The next phase of the Single European Sky (SES) scheme, the EU-wide measure designed to rationalise and modernise the fragmented European airspace, is due at the end of this year. If and when operational, the SES scheme to create one sky over the EU could provide new thinking and new opportunities for investors into aviation, an industry traditionally bound up with national government spending and control.
The SES project has been around for a number of years (its current incarnation is SES II) and yet is still some way from completion. In contrast to the speedy image the sector has, the aerospace and aviation industries are notorious slow-burners when it comes to decision making. This phase, the 'performance improvement phase', is just one stage on the journey to implementation in 2012 – and could yet be delayed.
A spokesperson for the International Air Transport Association (IATA), the trade body for the airline industry, says: “SES will improve performance and efficiency. This is good for the aviation value chain and will make it more attractive for the foreign investor.” Certainly, SES could knock down the national barriers with which the historically flag-waving airline industry has been saddled. Also European governments may decide to privatise some infrastructure providers (such as air navigation) which would be a key moment for foreign investment.
However, potential investment into European aviation may be limited due to the industry’s inability to be fully private. This is not only because the project has a massive $25bn price tag, which means, according to IATA, governments will have to continue to be major donors, but also the Single European Sky will have to be heavily regulated.
Antoine Gelain, director at strategy consultants Octagon Partners, which advises companies in the aviation sector, says: “Aviation is not a very attractive industry because it is not a purely free market. Instead, it is subject to regulatory burdens on issues of safety and security. This does not appeal to a pure, financial investor.”
The other problem is that aviation has yet to properly draw in private equity investment. Although aerospace is receiving external attention from sovereign wealth funds such as Dubai Aerospace Enterprise, and some of the larger private equity houses such as The Carlyle Group, aviation tends not to be attractive because, as Mr Gelain says, “The returns are too long-term and the business cycles are too intensive. [Private equity houses] prefer steady revenues and cash.”
But there is a key moment in the SES dream when it could be opened up to outside influence. At present, SES is funded by a public-private initiative between the EU, national governments and key industry players such as Honeywell and Airbus. But after implementation, when the integrated air traffic management structures are put in place, the intention is that a full range of providers to the new regime will be chosen through a market-driven competitive process. Once that door is opened, advocates say, it will probably never be shut again.