Optimising Operations

Asset management to increase returns to investment

Air traffic in India has been growing at record levels over the past few years reaching 223.6 million during 2015-16. Between 2021 and 2025, passenger growth is expected to be maintained at 7.4 per cent. Thus, the need of the hour is not only to create sufficient new capacity to meet demand, but also to maintain the current airport assets and undertake operations efficiently.

Airports today require three key things to effectively deal with the evolution of their businesses — insightful future outlook, creative solutions to respond to future needs, and a robust yet flexible development framework within which solutions can be implemented.

Need for asset management

A move to private ownership and the regulatory monitoring of price and service levels has resulted in reorganisation and hence a focus on the optimisation of the management of physical assets at airports. However, there are various challenges involved with developing and maintaining airports.

Capital improvement challenges include long lead time for planning, design and construction; high cost of projects that increase over time as in the case of Delhi and Mumbai airports; difficulties in obtaining consent to build; reduced project scope due to financing issues; impact on ongoing operations; etc.

Maintenance challenges include deciding between in-house resources and outsourcing work; creating preventive maintenance programmes; maintaining level of service; difficulty in creating effective asset management programmes; analysing the cost of maintenance versus cost to replace the project, as in the case of Delhi’s T1 terminal.

With growth expected to continue in passenger and cargo traffic, there is a long-term need for capacity expansion. Further, there is the ongoing need to meet standards and manage ageing infrastructure, there is an additional challenge for airport executives to secure funding and ensure financial and service-level sustainability in the long term.

For managing an asset sustainably, a proactive long-term view on facility development and ownership is essential. This can be achieved via a three-pronged approach – managing assets professionally, focusing on environmental performance, and lowering the total cost of ownership. For an airport terminal, for every $1 spent on construction, approximately $3 is spent on operations, maintenance and renewal over time. A large part of the total ownership costs are incurred after the design and construction stage, yet most of the decisions driving these costs are taken before the detailed design is completed. Thus, it is crucial to include component renewal, minor repairs, maintenance costs, operational costs and utility costs in the total cost of ownership.

Evolution of asset management

An asset management policy sets the framework for the management of airport infrastructure and assets. Asset management has evolved over the past several decades from having a maintenance management focus only, to include renewal planning, and to the current holistic approach. This approach requires the integration of processes across airport departments to align decision making along a common direction towards the achievement of the strategic objectives and key performance targets of an airport. Many airports today are managing assets that were built during the high-growth era and these are now quickly approaching the end of their useful life. Due to this, many airports in the US are either retrofitting their facilities while incurring very high capital replacement costs or are currently suffering the highest possible level of operating costs.

Optimising asset management

The key objective of an asset management plan is to work towards the most achievable trade-off between level of service, cost and risk exposure. For an optimised return on investment and/or growth, there is a need for the following: long-term planning and performance sustainability; the ability to demonstrate best value for money within a constrained funding regime; evidence, in the form of controlled and systematic processes, to demonstrate legal, regulatory and statutory compliance; improved risk management and corporate governance with a clear audit trail for the appropriateness of decisions taken and their associated risks; improved corporate reputation, the benefits of which may include enhanced shareholder value, improved marketability of product/service, greater staff satisfaction, and more efficient and effective procurement from the supply chain; and the ability to demonstrate that sustainable development is actively considered within the management of the assets over their life cycles.

It is pertinent to note that capital assets deteriorate and fail by components and systems, and not as a whole. Deferred maintenance adds more to the project cost and in the long run the annual cost to maintain exceeds the annualised cost to replace. Thus, renewal planning is required, as lack of maintenance greatly reduces the typical life of individual components and thus, of the asset as a whole. Renewal planning should also be integrated with planning for other needs such as capacity enhancements or new functions.

Technology is increasingly becoming the prime enabler of smarter, more value-driven asset management. An example of renewal planning can be seen with pavement (runway) preservation technologies, such as GSB-88 sealer/binder, which can be adopted instead of building new pavements every few years or completely overhauling existing pavements. This will lead to reduced maintenance costs. However, technologies such as these should be deployed periodically, and much earlier in the life cycle of the pavement, to truly increase asset durability.

Conclusion

With airports being national assets and playing a key role in economic development, managing the assets is crucial. However, managing the operations of an airport is a complex and challenging task. In order to provide effective and efficient customer satisfaction to passengers and tenants, all its facilities and assets need to function properly. Thus, prior and proper planning for managing assets and operations is crucial. Technological innovations are changing the asset management landscape fast with multiple options and opportunities. There are several global players offering technology solutions to airports. However, a strategic local partner is needed for successful implementation, which remains a challenge. w

Based on presentations by Debayan Sen, Associate Director,  Landrum & Brown; Panagiotis  Poligenis, Associate Partner,  Lufthansa Consulting; and Davis Lester Clarke, Chief Business Strategist, STG Infra’s ASI – GSB-88

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