Financing NextGen Infrastructure and Services -- Exploring the Changing Role of the Private Sector

1. EXECUTIVE ROUNDTABLE SERIES KEY LEGAL CONSIDERATIONS GOVERNINGTHE NEXT GENERATION AIR TRANSPORT SYSTEM Financing NextGen Infrastructure and Services -- Exploring the Changing Role of the Private Sector Moderator: Elizabeth H. Evans, Partner, Banking and Finance – Jones Day, New York Speakers: Graham Lake, Director General – Civil Air Navigation Services (CANSO); Dr. Michael Fairbanks, Senior Consultant – Helios; Bruce Lev, Managing Director – Loeb Partners; Vice Chairman – Airdat LLC; Philippe Delelis, Partner, Government Regulation – Jones Day, Paris June 3, 2010

2. Potential Sources of Financing for NextGen and SESAR • Equity • Bonds • Lease Financing • Vendor Financing • Public Subsidy (e.g. grants, research funding) • Debt (private sector) • Debt (public sector) • e.g. World Bank, European Investment Bank, U.S. Export-Import Bank

3. Civil Aviation Agencies (“CAAs)/Government Air Navigation Service Providers (“ANSPs) • CAAs and Government ANSPs continue to control many of largest commercial opportunities for aerospace clients • Government procurement systems • FAA procurement process • European procurement processes

4. Variations in ANSP Ownership • 100% State = Government Department • 100% State shareholding = “Corporatized” • 100% Privatized shareholder = No State Control • Mixed Shareholding = Public-Private Partnership

5. Each ANSP is Unique • Each national ANSP model: • results from domestic politics; • is determined by local regulations on infrastructure and ownership; and • is dependent on State finances and liberalization policies. • Each ANSP = product of a unique national environment

6. Variations in ANSP Funding Methods ** Note many states do not comply with ICAO Standards in this respect.

7. Private Participation in NextGen • What is the extent and nature of private sector interest in financing NextGen and SESAR? • To what extent should (and will) CAAs and government ANSPs permit third parties to sell services and products directly to aircraft operators that were traditionally provided by the agencies themselves?

8. Private Investor Perspective • What is the appeal of this space relative to sectors with comparable risk profiles? • What institutional and legal barriers have inhibited private sector investment in air traffic management? • What changes have been observed recently? • Improvements or set-backs?

9. Required Regulatory Approval • Because air transportation services have significant safety implications, third parties require regulatory approval and (depending upon the jurisdiction) enabling action by governmental entities. • Do governmental agencies have a disincentive to keep procedures and services in-house in order to protect governmental jobs? • What other barriers are there to private sector investment in air traffic management?

10. Technology vs. Regulation • Is there a distinction for what types of services and infrastructure should be publicly-financed versus privately-financed? • Consider: Required Navigational Precision Routes (“RNP”) allow aircraft to fly the safest, most efficient approach to airports. • Acceptance of RNP technology has been more successful in areas of world where outsourcing of this function has been accepted: e.g. Australia and China. • Recently, Airways New Zealand permitted Flight NZ978 to use advanced RNP technology and instrument approach procedure to land its Sydney-Roturua Service despite cloud level down to just above 300 feet.

11. Technology vs. Regulation • Airways New Zealand’s expertise and utilization of the internationally adopted design, standards, combined with Air New Zealand’s excellent track record with RNP flight operations resulted in first ICAO-compliant RNP AR approach in New Zealand. • Weather conditions were well below any of the traditional approach aid minimums (heavy rain and low cloud cover). • Flight would not have landed without RNP and new approval level. • “Crew were very impressed with the performance of the aircraft and the effectiveness of procedure.”

12. Technology vs. Regulation • Are U.S. and European policy markets taking meaningful steps to lower regulatory barriers? • Have there been recent changes in enabling regulations? • What strategies should companies offering innovative communication, navigation and surveillance services for aviation follow to engage governmental regulators and facilitate approvals? • What strategies should investors consider when entering sectors that have traditionally been government monopolies or dominated by state-owned/affiliated enterprises?

13. Case Study: Airdat • Aircraft are equipped with sensors that measure various parameters (including temperature, humidity, wind) resulting in far more accurate weather forecast than that provided by traditional meteorological organizations. • How does Airdat’s service fit within NextGen and SESAR Concepts? • How should policy makers in the US and Europe for NextGen and SESAR engage private markets?

14. Appropriate Regulation • Key to enabling access to innovative technology in NextGen sector is for CAAs and ICAO to issue appropriate enabling regulations in a timely manner that set minimum performance and safety standards. • What other industries have undergone a transformation from public to private? • What lessons can be learned in terms of regulatory and legal considerations?

15. Financing Opportunities • Financing the ANSP • What are broad trends in ANSP financing globally? How has this evolved in the last ten years? • Financing Ground Control Systems • Has the private sector assumed a greater role? • Retrofitting Existing Fleet • How do third parties get airlines to consider improved technology? Is this process affected by the level of CAA or government ANSP support?

16. Public Private Partnerships • Equipage Funds • How have these arrangements evolved? • Airport Sponsor Bonds • What has been the impact of the economic down turn?

17. Ring-fencing Overflight Receivables • Public vs. private finance • ECA-supported transactions • Security interest issues • Sovereign immunity issues • Agreements of Eurocontrol, IATA • Agreements of government ANSPs

18. Economic Climate • Do the fiscal/budgetary problems in Europe and the US materially change the prospects for private investment in air traffic management service provision? • Do you expect this to also impact ANSP financing?

19. Economic Climate vs. Actual Climate • SESAR and Iceland: What can be learned from the volcanic ash? • “A volcano erupts in mid-north Atlantic and...suddenly our world is turned upside down and all eyes are on Air Traffic Control, as the apparent decision makers somehow responsible for closing airports, closing airspace and generally and inexplicably denying a large part of the world its hereto unquestionable right to travel by air whenever wherever.” Graham Lake’s Canso Blog April 21, 2010

20. Economic Climate vs. Actual Climate • Has Single European Sky been propelled to the top of the agenda by an obscure volcano in Iceland? • “Such events show that only true working partnerships make things happen.” Graham Lake’s Canso Blog April 21, 2010

21. Single Logistical and Dynamic Airspace Management System • How close are we? • In Europe? • In North America? • In Asia?