Purpose
Bring to the attention of politicians the political and economic risks of continuing with a Fees Course Maxima Policy that freezes income at 2001 rates but requires courses to be delivered at 2009 course cost levels
During period 2001-2009 all student’s course costs have increased but fees charged by providers have not. We are delivering programmes at 2009 quality/standards but funded at 2001 rates.
Government has undertaken to address situation for the period 2011 and beyond but critical issue will be survival of flight schools through 2010.
What has happened is that government has over time transferred that risk of training to the training provider – this transfer of risk has occurred because of the “capping” or freeze policy adopted. This position is not sustainable and has seriously eroded operating margins, reinvestment in newer fleet and equipment, retention of flight instructors and reduced safety margins.
Key Issues confronting business eg
- Ability to grow
- Upgrading fleet
- Fitting new Technology
- Compliance costs
- Maintaining safety standards
- Remaining in business!
Primary issue to be focused on – student loan funding
- Every aspect of pilot loan funding frozen – course costs, numbers, allocation to a particular school, access to more students, allocation across industry and between organisations in same industry.
- Course costs are 2009 levels but fees are set at 2001 levels' generally
- Effectively means business to survive has had to become extremely efficient and or train more and more foreign students.
- Currently some sections of course not financially viable and being subsidised by other sections – especially actual flying
- New courses and new CAA requirements which have been introduced since the setting of these fees have had to be covered by existing fees (students essentially getting them for nothing)
- Deferred investment in new aircraft and technology
- Incorrect categorisation of aviation course costs relative to other course means Aviation Student loans are large because government only subsidises 25% of cost. Govt. in general subsidises 75% of other course costs. (Also, unlike other similar costing courses (dentistry and medicine) capital costs of buildings and equipment carried by training provider?)
- Numbers entering courses frozen at 600 in the long term affects the ability of New Zealand’s aviation industry to grow
- Course completion rates – government in 2005 made decisions based on incorrect information. Completion of aviation license qualifications has always sat around 70%. Government thought it 30-40%
- Industry has been given real run around by government agencies – incorrect and conflicting information supplied by MOE; overlapping information by TEC; NZQA auditing expensive (minimum charge now $3,000k). Previous government created the problem, knew industry was in crisis and refused to address the real issues.
- Code of Practice introduced between professional flight schools to certify a uniform standard of service is being provided to students.
Solutions
Short Term
Essential to provide some short terms relief by way of one off relief against known increases for next year eg proposition behind ETS was that firms could increase price to off set costs. Alternatively Flight Training exempt under ETS regulations – yet to be drafted.
2011 and beyond
Establish new fees category for aviation which provides for cost escalation since 2001 based on objective and measurable parameters eg cost of fuel, labour, maintenance and overhaul, increased compliance costs
Progressively increase government’s contribution to aviation training so aviation students are treated on an equitable basis as other students
Increase capped numbers and permit greater flexibility or trading under cap.
Later two changes can be done over a 3-5 year period.
Summary of Costs Increases since 2001
- Fuel costs increased by over 100%
- Maintenance/ engineering by 36%
- Aviation Services Limited30%
- Aircraft Leases 5%
- Increased salaries 21%
- CAA syllabus changes require additional tuition and exam fees approx $1,000 per student.
- Increased compliance costs/extra audit requirements approx 50%
- CAA course content changes e.g. 4 day Instructional Techniques Courses, Mountain Flying Theory and Practice etc.
- Increased ICAO requirement of English Language Test for all students
- Insurance reflective soft and hard market
Future Cost Increases
- Carbon Tax – ETS minimum of $3.8 cents per litre, Average increase $1.05 per flight hour
- Airways charges potential increase 8% 2010 and further two years of price increases
- Engineering components exchange rate driven
- Wages
- Increasing Lease costs aircraft and ground rentals at airports
- Compliance – CAA looking to increase audit costs, not yet qualified by talk of 100% increase; NZQA minimum charge now $3k plus
- ACC – up to a further $2,000 per Instructor employed