Conclusions
75. We have recorded in this report the concerns
raised both by our witnesses and by others about the proposed
public-private partnership for NATS, and we have noted the Government's
failure satisfactorily to address those concerns. We have also
examined alternative structures of ownership, already tried around
the world, which would deliver many of the benefits of the public-private
partnership - particularly the two key objectives, further to
separate NATS from its regulator, the CAA, and to free NATS to
borrow money privately without being constrained by the Treasury
rules - without raising the same concerns. Again we have noted
the Government's paltry, and at times disingenuous, reasons for
dismissing the alternative models. The Government has failed,
in its evidence to us, and more generally, to make a positive
case for the public-private partnership for NATS. It has also
failed to give adequate reasons for rejecting the options of establishing
the company as an independent publicly-owned corporation, or as
a trust or non-share-capital corporation, similar to NavCanada.
76. We are also disappointed by the quality of the
arguments used to support the case for the public-private partnership,
which have often obscured rather than clarified matters. We offer
three examples. First, a principal reason given for the Government's
proposal is that it would free NATS from the strictures of the
Treasury, allowing it to borrow money more freely, and to operate
overseas. However, the examples of the Post Office and the regional,
local authority-owned, airports illustrate the fact that the Government
is capable of relaxing those rules whenever it wishes to do so.
Thus the constant repetition of the mantra about unalterable Treasury
rules is, at best, a distraction. Second, those that claim that
the introduction of private sector disciplines to NATS will encourage
the company to become increasingly efficient are unable to suggest
how costs might be cut without endangering safety: indeed it is
generally accepted that, in the short- and medium-term, costs
at NATS will in fact rise to meet increasing demand.
77. Third, the supporters of the public-private partnership
have occasionally pointed out that NATS is only one of several
companies which provide air traffic services in the United Kingdom,
and so implied that it is comparable to the others. The Deputy
Prime Minister has told the House of Commons that NATS "will
not be unique. It will be designated to the private sector, like
the air traffic control at many of our major airports ... There
are 35 air traffic service providers in the United Kingdom, most
of which are privately owned".[228]
Others have pointed out that NATS provides air traffic control
to a minority of airports in the country.[229]
Such comments are disingenuous. Air traffic control services are
provided by private companies generally at smaller airports and
aerodromes, whereas NATS provides such services at airports such
as Heathrow, Gatwick, Manchester, Stansted, Birmingham, Edinburgh
and Glasgow.[230]
The larger airports which do not employ NATS as air traffic control
operators, such as Newcastle, Luton, East Midlands, Leeds/Bradford,
Bristol and Belfast City, deal with a fraction of the number of
flights and passengers as NATS does at Heathrow and Gatwick.[231]
Crucially, NATS is the monopoly provider of en route air traffic
services in the United Kingdom.
78. We noted with particular interest the evidence
we received from the CAA. As a safety regulator it had reacted
to developments at NATS, including the proposed public-private
partnership, by deciding that it would require three more staff
to oversee the company.[232]
It had not, however, apparently thought through the full implications
of the establishment of a public-private partnership for NATS
for it as an economic regulator,[233]
although we are encouraged to note that the Transport Bill clarifies
the CAA's role as an economic regulator.[234]
Of more concern is the CAA's enthusiastic backing for the public-private
partnership proposal,[235]
and its readiness to dismiss the alternatives such as those seen
in Canada and New Zealand.[236]
We do not believe that it is appropriate for the CAA, as an
economic and safety regulator, to give the impression that it
is an advocate of the public-private partnership. It would be
more sensible for it to take a disinterested view.
79. The evidence we received made abundantly clear
that the proposed public-private partnership is flawed. At the
very least the Government must seriously address the questions
and concerns about the proposal raised by our witnesses, which
we have set out in this report. We would in fact go further: the
current proposal for a public-private partnership for NATS is,
in our view, the worst of all the possible options for the future
structure of the company. It would lead to operational control
of NATS, other than in extreme situations, being ceded to a private
investor which is very likely to seek either to cut costs, jeopardising
safety, or to increase revenues, by raising charges to its customers,
putting airlines and airports in the United Kingdom at a competitive
disadvantage. It would also give rise to other concerns about
NATS continued commitment to Eurocontrol, about matters of national
security, and about the future provision of non-commercial services
which are vital to safety. There are questions about the validity
of the special share the Government intends to hold in the company.
Moreover, the Government's revenue from the sale of control of
NATS would be extremely small. Even a full privatisation would
at least generate a reasonable revenue for the sale of the company.
80. We are, however, encouraged by some recent developments.
Lord Macdonald, the Minister for Transport, told us that NATS
would not be sold to the highest bidder, but instead to "the
most appropriate strategic partner".[237]
During the debate on the Second Reading of the Transport Bill,
the Parliamentary Under-Secretary of State said that "there
is nothing to stop NATS management or a not-for-profit group submitting
a bid" for NATS.[238]
Although we do not support the public-private partnership,
we recommend that, if it is to be established, the Government
should only sell the remaining stake to a bidder committed to
making no commercial return on NATS operations.
81. Such a bidder may exist: the Airline Group has
already said that it would operate NATS on the basis of not expecting
a commercial return. Indeed, if the Airline Group or a management
team, or even another bidder, were to succeed in acquiring the
46 per cent stake in NATS, and to operate the company on a not-for-profit
basis, it would be possible, subject to a number of conditions,
to structure the company in a way similar to a trust model such
as NavCanada. The conditions would include guaranteeing the staff,
as owners of 5 per cent of the company, at least one place on
its board. Another condition would be that the 'stakeholder' council
would require greater power to put forward its advice. Conditions
would have to be placed on the company, to ensure that it did
not unduly favour members of the Airline Group: similar conditions
already bind NavCanada. If these conditions were met, the proposed
public-private partnership might be at least partially redeemed.
Nevertheless, the Government would not have maximised the revenue
it might be able to generate in exchange for ceding operational
control of the company.
82. The trust model, as adopted by NavCanada,
would meet the main objectives of the public-private partnership,
freeing NATS to borrow on the private market, and separating the
company more clearly from its regulator, the CAA. Despite the
Government's contrary view, we believe that NATS would face strong
demands to become more efficient, because its customers, the airlines,
would be involved in its management. However, there would be no
over-riding commercial pressure to maximise profits, thus jeopardising
safety standards. Moreover the Government would receive significant
revenue from the sale of the whole of the company. In short, since
customers, staff, and the Government would all be involved in
the provision of air traffic services, the trust model answers
concerns about rising charges, lower safety standards, national
security considerations, and the future international development
of air navigation services. We therefore strongly recommend that
the Government should establish a trust, or non-share-capital
corporation, as the
owner of National Air Traffic Services Limited.
185