Paris 2011: Private Captial Fund Raises $1.5 Billion To Help Kick-start NextGen ATM in U.S.

Paris Air Show » 2011
June 23, 2011, 1:33 AM

A public-private financing construct designed to assist airlines in equipping their fleets for next-generation air traffic operations is nearing realization, according to one of the principals.

The NextGen Equipage Fund, a $1.5-billion fund raised through commercial borrowing and private equity, would finance new avionics for an estimated 75 percent of the U.S. airline fleet, proponents say. The fund, which includes ITT Corp. as a major and so far only named aerospace corporate investor, is seeking a U.S. government loan guarantee to back the private capital.

The fund aims to kick-start the Next Generation Air Transportation System (NextGen) in the U.S., but also could serve as a financing model for the Single European Sky ATM Research (Sesar) program as well as air-traffic modernization efforts in other parts of the world, speakers said Wednesday during a Paris Air Show panel discussion at the ITT exhibit (Hall 3 D82).

Air traffic control modernization “cannot happen without equipage on aircraft,” said Russell Chew, managing partner with Nexa Capital Partners of Washington, D.C., and a general partner with the NextGen fund. “The new system requires that all airplanes be equipped with new avionics. The airlines in their equipage decisions have become the gatekeepers of this function.”

Chew said the fund would procure “a basic NextGen suite of avionics,” enabling functions, such as automatic dependent surveillance-broadcast (ADS-B) and data communications, which airlines would lease. They would make payments based on the U.S. Federal Aviation Administration (FAA) achieving agreed milestones for supporting ground infrastructure. Participating airlines would realize a sooner return on their investment due to airspace system efficiencies delivered by FAA, closing the equipage “business case” that challenges NextGen.

The fund is negotiating “participation agreements” with several airlines, which Chew declined to identify. He also declined to identify other participating aerospace investors beyond ITT.

John Kefaliotis, ITT vice president of Next Generation Transportation Systems, said the deployment of ADS-B ground stations in the U.S. is an example of a successful public/private partnership like that proposed for the NextGen fund. The company has met all milestones since winning the ADS-B ground infrastructure contract from FAA in August 2007, having invested $200 million in the effort, Kefaliotis said.

Chew said language that would provide a government loan guarantee is contained within long-delayed FAA reauthorization legislation, moving closer to passage in the U.S. Congress. While the government loan guarantee technically is not necessary, “in a public/private partnership the loan guarantee is a perfect place for government to say, ‘Given the right amount a risk, I could really kick start this by lowering the cost of capital,’” he said.

Panel moderator Marion Blakey, president and CEO of the Aerospace Industries Association and formerly FAA administrator, remarked that the NextGen fund is “gaining a lot of traction in Washington.”

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