Understanding NextGen’s Impact on Your Aircraft’s Value
While much has been published on the subject of NextGen compliance, understanding the terminology and the required installation dates and, most of all, the value impact NextGen is likely to have on an aircraft has been foggy, at best, for many owners. Tony Kioussis and Barb Spoor seek to clarify…
NextGen is likely to have a profound impact on General Aviation aircraft values and the overall economic life expectancy of many assets.
The ‘What’ of NextGen
While there are a number of new requirements that aircraft owners will need to address, we’ll start by translating three key acronyms and explain the role these systems have been designed to play.
- ADS-B Out (Automatic Dependent Surveillance–Broadcast Out): This NextGen technology is a data communication system that allows aircraft to ‘broadcast out’ their altitude, airspeed, location, and to indicate whether they’re climbing, descending and/or turning, utilizing the aircraft’s GPS. The ability to receive such information on board an aircraft (‘broadcast in’) is available, but installing this capability is optional. ADS-B is a core component of the NextGen infrastructure that - over time - will replace radar as the primary method by which ATC will track aircraft and manage controlled airspace. The system is expected to enable more efficient aircraft separation and provide coverage in areas presently not served by radar.
- PM-CPDLC (Protected Mode – Controller Pilot Data Link Communication): This is an air-ground data link communication that is similar to text messaging. Most aircraft that were manufactured with PM-CPDLC automatically meet the ADS-B mandate.
- FANS (Future Air Navigation System): This architecture consisting of satellite communication and satellite navigation is designed to enhance the information displayed on radar consoles to create a superior environment for aircraft surveillance and control.
The ‘When’ of NextGen
Having outlined these key components of NextGen, let’s examine exactly when each of these requirements must be installed. As with most regulations, the answer is “it depends”.
- ADS-B Out: Broadcast (Out Only) capability must be installed – or must have been installed – on an aircraft by the following dates in order to meet national and international regulatory mandates:
- Australia 2014/2016
- Singapore 2014
- Indonesia 2014
- Hong Kong 2014/2015
- EASA Jan 1, 2020 (the regulations were originally scheduled to go into effect in 2015/2018, but were moved to 2020 to accommodate FAA-registered aircraft)
- FAA Jan 1, 2020
Many operators are of the opinion the aviation authorities will move the regulation effective date back as we approach 2020. However, the Agencies have been firm about the current due date, citing it has been pushed back twice and will not be moved again.
- PM-CPDLC: While rules initially required all aircraft operating above FL285 within European airspace to have PM-CPDLC/Link 2000+ installed by February 5, 2015, the mandate was suspended due to technical issues. New rulemaking designed to resolve these issues is expected by late 2017.
Within the US, certain airports are already utilizing this technology as an optional communication method. As airports convert this technology into a requirement–expected to occur in the near future—aircraft not equipped with PM-CPDLC will be unable to access those destinations.
- FANS: Within oceanic regions, FANS 1/A currently permits aircraft to fly within airspace providing reduced separation between FL360-390. FANS 1/A will be expanded to cover airspace from FL290 and above in 2020. Additionally:
- FANS 2/A went into effect on February 15, 2015 covering operations within FL360-390 through tracks within the North Atlantic Track System;
- FANS 2/B will become effective on December 7, 2017 covering operations between FL350-390 throughout the North Atlantic region; and
- FANS 2/C requirements will go into effect on January 30, 2020 and cover all Minimum Navigation Performance Specification airspace throughout all ICAO North Atlantic airspace at FL290 and above.
Can Your Aircraft be Upgraded?
Interestingly, for some owners, the answer to the question whether their aircraft can be upgraded is “not at this time”. However, once a technical solution becomes available for your asset, it may not be economically logical, or functionally manageable, to upgrade your aircraft.
While we suspect there will be a type of solution for virtually every aircraft, certain ‘standalone’ solutions may not be appropriate for those operating aircraft within high traffic density airspace.
Standalone solutions could significantly impact an operator’s safety management environment as these ‘solutions’ will require the flight crew to enter and maintain information on yet another communication system in what is already a heavy workload atmosphere in crowded terminal environments.
How Soon Should You Seek to Comply?
Let us assume you have identified a solution appropriate for your aircraft and mission requirements. We strongly advise aircraft owners to complete the required work as soon as possible. But why is this necessary?
First: While some people may think that costs to secure and install the necessary equipment will decrease as time goes on, the opposite will most probably occur. In fact, many speculate that, as we approach each due date, costs may rise exponentially as a result of limited component availability and facilities capable of accomplishing the required modifications.
Second: It may take longer than you think to obtain the necessary components and secure an installation slot. One of our clients wishing to upgrade their Bombardier Challenger 604 ordered the required equipment/components and sought to schedule with the installer to perform the work in September 2016. However, the installation is not expected to be completed until July 2017 as a result of slot availability.
Be aware that there are a finite number of facilities able to install equipment for each make/model aircraft. By one OEM’s estimate, less than 10% of their turbine-powered fleet has been converted to meet ADS-B requirements thus far. With 100 hours required per aircraft, on average, to complete the required work, the OEM has estimated there are unlikely to be sufficient facilities to address aircraft whose owners have not secured a position in the very near future.
Third: For owners who wait too long and are unable to comply prior to the due date, additional expenses will arise due to storage fees, calendar-based maintenance, and other fees associated with an aircraft that is grounded until it can meet NextGen regulations – not to mention the cost associated with the asset’s loss of use.
By way of encouraging owners to install ADS-B early, the FAA began offering a rebate of $500 to the first 20,000 applicants that qualify. The rebate became available on September 19, 2016, and information is available on the FAA website.
What if You Miss the Compliancy Date?
What will the impact be to aircraft owners and operators that are not NextGen compliant by the due date? In simple terms:
- Without ADS-B (Out) installed, an aircraft will be effectively grounded. While the aircraft may, in some cases, be operable within uncontrolled airspace, such flying will, in most cases, need to take place below 2,500 feet AGL, which is not practical for business operators.
- In addition to the airport access issues noted above, aircraft not equipped with PM-CPDLC will not be able to operate on the North Atlantic Track System or the Pacific Organized Track System, limiting operations to routes sometimes far off the preferred course, leading to increased flight hours and greater fuel burn.
- Any aircraft that is not FANS 1/A+ compliant will not be able to operate on the North Atlantic Track System between FL350-390 after December 7, 2017, and from FL290 and above effective January 30, 2020.
So What is the Real Value of NextGen?
All of the above brings us to the issue of value for compliant versus non-compliant aircraft. It is our view that:
- Aircraft currently equipped with ADS-B (Out) and meeting other NextGen requirements carry greater value that will decrease over time, based on a sliding scale, until each mandate’s deadline is met.
- Commencing January 1, 2020, we believe aircraft equipped with ADS-B (Out) will gain no added value, since such equipment will simply make an aircraft compliant with the regulations.
- Conversely, following the 2020 deadline:
- Any aircraft not equipped with ADS-B (Out) will suffer a value decrease equal to 100% of the average cost to acquire and install the necessary equipment, plus an additional penalty covering the time required to cure the regulatory requirement, plus (potentially) the additional cost of lost revenue/opportunity based on the installation time and the aircraft’s mission-specific loss of utility.
- Any aircraft capable of intercontinental flying not equipped with FANS 1/A+ will incur a value decrease equal to 100% of the average cost to acquire and install the necessary equipment, plus an additional penalty covering the time required to cure the regulatory requirement. For aircraft on a charter certificate, the penalty will also include the cost of lost revenue and/or the higher cost to reach international destinations based on sub-optimal routings.
There is little doubt many owners will find it challenging to justify the expense of meeting the various mandates based on their aircraft’s present value. In fact, the regulations are likely to accelerate aircraft retirements – an unintended consequence of NextGen some are viewing as a “silver lining” that they hope will favorably affect aircraft values.
While an older aircraft may represent an investment holding a firm expiration date and little, if any, current redemption value, it is important not to unintentionally reduce the value of a worthwhile asset by failing to take appropriate and timely action.
This article features in AvBuyer's 2018 Yearbook. Read the full edition here/