Financial Case for the Jersey Aircraft Registry.

STATES OF JERSEY

FINANCIAL CASE FOR THE JERSEY AIRCRAFT REGISTRY

Presented to the States on 7th August 2014 by the Minister for Economic Development

STATES GREFFE

2014   Price code: B  R.115

REPORT

1. Introduction

During the States debate on the Aviation Legislative Bundle on 8th July 2014, the Minister for Economic Development gave an assurance to the States Assembly, and particularly  the  Economic  Affairs  Scrutiny  Panel  (the  Panel'),  that  no  further development would take place on the establishment of the Jersey Aircraft Registry (JAR) until such time as the Panel were satisfied with the financial forecast for the proposed  registry.  Whilst  the  Panel  has  now  agreed  to  the  presentation  of  this particular financial report and therefore the continued development of the JAR, it will maintain an active interest and involvement in its establishment, including addressing its outstanding concerns regarding matters contained in supporting documentation due to be addressed within the operational business case.

This  paper  details  the  establishment  costs  for  the  JAR  including  costs  incurred working with Guernsey on the abortive attempt a joint Channel Islands registry. In addition, there are details of the proposed annual revenue costs and likely income that will be generated, on a break even' basis over the first 5 years.

Supporting background documentation includes details of the benefits, competition and potential market, an outline of the Jersey proposition as well as an assessment of the options for delivery.

2. Budget

There are 2 distinct phases to the business model: the establishment costs and the ongoing revenue costs.

The following budget breakdown (Table 1) details the establishment costs for the JAR. Whilst substantial, the Economic Development Department has budgeted to cover these costs.

The establishment costs include –

1. A contribution towards the Strategic Outline Case for a joint Channel Islands Aircraft Registry.
2. A report commissioned by Economic Development to consider a Jersey only aircraft registry.
3. Costs  associated  with  seeking  a  legal  opinion  on  the  joint  venture  with Guernsey.
4. Legal costs incurred contesting the registration of the name Channel Islands Aircraft  Registry  Limited  and  contesting  the  use  of  the  branding  of  the Channel Islands Aircraft Registry.
5. Professional Services in relation to the development of the aviation legislative bundle and establishment of the JAR.

6. IT costs for the online registration of aircraft and aircraft engines based on the IT solution being part of the well-established and highly regarded Security Interest Registry.
7. Contractor Establishment Costs borne by the preferred Technical Services Provider but will be passed onto Economic Development – this figure is based on  the  submissions  from  the  Tenderers  for  preparing  the  requisite reports/manuals and training of staff.
8. Civil Aviation Pre-audit – before the JAR can register its first aircraft, the UK authorities, for which JAR will be a sub-registry, the CAA must be satisfied that the JAR has the necessary governance, processes and procedures in place.

To date (July 2014), just over £130,000 has spent on the development of an aircraft registry.

Table 1 – One-off establishment Costs

* includes  all  costs,  from  2011  onwards,  associated  with  the  concept  of  the establishment of an aircraft registry.

The following table (Table 2) outlines the ongoing revenue costs for the next 5 years and the income required to cover these costs. In compiling the financial forecast, the following assumptions have been made –

1. Staff costs – the job description for the Registrar has been Hay Evaluated at a G12,  and  the  individual  will  be  recruited  for  the  last  4 months  of  2014. Existing  Economic  Development  staff  will  support  the  Registrar  in  the performing  the  functions.  If  registrations  increase significantly,  it  will  be necessary to recruit a Deputy Registrar. The Registrar will be tasked with the production of a business plan for the JAR.
2. Property costs – office space required by the Registrar (C.500 sq ft) at £12 per sq ft, based on current market leasing opportunities.
3. IT and Communications – having developed the online registration process, an annual service contract will be required. For 2014, this has been calculated for the last 4 months of the year.

4. Insurance – it will be necessary to take out an insurance policy. The Cayman Islands and Guernsey have entered into a Group Policy that covers up to $30 million dollars for any one incident to cover investigations and recovery if required. There is a joining fee to become part of the consortium of $10,000 (£5,800) plus a charge per aircraft on the register of £150, based at 01 January each year. The Isle of Man have a similar policy and negotiations have not yet taken place with them to see if a better deal can be reached.
5. AAIB  charge  –  The  Air  Accidents  Investigations  Bureau  is  part  of  the Department for Transport and is responsible for the investigation of civil aircraft  accidents  and  serious  incidents  within  the  UK  and  its  overseas territories. In addition to the insurance, and as a contribution towards the cost of these services in the event of an accident, a charge will be levied on each aircraft registered on the JAR at a cost of £50 for simple aircraft and £120 for complicated aircraft. The charge will be levied on the number of aircraft as at 01 April of each year. In the calculations it is assumed that in 2015, and thereafter that a quarter of the annual registrations will take place before 01 April. For ease a charge of £90 has been assumed.
6. Training and Promotion – the Registrar will be required to keep up-to-date on specific requirements with regard to aircraft registration. In addition, it will be important to promote the JAR at exhibitions and conferences such as EBACE.
7. CAA Audits – as part of good governance the CAA will audit the JAR on a regular basis. After undertaking the initial pre-audit in 2014, it is assumed that a full-blown audit will be undertaken in 2016 and thereafter on a triennial basis.
8. Registrations – it is assumed that following initial registrations, aircraft will remain on the JAR for a minimum of 4 years and that there will be one new registration per month from 2015.
9. Financial  Benefits  –  the  financial forecasts  are  based  on  the  average  net income  that  the  Isle  of  Man  Government  receives  for  both  the  initial registration and annual ongoing Certificate of Airworthiness. This figure, for initial registration, will vary from between £1,000 to over £30,000 for large parked aircraft'.
10. The financial forecast is based on an average total revenue cost of £126,000 for the full 4 years – 2015 – 2018 with an average total revenue income of £188,000 over the same period leaving a net average income of £62,000 per annum.
11. No account has been taken for the costs of the Technical Service Provider as the  charge  will  be  passed  directly  onto  the  client  with  a  Registry administrative  charge.  A  Scheme  of  Charges  will  be  agreed  between  the Registrar and the Contractor. A further Scheme of Charges will be published that will include the charges for the Technical Service Provider. With the latter, a sum will be incorporated for the JAR administration fee. For example the Technical Service Provider may charge £130 per hour for undertaking airworthiness surveyor work and the published charge would be £150 per hour to include the administration fee.

12. No fee income has been calculated for the registering of commercial aircraft engine mortgages. There is little work involved for the Registry, and the fee income is likely to be low in comparison to registering aircraft.

Table 2 – Costs and Benefits (rounded figures)

Operating Income and Expenditure

* The initial Registration fee will be £8,000 and the Renewal fee £4,000 with 2.5% increase after the first year in line with States policy.