Memorandum by The Airline Group (PPP 09)
THE PROPOSED PUBLIC-PRIVATE PARTNERSHIP FOR
NATS
The Airline Group is a consortium of nine of
the UK's leading airlines, including Air 2000, Airtours International,
British Airways, Britannia Airways, British Midland Airways, easyJet,
Flying Colours/Caledonian Airlines, Monarch Airlines and Virgin
Atlantic Airways.
The Airline Group was formed earlier this year
following the Government's announcement of its proposal for a
Public-Private Partnership for NATS. The consortium supports the
Government's objectives and provides a collective approach to
ensuring that the interests of NATS' primary users—the airlines—are
represented consistently and addressed comprehensively during
the PPP process. These interests are primarily the safety, efficiency
and cost-effectiveness of the service provided by NATS, and assuring
NATS' access to investment capital for the future.
There has been media speculation that the Airline
Group will be amongst the bidders for NATS. A bid is being considered
by the Airline Group but no decision has been taken at this time.
1. INTRODUCTION
1.1 This short submission for the Sub Committee's
consideration takes account of the tragic circumstances of the
Paddington rail crash on 5 October.
1.2 The Airline Group is aware of links
suggested subsequently, particulary by the media, between the
privatisation of the railways and the safety record of the companies
operating within the rail industry; and the extension of similar
arguments to the Government's proposed Public-Private Partnership
for NATS.
1.3 With a Public Inquiry under way, it
is inappropriate to fuel speculation about the causes of the Paddington
disaster. However, we have seen no evidence that privatisation
of Railtrack or the train operating companies caused the tragedy;
though it does appear that amongst contributory factors may have
been under-investment in rail infrastructure over many years,
mostly whilst still in the public sector. The adequacy of the
regulatory framework was also under review before the incident.
1.4 The concern of the public and their
heightened awareness of safety issues given the events of recent
weeks is understandable. However, we would be concerned if invalid
comparisons and misleading conclusions were drawn from this sad
event, distorting consideration of the PPP for NATS.
1.5 For this reason, the Airline Group's
submission to the Sub Committee deals very specifically with the
issues of major public interest rather than solely with the questions
originally asked by the Sub Commitee.
2. BACKGROUND
2.1 This paper sets out why the Airline
Group believes the PPP would in fact improve safety in
the civil aviation industry; and draws an emphatic distinction
between the operation of the railway industry and the operation
of the civil aviation industry.
2.2 As an industry, civil aviation is committed
to the maintenance and furtherance of safety standards in the
UK and throughout the world.
2.3 NATS is justifiably recognised as a
world leader in the provision of Air Traffic Control services.
Airlines, particularly those whose business is based in the UK,
have a vested interest in ensuring this remains the case in the
future and that the right climate is created to ensure that capital
is accessible by NATS for investment in the infrastructure of
the air traffic control system.
2.4 Quite simply, no private company can
afford to compromise an area so fundamental to its core business.
Safety is intrinsic to the business of NATS, just as it is to
airlines. Privatisation did not result in any compromise in safety
for British Airways when it was privatised in 1987; the airlines
do not believe that the PPP would in any way lead to compromises
on safety by NATS. There is a saying often used to support the
case for new safety measures: "If you think this is expensive,
consider the alternative". The example of Valujet, for example,
illustrates the cost of the alternative.
2.5 There are five primary reasons for the
public to be reassured about the safety of civil aviation:
— A very strong safety culture already
exists within NATS and the airline industry as a whole, with clear
and defined checks and balances;
— Robust confidential reporting systems
are in place and have been shown to work well;
— Airlines necessarily work in co-operation
with NATS on safety matters and all are encouraged to improve
safety where we think this is possible;
— NATS is not (unlike Railtrack) responsible
for setting safety standards for the rest of the industry. This
is done by the CAA's Safety Regulation Group (SRG);
— the strong safety record demonstrates
the priority given to this area by all sections of the industry—and
Government.
3. IMPLICATIONS
FOR SAFETY
OF THE
PPP
3.1 Safety is inherently about management.
This is not a question of public or private companies, but about
well managed companies or badly managed ones. The aviation industry,
and the companies operating within it, are driven by a culture
and management attitude focused on safety. The Government's granting
of a licence for NATS should be based upon the abilities of its
management to maintain this focus, with proper regulatory controls
and targets.
3.2 The Airline Group would not support
the proposed PPP if we believed there was any danger of compromising
safety. We believe the Government has carefully thought through
the implications of the PPP and airspace safety will be improved
as a result. We set out more fully below our reasons, but in principle
we believe the PPP would:
— provide for the introduction of new
safety incentives, eg loss of licence, positioning for overseas
contracts;
— present compelling implications for
corporate reputation should safety ever be placed secondary to
commercial considerations;
— enable easier access to capital for
investment in safety improvements;
— provide complete separation of safety
regulation from air traffic service provision.
4. SAFETY VS
EFFICIENCY?
4.1 The Airline Group does not believe there
would be a conflict between safety and efficiency, because safety
risks would continue to be assessed and the consequences of compromising
safety would be unthinkable. BAA's airports and British Airways
are a great deal more efficient since privatisation, and productivity
has improved dramatically, but safety has not been sacrificed.
In fact, safety margins have increased.
4.2 In the case of NATS, the Government
will remain a significant shareholder and would be able to exert
direct control if it felt a problem was not being dealt with either
by the company or through the regulatory process.
4.3 We believe the PPP will put a necessary
focus on efficiency. Alternative options to the PPP, in particular
the removal of PSBR limits alone, would not be sufficient.
4.4 Air passengers consistently cite punctuality
as their top priority, yet ATC delays are the biggest single cause
of airline delays. Safety is generally "a given" in
passengers' choice of airline in the first place. There is therefore
a very strong public interest in ensuring that the service provided
by NATS to the airlines is not only safe, but also efficient and
cost effective.
4.5 Efficiency can be improved, but airlines
will not demand efficiency improvements at the expense of safety,
because that would undermine their own safety performance. Working
pratices can be made more flexible and improvements could be made
in airspace design to reduce congestion and complexity. New technology
can support the role of controllers and reduce their workload—new
procedures will follow naturally.
4.6 As airlines, we are already conscious
of the need to ensure the safety of working practices and we understand
the crucial role of controllers. However, we do not accept that
any change in working practices will automatically undermine safety.
A more flexible and efficient working environment could and should
improve safety.
5. BENEFITS OF
COMMERICAL INTEREST
5.1 There is undoubtedly a commercial benefit
to be gained from the PPP. The Airline Group believes that these
bring with them benefits for both the travelling public and for
operators.
Safety
5.2 Corporate reputation is of fundamental
value to companies operating in the private sector. Since they
do not have the safety net of State bale-out in event of a disaster,
any well managed private company ensures they protect their brand
and their corporate reputation. This would be especially true
of a company with the potential and ambition to expand its operations
into overseas markets, and NATS would be in a good position to
build on its success in the UK.
5.3 The potential for NATS to influence
European ATC providers is indisputable. This would bring the public
benefits of, for example, reduced flight delays to journeys from
the UK to continental Europe.
5.4 Safety is at the very core of corporate
reputation throughout the aviation industry, especially in the
UK where, even now, the costs of aviation are funded fully by
the private sector, and there is no State subsidy. NATS' business
is already a commercial venture and its costs are met in full
(including a return for the Government) by airlines and, through
them, the travelling public.
5.5 The commercial imperative of operating
safely, however, has not become a competitive issue, even among
fiercely competitive airlines. This is an area in which the industry
co-operates with rivals and collaborates with regulators. A tangible
example of this is the British Airways Safety Information System
(BASIS), which is used by a very large number of airlines who
share data.
5.6 British Airways has devoted considerable
resouces to tracking down an obscure fault in the TCAS collision
avoidance system, following a highly publicised air-miss over
China involving British Airways and Korean Airways. Regulatory
action has followed swiftly in the UK, and British Airways is
now lobbying for regulatory action in the US and elsewhere to
prevent a recurrance.
5.7 It makes no sense to sacrifice safety
for short term profit considerations. Customers and airlines would
object strongly and the loss of reputation and doubts about management
competence would result in a slide in the company's share price.
There is no conflict between safety and commercial objectives;
they are synonymous.
Investment
5.8 The case for new investment is relatively
easy to make because there is a guaranteed revenue stream from
the airlines which pay for its services. Significant future investment
needs have been identified and it is vital that NATS should be
freed from the constraints of the PSBR and be able to raise capital
in the markets to fund infrastructure in the future. Thus it will
be easier for NATS to invest in new safety related measures to
accommodate growth than now, where NATS must convince Government
committees and compete with other demands on the public purse.
5.9 A current example is the automated terminal
information service (ATIS), which NATS would like to install to
keep up with best practice worldwide. Airlines believe ATIS would
improve safety by providing information to arriving pilots earlier
in the flight and in digital form.
5.10 In the private sector, it is easier
to obtain (a) approval and (b) finance for safety improvement
measures. Some examples from British Airways illustrate this:
— British Airways was the first airline
in Europe to introduce the Enhanced Ground Proximity Warning System
(EGPWS) at a cost of £26 million over three years, although
this is not a regulatory requirement in Europe.
— British Airways invested £8
million in an Enhanced Flight Despatch System (EFDS). Although
there was a commercial payback, this system also improves safety.
6. SAFETY REGULATION
6.1 The CAA is regarded as one of the leading
safety regulatory bodies in the world. Indeed the Transport Sub
Committee, in its recent inquiry into aviation safety, acknowledged
the standards set by the CAA and its leading role in raising standards
for safety throughout Europe.
6.2 The NATS PPP would enhance the reputation
in the UK by separating clearly the provider of the service, NATS,
from the regulator, the CAA. We believe that to be entirely healthy
and good for the success of aviation in the UK.
6.3 NATS would face a new regulatory sanction:
loss of licence. This is a powerful deterrent against failure
to take safety seriously. The award of the licence by named individuals
in airlines ensures real ownership of the safety issue within
organisations.
7. CONCLUSION
7.1 The Airline Group considers that getting
the regulatory framework right is essential for the future success
of NATS. The following areas are essential:
— economic and performance regulation;
7.2 If the Government assures these controls
are in place, the Airline Group considers the PPP for NATS is
an effective means of ensuring a safe environment for civil aviation
in the future, which delivers greater efficiency for operators
and fewer flight delays for the travelling public.
October 1999
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