Dieter Kaden, DFS Deutsche Flugsicherung
Release Date: 2009-03-12
The privatisation has been a hot topic in Germany for years. Would it be beneficial for DFS to be privately owned rather than being a public company?First of all, in the middle of the 1980s, when we started to turn the former state agency into a corporate organisation, and in 1993, when we created the state-owned company DFS Deutsche Flugsicherung GmbH under private law, the government was unable to support the renewal and modernisation of the infrastructure of the air traffic control organisation. Secondly, the hiring of new controllers caused significant problems because of the remuneration system. Thirdly, the government foresaw problems in coping with the user demands regarding capacity, safety and modern infrastructure of the aviation industry in Germany. Therefore, we started the process which at that time we called privatisation in Germany, but in English a better word might be corporatisation. We refer with this to placing a company into the domain of private law and regulation, and that was done with the former German agency – today's DFS Deutsche Flugsicherung GmbH. DFS is 100% owned by the German government, and therefore, it is a corporatised organisation. However, we follow the rules of private companies in Germany, and we do not get any subsidy from the government. Everything is paid for through the services and products that we offer to our customers.
In the future, we strive for an equity privatisation, which means that other stakeholders take over a certain percentage of the 100% equity from the government. We are not seeking a material privatisation, in which the task that we have to fulfil as an air traffic control organisation would be privatised, and in which we would offer our services based on prices in a competitive environment to international airports like Frankfurt, Munich or Düsseldorf. These so-called material privatisations will not take place, because the provision of air navigation services is a governmental task. The provision is an obligation of any state that has signed the Chicago Convention of 1944. Air traffic control and air navigation services are state tasks, and whether the state entrusts a private, equity-driven corporation, an agency or an authority like the Federal Aviation Administration (FAA) in the US, with the fulfilment of these tasks is the responsibility of each individual state.
DFS is corporatised in a private way. This means, we are not free to decide whether we deliver our services to German international airports such as Frankfurt, Cologne, Düsseldorf, Saarbrücken or Erfurt, or terminate our services because it turns out not to be profitable. Therefore, we prefer to speak of being corporatised, being a legal entity, a private company, formally entrusted with fulfilling a state-governmental mission.
Taking into account that the provision of air navigation services is a governmental task what will the future hold as the different European systems will be integrated?
Today, every individual state has a designated national air navigation service provider, be it corporatised or privatised. The next level is that the European Union must decide to start the defragmentation of the European airspace. Based on the Lisbon Declaration for the Single European Sky (SES), all the individual states have to come together and negotiate their responsibilities beyond their borders and bring it into a SES-driven approach. This initiative goes back to some individual states; Germany was among them. At that time, the former German Minister of Transportation, Franz Müntefering, supported this initiative. However, the European Union and the European Commission will have the final word.
What would the Single European Sky mean for your organisation? Which challenges and opportunities would it create?
As always, it is an opportunity and a challenge at once. We see it as an opportunity, because for the first time, an individual national air navigation service provider could be in the position to deliver its services outside the national, boundary-driven responsibility. DFS could be working co-operatively with the Dutch or the French, for instance, in which case the responsibility of the organisations would not stop at the borders. But from our point of view, it is also a big challenge. Why? If we were not efficient enough, then other organisations would be able to take over the provision of air navigation services in Germany.
Which role does scale play regarding efficiency, and would consolidation in the industry be one of the possible future scenarios?
The future should not be based on thirty-eight different organisations covering over sixty very small sectors across Europe. The European Union should set very clear targets and a handful of organisations should run the entire Single European Sky. That is what we consider as an opportunity and a challenge. In the short term, merging is a difficult thing but in the longer term it will certainly happen. Here, DFS is definitely aiming to become one of the companies playing a leading role.
Who will be the winners in this competitive selection process and what are the strategic priorities on the agenda of DFS in order ensure being among those leaders?
The European Union is developing a performance monitoring scheme, which will hopefully be completed in the next one and a half years. This would measure very clearly who is best performing. It is all about performance.
The first point to be considered is our past record, which is remarkable. With 3.1 million movements last year, Germany has the busiest airspace in Europe. DFS was responsible for only one of four air proximities that occurred in the German airspace in 2008, which positions us well ahead among the leaders in Europe. Ours is the number one safety record.
The second argument is our environmental performance. We are the number one in Europe concerning so-called direct routes as 97% of our flights follow the most efficient way in flying from A to B. Related environmental aspects such as kerosene savings as well as CO2 and greenhouse gas emission reductions are the second performance variable on which we are among the top.
The third one is punctuality. According to the European Performance Review Commission Report, none of the German airports is among the ten most penalised hubs in terms of delays in Europe. The entire value chain at airports, airlines, and of course, the air navigation services organisation is very well organised. Our performance on direct flights is also a big contributor to punctuality, but it mainly indicates the mentality change of our controllers, who work customer-driven.
If the national monopolies in air traffic control would disappear in the future, could that mean that the ten most penalised European airports would be turned to DFS due to your track record and customer focus?
This is difficult to say, because, following the European SES regulations, this decision is in the hands of the states. But if the opportunity will be there it could happen. However, the opposite could happen as well.
We are responsible for the so-called sixteen international airports in Germany. The regional airports in Germany, meaning the small ones, are open for competition. Any airport could place a tender for the required air traffic control services and receive an offer it cannot refuse. DFS won only nine out of the twenty-two regional airport contracts in Germany. Ten were won by the Austrian air navigation service provider, Austro Control, and three have been certified to provide air traffic control services by themselves. Austro Control uses a different business model that is more cost efficient, and therefore was able to offer a cheaper solution. In response to our loss of a part of the regional market we decided to create The Tower Company, which is a limited liability company that, as a subsidiary of DFS, focuses on the regional market. Hopefully we will regain market share in two years from now.
Do you believe that liberalising the European air traffic services (ATS) would create niche players who focus on regional airports, and large players, such as DFS, who compete for market leadership?
Our strength is the size of our company. As a large organisation we are able to create new ATS systems based on the complexity of the German airspace with its large number of movements and the resulting economies of scale. Smaller air navigation organisations will not be able to develop the same level of expertise.
The US market is much larger than the German market. What can Germany learn from the US and vice versa?
You may not know that I was the first non-American advisor to the aviation committee, set up by ex-president Bill Clinton and his vice president Al Gore. Gore personally hired me as one of the advisors to bring in knowledge on how to make substantial improvements to the current FAA agency, and I'm still one of their strategic advisors. We are trying to support the FAA in its efforts to become a corporatised organisation like DFS is by separating the operation from the administration. And the results are there.
For example, the US has launched NextGen, a project for the wide ranging transformation of the entire national air transportation system to meet future demands and avoid gridlocks in the sky and at the airports. The new project is comparable to the Single European Sky ATM Research Programme SESAR. To implement a new modernised ATS, ATM and CNS system the US has to spend over US $ 34 billion in order to exchange first or second generation IT systems into third or fourth generation systems. Most European countries are working with third generation systems but in some countries also fourth and fifth generation systems are in operation. In short, DFS and FAA are cooperating on safety and efficiency and have an outstanding relationship. In benchmarking a couple of services between FAA and DFS we are more than at the same level as FAA.
The centre of gravity of the aviation industry is gradually moving eastwards. How is this impacting the business strategy and benchmarking approach of DFS?
We offer consulting services and support other air navigation organisations and development activities in different areas of the world but our strategic focus is on three regions. Not surprisingly, the first region is the former Commonwealth of Independent States. That is because in 1990 we took over the German Democratic Republic and have a good relationship with Russia. The second region of strategic priority is the Middle East with a particular focus on the United Arab Emirates and Saudi Arabia. The Middle East is a very interesting market because at the moment it is one of the fastest developing aviation regions.
The third focus is on Asia, especially China. Why China? It is not only the number of airplanes, it is the challenge of coping with the booming numbers of domestic and international flights, opening the airspace along the east-west and south-north routes, and solving the problems with China’s internal military areas. Beijing, for example, is surrounded by more than half a dozen military airports. China needs the expertise of an organisation like DFS, which is among the few organisations that have integrated their civil and military aviation services in peace time. This makes DFS the only organisation that can support Beijing and China in developing the required expertise based on its own history, reputation and experience.
None of your targets is a European country; does that mean that DFS will leave the European market to other organisations while focussing on Russia, countries in the Middle East and China?
You should not forget that we are one of the major players in Central Europe, which is a strength of DFS. Our priorities in Europe are mainly circling around SES. On the other hand, our commercial business including the consulting services we offer to other air navigation organisations worldwide are aimed at regions with still growing numbers of air traffic movements.
We are also offering different services in Europe but this is not our top priority. We operate, for example, a subsidiary for flight calibrations, which is a separate legal entity that we founded together with Switzerland and Austria. We are also offering flight calibration services in Spain and several other European countries.
If in the longer term there will be an open skies agreement with China, of course that would also involve Russian airspace. Having a good relationship with Russia and China this would place you in a very unique position…
We were one of the only Western organisations that were invited to the Aviation Summit last year in China, Beijing. As part of the SESAR joint undertaking, last year, we were given the opportunity to talk to the Chinese Air Traffic Management Bureau in Beijing. We have a regional manager for China, who is perfectly bilingual. The key to success in China is understanding the language and culture since ours is a very people driven business.
Typically, Hong Kong is of strategic interest for us, because Hong Kong has traditionally been the gateway to mainland China and is the location where the Chinese government tends to introduce new solutions. When systems or solutions are successful in Hong Kong, it just takes some time before they will be transferred to mainland China. If you are not successful in Hong Kong, you will never get a foot in the door in mainland China. That is why Hong Kong is of prime interest. We are trying to give our Chinese partners some process orientation and enable them to move forward.
With its rapidly growing aviation sector and vast airport construction programme China is facing a tremendous challenge. What's the contribution that DFS can make there?
It is easy to build an airport in China, but it is much more difficult to develop the processes on the ground and remodel the airspace according to the needs. It is an enormous endeavour to build a tower, the monitoring systems, optimise the runway layout and taxiways, and design the airspace. One of the major challenges we identified was language, because in China, as in many countries around the world, controllers still communicate with the pilots in their native language instead of in English. As a result, foreign pilots flying to China are complaining that they have no clue what is happening left and right of them. Our controllers in Germany have to speak English. I am not blaming anybody, but it is simply a safety factor, so we are trying to bridge the language gap for our partners. It is all about safety and we stand for safety.
Once more, our expertise in working together with military aviation makes us almost unique in the world. China, especially Beijing, needs the expertise of how to handle military traffic in an area with fast growing civil aviation. First you need a regulatory system that defines clear rules on how to deal with sometimes controversial point of views. Often a clash of interests and even cultures between military and civil aviation exists. The challenge around Beijing is the airspace. In addition to the civil aviation infrastructure, there is a large number of military air fields within a radius of less than one hundred kilometres. We have the expertise to manage this challenging situation and we can support the Chinese with it.
What can DFS learn from co-operating with the Chinese?
From my point of view, there are two things. On the one hand, for over a thousand years, China has been clearly defining and setting regulations and processes, up to such a perfect level that it exceeds the German standards. The second point is the clear politically driven approach. We can learn from this expertise and bring it into the German airspace. When the Chinese implement a system it is a procedural design. It means it will be implemented in 240 airports. Here, we can learn about mass production.
If you would have one minute with president Hu Jintao, what would you like to share with him?
I would congratulate him for his regulatory system and offer him a business-customer-driven air navigation service as a contribution to China’s entire aviation value chain.
| Company: | DFS Deutsche Flugsicherung |
| Position: | Chairman and CEO |
| Country: | Germany |