Examination of Witnesses (Questions 138
- 159)
WEDNESDAY 8 DECEMBER 1999
SIR ROY
MCNULTY
AND MR
BILL SEMPLE
Chairman
138. Good afternoon gentlemen. May I greet you
most warmly and ask you firstly to identify yourselves for the
record.
(Sir Roy McNulty) I am Roy McNulty. I
am the Chairman of National Air Traffic Services Limited.
(Mr Semple) And I am Bill Semple, the National Air
Traffic Services' Chief Executive.
139. Have either of you anything to say before
we go to questions?
(Sir Roy McNulty) If it is agreeable to you, Madam
Chairman, I would just like to make a very brief introductory
statement. It is clear there has been a lot of debate about the
PPP and certainly there is more to come. I think on some issues
most people are in agreement. The United Kingdom has an excellent
air traffic control system in terms of its safety and capacity,
thanks to the efforts and dedication of the staff and management
of NATS, and everyone wants that to continue. Everyone agrees
that the scenario we are looking at ahead is one of continued
traffic growth, probably roughly doubling by the year 2010. It
is quite clear that unless we do something about that, delays
will escalate to quite intolerable levels. I think most people
agree that NATS should have assurance that the investment we need
will be available. We need at least £1 billion over the next
ten years, starting with the New Scottish Centre. Most people
agree that we should have the freedom to exploit the new opportunities,
which will arise in the air traffic services market, and we should
have access to new management skills. I think everyone wants safety
to be a priority. We agree with that. We believe that PPP will
not damage safety. Safety is not a matter of choice or chance.
NATS' excellent safety record is there because of the very fair
system of procedures, regulations, training, audits, etcetera,
which has been built up for many years, and that will not be changed
by PPP. In fact, the separation of the CAA from NATS, the CAA
being our safety regulator, will, if anything, enhance safety.
We do not think that safety is a public-private issue. If you
only look at the excellent records of British Airways and BAA
since privatisation, you need only look at the air traffic control
operations run by privately owned airports, to see that safety
has been perfectly well preserved. A second area of debate has
been around whether PPP is the best model to achieve our objectives.
We at NATS have looked at other models. Our conclusion is that
the PPP is a good solution. It is the best solution. It will enable
us to fund investment, free from the close embrace of Her Majesty's
Treasury. It will free us to develop a global business base over
a period of years. It will enable us to broaden our management
skills and at the bottom line give our customers, the airlines,
what they need in terms of safety, capacity, efficiency, and costs.
That is all I wanted to say by way of an introduction.
140. Thank you for that expression of opinion.
What profit has the National Air Traffic Services paid to the
Treasury over the last five to ten years?
(Sir Roy McNulty) Our records only go back as far
as 1996. That was the period in which NATS was first established
as a stand-alone business. In that period NATS has made profits
of just about £80 million. We had capital expenditure of
about £200 million. We repaid to the Treasury about 120 million.
In saying we repaid £120 million to the Treasury, I think
we need to bear in mind that in the preceding five years the CAA,
largely on NATS' behalf, had borrowed about £240 million.
It was a partial repayment of loans given earlier.
141. What would you say was the size of your
outstanding loan at the moment?
(Sir Roy McNulty) About £300 million.
142. £300 million.
(Sir Roy McNulty) We can provide the precise figure
later if you wish.
143. That is quite helpful. Why do you need
£1 billion over the next ten years?
(Sir Roy McNulty) Because of the increase in traffic.
If traffic grows, the only way we can cope with that increase
in traffic is to grow our capacity. Therefore, what NATS did earlier
this year was to do a long-term investment plan, which will cost
at least a billion pounds.
144. Earlier this year. You have not had a long-term
investment plan before that?
(Sir Roy McNulty) I can only tell you of what I know.
I have only been with NATS for six months. The plan I have looked
at was there earlier this year.
145. Mr Semple, was it there before then?
(Mr Semple) Yes, we have had a capital expenditure
plan for some years. It is a living plan, of course. We do not
just set it and leave it. We have to address it all the time.
Roy is addressing the fact that just recently we have gone back
and revisited that plan, to validate all the things we need to
do, and we still come out with this figure of around £1 billion
over the next ten years.
146. How does that break down, Sir Roy?
(Sir Roy McNulty) I can give you the major elements.
We can provide you with a more detailed break-down if the Committee
so wishes.
147. Yes, the Committee always likes detail.
(Sir Roy McNulty) Fine. The major elements are the
New Scottish Centre, which is round about £350 million, although
that remains to be firmly contracted and we will see the detailed
numbers in due course. The Swanwick project provides for moving
the major activity, which is area control, down to Swanwick; but
there are other elements on the West Drayton site, the military
operations and terminal control, which will need to be moved down.
That will cost about £200 million.
148. You are not suggesting that NATS would
have to pay for that?
(Sir Roy McNulty) The military will pay for the military
part but NATS would need to pay for the terminal control part.
149. So that would be an element of how much
because, in fact, it was precisely this break-down of costs before
between the military and the cost of moving it, that meant that
at one point it was even suggested that they were not going to
go.
(Sir Roy McNulty) That was before my time.
150. Mr Semple will remember. We have had this
conversation more than once.
(Mr Semple) Yes. There was certainly some considerable
debate about whether the military would move and the concept of
operations that they would move into. Since then, there has been
a substantial review by the Ministry of Defence.
151. So what figures are we now talking about,
Mr Semple?
(Mr Semple) I think I would like to supply those to
the Committee outside. I do not know the latest figure for the
military move.
Chairman: We always welcome all advice from
NATS.
Mr Olner
152. At this point, a rough estimate?
(Mr Semple) It would be irresponsible of me to do
that. I do not know what the number is for the military. I know
that the total sum we are looking at to move the existing operations
out of West Drayton is around £200 million.
Mr Stevenson
153. Could I, just for the record, get confirmation
from Sir Roy and Mr Semple that, as far as they know, no other
country in the world has privatised its air traffic system, and
many of those who have not operate very successfully.
(Mr Semple) I do not think that is correct. To the
best of our knowledge, there are two countries who have certainly
privatised their air traffic control system. A small one in the
Pacific, Fiji, have privatised their air traffic service and have
sold it to an Australian company.
Chairman
154. You think we are comparable with Fiji?
(Mr Semple) I wish we had their climate!
155. Very nice people in Fiji, but we are talking
about their air traffic control.
(Mr Semple) But the important one which has privatised
is Canada. NavCanada is a private company, not owned by the Government.
156. A trust, of course.
(Mr Semple) It is a different form of privatisation
but it is a private company. It is not owned by the Government.
Mr Stevenson
157. It is a trust.
(Mr Semple) It is actually a non-share capital company.
Chairman
158. A non-profit making trust.
(Mr Semple) No. It does make profits. It is a non-share
capital company.
159. It does not make a commercial return, does
it?
(Mr Semple) It does make a profit.
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