Introduction
Governments around the world are considering ways to reduce the cost of maintaining their Armed Forces. One of the possible ways to do this is to get the services of commercial air transport to provide the needed cargo transport needs of the Armed Forces. With the recent move of commercial air transport companies to reduce their operating cost, it seems that the decision to hire their services would help to reduce the budget cost of maintaining the Armed Forces of the country. The United Arab Emirates government has been considering hiring commercial air transport companies for their logistic needs. Instead of having its own logistics aircrafts, the UAE Armed Forces will be using commercial logistic services.
In this paper, I will examine the economics of air transport within the United Arab Emirates. This will give the report a background on how the air transport industry works with the pricing and the cost incurred in the process of providing services to customers. In the same manner, it is also necessary to understand how the Air Force aviation and logistics as a way to compare their distinct characteristics and how they work. For this purpose, the paper will focus on air logistics only of the Air Force. Nonetheless, after analysis of the conditions faced by both scenarios, this paper will provide recommendations on action that should be taken by the United Arab Emirates regarding the question whether to build its own Air Logistics department of the Armed Forces or hire the services of commercial air transport companies.
Part 1
According to Mendershausen (1958), the role of the Air Force is not just created during war time. It is important to note the Air Force also plays a major role during peace time because of the expansion of its responsibilities and duties. Commonly, the air force is tasked for the logistics of different needs of the Armed Forces. It is part of the roles and responsibilities that the Air Force must work on during time of peace. In a sense, Mendershausen (1958) is right on his foresight regarding the future movement of the Air Force during the time of peace.
The United Arab Emirates Air Force is the national air force of the United Arab Emirates which was established to replace the British-led air force. The Air Force has undergone several reorganization and improvement over the past years with the acquisition of several aircraft and upgrade of the different equipments used by the Air Force. Currently, the United Arab Emirates Air Force operates more than 300 aircraft (Air Force, 2008).
The recent question is whether the country will be pursuing its expansion of the Air Force as part of the Armed Forces or Defense of the United Arab Emirates or to hire commercial transport companies to transport supplies and provide the logistical requirements of the Armed Forces. Primarily, it is important to note that the economics of the Air Force is not just focused on the financial gains and losses. Rather, it is basically anchored on the economics of security of the country. With the turbulence and chaos of the Middle East due to the problem with terrorist groups and the United Arab Emirates joining the counter terrorism programs, the entire country is put to risks against terrorism attacks. In economics of the Air Force, the loss of the capability to fight back any possible aerial attack would be devastating to the security of the country, which is tied up with its economy.
For consideration, low investment in the Air Force of the country results to failure to fight back the mounting risks of terrorism. This results to the low security of the country. When the country is posed with threats of terrorism and security problems, foreign direct investments also slow down. This is the first consideration of the necessity of having a strong Air Force or even strong Armed Forces for Defense at that case. While this is not directly linked to the financial figure of the Air Force, but it should be noted as part of the risk factors to the economics of the Air Force.
The Air Force is supported by the Government of the United Arab Emirates. It receives funding through the Armed and Defense Forces of the country’s budget. Several procurements have been made by the government to upgrade and make the Air Force stronger and better. With these investments on the Air Force, the government expects that the Air Force will be able to provide security against aerial threats of attacks. It is the expected return of investment that the government asks from the Air Force. With the question of logistics of the Air Force, it is important to note that the Armed Forces of the country functions and have bases in several areas of the country. This means that there is a need to transfer several supplies across the country or emirates. The logistic cost is taken from the annual budget of the Air Force and the Armed Forces.
According to Vasigh, et al. (2013), the economics of the aviation industry or the air transport is a very complex one. It is commonly based on supply and demand with the intervention on cost effectiveness. When the volume of passengers and cargo increases the aviation company can also reduce the cost of each service. In this pattern, the logistics of several airline companies function in a market that is growing. With the activity in the entire region of the United Arab Emirates, air transport companies are now reducing the cost of boxes or per kilo of the cargo. The supply and demand curve is the reason for the bargaining power of most airline companies, thus allowing them to give competitive prices in the market.
It is important to note that logistics of the air companies are only part of the entire provisions. Cargoes are usually placed at the cargo area of passenger flights. In a sense, there is only a division of the flight cost. As a result, companies can reduce the cost per package or per weight because of this condition. The entire cost of the flight can be taken in by the passenger flight, and the cargo becomes only a peripheral part of the flight cost. In the same manner, it is important to note that airline companies are also working hard to reduce the cost per flight. Cost effective strategies taken by airline companies allowed them to provide lower cost (Whitelegg, 2003). They are taking several considerations on how to reduce the cost of the flight to ensure that they can compete with the market players.
Nonetheless, the competition of the market within the aviation is also a big factor to the reduction of the cargo cost. Before the massive competition in the domestic flight within UAE, it was better to transport goods through land transportation. The entry of several aviation companies in the United Arab Emirates allows the rise of the competition in the market. This competition is a great environment for companies to provide competitive cost and make use of the economies of scale rather than stay expensive and yet bear the high cost of per flight without the return.
Comparably, it is important to note that the cost of the Air Force is on the shoulder of the government. This setup shuns competition. It would be hard to setup another company that will compete with the Air Force in the logistics of the Armed Forces. In a sense, the Air Force maintains the cost of logistics for the Armed Forces. It should be noted that while aviation companies are after profit, the Air Force is not. It is part of the government agency and it is not creating profits for its own. The aviation industry is different because companies are created for the purpose of generating profit.
Taken into account the nature of their system, the Air Force transports goods of the Armed Forces immediately. On the other hand, aviation companies have to follow their schedule to ensure that each flight can return the cost incurred in the process. To establish the Air Force would be a long-term plan, but its benefits are also long term. The investments to be made on aircraft to be acquired will soon be translated into assets of the Air Force. These assets of the Air Force are not going to fade in just a matter of months or years. In fact, even after these assets have served their purpose for the Air Force of the United Arab Emirates, the government can sell them to other countries or donate them for the purpose of creating ties and partnership.
The stark difference between the Air Force and the aviation is the way they behave. The Air Force does not behave as a business organization. It does not operate for the purpose of creating profits, but it is focused on creating social and civil results for the entire United Arab Emirates. The economy of the Air Force is not driven by profit, but the economics of the aviation company is driven by profit. Granted that aviation companies offer less cost because of the supply and demand curve, the market competition, and the management intervention to reduce cost, the cost of hiring them would still be high for the Armed Forces. Instead of just paying for fuel cost per flight, the Armed Forces will be hiring aviation companies with cost including labor for pilots and crew, fuel cost, and other overheads, with the consideration of profitability. In a sense, the cost of the Armed Forces would already shoot up because aviation companies are driven by profit.
Recommendation
The United Arab Emirates Air Force, as part of the country’s Defense, plays an important role in keeping the country safe from any attacks. With the vitality of the role played by the Air Force, the government was thinking of whether to hire aviation companies to do the role of the Air Force in logistics and just use the Air Force as a combatant. The logistics role of the Air Force will be taken away as part of the austerity measure of the government.
As per recommendation, based on the above discussion of the economics and facets of the Air Force and that of commercial aviation companies, I am recommending that the government of the United Arab Emirates discard the option to hire aviation companies to serve as the logistic carrier for the Armed Forces. The following reasons support this recommendation:
v Investments for Long Term. Stoppage of the utilization of the Air Force for the logistics of the Armed Forces came into mind with the decision to keep the budget of the military at low. Because aircrafts are already present, the government does not need additional aircraft if the purpose is just to transport goods of the Armed Forces. For consideration, purchasing its own logistic aircraft or hiring aviation companies, it would be positive for the government to buy additional aircraft for logistics than pay companies.
Buying logistic aircraft may cost financial burden for the government of the United Arab Emirates, but it will be converting cash to assets. Why should the company pay in leasing or hiring aviation companies for the logistics of the supplies needed by the different bases of the Armed Forces and yet it will not hold any of the aviation company’s aircraft? Any manager would favor buying an asset that will be used for operation than hire or lease the same asset. I would understand that hiring aviation companies for the logistic needs of the Armed Forces would is pursued if the United Arab Emirates does not have the necessary cash to pay off the asset. But because there is no real presence of being cash-strapped, it would be unwise to hire aviation companies for the logistic needs of the Armed Forces. Purchasing its own aircraft would still be the best decision to make because it adds additional assets to the overall fleet of the Air Force.
Moreover, purchasing additional logistic aircraft is a long term investment. While there is no major and definite need of the aircraft at the moment aside from the logistic needs of the Armed Forces, any situation in the future that would need transportation will require the logistic aircraft of the Air Force. For instance, if a major disaster happens in a region of the United Arab Emirates and land transportation is lost together with the nearest airports, Air Force aircraft for logistics can transport supplies in and out the place easily because these aircrafts do not need long runways for landing and takeoff. This is a foresight economics because long term investment is part of good governance.
v Cost of Operation over Cost of Hiring. Proponents of hiring aviation companies for the logistic needs of the Armed Forces noted that by hiring the Armed Forces would be able to save fuel cost because its aircrafts don’t need to travel around the country to deliver goods for the bases of the Armed Forces. But this is not true as the economics of both shows. If the Armed Forces will use the Air Force aircrafts to transport goods or supplies, the Armed Forces will only be paying the fuel cost of the flight. How about the pilots who be delivering the supplies? The workforce of the Air Force is already a given even if the logistic is not present. This means that whether the Armed Forces will use the Air Force for its logistical needs, the Armed Forces still needs to pay military officers every month. Simply, the operation for the logistics of the Armed Forces will only incur fuel cost of the flight.
On the other hand, if the Armed Forces will hire aviation companies for the logistical needs of the Armed Forces, calculation of the cost being billed to the Armed Forces will include fuel cost of the flight, workforce cost, plus the profitability percentage of the company. While the fuel cost of the logistics will go down because several packages were in the flight, the manpower or labor cost and the profitability percentage will be added to the total cost of the service. Nonetheless, it is also important to note that even when supplies are handled by the aviation company, additional cost of transportation from the airport to the base of the military is also a consideration. If the Air Force delivers the goods or supplies, there is no need to use land transportation because their aircraft flies directly to the base, but aviation companies cannot do this. It is necessary to transfer goods or supplies from the airport to the base, thus incurring additional transportation cost.
If the government will hire services of the aviation company for the logistic needs of the Armed Forces because it is lower in terms of fuel cost, then it is time for the government to implement possible strategies to reduce the cost of the fuel for the logistic needs of the Armed Forces. This can be done by having supplies moved once a month. Through reduction of the number of flights that the aircrafts of Air Force as used in logistics, then accumulated fuel cost will be equal to the fuel cost incurred if the aviation company is hired for the same service. Instead of delivering supplies to military bases every week, the government can make arrangement to make supplies replenishment every month or quarter instead.
v Expansive Use of the Air Force. Lastly, the government should discard any consideration to hire aviation companies to replace the Air Force in delivering or transport goods or supplies to the different military bases for reason that the action will weaken the Air Force. If the logistic movement of the Air Force is taken down, then it will just become a demand during combat or a war. As a result, the policy of military and defense improvement or upgrade will be undermined. After all, the Air Force is not working at the moment. It will set a policy of the government that will just wait for immediate demand before acquisition of aircraft or upgrade be made.
It is important to note that the preparedness of the Air Force is translated into financial figures of the country. If attacks are made now, then the Air Force won’t be able to respond speedily with movement of goods because all its aircrafts are designed to meet the challenge of the war. In a sense, decapacitating the Air Force now will result to major failure of its ability to respond to immediate needs whether war or disasters, thus creating economic problems.
Conclusion
In government, economics play a major role. There are actions that are taken to benefit the coffers of the government, but these actions may not consider long term effects, in terms of economies or in social and civil demands. The government’s inclination to hire aviation companies for the Armed Forces logistics seems to be myopic at the moment. It only considers the cost incurred in the logistics of goods and supplies as done by the Air Force at the moment. But it did not calculate the other overhead cost incurred by hiring aviation companies. Calculating cost per cost, hiring aviation companies will only cost higher for the government; aside from financial cost, there is also time table cost being incurred in the process.
The forward direction of the government to be able to reduce cost of logistics is to have proper management. Proper management of the logistics schedule will help reduce cost and increase the usefulness of each flight. There should be a proper consideration to the volume of goods or supplies needed by a military base at a time, then is volume of needs is double or multiplied according to the frequency of the logistic flight made. In doing so, there will be proper usage of the fuel cost, thus reducing the total operational cost of the logistics department of the Air Force.
References
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January 2008 issue.
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Sewill, B (2003) The Hidden Costs of Flying, Aviation Environment Federation, London
Vasigh, B. et al. (2013). Introduction to Air Transport Economics. Ashgate.
Whitelegg, J. (2003). The Economics of Aviation: a North West England perspective. CPRE.
