Airways-Lockheed set to play key role in US, UK

By Graeme Kennedy

Friday 9th June 2000

FORWARD LOOKING: Craig Sinclair understands the industry's future

The Airways Corporation and its major consortium partner Lockheed Martin are leading the world's best air traffic control corporations for contracts worth hundreds of millions of dollars despite political controversy at home.

The Airways-Lockheed joint venture is the front-runner to win its bid for 46% of the UK National Air Traffic Control Service. The New Zealand state-owned enterprise and US aerospace giant are also one of the final two contenders for a $200 million upgrade of the US Federal Aviation Administration's oceanic air traffic management services at Anchorage, Oakland and New York - the centres providing control for airlines operating across the north and central Pacific and Atlantic.

In the UK, industry observers are placing Airways and Lockheed ahead of rivals Raytheon and Northrop Grumman of the US, Thomson-CSF of France, the joint Italian-UK group Alenia Marconi Systems and a consortium of nine UK airlines led by British Airways, British Midland and Virgin Atlantic for the partial privatisation being handled by Credit Suisse First Boston for the UK government.

The relatively small New Zealand Airways has built an international reputation for commercial service delivery since it became the world's first corporatised air traffic control service in 1987 and began exporting its expertise under Canadian chief executive Pete Proulx in 1996 with establishment of its own international consulting division.

The specialised group has since then earned several million dollars a year advising on infrastructure reform, pricing, business planning, training, establishment of commercial-based systems and flight inspection services to countries as diverse as those in the Middle East, Mongolia, Vietnam, Mozambique, Nepal and throughout the Pacific.

The state-owned enterprise established the world's first satellite-based navigation and communication system in 1996, across the South Pacific, as Mr Proulx drove the formation of the Civil Aviation Navigation Service Organisation (Canso) - an international group working toward improving worldwide air traffic control.

His successor, chief executive Craig Sinclair, chairs Canso's committee on the future direction of air navigation services (ANS). Two years ago he launched Aircorp's three-year plan for growth by becoming involved in the ownership or management of offshore air traffic control organisations while providing quality services for the domestic market.

Mr Sinclair, in a statement on Airways' future, said within 10 years global air traffic management would be provided by four to six alliances - "and we intend to be a key player in one of those."

"That's a dramatic statement from what many would perceive to be a relatively small company but it is based on a strategic analysis of the industry's future by an organisation regarded as a leader in the business of ANS," Mr Sinclair said.

The move for offshore growth, however, prompted New Zealand First MP Winston Peters to make allegations of kickbacks to senior executives, including Mr Sinclair and chairman John Maasland, and hush money paid to former Airways legal adviser and company secretary Ezequiel Trumper who, he claimed, objected to the plans.

Auditor-General David Macdonald has begun the first investigation of a state-owned enterprise and expects to report to the government by the end of this month.

Mr Sinclair said ANS businesses needed a strong technological capability to operate in the new global alliance environment and the partnership with Lockheed Martin brought together Airways' commercial experience in air traffic management and the US company's technological excellence.

As part of the alliance, Lockheed's new Skyline air traffic management system will replace New Zealand's eight-year-old Thomson-CFS integ-
rated radar system. A joint Asia-Pacific software technology development and testing centre will also be created at Christchurch.

Mr Sinclair said governments around the world were recognising ANS was a key infrastructure and technology business and that its transfer to the private sector was essential for growth and development.

"Strong precedents in the privatisation of telecommunications, airlines and airports have set the stage for reforms in ANS and a combination of market-related forces over the next 10 years will drive the need for change," he said.

The UK government's decision to partially privatise its air traffic control services was the most significant development yet in the change process, he said, and confirmed Airways' view of the future.

Airlines were leading the changes, forming global alliances such as Star and Oneworld to provide seamless travel, increase reach and reduce operating costs, Mr Sinclair said. They also created huge buying power and influence over suppliers by combining resources to become more efficient.

"Airlines are looking for more value in their relationships with key suppliers, including ANS organisations. Each country has its own air traffic control system, which will always be less than optimal for the airlines.

"The only logical outcome is rationalisation through the formation of commercial alliances that allow consolidation and the operation of common technology platforms across regions and, eventually, across the globe.

"While funding new technology for ANS organisations cannot always be a government priority, our experience is the private sector is more than willing and able to provide capital when the right combination of skill and expertise is in place.

"We believe this readiness of private sector capital to replace the need for government funding will encourage governments to transfer ANS operations to private investors.

"We must position ourselves in the new environment - standing still is not an option - and the key issue is understanding the future of the industry and implementing strategies to get us there."

Meanwhile, the UK Transport Bill authorising the NATCS part-privatisation continues its stormy passage through Parliament and is expected to encounter more opposition in the House of Lords as unions representing air traffic controllers vow to fight the planned sell-off.

The service plans to spend £1.4 billion in the next decade and the government says it needs an injection of management expertise to help it deliver projects including two new air traffic control centres.

The UK is the first European country to propose privatising its air traffic control services and the government hopes the move will spread to restructuring the services across Europe, where more than 30% of flights were delayed last year.

Lufthansa chief executive Jergen Weber said only "fundamental reform" of air traffic control systems would alleviate the "fiasco of flight delays."

Analysts say while air traffic could double within 13 years, European airport capacity was stagnating and air traffic control was not coping with the volumes.

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