FLUG REVUE February 2006: Dieter Kaden on the plans of DFS

February 2006

VIP Interview

DIETER KADEN

Dieter Kaden is Chairman of the Board of Management of Deutsche Flugsicherung GmbH (DFS), the German air traffic control services provider.

FLUG REVUE: What are the current trends in air traffic over Germany?

Dieter Kaden: We are benefiting hugely from the enlargement of the EU to 25 States. Due to its geographic position, the Federal Republic of Germany has become a transit country for air travel as well [as travel by road or rail]. As a result, we have grown disproportionately in the various traffic segments in Europe. In terms of overflights, some radar control centres are experiencing growth of 17 to 20 percent. Compared with the previous year, the level of business as of the beginning of December is up by 9.9 percent. This compares with a European average of five to six percent.

When one bears in mind the traffic policy objectives of the various mobility service providers on the roads, railways and in the air, one has to conclude that the concept has proved itself. On the other hand, the number of purely domestic flights has declined compared with other forms of transport. Whereas previously this amounted to a third, it has already fallen to 20 percent and is heading for 15 to 16 percent.

FR: How are things going at DFS as regards turnover and numbers of staff?

Kaden: We are in an extremely healthy situation for the year 2005. We have exceeded our targets. This applies to sales, to our expected operating results and also to the annual surplus for 2005. With regard to staff numbers, we are slightly down this year compared with 2004. This is not attributable to anything major in the way of redundancies due to company restructuring, but we have achieved this through efficiency and structural measures combined with the normal staff turnover. In the medium-term, our plans look somewhat different. Our customers are putting pressure on us to become more efficient. As a result, our costs will grow on average by no more than 1.5 percent per year over the next five years. This clearly reflects efficiency measures which will mean that at the end of these five years our workforce will be smaller than it is today.

We are amalgamating some of our sites. The process of relocating the approach control offices to the control centres has been completed. DFS currently still operates four centres for controlling the lower airspace and three for monitoring the upper airspace. Once our consolidation concept has been implemented in 2008, the lower airspace will be monitored from three control centres and the upper airspace by only one centre.

FR: The EU Commission wants to introduce competition among the air traffic control providers in Europe. How is DFS preparing for this?

Kaden: The EU's “Single European Sky” initiative is quite a dramatic policy approach. The speed of implementation has probably been underestimated by all those involved in Europe. However, it means that change is coming to what is a highly heterogeneous air traffic control landscape in Europe. On the other hand, a truly competitive situation will only come about once bids have been invited for the award of these services in a given country, i.e. in the tender process. And after that, when a contract is awarded, for a certain period – Germany is thinking here in terms of a period of 20 years in the overflight and network route areas – there will be no competition in the provision of air traffic control services to the individual aircraft. To this extent the process of liberalisation will entail a number of sub-steps but the landscape will not yet be entirely competitive.

FR: How would you describe DFS's experiences with its subsidiary, “The Tower Company”?

Kaden: “The Tower Company” will offer aerodrome control services to the regional airports. We at DFS are optimistic that it will be a success, as we have already received contracts at two sites in anticipation of The Tower Company, in Weeze and Altenburg-Nobitz.

FR: DFS's charging system is still unable to react quickly to fluctuations in the volume of air traffic. Is reform of the system desirable?

Kaden: Yes, definitely. Everyone involved – customers, politicians and shareholders – is agreed on this point. We will have to move away from the principle of recouping the full operating cost of providing the services If things are going badly in the industry after a crisis like SARS or 9/11, according to the present rules we have to raise prices, which unfortunately hits our customers especially badly in a downswing phase. This will change.

FR: In the long-term, will there be a Single European Sky (SES) and how do you envisage the role of DFS here?

Kaden: I believe that the SES regulations and the will of the EU make it quite clear that this should be implemented. We want to do away with the present system in which air traffic control services are fragmented across many small states. We want to do away with the 30 or 40 air traffic control service providers which exist today. In the future we intend to move from the present huge number of control centres operating in Europe – that is, over 60 – down to only 10 to 15. It is clear what DFS's position is here. We have already concentrated ourselves and will continue to consolidate the centres. We will follow the route of an equity privatisation. In view of our geographic situation and our present size, we will have an important contribution to make to this traffic infrastructure. We were bold enough to commit ourselves to the vision of becoming the leading air traffic control provider in the world by the year 2020.

FR: The German government intends to sell up to 75 percent of its shares in DFS. Would a partial privatisation change anything in the operational business?

Kaden: We take the view that it is the intelligent and right thing to be thinking about such a far-reaching privatisation. During the parliamentary debate back at the beginning of the 1990s people were already thinking about large-scale privatisation because, as a state-owned company, the Federal Budget Ordinance rightly prevented us from engaging in any entrepreneurial activities. But the expertise of such a safety company could very well be extended to other entrepreneurial fields outside air transport. The Cabinet has agreed to sell off 74.9% of the shares and Parliament will consider legislation to change the air traffic control situation at the beginning of next year. We will then in effect be sold – a process which we expressly welcome.

Questions by Volker K. Thomalla

From FLUG REVUE 2/2006, page 19

Last updated 12 January 2006

FLUG REVUE, Ubierstr. 83, 53173 Bonn, Germany