Examination of Witnesses (Questions 200
- 219)
WEDNESDAY 8 DECEMBER 1999
SIR ROY
MCNULTY
AND MR
BILL SEMPLE
Chairman
200. But it is quite true that someone like
Airways of New Zealand can do exactly that.
(Sir Roy McNulty) Airways of New Zealand has done
it to a limited extent, in the sense that they have done consultancy
and other work outside, but it is not work which requires significant
investment. They would need to get their Government's permission
if they were ever planning to do that.
Chairman: It is not what they say in their statement,
but you know more about this.
Mr Donohoe
201. May I take you to another point you made
and that was about rationalising sites. If you rationalise these
sites today, have you not got the investment requirements that
perhaps would save the idea of moving it towards a PPP?
(Sir Roy McNulty) I do not know whether we would get
an investment.
202. You do not know? Surely you must know?
(Sir Roy McNulty) No. The first time that NATS has
produced a plan to rationalise the sites has been this year. A
lot has been done on the operational sites but the back-up sites
for administration, engineering support and so on, are spread
over five, six or seven places here in the south-east of England.
203. I am presuming that it was you who gave
the Government the figure of £500 million, that would be
earned by the sale of the 51 per cent.
(Sir Roy McNulty) I did not. I read it with interest
in the paper.
204. What figure would you put on the sale,
given all the problems there are in terms of Swanwick, with the
New Oceanic Centre at Prestwick, all the rest of the problems
you have identified today? What would you say it was worth as
an asset?
(Sir Roy McNulty) I could not answer that question.
It depends what assumptions you make about the capital structure.
Whether the debts are repaid or not. I read numbers in newspapers
which suggest that NATS is worth somewhere around £1 billion
for 100 per cent of the company—maybe slightly more, maybe
slightly less—it depends on the terms of the sale. But I
have given no figure to the Government. Whatever the figures the
Government issue, they have worked those out themselves with their
own advisers.
205. So no advice went from the company itself
to quote what the assets of the air traffic control company are
worth?
(Sir Roy McNulty) DETR are well aware of our financials.
They get regular reports. They see our balance sheets. They have
investment bank advisers who have reviewed these figures. They
are well capable of arriving at these figures.
206. You have managed another company, which
is moving into the private sector, one presumes. In these circumstances
what would you say the assets are, as they stand, as to whether
or not they have been affected by virtually the delay of Swanwick?
The fact you are tied into two-centre strategy. That you have
problems with Oceanic House as, I understand it, with PFI. In
these circumstances they are not so much an asset as a liability.
(Sir Roy McNulty) That is completely incorrect, if
I may say so. NATS has a secure earning stream. The Swanwick situation
is almost entirely past history. Any businessman looking at that
could readily assess the situation and the risks. There are some
risks between now and two years.
Chairman
207. All the equipment in Swanwick is now up
and running and there is no problem?
(Sir Roy McNulty) The system is not yet operational,
as you are well aware. The system will become operational in the
winter of 2001 and 2002. There is still work to do. But in terms
of the continuation of the project, I do not think that will be
a significant problem for any investor looking at it. The two-centre
strategy is an asset rather than a liability. Any investor, looking
at NATS, would be very much comforted by the strategy that has
been worked out in the past, and would want to see the two-centre
strategy implemented.
Mr Donohoe
208. I do not understand that. You are telling
me that a commercial company looking at something would welcome
the fact that they have to spend as much again as they did at
Swanwick?
(Sir Roy McNulty) Yes. It is not a problem. If I may
say so, I was managing director of a company that was privatised
in Belfast, Shorts. It was losing in excess of £50 million
a year. The plant was in terrible shape and the owner had to commit
to investing hundreds of millions of pounds to fix it. The owner
invested those hundreds of millions of pounds and it has been
extremely successful. It is not a business problem. Provided you
are satisfied that you can get the return, you will invest. The
biggest problem with investing, in my experience (and I have worked
for Government companies for 20 years), is always the Government.
They are the worst investor that I know.
209. What is the actual position in Oceanic?
(Sir Roy McNulty) In terms of the development of the
FDPS 2 system?
210. The PFI which is in place in Oceanic.
(Sir Roy McNulty) There are two PFIs. One is the New
Scottish Centre itself. You may know it is being abandoned. There
is a smaller system, the FDPS 2, on which I will invite Bill Semple,
who knows more about the details than I do, to comment.
(Mr Semple) That PFI is going ahead. As you know,
the contractor is EDS. They are building the system. They have
produced the first, what we call, man machine interface model,
which we have seen. It looks extremely good. It looks a first-class
world beating system. They are in the process of building that
system for us. We have no reason to believe that they are not
capable of doing that.
211. So it is ahead of time, is it? It is ahead
of schedule?
(Mr Semple) No. We know that it is slightly behind
the time that we originally said it was going to be, but we are
not concerned about that. This is because the initial requirement
that we had for it, in terms of time, has slipped. It has slipped
but not because of NATS. It has slipped because of the fact that
the airlines and the people who were going to use it cannot fit
their fleets fast enough to make use of the system. So we have
more time to build that system the way we want to build it. It
is not, at the moment, for us time-critical but it does look like
a first-class system. The staff at Atlantic House have been involved
in the design of it; a lesson we have learnt from the New En-Route
Centre and from the information fed back to us on that. They have
been involved in the building of the system. They have all seen
the system now and they all universally, I believe, like the system.
Mr Forsythe
212. Do you think that the opponents of the
public-private partnership are dogmatically opposed to privatisation
and using it as a cover for dogmatic opposition?
(Sir Roy McNulty) There have been a lot of comments
from a lot of people. Some of them are not opposed to privatisation.
Chris Darke of BALPA, for example, has made it clear that he is
not opposed to privatisation because his members work for airlines
which are all themselves private. Some of the people who are opposed
to PPP are probably against privatisation in principle so there
is a spectrum of views.
213. How will NATS' participation in the development
of EUROCONTROL be assured after the new system comes in?
(Sir Roy McNulty) That has yet to be finally agreed
and will, no doubt, be discussed with ourselves and the Government.
But, from our point of view, it is vital that EUROCONTROL succeeds
in its mission. Their mission maybe needs to be clarified: that
EUROCONTROL's job is more clearly the regulatory job, but things
like the Central Flow Management Unit are fundamental to us. They
must succeed. But our participation and our funding for an EUROCONTROL,
I have no doubt, will go ahead.
214. If the airline consortium makes a successful
bid to become parts of NATS in the future, what safeguards will
there be to prevent preferential treatment of the airlines?
(Sir Roy McNulty) That is obviously a question with
a big "if" at the beginning and it is entirely hypothetical,
but obviously anyone like the airline consortium, which has a
potential conflict of interest, could get into discriminating
other users of the services. That situation has got to be avoided.
I would be amazed if agreements could not be reached between the
Government and the consortium, should the airline consortium be
successful, to prevent any discrimination.
Chairman
215. Have you checked whether your Golden Share
is in accordance with European laws?
(Sir Roy McNulty) As you know, we have not got a Golden
Share yet, so it is hard to check it.
216. Presumably, the theory of a Golden Share.
Forgive me for not being precise in my use of the English language.
(Sir Roy McNulty) My understanding is that the European
Union took exception to a Golden Share situation in France because
they said that the national security interests, on which it had
ostensibly been granted, were not valid in the case of petroleum
companies or some such. In the case of NATS, from my limited knowledge
of the subject, given the extent of the public interest involved
and our very close working with the Ministry of Defence, a Golden
Share would still be a valid thing to do.
217. But you have not discussed it with either
the Commission or with anyone else?
(Sir Roy McNulty) Not as yet, no.
218. So you have no idea whether, in fact, it
would either be acceptable or it would work?
(Sir Roy McNulty) The advice we have had, based on
the comments the European Union made some months ago, is that
NATS' Golden Share would still be a viable thing to do.
219. I see. I want to ask you whether you have,
in fact, sent some of your staff to be trained, and one of the
things they have been told is that in future they will have to
consider the interests of the shareholders first.
(Sir Roy McNulty) That is completely incorrect.
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