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Friday, March 7, 2014

The 2020 Fantasy: Can Brazil’s Aerospace Infrastructure Keep Up?

Brazil’s fiercest battle won’t take place at the 2014 FIFA World Cup or the 2016 Summer Olympics. Instead it’s an inside match, where the Brazilian aviation industry must beat its own infrastructure issues to survive.

by Chelsea Bryan and Veronica Magan

Brazil is a country the size of the United States or Europe with a growing middle class and a booming aviation industry; yet growth is leaving infrastructure in the dust, at risk of buckling beneath demand. Too few airports, too-high fuel prices, Neanderthal Air Traffic Management (ATM), a critical shortage of qualified professionals and an outdated tax system from the days when flying was for the high-fashion budget all threaten Brazil’s success.

In the backbone of this scene is the country’s growing middle class, which has taken to the skies rather than underdeveloped roads. “More than half of our population is flying,” says Eduardo Sanovicz, president of ABEAR, the Brazilian Association of Airline Companies. “There’s more people flying now between states in Brazil than crossing states by bus because [of] the prices.”

Empty bus seats and packed planes are, according to OAG, reflective of the Brazilian aviation industry’s 39 percent growth in capacity from 2008 to 2012. “Since the middle of 2011 we now are facing problems generated by these impressive developments that we experienced,” says Sanovicz. As market outlooks on air traffic in Brazil unanimously predict the industry will at least double over the next decade, the industry stands to confront its obstacles.

The Cry of Manufacturers

Chief among Brazil’s infrastructure woes is its lagging ATM and Air Traffic Control (ATC) systems, the inefficiencies of which make 30-minute flights of yesteryear from Rio to São Paulo one hour-plus, vis-à-vis the overly close plane-spacing ADS-B-devoid aircraft require.

Calm in the midst of the threats to sustainable growth is Donna Hrinak, president of Boeing Brazil, who claims the country has outstanding air traffic capability. São Paulo’s Boeing Research & Technology-Brazil is backing that sentiment up by investing in a national ATM simulations lab alongside Brazil’s Airspace Control Institute (ICEA, in the Portuguese acronym) and the Brazilian Department of Airspace Control (DECEA).

There is more to be done, however, ahead of this year’s June-July FIFA World Cup and the 2016 Olympic Summer Games, says Hrinak. “For that we need a national effort, open to all, to get the right economics, logistics, technologies and policies/regulations,” she adds. It’s unclear whether that sort of massive industry alliance will form by the time of the World Cup.

Michel Clanet, the senior sales director for Airbus in Latin America, believes the infrastructure problems bear attacking from a different angle. He acknowledges the issues in industry infrastructure, but says manufacturers cannot be asked to wait around for improvements. According to Clanet, the solution is lower seat costs and higher capacities. But Airbus does have a few good reasons to encourage regulators to hurry, since crowded skies mean issues for actual delivery of Airbus aircraft.

“In my opinion, by 2020 in Brazil we will have already improved ATC systems, which will allow for shorter separation between aircraft. … This is currently an obstacle, but … not a permanent issue,” says Clanet.

Yet another reason to up capacity and lower costs are Brazil’s crippling fuel prices, which are 30 percent more expensive than anywhere else in the world. Sanovicz agrees; he says the price of fuel is the number one challenge regulators must overcome. In Brazil, fuel is responsible for 40 percent of the cost of flying, while in Europe and the U.S. it is about 35 percent, he says.

“Petrobras charges us under a formula as [if] it were the ‘80s where almost 90 percent of that fuel was imported from the Gulf of Mexico,” Sanovicz says. “But now we are producing in the country more than 85 percent of the jet fuel we use.” This is a tough regulatory hurdle to overcome and one of many where the aviation industry needs a helping hand from the government.

“The airports remain the same as they were in 2002,” Sanovicz says. “The Brazilian infrastructure in the ‘90s was designed to deal with 30 or 40 million consumers, now it has to deal with 120 million.” While airports were wholly public for decades, now the federal government is relinquishing ownership of some airports to private entities. So far, five of the main Brazilian airports in São Paulo, Brasilia, Rio de Janeiro and Minas Gerais have been granted private administration, according to Paulo Henrique Possas, director of the Department of Airport Management at the Civil Aviation Secretariat of the Presidency. He says three of these five are investing about $1.2 billion for improvements before the World Cup. For the rest of the government-owned airports, Infraero, a governmental company that manages and operates 63 of those airports, is investing approximately $1.4 billion in 12 airports ahead of the World Cup on mostly visual makeovers to improve passenger experience — not major technology investments.

Sirius’ implementations by DECEA so far include PBN implementation in 2010, which became operational in 2013 at the two major air terminals in South America, São Paulo and Rio de Janeiro, according to Jurandyr de Souza Fonseca, strategic planning consultant, DECEA. He says the change was estimated to provide an average flight time reduction of 8 minutes, equivalent to an 18 percent reduction of the current 44 minutes flight time connecting the two cities. “For a travel route considered to be the third busiest in passenger volume in the world — with almost 8 million passengers transported in 2012, according to a study handled by Amadeus Air Traffic Travel Intelligence — the benefits are remarkable,” de Souza says. Still, that’s only one successful implementation over three years, out of a queue of several critical national airspace infrastructure needs, including ADS-B and RNP, which won’t be ready pre-World Cup.

The World Cup and the Olympics will attract much-needed attention from the government. “This will be a test for sure for Brazil, but at the same time it’s very positive because if things turn out to be a bit difficult, the government will perceive that and they will implement solutions for the future so, actually, that’s good,” says Clanet. But, according to DECEA, big sporting events will be no problem for Brazil, since the organization has put on similar, large events like FIFA’s 2013 Confederations Cup and the 2013 World Youth Day in Rio de Janeiro, de Souza says.

Airbus Group, industrial parent of Airbus, Airbus Defence and Space, and Airbus Helicopters does not buy it. Bruno Gallard, Airbus Group Brazil CEO, says airports are the central problem, and the modernization and expansion plans he has seen are “very ambitious;” but he concedes Brazil will pull off the events, barely. He says ATM is a central issue, and “a big limitation as … additional space between the planes and additional time between the landings and taking off has to be reduced,” he adds. “Within the next five years, Brazil should be fully updated … They have to. There will be no growth if there is no improvement in the infrastructure, the ATM and the airports,” Gallard says, insisting updates need to be finished by 2019 to avoid growth stagnation. For the short-term, the São Paulo-to-Rio route has been primed for satellite communication ahead of the World Cup so that planes can send and receive info with neighbors as part of the Sirius program, according to de Souza. This, Gallard hopes, will allow decision-making flexibility lowering flight times to 40 minutes. The shortened route, alongside PBN and RNP approvals available also as part of the Sirius program, are the sum total of aviation technology advances available in Brazil as of now.

One more issue lurks behind the ATM and ATC buzz, threatening to stagnate the industry even if infrastructure is otherwise developed. “[Personnel] is a main issue,” Gallard says. “Brazil is short of qualified personnel, in all senses, especially in the engineering activities.” The worst thing that can happen in a personnel crisis is that companies try to steal from each other, rather than focus on recruiting youth and attracting immigrant workers. This is exactly what is happening in Brazil. “There is a huge competition between companies, especially in our domain, to grab qualified engineers and technicians,” says Gallard.

Helicopters and General Aviation

Offshore gas and oil exploration, bad roads and a governmental affinity for GA have helicopters and business jets flying in a hot market. As is, “every other apartment building [in São Paulo] has a helipad on the roof. … it really is remarkable to just see the helicopters crisscrossing the skies in the city all day long,” says Ed Smith, senior vice president of international and environmental affairs at the General Aviation Manufacturers Association (GAMA). Smith notes the uncannily full skies are due to both traffic gridlock and security concerns. The situation has led government ministries, businesses and individuals to call GA the norm for travel not only within in the city, but for reaching faraway destinations that airports do not service. David Worcman, commercial director at charter service Premier Táxi Aéreo, predicts Brazil will continue to see this growth scenario for at least two more years.

In terms of regulation and safety within the sector, the National Agency of Civil Aviation (ANAC as called by Brazilians) has made offshore oil exploration a top national priority. Such government attention means not only a boost in business for GA, but also insurance that the sector will stay safe as it grows. If the future-forward stance on GA regulation seems offbeat for the behind Brazil, so does the rest of the sector, which generally does not face the same challenges in infrastructure as commercial aviation. The chief reason, experts say, is that GA can generally operate well independent of complex RNP and advanced navigation procedures due to its concentration in rural areas.

However, private planes can get shut out of tight, slot-driven airspace, according to Smith. But there are exceptions to that, like Premier Táxi Aéreo, which has a hangar in business/executive hub Congonhas Airport in São Paulo: they were entirely booked out for the World Cup as of January.

Possas says after observational visits to big events in England, South Africa and Russia, “we already mapped more the 1,000 parking positions (Class C) in several Brazilian airports.” But pulling off a successful event will not be easy, says Worcman. “I see that we’re going to have a very hard time during the World Cup.... Brazilians, the Brazilian companies and people, buy a lot, they consume a lot; but they don’t invest in the same way on infrastructure,” he says, speaking of the economic growth in Brazil over the last two decades. Worcman says that, though airlines may be buying new planes and the government may be buying new paint jobs, the airports themselves and the people needed to run them have been ignored.

“Five years ago we had a fleet of 300 business jets in Brazil. Nowadays we have 900; it’s three times more, but how can we have the pilots and the mechanics?” Worcman wonders. “Anyone can see that it’s impossible to train 600 pilots without infrastructure and have all of them ready for jets in five years,” he says, adding the same for mechanics and service centers. The lack of training centers and the ATC, pilot and technician professionals they turn out is something that Worcman worries about a lot. The government, he says, has begun in recent months to contract the building of new schools that should have been completed five years ago, he says. The fact that infrastructure wasn’t started up back then means, according to Worcman, that aircraft in 2020 might still be grounded.

If Worcman’s generalization is true, and Brazilians prefer to invest in new aircraft with new avionics, the technician/service center shortage explains why the Brazilian retrofit market is not thriving like aircraft sales. Without engineers to weigh in, smaller carriers lack the knowledge base to even properly consider retrofits.

Steve Cass, vice president of communications at Gulfstream, sums the industry situation up: “Lack of airports, hangar space and FBOs … importation taxes, the Brazilian Real exchange rate and the restriction on operating leases for non air-taxi operations are all obstacles we face when selling aircraft in the region,” he says.

The Aerial Perspective

According to ANAC, four airlines comprise 99 percent of the Brazilian market: low-cost carriers Avianca, Azul and Gol, and largest carrier TAM, which holds 38.1 percent. Despite its sustained market domination, TAM is not at all cocky when it comes to the question of the World Cup, calling it a huge logistics challenge because of Brazil’s gargantuan proportions and bad ground infrastructure.

According to fast-growing Azul, besides the World Cup, the top priority should be to integrate Brazil’s regional market. The airline is currently working with a government incentive program for regional aviation. Azul’s enthusiastic effort to expedite the regional network expansion is good news for the market, which, though large, only exists within the routes between Brazil’s 200 commercial airports. Point in case: TAM only operates at 42 airports domestically, of the 200 existing, and said that its most difficult task prepping for sporting events has been redesigning routes for the championship.

On the blaring topic of crowded airspace, Azul’s Flight Operations Director Ivan Carvalho says that PBN implementations established in December in some airports as part of the Sirius program have helped. “We had a huge change in the most crowded terminal areas, Rio, São Paulo and Minas, with the PBN implementation,” Carvalho says. “So we have different routes and we have different arrivals and departures being implemented in these crowded terminal areas.”

Additionally, two RNP-AR procedures for Santos Dumont airport in Rio and Campinas airport near Sao Paulo will provide some relief, said Carvalho. But are the improvements being made anywhere near good enough? The answer is sort of, according to Carvalho, but there are some obstacles to using PBN that mean airspace may not see much relief anytime soon. “The main issue probably is we have today a very good initiative from our navigation providers for implementation of the PBN, but we need from our Civil Aviation Authority (ANAC) the same speed in terms of certifying the companies to use that and also a culture think that is to reeducate all the stakeholders,” Carvalho says, adding that ATC providers are not aware of PBN — and don’t necessarily acknowledge its benefits. “You see,” he says, “we have some resistance in terms of applying for example a separation of five instead of seven miles,” from ATC actors.

Where DECEA has provided speedy implementation, for ANAC the technology is new and the learning curve, Carvalho says, is long. “They don’t have the same speed in terms of certifying the company to use those technologies. Maybe the lack of knowledge that the equipment that we have we are operating very well in high-technology aircraft and also the training that we give to our pilots is the best that the industry can deserve, so I think they are not aware of that and they need to be a little more proactive... a little bit more aggressive in trusting that this is needed,” says Carvalho.

He hopes PBN and RNP-AR will take off faster, courtesy of flying procedures in Azul’s simulator. “We evaluated it in flight but the civil aviation authorities too are evaluating the process for us to certify the company … we need to wait for them to review everything to certify. So this will be the challenge,” says Carvalho.

Since Azul is a young airline, its newer aircraft are an anomaly for ATC as well, featuring ADS-B when the rest of the country barely knows what the term means. “In terms of country, as an airline I’d like to see the project running a little bit faster, but they gave priority for the offshore market because there’s a huge number of helicopters flying offshore in Brazil and they begin the ADS-B project for those segments in the industry,” says Carvalho. He thinks that as the offshore oil drilling market develops, it will make for a smoother avionics transition to ADS-B for the commercial sector.

However, for LATAM, group operator of TAM Airlines, the question is whether the costs and time spent getting all those PBN, RNP and eventually ADS-B and EFB updates will distract, leaving market share open to the likes of Avianca and Azul. They’d rather focus on renovation and modernization of aircraft that incorporate new technologies such as the Boeing 787, the Airbus 350 and the Airbus 320neo. The avionics regulations are nearly too hot to handle, and TAM officials say the updates pose a major challenge for them.

A ‘New’ Era

Sao Paulo-Guarulhos International Airport. Photo: Infraero
Brazil will need to first choose between a NextGen and SESAR-like path for its own Sirius, Gallard predicts. Then, just let the new mandates unfurl on airliners, he says, to reveal who can maintain and gain in the market. Clanet agrees; he expects that Brazilian regulators will watch the battle between the European Aviation Safety Agency (EASA) and the U.S. Federal Aviation Administration (FAA) and follow suite to the more profitable global sector’s tune.

It seems manufacturers, GA and the airlines agree: the compass points in the direction of new airports, new personnel and new avionics. But will the timing be right and the pace fast enough? Only 2020 will tell. Until then, enjoy the games.

 

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