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HOW TECHNOLOGY IS MAKING AIRLINES SMARTER DURING LOCKDOWN

Captain Nadhem is the General Manager of Alpha Aviation UAE

 

2020 has provided challenges to all industries, but few have been as directly hit as air travel by the Covid-19 pandemic. Across the world, entire fleets have been grounded as international airports closed and travel bans were introduced worldwide.

Unfortunately, the challenges faced by airlines do not stop there. Airline economics dictate that planes be used as much as possible. For larger planes, this means keeping them in the air as close to 24/7 as is possible. For this reason, there simply aren’t enough dedicated storage facilities at global hub airports. At Frankfurt Airport for example, the tarmac on the 4th runway is now the home of many of the airport’s planes. It can also often take as long as 30 days to return a commercial jet to circulation after it has been mothballed.

As a result, many planes that are still in circulation have been transferred to the Indian sub-continent where air travel hasn’t been as badly disrupted. It will take some time for them to be rehomed to their previous routes if flight paths do reopen. In 2021, the aviation industry will also need to adapt and re-assess both its fleet sizes and operational strategies in order to re-build in the wake of this global crisis.

Pilots account for a key proportion of overhead costs and airlines will be constantly rethinking their pilot training strategy, which is likely to include a need to outsource and decentralise to maximise efficiency. At the same time, trained pilots will require training updates and renewals to their licenses, even as fleets are grounded.

Flight simulators have therefore assumed a crucial role in 2020. Usually developed to keep experienced crews sharp by creating challenging scenarios in safe environment for them to overcome, they have now become important across the industry for several reasons. Flying, like any other skill, requires constant practice to maintain the highest level of competency. That’s why airlines have recency rules that require pilots to perform a specified number of take-offs, landings and approaches within a certain period of time.

Advancements in simulator technology continue to bridge the gap between theory and reality. At Alpha Aviation we’ve recently invested in the new Alsim-AL172 flight simulator that features a Cessna 172 cockpit, with two seats and a flight deck. As pilots still need to clock up over 1,500 flying hours to receive their ATP certificate, advanced simulators like these will also be effective in providing pilot training without the operational costs of a real flight.

This year also highlighted the need for regulators to make changes to the training process. For example, there will need to be more reliance on e-learning in the initial cadet training and the acceptance of integrated technology in simulator training will also be important. Further adoption of Artificial Intelligence (AI) can also offer a vital competitive advantage.

AI technologies have already been widely adopted across the aviation industry. From facial recognition at airport passport security to baggage check-in and remote aircraft monitoring. For years these innovations have been streamlining processes, both for operators and customers. However, AI has a much greater potential beyond these practical applications.

Among other benefits, AI and machine learning algorithms excel at recognising patterns and are extremely efficient at collating data from the process of training cadets. As most flight simulators are already equipped with sensors that generate considerable amounts of data, this resource can now be used to assess pilot competency from the onset of training.

Powerful AI and machine learning systems can analyse hundreds of flight parameters and sort through thousands of hours of simulator data to produce findings that a human coach wouldn’t have been able to determine. For example, AI programmes can evaluate a pilot’s ability as they execute key manoeuvres and create a comprehensive assessment of a cadet’s strengths and weaknesses based on real-time data.

The data collected from these training sessions can also be analysed by AI programmes to evaluate how the cadets fly certain training routes, for example, considering their angle of descent and acceleration periods. From this, airlines can gather enough data to build a picture of each pilot’s unique flying style and determine the optimum routes for them to fly.

A crucial part of this assessment centres around the rate each pilot burns fuel. Real-time decisions about the throttle settings during take-off and the climb can have a significant impact on the amount of fuel burned during a flight. With airlines spending around 33 percent of their operational costs on fuel, reducing the rate that fuel is burned can have a considerable effect on the finances of an airline and its carbon footprint.

Airlines already use AI systems to collect flight data regarding route distance, altitudes, and aircraft weight to determine the amount of fuel needed for a flight. However, now the data collected from simulators can also be used to pair pilots to specific routes, based on optimum fuel usage. This will result in cost savings for the airline by optimising the potential of their pilot crew to reduce excess overheads.

As we continue to work directly with regulators and the airlines to further expand the use of technology and AI in the industry, our ability to continue to adapt and innovate in this crisis will hopefully mean clearer skies ahead.

 

Business

LAST DAYS OF LIBOR? WHAT ASSET MANAGERS AND FUND ADMINISTRATORS SHOULD DO NEXT…

By: Sern Tham, Product Director, Temenos Multifonds

 

The replacement of LIBOR with new reference rates in 2021 is not a simple substitution – existing valuation systems will require an overhaul

 

LIBOR (the London Interbank Offered Rate) will be replaced with alternative reference rate by the end of 2021. This is a gamechanger for the financial services industry, particularly when you consider an estimated $350 trillion of financial instruments including bonds, loans, deposits and derivatives used LIBOR as the benchmark rate. Asset managers and fund administrators need to act now and start asking the right questions of their teams and their technology providers.

LIBOR is a forward-looking rate produced daily by the Intercontinental Exchange (ICE), and it is the lack of actual transaction data underlying LIBOR and other IBORs that made them so prone to manipulation. To avoid this risk, central banks around the world have established new ‘Risk-Free Rates’ (RFRs) that are backward-looking, based on actual transactional data of rates offered in liquid markets on the previous day.

The new RFRs that will replace LIBOR will change the way valuations are calculated. The result is wide-ranging consequences on operations, risk calculations and the way institutions will conduct business in the future.  The new observed rates cannot simply replace LIBOR in a floating rate contract, because RFRs are based on observed overnight rates that are compounded over the period. In addition, different market conventions will be adopted to deal with lookback and lockout periods.

Therefore, to accurately reflect the value of the holdings once LIBOR is replaced by RFRs, asset managers and fund administrators will need to make sure their systems are capable of supporting the new methodology. Otherwise, investors buying and selling into a fund could be short-changed, leading to censure from regulators and clients alike.

Acting on the considerations listed below, will save any operational headaches once LIBOR has had its last dance.  Asset managers and fund administrators must be aware of all the securities and contracts that are impacted.  LIBOR’s role as the primary benchmark reference rate for trillions of dollars’ worth of financial instruments means it is deeply embedded in the financial industry. Firms must assess the scale of their exposure. This could be derivatives linked to LIBOR, cash instruments which reference it, or money market funds, which invest heavily in LIBOR rates. Mapping out all the affected instruments is an essential first step.

Alternative rates are already being published by the Federal Reserve Bank of New York, the European Central Bank, the Bank of England and Switzerland’s SIX Exchange. Regulators including the Financial Conduct Authority in the UK have emphasized the importance of early preparation for the transition.

Because the shift to the new reference rates will happen on an instrument-by-instrument basis, asset managers and fund administrators also need an overview of when instruments mature. If they have instruments tied to the LIBOR rate that mature after 2021, they need to be clear on when they will migrate to the new rates in order to meet the current deadline for the end of 2021.

Calculating valuations differently will be the biggest change for asset managers and fund administrators.  Firms should not assume their systems are going to cope with this change. The bigger the size of assets involved, the more complex the change will likely be. Accounting, collateral management and middle office derivatives programs should all be stress-tested to ensure the fund’s entire ecosystem can cope with the change.

Finally, the clock is ticking fast.  Firms will need to have a solution in place by the end of 2021, which means the timeframe for action is shrinking. Starting with assessing their exposure and then upgrading and testing systems, the transition will take time.  Upgrades should be completed in early 2021 to allow testing to start by mid-year, ensuring firms are in a place of strength before the deadline. Firms must act now to ensure their systems are ready for the end of 2021.

 

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Business

THE ROLE OF THE CFO IN ILLUSTRATING THE SUCCESS OF DIGITAL TRANSFORMATION

Tim Scammell, Finance, Treasury and Risk Solutions at SAP

 

It’s no secret that there are changes occurring within the modern corporation. While roles were evolving as a result of the move to digitisation and automation prior to Covid-19, the pandemic has further accelerated this movement as executives face new challenges. The most obvious is of course, the volatile economy we’re facing which has been the primary focus of the CFO within businesses. According to a recent survey, three-quarters of CFOs expect the pandemic to have either a ‘significant’ or ‘severe’ negative effect on their business in the next 12 months. But the same Deloitte report highlights that for CFOs, business transformation is a top priority, with a strong focus on digitisation and automation.

As such, we’re seeing the role of the CFO change most drastically. While the traditional demands of product evolution and revenue generation remain unchanged, they are also now playing a pivotal role in the wide-ranging ramifications of digitisation in terms of evaluating new dimensions like customer experience, channel management, IoT, blockchain and the associated compliance and legal exposures that lurk within the digital economy. CFOs are therefore vital in pushing digital transformation forward for several reasons and business executives would be wise to harness their skills in the journey.

 

Translating compliance and regulatory concerns

The digital journey is undoubtedly an exciting one, and for many industries, it’s a much-needed overhaul to ensure relevancy and success. However, it’s easy to get caught up in the excitement of implementing new programmes, products and services without thinking about the more mundane aspects. Primarily, the associated necessities that come with any new business operation, like regulation and compliance for example. However, the CFO is uniquely poised to tackle this dichotomy due to their ability to drive digital transformation forward but also deal with the more ‘analogue’ world aspects. The CFO is still dealing with the demands of regulatory reporting, tax, and compliance, which demand significant manual intervention and judgment.

As such, the CFO has the ability to break down the tension between the digital and analogue. The broader C-Suite is often focused on shaping the future and is grappling with the changing landscape of a hyper-competitive digital economy whilst pursuing the resulting revenue opportunities. Aspects like compliance normally don’t fit into this fast-paced thinking. As such, businesses should be harnessing the ability of the CFO to translate the actions of the C-Suite implementing digital transformation initiatives into a different language, one that satisfies stakeholders and legislative requirements. This translation demands the talents of an excellent communicator who understands the digital journey the company is undertaking and can articulate the consequences of these decisions using the analogue languages of compliance and regulatory reporting.

 

Pulling on past experiences

Not only can this best of breed, digital-savvy CFO make this translation due to their understanding of the digital and analogue worlds of compliance, but their extensive experience in building governance models should be maximised by the business too. CFOs are well versed in feeding the necessary information to decision-makers, particularly when it comes to unpredictability. The successful transition to a digital company is accelerated by observing how operational risk reacts to the unpredictable nature of the digital market. As such, organisations should bring the CFO into the digital transformation journey early in the planning stages as they are able to use their experiences to best plan for potential operational risks. What’s more, they can then  plan for the resulting avalanche of data that these digital business models generate and navigate a way of ingesting and processing this information.

 

Highlighting success

But this dynamic can only be achieved when the CFO is able to integrate data from across the organisation to produce the numbers they require for decision making. Such a platform will only exist when businesses make a dedicated effort to bring the CFO into digital transformation plans early so that they can explicitly coordinate actions and create a harmonised view of all aspects of performance, in the digital market.

Through this harmonisation of information, contemporary CFOs are critical to the great digital transformation as the insights obtained from big data and associated technological challenges are all manifested in the numerical results collected by the finance team. Financial results that track the impact the digital revolution has on the company’s competitive landscape and revenue projections. Financial results that enable a confident executive team to drive decisions that result in positive outcomes.

Clearly, the digital-savvy CFO is under a tremendous load. They occupy a wholly unglamorous position in the executive team and one where the consequences of failure could quickly derail the digital transformation of the company. Yet, if the CFO is given the means to draw together the right information, from a large number of sources, they can aggregate this quickly, and with the correct analysis, will be able to covert this governance to a strong position in the digital economy.

 

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