Project Appraisal

ISSN: 0268-8867 (Print) (Online) Journal homepage: https://www.tandfonline.com/loi/tiap18

Safety and cost effectiveness in aviation

Stan Abrahams

To cite this article: Stan Abrahams (1992) Safety and cost effectiveness in aviation, Project
Appraisal, 7:4, 229-236, DOI: 10.1080/02688867.1992.9726872
To link to this article: https://doi.org/10.1080/02688867.1992.9726872

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I‘rojecrAppr~isa/.volume 7, number 4, December 1992, pages 229-236, Beech Tree Publishing, 10 Watford Close, Guildford, Surrey GUI 2EP, England.

Aviation

Safety and cost effectiveness in aviation

Stan Abrahams

VIATION IS THE NEWEST of the public

Project appraisal in the UK aviation industry can
be divided intofour areas: airports, navigational
and air trafic controlfacilities, and safety. Long
lead times and the considerableimpact of airports
A transport modes dating from only 1903 when
the Wright Brothers made their pioneering
initial flight.
Although the history of aviation as a public
on the environment make appraisal a compli- transport form goes back to the 1920s, it really took
cated task. Air trafic controlprojects are assessed off in a big way after the war and has grown health-
by the Civil Aviation Authority and, if the cost ily ever since. In 1950 there were 30 million pas-
exceeds &5m, by the Department of Transport senger trips made by air and this had grown to over
(DTp). Safety projects bring their own problems 1,100 million by 1990. Since its inception in the
due largely to the intangible nature of air safety United Kingdom, the predominance of flights has
and its high public profile. The industry is in- been international, and in 1991 73 million of 85
creasingly required to be seen to be cost egective million passenger trips were to or from overseas
and this implies a change in the philosophy ap- destinations with a large proportion of these, 29%,
plied to project appraisal. being by holiday charter aircraft.

Regulatory background
In the early years the regulation of the industrywas
Keywords: aviation; transport; project appraisal the responsibility of the Air Ministry. Subsequent-
ly, responsibility passed between many govern-
ment departments and at present rests with the
Department of Transport and the Civil Aviation
Authority. Following the recommendations of the
Edwards Committee in 1968, the Civil Aviation
Authority was established with responsibility for
air traffic control, the safety of the industry, route
licensing, financial regulation of airlines and Air
Travel Organisers’ Licences. The Civil Aviation
Authority is in turn responsible to the Secretary of
State for Transport.
Skin Abrahams is Chief Statistician,Civil Aviation Authority, The airports in the UK have been predominant-
C M IIouse, 45-59Kingsway, London WC2B 6TE, UK.
The author acknowledges the advice and help given by his ly owned and operated by either the local auth-
colleagues both inside and outside the Authority. However, the orities or the British Airports Authority. The
views expressed are his own and may not be interpreted as Civil British Airports Authority was established in 1966
Aviation Authority policy. with the responsibility of operating the London

Project Appraisal December 1992 0268-8867/91/040229-8 US$03.000 Beech Tree Publishing 1992 229
Safefy and cost effectivenessin aviation

airports (Heathrow, Gatwick and Stansted) and benefits is to be undertaken, allowing 25 years for
subsequently took o n the running of Glasgow, the life of the scheme, then forecasts need to be
Edinburgh, Prestwick and Aberdeen airports in made for up to 35 years ahead. Forecasting of air
Scotland. It was privatised in 1987 and the duty of traffic so far in advance is no easier than in any
regulating their charges was given to the Civil Avi- other field. It is interesting to note that the pas-
ation Authority. senger forecasts for 1991made by the Roskill Com-
Control of the regional airports has been kept mission searching for the site of a new London
in the hands of the local authorities with the inten- airport in 1970 have turned out to be over 100%
tion of eventually privatising the large ones. The too high.
Civil Aviation Authority regulates the charges of The problem of forecasting is compounded by
the largest of these, Manchester. the need to convert these passenger forecasts into
The nationally owned British European Airways those of aircraft movements. This is illustrated by
(operating short-haul flights up to approximately the fact that over the period 1946 to 1988 aircraft
1,000 miles in distance) and British Overseas Air- size grew consistently, at approximately half the
ways Corporation operating long haul flights were rate of the passenger growth. However since 1989,
established in the 30s and 40s and subsequent to whereas the number of passengers has generally
merger forming British Airways were privatised in continued to rise, aircraft size has decreased.
1987. Their fares, in common with those of other Other problems arise from the considerable im-
British airlines, are regulated by the Civil Aviation pact that airports have on the environment and the
Authority, although the vast majority of fares are high political profile that results. This impact is felt
routinely approved, exceptions being made where not just in the immediate vicinity of the airport
choice is limited and fares are excessive. itself but, due to the noise that the airport will
impose, on areas as far away as 20 miles or more
from the airport.
Project appraisal O n the benefit side, it has been claimed that the
provision of adequate airport facilities is essential
The airline industry is highly competitive and for the economic well-being of the nation and that
financially intensive. Most of its project appraisal in addition the local area benefits greatly from the
is undertaken in a conventional way and depends presence of an airport. However, despite many
on financial viability. However, each airline will attempts to quantify these benefits the results have
bring to the process its own individual philosophy been unconvincing.
involving decisions as to whether to buy or lease,
buy new or second-hand, large or small aircraft, but History
most of the associated problems are the problems
of large capital-intensive commercial organi- In the earlydays the decisions to site major airports
sations rather than those specifically associated at Heathrow and Gatwick were made by govern-
with the transport industry. mental committees consisting of members of the
Project appraisal within the rest of the aviation Ministry of Town and Country Planning, the War
industry can be divided into four more or less Cabinet and the Ministry of Health with little or no
distinct areas, airports, navigational and air traffic public participation. The decision was taken on the
control facilities and safety. Each of these has its basis of the availability of a site close to London,
own associated problems not all of which are the perception of the need for civil (and military)
unique to the aviation industry. aviation, and the operational feasibility of the air
Because of these problems and the changes that traffic control system.
have continually taken place in the industry, there Little or no attention was paid to the environ-
are no fixed established methods of project apprai- mental impact of the airport although, to be fair, at
sal and the process is still evolving. In particular, that time aircraft were comparatively unobtrusive.
the method of appraising the siting of a major It was only when the decision was taken by an
airport has changed every time such a proposal has Interdepartmental Committee in 1963 to develop
come up for consideration: it is therefore appropri- Stansted, an ex-US base in Essex 30 miles from
ate that a brief history is given of the appraisal of London, as a third London airport that the
major airport projects in the UK. strength of public opposition compelled the gov-
ernment to consider the problem of a third London
Airports airport in a more systematic way.

A major problem in the appraisal of airports is the

long lead times involved. Although these were The Roskill Commission
shorter in the earlier days of aviation it now takes
at least 10 years from the start of search for a new In 1968 the Government set up a Commission
runway before it can be expected to accept its first under Judge (now Lord) Roskill with the terms of
aircraft: if a satisfactory assessment of the costs and reference to find the site for a four-runway airport

230 Project Appraisal December 1992

 Safety and cost efectiveness in aviation

for Cublington in Buckinghamshire.

The decision was presented to the Government.
Despite extensive studies and a full After two days of debate in the House of Commons
cost-benefit analysis, the Roskill and House of Lords, The Government, whilst ac-
Commission’s recommendation of a cepting the Commission’s recommendations that a
third London airport was needed by 1980, opted
third London airport at Cublington for Foulness, the site which had come fourth and
was quoshed in a short two-day last in the rankings in the cost-benefit analysis.
debate in Parliament which opted for The decision set back the cause of cost-benefit
analysis in this area to an extent from which it has
Foulness not recovered. It is unfortunate that critics of the
Commission’s work have concentrated on the cost-
benefit analysis and have chosen to ignore or have
to serve the aviation requirements of the London forgotten the vast amount of other evidence re-
area for the foreseeable future. It is notable that ceived by the Commission in coming to their deci-
the terms of reference did not allude to a national sion. It must also be apparent that the Government
airports plan nor was the Roskill Commission re- placed a far heavier weight on the effects upon the
quired to question the need for such facilities, environment - or perhaps more correctly, the
although some recommendation on the timing was public’s perception of the effects on the environ-
required. ment -than had the Roskill Commission.
Significantly, the Commission was required to It must also be queried whether Parliament
use cost-benefit analysis, then in its comparative could have appreciated the full implications of the
infancy, to assist it with its decision. It was also Commission’s work. Furthermore, it raises a num-
required to consider general planning issues, in- ber of questions as to the part that a cost-benefit
cluding population and employment growth, noise, analysis (CBA) can play in the role of decision
amenity and effects on agriculture and existing making where so many emotive and political issues
property as well as air traffic control, safety, surface are at stake. Airports have never been great vote
access and defence. winners and perhaps the principles of NIMBY
Accordingly, the Judge presiding over a Com- (Not In My Backyard) are more powerful than the
mission of seven members and backed by a team of principles of CBA.
30 economists, operational research analysts, plan- The decision to proceed with Foulness (after-
ners and engineers undertook their deliberations. wards called Maplin) was subsequently abandoned
They were to take over two years to produce a in 1974 as the decline in demand for air transport,
report that in its entirety was over a metre thick. the unforeseen growth of aircraft size, coupled
An initial long list consisting of over 80 sites was with the improvements in the amount of noise
whittled down to a short list of four based on generated by modern aircraft, meant that existing
accessibility, air traffic control feasibility and ap- airports could handle not only more traffic but
proximate environmental and noise impacts. An could do so without the anticipated detrimental
important element in this preliminary process was effects o n the environment.
the use of the principle of dominance whereby a
site which could be demonstrated to be superior to
another in all major respects led to the immediate SE airport capacity
elimination of the inferior site.
The four short-listed sites were then subjected The next attempt to find airport capacity in the
to one of the, if not the, most comprehensive cost- South East of England occurred in 1978when yet
benefit analysis studies ever undertaken. The another government committee (Study Group on
major elements in the analysis were surface access South East Airports) recommended the expansion
costs in terms of resource and time, aircraft oper- of Stansted. This decision was arrived at after a
ating costs, engineering and construction costs, process which conspicuously omitted any use of
relocation costs of defence and security estab- CBA. After a qualitative assessment of the envi-
lishments, and a technique was developed for ronmental and operational aspects of a number of
evaluating the costs of aircraft noise, described in potential sites, the British Airports Authority was
a current Times leader as using “much ingenuity”. invited to apply for planning permission to expand
Studies were commissioned on a variety of to- Stansted’s capacity first to 8 million passengers per
pics such as the effect on wildlife, and hearings annum and subsequently, having demonstrated
were held at the four sites, the whole process cul- that the need was there, to one full runway
minating in six months of hearings in London capacity.
where evidence was received from, and cross- The ensuing Public Inquiry held in 1980 lasted
examination taken of, a number of expert and almost two years and, after hearing comprehensive
other witnesses. The outcome of these long de- evidence from Government, airport operators, en-
liberations was that the Roskill Commission opted vironmental and other witnesses, planning per-

I’roject Appraisal Ikcwnher. 1992 231

Safety and cost effectiveness in aviation

mission was granted. Indeed, the Inquiry could b e poly of airport facilities in the London area and
considered to have covered the same ground as the there are two major problems which need to be
Roskill Commission but without the CBA and overcome.
where the decision was not to choose between a Although BAA will insist upon a commercial
number of different sites but whether to proceed rate of return on any project it undertakes, airport
with a single site. charges are only a small part (5-10%) of the total
A public inquiry in the role as a project appraiser cost of air travel. The demand for air services in the
bases its decision as to whether to allow a project South East of England is such that in the absence
to proceed purely on the planning merits or de- of regulation, their charges could be raised to such
merits of the case. It will concern itself with the a level as to earn an economic rate of return on
demonstrated need for that project against the almost any project. The Civil Aviation Authority
environmental implications but financial viability is (CAA) therefore needs to be convinced that
never considered to be of primary importance. The BAA’S charges are fullyjustified. A significant pro-
only part that financial viability might play is in portion of these charges go to providing new de-
considering whether the project has a realistic velopment and BAA themselves will wish to ensure
chance of reaching fruition or whether its subse- that their capital projects are both cost effective
quent collapse might have a detrimental effect on and timely, and conform to their own investment
the environment. criteria.
In 1988 the Secretary of State for Transport However, in approving BAA charges the CAA
returned to the question of extra runway facilities is required to encourage BAA to invest in suffi-
in the South East of England by asking the Civil cient new capacity to cope with the anticipated
Aviation Authority to re-examine the problem. demand. Evidence of work undertaken earlier by
The Authority published its advice in CAP 570 BAA can be used as a comparison, as can similar
“Traffic distribution policy and airport and air- work in other large airports around the world and
space capacity: the next 15 years” and concluded some efforts made to develop meaningful produc-
that a new runway would b e required in the South tivity indices. Nevertheless, the problem is a diffi-
East of England by 2004. The Secretary of State cult one and much depends on the working
responded to this report by setting up yet another relationships between the two organisations, and
series of governmental committees. These include upon the Civil Aviation Authority itself developing
members of the relevant governmental depart- a good understanding of airport operations.
ments, environmental interests, the Civil Aviation Most projects within the BAA airport boun-
Authority and airport operators, and are due to daries do not require planning permission being
report in early 1993. subject to a General Development Order, al-
One co-ordinating committee is responsible for though major projects such as new terminal devel-
the technical work of the other committees and for opments are normally called in by the Department
devising a methodology for appraising the poten- of the Environment for a planning enquiry.
tial sites. It seems likely that this committee will A similar arrangement exists whereby the Civil
restore to favour some method of costing the vari- Aviation Authority has the duty of regulating the
ous options and, whilst not going as far as the charges of any other airport that may be designated
cost-benefit analysis of Roskill, will introduce by the Secretary of State for Transport. At present
some consideration of benefits to air users, airport this only applies to Manchester Airport.
construction costs and surface access costs. The
Department of the Environment and SERPLAN Local authority aiports
(The London and South Eastern Region Planning
Conference) will be carrying out extensive studies Any projects proposed by a local authority airport
of the environmental and urbanisation impacts of outside the responsibility of the Civil Aviation
each site considered. Authority need to be approved by the Department
of Transport before the airport can increase its
borrowing to finance the project.
Developments at airports Airports have to demonstrate that projects for
which Supplementary Credit approval is required
BAA airports can be expected to earn at least the hurdle rate of
return of 8% in real terms. The Department is in
The Airports Act of 1986 which privatised the turn constrained in its permission to proceed with
British Airports Authority also gave the Civil Avi- a project by the total budget within which it works.
ation Authority the responsibility of regulating The size of this budget is determined after debate
charges. between the Department of Transport and the
As a private concern, the Airports Authority has Treasury in which government departments com-
the objective of maximising the return on its capital pete for funds.
and of providing the best deal it can for its own The geographical disposition of most regional
shareholders. However, BAA has a virtual mono- airports means that they compete quite vigorously

232 Project Appraisal December 1992

 Safety and cost effectiveness in aviation

for passengers. Thus it is reasonable to expect that air travel is only an intermediate product. Travel is
most schemes will be conceived by the individual only a proportion of the total cost of a trip, albeit
airports to be as cost effective as they can make it either a holiday or business journey, and the
them. No actual funds will be allocated from cen- demand for travel cannot be disentangled from the
tral funds to the airports for these projects but what demand from the trip as a whole. Also, the cost of
is granted by the Department is permission to bor- air traffic control facilities is only a small propor-
row the funds requested. tion of the total travel cost. When this is translated
These projects will normally be subject to local into a proportion of the cost of the trip as a whole
planning requirements and even though an airport it becomes even smaller. Furthermore, the demand
may have permission to spend, it will still require for air transport and especially demand for busi-
planning permission from the local authority. ness traffic is relatively inelastic.
Often the project will need to go through the The effect of these are exacerbated by the fact
processes of a public inquiry where environmental that the Civil Aviation Authority is a monopoly
and other planning aspects will be taken into provider of air traffic services and would be in a
account. position to justify most projects simply by raising
charges to airlines without making a serious impact
on demand.
Air traffic control At the other end of the spectrum, the con-
straints imposed by the Eurocontrol charging for-
Air traffic control in the United Kingdom is mainly mula, which generates two-thirds of NATS
the responsibility of the Civil Aviation Authority. revenue imposes a cap on the charges that can be
En route navigation is handled by the National Air set by the Authority and in some circumstances
Traffic Services (NATS) which is a joint civil and could prevent projects from earning the 8% rate of
military organisation within the Civil Aviation return.
Authority. NATS also undertakes the control of These factors have meant that for certain pro-
aircraft on their approach to airports and at the jects the approach adopted has been to specify the
major airports, although some of the smaller air- level of charges necessary to justify the project and
ports do handle this aspect of air traffic control then ascertain whether the airlines would be will-
themselves. En route charges are determined ing to pay them. In others the approach has been
along internationally agreed guidelines and col- to determine whether there are user benefits that
lected by Eurocontrol who pass most of the would justify an increase in charges to a level which
revenue on to the Civil Aviation Authority. Ap- would then earn the hurdle rate of return.
proach charges and charges at CAA-operated air-
ports are set and collected by the Authority itself. Willingness-to-pay
Projects with a capital cost of over f5m need to
be approved by the Department of Transport The ability to demonstrate willingness-to-pay
which then takes up the Authority’s case with the varies, according to project, from the difficult to
Treasury: projects of over flOm need additionally the impossible. Not least of the problems is ident-
to be approved by the Treasury. ifying the section of travellers to whom benefits
accrue, be they users of the airport, users of a
DTp approval required particular part of airspace, users of airspace at a
specific time of day and so on. Further complica-
In the first instance, the Department of Transport tions arise when many discrete projects contribute
will generally require the Civil Aviation Authority to the same improvements and may all have a claim
to carry out a financial appraisal requiring a project on the pocket of the passenger.
to earn a hurdle 8% rate of return. Putting these problems aside, there are three
However the picture is complicated by a number possible ways for assessing willingness-to-pay. The
of factors. In common with other transport modes, first involves dialogue with the airlines, discussing
with them the consequences of not providing the
proposed facilities and attempting to ascertain how
much increased charges they would be willing to
The geographical disposition of most accept in order to have particular facilities.
regional airports means that they The airlines would presumably compare any
compete quite vigorously for such increase with cost savings that they could
make and in the extra revenue that could be raised
passengers, so it is reasonable to from the passengers. In assessing extra fares the
expect that most schemes will be airlines would take into account what they thought
conceived to be as cost effective as the passengers in turn would be willing to pay for
the anticipated benefits the project would bring.
they can make them Indeed such information was recently elicited from
the airlines by the Civil Aviation Authority when

Project Appraisal December I992 233

Safety and cost effectivenessin aviation

making out a case for the development of a new of passenger time. The value of time used in any
National En-Route Centre. such studies either go back to Roskill or are derived
The second approach of a direct appeal to the from the methodology used by the Department of
passenger is never going to be practical. First, in- Transport for appraising highway projects: there is
creases per passenger are always going to be small a need for an up-to-date assessment of the value of
especially in the light of the total cost of the pack- air passengers time.
age. Secondly, it is not practical to explain to the In severe cases of delay, passengers could be
passenger the need for the increased costs nor to deterred from flying altogether and delay costs
expect them to understand the technical and other become synonymous with the costs of lack of
arguments which make the expenditure necessary. capacity.
The third method of assessing willingness-to-
pay, a variant of the first, is to treat the problem in Increases in capacity
reverse, and calculate the increase in cost per pas-
senger that would be necessary for the project to Lack of capacity imposes costs on the passengers
earn 8% and, in the context of total air traffic by preventing them from either flying from the
control charges and any increase thereof, assess airport of their choice or from flying at all. In the
whether users could be expected to pay the specific latter they would then either travel by their second
charges required. In coming to this decision, com- choice mode or choose not to travel. The most
parisons could be made with increases in past years convenient way of estimating these costs is to as-
and account taken for any improvements in tech- sess the loss in benefits that would be incurred by
nology of the new facilities provided. passengers if airlines were to raise their charges so
When it is not possible to determine the willing- as to constrain demand for air travel to the unex-
ness-to-pay by other means, it may be necessary to panded capacity level.
resort to other forms of cost-benefit analysis. The That is, suppose in any one year, i, demand for
objective is then to demonstrate that the benefits air travel is Di commanding a price of Pi1 per
accruing to the airlines or passengers exceed the passenger but due to a shortage of the necessary
costs of the project or the extra charges that would facilities capacity is restricted to C meaning that
need to be made if the project is implemented. the airlines can effectively constrain demand by
This will be the case with certain projects invol- charging a higher price P;2.
ving the enhancement of e n route navigation fa- Then the increase in benefit due to the provision
cilities and where it will not be possible to of the extra capacity is approximately
unilaterally increase charges, whether the pas- 1/2(P;l+Pj2)(D;-C)and over the life of the project,
senger is willing to pay or not, due to the inter- n years, the total benefit would be
national agreements that place a cap o n
Eurocontrol charges. There will also be other pro- B = z1/2(P;*+P;*)(Q-C)
jects, such as those concerned with safety improve- It
ments and do not lead to a price increase which can (l+r)i
be attributed to a specific project, and for which
the costs are included in the everyday charges of discounted to the initial year of the provision of
the CAA. capacity where r is some suitable discount rate.
Should B be greater than the costs of providing
Improvements in efficiency the capacity, including the operating costs of the
airlines, then the project may be deemed worth-
Typically, specific projects undertaken by the Civil while. A more precise although not necessarily
Aviation Authority either i) involve an increase in more accurate, formula may be obtained, by assum-
efficiency of the air traffic control system by redu- ing a constant elasticity and integrating under the
cing delays to aircraft and their passengers in the demand curve.
air or o n the ground, ii) increase the capacity of
airspace which will have the dual function of both Benefits to whom?
reducing delays and allowing more passengers to
fly, or iii) involve improvement to safety. The change in costs refers to changes in passenger
The first two of these may be considered as and airline resource costs between the capacity
increasing efficiency in one way or another, and in enhanced and capacity constrained cases. Not in-
these cases the criterion adopted is that the bene- cluded are the benefits that may accrue to the UK
fits to users should exceed the costs of providing from increase in trade or prevention of loss to the
these benefits. UK aviation industry from possible diversion of
Benefits arising from any reduction of delays are passengers to airlines and airports abroad. How-
primarily composed of reduction in airline opera- ever, any attempt to assess the benefit for the
ting costs (such as fuel, crew, those due to in- country as a whole is beset with difficulties.
creased efficiency in aircraft utilisation and It could be argued that the passengers who are
improvements in airport utilisation) and a saving likely in the first instance to be deterred from flying

234 Project Appraisal December I992

 Safety and cost effectiveness in aviation

jects requiring Departmental approval, with the

primary considerations being given to financial via-
Projects which need to be carried out bility and cost effectiveness.
to fulfil the statutory obligations of In cases where wider implications are involved,
the CAA are subjected to the single such as increases in capacity, it must be demon-
strated that the benefits to the air user exceed any
criterion that they are undertaken in proposed increase in charges that would result
the most cost-effective way possible, from undertaking the project.
usually synonymous with minimum
cost
Special problems of safety
Safety in aviation is also the responsibility of the
by lack of capacity or increase in prices are UK Civil Aviation Authority. Safety projects bring with
residents travelling on holiday: there would be a them their own problems due principally to the
net benefit to the UK as a whole if these passengers intangible nature of air safety and the high public
were not able to fly, thus spending their holiday profile which this subject attracts.
money within the country. There would be a com- The common perception of the appraisal of pro-
pensating loss from foreign passengers not able to jects involving safety is that it is not readily amen-
fly into the UK but it is not immediately apparent able to formal project appraisal, and that a
whether the net effect on the country would be a responsible dialogue between the Civil Aviation
gain or a loss. Authority and the airlines is the only sensible way
to proceed. The recent arguments over whether
Cost effectiveness airlines should be statutorily obliged to carry
smoke hoods was not based on cost but on the net
In its control of the Civil Aviation Authority, the benefits in saving life of such a device. Neverthe-
Department of Transport needs to satisfy itself less, as in other fields, there is an increasing press-
that projects are carried out in the most cost- ure to bring some rationale to appraisal of projects
effective way. In any highly specialised or high involving improvements to safety.
technology area, it is often difficult to lay down There are basically three possible approaches to
criteria to measure this and it may be necessary for appraising these projects. The first is willingness-
the controlling department to develop its own to-pay. However, the amount that a passenger is
expertise in the field for which it is responsible, and willing to pay for a higher safety level is difficult to
for those controlled to be able to state their case ascertain in practice. The passenger cannot make
with sufficient clarity to convince the controller any realistic assessment of the difference between
that it is not gold-plating. two safety levels the orders of magnitude of
This inevitably calls for a high degree of liaison which are both very small indeed. His perception
and co-operation between the controller and the of safety will often be influenced by events, for
controlled with the possible development of per- example, a possible recent air crash from a specific
formance indicators. There must also be an under- cause.
lying will on behalf of the developer to ensure that To try to ascertain whether a passenger would
they are indeed providing as cost effective a project be prepared to pay an extra 50p on the cost of an
as possible. Nevertheless there is no easy answer air journey to reduce his chance of being involved
to this problem. in a fatal crash from 1.4 in lo9 flights to 1.3 in lo9
flights must be considered a futile exercise. The
DTp approval required passenger will not have any knowledge of the ap-
propriate probability to include in his deliber-
The projects which fall into this category form the ations, neither is there observed passenger
majority of projects undertaken by the Civil Avia- behaviour that would allow the deduction to be
tion Authority and even though Departmental ap- made of the value that a passenger places on safety
proval is not required, the Authority has its own at those extreme levels.
procedure for sanctioning projects. The second possible approach is by cost-benefit
No project may contravene the Authority’s analysis whereby a perceived value is placed on a
statutory obligations nor in any way compromise life and the cost of the expected saving of lives
safety. Furthermore, projects which need to be compared with the computedvalues of those saved
carried out in order to fulfil these statutory obliga- lives. One problem of such an approach, is public
tions are subjected to the single criterion that they acceptance. The flying public has become accus-
are undertaken in the most cost-efficient way tomed to expect an increasingly safe air industry
possible, usually synonymous with minimum cost. and any application of techniques which either
Beyond this, the Authority’s approach to project implies that too much is being spent on safety at
appraisal is broadly similar to that applied to pro- present or conversely a great deal more needs to

Project Appraisal December 1992 235

Safety and cost effectiveness in aviation

be spent would find it hard to gain public or into the other category, whereby the cost of any
acceptance. action is excessively expensive for comparatively
It is also by no means clear what is the correct minor gains.
value to place on a life in the specific case of air There are, however, some safeguards to ensure
transport nor, in most cases, does enough inform- that any statutory changes to safety standards are
ation exist to enable a reliable estimate of prob- kept to a cost-effective level. Besides consulting
abilities of accidents or the improvement thereof the industry when any such changes are to be made,
to be made. Nevertheless, decisions involving the Civil Aviation Authority has to notify the De-
safety in other transport modes are made in this partment of Transport who can in theory prevent
way and the Federal Aviation Authority in Ameri- the Authority from instigating the changes on cost-
ca is understood to use a cost-benefit analysis ap- effectiveness grounds. In practice, a compromise
proach which includes an implied value of life in solution is usually found.
setting their safety standards.
The third approach, which is currently taken by
the UK Civil Aviation Authority is to work within Conclusion
overall target safety standards. This has the merits
of having brought the industry to its present high Appraisal methodology in aviation is still evolving.
state of safety and gained general public accept- The industry is moving from a philosophy where
ance in return for an in-built cost which the pas- the need to satisfy demand at the highest levels of
senger willingly pays. Furthermore, the industry is safety and technology are paramount, to a more
at present working towards common European considered philosophy of cost effectiveness.
safety standards which are based on a similar ap- How this can be done in a climate in which
proach of an overall safety standard. demand is growing, resources, particularly land,
It would seem sensible that any future assess- are becoming more scarce and the industry is in-
ment of safety should start from the present ac- creasingly required to be seen to be effective, given
cepted standards and one possible way forward its largely monopolistic position, is still to be
may be to use CBA, including a quantified value of resolved.
life to reaffirm those safety standards. Work is still
continuing in this area.
In most cases, the answers whether to proceed Bibliography
with a project to increase safety will be obvious and
there should not be a precipitous rush towards The Airports Act 1986.
intricate methods of appraisal. A large proportion Graham Ayre QC, The Airports Inquiries 1981-83. Report into the
Expansion at Stansted and the Fifth Terminal at Heathrow -
of projects will either fall into one category where- Part 1.
by significant safety savings could be made for very The Civil Aviation Act 1982.
little cost and where, for example, a certain type of D W Pearce and C A Nash (1981),The Social Appraisal ofProjects
(MacMillan).
accident could be prevented by a comparatively The Roskill Commission (1969), The Papers and Proceedings of
minor modification to the structure of an aircraft, the Commission on the Third London Airport (HMSO).

236 Project Appraisal December 1992