The Privatisation of the German ATC Organisation DFS

01 July 2006

According to EC Regulation No. 549/2004: “The objective of the SES initiative is to enhance the present safety standards and overall efficiency for general air traffic in Europe, to optimise capacity meeting the requirements of all airspace users and to minimise delays. In pursuit of this objective, the aim of this regulation is to establish a harmonised regulatory framework for the creation of the SES”. 

An essential part of the SES concept is to build cross-national functional airspace blocks, based on operational requirements and reflecting the need to ensure more integrated management of the airspace regardless of existing boundaries. 

With particular regard to this expected reorganisation of European airspace, the German parliament (Bundestag) enacted a new Air Navigation Services Act (Flugsicherungsgesetz) in April 2006. It allows for the privatisation of DFS so that it can increase its operating efficiency and competitive position in Europe. As a result, DFS’s status will change from a state-owned to a privately-owned company. 

DFS is responsible for air traffic control in Germany, the country with the highest air traffic volume in Europe. Before 1993, air traffic control in Germany was performed by DFS´s predecessor organisation Bundesanstalt für Flugsicherung (BFS), a federal agency under German public law. The establishment of DFS in 1993 made it possible to transfer German air traffic control from a public entity to a private corporation. 

DFS’s business volume reaches around €1 billion per year, and generated a surplus of €36.3 million in 2004, despite a marked reduction in air traffic control charges. DFS covers its entire expenses through fees, namely en route charges and approach charges. Under the present system, any surplus will be redistributed to the users. But this system will be changed in order to allow the future DFS to generate profits within a certain statutory framework. 

Since 1994, DFS has been responsible for performing not only civil but also military air traffic control in peacetime, except for the air traffic control service that concerns arrivals and departures at military airports. 

The new Air Navigation Services Act allows the German federal government to sell a majority share in DFS. It is expected that this sale will raise as much as €1 billion for the federal budget. A tender for the sale is expected in autumn 2006 and a 74.9 per cent share will be sold. In any case, the German government will retain 25.1 per cent as a blocking minority share. A consortium of Lufthansa, other airlines (LTU, DBA, Air Berlin) and airport operating companies, as well as other national and international investors have expressed an interest to submit a bid. 

GOALS 

There are two principal reasons for the privatisation of DFS. 

The first is to increase the operating efficiency of German air traffic control. Privatisation of German air traffic control will contribute greatly to this goal, because private investors have far greater financial, human resources and other management flexibility than the government. Greater efficiency of German air traffic control will also contribute to increasing its efficiency in Europe as a whole, which is extremely important considering that the air traffic control structure in Europe is a quilt of dozens of national systems operating more than 60 control centres. 

The general improvement of the competitive position of DFS in Europe constitutes the other reason for privatisation. This is particularly true in view of the development in the UK and possibly soon in other European countries: as a result of the establishment in 2001 of UK NATS (United Kingdom National Air Traffic Services), air traffic control services were privatised in the UK. Seven air carrier companies and one airport operating company have acquired shares in UK NATS. The privatisation of air traffic control in the UK has resulted in a reduction in charges and other improvements of the system (eg, increased safety, reduction of delays). 

CONSTITUTIONAL ISSUES 

As mentioned before, the first important change of the German air traffic control system took place in 1993, with the transfer of air traffic control from a public entity to a private corporation. Before this could be achieved, however, the German constitution (Grundgesetz) had to amended, because it contained a requirement that air traffic control in Germany be carried out by the government. 

Another constitutional issue results from the present project of capital privatisation of DFS GmbH, because under the amended German constitution, the federal government still must retain certain supervision and governance rights. 

This could be a problem when the government changes its status from being a sole owner to a minority shareholder as planned. This issue will be resolved by a certain act of delegating of governmental authority under the German constitution, the so called Beleihung. This mechanism guarantees compliance with the German constitution. 

Furthermore, in case of war, the private air traffic control investor has to return his share to the German government. 

EFFECTS OF PRIVATISATION OF DFS 

Organisation 

DFS is headquartered in Langen, near Frankfurt, and operates facilities at 19 airports throughout Germany. DFS also has representatives at many smaller airports. Following privatisation, there will obviously be significant changes in the structure of DFS, affecting the voting of the shareholders, the composition of the supervising board (which presently consists of six representatives of the German government) and the management board. 

In order to exercise its supervision and governance rights, a new Federal Supervising Authority for Air Navigation Services will be established in order to meet the abovementioned constitutional requirements. 

Employees and pension arrangements 

At present, DFS has 5,300 employees. The staff coordinates over 8,000 aircraft movements in German airspace every day, and almost 2.9 million movements every year. 

After the transformation of BFS into DFS GmbH, DFS was no longer a public but a private employer, and its staff consisted no longer of civil servants and public service employees but of employees under private employment contracts. After privatisation, the new investor will assume all existing employment contracts. Nonetheless, concerns have been expressed that this change may have negative effects on job safety. The new investor has to bear an under funding (of up to €780 million according to DFS and €1.2 billion according to the airlines) resulting from an accounting switch before the planned privatisation. In order to finance this, DFS is determined to mark up air traffic control charges by around 13 per cent. It was announced that this would be for a limited period of time only. 

Safety 

In order to ensure a high level of safety and compliance with international standards in this respect, the new Air Navigation Services Act provides for the establishment of the new Federal Supervising Authority for Air Navigation Services (Bundesaufsichtsamt für Flugsicherung). 

It will have wide-ranging authority to request information, to inspect the facilities of the air traffic control organisation, to assure that the respective management meet its obligations, and to redelegate the delegated air traffic control authority etc. 

Moreover, safety will be ensured through a certification requirement regarding the air traffic control organisation. During the certification process, the following will be assessed: technical and operational competence and suitability, systems and processes for safety and quality management, reporting systems, quality of services, financial strength, insurance cover, ownership and organisational structure, and possible conflicts of interest. 

Liability 

To date, the Federal Republic of Germany is liable for any losses resulting from the negligent exercise of duties owed to third parties in the context of air traffic control services, because it remained a governmental function after the transfer from BFS to DFS GmbH in 1993. The liability of the Federal Republic of Germany will remain after capital privatisation as well. 

Internally, the Federal Republic of Germany will be indemnified or held harmless by the private air traffic control organisations in case of their negligence. Under the new Air Navigation Services Act, the private air traffic control organisations are required to maintain adequate insurance coverage in this regard for the entire term of delegation of air traffic control authority. 

PERSPECTIVE AND SUMMARY 

The forthcoming capital privatisation of DFS is of enormous significance for maintaining and improving an efficient and integrated air traffic control structure for Europe: “Smooth operation of the air transport system requires a consistent, high level of safety in air navigation services allowing optimum use of Europe’s airspace and a consistent, high level of safety in air travel, in keeping with the duty of general interest of air navigation services, including public service obligations. It should therefore be carried out to the highest standards of responsibility and competence” (EC Regulation No. 549/2004). 

The increased efficiency that can be expected as a result of capital privatisation, combined with ensured high levels of safety through the establishment of the new Federal Supervising Authority for Air Navigation Services, will contribute greatly to the ambitious aim to form a Single European Sky.

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