Among many of IATA’s initiatives for its members is its billing and settlement plan (BSP). This is a system administered worldwide that improves financial control and cash flow for airlines by simplifying the selling, reporting and remitting procedures for all IATA accredited ticketing agencies. At the close of 2011, there were 88 BSPs, covering 176 countries and territories, serving around 400 airlines. Gross sales processed amounted to $249 billion.
Dmitriy Shamraev
Director for Russia and CIS
Created over 60 years ago by a group of airlines, the International Air Transport Association (IATA) is now an international industry trade group with 60 offices worldwide covering more than 150 countries. It represents 240 of the world’s leading passenger and cargo airlines which together account for 84% of all air traffic. IATA’s focus is on making air transport safer, more secure, efficient and sustainable, both environmentally and economically.
Problem…
In Russia, the BSP connects more than 100 airlines and some 500 agents located across the country. Annual throughput exceeds RUB 81 billion ($2.56 billion). “The challenge was around the reconciliation of payments,” says Dmitriy Shamraev, IATA Director for Russia and CIS. The system must reconcile the billing from each airline with the payments received from the agents, and then reconcile these with the settlement files from IATA, the latter forming the basis of the settlement for the airlines.
The agency remittance cycle takes place three times a month, with IATA having responsibility to the airlines to process the funds as quickly and efficiently as possible, with same-day or next day settlements required. With a global remittance, reconciliation and settlement engine still being developed for IATA, the volumes being processed meant it was not possible to rely upon manual processing; this would have been labour intensive, costly and would potentially expose all parties to error and delay. IATA Russia needed an automated solution and called upon its banking partner, VTB Bank, to help.
…Solved
As IATA Russia’s domestic cash management bank, VTB Bank has sight of all the balances and fund movements of the airlines and agents. To be able to complete the loop, it required IATA Russia’s files for billing against which the reconciliations are made. Armed with this data, and in partnership with VTB Group’s own processing centre, the bank was able to develop a bespoke IT solution for the BSP payments reconciliation and streamlining the settlement process between all parties.
In practice, payments are automatically sorted using a unique IATA code and grouped into payment batches by beneficiary. The subsequent report from VTB Bank allows IATA Russia to see any shortfalls or surplus for each agent or airline and to track changes over time. Once the system has calculated the current balances for each participant and produced payment batches on behalf of IATA Russia, VTB Bank passes the data via its web-banking channel to IATA Russia for verification and approval by an authorised signatory. Payments are then executed by VTB Bank through the Russian domestic payment systems. The whole payment cycle is handled automatically with minimal manual intervention at any point.
This “unique and outstanding” solution from VTB Bank may have started tentatively with low volumes, but since going live with IATA Russia it has required nothing more than “a few fine tunings along the way” and has now been ramped up to cover all activity on the BSP. But this is only part of the story.
Because IATA Russia publishes an operating calendar for its remittance and payments cycle at least 12 months in advance, the huge amount of money that passes rapidly through the BSP account does so on a highly predictable cycle. With this understanding, VTB Bank has been able to deliver a short-term investment solution to enable IATA Russia to really get the most from the solution. As the funds that pass through ultimately belong to the airlines, the investment revenue that is generated is used to reduce the cost of their participation in the BSP system, further adding value for participants.
Shamraev remains enthusiastic about VTB Bank’s input to date. Having chosen the bank in part for its “flexibility”, and it having delivered and maintained the BSP project in impressive style, he says he is “really looking forward to building the partnership into something bigger”. One element of that strategic relationship already in development will use VTB Bank’s internet banking channel to enable “more flexibility” for IATA’s signatories, giving them the option to authorise settlement whilst on the move. This solution is nearing completion; given the highly mobile nature of IATA’s management team and the success of VTB Bank to date, Shamraev naturally hopes delivery will be “as soon as possible”.
