March 2001

SEMINAR: PUBLIC POLICIES FOR EXPANSION AND MODERNIZATION OF CIVIL AVIATION

IDB GROUP PROMOTES AIRPORT SAFETY AND REFORM

Seminar in Santiago, Chile, on policies for expansion and modernization of civil aviation

The explosive growth of airline service in recent years and the competitive impetus of globalization have made it increasingly imperative for nations of Latin America and the Caribbean to make their aviation systems safer, more efficient and competitive. Both the public and private sectors must respond to the challenge.

This issue and others affecting the aviation will be addressed at a seminar on Thursday, March 15, in Santiago, Chile at the Inter-Continental Hotel. Held in conjunction with the Annual Meeting of the Inter-American Development Bank, the seminar is titled "Public Policies for Expansion and Modernization of Civil Aviation."

One of the essential ingredients for increasing economic growth in an increasingly globalized world, and for attracting high technology businesses and investments, is easy access to an air hub. Electronic commerce, with its emphasis on speed as a competitive advantage, has increased the demand for rapid and efficient distribution.

Aviation is one of the most important components of the travel and tourism industry, as well as one of the critical factors in the decisions to locate industries and establish markets in perishable agricultural products, components for high technology industries, and businesses with the pressure of just-in-time inventories.

Aviation plays an important role in the competitiveness of a country and its access to the world markets. Competitiveness within the aviation sector itself is affected by the quantity and quality of aviation services and the existence of appropriate aviation equipment and infrastructures.

The expense of doing business in a country increases substantially when there are high air transportation operation costs, which may be the result of inadequate air traffic and services. Excessive fees and taxes imposed by the government may put the country at a cost disadvantage in attracting service.

Tourism has become one of the economic areas that has grown the most. Neverthess, to continue progress in this sector, safe, efficient, good quality aviation systems are indispensable. In fact, lack of good service can be considered a cost to the overall economy.

Growing volumes of traffic make it urgent to resolve aviation safety issues. Here the public sector has a large role, as effective safety systems will require the strengthening of public institutions and regulatory bodies. Most of the countries of the region rely on outdated aviation laws and do not provide adequate authority or sufficient resources for their civil aviation agencies.

Many countries in the region have initiated − and some have completed − airport infrastructure concession programs, a relatively new practice designed to make the sector more efficient and encourage investment.

The process has encountered significant problems that threaten the sustainability of the concession systems and the anticipated benefits. Many of the disappointments can be attributed to faulty design of the concessions.

The IDB Group and Aviation

The IDB Group has been active in supporting aviation reform and safety. In 1995 the IDB approved a $26.5 million loan to Jamaica to improve airport infrastructure as part of a modernization plan. In conjunction with this program, the Multilateral Investment Fund, a member of the IDB Group, provided a $570,000 grant to support privatization.

In 1997 the Bank approved two loans totaling $107.65 million for Guatemala to support a reform program for the infrastructure and investment sector, including aviation. Also receiving support from a MIF grant of $1.15 million, the program included the privatization of airports, modernization of the legal framework and the strengthening of the Civil Aviation Authority. A similar program to support the aviation sector reform and airport infrastructure was approved for Honduras in 1995 as a component of a modernization program supported by a $160 million IDB loan.

In 1999 the IDB approved a $30 million loan to Guyana for comprehensive reform of the air transportation sector, including the creation of a Civil Aviation Authority, the privatization of Ogle Airport, and the conversion of the management of Cheddi Jagan airport into an incentive-based corporation. The program included investments designed to bring the country’s air transportation system into full compliance with standards of the International Civil Aviation Organization.

In Central America in particular, the Bank has been very active in providing policy and technical advice to promote the modernization and development of the civil aviation sector.

In 2000 the MIF approved a $4 million grant to help the seven countries of the Central American Isthmus, as well as the Dominican Republic and Haiti, to modernize and upgrade their aviation safety and regulatory systems and raise safety standards to the level required by the ICAO. This in turn will open commercial opportunities for the airlines of the countries.

In October of 2000 the IDB headquarters in Washington, D.C., was host to the Western Hemisphere Transportation Ministers Roundtable as part of the integration process of the Summit of the Americas. At this meeting IDB President Enrique V. Iglesias and U.S. Transportation Secretary Rodney E. Slater signed a memorandum of cooperation in which the two organizations agreed to collaborate to increase aviation safety in the Americas.

Best practices

Studies of the experience of Latin America and the Caribbean in the aviation sector have indicated a series of recommended best practices:

• A reform program for the aviation sector should have a positive impact on overall development and must also be sustainable.
• It is important to establish a strong regulatory authority that is autonomous, responsible, and independent.
• Concession projects should be undertaken with the goal of benefiting the entire country within a framework of transparency, efficient distribution of risk, and realistic expectations. Both the rights of users and investors must be protected.
• Investors require conditions that offer acceptable risk and a fair return, and this means rates must be set at realistic levels and costs must be recovered.
• An open skies policy may be a way to improve quality by increasing the supply of services and a competitive framework. But realistically, a competitive framework means that the strongest entrants will emerge as the dominant carriers.