________________
___________________
___________________
Foreign Company: It is a company incorporated in a country
outside India and has a place of business in India.
Joint Venture: It entails establishing a firm that is jointly owned
by two or more otherwise independent firms.
n/
___________________
io
Notes
___________________
Questions for Discussion
___________________
1.
Explain the legal environment of business.
___________________
2.
Describe various forms of business organization.
___________________
3.
Distinguish between public and private companies.
___________________
4.
Discuss the different types of companies.
5.
Write short notes on:
ro
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(a) Statutory company
(b) Holding company
(c) Registered company
(d) Limited company
fo
(e) Unlimited company
ot
Further Readings
Books
(c
)
UP
ES
,N
Julie, Rodwell (2003). Essentials of Aviation Management: A Guide
for Aviation Service Business. Kendall Hunt Publishing Company
Speciale, Raymond, (2006), Fundamentals of Aviation Law,
McGraw Hill
T. Wells, Alexander, (2004), Airport Planning & Management.
McGraw Hill
Frock, Roger, Changing How the World Does Business: Fedex's
Incredible Journey to Success - The Inside Story, Berrett Koehler
Publishers
J. Sheehan, John, (2003), Business & Corporate Aviation
Management: On Demand Air Travel. McGraw Hill Inc.
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UNIT 8: Legal Environment of Business
101
Castro, Raoul, Corporate Aviation Management. Southern Illinois
University Press
A. Kinnison, Harry, (2004), Aviation Maintenance Management,
McGraw Hill
Notes
___________________
___________________
n/
___________________
Web Readings
io
___________________
http://www.airliners.net/aviationforums/non_aviation/read.main/1958823/
___________________
___________________
ct
http://books.google.com/books/about/Essentials_of_aviation_manag
ement.html?id=jjfUv6s8LdsC
___________________
___________________
http://books.google.com/books/about/Aviation_maintenance_manag
ement.html?id=ZuCJgUSm9ncC
___________________
(c
)
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ES
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ot
fo
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http://books.google.com/books/about/Designing_and_executing_stra
tegy_in_avia.html?id=CJXshJc_IpIC
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102
Notes
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n/
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ct
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(c
)
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UNIT 9: Business Innovation
Unit 9
103
Notes
Business Innovation
___________________
___________________
n/
___________________
Objectives
___________________
\
Insight for Business Innovation
\
Innovation Failure
\
Innovation for Revenue Generation
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After completion of this unit, the students will be aware of the following
topics:
___________________
ct
___________________
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___________________
Introduction
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Innovation is a change in the thought process for doing something,
or the useful application of new inventions or discoveries. It may
refer to incremental, emergent, radical or revolutionary changes in
thinking, products, processes, or organizations. The goal of
innovation is positive change, to make someone or something
better. Innovation leading to increased productivity is the
fundamental source of increasing wealth in an economy.
ES
,N
ot
fo
Innovation is an important topic in the study of economics,
business, entrepreneurship, design, technology, sociology, and
engineering. Colloquially, the word "innovation" is often
synonymous with the output of the process. However, economists
tend to focus on the process itself, from the origination of an idea to
its transformation into something useful, to its implementation;
and on the system within which the process of innovation unfolds.
Since innovation is also considered a major driver of the economy,
especially when it leads to new product categories or increasing
productivity, the factors that lead to innovation are also considered
to be critical to policy makers. In particular, followers of innovation
economics stress using public policy to spur innovation and growth.
(c
)
UP
In the organizational context, innovation may be linked to
performance and growth through improvements in efficiency,
productivity, quality, competitive positioning, market share, etc.
All organizations can innovate, including for example hospitals,
universities, and local governments.
While innovation typically adds value, innovation may also have a
negative or destructive effect as new developments clear away or
___________________
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___________________
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___________________
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n/
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change old organizational forms and practices. Organizations that
do not innovate effectively may be destroyed by those that do.
Hence innovation typically involves risk. A key challenge in
innovation is maintaining a balance between process and product
innovations where process innovations tend to involve a business
model which may develop shareholder satisfaction through
improved efficiencies while product innovations develop customer
support however at the risk of costly R&D that can erode
shareholder return. Innovation can be described as the result of
some amount of time and effort into researching an idea, plus some
larger amount of time and effort into developing this idea, plus
some very large amount of time and effort into commercializing
this idea into a market place with customers.
ct
Notes
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Insight for Business Innovation
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Innovation comes from the Latin innovationem, noun of action
from innovare. The Etymology Dictionary further explains
innovare as dating back to 1540 and stemming from the Latin
innovatus, pp. of innovare "to renew or change," from in- "into" +
novus "new".
ot
fo
Innovation can therefore be seen as the process that renews
something that exists and not, as is commonly assumed, the
introduction of something new. Furthermore, this makes clear that
innovation is not an economic term by origin, but dates back to the
middle Ages at least. Possibly even earlier.
(c
)
UP
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The central meaning of innovation thus relates to renewal. For this
renewal to take place it is necessary for people to change the way
they make decisions, they must choose to do things differently,
make choices outside of their norm. Schumpeter c.s. (~1930) seems
to have stated that innovation changes the values onto which the
system is based. So when people change their value (system) the
old (economic) system will tumble over to make room for the new
one. When that happens innovation has occurred.
In the organizational context, innovation may be linked to changes
in efficiency, productivity, quality, competitive positioning, market
share, etc. can all be affected positively or negatively by innovative
forces. All organizations can innovate, including for example
hospitals, universities, and local governments. Some will flourish
under its influence. Other will die.
Notes
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___________________
n/
___________________
___________________
___________________
___________________
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Innovation has been studied in a variety of contexts, including in
relation to technology, commerce, social systems, economic
development, and policy construction. There are, therefore,
naturally a wide range of approaches to conceptualizing innovation
in the scholarly literature.
105
io
So as innovation typically changes value, innovation may also have
a negative or destructive effect as new developments clear away or
change old organizational forms and practices. Organizations that
do not compensate effectively for innovative forces (mainly from
outside) may be destroyed by those that do. Hence managing an
organization typically involves risk. A key challenge in
management is maintaining a balance between the current
processes and business model.
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UNIT 9: Business Innovation
Distinguishing from Invention
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Invention is the embodiment of something new. While both
invention and innovation have "uniqueness" implications,
innovation is related to acceptance in society, profitability and
market performance expectation.
fo
An improvement on an existing form or embodiment, composition
or processes might be an invention, an innovation, both or neither
if it is not substantial enough. According to certain business
literature, an idea, a change or an improvement is only an
innovation when it is put to use and effectively causes a social or
commercial reorganization.
UP
ES
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ot
In business, innovation can be easily distinguished from invention.
Invention is the conversion of cash into ideas. Innovation is the
conversion of ideas into cash. This is best described by comparing
Thomas Edison with Nikola Tesla. Thomas Edison was an
innovator because he made money from his ideas. Nikola Tesla
was an inventor. Tesla spent money to create his inventions but
was unable to monetize them. Innovators produce, market and
profit from their innovations. Inventors may or may not profit from
their work.
(c
)
Innovation by businesses is achieved in many ways, with much
attention now given to formal research and development for
"breakthrough innovations." But innovations may be developed by
less formal on-the-job modifications of practice, through exchange
and combination of professional experience and by many other
routes. The more radical and revolutionary innovations tend to
___________________
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___________________
___________________
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___________________
___________________
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emerge from R&D, while more incremental innovations may
emerge from practice – but there are many exceptions to each of
these trends. Accelerated radical innovation is another buzzword
topping radical innovation expressing the target to move things
quicker than by relying on the ideas flowing in from inventors.
Users as customer buying products or using services are important
factors in innovation. Firms may incorporate users in focus groups
(user centred approach), work closely with so called lead users
(lead user approach) or users might adapt their products
themselves. Regarding this user innovation, a great deal of
innovation is done by those actually implementing and using
technologies and products as part of their normal activities. In
most of the times user innovators have some personal record
motivating them. Sometimes user-innovators may become
entrepreneurs, selling their product, they may choose to trade their
innovation in exchange for other innovations, or they may be
adopted by their suppliers. Nowadays, they may also choose to
freely reveal their innovations, using methods like open source. In
such networks of innovation the users or communities of users can
further develop technologies and reinvent their social meaning.
ct
Notes
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fo
Whether innovation is mainly supply-pushed (based on new
technological possibilities) or demand-led (based on social needs
and market requirements) has been a hotly debated topic.
Similarly, what exactly drives innovation in organizations and
economies remains an open question.
(c
)
UP
ES
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More recent theoretical work moves beyond this simple dualistic
problem, and through empirical work shows that innovation does
not just happen within the industrial supply-side, or as a result of
the articulation of user demand, but through a complex set of
processes that links many different players together – not only
developers and users, but a wide variety of intermediary
organisations such as consultancies, standards bodies, etc. Work
on social networks suggests that much of the most successful
innovation occurs at the boundaries of organisations and
industries where the problems and needs of users and the potential
of technologies can be linked together in a creative process that
challenges both.
When an innovative idea requires a new business model, or
radically redesigns the delivery of value to focus on the customer, a
real world experimentation approach increases the chances of
107
Notes
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n/
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___________________
___________________
___________________
Check Your Progress
Fill in the blanks:
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market success. New business models and customer experiences
can't be tested through traditional market research methods. Pilot
programs for new innovations set the path in stone too early thus
increasing the costs of failure. On the other hand, the good news is
that recent years have seen considerable progress in identifying
important key factors/principles or variables that affect the
probability of success in innovation. Of course, building successful
businesses is such a complicated process, involving subtle
interdependencies among so many variables in dynamic systems,
that it is unlikely to ever be made perfectly predictable. But the
more business can master the variables and experiment, the more
they will be able to create new companies, products, processes and
services that achieve what they hope to achieve.
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UNIT 9: Business Innovation
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1. ................... is a change in the thought process for doing
something, or the useful application of new inventions
or discoveries.
Innovation Failure
ot
fo
2. ................... is the embodiment of something new. While
both invention and innovation have "uniqueness"
implications, innovation is related to acceptance in
society,
profitability
and
market
performance
expectation.
(c
)
UP
ES
,N
Innovations that fail are often potentially good ideas but have been
rejected or postponed due to budgetary constraints, lack of skills or
poor fit with current goals. Failures should be identified and
screened out as early in the process as possible. Early screening
avoids unsuitable ideas devouring scarce resources that are needed
to progress more beneficial ones. Organizations can learn how to
avoid failure when it is openly discussed and debated. The lessons
learned from failure often reside longer in the organisational
consciousness than lessons learned from success. While learning is
important, high failure rates throughout the innovation process
are wasteful and a threat to the organisation's future.
The causes of failure have been widely researched and can vary
considerably. Some causes will be external to the organisation and
outside its influence of control. Others will be internal and
___________________
___________________
___________________
___________________
___________________
___________________
z
Poor Leadership
z
Poor Organization
z
Poor Communication
z
Poor Empowerment
z
Poor Knowledge Management
___________________
___________________
___________________
___________________
Common causes of failure within the innovation process in most
organisations can be distilled into five types:
z
Poor goal definition
z
Poor alignment of actions to goals
z
Poor participation in teams
z
Poor monitoring of results
z
Poor communication and access to information
Effective goal definition requires that organisations state explicitly
what their goals are in terms understandable to everyone involved
in the innovation process. This often involves stating goals in a
number of ways. Effective alignment of actions to goals should link
explicit actions such as ideas and projects to specific goals. It also
implies effective management of action portfolios. Participation in
teams refers to the behaviour of individuals in and of teams, and
each individual should have an explicitly allocated responsibility
regarding their role in goals and actions and the payment and
rewards systems that link them to goal attainment. Finally,
effective monitoring of results requires the monitoring of all goals,
actions and teams involved in the innovation process.
(c
)
UP
ES
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fo
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n/
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___________________
ct
___________________
ultimately within the control of the organisation. Internal causes of
failure can be divided into causes associated with the cultural
infrastructure and causes associated with the innovation process
itself. Failure in the cultural infrastructure varies between
organizations but the following are common across all
organisations at some stage in their life cycle:
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Innovation can fail if seen as an organisational process whose
success stems from a mechanistic approach i.e. 'pull lever obtain
result'. While 'driving' change has an emphasis on control,
enforcement and structure, it is only a partial truth in achieving
innovation. Organisational gatekeepers frame the organisational
environment that "Enables" innovation; however innovation is
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UNIT 9: Business Innovation
"Enacted" – recognised, developed, applied and adopted – through
individuals.
___________________
___________________
n/
___________________
___________________
___________________
___________________
ct
From this perspective innovation succeeds from strategic
structures that engage the individual to the organisation's benefit.
Innovation pivots on intrinsically motivated individuals, within a
supportive culture, informed by a broad sense of the future.
Notes
io
Individuals are the 'atom' of the organisation close to the minutiae
of daily activities. Within individuals gritty appreciation of the
small detail combines with a sense of desired organisational
objectives to deliver (and innovate for) a product/service offer.
109
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Check Your Progress
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Innovation, implies change, and can be counter to an organisation's
orthodoxy. Space for fair hearing of innovative ideas is required to
balance the potential autoimmune exclusion that quells an infant
innovative culture.
Fill in the blanks:
1. Effective alignment of actions to goals should link
explicit actions such as ideas and projects to ...................
fo
2. Innovation can fail if seen as an organisational process
whose success stems from a mechanistic approach, i.e.
...................
ot
Innovation for Revenue Generation
,N
Increasingly airlines want to choose an unfettered approach to
their distribution strategy. But in doing so they face significant
capital expenditure and short term cost increases before realising
any operating cost savings.
ES
Panellists from a range of airlines including full service carriers,
low-cost and low-fare operators will discuss successful strategies
and key innovations including:
Which strategies are the most effective: Investment in new
tools and techniques, cutting cost, or both in equal measure?
z
What are the valid solution alternatives for smaller carriers,
low-cost airline and full-service players?
(c
)
UP
z
z
What is the role of the GDS in distribution innovation?
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
This goes to show that innovation, although mostly focused on the
area of research and development, and marketing, should not be
compartmentalised from the rest of the company, but rather
integrated at every level, in order to be fully effective and to be in
line with corporate strategy and goals. Indeed, innovation is not
solely restricted to products, but rather encompasses business
processes and business models as well
Schumpeter, one of the first economists who studied and defined
innovation, coined the term “creative destruction” to refer to the
“process of industrial mutation that incessantly revolutionizes the
economic structure from within, incessantly destroying the old one,
incessantly creating a new one”. He identified novelty, in
technology or in organisational structure, as being the key source
of competition, and not price. Even though in the Indian market,
consumers in various sectors still take price as a symbol of product
value, things are changing even on the product side.
fo
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___________________
Over the past few years, innovation in India as a corporate theme
has constantly gained importance, becoming a prerequisite for
long-term success, or maybe even survival, due to the
discontinuous pace of change of the environment. Thus, innovation
has now reached for some companies as a corporate priority,
affecting every single aspect of an organisation.
ct
Notes
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(c
)
UP
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Opening of sectors by the Indian Government has seen a flood of
foreign competitors who are trying new products in the Indian
market leaving Indian consumer psyche matured. Indian
companies need to improve their products and bring new products
to the market on the one hand and on the other foreign companies
need to innovate for the Indian market–incorporating Indian
tastes and other preferences.
Airlines are ahead of many other industries in innovative ways to
drive revenue. However constantly staying in line, or ahead, of the
competition and ensuring your systems are able to accept input
from a variety of revenue streams is no simple task.
The panel will discuss the next steps in achieving sustainable
return from ancillary (and bundled) fees. Panellists will tackle:
z
Getting to grips with the different models of ancillary revenue
z
Showcasing successful strategies and understanding how to
best target the needs of local markets
___________________
___________________
___________________
___________________
___________________
___________________
ct
How to apply new techniques and capabilities to deliver a
more effective distribution strategy?
Notes
n/
Revenue management has always been about sensing and
responding to customer demands and holding inventory to gain
higher returns. This is a fundamental principal for the airline
industry, however, new technologies offer the opportunity to collect
data and understand customer behaviour like never before. The
panellists will tackle questions on:
z
111
Reviewing this year’s winners in terms of ancillary revenue
and payments.
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UNIT 9: Business Innovation
___________________
___________________
z
How to create the right interaction and conditions for
successful up-selling through website displays and links?
___________________
z
When is the right time to invest in software that supports
website marketing?
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What are the right incentives to drive customers to the most
cost effective distribution channel?
z
Check Your Progress
Fill in the blanks:
fo
1. ................... refer to the “process of industrial mutation
that incessantly revolutionizes the economic structure
from within, incessantly destroying the old one,
incessantly creating a new one”.
ot
2. The panel will discuss the next steps in achieving
sustainable return from ...................
Summary
ES
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3. Revenue management has always been about sensing
and responding to customer demands and holding
inventory to gain ...................
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Innovation is an important topic in the study of economics,
business, entrepreneurship, design, technology, sociology, and
engineering. Colloquially, the word "innovation" is often
synonymous with the output of the process. However, economists
tend to focus on the process itself, from the origination of an idea to
its transformation into something useful, to its implementation;
and on the system within which the process of innovation unfolds.
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A key challenge in innovation is maintaining a balance between
process and product innovations where process innovations tend to
involve a business model which may develop shareholder
satisfaction through improved efficiencies while product
innovations develop customer support however at the risk of costly
R&D that can erode shareholder return.
n/
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Since innovation is also considered a major driver of the economy,
especially when it leads to new product categories or increasing
productivity, the factors that lead to innovation are also considered
to be critical to policy makers. In particular, followers of innovation
economics stress using public policy to spur innovation and growth.
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Lesson End Activity
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With the help of internet, find out some innovations in the aviation
industry in the last decade.
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Keywords
Innovation: It is a change in the thought process for doing
something, or the useful application of new inventions or
discoveries.
ot
fo
Invention: It is the embodiment of something new. While both
invention and innovation have "uniqueness" implications,
innovation is related to acceptance in society, profitability and
market performance expectation.
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Creative Destruction: It is the process of industrial mutation
that incessantly revolutionizes the economic structure from within,
incessantly destroying the old one, incessantly creating a new one.
Questions for Discussion
1.
What are the insights for business innovation?
2.
Describe innovation failure.
3.
Explain innovation for revenue generation.
4.
Write short notes on:
(a) uniqueness
(b) breakthrough innovations
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UNIT 9: Business Innovation
Further Readings
113
Notes
Books
___________________
Julie, Rodwell, (2003), Essentials of Aviation Management: A Guide
for Aviation Service Business. Kendall Hunt Publishing Company
___________________
Speciale, Raymond, (2006), Fundamentals of Aviation Law.
McGraw Hill Inc.
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T. Wells, Alexander, (2004), Airport Planning & Management.
McGraw Hill
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J. Sheehan, John, (2003), Business & Corporate Aviation
Management: On Demand Air Travel. McGraw Hill
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Frock, Roger, Changing How the World Does Business: Fedex's
Incredible Journey to Success - The Inside Story, Berrett Koehler
Publishers
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Castro, Raoul, Corporate Aviation Management, Southern Illinois
University Press
A. Kinnison, Harry, (2004), Aviation Maintenance Management,
McGraw Hill
Web Readings
fo
http://www.airliners.net/aviationforums/non_aviation/read.main/1958823/
ot
http://books.google.com/books/about/Essentials_of_aviation_manag
ement.html?id=jjfUv6s8LdsC
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http://books.google.com/books/about/Designing_and_executing_stra
tegy_in_avia.html?id=CJXshJc_IpIC
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http://books.google.com/books/about/Aviation_maintenance_manag
ement.html?id=ZuCJgUSm9ncC
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Notes
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Unit 10
115
Notes
Case Study
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Objectives
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After analyzing this case, the student will have an appreciation of the
concept of topics studied in this Block.
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Case Study: Model for Strategic Marketing Planning for
Airport Managers
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Marketing planning case studies help airport managers
prepare for real-world problems, situations and crises by
providing
an
approximation
of
various
marketing
environments. Thus, through the examination of specific
marketing cases, airport managers are given the opportunity to
work issues through the trials, tribulations, experiences, and
research findings of other marketing professionals. An obvious
advantage to this mode of marketing planning is that it allows
airport managers the exposure to settings and contexts that
they might not otherwise experience. One way to study airport
marketing issues is through the use of strategic marketing
planning case studies. Strategic marketing planning is a
process of developing a map or route an airport will follow
which identifies what products are to be provided to which
customers, where they will be provided, and at what price.
Based on the vision and mission statements, an airport
strategic marketing planning summarizes the basic operational
tasks, goals, objectives, strategies, and tactics for the airport
organization (Quilty, 1999; Pearce and Robinson, 2005).
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The mission need not be measurable, but it is something the
airport employees can work toward regardless of intermediate
achievements. Compared to mission, objectives imply a shorter,
measurable time period with an accomplishment that can be
measured in numerical terms. For example, an objective might be
to achieve 90% hangar utilization within 2 years (Quilty, 1999).
A strategy is a major course of action and implies a relatively
longer time span than tactics. A strategy is what one is going to
do and not how the airport is going to do it. A tactic, on the other
hand is how the airport is going to achieve the strategy and the
ultimate goal.
Contd…
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It is a series of shorter action items that are part of the strategy.
“Michael Porter, a management scholar, has identified three
classes of competitive advantage strategies. The classes are
known as low-cost producer, differentiation, and focus.” (Quilty,
1999, p. 21)
Notes
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Marketing Objectives
n/
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The low-cost producer attempts to hold prices low by minimizing
costs. These efforts may take the form of efficient scale of
production facilities, product design, distribution channels, raw
materials procurement, etc. Part of this strategy can involve
selling in volume so that low profits per unit may be offset. This
strategy is observed in air carriers such as Southwest™ Airlines,
but it is also practiced in general aviation fuel marketing, at
airports attempting to buy large amounts of chemicals or sand for
winter use, and in the air cargo industry (Quilty, 1999).
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Marketing objectives are time bound statements of intended
future results and general and continuing statements of intended
future results. For purposes of this paper, the marketing
objectives for the King County International Airport (KCIA)* are
as follows:
1. Identify those elements of the strategic marketing
management process that precede strategic decision-making
at the KCIA.
fo
2. Identify and address the products and services that exist at
KCIA.
ot
3. Identify and address the customers and markets that exist at
KCIA.
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4. Identify and address the competitive advantages of KCIA.
5. Identify and address what product and market emphasis
KCIA should pursue.
6. Identify the strategy or strategies that KCIA should
implement and pursue.
*Note: KCIA is not the official airport identifier; it is generally only used in promotional
material. The proper identifier is IATA: BFI, ICAO: KBFI.
The History of King County International Airport
According to King County (2004), in 1928 King County voters
approved a $1 million plan to build the region’s first public
airport. Today, the airport is one of the busiest airports in the
nation and ranks as one of the most successful public investments
in Washington State. The airport was named after the founder of
the Boeing Aircraft Company, William E. Boeing, and the airport
Contd…
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UNIT 10: Case Study
helped to foster the growth of the Boeing Company throughout
the 1930s. It served as the regional centre for commercial and
recreational aviation in the Seattle area during this era (King
County Airport Division, 2002).
117
Notes
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Just one day prior to the bombing of Pearl Harbour, the airport
was taken over by the federal government due to its strategic
location and its importance as a Boeing production centre.
n/
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During the World War II era, the airport was devoted to the
production of the B-17 and the B-29 bombers, which played key
roles in the European and Pacific theatres. After the war years,
the airport served as the primary passenger airport in the region
until the construction and completion of Sea-Tac International
Airport in the early 1950s (King County Airport Division, 2002).
___________________
Questions
1. Study and analyze the case.
fo
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Today, King County International Airport (KCIA) is one of the
busiest airports in the nation, serving more than 375,000 aircraft
operations per year by recreational, corporate, military, and
Boeing jet aircraft. The airport continues to provide limited
passenger service and is the primary air cargo airport in the
region. The airport is owned and operated by the King County
Department of Transportation, Airport Division, and receives no
general tax revenues to support its operations. The airport is the
site for the final production and delivery of the Boeing 737 and
757 aircraft, and a testing centre for the Boeing 777 and military
AWACS program.
ot
2. Write down the case facts.
3. What do you infer from the case?
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Source: http://www.aabri.com/manuscripts/08113.pdf
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Notes
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Notes
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BLOCK-III
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Detailed Contents
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Notes
UNIT
12: STRATEGIC PLANNING BENEFITS
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UNIT 13: AIRPORT INFRASTRUCTURE
Introduction
z
Modern Airport
z
Airport Site Selection
z
Passenger Terminal Layout and Design
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UNIT
11: STRATEGIC AIRPORT PLANNING
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z
Introduction
___________________
z
Strategic Planning Concept
___________________
z
Airport Strategic Planning Framework
___________________
z
Airport Strategic Planning Process
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UNIT 14: PASSENGER TERMINALS
Introduction
z
Passenger Terminal Concepts
z
Cargo Terminal
z
Potential Traffic from/around Airport (IGI Delhi)
z
z
Airport Planning Laws
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ATC and Navigational Equipment
Runways and Taxiways
Hangar/Refuelling Arrangement
Passenger Amenities
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z
z
Introduction
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Key Benefits of Strategic Planning
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Land Acquisition for Airport
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Climate Conditions
___________________
Economy Consideration
z
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UNIT 15: CASE STUDY
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Unit 11
121
Notes
Activity
Strategic Airport Planning
Develop
a report on the
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strategic planning of Airport.
___________________
n/
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Objectives
___________________
\
Strategic Planning Concept
\
Airport Strategic Planning Framework
\
Airport Strategic Planning Process
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After completion of this unit, the students will be aware of the following
topics:
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Introduction
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Airports provide critical connections in the operation of the
transportation system and have significant multiplier effects on
national and regional economies. To meet their social, economic,
operational, and environmental obligations in the face of changing
conditions, airports often undergo dramatic transformations in
business models, facilities, and social responsibilities. The airport
industry, like other industries, is challenged when sudden or
unexpected changes occur in the marketplace. Recent advances in
long-term strategic planning have developed sustainable methods
of managing change in the presence of uncertainty. Yet, the
strategic planning process has not been widely embraced in the
airport industry. Airport professionals and members of airport
policy boards can use the strategic planning process to manage
these transformations effectively and proactively.
Strategic Planning Concept
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In general terms, strategic planning is defined as the process
undertaken by an organization to define its future and formulate a
road map to guide the organization from its current state to its
vision for the future. Strategic planning is based on the
fundamental concept that aspects of an organization’s future can
be influenced by actions taken in the present. Strategic planning
requires a review of existing and potential challenges that an
organization is, or may be, facing; development of a vision for how
the organization will look in the future; and definition of the steps
and actions that must be executed to achieve the organization’s
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vision. Figure 11.1 illustrates some key questions that need to be
answered during the strategic planning process.
Notes
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z
A mission statement that identifies the organization’s purpose
and its core values (a separate values statement may also be
created);
z
A vision statement that portrays the organization’s future
goal(s);
z
Identification of the organization’s strengths, weaknesses, and
opportunities, as well as threats that may affect the
organization;
z
Definition of strategic issues that must be addressed over the
course of the strategic plan;
z
A set of generic and grand strategies, long- and short-term
objectives, and action plans that provide a road map for
addressing the gaps between the organization’s current state
and its vision; and
z
Definition of key performance indicators (measures and
targets) to evaluate the progress made toward achieving longand short-term objectives.
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The strategic planning framework includes the following key
elements:
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Figure 11.1: Strategic Planning Process—key questions.
Check Your Progress
Fill in the blanks:
1. ................... is defined as the process undertaken by an
organization to define its future and formulate a road
map to guide the organization from its current state to
its vision for the future.
Contd…
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123
2. ................... identifies the organization’s purpose and its
core values.
Notes
Activity
Write
an article on the airport
___________________
strategic planning framework.
___________________
3. ................... portrays the organization’s future goal(s).
___________________
Over the years, corporations, nonprofit organizations, academic
institutions, and governmental entities have tailored the strategic
planning framework to fit their specific needs. While certain
publications have addressed airport strategic planning at a
conceptual level, no “how-to” guidebook has been developed
specifically to assist airport operators with the strategic planning
process. In light of this deficiency, the research team has reviewed
the models developed by others and conducted focus groups and an
online survey to gather input from airport executives and industry
professionals. This information was used to develop a process that
is specifically applicable to an airport setting.
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Airport Strategic Planning Framework
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Strategic planning for airports consists of more than just ensuring
the safety and security of the travelling public and achieving a
strong financial performance. In the case of either a single airport
or a multiple-airport system, strategic planning for airports
projects a future vision for the airport organization, determines
strategies and objectives for the growth or prosperity of the
organization (including the type of products and services it should
provide), and defines how the vision and objectives can be
accomplished.
,N
Elements that Influence the Process
ES
The primary product offered by all airports is an infrastructure
system and transportation hub that facilitates the safe and
efficient movement of people and goods travelling from “Point A” to
“Point B.” The product evolves over time, but its purpose
essentially remains the same.
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Similarly, airlines offer a comparable product (i.e., they transport
passengers from their origin [Point A] to their destination [Point
B]). But airlines such as Southwest Airlines and JetBlue Airways
have proven that product differentiation is possible, even for
companies that offer a comparable product. Southwest Airlines,
which typically focuses on point-to-point service to midsize cities
and secondary airports in larger metropolitan areas, offers limited
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Over the years, airport organizations have also sought product
differentiation. Vancouver International Airport, for instance, has
been reinvented from a regional airport serving the local
community to a gateway airport connecting the Asia-Pacific
Region, North America, Europe, and Latin America. This
transformation occurred following the 1992 transfer of airport
management and operational authority from the Canadian
government (Transport Canada) to a not-for-profit corporation
(Vancouver International Airport Authority). The airport’s simple
strategic planning “formula” for product differentiation is: “Low
Cost × High Service = Excellent Customer Value.”
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amenities and few additional service fees and primarily serves
price-sensitive travellers. JetBlue Airways has placed itself in a
different strategic position by offering upscale amenities (including
assigned seating, real-time television, and a choice of snacks) and a
somewhat more hub-and-spoke-focused route network while also
serving price-sensitive travellers.
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fo
Other airport operators differentiate their airports by focusing on
unique products and services that competing airports do not
provide. General aviation airports have offered services ranging
from low-cost hangars to full-service fixed base operations. Diverse
service offerings ranging from wine bars and day spas to flexible
gate use policies have been developed at commercial service
airports.
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Thus, strategic planning in an airport setting is possible, but many
factors, including product differentiation, influence the process.
Some of these factors are similar to those that apply to
corporations and nonprofit organizations, while others are specific
to the airport industry.
When planning strategically, airport management solicits the
opinions of a diverse group of stakeholders. Stakeholder roles in
the process are generally diverse as well. Corporations and
nonprofit organizations also involve a variety of stakeholders in
executing their strategic plans, but the airport strategic planning
process includes added representation from the local community,
such as local government, business and community leaders, and
local public interest organizations. This stakeholder diversity is
highlighted in Figure 11.2.
Airports serve a broad and diverse group of customers that consists
of two key categories: airport tenants (airlines, concessionaires,
Notes
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In contrast to corporations, airports serve the community at large
and generally are economic development engines for the
communities they serve. Airport operators must be responsive to
the needs of both their customers and communities. While the
management team of a corporation or nonprofit organization can
decide what type of customers it wants to serve, the same cannot
typically be said for airports. Furthermore, local entities may be
able to make operational and development decisions based on local
needs and priorities that affect an airport’s future. In contrast,
communities typically have less control over a corporation’s
operations.
125
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fixed base operators (FBOs), air cargo operators, and other airport
business owners) and passengers (meeters/greeters and
well-wishers, and other businesses or individuals that are users of,
or dependent on, the airport). Governing entities must account for
the needs and priorities of these customers when defining a vision
for their airports.
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UNIT 11: Strategic Airport Planning
Figure 11.2: Stakeholders in the Strategic Planning Process
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Strategic planning in the airport industry is challenging because
the aviation industry is continually changing. Engaging in
structured and thoughtful speculation about what the future may
hold is complex. Events such as airline bankruptcies and
restructuring, economic slowdowns, the introduction of new
regulatory requirements, the emergence of low-cost carriers, or the
consolidation of airlines through mergers force airport governing
entities to constantly rethink how they do business and how to
maintain flexibility and adaptability. Almost two-thirds of the
respondents to the online survey conducted in this research stated
that they try to account for the myriad of events that may
influence their organization’s future as part of the strategic
planning process.
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The competitive environment in which airports operate is not
consistent. In some instances, competition comes from other
airports located in close proximity or from an airport that offers
better service or pricing options. In other instances, more
applicable to connecting hub airports, an airline’s consolidation
strategies may result in competition for new service opportunities
among the airports in the airline’s hub network. In addition, other
modes of transportation and economic factors, such as the cost of
fuel, affect the competitive environment for airports.
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Strategic planning also requires consideration of the airport
regulatory environment. While planning for the future, trying to
match capacity with the demand for airline service, and meeting
the needs of airport tenants and users and the public at large,
airport operators must ensure that they satisfy the regulatory
requirements imposed by federal, state, and local agencies.
Agencies of particular relevance to the airport industry are the
Federal Aviation Administration (FAA) and the Department of
Homeland Security (DHS), including both the Transportation
Security Administration (TSA) and U.S. Customs and Border
Protection (CBP). In addition, airports are required to comply with
various state and local regulations that protect airports and the
surrounding communities from incompatible development, define
airport design and construction standards, and provide
environmental guidelines. Respondents to the online survey
indicated that the reporting and regulatory environment of
airports is what most differentiates formulating a strategic plan
for an airport from formulating a strategic plan in other industries.
Check Your Progress
1. The airport’s simple strategic planning “formula” for
product differentiation is: “Low Cost × High Service =
……………...................
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2. General aviation airports have offered services ranging
from low-cost ................... to full-service ....................
Airport Strategic Planning Process
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The airport strategic planning process begins with preplanning
activities. The strategic planning process then proceeds to
assessment and development of (1) the organization’s historical
context, mission, vision, and core values; (2) the internal and
external environment in which the organization operates; (3) the
organization’s strategic issues and strategies for creating
competitive advantage; (4) specific long- and short-term objectives
and action plans that must be implemented for the organization’s
vision to be successfully achieved; and (5) an evaluation plan using
key performance indicators and targets. The framework of the
strategic planning process is highlighted in Figure 11.3.
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Fill in the blanks:
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In addition, strategic planning in an airport setting is influenced
by the “uniqueness” of airports, with the operation of each airport
differing from that of any other. Airports vary in size, location,
type of operations and passengers that they accommodate, and
governing structure, among other factors. Each airport
organization also has its own values and culture. Such uniqueness
makes it difficult to benchmark airport organizations. Because of
this uniqueness, the airport strategic planning process must be
tailored to each airport to account for its individual characteristics.
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UNIT 11: Strategic Airport Planning
Figure 11.3: The Airport Strategic Planning Process Framework
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Similar to the strategic planning process for other types of
organizations, the airport strategic planning process is dynamic
and continuous. Airport strategic planning is a classic example of a
“wicked problem,” or a “problem that has innumerable causes,
morphs constantly and has no correct answer.” Wicked problems
require (1) broader participation of parties affected either directly
or indirectly by planned outcomes and (2) gathering a broad
spectrum of data from a large and diverse range of sources.
It should be noted that, in an airport setting, the strategic
planning process typically incorporates elements of a “bottom-up”
approach, in which stakeholder needs and wishes are considered
and consensus among different interest groups is achieved to the
extent possible.
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The airport strategic planning process can also be segmented into
four main phases: (1) preplanning, (2) analysis/evaluation,
(3) implementation/execution, and (4) monitoring. Many of the
steps within these phases are common to all airport strategic plans
irrespective of airport size or the type of airport being considered.
However, the amount of data to be collected, reviewed, and
analyzed, as well as the outcomes of the process, will vary
depending on the airport organization’s size and complexity, the
amount of time and the level of effort invested in the strategic
planning process, and the number of stakeholders involved in the
process.
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A change in the environment in which an airport operates may
necessitate a change in various elements of the strategic plan. The
process is perpetual, and the organization’s strategic plan is
frequently updated to align its key objectives, performance
measures, and targets with the environment and uncertainties
that arise.
A flow chart of the steps to be taken in each of the four main
phases of the airport strategic planning process is presented in
Figure 11.4. The first, or preplanning, phase establishes the
purpose and method for undertaking the strategic planning
process. This phase includes identification of the need and reasons
for developing the strategic plan, an assessment of the
organization’s readiness to participate in strategic planning
activities, development of the scope and schedule for the planning
process, identification of planning team members and the roles
that other stakeholders should play in the process, and
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UNIT 11: Strategic Airport Planning
determination of whether there is a need to select an external
facilitator.
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Figure 11.4: Four Phases of the Airport Strategic Planning Process
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The analysis/evaluation phase develops the airport organization’s
mission, vision, and values statements. This phase also includes an
evaluation of the historical context and culture of the organization
and a scan of the environment in which the organization operates,
including a review of the organization’s internal strengths and
weaknesses and external threats and opportunities. The findings
of these evaluations and reviews provide a means for the
organization to assess and analyze critical gaps between current
performance and established vision. The review of the critical gaps
may also lead the organization to reassess its vision so that it is
harmonized with the organization’s internal strengths and
weaknesses and is adaptable to a range of future environments in
which the organization may operate.
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___________________
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The implementation/execution phase also includes determining
how to best communicate the content of the strategic plan to
stakeholders and developing key performance measures and
targets for each of the objectives set in the strategic planning
process. Key performance indicators are used to measure and
evaluate incremental performance improvement and the
achievement of objectives established through the strategic
planning process. This phase also includes implementation of an
incentives/rewards program to ensure that individual performance
is linked to organizational performance and creation of training
and development programs to ensure proper implementation of the
plan.
fo
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___________________
n/
___________________
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___________________
The implementation/execution phase provides the vital link
between an organization’s mission and vision, resulting in the
formulation and communication of strategies and objectives that
must be implemented for the vision to become reality. In this
phase, strategic issues are identified, generic and grand strategies
are developed, and long- and short-term objectives are set,
prioritized, assigned, and implemented throughout the entity’s
organizational structure. The process for formulating objectives
includes weighing resource requirements (e.g., capital and
personnel) against the potential benefits that may result from
achievement of the objective. Formulation of an action plan for
each short-term objective guides the day-to-day activities of staff at
the departmental level.
ct
Notes
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Monitoring, although listed as the final phase in the planning
process, needs to occur throughout the process. In this phase, the
key performance indicators defined during the implementation/
execution phase are monitored to assess the effectiveness of the
strategic plan and the need for any adjustments.
The definition and development of these steps is based on a review
of relevant literature, research conducted for this project,
published practical guidance, and previously implemented
techniques.
The strategic planning process generally results in the
development of one key document, the strategic plan, which can be
accompanied by a communications plan and a monitoring plan.
Key inputs to the process include internal and external
stakeholder views, information relative to the organization’s
competition and internal strengths and weaknesses, key industry
___________________
___________________
___________________
n/
A strategic plan provides a high-level statement of strategic
directions and priorities. The strategic plan generally includes
generic and grand strategies, long- and short-term objectives,
an action plan that defines what needs to be accomplished and
who is responsible for each action, and corresponding expected
results or performance targets. The strategic plan serves as
the basis of comparison for the monitoring plan.
Notes
___________________
___________________
___________________
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z
131
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trends, and existing constraints that are likely to impact the
organization’s future. Figure 11.5 graphically depicts the inputs
and outputs of the strategic planning process. The strategic plan,
the communications plan, and the monitoring plan constitute the
main outputs of the process. A comparison of the contents included
in the interrelated plans is provided below:
Sa
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UNIT 11: Strategic Airport Planning
A communications plan establishes the processes for
(1) gathering feedback/input from stakeholders and informing
all stakeholders of the progress of the strategic planning
process and (2) distributing the strategic plan to stakeholders.
The first part of the communications plan is developed during
the preplanning (first) phase of the strategic planning process
and the second part is developed during the implementation/
execution (third) phase. A communications plan sets the rules
to ensure that communication is maintained among the
various individuals or entities involved in the planning process
and maximizes opportunities to engage all stakeholders.
Development of a communications plan as part of the strategic
planning process is particularly relevant for organizations that
interact and collaborate with many stakeholders.
z
A monitoring plan details how to evaluate implementation of
the strategic plan and helps ensure that the organization is
following the action plan established during the strategic
planning process. Management generally benefits from the
monitoring process by learning how its organization reacts to
specific events. The process helps “trigger” needed adjustments
to the strategic plan to effectively respond to unanticipated
events or business opportunities. Monitoring of strategic plan
implementation also allows management to document the
evolution of the organization’s historical performance, which
can generally be used to predict how future risks and
uncertainties could affect the organization’s future
performance.
(c
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z
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___________________
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132
Notes
___________________
___________________
n/
___________________
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___________________
___________________
ct
___________________
Figure 11.5: Inputs and Outputs of the Strategic Planning Process
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Check Your Progress
___________________
___________________
Fill in the blanks:
___________________
1. ................... phase establishes the purpose and method
for undertaking the strategic planning process.
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2. ................... phase develops the airport organization’s
mission, vision, and values statements.
fo
3. ................... phase provides the vital link between an
organization’s mission and vision, resulting in the
formulation and communication of strategies and
objectives that must be implemented for the vision to
become reality.
ot
4. In ................... phase, the key performance indicators
defined during the implementation/ execution phase are
monitored to assess the effectiveness of the strategic
plan and the need for any adjustments.
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Summary
The airport industry, like other industries, is challenged when
sudden or unexpected changes occur in the marketplace. Recent
advances in long-term strategic planning have developed
sustainable methods of managing change in the presence of
uncertainty. Yet, the strategic planning process has not been
widely embraced in the airport industry. Airport professionals and
members of airport policy boards can use the strategic planning
process to manage these transformations effectively and
proactively.
Strategic planning is based on the fundamental concept that
aspects of an organization’s future can be influenced by actions
taken in the present. Strategic planning requires a review of
existing and potential challenges that an organization is, or may
be, facing; development of a vision for how the organization will
look in the future; and definition of the steps and actions that must
be executed to achieve the organization’s vision.
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UNIT 11: Strategic Airport Planning
133
Notes
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___________________
n/
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Lesson End Activity
___________________
___________________
ct
Conduct a SWOT analysis of the Airport operations identifying the
risks and the decision analysis of the possibilities.
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Keywords
___________________
Strategic Planning: It is defined as the process undertaken by
___________________
an organization to define its future and formulate a road map to
___________________
guide the organization from its current state to its vision for the
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future.
Mission Statement: It identifies the organization’s purpose and
its core values.
Vision Statement: It portrays the organization’s future goal(s).
Preplanning, Phase: It establishes the purpose and method for
Analysis/Evaluation
Phase:
fo
undertaking the strategic planning process.
It
develops
the
airport
ot
organization’s mission, vision, and values statements.
Implementation/Execution Phase: It provides the vital link
between an organization’s mission and vision, resulting in the
,N
formulation and communication of strategies and objectives that
must be implemented for the vision to become reality.
ES
Monitoring: In this phase, the key performance indicators defined
during the implementation/execution phase are monitored to
assess the effectiveness of the strategic plan and the need for any
UP
adjustments.
Questions for Discussion
Explain the strategic planning concept.
2.
Describe the airport strategic planning framework.
3.
Discuss the airport strategic planning process.
(c
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1.
134
4.
Notes
Write short notes on:
(a) Stakeholder Diversity
___________________
(b) Preplanning phase
___________________
(c) Product differentiation
Further Readings
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Books
___________________
Julie, Rodwell, (2003), Essentials of Aviation Management: A Guide
for Aviation Service Business. Kendall Hunt Publishing Company
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___________________
Speciale, Raymond, (2006), Fundamentals of Aviation Law,
McGraw Hill
T. Wells, Alexander, (2004), Airport Planning & Management.
McGraw Hill
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Frock, Roger. Changing How the World Does Business: Fedex's
Incredible Journey to Success - The Inside Story, Berrett Koehler
Publishers
J. Sheehan, John, (2003), Business & Corporate Aviation
Management: On Demand Air Travel, McGraw Hill
fo
Castro, Raoul, Corporate Aviation Management, Southern Illinois
University Press
ot
A. Kinnison, Harry, (2004), Aviation Maintenance Management.
McGraw Hill
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Web Readings
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http://www.airliners.net/aviationforums/non_aviation/read.main/1958823/
http://books.google.com/books/about/Essentials_of_aviation_manag
ement.html?id=jjfUv6s8LdsC
http://books.google.com/books/about/Designing_and_executing_stra
tegy_in_avia.html?id=CJXshJc_IpIC
http://books.google.com/books/about/Aviation_maintenance_manag
ement.html?id=ZuCJgUSm9ncC
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UNIT 12: Strategic Planning Benefits
Unit 12
135
Notes
Activity
Strategic Planning Benefits
Write
an article on the key
___________________
benefits of strategic planning.
___________________
n/
___________________
Objectives
___________________
\
Key Benefits of Strategic Planning
\
Land Acquisition for Airport
\
Climate Conditions
\
Economy Consideration
\
Potential Traffic from/around Airport (IGI Delhi)
\
Distance from Rail and Road
\
Airport Planning Laws
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After completion of this unit, the students will be aware of the following
topics:
___________________
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Introduction
ot
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The feedback received by the research team from airport
executives and aviation industry professionals through three focus
group sessions indicates that a variety of benefits are achieved
from engaging in the strategic planning process. These benefits
range from increased efficiency resulting from the establishment of
airport performance metrics to gaining stakeholder buy-in for the
management team or board of directors’ vision for the airport.
,N
Key Benefits of Strategic Planning
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Corporate strategic planning activities tend to be more
quantitatively focused and are directed toward modification of the
organization’s internal and external environment through asset
acquisition and disposal, market share, and growth. Public sector
(e.g., airports) strategic planning activities tend to be more
qualitatively focused and are directed toward improving internal
operating efficiency, setting and achieving objectives, and financial
performance.
(c
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Several strategic planning benefits were specifically mentioned by
participants in each of the three focus groups: the Large
Hub/Gateway International Airports Focus Group; the Medium
Hub, Small Hub, and Non-Hub Airports Focus Group; and the
___________________
___________________
___________________
136
Notes
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Corporate/General Aviation Airports Focus Group. Figure 12.1
shows these benefits and groups them into four categories:
organizational
benefits,
operational/managerial
benefits,
community/stakeholder benefits, and economic benefits.
n/
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___________________
Figure 12.1: Key Benefits of Strategic Planning in the Airport Industry
Organizational Benefits
Organizational benefits of strategic planning mentioned by the
focus groups were the following:
z
Codifying a set of minimum standards or guiding policies that
will be supported by the governing body of the airport
z
Bringing order and a long-term focus to a chaotic business
z
Allowing management to tie performance evaluations at all
organizational levels to a common set of strategic objectives
Providing an important motivational tool to enable employees
at all organizational levels and in all departments to
understand the mission and vision of the organization
___________________
___________________
___________________
___________________
ct
Facilitating the development of metrics to help measure
airport performance, leading to increased efficiency
___________________
Enabling airport management to examine, in a more
comprehensive manner, bold initiatives, strategies, and
alternatives more easily than during the master planning
process
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Creating a blueprint for prioritizing the projects that should
move forward
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___________________
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Operational/managerial benefits of strategic planning mentioned
by the focus groups were the following:
z
Notes
___________________
Operational/Managerial Benefits
z
137
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z
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UNIT 12: Strategic Planning Benefits
Community/Stakeholder Benefits
Community/stakeholder benefits of strategic planning mentioned
by the focus groups were the following:
Helping to diffuse tensions between an airport’s public policy
priorities and tenants’ economic development priorities (e.g.,
an increase in rates and charges to offset the costs associated
with construction of a new passenger terminal or automobile
parking garage)
z
Helping to build community support and explain to elected
officials how the airport contributes to the community’s
economic development
z
Being a tool for soliciting input and buy-in from stakeholders
on a particular course of development
z
Preventing future conflicts by building consensus for a future
action that needs to be initiated at the present time (e.g., the
acquisition of land parcels that will allow for the long-term
development of airport facilities)
z
Helping to build consensus on core business issues before
proceeding with the master planning process
UP
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z
(c
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The main economic benefit of strategic planning cited by the focus
groups was that it allows airport management to shape its
strategic response to structural changes in the business
___________________
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Aviation Enterprise Management
environment (e.g., change in traffic mix from general aviation to
corporate) to maintain financial stability.
___________________
___________________
___________________
___________________
___________________
___________________
n/
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io
___________________
A common benefit of the strategic planning process in both airport
and corporate settings is that the process is useful for establishing
metrics to measure performance. Another common benefit is the
usefulness of the process for communicating the mission and vision
of the organization to employees.
Participants in the three airport focus groups formed by the research
team consistently mentioned the benefits of using the strategic
planning process as a tool for reconciling the competing demands of
policymakers, the community, and airport tenants and users. The
usefulness of the strategic planning process for building community
support and explaining to elected officials how the airport contributes
to the community’s economic development, for instance, was
mentioned by participants in more than one focus group.
ct
Make
a report on the land
___________________
acquisition for airports.
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Notes
Activity
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Check Your Progress
Fill in the blanks:
1. The Strategic planning benefits can be grouped into four
categories: ..................., ..................., ................... and
...................
ot
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2. The usefulness of the strategic planning process for
building community support and explaining to elected
officials how the airport contributes to the community’s
......................................
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Land Acquisition for Airport
Whenever feasible in constructing or expanding an airport the
Federal Aviation Administration (FAA) encourages the airport owner
to use its existing owned land. However in the event that additional
land is necessary for project purposes private property may be
acquired. This unit provides general information to persons who own
or rent real property that is to be acquired for airport development or
noise compatibility projects that receive Federal financial assistance.
Persons required to move from property due to a project acquisition
are considered to be displaced persons and may be eligible for certain
benefits and assistance to relocate from acquired property.
When receiving Federal financial assistance for an airport project
the airport owner is obligated to assure its property acquisition
139
Notes
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___________________
___________________
n/
and provision of relocation assistance and payments to displaced
persons conforms to applicable Federal requirements. For the
potential acquisition of your property and/or your relocation the
airport owner has agreed to carry out its acquisition and relocation
activities consistent with these Federal requirements as described
generally in this brochure.
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UNIT 12: Strategic Planning Benefits
___________________
___________________
How can Land be Acquired for the Airport?
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The FAA authorizes the expenditure of Federal funds under a
grant-in-aid program for airport development or noise
compatibility projects only if the Administrator is satisfied that the
airport owner has met or will meet requirements that are
established by existing and proposed agreements with the United
States covering any airport that the airport owner owns or
controls.
io
___________________
FAA's Role in Airports
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The airport owner determines the specific land requirements for a
particular airport development or noise compatibility project.
fo
In addition, the airport owner can reduce the adverse effects of
incompatible land uses near the airport with the outright purchase
of adjacent land (usually those areas adjacent to the ends of the
runways, under the approach and climb out paths).
,N
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Property can be acquired through several methods, such as
purchase of property interests (fee) or through eminent domain
(condemnation). It also can be acquired through easements, or by
donation or exchange. Unless received through donation, private
property is acquired by the airport owner through payment of just
compensation to the property owner.
ES
Check Your Progress
Fill in the blanks:
UP
1. Whenever feasible in constructing or expanding an
airport the .............................. encourages the airport
owner to use its existing owned land.
(c
)
2. The FAA authorizes the expenditure of ...................
under a grant-in-aid program for airport development or
noise compatibility projects.
___________________
___________________
___________________
___________________
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Climate Conditions
___________________
n/
io
___________________
India, being a vast country does not fit into any one zone. Situated
roughly between 8° N and 37° N Latitude, it occupies a large area
of South Asia. It can be divided mainly into four climatic zones
namely Alpine, Subtropical, Tropical and Arid.
ct
___________________
The word climate refers to the weather variation of any specific
area over a period of time. The countries of world can be divided
into different climatic zones based on factors such as location,
surface relief, surface wind and upper air circulation.
z
Alpine Zone: This climate zone can be experienced in the high
altitudes of Himalayas. In this region there are high climatic
fluctuations due to steep altitude variations. Different types of
climatic zones can be seen in this region. If on the foothills
occur subtropical climate there is Alpine Tundra Zone to greet
you on the higher altitudes.
z
Sub-Tropical: This zone is prevalent in most of the northern
part of India. It can be called as the typical Indian climate.
Summers are hot and wet while in winter temperature may
drop down to freezing point in higher ranges. Rainfall is
common in summer season whereas winters are cold and dry.
z
Tropical: It can be divided into two sub types viz., Tropical
Wet Monsoon and Tropical Dry. The characteristics of Tropical
Wet Monsoon include average temperature, which normally
does not fall below 18°C, accompanied by average to high
rainfall. In Tropical Dry type rainfall is not so common.
___________________
___________________
ot
fo
___________________
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Prepare
an assignment on the
___________________
climate conditions and the
___________________
climatic
zones into which the
countries of the world are
___________________
divided.
___________________
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Notes
Activity
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z
Arid: High temperature and low rainfall are marked features
of this climatic zone. It is prevalent in western part of the
country and includes large part of Rajasthan. The temperature
in this zone may shoot up to as high as 50°C in summer.
Cycle of Season
Though divided into different climatic zones, India seems to be
unified by primarily four seasons – Winter, Summer, Advancing
Monsoon and Retreating Monsoon.
z
Winter: December to February is the wintertime in almost all
of India. At this time of the year, days are cold with average
temperature of 10-15°C, but it can drop down to below 0°C in
some higher ranges of northern India. Normally winters are
Advancing Monsoon: It is the time period when India gets
major part of its share of rain. Months of June, July, August
and September form the core of Advancing Monsoon in almost
all parts of country. The monsoon approaches with moisture
laden winds; this sudden approach is marked with violent
thunderstorms and lightening, known as 'break' of the
monsoon.
Retreating Monsoon: This season starts, when monsoon
after drenching all of India, begins to retreat. With the month
of September, rainfall began to decrease and as we approach
November, the monsoon is completely gone from major part of
India, except for Tamil Nadu and some other southern states,
which also receive rain from Western Disturbance.
fo
z
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z
___________________
___________________
___________________
n/
Summer: March, April, May and June are the summer
months in India. It is a time period when rays of the sun fall
vertically on Indian subcontinent. The average temperature is
around 32°C but in western region the maximum temperature
can be far above the average. Hot wind, known, as 'Loo' is the
marked feature of summers in northern India.
Notes
___________________
___________________
___________________
ct
z
141
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dry in northern India. In Southern part, the temperature
difference is not so marked due to moderating effect of Indian
Ocean, Bay of Bengal and Arabian Sea.
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UNIT 12: Strategic Planning Benefits
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ot
In recent times, this cycle of season has been disturbed due to
uncontrolled industrialization and other developmental activities
resulting in drastic changes in climate. This has led to climatic
disasters such as Drought, Landslides Floods and Global Warming.
The unchecked cutting down of trees indirectly leads to landslide
and drought. Annual Floods have become part of life in many
regions of India. It results in large-scale loss of life and property.
(c
)
UP
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The phenomenon of Global Warming is mainly the result of air
pollution. The polluting industries and vehicles running endlessly
on the roads emit hazardous gases such as Carbon dioxide,
Sulphur dioxide, Carbon monoxide, Methane etc. These gases
produce 'Green House' effect, which leads to Global Warming. It
may lead to very serious climatic changes. The increase in average
temperature of earth is will result in melting down of the polar ice
and glaciers, which in turn will lead to increased ocean level. This
rising ocean level may submerge many of today's existing islands
and coastal cities.
___________________
___________________
___________________
___________________
142
Check Your Progress
Notes
Fill in the blanks:
___________________
1. ................... refers to the weather variation of any
specific area over a period of time.
___________________
n/
___________________
2. ................... zone can be experienced in the high
altitudes of Himalayas.
io
___________________
___________________
___________________
Since transport demand is a derived user benefits are
demonstrated self-evidently by the revealed demand. However, the
costs to provide all the required services should be carefully
considered and compared with their economic benefits. The most
salient benefits of airport development are those derived from local
employment and the stimulation of the regional economy. A major
commercial airport contributes 40,000 to 50,000 jobs to the local
economy, and the presence of a convenient airport is instrumental
in companies’ decisions to locate in the region. The most notorious
disadvantages of airport development and operation are noise and
other environmental impacts. To mitigate the problems associated
with environmental impacts, substantial capital resources are
frequently required.
fo
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___________________
Economy Consideration
ct
3. High temperature and low rainfall are marked features
of ................... climatic zone.
___________________
___________________
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With the growing economic interdependence and the collapse of the
cold-war structure, the walls separating individual countries in the
world are coming down. This is equally true for Japan also. The
21st century will turn out to be an age of increasing exchanges
with the outside world in all spheres on national life, including the
economy, culture and social activities. At home also, logistics, both
transportation of goods and movement of people, will become
increasingly important along with rising living standards and
diversification of life styles.
z
In an age like this, air transportation will have an important
bearing on the smooth flow of people and goods. To assure
continuing economic and social growth in Japan and to assure
a certain level of standing for the country in the world, we
should not lose the opportunity to develop airports, especially
international hub airports (that is, key airports in air
transportation network) as well as domestic hub airports. The
issue is also important from the standpoint of assuring that
lack of airports will not become a bottleneck from the logistics
standpoint.
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UNIT 12: Strategic Planning Benefits
143
Notes
___________________
___________________
n/
___________________
___________________
io
International air transportation networks within the fast
growing and increasingly important Asian region, and between
Asia and the US and Europe are developing rapidly. Asian
countries are aggressively developing building airports to cope
with the growing international air transportation networks.
To cope with the expected increase in demand, development of
key points of international exchanges, centring on
international hub airports is also an urgent issue for Japan, a
leading S. E. Asian country.
___________________
___________________
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ct
z
These issues are not unique to Japan. They are also important
from the standpoint of the international society, with its
increasing mutual inter-dependence with Japan.
z
With the maturing of the economy and society in Japan,
uninterrupted growth, seen in the past, is unlikely. The timing
of development of international hub airports must not be
missed since it should be viewed as an important part of social
infrastructure development, more so because of the above
factors. Moreover, development of airports will spur free
competition between airlines and lead to qualitative and
quantitative improvement in air transportation services for
customers. It will also create employment opportunities in
surrounding areas and bring about economic ripple effect.
z
Coming down to the development of airports, factors like
accurate appraisal of the impact of the airport on the region
and coexistence with the local community should be
emphasized.
ES
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ot
fo
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z
UP
The effects of public policies on competitive relationships among
ports and airports and on their efficient performance have become
more important as competition among alternative traffic routings
has increased.
(c
)
Governments often do not follow policies to maximise global
economic wealth, the criterion used in this section to judge
appropriate policies. The criterion does not provide justification for
general charges or for subsidies except in the possible case of small
ports and airports. Government ownership of land aggravates the
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
Many factors are making the issues of port and airport economics
more important. The growth of trade is putting pressures on
terminal capacities. New investments are needed. Where these
investments are made is influenced by government policies
because there is competition among ports and among airports. The
levels of competition among terminals and within and among
countries are increasing as alternative routings of cargoes and
passengers become more practical. Concerns arise, therefore, not
only about how best to organise and finance expansion locally but
how a local undertaking is affected by conditions in competing
locations. This is exemplified well by the efforts in the European
Union to develop a new ports policy. It is evident within countries
as well as among them, as exemplified by concerns of ports in the
U.S. about treatment of competing U.S. ports.
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n/
___________________
io
Present
a draft on the
___________________
potential traffic from/around
the ___________________
IGI Airport.
problems of land being developed to its highest and best use. The
reasons for restrictions on land uses need to be assessed carefully.
Where appropriate, framing restrictions to avoid unnecessary
harm is difficult. The problems of valuing port and airport lands
and raising revenue from them have features similar to transport
uses of land in general.
ct
Notes
Activity
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Check Your Progress
fo
Fill in the blanks:
(c
)
UP
ES
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ot
1. Asian countries are aggressively developing building
airports to cope with the growing international
................................
2. Coming down to the development of airports, factors like
................... of the impact of the airport on the region
and coexistence with the local community should be
emphasized.
Potential Traffic from/around Airport (IGI Delhi)
Essentially traffic divert from the airport area due to the smooth
running of passengers. Airport authority makes arrangement for
all passengers.
Indira Gandhi International Airport is the primary international
airport of the National Capital Region of Delhi, India, situated in
West Delhi, 16 km southwest of New Delhi city centre. Named
after Indira Gandhi, the former Prime Minister of India, it is the
145
Notes
___________________
___________________
n/
___________________
io
___________________
___________________
___________________
ct
busiest airport in India in terms of daily flight traffic. With the
commencement of operations at the new Terminal 3, Delhi's Indira
Gandhi International Airport has become India's and South Asia's
largest and one of the most important aviation hub, with a current
capacity of handling more than 46 million passengers and aimed at
handling more than 100 million passengers by 2030. Along with
Mumbai's Chhatrapati Shivaji International Airport, it handles
more than half of the air traffic in South Asia. The airport's
operator Delhi International Airport Private Limited is looking to
make the airport the next international transit hub.
Sa
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UNIT 12: Strategic Planning Benefits
rR
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In 2010-11, the airport handled 29.94 million passengers annually
and the planned expansion program will increase its capacity to
handle 100 million passengers by 2030. The new Terminal 3
building has had the capacity to handle an additional 34 million
passengers annually since the start of the 2010 Commonwealth
Games. Indira Gandhi's Terminal 3 is the world's eighth largest
passenger terminal. In September 2008, the airport inaugurated a
4.43 kilometre-long runway. Indira Gandhi International Airport
(IGIA) was conferred the fourth best airport award in the world (in
the 15–25 million categories) and Best Improved Airport in the
Asia-Pacific Region by Airport Council International.
New Terminal T3
ES
,N
ot
fo
Terminal 3 has state-of-the-art complex that features Common Use
Terminal Equipment (CUTE) and an advanced 5 level in-line
baggage handling system with explosive detection technology for
greater efficiency and security. The check-in area features more
than 168 check-in counters. Passengers would greatly benefit as
check-in and security clearances would be faster and less
obtrusive. For international passengers more than 95 desks will
facilitate immigration procedures. In addition, the terminal also
features 78 aerobridges.
(c
)
UP
The two tier terminal building feature the departure complex on
the upper level and the arrivals on the lower level. The roof of the
building has been stylized incisions to allow daylight and has been
angled to protect the interior from direct sunlight. The effect
creates a calm environment and maximizes the sense of volume,
space and light inside. The use of natural light will reduce the
dependency on artificial light during day-time.
The arrival hall features both standard and wide-body baggage
reclaims belts. Passengers can emerge from bag reclaim into the
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
Distance from Rail and Road
Delhi is the air, rail and road hub of India. Delhi Transport and
travel is organized to the level of most developed countries. The
capital city is well connected with the rest of India and the world.
Delhi has three airports but only the domestic and international
terminals of the Indira Gandhi International Airport operate
commercial flights. Delhi is India's major point for international
flights with almost all leading international airlines operating in
and out of Indira Gandhi International Airport, Delhi. Domestic
flights from Delhi connects all major destinations of India and one
can find readily available local airlines operating in and out of the
domestic airport. From the city centre the domestic airport of Delhi
is roughly about 7 km away and the Delhi international airport is
11 km. The third airport of Delhi located next to the Safdarjung
Tomb, unsurprisingly also called Safdarjung Airport, has no
commercial operations and operates only as a flying club.
fo
rR
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___________________
n/
___________________
Access to the new terminal would be via a 6 lane approach road.
The Airport has been connected through dedicated high speed
Metro line connecting to the city centre.
io
Write
an article on the airport
___________________
planning laws.
___________________
Internal Landside Arrivals Concourse from where transit
passengers could use elevators to proceed towards the Departures
level. 4 piers will provide access to the aircraft from the terminal.
ct
Notes
Activity
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146
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Aviation Enterprise Management
Distance of Major Railway Station and Bus head fro Airport
ot
New Delhi station: 22 KM
Old Delhi Station: 23.9 KM
,N
Hazrat Nizamuddin Station: 22.2 KM
(c
)
UP
ES
Sarai Rohilla: 22.7 KM
ISBT: 25.4 KM
Airport Planning Laws
On an examination of the foregoing discussions on airport
congestion no one could say that the problem has not been
perceived so far; a fortiori, no one could even say that those
responsible for the alleviation of the problem have not attempted
to solve it. What now remains to be done is to examine the most
proper manner in which to approach this problem in the coming
Notes
___________________
___________________
n/
___________________
___________________
___________________
___________________
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ct
The cooperation referred to in technical and economic areas would
have to be further expanded to include security and ecological
factors in the technical field and all economic research in city
planning and infrastructural development in the economic field.
These studies would have to be done in the form of committed and
in-depth country studies by individual states taking into
consideration futuristic studies of a country’s outlook and the
financial outlay that the country would be prepared to make for an
airport expansion programme. The outcome of these studies could
then form legislation for the planning of airports in a state. Such
legislation would present, for the first time, a cohesive and
enforceable set of laws in that state that would meet the airport
congestion problem.
147
io
decade and the 21st century. There is no doubt that the planners
can take off from where we are at present. However, any future
planning by individual states on the expansion of their airport
programme would have to be done with the primary consideration
that, ‘Looking to the immediate future, air transport will require
new forms of international cooperation in technical and economic
areas.
Sa
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UNIT 12: Strategic Planning Benefits
Check Your Progress
fo
Fill in the blanks:
ot
1. ................... is the primary international airport of the
National Capital Region of Delhi, India, situated in
West Delhi, 16 km southwest of New Delhi city centre.
Summary
ES
,N
2. Terminal 3 has state-of-the-art complex that features
....................................................... and an advanced
5 level in-line baggage handling system with explosive
detection technology for greater efficiency and security.
UP
Public sector (e.g., airports) strategic planning activities tend to be
more qualitatively focused and are directed toward improving
internal operating efficiency, setting and achieving objectives, and
financial performance.
(c
)
Several strategic planning benefits were specifically mentioned by
participants in each of the three focus groups: the Large
Hub/Gateway International Airports Focus Group; the Medium
___________________
___________________
___________________
___________________
148
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Aviation Enterprise Management
Hub, Small Hub, and Non-Hub Airports Focus Group; and the
Corporate/General Aviation Airports Focus Group.
Notes
___________________
___________________
___________________
___________________
___________________
___________________
___________________
n/
io
___________________
Construct an effective presentation on the strategic planning
benefits for airports.
Keywords
ct
___________________
Lesson End Activity
Climate: It refers to the weather variation of any specific area
over a period of time.
ro
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___________________
Federal Aviation Administration (FAA): It authorizes the
expenditure of Federal funds under a grant-in-aid program for
airport development or noise compatibility projects only.
rR
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Alpine Zone: This climate zone can be experienced in the high
altitudes of Himalayas.
Sub-Tropical: This zone is prevalent in most of the northern part
of India. It can be called as the typical Indian climate.
Tropical: It can be divided into two sub types viz., Tropical Wet
Monsoon and Tropical Dry.
fo
Arid: High temperature and low rainfall are marked features of
this climatic zone.
ot
Questions for Discussion
What are the key benefits of strategic planning?
2.
Describe the Land Acquisition for Airport.
3.
Explain the climate conditions of India.
4.
Write note on the potential traffic from/around airport (IGI
Delhi).
5.
Explain the distance from rail and road to the IGI.
6.
Discuss the airport planning laws.
(c
)
UP
ES
,N
1.
Further Readings
Books
Julie, Rodwell, (2003), Essentials of Aviation Management: A Guide
for Aviation Service Business. Kendall Hunt Publishing Company
Sa
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UNIT 12: Strategic Planning Benefits
149
Speciale, Raymond, (2006), Fundamentals of Aviation Law.
McGraw Hill
Notes
T. Wells, Alexander, (2004), Airport Planning & Management,
McGraw Hill
___________________
Frock, Roger, Changing How the World Does Business, Fedex's
Incredible Journey to Success - The Inside Story, Berrett Koehler
Publishers
___________________
n/
io
___________________
___________________
___________________
ct
J. Sheehan, John, (2003), Business & Corporate Aviation
Management: On Demand Air Travel. McGraw Hill Inc.
___________________
ro
du
Castro, Raoul, Corporate Aviation Management. Southern Illinois
University Press
A. Kinnison, Harry, (2004), Aviation Maintenance Management.
McGraw Hill Inc.
rR
ep
Web Readings
http://www.airliners.net/aviationforums/non_aviation/read.main/1958823/
http://books.google.com/books/about/Essentials_of_aviation_manag
ement.html?id=jjfUv6s8LdsC
fo
http://books.google.com/books/about/Designing_and_executing_stra
tegy_in_avia.html?id=CJXshJc_IpIC
(c
)
UP
ES
,N
ot
http://books.google.com/books/about/Aviation_maintenance_manag
ement.html?id=ZuCJgUSm9ncC
___________________
___________________
___________________
___________________
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Aviation Enterprise Management
150
Notes
___________________
___________________
n/
___________________
io
___________________
___________________
ct
___________________
___________________
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___________________
___________________
(c
)
UP
ES
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ot
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___________________
Sa
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UNIT 13: Airport Infrastructure
Unit 13
151
Notes
Activity
Airport Infrastructure
Write
an article on the modern
___________________
airports.
___________________
n/
___________________
Objectives
___________________
\
Modern Airport
\
Airport Site Selection
\
Passenger Terminal Layout and Design
io
After completion of this unit, the students will be aware of the following
topics:
___________________
ct
___________________
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___________________
Introduction
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Air transport serves a time-sensitive market. The surface access to
airports should therefore be efficient and city planners should keep
the airport-linked requirements constantly in view while designing
surface transport development plans. There is a special need to
emphasize the aspect of rail links with airports, in view of its near
absence in India as contrasted with other countries.
fo
Modern Airport
,N
ot
The largest airports in the world employ more than 100,000
workers each. They are immensely complex entities with regard to
the physical facilities that they comprise, the organizations that
are active within their boundaries, and the services that are
provided in conjunction with their operation.
(c
)
UP
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Physical facilities include runways, taxiways, aprons, and strips,
which are used for the landing and takeoff of aircraft, for the
manoeuvring and positioning of aircraft on the ground, and for the
parking of aircraft in order to load and discharge passengers and
cargo. For the safe landing and takeoff of aircraft, lighting and
radio navigational aids are provided. These are supplemented by
airfield markings, signs and signals, and air traffic control
facilities. Support facilities on the airside of the field include
meteorology, fire and rescue, power and other utilities, aircraft
maintenance, and airport maintenance. Landside facilities are the
passenger and cargo terminals and the access system, which
includes parking, roads, public transport facilities, and loading and
unloading areas.
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
While overall responsibility for efficient, safe, and legal operation
lies with the airport management, many of the individual services
at an airport are provided by other organizations. Such
organizations include airlines; air traffic control authorities;
ground handling companies; fixed-base operators; concessionaires;
security organizations; governmental agencies responsible for
customs, immigration, health control, and police; support
companies providing flight catering, fueling, aircraft engineering,
and maintenance; aero clubs; and flying schools. Since the early
1980s, when privatization began to sweep through civil aviation,
terminal operation companies have also become more frequent,
such as those that own terminals in Birmingham, Eng.; Brussels;
and Toronto.
rR
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___________________
n/
___________________
io
___________________
Many organizations are involved in the operation of a modern
airport. Overall management is usually in the control of an
organization, authority, or company that holds a license to operate
the facility. This license is granted subject to a judgment by the
national civil aviation authorities that the managing body is fit
and competent to run an airport within national and, if applicable,
international laws governing safety and operations.
ct
Notes
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Aviation Enterprise Management
(c
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UP
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ot
fo
Airport services related to the aircraft are frequently referred to as
airside. Many of these services are concentrated on the apron, or
ramp, which is that part of the operational surface adjacent to the
terminals where aircraft are manoeuvred or parked. They include
the apron handling of aircraft, airside passenger transfer to the
aircraft, the handling of baggage and cargo, aircraft fueling,
catering and cabin cleaning, engine starting, deicing, ground power
and air-conditioning, and minor maintenance engineering. Other
airside services are runway inspection, lighting and navigational
aids, fire fighting and rescue, airside maintenance, and air traffic
control. Among the landside services are those related to ground
passenger handling; these include check-in, security, customs and
immigration, baggage delivery, information, catering, cleaning and
maintenance, shops and concessionary facilities, automobile rental,
ground transportation, porters, special help for the elderly and
handicapped, automobile parking, and public transportation
(including taxis). In addition, because airports employ such a large
number of workers, extensive provision must be made for their
daily requirements.
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UNIT 13: Airport Infrastructure
153
Check Your Progress
Notes
Activity
Fill in the blanks:
Prepare a report on the airport
___________________
site selection.
___________________
1. Airport services related to the aircraft are frequently
referred to as ...................
n/
___________________
2. Among the ................... services are those related to
ground passenger handling.
io
___________________
___________________
Airport Site Selection
ct
___________________
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Aeronautical and Environmental Factors
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Selecting a site for a new airport, or evaluating how well an
existing site can be expanded to provide a new major airport, is a
complex process. A balance must be achieved between aeronautical
and air-transport requirements and the impact of the airport on its
environment.
From an aeronautical viewpoint, the basic requirement of an
airport is that it have a relatively flat area of land sufficiently
large to accommodate the runways and other facilities and that
this area be in a locality free from such obstructions to air
navigation as mountains and tall buildings.
fo
From the viewpoint of air-transport needs, airport sites must be
sufficiently close to population centres that they are considered
reasonably accessible to their users.
ES
,N
ot
Environmental considerations, on the other hand, dictate that the
site should be far enough away from urban centres that noise and
other deleterious effects on the population should be kept to
acceptable levels. Furthermore, the airport should not destroy
areas of natural beauty or other significance. These two sets of
requirements, the aeronautical and the environmental, almost
inevitably clash, the conflict becoming more severe as the scale of
the envisaged airport increases.
(c
)
UP
The most modest airport facility—with a single runway, an apron,
and a building that serves simultaneously as terminal,
administration area, and control tower—can comfortably be built
on a site as small as 75 acres, since it requires only a flat, welldrained area sufficient to accommodate a short runway and its
surrounding safety strip.
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
Larger and more modern airport facilities, on the other hand,
require multiple runways of extended length, extensive terminal
apron areas, and large expanses of land devoted to parking and
landside access roads. For such an airport, a minimum area of
3,000 acres is likely to be required, for instance, major airports—
such as Dallas-Fort Worth International Airport in Texas and King
Abdul Aziz International Airport near Jeddah, Saudi Arabia.
n/
Notes
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154
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Aviation Enterprise Management
___________________
___________________
___________________
First, the operational capability of the site is assessed, particularly
with respect to weather conditions such as wind, snow, ice, fog, and
low visibility and also with respect to obstructions to air navigation
around the airport, particularly on the approach and takeoff paths.
rR
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___________________
The site-selection process for large airports can take many months;
in some notable cases it has extended over many years. The
procedure is complicated by the number of factors that must be
taken into account.
ct
___________________
The Selection Process
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___________________
ot
fo
The location of the facility in relation to air-traffic-controlled
airspace is also operationally important. In addition, there must be
an evaluation of the capacity of the available land to accommodate
the expected configuration of runways and other facilities. Flat or
very gently undulating land is necessary, because runways must
be constructed according to restrictions on maximum allowable
slopes—which, in turn, are governed by aircraft performance on
landing and takeoff.
(c
)
UP
ES
,N
Ground access to the airport is also considered. An evaluation is
made of the distance from population centres, the regional
highway infrastructure, public transport facilities (including
railways), and the availability of land for parking.
Development costs are also estimated, taking into account the
nature of the terrain, soil and rock conditions, drainage
requirements, and local land values.
The environmental consequences of an airport development rank
very high in any site-selection procedure. The impact of aircraft
noise on the neighbouring population is often the most significant
environmental factor, but in many countries account must also be
taken of the impact on the flora and fauna of the area, pollution
through chemical runoff into local groundwater, the presence of
endangered species or significant cultural sites, and even
undesirable changes in land use. Many governments now require
that environmental analyses of airport development projects
include evaluations of population relocation, changes in
employment patterns, and distortion of existing regional land use
and transportation planning.
Sa
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UNIT 13: Airport Infrastructure
155
Notes
Activity
Make
a draft of an assignment
___________________
on the passenger terminal
___________________
layout
and design.
n/
___________________
Check Your Progress
___________________
io
Fill in the blanks:
___________________
Passenger Terminal Layout and Design
ro
du
2. The ................... consequences of an airport development
rank very high in any site-selection procedure.
___________________
ct
1. A balance must be achieved between ................... and
air-transport requirements and the impact of the airport
on its environment.
rR
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As passenger’s throughout at airports increases, the passenger
terminal becomes a more important element of the airport,
attaining a dominant status in the largest facilities.
Passenger Requirements
ot
fo
The passenger terminal may amount to less than 10 percent of the
total investment in a small airport, but at large airports terminals
often account for more than 70 percent of infrastructural
investment. The design that is ultimately adopted depends
principally on the passenger volumes to be served and the type of
passenger involved.
(c
)
UP
ES
,N
Passengers are frequently classified as business or leisure,
scheduled or charter, originating or destined, and transfer or
transit. Business travellers tend to pay significantly higher fares,
and airlines usually wish to provide a high quality of service in
order to attract such traffic. The passenger terminal at Heathrow
Airport near London, for example, was designed to a very high
standard of space and decor to attract just this type of passenger.
Scheduled and charter passengers, meanwhile, tend to have very
different needs in the terminal, especially at check-in and in the
provision of ground transportation. Palma Airport, on the Spanish
island of Majorca, has a landside that is designed to accommodate
large numbers of charter tourists arriving and departing the
airport by bus.
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
Airports that receive a large number of transferring and transiting
passengers are referred to as hubbing airports. At a hub, aircraft
arrive in waves, and passengers transfer between aircraft during
the periods when these waves are on the ground. By using a
“hub-and-spoke” network, airlines are able to increase the load
factors on aircraft and to provide more frequent departures for
passengers—at the cost, however, of inconvenient interchange at
the hub.
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___________________
n/
___________________
io
___________________
Some airports have a very high percentage of passengers who are
either transiting the airport (i.e., continuing on the same flight) or
transferring to another flight. At Hartsfield Atlanta International
Airport in Georgia and at Chicago’s O’Hare International Airport,
for example, two-thirds of all passengers transfer to other flights
and have no wish to visit the cities where the airports are sited.
These passengers have special needs but usually only on the
airside of the terminal. There is no need to provide parking or
ground transportation to the city for such passengers; they will,
however, need transit lounges and other areas such as transit
check-in desks.
ct
Notes
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Aviation Enterprise Management
Passenger Terminal
fo
The passenger building is obviously the main point of attention to
the travelling public. It is the design of the terminal building
which more than often determines the airport managements’
efficiency and capability in the eyes of the public.
ot
The passenger building is the major connection between airport
access and the aircraft. The purpose of the passenger building is to:
Interface with the passenger’ mode of aircraft access
z
Process departing and arriving passengers
z
Convey the passenger to and from the aircraft
(c
)
UP
ES
,N
z
These three components could be discussed as access interface,
processing and flight interface respectively.
What are the considerations which influence the design of the
passenger terminal? Airport Management and airlines agree that
the most important person in the terminal building is the
passenger, whether in transit, departing or arriving.
___________________
___________________
___________________
n/
Building should be functional, simple in design and structure,
economical to main and capable of expansion without major
structural changes. It is better to build in progressive stages to
that all airport operations many continue to grow architectural
design while the buildings are in use. This is a very important
consideration. It is well known that in recent years in the oil
producing countries, terminal building have been built as
architectural monuments at enormous cost.
Notes
___________________
___________________
___________________
z
There should be a clear cut functional separation between the
airline and other concerned operational facilities and those
elements are directly related thereto. It is important to
maintain a functional separation between the two major types
of facilities in an airport i.e. those for aviation activities and
those for non-aviation activities, and facilities for the general
public.
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z
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ct
z
157
io
Experience in the use of airport building has made certain overall
requirements and planning principles which should be considered.
These are:
Sa
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UNIT 13: Airport Infrastructure
Public services/facilities should be closely related to the airport
passenger handling area and should be readily accessible to
each of its parts.
fo
In large airports with decentralized terminals public services may
also have to be decentralized in order to:
Reduce the average distance a passenger must walk to reach
such services
z
Make more services available to passengers
z
Reduce the time interval required to reach and use such
services
z
The travel distance between ground transportation and
aircraft should be kept at minimum
z
The size of the ultimate development of the airport,
particularly within the administrative and terminal building
area will determine whether the general plan is to be
centralized or decentralized
UP
ES
,N
ot
z
(c
)
The components of the passenger-handling-together with the
specific physical facilities corresponding to them may be seen in
the figure 13.1.
___________________
___________________
___________________
___________________
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Aviation Enterprise Management
158
Notes
___________________
___________________
n/
___________________
io
___________________
___________________
ct
___________________
___________________
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___________________
___________________
Figure 13.1: Components of Passenger Facilities
___________________
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The facilities that a passenger required are provision of sufficient
space in the building for restaurants, snack bars, shopping arcade,
toilet, adequate space for expeditious facilitation of arriving and
departing by international flight through immigration and
customs.
Check Your Progress
Fill in the blanks:
(c
)
UP
ES
,N
ot
fo
1. Airports that receive a large number of transferring and
transiting passengers are referred to as ...................
airports.
2. It is important to maintain a functional separation
between the two major types of facilities in an airport
i.e. those for ................... activities and those for
................... activities.
Summary
An airport is a location where aircraft such as fixed-wing aircraft,
helicopters, and blimps take off and land. Aircraft may be stored or
maintained at an airport. An airport consists of at least one surface
such as a runway for a plane to take off and land, a helipad, or
water for takeoffs and landings, and often includes buildings such
as control towers, hangars and terminal buildings.
Sa
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UNIT 13: Airport Infrastructure
Lesson End Activity
159
Notes
Create a presentation on the infrastructure of airports.
___________________
Keywords
___________________
n/
___________________
___________________
___________________
ct
Passenger Terminal: It is the design of the terminal building
which more than often determines the airport managements’
efficiency and capability in the eyes of the public.
___________________
io
Airside: Airport services related to the aircraft are frequently
referred to as airside.
Questions for Discussion
ro
du
Passenger Building: It is the major connection between airport
access and the aircraft.
What do you mean passenger terminal?
2.
Write a note on the modern airport.
3.
Explain the concept of airport site selection.
4.
Describe the passenger terminal layout and design.
fo
Further Readings
rR
ep
1.
Books
ot
Julie, Rodwell, (2003), Essentials of Aviation Management: A Guide
for Aviation Service Business. Kendall Hunt Publishing Company
,N
Speciale, Raymond, (2006), Fundamentals of Aviation Law.
McGraw Hill
ES
T. Wells, Alexander, (2004), Airport Planning & Management.
McGraw Hill
UP
Frock, Roger. Changing How the World Does Business: Fedex's
Incredible Journey to Success - The Inside Story. Berrett Koehler
Publishers
J. Sheehan, John, (2003), Business & Corporate Aviation
Management : On Demand Air Travel. McGraw Hill
(c
)
Castro, Raoul, Corporate Aviation Management, Southern Illinois
University Press
___________________
___________________
___________________
___________________
160
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le
Aviation Enterprise Management
A. Kinnison, Harry, (2004), Aviation Maintenance Management.
McGraw Hill
Notes
___________________
___________________
___________________
___________________
___________________
___________________
http://books.google.com/books/about/Designing_and_executing_stra
tegy_in_avia.html?id=CJXshJc_IpIC
http://books.google.com/books/about/Aviation_maintenance_manag
ement.html?id=ZuCJgUSm9ncC
UP
ES
,N
ot
fo
rR
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___________________
(c
)
n/
http://books.google.com/books/about/Essentials_of_aviation_manag
ement.html?id=jjfUv6s8LdsC
io
___________________
http://www.airliners.net/aviationforums/non_aviation/read.main/1958823/
ct
___________________
Web Readings
ro
du
___________________
Sa
le
UNIT 14: Passenger Terminals
Unit 14
161
Notes
Activity
Passenger Terminals
Write
an article on the
___________________
passenger terminal concepts.
___________________
n/
___________________
Objectives
___________________
Passenger Terminal Concepts
\
Cargo Terminal
\
ATC and Navigational Equipment
\
Runways and Taxiways
\
Hangar/Refuelling Arrangement
___________________
___________________
ct
\
io
After completion of this unit, the students will be aware of the following
topics:
ro
du
___________________
Introduction
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An airport terminal is a building at an airport where passengers
transfer between ground transportation and the facilities that
allow them to board and disembark from aircraft.
ot
fo
Within the terminal, passengers purchase tickets, transfer their
luggage, and go through security. The buildings that provide
access to the airplanes (via gates) are typically called concourses.
However, the terms "terminal" and "concourse" are sometimes
used interchangeably, depending on the configuration of the
airport.
,N
Passenger Terminal Concepts
UP
ES
What should be the concept of a passenger terminal? There has
been a considerable debate on it. Two concepts of terminal designs
have been developed, namely centralized and decentralized
terminal. While deciding which of the concepts will suit a
particular airport, the economics and suitability of the terminal in
terms of the total area, manpower utilization and the convenience
available to the passenger and airlines have to be examined.
Centralized Terminal
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In a centralized terminal concept, one single interface building,
situated between landside and airside serves all aircrafts
respective of their size and number. All diversified functions of a
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
The centralized concept has a major drawback in its ever
increasing walking distances for the passengers between the
aircraft and the terminal building. However this defect has been
overcome in a centralized type of terminal like Dulles
International Airport, Washington, which has no fingers or
satellites, but only a terminal building and large remote parking
apron. Passengers are transported between the two points in
special vehicle known as ‘mobile lounges’. This type of terminal
concept has been adopted in the new Montreal International
Airport at Mirabelle, and the Jeddah Airport in Saudi Arabia.
n/
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___________________
terminal are controller in one area. Expansion of facilities
necessitated with the growth of traffic can be incorporated easily
without duplicating them. The separate expansion of apron and
terminal areas is possible in this concept without much
inconvenience.
ct
Notes
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Decentralised Terminal
fo
In a decentralized concept, the functional requirement of a fewer
number of aircraft; say 4 to 6, at a time are handled in one common
facility. When the number of aircraft increases, a series of modules
are developed to meet the requirements. This development of
modules, instead of one large single terminal is known as the
decentralized concept.
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The decentralized or modular concept permits better provision of
passenger convenience. It manages to keep walking distances short
and size of the facilities to ‘human scale’. However the public
conveniences in the decentralized concept require a certain degree
of duplication in staffing and inventory, I order to permit freedom
to passengers to shop where and when the wish. The airport
authorities in such cases have to take a policy decision on the
extent to which they desire to cater to public conveniences. This is
an important factor of terminal designing that the airport terminal
manager must decide.
The development of finger type terminal and satellite terminal are
variations of the centralized and decentralized concepts. The most
recent examples of decentralized terminal are at Dalas/Fortworth
in Texas (USA), Charles de Gaulle in Paris (France) and the
fabulous Atlanta in USA. Built at a cost of US Dollar 500 million
and built at located in an Area of 3750 acres, the newly opened
Sa
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UNIT 14: Passenger Terminals
Atlanta Airport pushed the outer limits of technology and ranks at
the very top of the new generation airports.
Notes
Activity
Make
a brief report on the
___________________
cargo terminal.
___________________
n/
___________________
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___________________
___________________
___________________
Check Your Progress
Fill in the blanks:
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The design for the complex was refined for over more than a
decade to fulfil two basic requirements—to provide the most
convenience and pleasant accommodation for its passengers three
quarters of whom change planes in Atlanta and to create the most
efficient operating conditions for all the airlines. The four boarding
concourses which are separated by the main terminal concourses
are connected by a superb, automatic rapid transit system that
takes passenger between the terminal and the farthest concourse
in than five minutes.
163
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1. The terms ................... and ................... are sometimes
used interchangeably, depending on the configuration of
the airport.
2. The buildings that provide access to the airplanes (via
gates) are typically called ....................
Cargo Terminal
ES
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ot
fo
Less than 1 per cent of all freight tonnage is carried by air.
Nonetheless, this statistic significantly underestimates the
importance of air freight because, in value of cargo moved, air
transport dominates all other modes. For example, although
Heathrow Airport handles less than three-quarters of a million
tons of freight per year, in value of throughput it ranks as Britain’s
premier port. By the early 1990s, Tokyo’s Narita Airport, New
York’s John F. Kennedy, and Frankfurt International Airport
handled in excess of one million tons of cargo per year.
(c
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UP
As is the case with passenger facilities, freight terminals vary
greatly in the volumes of material handled. Consequently, the
scale of the building facilities and the nature of the handling
methods also vary. Because only 10 per cent of air cargo is carried
loose or in bulk, all modern air-cargo facilities are designed to
handle containers. In countries where labour is cheap and where
freight throughputs at the terminal are not high, freight-handling
systems can still be economically designed around the
manhandling concept. This is not feasible in developed countries,
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
n/
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___________________
where labour costs are high. Even at facilities with small
throughputs, freight is moved by mobile mechanical equipment
such as stackers, tugs, and forklift trucks. At high volume
facilities, a mixture of mobile equipment and complex fixed
stacking and movement systems must be used. The fixed systems,
which require complex engineering design and maintenance, are
known as transfer vehicles (TVs) and elevating transfer vehicles
(ETVs).
In the design of air-cargo facilities, special attention must be given
to the handling of very heavy and oversized freight, perishables,
urgent materials such as serums and human donor organs, highvalue goods such as diamonds and gold, hazardous goods, and
livestock.
ct
Notes
Airfield Pavements
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Aviation Enterprise Management
Airfield pavements are of two types:
Rigid: Rigid pavements are constructed of Portland cement
concrete slabs resting on a prepared sub base of granular
material or directly on a granular sub grade. Load is
transmitted through the slabs to the underlying sub grade by
flexure of the slabs.
z
Flexible: Flexible pavements are constructed of several
thicknesses of asphalt or bituminous concrete layers overlying
a base of granular material on a prepared sub grade. They
spread the concentrated aircraft wheel loads throughout their
depth until the load at the base of the pavement is less than
the strength of the in situ soil.
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,N
At all depths the strength of the pavement should be at least equal
to the loads placed upon it by aircraft wheels. The choice of
pavement type is often determined by economics. In some parts of
the world, Portland cement concrete is cheaper than asphalt; in
other parts, the converse is true.
For certain parts of the airfield, however, asphaltic concrete is an
unsuitable material for pavement construction because of its
vulnerability to damage by aviation fuel.
Therefore, even at airports where flexible airfield pavements are
generally in use, it is usual for concrete pavements to be used
where aircraft stand on the aprons and at runway ends where fuel
spillage is frequent.
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UNIT 14: Passenger Terminals
165
Check Your Progress
Notes
Activity
Fill in the blanks:
Prepare
an assignment on the
___________________
air
traffic
control
and
___________________
navigational
equipments.
1. ................... pavements are constructed of Portland
cement concrete slabs resting on a prepared sub base of
granular material or directly on a granular sub grade.
n/
io
___________________
___________________
ct
ATC and Navigational Equipment
___________________
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2. ................... pavements are constructed of several
thicknesses of asphalt or bituminous concrete layers
overlying a base of granular material on a prepared sub
grade.
___________________
Air traffic control (ATC) is a service provided by ground-based
controllers who direct aircraft on the ground and in the air.
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Air Traffic Control Equipment
The primary purpose of ATC systems worldwide is to separate
aircraft to prevent collisions, to organize and expedite the flow of
traffic, and to provide information and other support for pilots
when able. In some countries, ATC may also play a security or
defence role, or be run entirely by the military.
UP
ES
,N
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fo
In many countries, ATC services are provided throughout the
majority of airspace, and its services are available to all users
(private, military, and commercial). When controllers are
responsible for separating some or all aircraft, such airspace is
called "controlled airspace" in contrast to "uncontrolled airspace"
where aircraft may fly without the use of the air traffic control
system. Depending on the type of flight and the class of airspace,
ATC may issue instructions that pilots are required to follow, or
merely flight information (in some countries known as advisories)
to assist pilots operating in the airspace. In all cases, however, the
pilot in command has final responsibility for the safety of the
flight, and may deviate from ATC instructions in an emergency.
(c
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Only the simplest airfields are designed for operations conducted
under visual meteorological conditions (VMC). These facilities
operate only in daylight, and the only guidance they are required
to offer is a painted runway centreline and large painted numbers
indicating the magnetic bearing of the runway. Larger commercial
airports, on the other hand, must also operate in the hours of
___________________
___________________
___________________
___________________
Notes
___________________
___________________
___________________
darkness and under instrument meteorological conditions (IMC),
when horizontal visibility is 650 yards or less and the cloud base
(or “decision height”) is 65 yards or lower. In order to assist aircraft
in approaches and take-offs and in manoeuvring on the ground,
such airports are equipped with sophisticated radio navigational
aids (navaids) and visual aids in the form of lighting and marking.
n/
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___________________
___________________
___________________
___________________
___________________
io
The primary method of controlling the immediate airport
environment is visual observation from the airport traffic control
tower (ATCT). The ATCT is a tall, windowed structure located on
the airport grounds. Aerodrome or Tower controllers are
responsible for the separation and efficient movement of aircraft
and vehicles operating on the taxiways and runways of the airport
itself, and aircraft in the air near the airport, generally 5 to 10
nautical miles (9 to 18 km) depending on the airport procedures.
ct
___________________
Airport Control
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Radar displays are also available to controllers at some airports.
Controllers may use a radar system called Secondary Surveillance
Radar for airborne traffic approaching and departing. These
displays include a map of the area, the position of various aircraft,
and data tags that include aircraft identification, speed, heading,
and other information described in local procedures.
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The areas of responsibility for ATCT controllers fall into three
general operational disciplines; Local Control or Air Control,
Ground Control, and Flight Data/Clearance Delivery—other
categories, such as Apron Control or Ground Movement Planner,
may exist at extremely busy airports. While each ATCT may have
unique airport-specific procedures, such as multiple teams of
controllers ('crews') at major or complex airports with multiple
runways, the following provides a general concept of the delegation
of responsibilities within the ATCT environment.
Remote and Virtual Tower (RVT) is a system based on Air Traffic
Controllers being located somewhere other than at the local airport
tower and still able to provide Air Traffic Control services.
Displays for the Air Traffic Controllers may be either optical live
video and/or synthetic images based on surveillance sensor data.
Ground Control
Ground Control (sometimes known as Ground Movement Control
abbreviated to GMC or Surface Movement Control abbreviated to
167
Notes
___________________
___________________
n/
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___________________
___________________
___________________
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SMC) is responsible for the airport "movement" areas, as well as
areas not released to the airlines or other users. This generally
includes all taxiways, inactive runways, holding areas, and some
transitional aprons or intersections where aircraft arrive, having
vacated the runway or departure gate. Exact areas and control
responsibilities are clearly defined in local documents and
agreements at each airport. Any aircraft, vehicle, or person
walking or working in these areas is required to have clearance
from Ground Control. This is normally done via VHF/UHF radio,
but there may be special cases where other processes are used.
Most aircraft and airside vehicles have radios. Aircraft or vehicles
without radios must respond to ATC instructions via aviation light
signals or else be led by vehicles with radios. People working on
the airport surface normally have a communications link through
which they can communicate with Ground Control, commonly
either by handheld radio or even cell phone. Ground Control is
vital to the smooth operation of the airport, because this position
impacts the sequencing of departure aircraft, affecting the safety
and efficiency of the airport's operation.
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UNIT 14: Passenger Terminals
Navigational Aids
,N
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Some busier airports have Surface Movement Radar (SMR), such
as, ASDE-3, AMASS or ASDE-X, designed to display aircraft and
vehicles on the ground. These are used by Ground Control as an
additional tool to control ground traffic, particularly at night or in
poor visibility. There are a wide range of capabilities on these
systems as they are being modernized. Older systems will display a
map of the airport and the target. Newer systems include the
capability to display higher quality mapping, radar target, data
blocks, and safety alerts, and to interface with other systems such
as digital flight strips.
(c
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The most common form of navaid used for the approach phase of
aircraft descent is the Instrument Landing System (ILS). This is a
radio signal that is beamed along the centreline of the runway and
at the correct angle of approach (usually 3° above the horizontal).
The beam is intercepted by an approaching aircraft up to 15 miles
from the threshold of the runway. Information is given concerning
position above and below the glide slope and deviation to the right
or left of centreline; consequently, the pilot is able to determine
from cockpit instruments a deviation of the aircraft from the
proper approach.
___________________
___________________
___________________
___________________
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Additional approach information is given visually to the pilot in
Notes
the form of lighting approach aids. Two systems of approach aids
are in use: the visual approach slope indicator system (VASIS) and
___________________
the more modern precision approach path indicator (PAPI). Both
___________________
work on the principle of guiding lights that show white when the
___________________
pilot is above the proper glide slope and red when below.
io
n/
___________________
Airfield Lighting
___________________
Visual guidance to approaching aircraft is also provided by
___________________
approach lighting systems, a configuration of high-intensity white
___________________
lights running along the centreline of the runway and extending
___________________
up to 650 yards beyond the threshold. At airfields where aircraft
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___________________
ct
___________________
operate in very poor visibility, touch downzone lighting is provided
over the first 1,000 yards from the runway threshold. These lights,
set in patterns flush with the runway pavement, provide guidance
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up to the final moment of touchdown.
The runway itself is strongly delineated by a variety of guidance
light systems. The threshold is designated by a line of green lights,
and the edges and centreline are delineated by white lights that
shine toward the manoeuvring aircraft at regular intervals. The
fo
pilot is warned of the approaching runway end by a line of red
lights at the end of the usable pavement. Taxiways are delineated
by blue edge lights and by green centreline lights that also appear
ot
at regular intervals.
,N
Runway Markings
Considerable additional visual guidance is given to pilots by
painted markings on the runway. The form of marking indicates at
(c
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UP
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a glance whether radio instrument guidance is available at any
particular airfield. On precision instrument runways, the runway
edges are indicated by painted lines, and distances along the
runway from the threshold are indicated by pavement markings.
In addition, touchdown zone markings are painted on the
pavement immediately after the threshold, providing vital visual
guidance during the moments immediately before touchdown when
all lighting may be obscured by fog.
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UNIT 14: Passenger Terminals
169
Check Your Progress
Notes
Activity
Fill in the blanks:
Present
a draft on the
___________________
runways and the taxiways.
___________________
1. ................... is responsible for the airport "movement"
areas, as well as areas not released to the airlines or
other users.
n/
___________________
___________________
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2. The most common form of navaid used for the approach
phase of aircraft descent is the ...................
___________________
ct
___________________
Runways and Taxiways
___________________
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Airplane runways and taxiways are an important part of the
overall functioning of airplanes. Smooth working of an airport
depends substantially on the condition of its runways and
taxiways. If in improper condition, they can cause heavy damage to
airplanes.
UP
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Airplane runway has much more to it beyond its simple definition a strip of land used by the airplanes for taking off and landing. An
airplane runway (generally white in colour) lets the pilot
manoeuvre the plane as desired without any damage to the aircraft
and the surrounding area. It is also where the airplanes usually
move at a faster pace to get the desired momentum for the airplane
to take-off.
(c
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Unlike airplanes, taxiways link the runways, ramps, hangars,
terminals with numerous other facilities. Moreover, they permit
the airplanes to fly quickly and vacate the premise for another
___________________
___________________
___________________
Notes
___________________
___________________
aircraft. Some of the most commonly known type of taxiway is the
parallel taxiway, which is generally narrower than the
conventional runways. Taxiways make use of alphabet markings
and the airplanes usually accelerate or decelerate at a slower pace
on them.
___________________
___________________
___________________
___________________
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___________________
Originally, pilots used open stretches such as farms or fields,
which performed the purpose of runways. However, both landing
and take-off operations were restricted at night to avoid accidents.
Then, in the late 1920s rotating lights were positioned along the
landing field so as to locate the landing area or the runway at
night from the airplane. The Cleveland Municipal Airport in the
United States was the first airport which introduced runway
lighting in 1930. Moreover, the Dallas Love Field Airport is also
reported to be one of the oldest runways using the technology in
the United States.
ct
___________________
Types of Runways and Taxiways
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Technically, there are mainly two types of airplane runways: the
visual and instrument. The instrument airplane runway involves a
ground based approach whereby exact instructions are given to an
aircraft using radio signals and high intensity lighting arrays so
that the airplane could have a safe landing especially in situations
of low ceilings or less visibility owing to fog, blowing snow or rain.
The visual airplane runway on the other hand uses minimal
instrument approach. In this case, the pilot needs to have a visual
reference of the runway for landing an airplane. For this, there are
retro-reflective panels comprising of pairs of colour-coded orange
panel markers pointing towards the touchdown zone.
Coming to taxiways, there are six main different types of taxiways
which include runway, parking, taxi, path, closed and vehicle. The
runway taxiway is positioned in the centre of a runway. A parking
taxiway links the regular taxiway to the parking premise. A basic
taxiway is the major track used for taxing at airports. Path
taxiways are more popular at smaller airports, especially those
having grass runways. Closed taxiways with an ‘X’ marking allow
the air traffic control to make use of the signal. Finally, the vehicle
taxiway ensures precise supervision for air traffic. Busy airports
also have high-speed or rapid exit taxiways to clear the premise for
other aircrafts.
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UNIT 14: Passenger Terminals
Hangar/Refuelling Arrangement
171
Notes
Activity
___________________
___________________
___________________
ct
Hangars protect aircraft from weather and ultraviolet light.
Hangars may be used as an enclosed repair shop or, in some cases,
an assembly area. Additionally, hangars keep secret aircraft
hidden from satellites or spyplanes.
___________________
n/
A hangar is a closed structure to hold aircraft or spacecraft in
protective storage. Most hangars are built of metal, but other
materials such as wood and concrete are also sometimes used.
Create
a presentation on the
___________________
hangar
and
refueling
___________________
arrangements
for aircrafts.
io
Hangar
___________________
___________________
Refuelling
___________________
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Aircraft storage halls on aircraft carriers and ships are also known
as hangars.
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Handling aircraft fuel must be done according to local airport
safety regulations and rules. If not done properly the results can be
really devastating to you and others.
Aircraft fuel is highly combustible and burning avgas is only useful
to us inside an engine while trying to rotate the propeller.
fo
And with current fuel prices, any aircraft left parked overnight on
an apron seem easy targets for fuel thieves these days. A small
investment in lockable fuel caps is really worthwhile.
ot
Fuel servicing personnel is according regulations trained in the
safe operation of fuelling equipment. As a pilot refuelling your own
aircraft you should observe at least the following guidelines:
Check the colour and type of fuel before the actual delivery.
100 octane aviation gasoline (avgas) is green and 100 octane
low lead avgas is blue. Jet fuel is usually clear, but sometimes
it is a very light yellow colour as is normal road diesel and
biodiesel. Red diesel is, well, coloured red.
z
No smoking within at least 50 feet of an aircraft.
z
Refuel outside only. (Remember: when refuelling an aircraft
within a closed hangar a situation could develop where the
combination of air and fuel vapours are very explosive! One
spark due to static electricity and your flight will end
prematurely.)
z
The aircraft and fuelling vehicles or equipment should be
bonded together to dissipate static electricity collected during
refuelling.
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z
___________________
z
If a spill occurs, refuelling should be stopped and the airport
fire department notified, if necessary.
z
Ground power units should not be connected or disconnected
during refuelling.
z
Persons refuelling aircraft should not carry lighters or
matches when refuelling.
z
At the first sight of lightning in the area, refuelling operations
should be suspended.
z
Refuelling may not be conducted with passengers on board the
aircraft.
z
Avoid contact with fuel. The health risks are high if fuel gets
into your body; this is possible via the eyes, skin contact and
ingestion via inhalation. Get medical help if this happens.
z
AVgas refuelling must not be done with the engines running
(hot refuelling) and be careful if hot refuelling with JET A.
z
Make sure the fuel nozzle is clean and keep dirt and water
away from the fuel caps, also support the nozzle preventing
damage to the wing tank.
___________________
___________________
___________________
___________________
___________________
___________________
Replace the fuel caps securely, losing a cap in flight will
guarantee a loss of fuel and possible wing damage.
ot
z
n/
Portable electronic devices should be switched off (cell phones,
radios, pagers).
io
___________________
z
ct
___________________
Always keep fire extinguishers nearby.
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Construct
an
effective
___________________
summarized report on the
___________________
passenger
amenities.
z
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Notes
Activity
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Aviation Enterprise Management
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z
Wait some 30 minutes before sampling fuel, gently rock the
wings so that any water and debris can settle near the sample
port.
Passenger Amenities
Passenger amenities available at the international airport all the
time and these amenities are:
z
Retiring Rooms
z
Left Luggage Facility
z
Baggage Wrapping Service
z
Infant Lobby
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UNIT 14: Passenger Terminals
173
z
Facilitation Counters
z
Banking/Money Exchange Service
z
Railway Reservation Counter
z
Post & Telecommunications
z
STD / ISD / PCO Booths
z
Doctors on Call
z
Chemist
z
Automatic Flight Information System
z
Transit Lounge–Terminal II
z
Duty Free Shops
z
Internet Kiosks
z
Airport Lounges
Notes
___________________
___________________
n/
___________________
io
___________________
___________________
ct
___________________
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___________________
Check Your Progress
Fill in the blanks:
fo
1. ................... is highly combustible and burning avgas is
only useful to us inside an engine while trying to rotate
the propeller.
ot
2. Jet fuel is usually clear, but sometimes it is a very light
................... colour as is normal road diesel and biodiesel.
Summary
ES
,N
Within the terminal, passengers purchase tickets, transfer their
luggage, and go through security. The buildings that provide
access to the airplanes (via gates) are typically called concourses.
However, the terms "terminal" and "concourse" are sometimes
used interchangeably, depending on the configuration of the
airport.
(c
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UP
Two concepts of terminal designs have been developed, namely
centralized and decentralized terminal. While deciding which of
the concepts will suit a particular airport, the economics and
suitability of the terminal in terms of the total area, manpower
utilization and the convenience available to the passenger and
airlines have to be examined.
___________________
___________________
___________________
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Aviation Enterprise Management
Lesson End Activity
Notes
___________________
___________________
Collect more information on the passenger terminals at the
airports. Present the information and pictures in the form of a
collage.
___________________
___________________
___________________
___________________
io
ct
___________________
Hangar: A hangar is a closed structure to hold aircraft or
spacecraft in protective storage.
Aircraft Fuel: Aircraft fuel is highly combustible and burning
avgas is only useful to us inside an engine while trying to rotate
the propeller.
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___________________
Keywords
Centralized Terminal: The centralized concept has a major
drawback in its ever increasing walking distances for the
passengers between the aircraft and the terminal building.
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___________________
n/
___________________
Questions for Discussion
Distinguish between centralized and decentralized terminals.
2.
Explain cargo terminal.
3.
Describe air traffic control in detail.
4.
What do you mean by runways and taxiways?
fo
1.
ot
Further Readings
Books
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Julie, Rodwell, (2003), Essentials of Aviation Management: A Guide
for Aviation Service Business. Kendall Hunt Publishing Company
Speciale, Raymond, (2006), Fundamentals of Aviation Law,
McGraw Hill
T. Wells, Alexander, (2004), Airport Planning & Management,
McGraw Hill
Frock, Roger. Changing How the World Does Business: Fedex's
Incredible Journey to Success - The Inside Story, Berrett Koehler
Publishers Inc.
J. Sheehan, John, (2003), Business & Corporate Aviation
Management: On Demand Air Travel. McGraw Hill
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UNIT 14: Passenger Terminals
175
Castro, Raoul, Corporate Aviation Management. Southern Illinois
University Press
A. Kinnison, Harry, (2004), Aviation Maintenance Management,
McGraw Hill
Notes
___________________
___________________
n/
___________________
Web Readings
io
___________________
http://www.airliners.net/aviationforums/non_aviation/read.main/1958823/
___________________
___________________
ct
http://books.google.com/books/about/Essentials_of_aviation_manag
ement.html?id=jjfUv6s8LdsC
___________________
___________________
http://books.google.com/books/about/Aviation_maintenance_manag
ement.html?id=ZuCJgUSm9ncC
___________________
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http://books.google.com/books/about/Designing_and_executing_stra
tegy_in_avia.html?id=CJXshJc_IpIC
___________________
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176
Notes
___________________
___________________
n/
___________________
io
___________________
___________________
ct
___________________
___________________
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___________________
___________________
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UNIT 15: Case Study
Unit 15
177
Notes
Case Study
___________________
___________________
n/
___________________
Objectives
___________________
io
After analyzing this case, the student will have an appreciation of the
concept of topics studied in this Block.
___________________
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Case Study: Commercialization, Privatization and Economic
Oversight of Airports and Air Navigation Services Providers
ct
___________________
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The Government of India passed the International Airport
Authority Act in 1971, which created the International Airports
Authority of India, in charge of planning, managing, and
developing India’s four international airports. Another authority,
the National Airport Authority was created in 1986 to take over
the management of India’s domestic airports, and develop and
operate them on corporate principles.
UP
ES
,N
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The aviation sector has rapidly grown over the past years in
India, putting new development constrains on the country’s old
and congested airports. In addition, there was a need for better
coordination between the actions and policies of the two airport
authorities. The National Airports Authority and the
International Airports Authority of India were merged in 1995
under the single Airports Authority of India (AAI), in charge of
building, managing and developing Indian civil aviation
infrastructure, managing Indian airspace, and providing en route
navigation facilities to aircraft flying in Indian airspace.
A Domestic Wing was constituted to manage domestic airports,
while an International Wing has assumed the responsibility of the
five international airports (Mumbai, Delhi, Chennai, Kolkata, and
Thiruvananthapuram). The Government of India also allowed the
private sector to set up air cargo complexes in 1996 and invited
domestic and foreign investors to participate in the development
of airport infrastructure at some selected airport sites.
The air navigation services are also provided by the Airports
Authority of India, which operates five flight information regions
(Delhi, Mumbai, Chennai, Kolkata, and Guwahati).
(c
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Commercialization/Privatization: Airports
The international airport of Kochi was the first to be built in a
public-private partnership (PPP) and owned by a public limited
Contd…
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Aviation Enterprise Management
178
company created by the State Government of Kerala in 1994. The
Government of Kerala currently owns about one third of the share
of the company, while several local, national (such as Air India)
and international business groups own a significant share of the
airport operator. Following this initiative, the Government of
India passed a legislative amendment in 2003 allowing the
private sector to enter the field of airport development: 100 per
cent foreign direct investment was permitted for greenfield
airports.
Notes
___________________
___________________
n/
___________________
io
___________________
___________________
In 2006, the ownership and the management of Mumbai and
Delhi airports were transferred to Mumbai International Airport
Limited (MIAL) and New Delhi International Airport Private
Limited (DIAL). Subsequently, two consortia led by India’s
infrastructure holding company GMR were granted 30-year
concessions to operate each airport under a PPP. In both cases,
the GMR-led consortium holds 74 per cent of the airport operators
share while AAI retains the remaining 24 per cent. In addition,
MIAL and DIAL are requested to pay AAI, in consideration for
the grant of concession, an annual fee of respectively 38.7 per cent
and 45 per cent of their revenues. With respect to greenfield
airports, Hyderabad International Airport Limited (GHIAL) was
established with the participation of the Government of Andhra
Pradesh (13 per cent), AAI (13 per cent), GMR (63 per cent) and
Malaysia Airports Holdings Berhad (MAHB, 11 per cent). It was
granted a 30-year concession and it is requested to pay to the
Government of India an annual fee amounting to 4 per cent in
consideration for the grant of concession. Bangaluru Airport
Limited (BIAL) was established with the participation of
Karnataka State Industrial Investment and Development
Corporation Limited (13 per cent), AAI (13 per cent), Siemens
Project Ventures GmbH (40 per cent), Flughafen Zurich AG
(17 per cent) and Larsen & Toubro Limited (17 per cent). It was
granted a 30-year concession and it is requested to pay to the
Government of India an annual fee amounting to 4 per cent in
consideration for the grant of concession. While six other airports
were granted approval to be constructed and financed in PPP, all
other airports are fully owned and operated by AAI.
ct
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(c
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___________________
Commercialization/Privatization: ANSP
The provision of air navigation services was neither corporatized,
privatized nor commercialized. The AAI and other government
agencies continue to hold under their responsibility the control
functions on security issues, air navigation services, aeronautical
regulation and services of communications, meteorology, search
and rescue and, in general, the technical aspects of air navigation
Contd…
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UNIT 15: Case Study
services. At the airport level, airport operators employ and
supervise airport personnel and subcontractors, but they are not
responsible for the maintenance and operation of air traffic
operations or landing systems, which are handled by the AAI and
government agencies.
Notes
___________________
___________________
n/
___________________
io
___________________
___________________
ct
___________________
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Nevertheless, the issue of separating the provision of air
navigation services from the provision of airport services has been
pending for a long time. It was first proposed in 1976, and the
Naresh Chandra Committee, which was appointed in 2002 to
examine various corporate issues, recommended to the Ministry of
Finance and Company Affairs to set up a separate entity in
charge of air navigation services. AAI and the Government of
India are currently giving full consideration to a new report
released in May 2012, which suggests hiving off air navigation
services from airport operation.
179
Economic Oversight: Airports
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The Naresh Chandra Committee also examined the economic
oversight of airports. In its report to the Ministry of Finance and
Company Affairs, the Committee pointed airports specifically,
suggesting to separate completely the economic oversight
functions, for example through the creation of a new state agency.
It also suggested revising airport charges in order to bring them
in line with international practices and standards.
,N
ot
fo
A few years later, the Parliament of India passed the Airports
Economic Regulatory Authority of India Act, which created the
Airports Economic Regulatory Authority (AERA) in 2008. The
main function of the AERA is to regulate airports handling (or
designed to handle) more the 1.5 million passengers per year
(concerned airports are: Mumbai, Delhi, Chennai, Bangaluru,
Kolkata,
Hyderabad,
Kochi,
Ahmedabad,
Goa,
Thiruvananthapuram, Pune and Calicut), and to monitor their
performance standards.
(c
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UP
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The AERA is thus in charge of establishing user charges with
application of the single-till principle, for a five-year period, by
taking into account the following elements: the capital
expenditure incurred and timely investment in improvement of
airport facilities; the service provided and its quality and other
relevant factors; the cost for improving efficiency; economic and
viable operation of major airports; revenue received from services
other than aeronautical services; the concession offered by the
Central Government in any agreement or memorandum of
understanding or otherwise; and any other relevant factors. On 24
April 2012, AERA approved a 345 per cent increase in charges at
Contd…
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Aviation Enterprise Management
180
Delhi Airport (DIAL requested a 774 per cent hike). On 16
January 2013, it approved a 154 per cent increase in charges at
Mumbai Airport (MIAL requested an 872 per cent hike).
Notes
___________________
It should nevertheless be noted that the single-till principle has
been challenged in the Appellate Tribunal by airport operators
and a decision is still pending. Furthermore, the AERA order
approving the increase in charges at Delhi and Mumbai airports
have also been challenged by their users It will be up to the
Airport Economic Regulatory Authority Appellate Tribunal
(AERAAT) to settle the dispute.
___________________
n/
___________________
io
___________________
___________________
ct
___________________
AAI has the obligation to keep operating non-economically viable
airports that are necessary for socio-economic purposes: to a
certain extent, non-profitable airports are cross subsidized by the
profitable ones. At present, AAI is levying airport charges which
are different for international, domestic and civil enclaves;
however, charges are uniform for all airports within the same
group. After an 8-year gap, the Ministry of Civil Aviation allowed
an upward revision of 10 per cent in aeronautical charges in the
year 2009.
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___________________
Questions
1. Study and analyze the case.
2. Write down the case facts.
(c
)
UP
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Source: http://www.icao.int/sustainability/CaseStudies/India.pdf
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UNIT 16: Role of Regulatory Bodies
181
Notes
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n/
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ct
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BLOCK-IV
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___________________
Detailed Contents
182
Notes
Introduction
z
Point-to-Point Business Model
z
Hub and Spoke Business Model
z
Hub and Spoke in Commercial Aviation
z
Types of Airlines
io
n/
z
ct
UNIT 17: CAPITAL FINANCE FOR AIRPORT
___________________
BUSINESS
___________________
z
Introduction
UNIT 18: AIRLINES BUSINESS MODEL
UNIT 19: PROCEDURE TO START NEW AIRLINES
z
Introduction
z
Planning to Start New Airline
z
___________________
Finance and Financial Management
z
z
___________________
Airport Funding
z
z
Aiprort Project Financial Feasibility
z
How to Create an Airline Company?
Airline Organization Structure
Build an Airline Company and Brand
Rules and Regulations to Start New Airlines
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z
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UNIT
16: ROLE OF REGULATORY BODIES
___________________
z
Introduction
___________________
z
Airport Authority of India (AAI)
___________________
z
Directorate General of Civil Aviation (DGCA)
___________________
z
Administration Directorates
___________________
z
International Civil Aviation Organisation (ICAO)
___________________
UP
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UNIT 20: CASE STUDY
(c
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UNIT 16: Role of Regulatory Bodies
Unit 16
183
Notes
Activity
Role of Regulatory Bodies
Construct
a draft on Airport
___________________
Authority of India (AAI).
___________________
n/
___________________
Objectives
___________________
\
Airport Authority of India (AAI)
\
Directorate General of Civil Aviation (DGCA)
\
Administrative Directorates
\
International Civil Aviation Organisation (ICAO)
io
After completion of this unit, the students will be aware of the following
topics:
___________________
___________________
ro
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Introduction
ct
___________________
,N
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fo
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Most flight departments operate under their country’s general
operating and flight rules, based on International Commercial
Aeronautics Organization (ICAO) Annex 6, Part II (in the United
States, FAR Part 91). While there is a small section that applies
higher standards to large and turbine aircraft, flight departments
adhering to Part 91 in the United States and similar references in
other countries operate in the same category as do small
single-engine aircraft. Visual Flight Rules (VFR), no flight plan,
30-minute fuel reserves, special VFR, contact approaches, minimal
training, and the ability to commence an instrument approach and
the ability to commence an instrument approach when weather
conditions are below minimum.
Airport Authority of India (AAI)
History
UP
ES
The Airports Authority of India (AAI) is a body constituted under
the Airports Authority of India Act, 1994. AAI manages 128
airports including Civil Enclaves. AAI also provides air navigation
services over the Indian airspace covering an area of 2.8 million
square nautical miles of land mass and the adjoining oceanic area.
(c
)
Airports Authority of India (AAI) was constituted by an Act of
Parliament and came into being on 1 April 1995 by merging
erstwhile National Airports Authority and International Airports
Authority of India. The merger brought into existence a single
___________________
___________________
___________________
184
Notes
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Aviation Enterprise Management
Organization entrusted with the responsibility of creating,
upgrading, maintaining and managing civil aviation infrastructure
both on the ground and air space in the country.
Passenger Facilities
___________________
The main functions of AAI inter alia include construction,
modification and management of passenger terminals,
development and management of cargo terminals, development
and maintenance of apron infrastructure including runways,
parallel taxiways, apron etc., Provision of Communication,
Navigation and Surveillance which includes provision of DVOR/
DME, ILS, ATC radars, visual aids etc., provision of air traffic
services, provision of passenger facilities and related amenities at
its terminals thereby ensuring safe and secure operations of
aircraft, passenger and cargo in the country.
___________________
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ct
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n/
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Air Navigation Services
(c
)
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In tune with global approach to modernization of Air Traffic
Control infrastructure for seamless navigation across state and
regional boundaries, AAI has been going ahead with its plans for
transition to satellite based Communication, Navigation,
Surveillance and Air Traffic Management. A number of
co-operation agreements and memoranda of co-operation have been
signed with US Federal Aviation Administration, US Trade &
Development Agency, European Union, Air Services Australia and
the French Government Co-operative Projects and Studies
initiated to gain from their experience. Through these activities
more and more executives of AAI are being exposed to the latest
technology, modern practices and procedures being adopted to
improve the overall performance of Airports and Air Navigation
Services. Induction of latest state-of-the-art equipment, both as
replacement and old equipments and also as new facilities to
improve standards of safety of airports in the air is a continuous
process. Adoptions of new and improved procedure go hand in hand
with induction of new equipment. Some of the major initiatives in
this direction are introduction of Reduced Vertical Separation
Minima (RVSM) in India air space to increase airspace capacity
and reduce congestion in the air; implementation of GPS and Geo
Augmented Navigation (GAGAN) jointly with ISRO which when
put to operation would be one of the four such systems in the
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UNIT 16: Role of Regulatory Bodies
world. AAI is a full member of the Civil Air Navigation Services
Organisation (CANSO).
185
Notes
Activity
Prepare
an assignment on
___________________
Directorate General of Civil
___________________
Aviation.
___________________
___________________
___________________
ro
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The Directorate General of Civil Aviation is the regulatory body in
the field of Civil Aviation primarily dealing with safety issues. It is
responsible for regulation of air transport services to/from/within
India and for enforcement of civil air regulations, air safety and
airworthiness standards. It also coordinates all regulatory
functions with International Civil Aviation Organization.
___________________
n/
The DGCA is responsible for implementing, controlling, and
supervising airworthiness standards, safety operations, crew
training in India. Directorate General of Civil Aviation is an
attached office of the Ministry of Civil Aviation.
io
Directorate General of Civil Aviation (DGCA)
rR
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The headquarters are located in New Delhi with regional offices in
the various parts of India.
There are 14 (fourteen) Regional Airworthiness Offices located at
Delhi, Mumbai, Chennai, Kolkata, Bangalore, Hyderabad,
Trivandram, Bhopal, Lucknow, Patna, Bhubaneshwar, Kanpur,
Guwahati and Patiala.
ot
fo
Apart from the Regional Airworthiness Offices, there are 5 (five)
Regional Air Safety offices located at Delhi, Mumbai, Chennai,
Kolkata and Hyderabad, the Regional Research and Development
Office located at Bangalore and the Gliding Centre at Pune.
India is participated in ICAO by the Representative of India.
,N
Responsibilities of DGCA
Various responsibilities of DGCA are:
Registration of civil aircraft;
z
Formulation of standards of airworthiness for civil aircraft
registered in India and grant of certificates of airworthiness to
such aircraft;
z
Licensing of pilots, aircraft maintenance engineers and flight
engineers, and conducting examinations and checks for that
purpose;
(c
)
UP
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z
z
Licensing of air traffic controllers;
z
Certification of aerodromes and CNS/ATM facilities;
___________________
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186
z
Notes
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Aviation Enterprise Management
Maintaining a check on the proficiency of flight crew, and also
of other operational personnel such as flight dispatchers and
___________________
___________________
cabin crew;
z
Granting of Air Operator's Certificates to Indian carriers and
___________________
regulation
___________________
to/from/within/over India by Indian and foreign operators,
___________________
including clearance of scheduled and non-scheduled flights of
n/
services
operating
io
transport
ct
z
Conducting investigation into accidents/incidents and taking
accident
___________________
prevention
measures
including
formulation
of
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implementation of Safety Aviation Management Programmes;
___________________
___________________
air
such operators;
___________________
___________________
of
z
Carrying out amendments to the Aircraft Act, the Aircraft
Rules and the Civil Aviation Requirements for complying with
the amendments to ICAO Annexes, and initiating proposals
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for amendment to any other Act or for passing a new Act in
order to give effect to an international Convention or
amendment to an existing Convention;
z
Coordination of ICAO matters with all agencies and sending
replies to State Letters, and taking all necessary action arising
out of the Universal Safety Oversight Audit Programme
z
fo
(USOAP) of ICAO;
Supervision of the institutes/clubs/schools engaged in flying
ot
training including simulator training, AME training or any
other training related with aviation, with a view to ensuring a
,N
high quality of training;
(c
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UP
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z
z
Granting approval to aircraft maintenance, repair and
manufacturing organizations and their continued oversight;
To act as a nodal agency for implementing Annex 9 provisions
in India and for coordinating matters relating to facilitation at
Indian airports including holding meetings of the National
Facilitation Committee;
z
Rendering advice to the Government on matters relating to air
transport including bilateral air services agreements, on ICAO
matters and generally on all technical matters relating to civil
aviation,
and
to
act
as
an
overall
regulatory
developmental body for civil aviation in the country;
and
z
Promoting indigenous design and manufacture of aircraft and
aircraft components by acting as a catalytic agent;
Notes
___________________
___________________
n/
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___________________
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z
Keeping a check on aircraft noise and engine emissions in
accordance with ICAO Annex 16 and collaborating with the
environmental authorities in this matter, if required;
187
___________________
___________________
ct
z
Coordination at national level for flexi-use of air space by civil
and military air traffic agencies and interaction with ICAO for
provision of more air routes for civil use through Indian air
space;
Approving training programmes of operators for carriage of
dangerous goods, issuing authorizations for carriage of
dangerous goods, etc.
Check Your Progress
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UNIT 16: Role of Regulatory Bodies
State whether the following statements are true or false:
rR
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1. AAI was constituted by an Act of Parliament and came
into being on 1 April 1995.
Administration Directorates
fo
2. AAI is not the full member of the Civil Air Navigation
Services Organisation (CANSO).
ot
In this section we will study about the directorates. Following are
the various types of directorates:
Aerodrome Standards Directorate
ES
,N
The Aerodrome Standards Directorate in the DGCA has been
entrusted with the responsibilities of licensing of aerodrome in
accordance with the Part XI of the Aircraft Rules 1937.
Air Safety Directorate
The functions of the Air Safety Directorates are as under:
Investigation of Civil Registered aircraft accidents
z
Accident to foreign registered aircraft in India
z
Accident to Indian registered aircraft out side India
z
Investigation of Civil Registered aircraft Incidents
(c
)
UP
z
z
Accident/Incident Prevention work
z
Coordination of regional air safety offices with Air Safety Hqs.
___________________
___________________
___________________
___________________
188
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Air Transport Directorate
___________________
___________________
___________________
The Rule 134 and Schedule XI of Aircraft Rules 1937 govern the
Air Transport Services in the country. Besides this, the Civil
Aviation Requirements (CAR) Section 3 Series C Part I to VI deal
with the minimum requirements and procedures for issue/renewal
of Scheduled/Non-Scheduled Operators Permit in different
categories like passenger/cargo/charter.
n/
___________________
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Notes
___________________
___________________
___________________
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___________________
The authority in India for regulatory control of Airworthiness
Directorate is the Director General of Civil Aviation and the
Directorate of Airworthiness, which is headed by Director of
Airworthiness who discharges this function and is responsible for
the Airworthiness of aircraft. Functions are basically intended to
be guidelines and they do not limit in any way the initiative and
authority of the officer to ensure airworthiness by an alternative
means. Therefore, these should be used as guidelines while
performing the job.
ct
___________________
Airworthiness Directorate
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Flight Inspection Directorate (FID)
,N
ot
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The Flight Inspection Directorate (FID) shall conduct regular
Inspections and Surveillance of Scheduled Airlines and their
aircrew in particular to ensure effective implementation of safety
related Standards and Recommended Practices contained in the
ICAO Annexes, particularly Annex 6, and the relevant Rules,
Regulations, Procedures and Requirements laid down in Aircraft
Rules, Civil Aviation Requirements, Aeronautical Information
Circulars, AIP India, etc.
(c
)
UP
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Information and Regulations Directorate
It includes preparation of brief/documentation; participation in the
Bilateral Air Services Agreements with foreign countries;
Clearance of schedules and any other operational matters
pertaining to the foreign airlines.
The Aircraft Act, 1934
It is an act to make better provision for the control of the
manufacture, possession, use, operation, sale, import and export of
aircraft. Whereas it is expedient to make better provision for the
control of the manufacturer, possession, use operation, sale, impost
and export of aircraft.
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UNIT 16: Role of Regulatory Bodies
189
Check Your Progress
Notes
Activity
Fill in the blanks:
Prepare a draft on the
___________________
International Civil Aviation
Organisation.
___________________
1. ………………… Directorate in the DGCA has been
entrusted with the responsibilities of licensing of
aerodrome.
n/
io
___________________
___________________
ct
___________________
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2. ………………… Directorate is the Director General of
Civil Aviation and the Directorate of Airworthiness,
which is headed by Director of Airworthiness who
discharges this function and is responsible for the
Airworthiness of aircraft.
___________________
___________________
___________________
___________________
The International Civil Aviation Organization (ICAO) is a
specialized agency of the United Nations. It codifies the principles
and techniques of international air navigation and fosters the
planning and development of international air transport to ensure
safe and orderly growth. Its headquarters are located in the
Quartier International of Montreal, Quebec, Canada.
___________________
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International Civil Aviation Organisation (ICAO)
,N
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The ICAO Council adopts standards and recommended practices
concerning air navigation, its infrastructure, flight inspection,
prevention of unlawful interference, and facilitation of bordercrossing procedures for international civil aviation. In addition, the
ICAO defines the protocols for air accident investigation followed
by transport safety authorities in countries signatory to the
Convention on International Civil Aviation, commonly known as
the Chicago Convention.
UP
ES
The ICAO should not be confused with the International Air
Transport Association (IATA), a trade organization for airlines also
headquartered in Montreal, or with the Civil Air Navigation
Services Organisation (CANSO), an organization for Air
Navigation Service Providers (ANSPs) with its headquarters at
Amsterdam Airport Schiphol in the Netherlands.
History of ICAO
(c
)
The forerunner to the ICAO was the International Commission for
Air Navigation (ICAN). It held its first convention in 1903 in
Berlin, Germany but no agreements were reached amongst the
eight countries that attended. At the second convention in 1906,
190
Notes
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___________________
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Aviation Enterprise Management
also held in Berlin, 27 countries attended. The third convention,
held in London, United Kingdom in 1912 allocated the first radio
call signs for use by aircraft. The ICAN existed until 1945, when
the Provisional International Civil Aviation Organization (PICAO)
was established. The PICAO became the ICAO in 1947.
n/
___________________
Membership of ICAO
___________________
ICAO members are 191 of the United Nations members and the
Cook Islands.
___________________
The non-member states are Dominica, Liechtenstein, Niue,
Tuvalu, Vatican City and the states with limited recognition.
ct
___________________
io
___________________
___________________
___________________
Standards of ICAO
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___________________
The ICAO also standardizes certain functions for use in the airline
industry, such as the Aeronautical Message Handling System
AMHS; this probably makes it a standards organization.
rR
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The ICAO defines an International Standard Atmosphere (also
known as ICAO Standard Atmosphere), a model of the standard
variation of pressure, temperature, density, and viscosity with
altitude in the Earth's atmosphere. This is useful in calibrating
instruments and designing aircraft.
(c
)
UP
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fo
The ICAO standardizes machine-readable passports worldwide.
Such passports have an area where some of the information
otherwise written in textual form is written as strings of
alphanumeric characters, printed in a manner suitable for optical
character recognition. This enables border controllers and other
law enforcement agents to process such passports quickly, without
having to input the information manually into a computer. ICAO
publishes Doc 9303, Machine Readable Travel Documents, the
technical standard for machine-readable passports. A more recent
standard is for biometric passports. These contain biometrics to
authenticate the identity of travellers. The passport's critical
information is stored on a tiny RFID computer chip, much like
information stored on smartcards. Like some smartcards, the
passport book design calls for an embedded contactless chip that is
able to hold digital signature data to ensure the integrity of the
passport and the biometric data.
Communication, Navigation, Surveillance/Air Traffic Management
(CNS/ATM) systems are communications, navigation, and
surveillance systems, employing digital technologies, including
satellite systems together with various levels of automation,
applied in support of a seamless global air traffic management
system.
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UNIT 16: Role of Regulatory Bodies
191
Notes
___________________
___________________
Both ICAO and IATA have their own airport and airline code
systems. ICAO uses 4-letter airport codes (vs. IATA's 3-letter
codes). The ICAO code is based on the region and country of the
airport—for example, Charles de Gaulle Airport has an ICAO code
of LFPG, where L indicates Southern Europe, F, France, PG, Paris
de Gaulle, while Orly Airport has the code LFPO (the 3rd letter
sometimes refers to the particular flight information region (FIR)
or the last two may be arbitrary). In the most of the world, the
ICAO and IATA codes are unrelated—for example, Charles de
Gaulle Airport has an IATA code of CDG and Orly, ORY. However,
the location prefix for continental United States is K and the ICAO
codes are usually the IATA code with this prefix—for example, the
ICAO code for LAX is KLAX. Canada follows a similar pattern,
where a prefix of C is usually added to an IATA code to create the
ICAO code—for example, Edmonton is YEG or CYEG. (In contrast,
airports in Hawai'i are in the Pacific region and so have ICAO
codes that start with PH—for example, PHKO for Kona.) Note that
not all airports are assigned codes in both systems—for example,
airports that do not have airline service may not need an IATA
code.
___________________
n/
Registered Codes
io
___________________
___________________
fo
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___________________
UP
ES
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ot
ICAO also assigns 3-letter airline codes (vs. the more-familiar
2-letter IATA codes—for example, UAL vs. UA for United Airlines).
ICAO also provides telephony designators to aircraft operators
worldwide, a one- or two-word designator used on the radio,
usually, but not always, similar to the aircraft operator name. For
example, the identifier for Japan Airlines International is JAL and
the designator is Japan Air, but Aer Lingus is EIN and Shamrock.
Thus, a Japan Airlines flight numbered 111 would be written as
"JAL111" and pronounced "Japan Air One One One" on the radio,
while a similarly numbered Aer Lingus would be written as
"EIN111" and pronounced "Shamrock One One One".
(c
)
ICAO maintains the standards for aircraft registration ("tail
numbers"), including the alphanumeric codes that identify the
country of registration. For example, airplanes registered in the
United States have tail numbers starting with N.
___________________
___________________
___________________
___________________
Notes
___________________
___________________
___________________
ICAO is also responsible for issuing alphanumeric aircraft type
codes that contain 2–4 characters. These codes provide the
identification that is typically used in flight plans. An example of
this is the Boeing 747 that would use (depending on the variant)
B741, B742, B743, etc.
n/
192
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Aviation Enterprise Management
Regional Offices of ICAO
___________________
The various regional offices of ICAO are:
___________________
z
Asia and Pacific, Bangkok, Thailand
___________________
z
Middle East, Cairo, Egypt
___________________
z
Western and Central Africa, Dakar, Senegal
___________________
z
South America, Lima, Peru
___________________
z
North America, Central America and Caribbean, Mexico City,
Mexico
z
Eastern and Southern Africa, Nairobi, Kenya
z
Europe and North Atlantic, Paris, France
rR
ep
ro
du
ct
io
___________________
Check Your Progress
State whether the following statements are true or false:
fo
1. The Directorate General of Civil Aviation is the
regulatory body in the field of Civil Aviation primarily
dealing with safety issues.
ot
2. The Rule 134 and Schedule XI of Aircraft Rules 1937
govern the Air Transport Services in the country.
(c
)
UP
ES
,N
Summary
Minimum safety standards for civil aircraft are set by the
International Civil Aviation Organisation (ICAO). Each state is
then responsible for ensuring that any aircraft registered or based
there meets these standards.
The CAA's Safety Regulation Group is responsible for the safety
regulation of UK-registered aircraft and UK-based airlines.
Aircraft that are registered or based outside the EU must apply to
the Department for Transport (DfT) for a permit to operate in the
UK. If DfT has reason to believe any airline or aircraft doesn't
meet international standards, it can arrange for the CAA to carry
out an inspection.
Sa
le
UNIT 16: Role of Regulatory Bodies
Lesson End Activity
193
Prepare a presentation on the role of regulatory bodies in aviation
industry.
Notes
___________________
___________________
Keywords
io
___________________
___________________
___________________
ct
Flight Inspection Directorate: The Flight Inspection Directorate
(FID) shall conduct regular Inspections and Surveillance of
Scheduled Airlines and their aircrew.
n/
___________________
ro
du
Aircraft Act, 1934: An Act to make better provision for the control
of the manufacture, possession, use, operation, sale, import and
export of aircraft.
ICAO: The International Civil Aviation Organization (ICAO) is a
specialized agency of the United Nations.
Questions for Discussion
1. What do you mean by DGCA?
fo
2. Describe the standards of ICAO.
rR
ep
ICAO Standards: The ICAO also standardizes certain functions
for use in the airline industry, such as the Aeronautical Message
Handling System.
3. Explain airport authority of India (AAI) in detail.
ot
4. What are the responsibilities of DGCA?
Further Readings
ES
Books
,N
5. Describe various types of administrative directorates.
Julie, Rodwell, (2003), Essentials of Aviation Management: A Guide
for Aviation Service Business. Kendall Hunt Publishing Company
UP
Speciale, Raymond, (2006), Fundamentals of Aviation Law.
McGraw Hill
T. Wells, Alexander, (2004), Airport Planning & Management,
McGraw Hill
(c
)
Frock, Roger, Changing How the World Does Business: Fedex's
Incredible Journey to Success - The Inside Story, Berrett Koehler
Publishers .
___________________
___________________
___________________
___________________
194
Sa
le
Aviation Enterprise Management
J. Sheehan, John, (2003), Business & Corporate Aviation
Management: On Demand Air Travel. McGraw Hill
___________________
___________________
___________________
Castro, Raoul, Corporate Aviation Management. Southern Illinois
University Press
A. Kinnison, Harry, (2004), Aviation Maintenance Management.
McGraw Hill
n/
___________________
io
Notes
Web Readings
___________________
http://www.airliners.net/aviationforums/non_aviation/read.main/1958823/
___________________
___________________
___________________
http://books.google.com/books/about/Essentials_of_aviation_manag
ement.html?id=jjfUv6s8LdsC
ro
du
___________________
ct
___________________
http://books.google.com/books/about/Designing_and_executing_stra
tegy_in_avia.html?id=CJXshJc_IpIC
(c
)
UP
ES
,N
ot
fo
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ep
http://books.google.com/books/about/Aviation_maintenance_manag
ement.html?id=ZuCJgUSm9ncC
Sa
le
UNIT 17: Capital Finance for Airport Business
Unit 17
195
Notes
Activity
Capital Finance for Airport
Business
n/
Make
a list of the points
___________________
making a comparison and the
___________________
points
making a distinction
between finance and financial
___________________
management.
___________________
io
Objectives
___________________
Finance and Financial Management
\
Airport Funding
\
Airport Project Financial Feasibility
___________________
ro
du
\
___________________
ct
After completion of this unit, the students will be aware of the following
topics:
Introduction
ES
,N
ot
fo
rR
ep
It would be worthwhile to recall, what Henry Ford had once
remarked: “Money is an arm or a leg. You either use it or lose it”.
This statement, though apparently simple, is quite meaningful.
It brings home the significance of money or finance. In the modern
money-oriented economy, finance is one of the basic foundations of
all kinds of economic activities; it is the master key which provides
access to all the sources for being employed in manufacturing and
merchandising activities. The Sanskrit saying “arthah sachivah”
(….), which means “finance reigns supreme”, speaks volumes for
the significance of the finance function of an organization. It has
rightly been said that, business needs money to make more money.
However, it is also true that money begets more money, only when
it is properly managed; hence, efficient management of finances.
In conclusion, we can say that “Finance is the backbone of every
business”.
Finance and Financial Management
UP
Business Finance is that business activity which is concerned with
the acquisition and conservation of capital funds in meeting
financial needs and overall objectives of business enterprises.
(c
)
According to the Encyclopaedia of Social Sciences, Corporate
finance deals with the financial problems of corporate enterprises.
Problems include financial aspects of the promotion of new
enterprises and their administration during early development,
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
According to Van Horne and Wachowicz, “Financial Management
is concerned with the acquisition, financing and management of
assets with some overall goal in mind.” Financial manager has to
forecast expected events in business and note their financial
implications. First, anticipating financial needs means estimation
of funds required for investment in fixed and current assets or
long-term and short-term assets. Second, acquiring financial
resources–once the required amount of capital is anticipated, the
next task is acquiring financial resources i.e., where and how to
obtain the funds to finance the anticipated financial needs and the
last one is, allocating funds in business – means allocation of
available funds among the best plans of assets, which are able to
maximize shareholders’ wealth. Thus, the decisions of financial
management can be divided into three viz., investment, financing
and dividend decision.
ot
fo
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ep
___________________
n/
___________________
io
___________________
the accounting problems connected with the distinction between
capital and income, the administrative questions created by,
growth and expansion, and finally the financial adjustments
required for bolstering rehabilitation of a corporation which has
come into financial difficulties. Management of all these is
financial management. Financial management mainly involves,
rising of funds and their effective utilisation with the objective of
maximizing shareholders’ wealth. To quote, Joseph and Massie,
“Financial Management is the operational activity of a business
that is responsible for obtaining and effectively utilising the funds
necessary for efficient operations”.
ct
Notes
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196
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Aviation Enterprise Management
,N
Financial Management is broadly concerned with the acquisition
and use of funds by a business firm.
(c
)
UP
ES
Its scope may be defined in terms of the following questions:
z
How large should the firm be and how fast should it grow?
z
What should be the composition of the firm’s assets?
z
What should be the mix of the firm’s financing?
z
How should the firm analyze, plan and control its financial
affairs?
The entire gamut of management efforts is concerned with raising
of funds at optimum cost and their effective utilization with a view
to maximize the wealth of the shareholder.
Sa
le
UNIT 17: Capital Finance for Airport Business
Airport Funding
197
Notes
Activity
Write
an article on airport
___________________
funding.
___________________
n/
___________________
io
___________________
___________________
___________________
ro
du
ct
Airports are funded through a variety of means. Factors
influencing an airport’s choice of financing include ownership,
airport type, size, and maturity of the airport. All of these factors
are taken into account in the airport’s master plan. The primary
focus of airport planning and capital development is to provide safe
and efficient air carrier service and to enhance airport capacity.
The promotion of air carrier competition has not been an integral
part of most airports’ planning processes. Funding decisions have
typically focused on carrying out the objectives of the airport’s
master plan. Airport managers are beginning to recognize that the
choice of financing arrangement influences the degree to which
they can accommodate new entry and encourage competition
among air carriers.
Airport User Charges
ot
fo
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ep
Major sources of airport funding include airport user charges,
airport revenue bonds, Passenger Facility Charges (PFCs), the
Airport Improvement Program (AIP), and state and local
programs. Airport user charges are generally used to recover an
airport’s operating costs and its debt-service costs for bonds; the
other sources of funds have provided the majority of direct capital
funding. Ultimately, airport user charges and other revenue
sources (commonly referred to as “concessions” revenue), through
payment of debt service costs, fund the capital projects that are
financed by airport revenue bonds.
UP
ES
,N
Aeronautical user charges include aircraft landing fees; apron,
gate-use or parking fees; fuel-flowage fees; and terminal charges
for rent or use of passenger hold rooms, ticket counters, baggage
claims, administrative support, hangar space, and cargo buildings.
Non-aeronautical user charges encompass rentals and fees to
terminal concessionaires, automobile parking, rental car fees, rents
and utilities for facilities, non-aviation development fees (e.g.
airport hotel, gas station, etc.), and communication fees.
Bonds: Revenue, General Obligation and Special Facility
(c
)
The issuance of bonds remains the primary means of financing
airport capital-development projects at the Nation’s commercial
service airports. Bond debt service for interest, capital, and other
costs is a major component of airport rates and charges. Most
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
Some facilities are financed with tax-exempt, special facility bonds
secured solely by the revenues of the facility constructed – for
example, an aircraft maintenance facility – rather than an
airport’s total revenues. Terminal facilities have also been financed
with special facility bonds. The introduction of PFCs as an
additional source of funds has led to the evolution of a version of
the GARB that relies partially or totally on PFC revenues for
repayment. Due to the conservative nature of the tax-exempt bond
market, these PFC-backed bonds often require special
commitments from FAA to reduce the likelihood of any bond
default resulting from some federal actions that could affect future
PFC collections.
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___________________
n/
___________________
io
___________________
airport bond financing has utilized tax-exempt, general airport
revenue bonds (GARBs). During the 1990's, GARBs accounted for
between 36 percent and 70 percent annually of capitaldevelopment expenditures at airports – over $3 billion per year on
average. When small, locally owned airports finance capital
projects with bonds, they often pledge the “full faith and credit” of
the local government entity.
ct
Notes
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198
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Aviation Enterprise Management
Airport Improvement Program (AIP)
,N
ot
fo
Federal AIP grants have played a critical role in the building of the
Nation’s airport infrastructure. AIP funds are distributed by
statutory formulas or based on FAA’s discretion. During the 1990s,
AIP grants accounted for between 21 percent and 40 percent
annually of the total airport capital-development expenditures.
Airport sponsors and non-federal contributors must provide, at a
minimum, a ten percent share of any project funded by AIP grants.
(c
)
UP
ES
Passenger Facility Charges (PFCs)
In 1990, Congress reversed a prior federal prohibition and
authorized airports to charge a per-passenger enplanement fee to
finance airport capital improvements and the expansion and repair
of airport infrastructure. Once approved, a $1, $2, or $3 fee on each
enplaned passenger can be imposed to fund specified projects. The
three objectives for which PFCs can be applied are (1) to preserve
or enhance safety, security, or capacity of the national air
transportation system; (2) to reduce noise or mitigate noise
impacts resulting from an airport; and (3) to furnish opportunities
for enhanced air carrier competition.
Check Your Progress
io
ct
ro
du
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Airport Project Financial Feasibility
,N
ot
fo
A project should earn sufficient return on the investment. The very
idea of promoting a project by an entrepreneur is to earn attractive
returns on investment on the project. Projects sponsored/
undertaken by Government may take into account social cost
benefits of the proposed project and in such cases, financial return
alone needs not be the criterion. But for such Government projects,
all other projects have the prime motive of getting maximum
return on investment. If there are many alternative projects, all of
which, prima facie, appear to be more or less equal in profit
earning capacity, the investor should make a comparative study of
the return on the different alternative proposals before choosing
one.
Such financial analysis broadly falls under two categories:
ES
Non-discounted cash flow techniques:
Payback Period (PBP) method
™
Accounting Rate of Return (ARR) method
UP
™
Discounted cash flow techniques:
Net Present Value (NPV) method
™
Internal Rate of Return (IRR) method
™
Profitability Index (PI) method
™
Benefit Cost Ratio (BCR) method
(c
)
___________________
___________________
2. Major sources of airport funding include airport user
charges, airport revenue bonds, Passenger Facility
Charges (PFCs) and ...................
™
Present
a report on airport
___________________
project financial feasibility.
___________________
___________________
1. ................... is concerned with the acquisition, financing
and management of assets with some overall goal in
mind.
z
Notes
Activity
___________________
Fill in the blanks:
z
199
n/
Since the inception of the PFC Program, FAA, as of May 1, 1998,
had approved 632 applications at 290 airports (approximately
3,900 individual projects) for the collection of PFCs. In 1996, PFCs
accounted for 15 percent of total airport capital development
expenditures.
Sa
le
UNIT 17: Capital Finance for Airport Business
___________________
___________________
___________________
___________________
200
Sa
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Aviation Enterprise Management
Payback Period Method (PBP)
___________________
___________________
___________________
___________________
___________________
___________________
n/
___________________
The following illustration explains the method.
io
___________________
This is one of the simple methods of evaluating investment
proposals and also widely used. Payback period is defined as the
length of time required to recover the original investment on the
project, through cash flows earned. The cash inflow includes
operating profit, less income tax payable, plus depreciation.
Illustration 1: The likely investment on a project is
` 14,00,000.00. It is expected to take 2 years for implementation of
the project and the project is expected to earn profits from the
third year onwards. The estimated profits, tax, depreciation are as
under:
ct
___________________
ro
du
Notes
3rd year
___________________
Operating
profit [`]
50,000.00
Depreciation
[` ]
5th year
6th year
7th year
1,50,000.00 1,75,000.00 2,00,000.00 2,25,000.00 2,00,000.00
60,000.00
68,000.00
75,000.00
68,000.00
3,30,000.00 2,21,000.00 1,48,000.00
99,000.00
67,000.00
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Tax [`]
4th year
Solution:
3rd year
Year
6th year
7th year
Cumulative cash inflow [`]
3rd year
4,30,000.00
4th year
7,66,000.00
5th year
10,46,000.00
6th year
12,95,000.00
7th year
14,94,000.00
ot
,N
ES
UP
(c
)
5th year
4,30,000.00 3,36,000.00 2,80,000.00 2,49,000.00 1,99,000.00
fo
(Profit Tax +
Depreciation):
[` ]
4th year
The initial investment of ` 14,00,000 is likely to be received after
the sixth year:
Cumulative profit
(4 years after implementation)
` 12,95,000.00
Cumulative profit
(5 years after implementation)
` 14,94,000.00
Difference
` 1,99,000.00
[12 × (14,00,000 − 12,95,000)]
months
1,99,000
= 4 years –
201
Notes
[12 × 1,05,000]
months
1,99,000
___________________
___________________
= 4 years + 6.33 months
n/
___________________
= 4 years and 6 months.
___________________
Average Rate of Return (ARR) Method
io
Payback period = 4 years +
Sa
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UNIT 17: Capital Finance for Airport Business
___________________
___________________
ct
The average rate of return is also called the accounting rate of
return.
ro
du
Average rate of return = (Profit after tax) / (Book value of
investment)
Profit after tax is the average annual post tax benefit over the life
of the project. Unlike pay back period method, under ARR method,
the entire life of the project is taken into account.
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ep
The following illustration explains the comparison of projects by
ARR method:
Project A
4 years
Profit after tax [`]
Project B
Project C
5 years
6 years
` 4,00,000
` 3,00,000
` 2,50,000
2nd year
` 4,50,000
` 4,50,000
` 3,00,000
` 5,00,000
` 5,00,000
` 4,00,000
` 4,50,000
` 5,50,000
` 5,00,000
` 5,00,000
` 3,00,000
,N
1st year
ot
Life of the project
fo
Illustration 2: There are three projects A, B and C. The details
about the three projects are as under. Compare the three projects
by ARR method and choose the one that is most attractive among
the three.
3rd year
4th year
6th year
ES
5th year
UP
Book value of
investment
` 2,50,000
` 18,00,000
Project A
` 23,00,000
Project B
` 20,00,000
Project C
` 15,00,000
` 12,00,000
` 10,00,000
lInd year
` 13,50,000
` 10,80,000
` 9,00,000
IIIrd year
` 12,15,000
` 9,72,000
` 8,10,000
IVth year
` 10,93,500
` 8,74,800
` 7,29,000
(c
)
Ist year
Contd…
___________________
___________________
___________________
___________________
202
Vth year
Notes
VIth year
` 7,87,320
Solution:
Project A
___________________
Project C
Total profit over the life
of the project
` 18,00,000
` 23,00,000
` 20,00,000
Average annual Profit
` 18,00,000
` 23,00,000
` 20,00,000
5
6
`4,60,00
` 3,33,333
4
___________________
` 4,50,000
ct
i.e.,
n/
___________________
Project B
io
___________________
` 6,56,100
` 5,90,490
___________________
___________________
Sa
le
Aviation Enterprise Management
Average
[15,00,000
[12,00,000
[10,00,000
___________________
Investment
+13,50,000
+10,80,000
+9,00,000
+12,15,000
+9,72,000
+8,10,000
+10,93,500]
+8,74,800
+7,29,000
+7,87,320]
+656,100
___________________
ro
du
___________________
+4
___________________
i.e.,
+5,90,490]
+6
` 12,89,625
` 9,82,824
` 7,80,932
4,50,000 × 100
4,60,000 × 100
3,33,333 × 100
12,89,625
9,82,824
7,80,932
34.89%
46.80%
42.68%
rR
ep
i.e.
Return on average
investment
+5
fo
As per ARR method, Project 'B' gives a higher return on
investment than projects A and C.
Limitations of ARR Method
This method, also does not take into account the time value of
money.
z
This method is based on accounting profit and not on cash
inflow.
(c
)
UP
ES
,N
ot
z
Net Present Value (NPV) Method
This method is one of the discounted cash flow techniques and it
recognizes the time value of money.
Net Present Value of (NPV) of cash flow = [Present value of all
future cash inflows over the life of the project] – [Present value
cash out flow]
The present value of future cash inflows is, arrived at by
discounting the future cash inflows at an interest rate equal to the
cost of capital.
Sa
le
UNIT 17: Capital Finance for Airport Business
203
Symbolically it can be expressed as
Notes
CF3
CF1
CF2
CFn
NPV =
+
+
+ .............. +
1
2
3
(1 + r) (1 + r)
(1 + r)
(1 + r)n
___________________
___________________
n = life of the project in year
ct
___________________
___________________
CF0 = Present cash out flow.
ro
du
NPV = 0, it indicates that the present cash outflow and the present
value of future cash inflows are equal.
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ep
NPV < 1, it indicates that the present value of future cash inflows
is less than the present cash out flow.
NPV > 1, it indicates that the present value of future cash inflows
is more than the present cash out flow.
Internal Rate of Return (IRR) Method
ot
fo
The internal rate of return of a project is the discount rate that
makes the net present value equal to zero. In other words, internal
rate of return is that rate of discount which would equate the
present value of cash out flows (investments on the project) to the
present value of cash inflows.
UP
ES
,N
In the calculation of net present value of a project, the discount
rate (cost of capital) is assumed and the net present value is
calculated by discounting future cash inflows at the assumed
discount rate. In the calculation of internal rate of return from a
project, the net present value is set equal to zero and the
corresponding discount rate is determined; the discount rate at
which the net present value is zero is the internal rate of return.
Practical Example
The following illustration will explain the method of arriving at the
IRR.
Illustration 3: For a project with the given data, calculate the
internal rate of return.
(c
)
___________________
___________________
r = discount rate (cost of capital)
if
___________________
io
CF1, CF2 …… Future cash inflows occurring at the end of first
year, second year, etc.
n/
Where,
___________________
___________________
___________________
Sa
le
Aviation Enterprise Management
204
Year
Cash outflow
Notes
0
` 10,00,000
___________________
1
–
` 4,00,000
2
–
` 2,50,000
___________________
Cash inflow
–
` 2,50,000
4
–
` 2,00,000
___________________
5
–
___________________
6
–
n/
3
___________________
io
` 2,00,000
` 1,50,000
Solution:
___________________
Let Y be the internal rate of return. The IRR is arrived at by
equating the present value of cash out flow and the present value
of cash inflows.
___________________
___________________
10,00,000 =
ro
du
___________________
ct
___________________
4,00,000 2,50,000 2,50,000 2,00,000 2,00,000 1,50,000
+
+
+
+
+
(1 + r)1
(1 + r)2
(1 + r)3
(1 + r)4
(1 + r)5
(1 + r)6
The IRR is arrived at by trial and error.
rR
ep
Let us first assume r = 12% p – a
Present value of
4,00,000
2,50,000
2,50,000
+
+
1
2
(1 + 0.12) (1 + 0.12)
(1 + 0.12)3
+
2,00,000
2,00,000
1,50,000
+
+
4
5
(1 + 0.12)
(1 + 0.12) (1 + 0.12)6
= 3,57,143 + 1,99,298 + 1,77,949 + 1,27,105 +
1,13,488 + 75,996
= ` 10,50,979
(c
)
UP
ES
,N
ot
fo
cash inflows =
The present value of cash inflows is nearly equal to the present
value of cash outflow at a discount rate of 12% p.a. If we want a
more accurate result, we can arrive at the present value of cash
inflows assuming a slightly higher discount rate than 12%.
Let us assume a discount rate of say, 13% p.a. Present value of
cash inflows at a discount rate of 13% p.a.
4,00,000
2,50,000
2,50,000
2,00,000
2,00,000
1,50,000
+
+
+
+
+
1
2
3
4
5
(1 + 0.13) (1 + 0.13)
(1 + 0.13)
(1 + 0.13)
(1 + 0.13) (1 + 0.13)6
= 3,53,982 + 1,95,788 + 1,73,263 + 1,22,664 +
1,08,552 + 72,048
= ` 10,26,297
Sa
le
UNIT 17: Capital Finance for Airport Business
205
Though r = 13% p.a is a closer approximation than r = 12% it can
further be improved.
Notes
___________________
Assume r = 14% p.a.
___________________
Present value of cash inflows at a discount rate of 14% p.a.
io
___________________
___________________
___________________
ct
The difference between the present value of cash outflow and the
present value of cash inflows (discounted at a rate of 14% p.a.) is
only ` 2,587. Hence the IRR can be taken as 14% p.a.
n/
___________________
= ` 10,02,587/-
___________________
Present value of cash inflows at a discount rate of. 15% p.a.
___________________
ro
du
However, for academic interest let us workout the present values
of cash inflows at a discount rate of 15% and see the results.
= ` 9,79,879
rR
ep
At a discount rate of 15% p.a. the present value of cash inflows
falls short of the present value of the cash out flow by ` 20,121.00
(10,00,000 – 9,79,879).
Thus, the correct value of Y lies between 14% and 15%. The correct
value of Y at which the present value of cash outflows is equal to
the present value of cash inflows can be arrived at by interpolating
between 14% and 15%.
= 14% +
fo
(15 − 14) × (10,02,587 − 10,00,000)%
(10,02,587 − 9,79,579)
(1 × 2578)%
22,708
ot
IRR (r) = 14% +
,N
= 14% + 0.1139%
= 14.1139%
ES
= 14.114%
Data Required for the Calculation of NPV/IRR
UP
For the calculation of the above factors the following information
are relied upon
(a) Life of the project.
(b) Cash outflow.
(c
)
(c) Cash inflow.
(d) Cost of capital.
___________________
___________________
206
Check Your Progress
Notes
Fill in the blanks:
___________________
1. GARBs stands for ...................
___________________
2. Profit ................... is the average annual post tax benefit
over the life of the project.
___________________
___________________
___________________
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___________________
Airport business practices play a critical role in shaping airline
competition. Access at many of the Nation’s most heavily used
airports is limited, not only because of airside constraints, but also
because of long-established airport business practices. The
financial viability of an airline, especially a new entrant airline,
may depend on serving a few key business and leisure markets.
But such service requires access to airport gates and other
facilities on reasonable terms.
ct
___________________
Summary
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___________________
___________________
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Aviation Enterprise Management
Lesson End Activity
Try out more practical questions from the internet based on
payback period, net present value, and internal rate of return.
fo
Keywords
ot
Payback Period: It is the length of time required to recover the
original investment on the project through cash flows earned.
,N
Profit after Tax: It is the average annual post tax benefit over
the life of the project.
(c
)
UP
ES
Internal Rate of Return: It is the discount rate that makes the
net present value equal to zero.
Questions for Discussion
1.
What is NPV?
2.
What are the implications of the additivity property of NPV?
3.
Discuss the general formula of NPV when discount rates vary
over time.
4.
What is the rationale for the NPV rule?
5.
How is modified NPV calculated?
6.
Sa
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UNIT 17: Capital Finance for Airport Business
207
How would you determine the capital budget under conditions
of increasing marginal cost of capital?
Notes
___________________
Further Readings
___________________
___________________
___________________
ct
Speciale, Raymond, (2006), Fundamentals of Aviation Law.
McGraw Hill
___________________
io
Julie, Rodwell, (2003), Essentials of Aviation Management: A Guide
for Aviation Service Business. Kendall Hunt Publishing Company
n/
___________________
Books
___________________
___________________
Frock, Roger. Changing How the World Does Business: Fedex's
Incredible Journey to Success - The Inside Story. Berrett Koehler
Publishers
___________________
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T. Wells, Alexander, (2004), Airport Planning & Management.
McGraw Hill
J. Sheehan, John, (2003), Business & Corporate Aviation
Management: On Demand Air Travel. McGraw Hill
Castro, Raoul, Corporate Aviation Management. Southern Illinois
University Press
fo
A. Kinnison, Harry, (2004), Aviation Maintenance Management.
McGraw Hill
Web Readings
ot
http://www.airline.net/aviationforums/non_aviation/read.main/1958823/
,N
http://books.google.com/books/about/Essentials_of_aviation_manag
ement.html?id=jjfUv6s8LdsC
ES
http://books.google.com/books/about/Designing_and_executing_stra
tegy_in_avia.html?id=CJXshJc_IpIC
(c
)
UP
http://books.google.com/books/about/Aviation_maintenance_manag
ement.html?id=ZuCJgUSm9ncC
___________________
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Aviation Enterprise Management
208
Notes
___________________
___________________
n/
___________________
io
___________________
___________________
ct
___________________
___________________
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___________________
___________________
(c
)
UP
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Sa
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UNIT 18: Airlines Business Model
Unit 18
209
Notes
Airlines Business Model
___________________
___________________
n/
___________________
Objectives
___________________
\
Point-to-Point Business Model
\
Hub and Spoke Business Model
\
Hub and Spoke in Commercial Aviation
\
Types of Airlines
io
After completion of this unit, the students will be aware of the following
topics:
___________________
ct
___________________
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___________________
Introduction
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The environmental implications of different airline business
models need to be better understood as each of the main models
(network, legacy, charter and freight) has different environmental
characteristics. Furthermore, emerging services such as long-haul
low-cost carriers and specialist business jet services will alter the
air transport market and its impact on the environment.
,N
ot
fo
The dynamics of the airline industry are becoming increasingly
pronounced as deregulation and competition increase. Technology
or government involvement is no longer guarantees of success.
However, the business model is becoming the leading factor of
survival in this industry. The comments on the development of
airline business models throughout the world, and will hopefully
give some insight into airline operations, the industry, and
business models in general.
ES
The main types of airline business model are:
Point-to-point
z
Hub and spoke
UP
z
Point-to-Point Business Model
(c
)
This model is based on flights that are provided to and from a city.
Unit costs are lower in this model as aircraft are utilized more
often because they do not have to wait for connecting flights, thus
reducing fixed costs, which accounts for a large percentage of
___________________
___________________
___________________
Notes
Activity
Write
an article on airlines
___________________
business model. Also explain
the ___________________
point-to-point business
model.
___________________
operating costs. Costs are spread out over many hours of flying,
thereby driving down the unit cost. Low fare airlines like
Southwest and Jetblue are examples of airlines following the point
to point system.
n/
210
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Aviation Enterprise Management
io
___________________
___________________
ct
___________________
___________________
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___________________
___________________
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Hub and Spoke Business Model
ot
fo
The Spoke-hub distribution paradigm (also known as a hub and
spoke model or hub and spoke network) derives its name from a
bicycle wheel, which consists of a number of spokes extending
outward from a central hub. In the abstract sense, a location is
selected to be a hub, and the paths that lead from points of origin
and destination are considered spokes. The model is commonly
used in industry, in particular in transport, telecommunications
and freight.
(c
)
UP
ES
,N
An airline hub is an airport that an airline uses as a transfer point
to get passengers to their intended destination. It is part of a hub
and spoke model, where travellers moving between airports not
served by direct flights change planes en route to their
destinations.
Some airlines may use only a single hub, while other airlines use
multiple hubs. Hubs are used for both passenger flights as well as
cargo flights.
Many airlines also utilize focus cities, which function much the
same as hubs, but with fewer flights. Airlines may also use
secondary hubs, a non-technical term for large focus cities.
Examples include British Airways at Manchester Airport and US
Airways at Pittsburgh International Airport. In India Delhi and
Mumbai are the hubs for Indian and Air India respectively.
Sa
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UNIT 18: Airlines Business Model
Fortress Hub
211
Notes
___________________
___________________
n/
___________________
io
___________________
___________________
___________________
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ct
A fortress hub is a hub dominated by a single airline that controls
a share of flights at or above the monopoly standard of 70 percent
of flights in and out of the hub. A fortress hub is difficult for new
entrant carriers to penetrate. New entrants, such as Spirit Airlines
at (DTW), AirTran at (ATL), and Vanguard at (DFW), allege to
have been the target of exclusionary practices by the dominant
carrier. Some observers argue that the existence of such hubs can
stifle competition; ProAir’s battle with Northwest when it briefly
flew out of Detroit City Airport is often cited as an example.
Northwest was able to outcompete the short-lived discount carrier
by matching its fares and offering more frequent flights.
Examples of fortress hubs include:
Charlotte/Douglas International Airport – US Airways
z
Cincinnati/Northern Kentucky International Airport – Delta
Air Lines
z
Dallas-Fort Worth International Airport – American Airlines
z
Detroit Metropolitan Wayne County Airport – Northwest
Airlines
z
Hartsfield-Jackson Atlanta International Airport – Delta Air
Lines
z
Long Beach Airport – Jet Blue Airways
z
Mumbai for Jet Air
ot
fo
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z
(c
)
UP
ES
,N
A number of changes and reformations have happened during the
last three four decades in the air transport industry. International
air transport services were offered in a network based on a linear
or point to point configuration during the pre jet era. Intermediate
points were used for refueling stops. Later, the technical
developments of aircraft and choice of aircraft expanded,
intermediate stops were by passed to shorten the travelling time
between two points, and where feasible separate routes were
established between the intermediate stops and final stops. As the
demand for air transport services grew larger, cities started to
establish their airports as hubs and develop feeder services into
their international airports. The delivery of transport services has
now reached the stage where a final destination point can be
serviced through a number of hubs, which were not on the original
linear transportation network. As indicated before, global air
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
In the figure 18.1, two airline companies are servicing a network of
major cities. A fair amount of direct connections exists, but mainly
at the expense of the frequency of services and high costs (if not
subsidized). Also, many cities are serviced, although differently, by
the two airlines and connections are likely to be inconvenient. With
deregulation, a system of hub and spoke networks emerges as
airlines rationalize the efficiency of their services. A common
consequence is that each airline assumes dominance over a hub
and services are modified so the two hubs are connected to several
spokes. Both airlines tend to compare for flights between their
hubs and may do so for specific spokes, if demand warrants it.
However, as this network matures, it becomes increasingly
difficult to compare at hubs as well as the spokes, mainly because
of economies of agglomeration. As an airline assumes dominance of
a hub, it reaches oligopolistic (if not monopolistic) control and may
increase airfares for specific segment. The advantage of such a
system for airlines is the achievement of regional market
dominance and higher plane loads, while passengers benefit from
better connectivity (although delays for connections and changing
planes can become more frequent) and lower costs.
(c
)
UP
ES
,N
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n/
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traffic is categorically concentrated in three main regions – East
Asia, Europe and North America. Initially, each region only had
one or two major hubs, but as the demand grew and the cost of
providing international services declined, more hubs were
established and made more viable for international trade in air
transport services. In international markets, networks can only be
established through cooperation with other governments. This
means, that entry into international markets faces much higher
barriers than in domestic markets where in most countries
domestic airlines can enter and exit relatively freely.
ct
Notes
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212
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Aviation Enterprise Management
Figure 18.1: Deregulation in the US Aviation Industry
Sa
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UNIT 18: Airlines Business Model
Analysis of the Model
213
___________________
___________________
n/
___________________
___________________
___________________
___________________
ct
Point-to-point transit refers to a transportation system where a
plane, bus or train travels directly to a destination rather than
going through a central hub as opposed to the spoke-hub
distribution paradigm where the transportation goes to a central
location where the passenger changes to another train, bus or
plane to reach their destination.
Notes
io
The hub-spoke model is most frequently compared to the point-topoint transit model.
ro
du
Currently, the hub concept is the most commonly used. In the
airline industry Southwest Airlines in the United States is the
primary example of an airline that still uses the point-to-point
transit model. The airline industry was point to point until the late
1960s/early 1970s when they switched to the hub concept.
rR
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Benefits
For a network of n nodes, only n - 1 route are necessary to
connect all nodes; that is, the upper bound is n - 1, and the
complexity is O (n).
z
The reduced number of routes generally leads to more efficient
use of scarce transportation resources. For example, aircraft
will be more likely to fly at full capacity, and can often fly
routes multiple times in a single day.
z
Complicated operations such as package sorting can be
consolidated at the hub, rather than maintained separately at
each node.
z
Spokes are simpler, and new spokes can be connected rapidly.
z
Customers may find the network to be simpler and more
intuitive. Scheduling is more convenient for customers since
there are fewer routes with more frequent service.
The model is centralized and day-to-day operations may be
relatively inflexible. Changes at the hub or even in a single
route could have unexpected consequences across the network.
It may be difficult or impossible to handle occasional periods of
high demand between two spokes.
(c
)
z
UP
Drawbacks
ES
,N
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fo
z
___________________
___________________
___________________
___________________
Route scheduling is more complicated for the network
operator. Scarce resources must be used carefully to avoid
starving the hub. Careful traffic analysis and precise timing is
required to keep the hub operating efficiently.
z
The hub constitutes a bottleneck in the network. Total cargo
capacity of the network is limited by the hub’s capacity. Delays
at the hub (e.g., weather) can result in delays across the entire
network. Delays at a spoke (e.g., mechanical problems with an
aircraft) can also affect the network, although to a lesser
extent.
z
Cargo must be routed through the hub before reaching its
destination, possibly requiring a much longer journey than a
direct point-to-point connection. This is often a desirable tradeoff for freight, which can take advantage of the sorting
capabilities of the hub, but it may be unacceptable for timecritical cargo such as passengers.
Make
a report on the hub &
___________________
spoke in commercial aviation.
___________________
___________________
io
___________________
___________________
___________________
___________________
___________________
n/
z
___________________
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___________________
ct
Notes
Activity
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Aviation Enterprise Management
Check Your Progress
State whether the following statements are true or false:
1. Technology or government involvement is no longer
guarantees of success.
fo
2. Point-to-point model is based on flights that are
provided to and from a city.
ot
Hub and Spoke in Commercial Aviation
(c
)
UP
ES
,N
FedEx founder Fred Smith pioneered the hub and spoke model for
overnight package delivery in the mid-1970s. Smith established his
company’s hub at Memphis International Airport (Memphis,
Tennessee). Soon after, other firms like UPS and Airborne had no
choice but to develop their own hub and spoke model given the
natural superiority of this system for speedy delivery of packages.
In addition to FedEx, Delta Air Lines pioneered the hub and spoke
system in the passenger transportation industry at its hub in
Atlanta, Georgia to compete with Eastern Air Lines.
In the early days of FedEx, customers would be surprised to learn
that all packages went through the Memphis hub, even packages
between relatively close cities such as San Francisco and Los
Angeles. While it seems inefficient at first, in reality the aircraft
Hub and Spoke Industrial District
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ES
,N
ot
fo
In recent years, many hubs in the highly interdependent U.S. air
transport network have become congested, leading to delays for
business travellers and freight shipments. Recent events in this
industry may have temporarily reduced this congestion, but
contributed to other types of disruptions. Since delays and
disruptions at one node of the network exacerbate problems
throughout the system, airport infrastructure expansion to
enhance traffic flows and security in large hubs may confer
substantive spillover benefits in the form of travel-time savings
and reliability. This may in turn translate into increased worker
productivity and shipping efficiency, and thus lower costs, for
manufacturing firms. We find that increasing state owned airport
infrastructure tends to generate cost-saving benefits for the state’s
manufacturing industry, primarily due to nonproduction labourand materials-savings. However, airport expansion in connected
hubs has an even greater impact, implying an important
externality component of such investment. Also, unless airport
expansion is accompanied by highway infrastructure investment,
congestion seems to counteract the associated benefits, especially
UP
___________________
___________________
n/
___________________
___________________
___________________
___________________
___________________
The “hub and spoke” has also been used in economic geography
theory to classify a particular type of industrial district. Ann
Markusen, an economic geographer, theorized about industrial
districts where a number of key firms and/or industrial facilities
act as a hub with associated suppliers and firms spread out across
the economic landscape like the spokes of a wheel. The chief
characteristic of such hub and spoke industrial districts is the
domination of one or more large firms, in usually one sector,
surrounded by smaller associated stakeholders. Examples of cities
with such estates include Seattle with Boeing and Toyota City with
Toyota.
(c
)
Notes
ct
More recently, airlines have extended the hub-spoke model in
various ways. One method is to create additional hubs on a
regional basis, and to create major routes between the hubs. This
reduces the need to travel long distances between nodes that are
close together. Another method is to implement point-to-point
service for high traffic routes, bypassing the hub entirely.
215
io
leaving San Francisco would have packages for many destinations,
and likewise the aircraft heading for Los Angeles would have
packages from many sources.
Sa
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UNIT 18: Airlines Business Model
___________________
___________________
___________________
216
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Aviation Enterprise Management
in large-hub states with less than 5 percent of the nation’s
passenger enplanements.
___________________
___________________
___________________
___________________
___________________
n/
io
___________________
Primary Airports are Commercial Service Airports that have more
than 10,000 passenger’s boardings each year. Hub categories for
primary airports are defined as a percentage of total passengers
boarding within the United States in the most current calendar
year ending before the start of the current fiscal year. For example,
calendar year 2001 data are used for fiscal year 2003 since the
fiscal year began 9 months after the end of that year.
ct
___________________
Hub Airport and Facilities
Major Hub Airport should consist of the following:
ro
du
___________________
z
Attribute: Airports vary in size, for example larger airports
for international flights generally have paved runways
2,000 m or longer. Major airports consist of two or three big
runways which allow for the landing and take off of the flights
in shorter duration; thus accomodating more aircrafts in the
airport.
z
Ownership and Operation: The worlds major airports are
possessed by local, regional or federal government bodies, later
they lease the airports to private corporations who oversee the
airport’s entire operation.
___________________
Structure: Airports are divided into landside and airside
areas. Landsides areas comprises of parking lots, tank farms
and access roads. Airside areas include all areas accessible to
aircraft, including runways, taxiways and ramps. Access from
landside areas to airside areas is tightly controlled at most
airports. Passengers on commercial flights access airside areas
through terminals, where they can purchase tickets, clear
security, check or claim luggage and board aircraft. The
waiting areas, which provide passenger access to aircraft, are
typically called concourses although the term is often used
interchangeable with terminal. A big airport needs to provide
better accessibility to its customer.
(c
)
UP
ES
,N
ot
z
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fo
Notes
z
Shopping Mall and Food Services: Most international
airports have shops and food courts. These services typically
provide the passengers food and drinks before they board their
aircraft. Many familiar food chain restaurants have opened
branches in larges airports to serve the passengers. In addition
Sa
le
UNIT 18: Airlines Business Model
international airports also have duty free shops where
travellers are not required to pay the usual duty fees on items.
Notes
Larger airlines often operate member only lounges for
___________________
premium passengers. Airports have a captive audience and
consequently the prices charged for food is generally higher
___________________
analogous to so called street prices.
___________________
Support Services: Aircraft maintenance, pilot services,
ro
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Accessibility: Many large airports in the world are located
many airports have local train lines, rapid transit, light rail
lines or other mass transit systems. These systems are usually
directly connected to the main terminals. Large airports
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usually have access also through freeways from which cars fed
into two access roads, designed as loops, one sitting on top of
the other. One level is for departing passengers and the other
Security: Airports are required to have safety precautions.
Strict safety rules to be laid out supported by ICAO’s
fo
“Standard Recommended Practice” (SRP). Airport security
generally includes the baggage checks, metal screening of
individual persons. Rules against any object that could be used
ot
as weapons. Since the September 11, 2001 attacks, airport
security has been dramatically increased world wide.
Operations: Airport operations are a complex system, which
,N
z
has various intercepts to functions efficiently and used to the
operations level. Airports operate round the clock. There are
ES
some airports in UK, US and other countries have night
curfew. Large teams of people work in concert to ensure safe
UP
aircraft landing and take off.
z
Air Traffic Control: Air Traffic Control is a ground based
controller directs and controls the aircraft movements, usually
via
communication.
This
is
synchronized
by
oversight
facilitates with safety and speed in complex operations where
(c
)
___________________
___________________
next to or even above railway trunk routes. For local access,
z
___________________
ct
Base Operators (FBO) at major hub airports.
is for arrivals.
n/
than are available elsewhere in the region. However,
aircraft rentals and hangar rental are performed by a Fixed
z
___________________
io
z
217
traffic moves in all three dimensions. Air traffic controls tasks
___________________
___________________
___________________
218
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Aviation Enterprise Management
at the airport are generally divided into two main areas of
ground control and tower control.
Notes
Activity
Present
an assignment on the
___________________
various types of airlines.
___________________
Check Your Progress
Fill in the blanks:
n/
___________________
1. Aircraft maintenance, pilot services, aircraft rentals and
hangar rental are performed by a ……………… at major
hub airports.
io
___________________
___________________
___________________
___________________
___________________
___________________
___________________
Types of Airlines
ro
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ct
2. ……………........ is a ground based controller directs and
controls the aircraft movements, usually via
communication.
The main types of Airlines are:
LCC
z
FSC
z
CA
z
Cargo
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z
Low Cost Carrier (LCC)
ot
fo
A low-cost carrier or low-cost airline is an airline that generally
has lower fares and fewer comforts. To make up for revenue lost in
decreased ticket prices, the airline may charge for extras like food,
priority boarding, seat allocating, and baggage etc.
(c
)
UP
ES
,N
The term originated within the airline industry referring to
airlines with a lower operating cost structure than their
competitors. While the term is often applied to any carrier with low
ticket prices and limited services, regardless of their operating
models, low-cost carriers should not be confused with regional
airlines that operate short flights without service, or with fullservice airlines offering some reduced fares.
Business Model
Low-cost carrier business model practices vary widely. Some
practices are more common in certain regions, while others are
generally universal. The common theme among all low-cost
carriers is the reduction of cost and reduced overall fares compared
to legacy carriers.
Sa
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UNIT 18: Airlines Business Model
219
India’s List of Low Cost Airlines:
Notes
Air-India Express
z
Goair
___________________
z
IndiGo
___________________
z
JetLite
___________________
z
Jet Konnect
___________________
z
Kingfisher Red
z
Spicejet
io
n/
z
___________________
ct
___________________
___________________
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Full Service Carrier (FSC)
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Full Services airlines as the name defines provide all types of
facilities which make the journey comfortable and hassle free. In
full service airline you will get various varieties of foods. They
provide menu of local as well as international cuisines which a
passenger can opt according to his own taste.
Charter Airlines (CA)
ot
fo
A charter flight is a privately pre-booked flight. It is often offered
as part of a travel package. Most charters are filled by tour
companies, booking the charter flight as part of a package deal
which includes accommodation, rentals, and other activities for an
entire vacation. These tour companies charter an airplane for a
specific day and route, and sell the seats themselves. Occasionally
businesses, schools, or organizations will book a charter flight to
receive a better rate from the airline.
ES
,N
While in the past a charter flight could only be secured through a
tour company; in recent years, charter airlines have opened up their
ticket sales to the general public. Because of the discounted rate, a
charter flight must constantly strive for maximum occupancy, more
so than traditional scheduled airlines. There is some general belief
that service on a charter flight might be of a lesser quality than
standard flight service, though this is by no means absolute.
(c
)
UP
Airlines offering charter services (note: some airlines are not
necessarily charter airlines, but do offer charter services. For
example, TAME, an Ecuadorian flag carrier has charter flights
throughout its other international destinations):
z
Aer Lingus
z
Air Adriatic
___________________
___________________
___________________
Air Anatolia
z
Air Atlanta Icelandic
z
Air Finland
z
Air France
z
Air Inuit
z
Air Japan
z
Air Srpska
z
Air Sweden
z
Air Tindi
z
Air Transat
z
Alliance Airlines
z
ATA
z
AOM French Airlines
z
Arrow Air
z
Aviogenex
z
Belavia
z
BEXAIR
z
Birgenair
z
British Airways
___________________
___________________
___________________
___________________
___________________
___________________
z
British Caledonian
Britannia Airways
ot
z
io
___________________
ct
___________________
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___________________
n/
z
Notes
fo
220
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Aviation Enterprise Management
Capitol Air
z
Carnival Air Lines (Owned by Carnival Cruise Lines)
(c
)
UP
ES
,N
z
z
Cargolux
z
Champion Air
z
Citybird
z
Small Planet Airlines
z
Starair
z
Sterling European Airlines
Cargo
Cargo airlines are airlines dedicated to the transport of cargo.
Some cargo airlines are divisions or subsidiaries of larger
passenger airlines.
221
Notes
___________________
___________________
n/
___________________
___________________
io
Air transport is a vital component of many international logistics
networks, essential to managing and controlling the flow of goods,
energy, information and other resources like products, services,
and people, from the source of production to the marketplace. It is
difficult or nearly impossible to accomplish any international
trading, global export/import processes, international repositioning
of raw materials/products and manufacturing without a
professional logistical support.
Sa
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UNIT 18: Airlines Business Model
___________________
ct
___________________
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___________________
Figure 18.2: FedEx Express DC-10
ot
fo
It involves the integration of information, transportation,
inventory, warehousing, material handling, and packaging. The
operating responsibility of logistics is the geographical
repositioning of raw materials, work in process, and finished
inventories where required at the lowest cost possible.
Check Your Progress
,N
State whether the following statements are true or false:
1. Hubs are used only passenger flights.
UP
Summary
ES
2. A fortress hub is difficult for new entrant carriers to
penetrate.
(c
)
Hub and spoke system is proving vital for an economy. Today, hub
carriers often account for more than 70 percent and sometimes for
more than 80 percent of passengers at their respective hubs.
However, airport expansion in connected hubs has an even greater
impact, implying an important externality component of such
investment. Also, unless airport expansion is accompanied by
___________________
___________________
___________________
222
Notes
___________________
___________________
Sa
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Aviation Enterprise Management
highway infrastructure investment, congestion seems to counteract
the associated benefits, especially in large-hub states with less
than 5 percent of the nation’s passenger emplacements. Thus, hub
and spoke system has changed the aviation industry to a greater
extent.
___________________
Lesson End Activity
io
___________________
n/
___________________
Prepare a presentation on the business models of aviation.
ct
___________________
Keywords
___________________
Fortress Hub: A fortress hub is a hub dominated by a single
airline that controls a share of flights at or above the monopoly
standard of 70 percent of flights in and out of the hub.
___________________
___________________
ro
du
___________________
rR
ep
Point-to-point Transit: Point-to-point transit refers to a
transportation system where a plane, bus or train travels directly
to a destination rather than going through a central hub.
Hub and Spoke: The “hub and spoke” has also been used in
economic geography theory to classify a particular type of
industrial district.
fo
Air Traffic Control: Air Traffic Control is a ground based
controller directs and controls the aircraft movements, usually via
communication.
ot
Questions for Discussion
(c
)
UP
ES
,N
1.
What do you mean by low cost carriers?
2.
Describe charter airlines in detail.
3.
Explain hub and spoke type of business model for airlines.
4.
What are the drawbacks of “hub and spoke” model?
Further Readings
Books
Julie, Rodwell, (2003), Essentials of Aviation Management: A Guide
for Aviation Service Business. Kendall Hunt Publishing Company
Speciale, Raymond, (2006), Fundamentals of Aviation Law.
McGraw Hill
Sa
le
UNIT 18: Airlines Business Model
223
T. Wells, Alexander, (2004), Airport Planning & Management.
McGraw Hill
Notes
Frock, Roger, Changing How the World Does Business: Fedex's
Incredible Journey to Success - The Inside Story. Berrett Koehler
Publishers
___________________
J. Sheehan, John, (2003), Business & Corporate Aviation
Management: On Demand Air Travel. McGraw Hill
___________________
io
n/
___________________
___________________
___________________
ct
Castro, Raoul, Corporate Aviation Management, Southern Illinois
University Press
___________________
Web Readings
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ep
http://www.airliners.net/aviationforums/non_aviation/read.main/1958823/
ro
du
A. Kinnison, Harry, (2004), Aviation Maintenance Management.
McGraw Hill
http://books.google.com/books/about/Essentials_of_aviation_manag
ement.html?id=jjfUv6s8LdsC
http://books.google.com/books/about/Designing_and_executing_stra
tegy_in_avia.html?id=CJXshJc_IpIC
(c
)
UP
ES
,N
ot
fo
http://books.google.com/books/about/Aviation_maintenance_manag
ement.html?id=ZuCJgUSm9ncC
___________________
___________________
___________________
___________________
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Aviation Enterprise Management
224
Notes
___________________
___________________
n/
___________________
io
___________________
___________________
ct
___________________
___________________
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___________________
___________________
(c
)
UP
ES
,N
ot
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___________________
Sa
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UNIT 19: Procedure to Start New Airlines
Unit 19
225
Notes
Activity
Procedure to Start New Airlines
Write
an article to explain how
___________________
planning for a new airline is
___________________
done.
n/
___________________
Objectives
___________________
\
Planning to Start new Airline
\
How to Create an Airline Company
\
Airline Organization Structure
\
Build an Airline Company and Brand
\
Rules and Regulations to start new Airlines
io
After completion of this unit, the students will be aware of the following
topics:
___________________
ct
___________________
Introduction
ro
du
___________________
ot
fo
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The airline industry has experienced a great deal of turmoil since
the World Trade Centre attacks of September 11, 2001. The decline
of American Airlines, Continental and other "legacy" airlines since
the 1980s have allowed regional carriers like Midwest Airlines to
thrive. The rising costs of jet fuel coupled with decreased ticket
sales among casual travellers have led airlines to increase ticket
prices. As you create your own airline, you will need to show that
your company can generate consistent ticket sales in a competitive
market.
,N
Planning to Start New Airline
UP
ES
Market factors favour inauguration of a new airline to meet the
demand for additional, higher-quality passenger and cargo service
linking Western Europe with the rapidly expanding markets of
South-eastern Europe and Turkey, and linking South-eastern
European destinations, via Western European hubs, to transAtlantic and global destinations.
(c
)
This new airline will base its business and marketing strategies on
achieving high, and profitable, load factors through absorption of
unmet demand in three key air-traffic categories: unserved and
under-served routes on which high unmet demand currently exists
or can be readily developed; serving key niche markets where
demand is either unmet or poorly served; and meeting peak traffic
___________________
___________________
___________________
___________________
___________________
___________________
The six key characteristics leading to the success and profitability
of this new carrier will be:
z
Provision of high-quality service on routes and in markets that
currently are unserved, poorly served, or under-subscribed by
existing carriers, thereby setting both a new trend and a new
pace in air service to and within the South-eastern European
region.
z
Employment of cost-effective, up-to-date regional aircraft that
will be sized right for the market and the route, leading to
higher load factors, reduced costs, improved efficiency and
flexibility, greater passenger comfort and satisfaction, and
higher net profits. Outfitting these aircraft with the latest
aviation technologies and navigational equipment will help
ensure the highest level of reliability, punctuality, safety, and
customer satisfaction.
z
Utilization of the latest electronic and informational
technologies in sales and marketing; reservations, ticketing
and check-in; scheduling and resource planning; cargo
tracking; and operational oversight. Such techniques as
internet marketing, reservations, and sales; electronic
ticketing and check-in; online quality control, resource
planning, operational oversight, cargo and baggage tracking,
and customer service, all will reduce staffing requirements
while offering ease-of-use and greatly enhanced access by, and
convenience to, the customer.
ct
___________________
___________________
___________________
___________________
n/
___________________
io
___________________
demands on certain key regional, seasonal, and variable routes
where very high load factors can be predicted despite existing but
lower-quality competition, or where competition cannot meet the
demand.
,N
ot
fo
___________________
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Notes
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226
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Aviation Enterprise Management
Recognition that not everyone is geared for the electronic
world, leading the proposed airline to provide a high level of
non-electronic service as well, particularly to the many newer,
less-experienced travellers – but future loyal customers –
found in the region.
z
Ensuring a friendly, cooperative, enjoyable, yet highly
professional face to the customer.
z
Development
and
implementation
of
cooperations,
associations, and partnerships with other larger, more
established, and highly regarded airlines both within and
(c
)
UP
ES
z
Notes
Activity
Make
a report on the
___________________
objectives of new airlines.
___________________
___________________
n/
In short, the goal of this new airline is to be known to the
passenger and the cargo customer by its proposed motto: "We've
got a job to do, and we do it every day - for you!"
227
___________________
io
beyond the region to provide an extensive range of connections,
through fares, frequent-flyer mileage sharing, and other
passenger and client advantages through interline
arrangements, code shares, common hubbing, and so forth.
Sa
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UNIT 19: Procedure to Start New Airlines
___________________
Objectives of New Airlines
___________________
ct
The proposed airline will have as its primary objectives the
following elements:
ro
du
To establish and operate a new regional airline aiming
specifically at linking Western Europe with the rapidly
expanding markets of South-eastern Europe and Turkey, and
linking South-eastern European destinations, via Western
European hubs, to trans-Atlantic and global destinations.
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z
To provide service and absorb unmet demand in three key
traffic categories: unserved and under-served routes on which
high demand currently exists or can be developed; serving key
niche markets where demand is either unmet or poorly served;
and meeting peak traffic demands on certain key regional,
seasonal, and variable routes where very high load factors can
be predicted despite existing, but lower-quality, competition.
z
To implement an organizational and marketing strategy that
will, beginning in the first year of flight operations, achieve
average passenger load factors in the 65-85 percent range,
depending on route and season, and increasing thereafter to
the 75-90 percent range, thereby maximizing revenues and
return on investment while minimizing risk.
z
To achieve revenues in excess of [XYZ] million USD per
quarter within the first six months of flight operations, and
exceeding [XYZ] million USD per quarter, by the end of the
first year.
z
To achieve net operating profits in the [XYZ] percent range
within the first 12 months of flight operations, an annualized
return-on-investment of approximately [XYZ] percent by the
end of the second year of operations, and steady growth
enabling rational expansion of the airline thereafter.
(c
)
UP
ES
,N
ot
fo
z
___________________
___________________
___________________
___________________
228
z
Notes
To
achieve
the
projected
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Aviation Enterprise Management
results
starting
with
three
mid-to-large-size regional aircraft, growing to five by the end
of the first year of operations, similar to the 99-passenger
___________________
British Aerospace Avro RJ100 or 85 - 99-seat Avro RJ85
___________________
regional jet aircraft, obtained on either a dry-lease or purchase
n/
___________________
basis; supplementing those aircraft with larger, longer-range
___________________
io
passenger aircraft and cargo liners on a charter or wet-lease
basis to serve peak-demand and intermittent routes and
___________________
periods, as well as cargo demands, as called for by the business
___________________
plan; and incrementally expanding the fleet size and scope on
___________________
a dry-lease or purchase basis to at least double its initial
ct
___________________
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capacity by the beginning of the third year of operations to
___________________
accommodate projected passenger and cargo growth in the
___________________
business plan's out-years.
z
To gear operations, and present a professional, serious,
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growth-oriented image from the outset, that will set the stage
for reasoned, planned expansion, mirroring growth rates
projected for the first year of operations, and that will enable
the airline to extend its regional scope and, in future years, to
transition from its initial regional status into a larger
continental and intercontinental carrier.
As an element critical to achieving the airline's other key
fo
z
objectives, to identify and develop key interline alliances,
cooperations, associations, and partnerships with other larger,
ot
more established, and highly regarded airlines both within
(c
)
UP
ES
,N
and beyond the target region that will enable the proposed
airline to provide an extensive range of connections, through
fares, frequent-flyer mileage sharing, and other passenger and
client advantages through interline arrangements, code
shares, common hubbing, and so forth.
Check Your Progress
Fill in the blanks:
1. A key element contributing to the success of this new
carrier will be its organizational and …………………….
team.
2. Launching an airline company is not for the faint of
………………….
Sa
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UNIT 19: Procedure to Start New Airlines
How to Create an Airline Company
229
n/
___________________
___________________
___________________
ct
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The first step as an entrepreneur is to analyze the market you are
planning to enter. In the case of the airline industry, the key
variables are traffic volumes, traffic growth, and airplane
requirements by region and route. Several publications publish
information on the state of the market, including aircraft
manufacturer Boeing's "Current Market Outlook." Using this data,
identify the strengths and weaknesses of different regional
markets and identify those in which you wish to compete.
Develop the Business Plan
,N
ot
fo
Best business practice calls for a business plan that formalizes
your research and charts your company's path. In addition to
market analysis, your plan should set forth your strategy for
branding, operations, management team, pro forma financial
statements, capitalization and risks. Critically, the business plan
will provide you with an indication of the number of months or
years it will take for your company to break even and turn a profit.
UP
ES
Whether you are planning to launch a passenger or cargo airline
company, plane selection is one of the most important decisions
you will make. In the case of passenger aircraft, evaluate the
plane's aesthetics, floor plans, cross-sections, flight deck,
performance, payload and range and operational costs. Also take
into account what fleet your competitors have chosen and whether
it is appropriate to emulate or depart from their choices.
Source the Airplanes
When speaking to suppliers, you will be faced with the choice of
leasing versus purchasing the aircraft. Generally speaking, if you
do not have the start-up capital or expect to fly your aircraft for a
(c
)
Create
an assignment on how
___________________
to create an airline company.
___________________
___________________
Conduct Market Analysis
Select the Airplanes
Notes
Activity
io
Launching an airline company is not for the faint of heart. It is a
highly capital intensive business subject to strict regulation and
the vagaries of fuel prices and the weather. Competition is fierce,
with many airlines engaging in price wars by slashing prices and
running promotions to lure in travellers. The International Air
Transport Associates expects the industry to seek a measly 0.7
percent profit margin in 2011.
___________________
___________________
___________________
___________________
Notes
Activity
Present
a draft on the airline
___________________
organisation structure.
___________________
___________________
low number of hours, leasing is the economically superior choice.
Leasing is also a compelling option to account for seasonal
variations in demand or to test new market routes before
committing with a costly aircraft purchase.
Airline Organization Structure
___________________
___________________
___________________
___________________
___________________
io
ct
___________________
Airline organization structure depends on the size of the airline
and whether it's a publicly-traded company. Those that sell shares
of stock feature common organizational characteristics. In general,
large airlines push workload responsibilities and accountability
down to various departments. These often go by names such as
flight operations and maintenance, for example. Usually, an airline
manages everything through a board of directors and a chief
executive officer.
Hub System
ro
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___________________
n/
230
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Aviation Enterprise Management
fo
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A large commercial airline is a complex entity. U.S. airlines often
feature operations at hub airports that are fed by flights from
hundreds of smaller stations. These stations send passengers to
those hubs. Once there, passengers then go on to other
destinations on other flights. The typical commercial airline flies
millions of passengers per year to points all over the globe.
Airline Senior Executive Leadership
(c
)
UP
ES
,N
ot
Most commercial airlines feature a chief executive officer (CEO)
who oversees the operations of the company. A board of directors,
with a chairman, usually meets regularly with the CEO and his
subordinates. The CEO often has a chief financial officer (CFO)
and a chief operating officer (COO) to assist him. Working beneath
this trio are executive vice presidents (EVPs). These EVPs oversee
broad-based organizations such as airline operations and flight
operations.
Chain of Command
Broad-based airline organizations divide responsibilities up among
a number of less broad-based departments. They do this because
aspects of an airline can be complex and technical. Examples of
such complexity include flight operations and aircraft maintenance
activities. An airline is also highly regulated by the federal
government. Airlines usually manage it all by pushing
accountability down to front-line managers. This is done through
Sa
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UNIT 19: Procedure to Start New Airlines
EVPs, senior vice presidents, vice presidents and so on down to the
manager.
231
Notes
Front-Line Operations
___________________
Most commercial airlines maintain control over daily operations
through front-line managers and their subordinate supervisors.
These supervisors oversee small groups of rank-and-file employees
while managers may be responsible for several or more
supervisors. You can trace a line, then, from the most junior
employee loading an airplane right up to the CEO. As with almost
any large organization, strategic business activities turn into
tactical business activities the farther one moves down from the
CEO.
___________________
n/
___________________
io
___________________
___________________
ro
du
ct
___________________
Teamwork
fo
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Most commercial airlines feature a classic top-down organizational
structure on paper. Many operations within an airline, though,
count on the success of other operations within that same airline.
A pilot won't be able to fly without enough flight attendants, for
example. Because of this, it isn't unusual to see a manager or
director from one operational unit work directly with a manager
from another. In fact, they do this regularly to solve many different
daily operational issues.
Build an Airline Company and Brand
ES
,N
ot
Gain expertise on the future of finances, technology and consumer
demand in the airline industry before investing money. Boeing's
Current Market Outlook covers new airplane orders, customer
demand and new technology in the airline industry through 2027.
These projections can help you determine if a charter, regional or
international airline is the right business opportunity.
UP
Spend several months compiling data and developing content for
your business plan before starting an airline. Your business plan
should feature your airline name, logo, mission statement and
long-term objectives in the first chapter. The remaining sections
should highlight start-up funds, projected expenses and the
geographic limits of your airline to attract investors.
(c
)
Combine your business plan with a brief sales presentation before
seeking a first round of investment capital. Your presentation
should highlight profit projections, ticket pricing and other hard
___________________
___________________
___________________
___________________
232
Notes
___________________
___________________
Sa
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Aviation Enterprise Management
financial data instead of vague business goals. After exhausting
investments from friends and colleagues, make an appointment
with a venture capital firm to secure an investment for your
airline. Bridge the gap between personal and investment capital
with commercial loans secured from a local bank.
n/
___________________
Key to Success
___________________
In descending order of importance, the five critical keys to success
for the proposed new regional airline are:
z
Employing an experienced, highly professional management
team that combines vision; realism; financial ability; solid
knowledge of the aviation business; familiarity with, and belief
in, the utilization and benefits of the latest aviation, electronic,
and informational technologies; on-the-ground knowledge of
the region and markets to be served; realization of the crucial
importance of an organization's personnel to its success; and a
total familiarity with, and commitment to, the overall mission
and goals of the proposed new airline.
z
Intelligent, progressive, and aggressive marketing that
identifies the airline as a different kind of player, one that is
sharper and smarter, and with a higher level of
professionalism and operational standard than is the norm in
the target region. Concentration on safety, with highly trained,
dedicated, and professional personnel, caring for the passenger
and the passenger's needs and wants, the advantages offered
by advanced technology, and straightforward, understandable,
highly competitive tariffs and fare pricing, all will form key
pillars of the marketing strategy.
ro
du
___________________
ct
___________________
___________________
(c
)
UP
ES
,N
ot
fo
___________________
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___________________
io
___________________
z
Identification, through careful market research, of unserved or
under-served routes and city pairs in the target market area
with sufficient passenger demand to enable high load factors
and profitable operations utilising the category of aircraft
envisaged.
z
Use of an all-jet fleet of newer, modern, Western-built regional
aircraft that offer a high level of comfort, safety, and fuel and
operational efficiency and flexibility, which meet all normal
aviation standards, and which offer sufficient, but not
excessive, passenger and cargo capacity on the envisaged
routes.
Use of advanced electronic and information technology to
reduce staffing and other operational costs; expand the
potential market base; readily capture sales opportunities;
simplify and speed passenger, baggage, and cargo handling;
and enhance customer convenience and satisfaction.
Check Your Progress
Create
a document illustrating
___________________
the list of rules and regulations
___________________
to start
new airlines.
___________________
io
___________________
ro
du
2. …………… airline organizations divide responsibilities
up among a number of less broad-based departments.
___________________
ct
1. ……………… structure depends on the size of the airline
and whether it's a publicly-traded company.
Rules and Regulations to Start New Airlines
ot
fo
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Sub-rule 1 of Rule 134 of the Aircraft Rules, 1937 specifies that no
person shall operate any scheduled air transport service from, to,
in, or across India except with the permission of the central
government, granted under and in accordance with and subject to
the provisions of Schedule XI of the Aircraft rules. This Civil
Aviation Requirement contains the minimum airworthiness,
operational and other general requirements for grant of permit for
Scheduled air transport operations. This CAR is issued under
provisions of Rule 133A of the Aircraft Rules, 1937. These
requirements are complimentary to the requirements of ICAO
Annex 6 Part I, as applicable to scheduled operations.
,N
Definition
UP
ES
‘Scheduled air transport service’ means an air transport service
undertaken between the same two or more places and operated
according to a published time table or with flights so regular or
frequent that they constitute a recognizably systematic series, each
flight being open to use by members of the public.
A Scheduled Operator's Permit can be granted only to:
1.
A citizen of India
2.
A company or a body corporate provided that:
(c
)
Notes
Activity
___________________
Fill in the blanks:
Eligibility
233
n/
z
Sa
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UNIT 19: Procedure to Start New Airlines
(a) it is registered and has its principal place of business
within India;
___________________
___________________
___________________
___________________
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Aviation Enterprise Management
234
(b) its chairman and at least two-thirds of its directors are
citizens of India
Notes
___________________
(c) its substantial ownership and effective control is vested in
Indian nationals.
___________________
___________________
n/
___________________
Before the Scheduled Operator's Permit is issued, an applicant
shall have:
1.
Paid up Capital for new applicants for which the applicant
shall submit a certificate from the banker or chartered
accountant to confirm the paid up capital of the company:
ct
___________________
io
___________________
___________________
(a) Airlines operating with aircraft with take off mass equal
to or exceeding 40,000 kg.
ro
du
___________________
___________________
(i) upto 5 aircraft – `50 crore
___________________
(ii) for each addition of up to five aircraft, additional
equity investment of `20 crore will be required.
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(b) Airlines operating with aircraft with take off mass not
exceeding 40,000 kg.
(i) upto 5 aircraft – `20 crore
(ii) for each addition of up to five aircraft, additional
equity investment of `10 crore will be required.
,N
ot
fo
Paid up Capital for existing airlines shall comply with the
above requirements and, wherever necessary, will have to raise
their authorized and paid up capital to the prescribed
minimum levels, before 15th May 2012. The operator shall
submit a certificate from the banker or chartered accountant to
confirm the paid up capital of the company in this regard.
(c
)
UP
ES
2.
A fleet of minimum five aeroplanes or five multi-engine
helicopters either by outright purchase or through lease. The
aeroplanes shall be of maximum certified takeoff mass of more
than 5,700 kg and type certified meeting the requirements of
transport category aircraft acceptable to DGCA. Multi-engine
helicopters shall be of maximum certified takeoff mass of more
than 3180 kg and type certified meeting the requirements of
transport category helicopters acceptable to DGCA. The
aircraft shall be registered in India and shall hold a current
Certificate of Airworthiness in Normal Passenger category.
For leased aircraft, a copy of lease deed shall be filed with the
DGCA. To facilitate the start of the operations, operators will
Adequate number of aircraft maintenance engineers and his
own maintenance and repair facilities required to carry out
maintenance of aircraft at least up to certification of flight
release or 500 hours, whichever is higher. For higher
maintenance schedules, the operator should preferably
establish his own maintenance facilities progressively as the
fleet size grows, but he can carry out such maintenance using
facilities of reputed and experienced organisations approved by
DGCA for maintenance of the type of aircraft.
Notes
___________________
___________________
n/
___________________
___________________
___________________
___________________
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ct
3.
235
io
be permitted to operate with one aeroplane/helicopter and will
be given one year’s time from the date of securing operator’s
permit, to have the fleet size of five aircraft. Within this period
of one year, the operator will be permitted to operate
scheduled services if they meet all airworthiness, air safety
and operational requirements for such operations, fulfill the
route dispersal guidelines and all other requirements
applicable to a scheduled operator.
Sa
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UNIT 19: Procedure to Start New Airlines
On his regular employment sufficient number of flight crew
and cabin crew but not less than three sets of crew per
aircraft. The flight crew should hold current licenses issued by
DGCA and appropriate endorsements on the type of aircraft
operated. DGCA may, with the approval of the competent
authority, permit a few appropriately qualified foreign licensed
pilots to fly Indian registered aircraft for a limited period to
enable pilots of the operator to acquire necessary experience
and to carry out training and proficiency checks for acquiring
the type endorsement.
5.
In place proper arrangements for provision of ground handling
services in accordance with the provisions of AIC 3/2010 and
the Airports Authority of India (General Management, Entry
for Ground Handling Services) Regulations, 2007, as
applicable.
ES
,N
ot
fo
4.
UP
Check Your Progress
Fill in the blanks:
1. Airline organization ……………. depends on the size of
the airline and whether it's a publicly-traded company.
(c
)
2. Broad-based airline organizations divide responsibilities
up
among
a
number
of
less
broad-based
………………………. .
___________________
___________________
___________________
___________________
236
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Aviation Enterprise Management
Summary
Notes
___________________
___________________
___________________
n/
___________________
io
___________________
The airline industry has experienced a great deal of turmoil since the
World Trade Centre attacks of September 11, 2001. The decline of
American Airlines, Continental and other "legacy" airlines since the
1980s have allowed regional carriers like Midwest Airlines to thrive.
The rising costs of jet fuel coupled with decreased ticket sales among
casual travellers have led airlines to increase ticket prices. As you
create your own airline, you will need to show that your company can
generate consistent ticket sales in a competitive market.
___________________
___________________
___________________
Lesson End Activity
ro
du
___________________
ct
___________________
With the help of internet, find more about the procedure to start
new airline.
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Keywords
Scheduled Air Transport Service: ‘Scheduled air transport
service’ means an air transport service undertaken between the
same two or more places and operated according to a published
time table.
DGCA: Director General of Civil Aviation
fo
Knowledge: Knowledge is another resource you need to have in
place before you start a business.
ot
Managing People: Managing people is only one skill set you’re
going to need to start a business that's going to be successful.
(c
)
UP
ES
,N
Questions for Discussion
1.
Describe various characteristics leading to the success and
profitability with new carrier.
2.
What are the objectives of new airlines?
3.
Explain how to create an airline company.
4.
Describe the structure of an airline company.
Further Readings
Books
Julie, Rodwell, (2003), Essentials of Aviation Management: A Guide
for Aviation Service Business, Kendall Hunt Publishing Company
Sa
le
UNIT 19: Procedure to Start New Airlines
237
Speciale, Raymond, (2006), Fundamentals of Aviation Law.
McGraw Hill
Notes
T. Wells, Alexander, (2004), Airport Planning & Management,
McGraw Hill
___________________
Frock, Roger. Changing How the World Does Business: Fedex's
Incredible Journey to Success - The Inside Story, Berrett Koehler
Publishers
___________________
n/
io
___________________
___________________
___________________
ct
J. Sheehan, John, (2003), Business & Corporate Aviation
Management: On Demand Air Travel. McGraw Hill
___________________
ro
du
Castro, Raoul, Corporate Aviation Management. Southern Illinois
University Press
A. Kinnison, Harry, (2004), Aviation Maintenance Management.
McGraw Hill
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ep
Web Readings
http://www.airliners.net/aviationforums/non_aviation/read.main/1958823/
http://books.google.com/books/about/Essentials_of_aviation_manag
ement.html?id=jjfUv6s8LdsC
fo
http://books.google.com/books/about/Designing_and_executing_stra
tegy_in_avia.html?id=CJXshJc_IpIC
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http://books.google.com/books/about/Aviation_maintenance_manag
ement.html?id=ZuCJgUSm9ncC
___________________
___________________
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Aviation Enterprise Management
238
Notes
___________________
___________________
n/
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___________________
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UNIT 20: Case Study
Unit 20
239
Notes
Case Study
___________________
___________________
n/
___________________
Objectives
___________________
io
After analyzing this case, the student will have an appreciation of the
concept of topics studied in this Block.
___________________
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Case Study: Strategic Consulting Regulator Improvement –
Airworthiness Standards
ct
___________________
Nigerian Civil Aviation Authority
Baines Simmons was commissioned by the Honourable Minister
(AMO) and standard of NCAA oversight.
Client Profile
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of Aviation, Nigeria, and contracted to perform a fundamental
review of The Airworthiness Standards of Nigerian registered
aircraft, their Operators, and Aircraft Maintenance Organisations
The Nigerian Civil Aviation Authority (NCAA) is the regulatory
body for aviation in Nigeria.
fo
It became autonomous with the passing into law of the Civil
Aviation Act, 2006. The Act not only empowers the Authority to
ot
regulate Aviation Safety without political interference, but also to
carry out Oversight functions of Airports, Airspace,
Meteorological Services, etc. as well as economic regulations of
,N
the industry. With over 25 Airports, 30 Airlines, 590 Pilots, 19
Flight Engineers, 258 Air Traffic Controllers (ATC), 677 Aircraft
Maintenance Engineers, 1103 Cabin Crew and 4 Aircraft
Dispatchers, the Nigerian civil aviation sector is extensive and
ES
complex, requiring an agile and adaptable regulatory approach.
The Challenge
UP
The Minister of Aviation required a high-level review and
benchmark of NCAA standards and oversight within an
international (ICAO) and Nigerian context. Due to time
constraints and the stage of development of the Nigerian aviation
industry the review needed to be focused on high-level safety and
(c
)
airworthiness issues and avoid direct comparison with complex
advanced systems of regulation. The project objectives required a
structured examination of safety standards related to the
Contd…
___________________
___________________
___________________
___________________
240
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Aviation Enterprise Management
Airworthiness of Nigerian aircraft from both a regulatory systems
and product sample perspective. The project required highly
Notes
experienced regulatory management skills, international and
local contextualisation, pragmatism and strong facilitation
___________________
expertise.
___________________
The Solution
___________________
___________________
The Baines Simmons project team’s review of the NCAA looked
at:
___________________
z
io
n/
___________________
ct
Requirements and internal procedures (including Certificate
of Airworthiness)
___________________
z
Oversight of the continued airworthiness of aircraft
___________________
z
Oversight of
Organisations
z
Airworthiness Department competence
___________________
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___________________
Operators
and
Approved
Maintenance
In order to meet the objectives within the project scope, a number
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of key interviews were conducted with NCAA Airworthiness
department surveyors and managers along with surveys of
operational aircraft. Structured visits were made to approved
Operators and AMOs at Lagos and Abuja.
Within a relatively short timeframe, Baines Simmons’ consultants
fo
processed a significant amount of data which was subsequently
compiled, assimilated, analysed, benchmarked, evaluated and
interpreted.
(c
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The Outcome
The
Nigerian
national
airworthiness
regulations
and
requirements were successfully evaluated and reported upon
against the benchmark of internationally recognised standards
(ICAO standards and recommended practices).
Advice and insight was provided on the structural arrangements
and independence of the regulatory function to more effectively
manage oversight activities. Specific and prioritised NCAA
departmental competence development recommendations were
outlined
along
with
infrastructure
and
facilities
recommendations.
An executive summary and detailed report outlined all the
findings and recommendations of the consulting project team.
Dr Harold Demuren, Director General of the NCAA, has
subsequently been recognised for the achievements of the NCAA
Contd…
Sa
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UNIT 20: Case Study
in improving Nigerian aviation safety standards, including FAA
Category certification.
241
Notes
___________________
1. Study and analyze the case.
___________________
2. Write down the case facts.
___________________
3. What do you infer from the case?
___________________
io
n/
Questions
Source: http://www.bainessimmons.com/case-studies/Case%20Study%2016%20-Nigerian%20CAA%20%20Regulatory%20Consulting%20v02.pdf
___________________
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242
Notes
___________________
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n/
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___________________
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Sa
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UNIT 21: Capital Infrastructure Requirement for Airlines
243
Notes
___________________
___________________
n/
___________________
io
___________________
___________________
ct
___________________
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___________________
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BLOCK-V
___________________
___________________
___________________
Detailed Contents
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244
Notes
UNIT
21: CAPITAL INFRASTRUCTURE
___________________
REQUIREMENT FOR AIRLINES
z
___________________
Repair Organization
z
Ground Handling Equipment
___________________
z
Reservation System
___________________
___________________
UNIT 22: CAPITAL FINANCE FOR AIRLINES
z
___________________
Introduction
z
___________________
Financing
z
___________________
Equity Capital
z
Preference Capital
z
Internal Accruals
z
Shares and Debentures
z
Working Capital Advances
z
Financing Infrastructure
z
Venture Capital
Financial Institutions
z
Finance in Aviation
z
Lease Companies
z
Aircraft Lease
UNIT 24: AVIATION INSURANCE
z
Introduction
z
Nature of the Contact of Insurance
z
z
z
Fundamental Principles of Insurance
Aviation Insurance Policies
Types of Insurance
Aviation Insurance Companies
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UNIT 25: CASE STUDY
,N
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z
n/
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Aircraft
Introduction
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z
z
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___________________
Introduction
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UNIT 23: AVIATION FINANCIAL INSTITUTIONS
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UNIT 21: Capital Infrastructure Requirement for Airlines
Unit 21
245
Notes
Activity
Write
an article on aircraft as a
___________________
capital
infrastructure
___________________
requirement for airlines. Also
explain the various types of
___________________
aircraft available.
n/
Capital Infrastructure
Requirement for Airlines
___________________
io
Objectives
___________________
___________________
ct
After completion of this unit, the students will be aware of the following
topics:
Aircraft
\
Repair Organization
\
Ground Handling Equipment
\
Reservation System
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___________________
\
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Introduction
fo
High capital requirements can serve as barriers to entry in certain
industries, such as automotive, airlines, or ship building. This
means that someone who wants to start a business and compete in
an industry that has high capital requirements must acquire a lot
of capital before they can succeed. Capital in this sense means
useful assets or the cash required to acquire and maintain assets
or staff.
ot
Aircraft
ES
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An aircraft is a vehicle that is able to fly by gaining support from
the air, or, in general, the atmosphere of a planet. An aircraft
counters the force of gravity by using either static lift or by using
the dynamic lift of an airfoil, or in a few cases the downward thrust
from jet engines.
Types of Aircraft
UP
Military Aircraft
(c
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A military aircraft is any fixed-wing or rotary-wing aircraft that is
operated by a legal or insurrectionary armed service of any type.
Military aircraft can be either combat or non-combat:
z
Combat aircraft are aircraft designed to destroy enemy
equipment using its own armament. Combat aircraft divide
___________________
___________________
___________________
246
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Aviation Enterprise Management
broadly into fighters and bombers, with several in-between
types such as fighter-bombers and ground-attack aircraft.
Notes
___________________
z
___________________
n/
___________________
Non-Combat aircraft are not designed for combat as their
primary function, but may carry weapons for self-defense.
Non-combat roles include search and rescue, reconnaissance,
observation, transport, training, and aerial refueling. These
aircraft are often variants of civil aircraft such as the Douglas
DC-3 airliner.
io
___________________
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Civil Aircraft
z
Commercial aircraft include types designed for scheduled and
charter airline flights, carrying both passengers and cargo.
The larger passenger-carrying types are often referred to as
airliners, the largest of which are wide-body aircraft. Some of
the smaller types are also used in general aviation, and some
of the larger types are used as VIP aircraft.
z
General aviation is a catch-all covering other kinds of private
(where the pilot is not paid for time or expenses) and
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Civil aircraft divide into commercial and general types, however
there are some overlaps.
commercial use, and involving a wide range of aircraft types
such as business jets (bizjets), trainers, homebuilt, aerobatic
types, racers, gliders, warbirds, firefighters, medical
transports, and cargo transports, to name a few. The vast
majority of aircraft today are general aviation types.
Sa
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UNIT 21: Capital Infrastructure Requirement for Airlines
247
Notes
Activity
Make
a report on the repair
___________________
organisation of the aircraft.
___________________
Experimental Aircraft
n/
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___________________
___________________
Check Your Progress
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Experimental aircraft are one-off specials, built to explore some
aspect of aircraft design and with no other useful purpose. The Bell
X-1 rocket plane, which first broke the sound barrier in level flight,
is a famous example.
io
___________________
State whether the following statements are true or false:
1. Unmanned aerial vehicles may be remotely controlled or
self-controlled by onboard computers.
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2. Combat aircraft divide broadly into fighters and
bombers.
Repair Organization
ES
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fo
Maintenance, repair, and operations (MRO) or maintenance,
repair, and overhaul involve fixing any sort of mechanical or
electrical device should it become out of order or broken (known as
repair, unscheduled or casualty maintenance). It also includes
performing routine actions which keep the device in working order
(known as scheduled maintenance) or prevent trouble from arising
(preventive maintenance). MRO may be defined as, "All actions
which have the objective of retaining or restoring an item in or to a
state in which it can perform its required function. The actions
include the combination of all technical and corresponding
administrative, managerial, and supervision actions."
UP
MRO operations can be categorised by whether the product
remains the property of the customer, i.e. a service is being offered,
or whether the product is bought by the reprocessing organisation
and sold to any customer wishing to make the purchase.
(c
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The former of these represents a closed loop supply chain and
usually has the scope of maintenance, repair or overhaul of the
product. The latter of the categorisations is an open loop supply
chain and is typified by refurbishment and remanufacture. The
___________________
___________________
___________________
___________________
Notes
___________________
___________________
main characteristic of the closed loop system is that the demand
for a product is matched with the supply of a used product.
Neglecting asset write-offs and exceptional activities the total
population of the product between the customer and the service
provider remains constant.
___________________
___________________
___________________
___________________
___________________
io
___________________
Ground handling equipment is the support equipment found at an
airport, usually on the ramp, the servicing area by the terminal.
This equipment is used to service the aircraft between flights.
As its name implies, GSE is there to support the operations of
aircraft on the ground. The functions that this equipment plays
generally involve ground power operations, aircraft mobility, and
loading operations.
ct
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Ground Handling Equipment
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Aviation Enterprise Management
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Many airlines subcontract ground handling to an airport or a
handling agent, or even to another airline. Ground handling
addresses the many service requirements of a passenger aircraft
between the time it arrives at a terminal gate and the time it
departs on its next flight. Speed, efficiency, and accuracy are
important in ground handling services in order to minimize the
turnaround time.
(c
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Small airlines sometimes subcontract maintenance to a much
larger and reputable carrier, as it is a short-term cheaper
alternative to setting up an independent maintenance base. Some
airlines may enter into a Maintenance and Ground Support
Agreement (MAGSA) with each other, to assess costs for
maintenance and support to aircraft.
Most ground services are not directly related to the actual flying of
the aircraft, and instead involve other service tasks. Cabin services
ensure passenger comfort and safety. They include such tasks as
cleaning the passenger cabin and replenishment of on-board
consumables or washable items such as soap, pillows, tissues,
blankets, and magazines. Security checks are also made to make
sure no threats have been left on the aircraft. Airport ground
handling equipment comprise a diverse range of vehicles and
equipment necessary to service aircraft during passenger and
cargo loading and unloading, maintenance, and other groundbased operations. The wide range of activities associated with
aircraft ground operations lead to an equally wide ranging fleet of
ground handling equipment. For example, activities undertaken
249
Notes
___________________
___________________
n/
___________________
___________________
io
during a typical aircraft gate period include: cargo loading and
unloading, passenger loading and unloading, potable water
storage, lavatory waste tank drainage, aircraft refueling, engine
and fuselage examination and maintenance, and food and beverage
catering. Airlines employ specially designed GSE to support all
these operations. Moreover, electrical power and conditioned air
are generally required throughout gate operational periods for both
passenger and crew comfort and safety, and many times these
services are also provided by ground handling equipment.
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UNIT 21: Capital Infrastructure Requirement for Airlines
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ct
___________________
Chocks
___________________
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Chocks are used to prevent an aircraft from moving while parked
at the gate or in a hangar. Chocks are placed in the front ('fore')
and back ('aft') of the wheels of landing gear. They are made out of
hard wood or hard rubber. Corporate safety guidelines in the USA
almost always specify that chocks must be used in a pair on the
same wheel and they must be placed in physical contact with the
wheel. Therefore, "Chocks" refers to a pair of chocks connected by a
segment of rope or cable.
Trollies for Containers and Pallets
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UP
The trolley is for containers and palettes are used for the transport
of loads placed in containers and on pallets. Both kinds of trolley
have inbuilt rollers or balls in the space for the acceptance of
containers or pallets for their easier moving. The containers or
pallets on trolleys must obligatory be secured with built-in Stops.
The mechanical brake, depending on construction blocks the
wheels when the towbar of the trolley is raised to 90°. The trolleys
for containers have revolving deck to make containers turn to the
___________________
___________________
___________________
250
Notes
___________________
___________________
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Aviation Enterprise Management
direction of loading on aircraft. On all trolleys the parts as brake
for wheels blocking, the wheels, the towbar, the hook for
connecting, stops on the revolving platform, and stops for locking
the containers or pallets must be in order or with them is
prohibited any transport.
n/
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___________________
Refuelers
(c
)
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Hydrant truck aircraft refueler can be either a self contained fuel
truck or a hydrant truck or cart. Fuel trucks are self contained,
typically containing up to 10,000 US gallons of fuel and have their
own pumps, filters, hoses, and other equipment. A hydrant cart or
truck hooks into a central pipeline network and provides fuel to the
aircraft. There is a significant advantage with hydrant systems
when compared to fuel trucks, as fuel trucks must be periodically
replenished.
Tugs and Tractors
The tugs and tractors at an airport have several purposes and
represent the essential part of ground support services. They are
used to move any equipment that can not move itself. This includes
bag carts, mobile air conditioning units, air starters, lavatory carts,
and other equipment.
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UNIT 21: Capital Infrastructure Requirement for Airlines
251
Notes
___________________
___________________
n/
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___________________
___________________
ct
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___________________
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Ground Power Units
ES
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A ground power unit is a vehicle capable of supplying power to
aircraft parked on the ground. Ground power units may also be
built into the Jetway, making it even easier to supply electrical
power to aircraft. Many aircraft require 28V of direct current and
110V 400 Hz of alternating current. The electric energy is carried
from a generator to a connection on the aircraft via 3 phase 4-wire
insulated cable capable of handling 200 amps. These connectors
are standard for all aircraft, as defined in ISO 6858.
Buses
(c
)
UP
Buses at airports are used to move people from the terminal to
either an aircraft or another terminal. Some airports use buses
that are raised to the level of a passenger terminal and can only be
accessed from a door on the 2nd level of the terminal. These odd
looking buses are usually referred to as "people movers" or "mobile
lounges". Airport buses are usually normal city buses or specialised
terminal busses.
___________________
___________________
___________________
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Aviation Enterprise Management
252
Notes
___________________
___________________
n/
___________________
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___________________
___________________
ct
___________________
___________________
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___________________
Container Loader
___________________
The loader for widebodied aircraft (cargo platform) is used for
loading and unloading of cargo placed in containers or on pallet.
The loader has two platforms which independently raise or come
down. The containers or palettes on the loader are moved with the
help of built-in rollers or wheels, and are carried in aircraft across
the platforms. The ground handling is different in the different
areas. In Northern and South America, the pallet is dominating
and in Europe and Asia the container is stronger in use. So there
are different container and pallet loaders - 3.5 to - 7 to standard
version, wide-body, universal (up to main body height) - 14 to - 30
to for military transport planes special container and pallet loaders
are in use. Also for military use airborne (transportable within the
transport plane) are in use. Container and pallet loaders are
produced mainly in France, Germany, Estonia, Spain, and Canada,
in the U.S.A., Brazil, Japan and China.
(c
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UNIT 21: Capital Infrastructure Requirement for Airlines
Transporters
253
The transporters are cargo platforms constructed so that beside
loading and unloading can transport cargo. Depending on the type
and load capacity the containers could be transported, and the
same is valid for greater transporters and palettes.
Notes
___________________
___________________
Air Starter
n/
___________________
___________________
___________________
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An air starter is a vehicle with a built-in gas turbine engine which,
during the start of aircraft engine, gives the necessary quantity of
air to start the engine. While a compressor cannot deliver the
necessary quantity of air for its own work, the air is provided by an
air starter. An air starter blows air in by a hose attached to
aircraft.
io
___________________
fo
Potable Water Trucks
UP
ES
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Potable water trucks are special vehicles that fill up drinking
water tanks in aircraft. The water is filtered and protected from
the elements while being stored on the vehicle. A pump in the
vehicle assists in moving the water from the truck to the aircraft.
Lavatory Service Vehicles
(c
)
Lavatory service vehicles empty and refill lavatories onboard
aircraft. Waste is stored in tanks on the aircraft until these
vehicles can empty them and get rid of the waste. After the tank is
___________________
___________________
___________________
___________________
254
Notes
___________________
___________________
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Aviation Enterprise Management
emptied, it is refilled with a mixture of water and a disinfecting
concentrate, commonly called 'blue juice'. Instead of a self-powered
vehicle, some airports have lavatory carts, which are smaller and
must be pulled by tug.
n/
___________________
io
___________________
___________________
ct
___________________
___________________
___________________
___________________
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Catering Vehicle
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___________________
fo
Catering includes the unloading of unused food and drinks from
the aircraft, and the loading of fresh food and drinks for
passengers and crew. The meals are typically delivered in
standardized carts. Meals are prepared mostly on the ground in
order to minimize the amount of preparation (apart from chilling
or reheating) required in the air.
(c
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ES
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The catering vehicle consists of a rear body, lifting system,
platform and an electro-hydraulic control mechanism. The vehicle
can be lifted up, down and the platform can be moved to place in
front of the aircraft.
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1. ................... are used to prevent an aircraft from moving
while parked at the gate or in a hangar.
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2. ................... equipment is the support equipment found
at an airport, usually on the ramp, the servicing area by
the terminal.
3. ................... tractors at an airport have several purposes
and represent the essential part of ground support
services.
fo
Reservation System
,N
ot
For a service to be of value to consumers it must be available when
and where they want. The place element in the marketing mix
includes all institutions and activities that contribute to delivering
the product at the times and to the places consumer desire.
In other words, convenient facilities are sales outlets where
customer can purchase the service.
ES
In the airline industry, there are three basic types of sales outlets:
The carrier’s own sales offices, including field ticket offices
(FTOs), city, ticket offices (CTOs), and centralized reservations
officer.
z
Other carriers’ sales offices.
z
And travel agencies, several variations of these include joint
airline/military ticket offices (JAMTOs) ad combined airline
ticket offices (CATOs). A JAMTO, as the name implies, is
located at a military base and is staffed by ticket agents from
UP
z
(c
)
n/
Present
an assignment on the
___________________
reservation system of airlines
and ___________________
the
computerized
reservation system. Also,
___________________
emphasise on the role of
travel
agents.
___________________
___________________
___________________
___________________
Check Your Progress
Fill in the blanks:
Notes
Activity
ct
Thereon the vehicle drives to the airport and is parked in front of
the plane. The stabilizers are deployed and the van body is lifted.
The platform can be fine controlled to move left-right as well as
in-out so that it is aligned with the door correctly.
255
io
In-flight food is prepared in the flight kitchen which is completely
HACCP certified facility where food is made in sterile and
controlled environments. The packed food is then placed in trollies
and wheeled into the Catering truck at the flight kitchen, which
can be located within a 5 km radius of the airport.
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UNIT 21: Capital Infrastructure Requirement for Airlines
___________________
___________________
___________________
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Aviation Enterprise Management
256
one or more carriers that serve airports close to the military
base. A CATO is generally found in a small city; personnel
from two or more carriers staff the facility.
Notes
___________________
___________________
___________________
n/
___________________
io
___________________
An airline’s own sales offices can be on-line or off-line. The on-line
sales office is located in a city served by the carrier. An off-line
sales office is normally located in a larger metropolitan area;
usually only major carriers have off-line sales offices. Field ticket
offices, as the name implies, are located at the airport in the
terminal area or on a major street somewhere near the airport.
ct
___________________
Computerized Reservation System
___________________
Computerized Reservation Systems (CRSs) display airline
schedules and prices for use by agents in making reservations. The
economies of producing and distributing information in the airline
industry air fundamental to post deregulation airline competition.
Air fares and services patterns have contributing to the importance
of CRSs and the advantages that these systems confer on their
owners to have their flights and fares displayed for travel agents
nationwide, they also provide important marketing advantages to
the carriers that own them. Although five such systems are
currently to make other operated by major airlines, American’s
Sabre and United’s Apollo account for 70 percent of major market
use.
___________________
fo
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___________________
ot
CRSs have been expanded to make other types of reservation, such
as hotel rooms and rental cars. Fees from sales made using the
systems are sources of substantial revenue and profit for their
owners.
(c
)
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ES
,N
Travel Agents
Travel agents provide an important service to consumers,
especially since deregulation, by supplying efficient access to a
complex array of travel options. Nevertheless, the role of agents as
brokers of information and sellers of travel services to consumers is
changing as agencies become closely affiliated with individual air
carriers through CRSs and supporting services. Over 90 percent of
all travel agencies are automated (by means of CRSs), and most
carriers rely on a single CRS to influence agents. Carriers pay
commission overrides, which, combined with CRSs to influence
agents. Carriers pay commission overrides, which combined with
CRSs, have had much success in causing agencies to shift
travellers to favoured suppliers.
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UNIT 21: Capital Infrastructure Requirement for Airlines
257
Check Your Progress
Notes
State whether the following statements are true or false:
___________________
1. A hangar is an open structure to hold aircraft or
spacecraft in protective storage.
___________________
n/
___________________
2. MRO operations can be categorised by whether the
product remains the property of the customer.
io
___________________
___________________
Summary
ct
___________________
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Regulators establish capital requirements to ensure that an
organization has enough money to pay off any debts that it incurs.
Capital requirements are usually a percentage of the assets that
the organization controls, so a larger organization has to have a
bigger capital reserve. Capital reserve regulations differ by
industry, so a bank has a different capital reserve requirement
than an insurance company.
Lesson End Activity
Develop an informative presentation on the capital infrastructure
requirements for airlines.
fo
Keywords
ot
Ground Handling Equipment: Ground handling equipment is
the support equipment found at an airport, usually on the ramp,
the servicing area by the terminal.
,N
Chocks: Chocks are used to prevent an aircraft from moving while
parked at the gate or in a hangar.
ES
Aircraft: An aircraft is a vehicle that is able to fly by gaining
support from the air, or, in general, the atmosphere of a planet.
UP
Commercial Aircraft: Commercial aircraft include types
designed for scheduled and charter airline flights, carrying both
passengers and cargo.
Questions for Discussion
What do you mean by experimental aircraft?
2.
Describe hanger concept in detail.
(c
)
1.
___________________
___________________
___________________
___________________
Notes
___________________
___________________
___________________
___________________
3.
What do you mean by repair organization?
4.
Explain ground handling equipments in detail.
5.
Write short note on “Tugs and Tractors”.
Further Readings
n/
258
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Aviation Enterprise Management
Books
___________________
Julie, Rodwell, (2003), Essentials of Aviation Management: A Guide
for Aviation Service Business. Kendall Hunt Publishing Company
___________________
___________________
ct
___________________
Speciale, Raymond, (2006), Fundamentals of Aviation Law.
McGraw Hill Inc.
ro
du
___________________
io
___________________
T. Wells, Alexander, (2004), Airport Planning & Management.
McGraw Hill
rR
ep
Frock, Roger, Changing How the World Does Business: Fedex's
Incredible Journey to Success - The Inside Story, Berrett Koehler
Publishers
J. Sheehan, John, (2003), Business & Corporate Aviation
Management: On Demand Air Travel. McGraw Hill
fo
Castro, Raoul, Corporate Aviation Management, Southern Illinois
University Press
ot
A. Kinnison, Harry, (2004), Aviation Maintenance Management.
McGraw Hill
Web Readings
(c
)
UP
ES
,N
http://www.airliners.net/aviationforums/non_aviation/read.main/1958823/
http://books.google.com/books/about/Essentials_of_aviation_manag
ement.html?id=jjfUv6s8LdsC
http://books.google.com/books/about/Designing_and_executing_stra
tegy_in_avia.html?id=CJXshJc_IpIC
http://books.google.com/books/about/Aviation_maintenance_manag
ement.html?id=ZuCJgUSm9ncC
Sa
le
UNIT 22: Capital Finance for Airlines
Unit 22
259
Notes
Activity
Make
a presentation on the
___________________
financing for airlines.
___________________
Capital Finance for Airlines
n/
___________________
Objectives
___________________
\
Financing
\
Equity Capital
\
Preference Capital
\
Internal Accruals
\
Share and Debentures
\
Working Capital Advances
\
Financing Infrastructure
\
Venture Capital
io
After completion of this unit, the students will be aware of the following
topics:
___________________
ct
___________________
rR
ep
ro
du
___________________
Introduction
,N
ot
fo
Most financial problems involve cash flows occurring at different
points of time. These cash flows have to be brought to the same
point of time for purposes of comparison and aggregation. Hence it
is important to understand the tools of compounding and
discounting which underlies most of what is done in finance–from
valuing securities to analysing projects, from determining lease
rentals to choosing the right financing instruments, from setting
up the loan amortisation schedules to valuing companies, so on
and so forth.
ES
Financing
(c
)
UP
Financing, as a concept is very old. But it has gained prominence
during the last two decades. There was a time when project finance
was a fairly simple banking exercise. That time is now past.
Of late, many changes in the economic environment have taken
place. The figures for total investment in almost any major capital
plant development have, by the joint action of inflation and
technical innovation, reached dimensions which have become too
large for an individual company to accommodate. Again high rates
of inflation have made cost escalation provisions assume very large
proportions, particularly in relation to the basic price of any capital
___________________
___________________
___________________
260
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Aviation Enterprise Management
plant where a long period of manufacture is required before it can
be erected and start functioning on site.
___________________
___________________
___________________
___________________
___________________
___________________
n/
___________________
io
___________________
1.
Capital Structure
2.
Debentures
3.
Equity Capital
4.
Internal Accruals
5.
Menu of Financing
6.
Preference Capital
7.
Methods of Offering
8.
Term Loans
9.
Working Capital Advance
ct
___________________
Sources of project finance can be divided into two broad categories:
Long-term Sources and Short-Term Sources. When financial
Institution looks at a project, they consider only long term sources
of finance. All sources of finance can be divided into 12
sub-categories. These categories are as follows:
ro
du
___________________
rR
ep
Notes
10. Miscellaneous Sources
11. Raising Venture Capital
fo
12. Raising Capital in International Market
Capital Financing
(c
)
UP
ES
,N
ot
According to Gerstenberg, the capital structure of a company is
defined as the make up of its capitalization. Capitalization
comprises a corporation's owned capital and borrowed capital, as
represented by its long-term indebtedness. "Capital structure"
refers to the kind of securities that make up the capitalization.
Decisions about the amount of securities are reflected in the
capitalization; decisions as to the kind of securities are reflected in
the capital structure.
The capital structure of a company involves a decision regarding
the ratio of Ownership capital to credit capital, between short-term
and long-term capital, and the ratio among different sources of
finance for capital, which includes loans, bonds, share issues and
reserves.
The maintenance of proper ratios between the different types of
securities is known as "capital gearing". The following factors
generally govern the capital gearing of a company:
(a) Trading in equity;
Sa
le
UNIT 22: Capital Finance for Airlines
261
Notes
Activity
Make
a brief report on equity
___________________
capital, preference capital and
___________________
internal
accruals.
___________________
(c) Nature of enterprise;
___________________
ro
du
(a) Equity shares, i.e., one type of shares;
___________________
___________________
ct
The size and pattern of a company determine its capital structure.
The basic pattern of any capital structure may be broadly classified
as follows:
io
n/
(b) Retaining control of a company;
___________________
___________________
(b) Equity shares and preference shares, i.e., two-tier stock;
___________________
(c) Equity shares, preference shares and debentures, three tier
stock.
___________________
rR
ep
Check Your Progress
Fill in the blanks:
1. ................... comprises a corporation's owned capital and
borrowed capital, as represented by its long-term
indebtedness.
fo
2. ................... refers to the kind of securities that make up
the capitalization.
ot
Equity Capital
ES
,N
Equity capital represents ownership capital as equity shareholders
collectively own the company. They enjoy the rewards and bear the
risks of ownership. However, their liability, unlike the liability of
the owner in a proprietary firm and the partners in a partnership
concern, is limited to their capital contributions.
(c
)
UP
Authorised, Issued, Subscribed, and Paid up Capital: The
amount of capital that a company can potentially issue, as per its
memorandum, represents the authorised capital. The amount
offered by the company to the investors is called the issued capital.
That part of issued capital which has been subscribed to by the
investors represents the subscribed capital. The actual amount
paid up by the investors is called the paid up capital typically the
issued, subscribed, and paid up capital are the same.
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
n/
___________________
The issue price is the price at which the equity share is issued.
Generally, the issue price and par value are one and the same for
new companies. An existing company may sometimes set as issue
price higher than the par value. Sonata Software (India) Limited,
for example, set its issue price at `80 per share as against the par
value of `10 per share. When the issue price exceeds the par value,
the difference is referred to as the share premium. It may be noted
that the issue price cannot be, as per law, lower than the par
value.
io
___________________
Par Value, Issue Price, Book Value and Market Value: The
par value of an equity share is the value stated in the
memorandum and written on the share scrip. The par value of
equity shares is generally `10 (the most popular denomination) or
`100. Infrequently, one comes across par values like `1, `2, `5, `50,
and `1,000.
ct
Notes
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262
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Aviation Enterprise Management
rR
ep
The book value of an equity share is equal to:
Paid-up equity capital + Reserve and surplus – Intangibles
Number of outstanding equity shares
Quite naturally, the book value of an equity share tends to
increase as the ratio of reserves and surplus to paid-up equity
capital increases.
(c
)
UP
ES
,N
ot
fo
The market value of an equity share is the price at which it is
traded in the market. This price can be easily established for a
company which is listed on the stock market and actively traded.
For a company which is listed on the stock market but traded very
infrequently, it is difficult to obtain a reliable market quotation.
For such a company, the market quotation may reflect the sale of a
few shares in a past period and hence may not reflect the current
market value of the firm. For a company which is not listed on the
stock market, one can merely conjecture as to what its market
price would be if it were traded. The market price is determined by
a variety of factors like current earnings, growth prospects, risk,
and company size.
Preference Capital
Preference capital represents a hybrid form of financing it
partakes some characteristics of equity and some attributes of
debentures. It resembles equity in the following ways:
(i) preference dividend is payable only out of distributable profits;
(ii) preference dividend is not an obligatory payment (the payment
of preference dividend is entirely within the discretion of
directors); and (iii) preference dividend is not a tax-deductible
payment.
Sa
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UNIT 22: Capital Finance for Airlines
263
Notes
___________________
___________________
Types of Preference Shares
ro
du
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ep
1. Cumulative and Non-cumulative Preference Shares:
Cumulative preference shares entitle the shareholders to
receive dividends for previous year/s in which dividend was not
paid. A company cannot declare equity dividends unless
dividends on cumulative preference shares are paid with
arrears.
,N
ot
fo
2. Participating and Non-participating Preference Shares:
The holders of participating preference shares get a share in
the profits of the company after a certain rate of dividend is
paid to the equity shareholders of the company. This is in
addition to the fixed rate of dividend declared on preference
shares before any equity dividend is paid. The holders of
non-participating preference shares can get only a fixed
dividend and do not get any share in the surplus left after
paying equity dividend.
ES
3. Redeemable and Non-redeemable Preference Shares:
Redeemable preference shares are repayable at par or at
premium after a specified period. Non-redeemable preference
shares are not repayable, except when the company goes into
liquidation. At present, companies in India can issue only
redeemable preference shares where the redemption period
does riot exceed twenty years.
UP
n/
io
___________________
___________________
___________________
___________________
There are various types of preference shares, depending on the
rights associated with them.
4. Convertible and Non-convertible Preference Shares:
Convertible preference shares can be converted into equity
shares at the option of the preference shareholders in
accordance with certain predetermined terms. Non-convertible
shares do not carry such an option.
(c
)
___________________
ct
Preference capital is similar to debentures in several ways: (i) the
dividend rate of preference capital is usually fixed; (ii) the claim of
preference shareholders is prior to the claim of equity
shareholders; and (iii) preference shareholders do not normally
enjoy the right to vote.
___________________
___________________
___________________
264
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Aviation Enterprise Management
Internal Accruals
Notes
___________________
___________________
___________________
___________________
___________________
Retained earnings are that portion of equity earnings (profit after
tax less preference dividends) which are ploughed back in the firm.
Because retained earnings are the sacrifice made by equity
shareholders, they are referred to as internal equity. Companies
normally retain 30 percent to 80 percent of profit after tax for
financing growth. If you look at a sample of corporate balance
sheets you will find that reserves and surplus (other than share
premium reserve and revaluation reserve), which essentially
represent accumulated retained earnings, are an important source
of long-term financing. Even this is an understatement of the
contribution of retained earnings to long-term financing because a
portion of reserves and surplus would have been capitalised by the
firm if it had issued bonus shares.
ot
fo
rR
ep
___________________
n/
___________________
io
___________________
ct
___________________
The internal accruals of a firm consist of depreciation charges and
retained earnings. Depreciation represents the allocation of capital
expenditure to various periods over which the capital expenditure
is expected to benefit the firm. Suppose a machine costs `1,00,000
and has an economic life of five years at the end of which its
expected salvage value is 0. If the machine is depreciated using the
straight line method the annual depreciation charge will be
` 20,000. Each year a depreciation cost of `20,000 is shown in the
profit and loss account. This cost merely represents a periodic
write off of a capital cost incurred in the beginning. Put differently,
it is a non cash charge. Hence, it is considered an internal source of
finance.
ro
du
___________________
(c
)
UP
ES
,N
Term Loans
Firms obtain long-term debt mainly by raising term loans or
issuing debentures. We have discussed at length the features and
types of debentures. Now we turn our attention to term loans.
Historically, term loans given by financial institutions and banks
have been the primary source of long-term debt for private firms
and most public firms. Term loans, also referred to as term finance;
represent a source of debt finance which is generally repayable in
less than 10 years. They are employed to finance acquisition of
fixed assets and working capital margin. Term loans differ from
short-term bank loans which are employed to finance short-term
working capital need and tend to be self-liquidating over a period
of time, usually less than one year.
Sa
le
UNIT 22: Capital Finance for Airlines
265
Check Your Progress
Notes
Activity
Fill in the blanks:
Present
an assignment on the
___________________
shares and debentures, and
___________________
working
capital advances.
1. Convertible preference shares can be converted into
................... shares at the option of the preference
shareholders in accordance with certain predetermined
terms.
n/
___________________
io
___________________
2. Equity capital represents ………………………….. as
equity shareholders collectively own the company.
___________________
ct
___________________
___________________
ro
du
Shares and Debentures
rR
ep
Large and well-known industries generally raise a major portion of
their funds to meet their capital demands by selling shares of
different types, namely, equity or ordinary shares, cumulative and
non-cumulative preference shares. The trend in recent times has
been to issue shares of `10, `50 and `100 to enable persons in the
middle income group to subscribe to the share capital. Because of
substantial money with the public, well-known industrial concerns
find it quite easy to raise funds by selling equity shares, which are
often oversubscribed. Restrictions on the rates of dividend had, for
some time, depressed the share market. Most of these restrictions
don't exist.
,N
ot
fo
Another way of raising funds to meet the needs of block capital is
to sell debentures to, and borrow money from the public. Since
commercial banks started giving interest every month on deposits
of 61 months and above, middle class people prefer fixed deposits
to the purchase of debentures of large-scale industries.
Working Capital Advances
ES
Working capital advance by commercial banks represents the most
important source for financing current assets.
Forms of Bank Finance
(c
)
UP
Working capital advance is provided by commercial banks in three
primary ways: (i) cash credits/overdrafts, (ii) loans, and
(iii) purchase/discount of bills. In addition to these direct forms,
commercial banks help their customers in obtaining credit from
other sources through the letter of credit arrangement.
Cash Credits/Overdrafts: Under a cash credit or overdraft
arrangement, a pre-determined limit for borrowing is specified by
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
Loans: These are advances of fixed amounts to the borrower. The
borrower is charged with interest on the entire loan amount,
irrespective of how much he draws. In this respect, this system
differs markedly from the overdraft or cash credit arrangement
wherein interest is payable only on the amount actually utilised.
Loans are payable either on demand or in periodical installments.
When payable on demand, loans are supported by a demand
promissory note executed by the borrower. There is often a
possibility of renewing the loan.
rR
ep
___________________
n/
___________________
io
___________________
the bank. The borrower can draw as often as required provided the
outstanding does not exceed the cash credit/ overdraft limit. The
borrower also enjoys the facility for repaying the amount, partially
or fully, as and when he desires. Interest is charged only on the
running balance, not on the limit sanctioned. A minimum charge
may be payable irrespective of the level of borrowing, for availing
of this facility. This form of advance is highly attractive from the
borrower's point of view because while the borrower has the
freedom of drawing the amount in installments as and when
required, and interest is payable only on the amount actually
outstanding.
ct
Notes
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266
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Aviation Enterprise Management
(c
)
UP
ES
,N
ot
fo
Purchase/Discount of Bills: A bill arises out of a trade
transaction. The seller of goods draws the bill on the purchaser.
The bill may be either clean or documentary (a documentary bill is
supported by a document of title to goods like a railway receipt or a
bill of lading) and may be payable on demand or after a usance
period which does not exceed 90 days. On acceptance of the bill by
the purchaser, the seller offers it to the bank for discount/
purchase. When the bank discounts/purchases the bill, it releases
the funds to the seller. The bank presents the bill to the purchaser
(the acceptor of the bill) on the due date and gets its payment.
Letter of Credit: A letter of credit is an arrangement whereby a
bank helps its customer to obtain credit from its (customer's)
suppliers. When a bank opens a letter of credit in favour of its
customer for some specific purchases, the bank undertakes the
responsibility to honour the obligation of its customer, should the
customer fail to do so.
Application and Processing
A customer seeking an advance is required to submit an
appropriate application form. There are different types of
Notes
Activity
Prepare
a draft on the
___________________
financing of an infrastructure.
___________________
n/
___________________
___________________
___________________
___________________
Check Your Progress
rR
ep
Fill in the blanks:
ro
du
ct
The application is processed by the branch manager or his field
staff. This primarily involves an examination of the following
factors: (i) ability, integrity, and experience of the borrower in the
particular business, (ii) general prospects of the borrower's
business, (iii) purpose of advance, (iv) requirement of the borrower
and its reasonableness, (v) adequacy of the margin, (vi) provision of
security, and (vii) period of repayment.
267
io
application forms for different categories of advances. The
information furnished in the application covers, inter alia, the
following: the name and address of the borrower and his
establishment; the details of the borrower's business; the nature
and amount of security offered. The application form has to be
supported by various ancillary statements like the financial
statements and financial projections of the firm.
Sa
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UNIT 22: Capital Finance for Airlines
1. ................... is an arrangement whereby a bank helps its
customer to obtain credit from its (customer's) suppliers.
Financing Infrastructure
fo
2. ................... are advances of fixed amounts to the
borrower.
,N
ot
The availability of infrastructure facilities is imperative for the
overall development of any country. Today, there is a need to focus
on enhancing the quantity as well as improving the quality of
infrastructure services provided in India.
(c
)
UP
ES
Roads constitute an important part of infrastructure of a country.
India has the third largest road network in the world. But the
growth of road network has not kept pace with the growth of road
traffic. The percentage growth of road traffic from the year 1991 to
1995 has been about 42%, whereas the percentage growth of road
length has been only 8.7%. This has led to severe congestion on the
roads. Also, there is a need to improve and maintain the road
network. Due to funds constraints, the government is assigning
several projects on a Build-Operate-Transfer (BOT) basis. BOT is a
type of project financing. This article discusses features of project
finance and BOT projects.
___________________
___________________
___________________
___________________
268
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Aviation Enterprise Management
Salient Features of Project Finance
Notes
The salient features of project finance are as follows:
___________________
___________________
___________________
n/
___________________
1. The lenders finance the project looking at the creditworthiness
of the project, not the creditworthiness of the borrowing party.
The repayment of the loans is made from the earnings of the
project.
2. Project financing is also known as “limited recourse” financing
as the borrower has a limited liability. The security taken by
the lenders is largely confined to the project assets.
io
___________________
ct
___________________
___________________
___________________
___________________
Risk Structure in Project Finance
ro
du
___________________
Most project finance structures are complex. The risks in the
project are spread between the various parties; each risk is usually
assumed by the party, which can most efficiently and costeffectively control or handle it.
rR
ep
Build, Operate and Transfer (BOT) Project
BOT is a relatively new approach to infrastructure development,
which enables direct private sector investment in large-scale
infrastructure projects.
The theory of BOT is as follows:
fo
Build – A private company (or consortium) agrees with a
government to invest in a public infrastructure project. The
company then secures their own financing to construct the project.
(c
)
UP
ES
,N
ot
Operate – The private developer then owns, maintains, and
manages the facility for an agreed concession period and recoups
their investment through charges or tolls.
Transfer – After the concessionary period the company transfers
ownership and operation of the facility to the government or
relevant state authority.
BOT Projects in India
There is a tremendous thrust in the infrastructure sector in India.
National Highway Development Programme (NHDP), consisting of
The Golden Quadrilateral and The North-South, East-West
corridors, has been launched. NHDP is being implemented by
National Highways Authority of India (NHAI). The NHDP is
India’s largest ever highway project. It involves four and six laning
of 13,146 Km of roads with a total cost of `54,000 crore. The NHDP
consists of nine BOT projects of 456 kms with estimated cost of
`2,700 crore. Apart from the BOT projects under NHDP, there are
several other projects being done on BOT basis in India.
Sa
le
UNIT 22: Capital Finance for Airlines
269
Notes
___________________
___________________
Venture Capital
io
___________________
___________________
___________________
ro
du
ct
A young company that is not yet ready or willing to tap the public
financial market may seek venture capital. Such capital is
provided by venture capital funds which are prepared to finance an
untried company that appears to have promising prospects.
Venture capital represents financial investment in a risky
proposition made in the hope of earning a high rate of return.
n/
___________________
Preparing a Business Plan
If you are approaching a venture capitalist to finance your project,
how should you prepare your business plan? Here are some
guidelines:
Use simple and clear language. Avoid bombastic presentation
and technical language.
z
Focus on four basic elements, viz. people, product, market, and
competition.
z
Give projections for about two to five years with emphasis on
cash flows.
z
Identify risks and develop a strategy to cope with the same.
z
Convince them that the management team is talented,
experienced, committed, and determined.
ot
fo
rR
ep
z
,N
Raising Capital in International Market
ES
Thanks to the globalization of capital markets, Indian firms can
raise capital from euromarkets or from the domestic markets of
various countries or from export credit agencies.
Check Your Progress
UP
Fill in the blanks:
(c
)
1. ……………….. shares entitle the shareholders to receive
dividends for previous year/s in which dividend was not
paid.
2. A …………. is an arrangement whereby a bank helps its
customer to obtain credit from its (customer's) suppliers.
___________________
___________________
___________________
___________________
270
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Aviation Enterprise Management
Summary
Notes
___________________
___________________
___________________
___________________
___________________
rR
ep
___________________
n/
___________________
io
___________________
ct
___________________
Financial institutions appraise a project from the marketing,
technical, financial, economic, and managerial angles. Apart from
the principal sources like equity, internal accruals, term loans,
debentures, working capital advance there are several other ways in
which finance may be obtained. These include deferred credit, lease
finance, hire purchase, unsecured loans and deposits special
schemes of institutions, subsidies, sales tax deferments and
exemptions, commercial paper, factoring, and securitization young
company that is not yet ready or willing to tap the public financial
market seek venture capital which represents financial investment
in a risky proposition made in the hope of earning a high rate of
return. Euromarkets refer to a collection of international banks that
help firms in raising capital from global market which is beyond the
purview of any national regulatory body. Eurocurrency loans, which
represent the principal form of external commercial borrowing, are
syndicated loans carrying a floating rate generally linked to LIBOR.
ro
du
___________________
Lesson End Activity
fo
Collect more information on the capital finance for airlines and
make a collage from it.
Keywords
ot
Capital Structure: Capital structure refers to the kind of
securities that make up the capitalization.
,N
Initial Public Offering: Issue of equity shares to the public by an
unlisted company is called the Initial Public Offering.
(c
)
UP
ES
Equity Capital: It represents ownership capital as equity
shareholders collectively own the company.
Issued Capital: The amount offered by the company to the
investors is called the issued capital.
Paid-up Capital: The actual amount paid up by the investors is
called the paid-up capital.
Questions for Discussion
1.
Discuss the sources available for project financing.
2.
When should a firm use more equity and debt?
3.
Sa
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UNIT 22: Capital Finance for Airlines
271
Discuss the following:
Notes
(a) Lease and hire purchase finance
___________________
(b) Unsecured loans and deposits
___________________
What are the pros and cons of going public?
5.
What are the features of debenture?
___________________
n/
4.
io
___________________
___________________
Further Readings
ct
___________________
Books
___________________
ro
du
Julie, Rodwell, (2003), Essentials of Aviation Management: A Guide
for Aviation Service Business. Kendall Hunt Publishing Company
Speciale, Raymond, (2006), Fundamentals of Aviation Law.
McGraw Hill Inc.
rR
ep
T. Wells, Alexander, (2004), Airport Planning & Management.
McGraw Hill
Frock, Roger, Changing How the World Does Business: Fedex's
Incredible Journey to Success - The Inside Story, Berrett Koehler
Publishers
fo
J. Sheehan, John, (2003), Business & Corporate Aviation
Management: On Demand Air Travel. McGraw Hill
ot
A. Kinnison, Harry, (2004), Aviation Maintenance Management.
McGraw Hill
Web Readings
,N
http://www.airliners.net/aviationforums/non_aviation/read.main/1958823/
ES
http://books.google.com/books/about/Essentials_of_aviation_manag
ement.html?id=jjfUv6s8LdsC
UP
http://books.google.com/books/about/Designing_and_executing_stra
tegy_in_avia.html?id=CJXshJc_IpIC
(c
)
http://books.google.com/books/about/Aviation_maintenance_manag
ement.html?id=ZuCJgUSm9ncC
___________________
___________________
___________________
Sa
le
Aviation Enterprise Management
272
Notes
___________________
___________________
n/
___________________
io
___________________
___________________
ct
___________________
___________________
ro
du
___________________
___________________
(c
)
UP
ES
,N
ot
fo
rR
ep
___________________
Sa
le
UNIT 23: Aviation Financial Institutions
Unit 23
273
Notes
Activity
Write
an article on the
___________________
financial institutions.
___________________
Aviation Financial Institutions
n/
___________________
Objectives
___________________
\
Finance in Aviation
\
Lease Companies
\
Aircraft Lease
___________________
ct
Financial Institutions
___________________
___________________
ro
du
\
io
After completion of this unit, the students will be aware of the following
topics:
Introduction
rR
ep
In financial economics, a financial institution is an institution that
provides financial services for its clients or members. Probably the
most important financial service provided by financial institutions
is acting as financial intermediaries. Most financial institutions
are highly regulated by government.
fo
Financial Institutions
,N
ot
Financial institutions provide service as intermediaries of financial
markets. They are responsible for transferring funds from
investors to companies in need of those funds. Financial
institutions facilitate the flow of money through the economy.
To do so, savings a risk brought to provide funds for loans. Such is
the primary means for depository institutions to develop revenue.
UP
ES
Financial institutions in most countries operate in a heavily
regulated environment as they are critical parts of countries'
economies. Regulation structures differ in each country, but
typically involve prudential regulation as well as consumer
protection and market stability. Some countries have one
consolidated agency that regulates all financial institutions while
others have separate agencies for different types of institutions
such as banks, insurance companies and brokers.
(c
)
Countries that have separate agencies include the United States,
where the key governing bodies are the Federal Financial
Institutions Examination Council (FFIEC), Office of the
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
n/
___________________
Comptroller of the Currency – National Banks, Federal Deposit
Insurance Corporation (FDIC) State "non-member" banks,
National Credit Union Administration (NCUA) – Credit Unions,
Federal Reserve (Fed) – "member" Banks, Office of Thrift
Supervision – National Savings & Loan Association, State
governments each often regulate and charter financial institutions.
Countries that have one consolidated financial regulator include
United Kingdom with the Financial Services Authority, Norway
with the Financial Supervisory Authority of Norway, Hong Kong
with Hong Kong Monetary Authority and Russia with Central
Bank of Russia.
io
Notes
ct
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___________________
Finance in Aviation
___________________
The Aviation industry is going through an amazing period of
change and finance has become a very important factor. There are
many ways to finance a aircraft .One can get a loan and as in any
loan, the key items one has to be aware of are the money one needs
to contribute, interest rates, terms, etc.
rR
ep
___________________
(c
)
UP
ES
,N
ot
fo
As soon as the person decides on the source of the aircraft loan, you
will need to follow all the formalities that are required for the loan
to be approved. The paper work starts with the loan application,
finance application or credit application, as it is called and the rest
of the formalities begin from there. Most lenders will require the
balance sheet, the financial position of the business and various
other credit information about the company so as to ascertain the
viability of the business. The interest rate can be fixed or variable.
The term of the loan usually ranges between 5 to 25 years for most
aircrafts. The amount of down payment can depend upon the
lender, how much the person is financing as well as the age of the
aircraft and can be as low as 10% or as high as 25%.
Most Aircraft buyers are very worried about how their credit
report will affect their ability to buy an Aircraft. The Aircraft loan
industry grades ones credit, based on such things, such as payment
history, amount of debt payments, bankruptcies, equity position,
credit policy, credit scores, etc.
The Finance companies provide finance for almost all types of air
crafts, like jet, turbine, helicopter, single piston engine double
piston engine, etc. They provide Finance up to 90% of the purchase
price or the fair market value or whichever is less. These loans are
Notes
___________________
___________________
n/
___________________
___________________
___________________
___________________
ro
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ct
The value of the Air craft should be first calculated. Then one has
to provide the Aircraft information, personal information,
co-applicant information and a personal financial statement.
Before signing a contract the customers can apply for a
pre-approval. Pre-approval gives flexibility and one can negotiate
for the best price at any dealership nationwide.
275
io
simple interest loans. The finance companies provide finance for
new and used aircraft from $10,000 to over $45,000,000 in value.
Flexible individual payment programs are customized to fit
customer requirements, providing low monthly payments and a
wide variety of payoff options. Even refinance is available for
aircrafts, to upgrade the engine, upgrade the avionics panel, to
refurbish the paint and interiors.
Sa
le
UNIT 23: Aviation Financial Institutions
Some of aviation finance companies are:
rR
ep
The Aircraft loan applications process may take two business days
to get an approval and it may take longer on aviation loans which
are above $750,000 and on applications with complex financial
profiles.
NAFCO (National Aircraft Finance Company)
z
USAF (United Sates Aircraft Finance)
z
AAFCO (American Aircraft Finance Company)
z
BCC (Boeing Capital Corporation)
z
DORR AVIATION
z
BEACON AEROCREDIT
ot
fo
z
ES
,N
There are a number of reputed financing companies in the aviation
finance industry, which offer customized solutions depending on
the needs of the customers. These companies have a wide selection
of aircraft for single aircraft owners as well as fleet owners. The
financing alternatives include aircraft mortgage, finance lease and
hire purchase facilities.
(c
)
UP
In the Finances lease agreement, the client and the company agree
to rent a piece of equipment over a fixed time with a predefined
residual value. In this agreement, the company obtains legal
ownership of the item being leased, by paying a sum as mentioned
on the suppliers invoice. The client has to pay rent for the use of
the equipment over the term of the lease. The company is
___________________
___________________
___________________
___________________
276
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Aviation Enterprise Management
responsible for the maintenance, insurance and operating costs of
the equipment. This type of lease is available for aircraft engines.
___________________
___________________
___________________
___________________
___________________
Several companies offer airlines operating leases for a variety of
aircraft like Airbus, Boeing, Bombardier and Embraer. These
leases are for three to twelve years. The main advantage about this
kind of finance is that one has lower cash outlays and hence more
working capital. It gives the airline the option of introducing or
changing routes and capacity quickly. The other major advantage
is that one does not have to make large down payments with the
manufacturers even for newer aircraft types. Companies offer
spare engines as well as exchange options for engines.
rR
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___________________
n/
___________________
io
___________________
A number of companies like GE offer various financial options like
secured loans, securitization to help their customers in increasing
liquidity, decreasing debt. Some companies also offer asset-based
financing of commercial jet aircraft for airlines seeking to renew
their fleet.
ct
Make
an assignment on the
___________________
lease companies.
___________________
ro
du
Notes
Activity
Check Your Progress
Fill in the blanks:
fo
1. Regulation structures differ in each country, but
typically involve prudential regulation as well as
consumer protection and ………………………..
ot
2. The ……………………….. is going through an amazing
period of change and finance has become a very
important factor.
(c
)
UP
ES
,N
Lease Companies
Leasing activity was initiated in India in 1973. The first leasing
company of India, named First Leasing Company of India Ltd. was
set up in that year by Farouk Irani, with industrialist A C Muthia.
For several years, this company remained the only company in the
country until 20th Century Finance Corporation was set up - this
was around 1980.
By 1981, the trickle started and Shetty Investment and Finance,
Jaybharat Credit and Investment, Motor and General Finance,
and Sundaram Finance, etc. joined the leasing game. The last
three names, already involved with hire-purchase of commercial
vehicles, were looking for a tax break and leasing seemed to be the
ideal choice.
277
Notes
___________________
___________________
n/
___________________
io
___________________
___________________
___________________
ro
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ct
The industry entered the third stage in the growth phase in late
1982, when numerous financial institutions and commercial banks
either started leasing or announced plans to do so. ICICI,
prominent among financial institutions, entered the industry in
1983 giving a boost to the concept of leasing. Thereafter, the trickle
soon developed into flood, and leasing became the new gold mine.
This was also the time when the profit-performance of the two
doyen companies, First Leasing and 20th Century had been made
public, which contained all the fascination for many more
companies to join the industry. In the meantime, International
Finance Corporation announced its decision to open four leasing
joint ventures in India. To add to the leasing boom, the Finance
Ministry announced strict measures for enlistment of investment
companies on stock-exchanges, which made many investment
companies to turn overnight into leasing companies.
Sa
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UNIT 23: Aviation Financial Institutions
rR
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As per RBI's records by 31st March, 1986, there were 339
equipment leasing companies in India whose assets leased totaled
`2395.5 million. One can notice the surge in number – from merely
2 in 1980 to 339 in 6 years.
ot
fo
Subsequent swings in the leasing cycle have always been
associated with the capital market - whenever the capital markets
were more permissive, leasing companies have flocked the market.
There has been appreciable entry of first generation entrepreneurs
into leasing, and in retrospect it is possible to say that specialised
leasing firms have done better than diversified industrial groups
opening a leasing division.
ES
,N
Another significant phase in the development of Indian leasing
was the Dahotre Committee's recommendations based on which
the RBI formed guidelines on commercial bank funding to leasing
companies. The growth of leasing in India has distinctively been
assisted by funding from banks and financial institutions.
UP
Banks themselves were allowed to offer leasing facilities much
later in 1994. However, even to date, commercial banking
machinery has not been able to gear up to make any remarkable
difference to the leasing scenario.
(c
)
The post-liberalisation era has been witnessing the slow but sure
increase in foreign investment into Indian leasing. Starting with
GE Capital's entry, an increasing number of foreign-owned
financial firms and banks are currently engaged or interested in
leasing in India.
___________________
___________________
___________________
___________________
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Aviation Enterprise Management
Some aircraft leasing companies are:
Notes
Activity
Commercial Aircraft Sales and Leasing
z
Air Lease
___________________
z
ALAFCO
___________________
z
Avolon
___________________
z
AWAS Aviation Capital
___________________
z
BOC Aviation
___________________
z
Burnham Sterling and Company, LLC
___________________
z
Flexjet
z
GE Capital Aviation Services
z
Genesis Lease
z
International Lease Finance Corporation
z
List of International Lease Finance Corporation customers
z
Lease Corporation International
z
RBS Aviation Capital
io
ct
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___________________
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___________________
n/
z
Present
an assignment on the
___________________
aircraft leasing.
___________________
fo
Aircraft Lease
(c
)
UP
ES
,N
ot
Aircraft leases are a number of types of leases used by airlines and
other aircraft operators. Airlines lease aircraft from other airlines
or leasing companies for two main reasons; to operate aircraft
without the financial burden of buying them, and to provide
temporary increase in capacity. The industry has two main leasing
types, wet leasing which is normally used for short-term leasing
and dry leasing which is more normal for the longer-term leases.
The industry also uses combinations of wet and dry leasing; for
example, the aircraft is wet-leased to establish new services; then
as the airlines flight or cabin crews become trained, they can be
switched to a dry lease.
Wet Lease
Wet lease is a leasing arrangement whereby one airline (lessor)
provides an aircraft, complete crew, maintenance, and insurance
(ACMI) to an airline [or other type of business acting as a broker of
air travel] (the lessee), which pays by hours operated. The lessee
provides fuel and covers airport fees, and any other duties, taxes,
Notes
___________________
___________________
n/
___________________
___________________
___________________
___________________
ro
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ct
They can also be considered as a form of charter whereby the lessor
provides minimum operating services, including ACMI, and the
lessee provides the balance of services along with flight numbers.
In all other forms of charter, the lessor provides the flight
numbers. Variations of a wet lease include a code share
arrangement and a block seat agreement.
279
io
etc. The flight uses the flight number of the lessee. A wet lease
generally lasts one month to two years; anything less would be
considered an ad-hoc charter. A wet lease is typically utilized
during peak traffic seasons or annual heavy maintenance checks,
or to initiate new routes. A wet leased aircraft may be used to fly
services into countries where the lessee is banned from operating.
Sa
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UNIT 23: Aviation Financial Institutions
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Wet leases are occasionally used for political reasons; for instance,
EgyptAir, an Egyptian government enterprise, cannot fly to Israel
under its own name, as a matter of Egyptian government policy.
Therefore, Egyptian flights from Cairo to Tel Aviv are operated by
Air Sinai, which wet-leases from EgyptAir to get around the
political issue.
Dry Lease
,N
ot
fo
Dry lease is a leasing arrangement whereby an aircraft financing
entity, such as GECAS and ILFC (lessor), provides an aircraft
without insurance, crew, ground staff, supporting equipment,
maintenance, etc. Dry lease is typically used by leasing companies
and banks, requiring the lessee to put the aircraft on its own AOC
and provide aircraft registration. A typical dry lease starts from
two years onwards and bears certain conditions with respect to
depreciation, maintenance, insurances, etc., depending also on the
geographical location, political circumstances, etc.
(c
)
UP
ES
A dry lease arrangement can also be used by a major airline and a
regional operator, in which the regional operator provides flight
crews, maintenance and other operational aspects of the aircraft,
which then may be operated under the major airline's name or
some similar name. This saves the major airline the expense of
training personnel to fly and maintain the aircraft, along with
other considerations. Fedex Express uses an arrangement of this
type for its feeder operations, contracting to companies such as
Empire Airlines, Mountain Air Cargo, and others to operate its
single and twin-engined turbo-prop "feeder" aircraft. DHL has a
joint venture in the United States with Polar Air Cargo, a
subsidiary of Atlas Air, to operate their domestic deliveries.
___________________
___________________
___________________
___________________
280
Check Your Progress
Notes
Fill in the blanks:
___________________
Sa
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Aviation Enterprise Management
1. …………………… is a leasing arrangement whereby one
airline (lessor) provides an aircraft, complete crew,
maintenance, and insurance (ACMI) to an airline [or
other type of business acting as a broker of air travel]
(the lessee), which pays by hours operated.
___________________
n/
___________________
io
___________________
___________________
2. ……………………… is a leasing arrangement whereby
an aircraft financing entity, such as GECAS and ILFC
(lessor), provides an aircraft without insurance, crew,
ground staff, supporting equipment, maintenance, etc.
___________________
___________________
___________________
ro
du
ct
___________________
3. The Aircraft loan applications process may take
…………………. business days to get an approval.
___________________
rR
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Summary
fo
The financial system is concerned about money, credit and finance.
Money refers to the current medium of exchange or means of
payment. Where as credit or loan refers to sum of money along
with interest payable. In other words, it refers to debt of economic
unit. Finance is monetary resources comprising debt and
ownership funds of the state, company or person.
ot
Financial Institutions are business organizations that act as
mobilizes and depositories of savings and as purveyors of credit or
finance. They also provide various financial services to the society.
,N
Lesson End Activity
(c
)
UP
ES
Construct an informative presentation on aviation financial
institutions. Give some examples of the financial institutions.
Keywords
FFIEC: Federal Financial Institutions Examination Council
Aircraft Lease: Aircraft leases are a number of types of leases
used by airlines and other aircraft operators.
Wet Lease: Wet lease is a leasing arrangement whereby one
airline (lessor) provides an aircraft, complete crew, maintenance,
and insurance.
Sa
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UNIT 23: Aviation Financial Institutions
281
Dry Lease: Dry lease is a leasing arrangement whereby an
aircraft financing entity.
Notes
___________________
___________________
1.
What do you mean by financial institutions?
___________________
2.
Describe finance in aviation.
___________________
3.
Write short note on “lease companies”.
4.
Describe aircraft lease in detail.
io
n/
Questions for Discussion
___________________
ct
___________________
___________________
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Further Readings
Books
Julie, Rodwell, (2003), Essentials of Aviation Management: A Guide
for Aviation Service Business. Kendall Hunt Publishing Company
rR
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Speciale, Raymond, (2006), Fundamentals of Aviation Law.
McGraw Hill
T. Wells, Alexander, (2004), Airport Planning & Management.
McGraw Hill
fo
Frock, Roger, Changing How the World Does Business: Fedex's
Incredible Journey to Success - The Inside Story, Berrett Koehler
Publishers
Aviation
ot
J. Sheehan, John (2003). Business & Corporate
Management: On Demand Air Travel. McGraw Hill Inc.
,N
Castro, Raoul, Corporate Aviation Management, Southern Illinois
University Press
A. Kinnison, Harry, (2004), Aviation Maintenance Management,
McGraw Hill
ES
Web Readings
http://www.airliners.net/aviationforums/non_aviation/read.main/1958823/
UP
http://books.google.com/books/about/Essentials_of_aviation_manag
ement.html?id=jjfUv6s8LdsC
(c
)
http://books.google.com/books/about/Designing_and_executing_stra
tegy_in_avia.html?id=CJXshJc_IpIC
http://books.google.com/books/about/Aviation_maintenance_manag
ement.html?id=ZuCJgUSm9ncC
___________________
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282
Notes
___________________
___________________
n/
___________________
io
___________________
___________________
ct
___________________
___________________
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___________________
___________________
(c
)
UP
ES
,N
ot
fo
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___________________
Sa
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UNIT 24: Aviation Insurance
Unit 24
283
Notes
Activity
Write
an article on the Aviation
___________________
Insurance.
___________________
Aviation Insurance
n/
___________________
Objectives
___________________
\
Nature of the Contact of Insurance
\
Fundamental Principles of Insurance
\
Aviation Insurance Policies
\
Types of Insurance
\
Aviation Insurance Companies
io
After completion of this unit, the students will be aware of the following
topics:
___________________
ct
___________________
ro
du
___________________
Introduction
fo
rR
ep
In business as in private life, there are the dangers and risks of
every kind. The aim of all insurance is to make provision against
such dangers which beset human life and dealing. He who seeks
safety, called the insured or assured, pays a certain sum, called the
premium, takes upon himself the risk insured against and
undertakes to makes good to the assured any loss which he may
sustain by reason of the named peril.
,N
ot
The risks which may be insured against include fire, the perils of
the sea (marine insurance), death (life insurance) and accidents
and burglary. In fact, nowadays the happening of practically any
event may be insured against at a premium commensurate with
the risk involved.
ES
Nature of the Contact of Insurance
(c
)
UP
The contract of insurance is called an aleatory contract because it
depends upon an uncertain event. If such a thing happens, e.g., if
the house is burnt down or the ship is stranded, the insurer will
pay the value of it. At first sight this would seem to be a wagering
transaction, the insurer betting with the assured that this house
will not be burnt or his ship will not sink and giving him the odds
of its value against the premium. It is because of this uncertainly
that Lord Mansfield described insurance as “a contract on
speculation,” But the modern view is that insurance contracts are
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
n/
___________________
io
___________________
ct
Write
an article on the nature
___________________
of contract of insurance.
___________________
not speculative or wagering contracts. Insurance is not merely a
gamble on an uncertain future. In reality, a contract of insurance
is a perfectly valid contract for the assured is only indemnified for
his loss, and he does not make a profit of his loss. Moreover, the
assured must have an insurable interest in the subject matter
insured; while in a wager no insurable interest is present.
Therefore, although it is an aleatory contract, depending upon an
uncertain event, it is not a wagering or a speculative contract nor
is merely a gamble on an uncertain future.
Fundamental Principles of Insurance
Insurance transactions are conducted upon principles which on
examination prove simple and almost self – evident, yet they are
constantly being invoked, and we must never lose sight of them.
These principles are common to all types of insurance including life
assurance, excepting the principle of indemnity which does not
apply to life assurance.
ro
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Notes
Activity
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z
Good faith
z
Insurance interest
z
Indemnity
z
fo
These principles are:
Attachment of risk
ot
z
Mitigation of loss
z
Causa proxima
(c
)
UP
ES
,N
Good Faith
A contract of insurance is a contract, based on utmost good faith.
Since insurance shifts risks from one party to another, it is
essential that there must be the utmost good faith and frankness
between the insured and insurer; the whole truth must be told
about the subject – matter of insurance and all circumstances
surroundings it, in order that the under writer may know the
extent of his risk and how much he must charge for the insurance
of it. The withholding of any relevant information is a most serious
matter, and the underwriter, can declare the contract void on
discovering it. The obligation to make a full and true disclosure
applies to all types of insurance. The duty to disclose continues up
to the conclusion of the contract and covers any material alteration
285
Notes
___________________
___________________
n/
___________________
___________________
io
in the character of the risk which may take place between proposal
and acceptance. Fraud invalidates the insurance, and deprives the
party committing it of all his rights arising out of the contract.
Concealment or misrepresentation of material facts is fatal to the
contract; but in case of innocent misrepresentation the premium is
returnable on the avoidance of the policy. Non-disclosure of a fact
of which the assured was ignorant is not fatal to the contract.
Sa
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UNIT 24: Aviation Insurance
___________________
Insurabe Interest
___________________
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The second principle is that the assured must have an actual
interest, called the insurable interest, in the subject-matter of the
insurance, either he must own part or whole of it, or he must be in
such a position that injury to it would affect him adversely. He
must be so situated with regard to the thing insured that he would
have benefit from its existence, loss from its destruction. Any
person may be said to have an interest in the subject-matter of
insurance who may be injured by the risks to which the subjectmatter is exposed, or would but for those risks have a certainty of
advantage. To illustrate this point we may take an example from
marine insurance.
Indemnity
ES
,N
ot
fo
The owner of a ship runs a risk of losing his ship; the charterer of
the ship runs a risk of losing his freight, and the owner of the cargo
of losing his goods and profit. All these persons are interested
because they all run a risk, have something at stake, something to
lose by the happening of the peril insured against. It is the
existence of insurable interest in a contract of insurance that
differentiates and distinguishes it from a mere wager or a gaming
contract. But it is essential that the insurable interest must be
actual and real and not a mere expectation or an anxiety. It must
be pecuniary interest a purely sentimental interest would not be
enough. A contract of insurance affected without insurable interest
is void.
(c
)
UP
The third fundamental principle is that excepting life assurance
and personal accident and sickness insurance, a contract of
insurance contained in a fire, marine, burglary or any other policy
is a contract of indemnity. This means that the assured in the case
of loss against which the policy has been made shall be fully
indemnified but never more than fully indemnified.
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
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n/
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io
___________________
Thus, the insurer does not agree to pay a specific sum on a certain
contingency but undertakes to indemnify the insured what he
actually loses by the happening of the event upon which the
insurer’s liability is to arise, and in no case is the insured entitled
to make a profit of his loss. If the house is burnt down, the insurer
will pay the value of it. But so long as the insured is only
indemnified for the loss and does not make any gain by the
happening of the event insured against, the contract is valid.
A contract of insurance, however, ceases to be a contract of
indemnity if the insurer promises to pay a fixed sum on the
happening of the event insured against whether the assured has
suffered any loss or not. From their very nature contracts of life
and accident insurance belong to this class and in their case
indemnity is not the governing principle. In these cases, the value
of the peril insured against cannot be appraised in money, and
therefore, the injury or death cannot really be indemnified.
ct
Notes
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Mitigation of Loss
(c
)
UP
ES
,N
ot
fo
The next essential principle is that, in the event of some mishap to
the insured property, the owner (the insured) must act as though
he was uninsured and make every effort to preserve his property.
He must take such steps to this end as he considers prudent, and
should his property be touched by peril, he must do everything in
his power to minimize the loss and to save what is left. In a word,
he must act as a prudent uninsured person would do in similar
circumstances. But it must be remembered in this connection that
though a man is bound to do his best for his insurer, he is not
bound to do it at his own peril. So, if reasonable effort was made
and precaution taken to save the property, the insurer will be
liable for all loss resulting from the peril insured against.
Risk Must Attach
The next principle is that a contract of insurance can be enforced
only if the risk has attached. If the risk is not run the
consideration fails, and therefore the premium received by the
insurer must be returned. It is so even where the cause of the risk
being not run is the fault, will or pleasure of the assured. The
underwriter receives a premium for running the risk of
indemnifying the assured and if he does not run the risk, the
consideration for which the premium was put into his hands fails
and therefore he must return it. While a policy does not attach till
the risk begins, it can equally not attach after the risk is
determined one way or other, except in those special insurance,
where both parties being ignorant of the position of the thing
insured, contract to insure it lost or not lost.
Causa Proxima
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UNIT 24: Aviation Insurance
287
Notes
Activity
Make
a report on the aviation
___________________
insurance policies.
___________________
io
___________________
___________________
___________________
ro
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ct
The last principle is that in order to make the insurer liable for a
loss, such loss must have been proximately by the peril insured
against. Every loss that clearly and proximately results, whether
directly or indirectly, from the event insured against in within the
policy. The proximate and not the remote cause are to be looked to,
and if the cause of the loss is a peril insured against the assured
can recover. “The question, which is the causa proxima of a loss,
can only arise where there has been a succession of causes. When a
result has been brought about by two causes, you must in….
insurance law, look to the nearest cause, although the result
would, no doubt, not have happened without the remote cause.”
n/
___________________
ot
fo
rR
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In this case the peril insured against was collision with another
ship, resulting in delay and mishandling of cargo of oranges which
deteriorated. The Master of the Rolls held that the damage to
oranges was not direct result of collision, but of delay and
mishandling and as these causes were not insured against, the
insured could not recover. The law will not allow the assured to go
back in the succession of causes to find out what is the original
cause of loss. The last or the effective of the causes is to be looked
into and others rejected.
Check Your Progress
,N
State whether the following statements are true or false:
1. The contract of insurance is called an aleatory contract.
ES
2. The obligation to make a full and true disclosure does
not apply to all types of insurance.
UP
Aviation Insurance Policies
(c
)
Aviation Insurance Policies offer a wide variety of covers to take
care of almost every conceivable situation that may bear an
adverse financial impact. The Aviation portfolio encompasses
covers normally availed of by Airline Operators, viz.
z
Aircraft Hull all Risks
z
Aircraft Liabilities
___________________
___________________
___________________
___________________
288
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Aviation Enterprise Management
Aircraft Hull War Risks
z
Spares all Risks
___________________
z
Spares War Risks
___________________
z
Personal Accident Cover for crew; and
___________________
z
Loss of Licence cover for crew
___________________
Aviation insurance is insurance coverage geared specifically to the
operation of aircraft and the risks involved in aviation. Aviation
insurance policies are distinctly different from those for other
areas of transportation and tend to incorporate aviation
terminology, as well as terminology, limits and clauses specific to
aviation insurance.
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Notes
History
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Aviation Insurance was first introduced in the early years of the
20th Century. The first aviation insurance policy was written by
Lloyd's of London in 1911. The company stopped writing aviation
policies in 1912 after bad weather and the resulting crashes at an
air meet caused losses on many of those first policies.
fo
The first aviation polices were underwritten by the marine
insurance underwriting community. The first specialist aviation
insurers emerged in 1924.
ot
In 1929 the Warsaw convention was signed. The convention was an
agreement to establish terms, conditions and limitations of liability
for carriage by air, this was the first recognition of the airline
industry as we know it today.
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In 1931, Captain A.G. Lamplugh, the British Aviation Insurance
Company's chief underwriter and principal surveyor, said of the
new industry: "Aviation in itself is not inherently dangerous. But
to an even greater degree than the sea, it is terribly unforgiving of
any carelessness, incapacity or neglect.”
Realising that there should be a specialist industry sector, the
International Union of Marine Insurance (IUMI) first set up an
aviation committee and later in 1933 created the International
Union of Aviation Insurers (IUAI), made up of eight European
aviation insurance companies and pools.
London insurance market is still the largest single centre for
aviation insurance. The market is made up of the traditional
289
Notes
___________________
___________________
___________________
n/
Lloyd's of London syndicates and numerous other traditional
insurance markets. Throughout the rest of the world there are
national markets established in various countries, this is
dependent on the aviation activity within each country, the US has
a large percentage of the world's general aviation fleet and has a
large established market.
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UNIT 24: Aviation Insurance
Types of Insurance
___________________
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ct
Aviation insurance is divided into several types of insurance
coverage available.
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Public Liability Insurance
Passenger Liability Insurance
fo
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This coverage, often referred to as third party liability covers
aircraft owners for damage that their aircraft does to third party
property, such as houses, cars, crops, airport facilities and other
aircraft struck in a collision. It does not provide coverage for damage
to the insured aircraft itself or coverage for passengers injured on
the insured aircraft. After an accident an insurance company will
compensate victims for their losses, but if a settlement can not be
reached then the case is usually taken to court to decide liability and
the amount of damages. Public liability insurance is mandatory in
most countries and is usually purchased in specified total amounts
per incident, such as $1,000,000 or $5,000,000.
,N
ot
Passenger liability protects passengers riding in the accident
aircraft who are injured or killed. In many countries this coverage
is mandatory only for commercial or large aircraft. Coverage is
often sold on a "per-seat" basis, with a specified limit for each
passenger seat.
ES
Combined Single Limit (CSL)
UP
CSL coverage combines public liability and passenger liability
coverage into a single coverage with a single overall limit per
accident. This type of coverage provides more flexibility in paying
claims for liability, especially if passengers are injured, but little
damage is done to third party property on the ground.
Ground Risk Hull Insurance not in Motion
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io
___________________
This provides coverage for the insured aircraft against damage
when it is on the ground and not in motion. This would provide
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
Ground risk hull insurance in motion (taxiing)
This coverage is similar to ground risk hull insurance not in
motion, but provides coverage while the aircraft is taxiing, but not
while taking off or landing. Normally coverage ceases at the start
of the take-off roll and is in force only once the aircraft has
completed its subsequent landing. Due to disputes between aircraft
owners and insurance companies about whether the accident
aircraft was in fact taxiing or attempting to take-off this coverage
has been discontinued by many insurance companies.
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___________________
The use of the insurance term "hull" to refer to the insured aircraft
belies the origins of aviation insurance in marine insurance. Most
hull insurance includes a deductible to discourage small or
nuisance claims.
n/
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Present a draft on the aviation
___________________
insurance companies.
___________________
protection for the aircraft for such events as fire, theft, vandalism,
flood, mudslides, animal damage, wind or hailstorms, hangar
collapse or for uninsured vehicles or aircraft striking the aircraft.
The amount of coverage may be a blue book value or an agreed
value that was set when the policy was purchased.
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Notes
Activity
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Aviation Enterprise Management
In-flight Insurance
ot
fo
In-flight coverage protects an insured aircraft against damage
during all phases of flight and ground operation, including while
parked or stored. Naturally it is more expensive than non-inmotion coverage since most aircraft are damaged while in motion.
Check Your Progress
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,N
Fill in the blanks:
1. ………………… is insurance coverage geared specifically
to the operation of aircraft and the risks involved in
aviation.
2. ………………… protects passengers riding
accident aircraft who are injured or killed.
in
the
Aviation Insurance Companies
Following are the insurance companies for aviation:
The New India Assurance Co. Ltd.
New India participated in the Aviation Insurance of Air India way
back in 1946. New India Assurance Company provides professional
Sa
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UNIT 24: Aviation Insurance
aviation insurance advice and solutions to the needs of small
aircraft operators as well as scheduled airlines.
The aviation portfolio encompasses following type of covers:
Notes
___________________
___________________
n/
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Hull All Risk Insurance Policy: This policy is suitable for
small aircraft operators belonging to flying clubs, companies
engaged in agricultural spraying operations, aircrafts
especially designed for VVIPs, business executives and for
those engaged in industrial aids. The policy scope includes all
physical loss or damage sustained by the insured aircraft
including total loss, disappearance. All losses are paid subject
to deductibles.
___________________
___________________
Spares All Risk Insurance Policy: Covers loss or damage to
spares, tools, equipments and supplies owned by the insured
or the property for which the insured is responsible whilst on
ground or in transit by land, sea, air including in own aircraft
or whilst on the premises of others for storage only.
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z
291
Hull/Spares War Risk Insurance: Indemnity is provided to
the aircraft as well as spares caused by war, invasion, acts of
foreign enemies, hostilities, civil war, rebellion, revolution,
resurrection, martial law, strikes, riots, civil commotion,
malicious acts, sabotage.
z
Hull Deductible Insurance: Airlines at times have to bear a
proportion of loss due to application of a deductible under All
Risk Policy, which may impose considerable financial difficulty
on the insured. Therefore the operators insure part of their
deductibles under this kind of insurance.
z
Aviation Personal Accident (crew member) Insurance:
This cover is designed to cover insured person against injury,
disablement or death arising as result of an accident that is
generally granted on annual basis. The cover operates while
mounting or dismounting from and whilst travelling an
aircraft while the aircraft is being used within the
geographical scope as per its permitted usage. This cover can
also be on 24 hours basis. The capital sum insured varies
according to the status of the insured or earning capacity and
fixed by the insurers.
z
Loss of License Insurance: Operating crews of the aircraft
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ot
fo
z
are required to have valid license. License is liable to be
suspended either temporarily or permanently on medical
___________________
___________________
___________________
___________________
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292
grounds. Consequential financial loss is covered by the loss of
Notes
license policy. Cover provided is in respect of incapacity
___________________
causing permanent total disablement or temporary total
___________________
disablement due to bodily injury or illness.
___________________
n/
___________________
Besides the aforesaid general aviation policies New India
Assurance Company also provides various other tailor-made
insurance as per specific requirements of the insured.
io
___________________
Claims: In case of claims following are illustrative documents that
are generally called for from the insured.
___________________
z
Documents in connection with aircraft details
___________________
z
Documents in connection with flight details
___________________
z
Documents in connection with the accident
z
Certificate of airworthiness/registration
z
Crew details
z
Maintenance & engineering information
z
Operational manual passenger documentation in case of
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ct
___________________
claims.
AOPA Insurance Agency
Whether it is Owners, Renters, or CFI coverage, the AOPA
fo
Insurance Agency will provide you with the best advice on aviation
insurance as well as a quick, easy, no-obligation way to get quotes
ot
on policies from multiple A-rated underwriters. And once you have
the coverage you need, AOPA Insurance Agency will deliver the
,N
outstanding personal service you deserve, year after year.
AOPA Insurance Agency is proud to be the only aircraft insurance
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agency to carry the AOPA name. AOPA has worked hard to build a
service organization that far exceeds any other in the aviation
community. And AOPA Insurance Agency has worked hard to be
the best in providing aircraft insurance expertise.
As the largest general aviation insurance agency, AOPA Insurance
Agency will provide you with quotations from major A rated
insurance companies with coverage options that include automatic
increase in hull value, inflation guard and no family sub-limits.
Whatever your needs, AOPA Insurance Agency has the expertise
to provide you with the right policy and the best value.
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UNIT 24: Aviation Insurance
IFFCO-TOKIO
293
ITGI in cooperation with GIC Re and accredited leader in Aviation
Reinsurance services and Aviation Insurance provide the covers to
Aircraft Owners/Operators in most efficient and cost effective
manner.
Notes
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___________________
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Although there seems to be no legislation or statute in India to
make insurance for aircraft hull mandatory. As far as liabilities
such as passenger, cargo and baggage are concerned, they are
governed by the Carriage by Air Act, 1972 as amended from time
to time.
n/
___________________
IFFCO-TOKIO Aviation Insurance policy offers a wide variety of
coverage to take care of almost every situation that may bear an
adverse financial impact.
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Aircraft Hull "All Risks" Policy provides cover to owner and
operators of aircraft for accidental physical loss or damage. All
risks of physical loss or damage do not include loss of use, delay or
Consequential loss. An aircraft may be insured on an "Agreed
Value" basis. The premium is charged on this agreed value. In the
event of the total loss of that aircraft the Agreed Value will be paid
in full, subject to any applicable deductible.
fo
Ingestion damage caused by sudden single recorded incident is
covered.
Aircraft Liabilities
ot
Combined Single Limit Liability (CSLL) cover for a total amount
covering carrier’s entire liability which includes:
General Legal Liability
z
Third Party Legal Liability
z
Passenger Legal Liability
z
Registered Baggage or Unregistered Baggage in the charge of
the passenger
z
Cargo Legal Liability
z
Mail Legal Liability
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z
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These liabilities result from the operations the operator is set up to
perform and are normally are the subject of a contract of carriage
like a ticket or airway bill.
___________________
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___________________
___________________
Notes
___________________
___________________
___________________
IFFCO Tokio provide just one insurance policy to cover all the
various liability exposures arising out of aircraft operations and
arranged along with the hull “all risks” policy and will pay out for
any one accident or occurrence without any limitation as to the
number of claims that might be paid in any one year.
n/
294
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Aviation Enterprise Management
K-Air Charters in Cochin, India
___________________
Kerala’s pioneer Air Charter and Aircraft sales Company, provides
a wide range of Aircrafts for inbound domestic tours, corporate,
cargo charter and helitours in India. They also deal in Aircraft
Lease, Aircraft management and aviation HR for India and the
World.
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Products
Aircraft Business Chartering
z
Aircraft Cleaners
z
Aircraft Freight Chartering
z
Aviation Consultancy
z
Aviation Global Positioning Systems (GPS)
z
Aviation Insurance Companies
Aviation Safety Management Consultancy
ot
z
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z
fo
Various products of K-Air charters in Cochin are:
Chartering, Aircraft, Corporate Groups
z
Helicopter Accessories
z
Helicopter Chartering
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z
Check Your Progress
State whether the following statements are true or false:
1. Aviation insurance is insurance coverage geared
specifically to the operation of aircraft and the risks
involved in aviation.
2. The first aviation insurance policy was written by
Lloyd's of London in 1921.
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UNIT 24: Aviation Insurance
Summary
295
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Lesson End Activity
Make a presentation on the aviation insurance companies. Also
name a few companies and list their basic features.
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Keywords
Insurance: The contract of insurance is called an aleatory
contract because it depends upon an uncertain event.
Good Faith: A contract of insurance is a contract, based on utmost
good faith.
fo
Aviation Insurance: Aviation insurance is insurance coverage
geared specifically to the operation of aircraft and the risks
involved in aviation.
,N
ot
Passenger Liability Insurance: Passenger liability protects
passengers riding in the accident aircraft who are injured or killed.
Questions for Discussion
Write short note on aviation insurance companies.
2.
What do you mean by aviation insurance?
3.
Describe nature of insurance contract.
4.
Explain various principles of insurance.
UP
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1.
Further Readings
Books
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Notes
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___________________
n/
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io
___________________
___________________
___________________
ct
The Aviation insurance Sector was first launched in the early
years of 20th century and its policies were laid down in the year
1911 by Lloyd's of London. The main target of this sector is the
people victim to accidents or loss of life due to air crash or similar
to any such calamity. In the year 1929, the Warsaw convention
was signed keeping in mind the plights of the people flying by air.
The convention had some particular terms and conditions along
with some restrictions to stand by and was the first
acknowledgement for the airline sector identified till date.
Julie, Rodwell, (2003), Essentials of Aviation Management: A Guide
for Aviation Service Business. Kendall Hunt Publishing Company
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Speciale, Raymond, (2006), Fundamentals of Aviation Law,
McGraw Hill
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___________________
___________________
n/
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T. Wells, Alexander, (2004), Airport Planning & Management.
McGraw Hill Frock, Roger. Changing How the World Does
Business: Fedex's Incredible Journey to Success - The Inside Story.
Berrett Koehler Publishers
J. Sheehan, John, (2003), Business & Corporate Aviation
Management: On Demand Air Travel. McGraw Hill
io
___________________
Castro, Raoul, Corporate Aviation Management. Southern Illinois
University Press
ct
___________________
A. Kinnison, Harry, (2004), Aviation Maintenance Management,
McGraw Hill
___________________
Web Readings
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Notes
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http://www.airliners.net/aviationforums/non_aviation/read.main/1958823/
http://books.google.com/books/about/Essentials_of_aviation_manag
ement.html?id=jjfUv6s8LdsC
http://books.google.com/books/about/Designing_and_executing_stra
tegy_in_avia.html?id=CJXshJc_IpIC
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http://books.google.com/books/about/Aviation_maintenance_manag
ement.html?id=ZuCJgUSm9ncC
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UNIT 25: Case Study
Unit 25
297
Notes
Case Study
___________________
___________________
n/
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Objectives
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After analyzing this case, the student will have an appreciation of the
concept of topics studied in this Block.
___________________
ct
___________________
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7th RTD Framework Programme 2007-2013
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Case Study: Aviation Security and Detection Systems
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The 7th Framework Programme for Research and Technological
Development (FP7) 2007-2013 is the EU’s main instrument for
funding research activities. FP7 has a budget of €50.5 bn. The
RTD FPs are a key tool in achieving the aims of the Europe 2020
strategy, which includes ‘smart growth: developing an economy
based on knowledge and innovation’ as a key priority. The
objectives of FP7 have been grouped into four categories:
Cooperation, Ideas, People and Capacities.
fo
FP7 Security Research is a specific programme falling within the
Cooperation objective, which fosters collaborative research across
Europe and other partner countries and as such, is the core of
FP7.
EU Security Research and Aviation Security
,N
ot
Following the implementation of the PASR Preparatory Action on
Security Research in 2004-2006, an EU Security Research
programme was included for the first time in the RTD Framework
Programmes in FP7, with a budget of €1.4bn from the European
Commission.
(c
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The objectives of FP7 Security Research are to: make Europe
more
secure
for
its
citizens,
strengthen
industrial
competitiveness; promote research excellence and state-of-the-art;
prevent the fragmentation of research efforts and strengthen
critical mass in particular areas of security research. Specific
objectives include: stimulating the development of a European
market for new and emerging security products and systems;
ensuring the security of EU citizens from new and emerging
threats; delivering mission-oriented research results to reduce
security gaps; ensuring the optimal use of available and nascent
technologies and stimulating cooperation between providers and
users of civil security solutions.
Contd…
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298
Security Research provides support for transnational
collaborative research across a number of thematic areas, defined
in annual work programmes. Aviation Security was an important
area of intervention in both the Preparatory Action on Security
Research (PASR) and FP7 Security Research.
Notes
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___________________
___________________
n/
The Commission has a longstanding commitment to the
promotion of a holistic approach to aviation security, which
addresses all three pillars of aviation and their interactions:
Aircraft security (covering attacks from within, as well as from
the outside of the aircraft), Airport security (the passenger-side as
well as the non-passenger side of the airport, both on air and
land) and ATM security (the security of facilities, the security of
personnel and security of operational data, including Cybersecurity, communication security, as well as physical attacks to
ATM infrastructure).
io
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ct
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FP7 Priority Theme 'Transport – Aeronautics' also funds a
number of aviation security projects, including some aviation
safety projects that have security relevance. While the latter is
not part of this assessment, it is useful in illustrating synergies
between different areas of the Cooperation Programme.
EU Policy and Legislative Context
fo
International efforts to improve aviation security were stepped up
following the September 11, 2001 attacks, which had a profound
impact on the European aviation sector and has led to a
reappraisal of aviation security arrangements both within the EU
and internationally.
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Aviation security is the competence of Member States. National
authorities either provide these services themselves or delegate
them to the airport, which may subcontract some of the tasks to
private security contractors. However, given the transnational
and cross-border nature of the issue, the EU plays an important
role in coordinating initiatives and policy on common
arrangements for aviation security. Within the European
Commission, DG MOVE is responsible for aviation security and
for policy coordination in this area. The research results from the
ESRP have strong potential to feed into the work of DG MOVE,
for example, on areas that demand new and improved
technologies, such as safer new generation body scanners.
Key Issues - Aviation Security
The aviation industry lies at the centre of domestic and
international transportation and plays a vital role in supporting
the EU’s economic development and global competitiveness.
Contd…
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UNIT 25: Case Study
Aviation security is therefore a major priority for both national
and EU regulators.
299
Notes
A trend in the aviation industry is the significant increase in
passenger numbers as well as air-cargo. In the European Union,
there has been a marked increase both in passenger numbers and
in airline routes since the liberalisation of the European aviation
sector in 1993. This has had knock-on implications in terms of the
amount of infrastructure space needed in airports to comply with
stricter passenger security requirements and on approaches to
passenger screening to cope with increased throughput.
___________________
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ct
___________________
Questions
1. Study and analyze the case.
2. Write down the case facts.
3. What do you infer from the case?
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In the context of strengthened security measures since 9/11, and
subsequent attempted attacks by terrorists, the need for ongoing
vigilance has meant that the length and intensity of passenger
security checks in airports have grown. This has resulted in a
significant increase in the costs of security measures for airports,
subsequent changes in the economic model of airport operations,
and heavy impact of those security measures on airport
throughput and airline delays.
___________________
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Source: http://ec.europa.eu/enterprise/policies/security/files/doc/aviation_case_study__cses_en.pdf
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Notes
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Glossary
Glossary
301
Notes
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___________________
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ct
Aircraft Act, 1934: An Act to make better provision for the control
of the manufacture, possession, use, operation, sale, import and
export of aircraft.
___________________
n/
Aircraft: An aircraft is a vehicle that is able to fly by gaining
support from the air, or, in general, the atmosphere of a planet.
___________________
io
Air Traffic Control: Air Traffic Control is a ground based
controller directs and controls the aircraft movements, usually via
communication.
Aircraft Fuel: Aircraft fuel is highly combustible and burning
avgas is only useful to us inside an engine while trying to rotate
the propeller.
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Aircraft Lease: Aircraft leases are a number of types of leases
used by airlines and other aircraft operators.
Airlines: An airline provides air transport services for travelling
passengers and freight.
Airport: An airport is a location where aircraft such as fixed-wing
aircraft, helicopters, and blimps take off and land.
ot
fo
Airport Security: It normally requires baggage checks, metal
screenings of individual persons, and rules against any object that
could be used as a weapon.
,N
Airside: Airport services related to the aircraft are frequently
referred to as airside.
Airside Areas: These include all areas accessible to aircraft,
including runways, taxiways, ramps and tank farms.
ES
Alpine Zone: This climate zone can be experienced in the high
altitudes of Himalayas.
Analysis/Evaluation
Phase:
It
develops
the
airport
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organization’s mission, vision, and values statements.
Aprons: Parking areas for aircraft away from terminals.
(c
)
Arid: High temperature and low rainfall are marked features of
this climatic zone.
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
___________________
Business: Business is as old as civilisation itself. Also, it is the
greatest thing in the world as no development could have taken
place in the absence of business.
n/
___________________
Business Model: The business model is simply a working
description that includes the general details about the operations
of a business.
io
___________________
Aviation Insurance: Aviation insurance is insurance coverage
geared specifically to the operation of aircraft and the risks
involved in aviation.
ct
Notes
Capital Structure: Capital structure refers to the kind of
securities that make up the capitalization.
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Aviation Enterprise Management
Centralized Terminal: The centralized concept has a major
drawback in its ever increasing walking distances for the
passengers between the aircraft and the terminal building.
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Chartered Company: It is a company incorporated by a charter
granted by the monarch.
Chocks: Chocks are used to prevent an aircraft from moving while
parked at the gate or in a hangar.
Climate: It refers to the weather variation of any specific area
over a period of time.
ot
fo
Commercial Aircraft: Commercial aircraft include types
designed for scheduled and charter airline flights, carrying both
passengers and cargo.
(c
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Commuter Carriers: These are air taxis with a published
schedule of at least five weekly round trips between at least two
airports.
Competitive Advantage: Competitive advantage arises when a
firm is able to perform an activity that is distinct or different from
that of its rivals.
Concourses: The waiting areas which provide passenger access to
aircraft.
Corporate Level Strategy: Corporate level strategy pertains to
the organisation as a whole and the combination of business units
and product lines that make up the corporate entity.
Creative Destruction: It is the process of industrial mutation
that incessantly revolutionizes the economic structure from within,
incessantly destroying the old one, incessantly creating a new one.
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Glossary
303
DGCA: Director General of Civil Aviation.
___________________
___________________
___________________
___________________
___________________
ct
Electric Utility: It is “any organization, municipality or state
agency with a monopoly franchise that sells electric energy to enduse customers”.
___________________
n/
Economic Environment: The economic environment is set by the
type of national economic system including the nature of property
rights, ownerships of means of production, production relations,
role of planning, functions of price mechanism, etc.
Notes
io
Dry Lease: Dry lease is a leasing arrangement whereby an
aircraft financing entity.
___________________
___________________
Federal Aviation Administration (FAA): It authorizes the
expenditure of Federal funds under a grant-in-aid program for
airport development or noise compatibility projects only.
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Equity Capital: It represents ownership capital as equity
shareholders collectively own the company.
FFIEC: Federal Financial Institutions Examination Council
Flight Inspection Directorate: The Flight Inspection Directorate
(FID) shall conduct regular Inspections and Surveillance of
Scheduled Airlines and their aircrew.
fo
Foreign Company: It is a company incorporated in a country
outside India and has a place of business in India.
ot
Fortress Hub: A fortress hub is a hub dominated by a single
airline that controls a share of flights at or above the monopoly
standard of 70 percent of flights in and out of the hub.
,N
General Airport Revenue Bond (GARB): It means that the bond
is backed by revenues generated from airport operations and not
backed by any government funding source.
ES
Good Faith: A contract of insurance is a contract, based on utmost
good faith.
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Ground Handling Equipment: Ground handling equipment is
the support equipment found at an airport, usually on the ramp,
the servicing area by the terminal.
(c
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Hangar: A hangar is a closed structure to hold aircraft or
spacecraft in protective storage.
Holding Company: Where a company has control over another
company.
___________________
___________________
___________________
___________________
___________________
___________________
___________________
ICAO: The International Civil Aviation Organization (ICAO) is a
specialized agency of the United Nations.
n/
___________________
ICAO Standards: The ICAO also standardizes certain functions
for use in the airline industry, such as the Aeronautical Message
Handling System
io
___________________
Hub and Spoke: The “hub and spoke” has also been used in
economic geography theory to classify a particular type of
industrial district.
Implementation/Execution Phase: It provides the vital link
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Notes
between an organization’s mission and vision, resulting in the
formulation and communication of strategies and objectives that
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must be implemented for the vision to become reality.
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Infrastructure Activities: They can be loosely defined and may
include managerial aspects that are not housed in any function but
relate to the organization as a whole.
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Initial Public Offering: Issue of equity shares to the public by an
unlisted company is called the Initial Public Offering.
Innovation: It is a change in the thought process for doing
something, or the useful application of new inventions or
discoveries.
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Insurance: The contract of insurance is called an aleatory
contract because it depends upon an uncertain event.
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Internal Rate of Return: It is the discount rate that makes the
net present value equal to zero.
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Invention: It is the embodiment of something new. While both
invention and innovation have "uniqueness" implications,
innovation is related to acceptance in society, profitability and
market performance expectation.
Issued Capital: The amount offered by the company to the
investors is called issued capital.
Joint Venture: It entails establishing a firm that is jointly owned
by two or more otherwise independent firms.
Key Success Factors: These are the reason why buyers choose
between competing brands.
Knowledge: Knowledge is another resource you need to have in
place before you start a business.
Notes
Managing People: Managing people is only one skill set you’re
going to need to start a business that's going to be successful.
Mission Statement: It identifies the organization’s purpose and
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Monitoring: In this phase, the key performance indicators defined
during the implementation/execution phase are monitored to
assess the effectiveness of the strategic plan and the need for any
adjustments.
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One-man Company: A member may hold virtually the entire
share capital of a company.
Opportunities: The positive external environment trends or
changes that may help the organization improve its performance.
Paid-up Capital: The actual amount paid up by the investors is
called the paid-up capital.
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Passenger Building: It is the major connection between airport
access and the aircraft.
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Passenger Liability Insurance: Passenger liability protects
passengers riding in the accident aircraft who are injured or killed.
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Passenger Terminal: It is the design of the terminal building
which more than often determines the airport managements’
efficiency and capability in the eyes of the public.
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Payback Period: It is the length of time required to recover the
original investment on the project through cash flows earned.
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Point-to-point Transit: Point-to-point transit refers to a
transportation system where a plane, bus or train travels directly
to a destination rather than going through a central hub.
Preplanning, Phase: It establishes the purpose and method for
undertaking the strategic planning process.
Primary Activities: These are related to the raison d’être of the
organization. An aircraft manufacturer’s primary activities would
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Large Certified Carriers: These carriers have a certificate to
carry 61 passengers or more, payload equal to or greater than
18,000 pounds, or conduct international operations.
its core values.
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Landside Areas: These include parking lots,
transportation train stations, tank farms and access roads.
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include inbound logistics, operations, outbound logistics, sales and
marketing, as well as service.
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Ramp: The area where aircraft park next to a terminal to load
passengers and baggage.
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Registered Company: A company brought into existence by
registration of certain documents under the Companies Act, 1956
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Profit after Tax: It is the average annual post tax benefit over
the life of the project.
Scheduled Air Transport Service: ‘Scheduled air transport
service’ means an air transport service undertaken between the
same two or more places and operated according to a published
time table.
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Small Certified Carriers: These carriers fly aircraft that carry
less than 61 passengers, carry less than 18,000 pounds, and do not
conduct international operations.
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Sole Proprietorship: A Sole proprietorship or one man’s business
is a form of business organization owned and managed by a single
person.
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Stakeholder: It is defined as any group or individual who can
affect or is affected by the achievement of the organization’s
objectives.
Statutory Company: It is a company which is created by a special
Act of the Legislature.
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Strategic Management: Strategic management is a process of
formulating, implementing and evaluating cross-functional
decisions that enable an organisation to achieve its objectives.
Strategic Planning: It is defined as the process undertaken by
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an organization to define its future and formulate a road map to
guide the organization from its current state to its vision for the
future.
Strategy: Strategy represents a fundamental congruence between
external opportunity and internal capability.
Subsidiary Company:
exercised
The company over which control is
Sub-Tropical: This zone is prevalent in most of the northern part
of India. It can be called as the typical Indian climate.
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Threats: The negative external trends or changes that may hinder
the organization’s performance.
Notes
Tropical: It can be divided into two sub types viz., Tropical Wet
Monsoon and Tropical Dry.
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Unlimited Company: It is a company not having any limit on the
liability of its members.
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Vision Statement: It portrays the organization’s future goal(s).
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Wet Lease: Wet lease is a leasing arrangement whereby one
airline (lessor) provides an aircraft, complete crew, maintenance,
and insurance.
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