Select Committee on Environment, Transport and Regional Affairs Minutes of Evidence


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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