Redefining value in aviation capital investment plans

Immediate responses from airport operating companies

Over the last quarter, airports globally have experienced significant reductions in passenger movements like they’ve never experienced before – at many US and European airports, international passenger numbers have been as low as a few hundred per day.

This reduction in passenger numbers has directly impacted the business models and funding models throughout the aviation value chain. Despite these challenges, resilience within organisations – and agility from an operational perspective - has seen many major airports respond in the short term by:

• Consolidating asset space – reconfiguring terminal space and in some cases the closure of whole terminals
• Increasing cargo movement – lifting of curfews and other restrictions to support the change in priorities
• Building closer relationships with concessionaires – through the review of lease agreements and in some cases reduction in rental values
• Reducing energy consumption – through a reduction in utility usage and equipment movement.

Reprioritising ‘value’ on capital programmes

In addition to these operational pressures, aviation capital programmes have come under severe pressure as the key value drivers change. Airports and operators globally are re-evaluating “value” against new objectives and ultimately re-prioritising their capital programmes. Areas we have seen a change in approach include:

Critical asset maintenance: A focus switch from expansion projects to the maintenance of critical assets such as runways, aprons and taxiway rehabilitation works.

Future airport requirements: continued appetite for investment in projects that will have a direct impact on passenger safety, security and screening.

Passenger experience and additional capacity: reprioritisation of capital and resource to areas which will have an immediate impact when passengers return.

Retail enhancements: These types of projects have been placed on hold as predicting future lease agreements and passenger footfall has become challenging.

In addition to the themes above, aviation sector participants are reviewing their approach to ongoing major programmes. Key considerations include:

• Stop date: when is the most suitable point in the programme to stop, to enable safe closure of the site with the least disruption on future phases?
• Regulatory commitments: how will stopping/delaying these programmes affect each client’s regulatory commitments?
• Supplier security: how are specialist skilled workforces retained to help with future remobilisation?

Below we explore three airports and considerations made in redefining their capital investment plans.

Example 1

The programme has:

• Stopped any works associated with capacity enhancement
• Stopped all ‘look and feel’ projects

Chosen to complete only the sustainability projects which are close to full project completion.

Example 2

The programme has been refocused to:

• Enable business continuity in an agile way to respond to any future demands
• Projects which make the operation more efficient in line with the operating model
• Projects which enable future growth, mindful of the reduced immediate demand.

Example 3

The programme has been reviewed against criteria of:

• Safety-critical projects (passengers, aircraft and key assets)
• Operationally critical projects
• Strategic growth investments aligned to future needs

The portfolio has now been assessed against this order of priority, with suppliers and contractors re-focused as required.

Examples of works which are continuing in line with revised capital plans across these example airports include:

• Mechanical and electrical improvement works
• New security screening measure to allow more passengers in the future
• Digitisation of operations
• Runway maintenance
• De-carbonisation projects

Looking to the future

As the aviation sector progresses through this global crisis, a full assessment of the capital programmes and operating models is required. Airport operators and owners must focus upon:

• Reshaping their full capital programme, including adjusting the prioritisation and performance standards to assess future projects
• Redefining their operating and organisational model to execute this
• Engaging their supply chain, protecting and developing what is required for the future
• Helping to lead the organisation through the change required
• Collaborating with airlines to establish sustainable programmes and support the industry in bouncing back and evolving longer term

Through this proactive approach, airport owners and investors can have confidence in long term resilience and success in capital programme plans.

Further resources

Please visit our COVID-19 response page for all of our resources relating to the impact of COVID-19 on the construction sector.