Wingman: How To Get Users To Invest In Free Flight Avionics

Often one hears about the need for good cost/benefit analysis in discussions about getting airspace users – especially airlines – serious about retrofitting advanced cockpit systems.  This need-for-proof admonition has been mentioned for years, and a number of pretty good attempts have been made at doing it.

But, so far, most of these business-case efforts have failed to lead to much investing in Free Flight avionics.  Wingman believes there are three main reasons for this: The first is the difficulty in validating the benefit assumptions given the analytical tools available up to now, the second is the onerous downtime (therefore cost) involved in aircraft upgrades, and the third is the difficulty in eliminating the excessive risk of certain critical assumptions.  To some degree, the first and third reasons pertain to equipping new aircraft as well.

Let's take each of these in turn.

1. There is a new possibility that benefit validation can be had fairly easily and accurately from currently available technology such as FOQA (flight operations quality assurance) data collection and its accompanying analytical tools.  Just as important, the costs for these tools is moderate.  (See Wingman: More Can Be Gained From GAIN.) 
2. Aircraft downtime involved in retrofitting is still a substantial cost and is likely to remain so, but Wingman will suggest a way that this can be paid for – along with the equipment itself – without weakening a user’s finances. 
3. The excessive risk element is due to the difficulty for any single user to generate adequate benefits in isolation.  Significant benefits accrue only when a critical mass of other users also equip, and when the government itself introduces the necessary ATC capability.

But there is a way that government can help – especially with the last two complications.  Let Wingman explain.

Government has created economic incentives in the past for many reasons – from granting cheap western land parcels to settlers willing to stay put for five years (1862 Homestead Act); to granting free public land and loans to railroads for each mile of track laid (Pacific Railroads Act) which opened the West; to using airmail contracts to launch a fledging U.S. airline industry in the 1920s.

In a much more limited way, the FAA's Federally Funded Research and Development Center (FFRDC) created the concept of a public and private consortium to develop Aeronautical Telecommunications Network (ATN) technology in 1992.  This collaborative model combined government financial support with industry in-kind contributions of personnel, technology, and equipment, to develop and demonstrate the underlying technology for air traffic datalink communications.

These are only some examples of where the U.S. government has used its resources to facilitate the development of an economic resource with historical implications.  The transformation of the U.S. airspace system into the next era can be another one.

To do this, Wingman is not proposing outright grants to aviation, nor is he advocating subsidies or tax incentives.  Instead, Wingman suggests that the U.S. government create a guaranteed loan program exclusively for investments in carefully delineated critical Free Flight avionics.  This can solve the perennial “chicken and egg” riddle of who will be the first investor in the next step of airspace modernization – the FAA’s ATC or the airspace user.

Here’s basically how such a program might work.  A loan guarantee credit facility would be established by the Department of Transportation (DOT) which would allow qualified users to obtain long-term, fixed-rate financing for a portion (up to 100%) of a user’s Free Flight total avionics’ equipment costs from the private lending market.  (Total cost includes acquisition, plus any necessary installation, loss of revenue, training and certification costs.)  The loan would have a final maturity date set at, let’s say, 10 years after the equipment is installed and put into normal service.

The loan would be repayable from Free Flight efficiency savings that would be expressed as “benefit cash equivalents” or BCEs.  In this way, the airline or other operator would be able to make the required avionics investments without using any cash, and would repay the obligation only with the cash generated by its BCEs.  If, in the end, the BCEs are insufficient to meet the required loan debt service schedule, the remaining amount of interest and principal payments would be paid by the government to the lending institution.

BCEs would be determined by an independent body composed of expert representatives from government and industry.  They would likely be aircraft and user specific and measured by in-flight data collected from participating aircraft and tabulated by PC-based analytical tools already available.  Once a participant’s aircraft is equipped with the necessary data collection equipment, a baseline metric would be established and validated as the starting point against which improvements would be tabulated.

Wingman recognizes that this proposal raises a number of questions.

1. Why should the government do it?
2. Why should users respond to it?
3. How will the loans be repaid, and when?
4. What are the risks to taxpayers?
5. Is this a handout to a sick, undeserving (read airline) industry, or rich millionaires (read business aviation) or even well-to-do sport flyers (read general aviation)?
6. Is this plan somehow an assault on free enterprise?

Let’s take these one at a time.

1. The government should do it because aviation, civil and military, is one of the this country’s most important assets, and making it substantially more efficient has enormous economic benefits.
2. Airline, business aviation and general aviation users should endorse it, because it is a way of getting these vital equipment upgrades with the use of scarce cash and at virtually no financial risk.
3. The loans will be repaid only as efficiency benefits are realized.
4. The only risk to taxpayers is that Free Flight benefits won’t materialize or will be insufficient.  Very few experts believe that is the case over a reasonable payback period.
5. These loans are not handouts.  Wingman fully expects they will be paid in a reasonable period of time by the efficiency benefits generated.
6. First, this program is not a unilateral handout to any user segment.  It is not a subsidy or special tax advantage scheme.  No user will get money to do anything other than invest in certain specified avionics intended to benefit the national interest.  Secondly, no party is forced to take the loan, but if a user participates in the program, it receives the same deal as any competitors.  Finally, the loans can only be used for this specific purpose, and private lending institutions will handle the lending transactions using otherwise regular commercial procedures.

Wingman believes data collection and analyses technology is giving us the necessary "sword&" to cut the Gordian knot of aircraft equipage.  In addition, the obvious need to make these investments soon in order to secure the future of air transportation has never been greater.  Nevertheless, Wingman is aware that a proposal such as this is ambitious and fraught with political as well as institutional difficulties.

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