April 16, 2013
NEXA Capital’s NextGen fund, set up to help U.S. airlines pay for upgrades that will reap benefits from FAA’s satellite-based air traffic management (ATM) system, is in advanced talks with three airlines and expects to announce at least one customer by midyear, NEXA Capital Partners Managing Director and CEO Michael Dyment reports.
The upgrades, required to meet FAA’s goal of transitioning to a more efficient system over the next decade, have been a tough sell for operators. Speaking at Aviation Week’s MRO Americas, Dyment says NEXA’s analysis shows that operators will start to reap real benefits from satellite-based ATM when 60%-65% of the fleet is upgraded. Right now, the figure isn’t anywhere near that high.
This puts early adopters in a tough position -- a lesson Southwest Airlines learned the hard way when it invested heavily in Required Navigation Performance (RNP) to use more efficient satellite-based approaches at many airports, only to find its aircraft stuck in lines of unequipped planes that couldn’t take advantage of the new procedures.
Dyment points out that the cost of a NextGen package, including avionics for full Automated Dependent Surveillance-Broadcast (ADS-B), RNP, and pilot/controller data communications is about $500,000-$1 million, depending on several factors. NEXA says that the investment will pay off in less than a year, provided about 75% of the fleet is similarly equipped.
Less controversial upgrades, like winglets and re-enginings, are less expensive with a longer return-on-investment cycle. The difference: a set of winglets will reap instant benefits, while a NextGen package won’t do much good if you are the only one so equipped -- or if FAA doesn’t follow through on its end of the infrastructure development bargain.
NEXA’s NextGen fund is a public-private partnership authorized by Congress set up to help mitigate these risks. Dyment says the fund doesn’t just provide cheap, government-backed loans -- NEXA also is working with FAA to ensure specific NextGen targets can be met as part of operator commitments. For instance, a given carrier may commit to upgrade if NextGen capabilities are rolled out at its main hubs by a certain date. If FAA fails to deliver, the carrier could defer payments until FAA meets its commitment.
Dyment says the fund is ready to back $1.3-1.4 billion in retrofits as industry moves to meet deadlines for leveraging satellite-based ATMs being deployed. A second fund for general aviation aircraft is ready to back about $550 million in upgrades.
Right now, the funds only back U.S.-registered aircraft. Dyment says NEXA will talk to any operator, no matter how large or small the fleet.
FAA’s deadline for having ADS-B installed is January 1, 2020. Europe’s dates are even sooner: early January 2015 for new aircraft and early December 2017 for retrofits. Operators that fail to equip will be banned from some airspace.