Examination of Witnesses (Questions 360
- 379)
WEDNESDAY 8 DECEMBER 1999
RT HON
LORD MACDONALD,
MR CHRIS
MULLIN, MR
IAN MCBRAYNE
AND MR
DAVID MCMILLAN
360. So if there was only £100 million
offered, you would not sell?
(Lord Macdonald of Tradeston) No, we would obviously
want value for money for the taxpayer.
361. Therefore the value you put on the company
is in the order of 46 per cent, if it is worth £350 million?
(Lord Macdonald of Tradeston) Yes, it is carrying
a debt of around £300 million by the time of the PPP, we
reckon.
362. It is carrying debt?
(Lord Macdonald of Tradeston) It will be carrying
debt of around £300 million.
Chairman
363. NavCanada was sold for 1.5 billion, but
of course it is a smaller concern.
(Mr Mullin) Actually, we are only selling 46 per cent.
Mr Donohoe
364. I thought you were keeping 49 per cent,
leaving 51 per cent?
(Mr Mullin) 51 per cent if you count the 5 per cent
of the staff.
Chairman
365. And the Special Share?
(Mr Mullin) We are not selling the Special Share.
(Lord Macdonald of Tradeston) If the market is of
the kind that you say, then with regard to the £350 million,
which we have just put in as a general indication, we will be
delighted to see if the market takes it well up above that figure.
366. Well up above it, I see.
(Lord Macdonald of Tradeston) We have put a figure
in the ring. We shall have to see who comes forward and what they
are offering.
367. So we are expecting to have the sort of
aviation equivalent of gazumping?
(Lord Macdonald of Tradeston) No, I do not think so.
It is a tendering and bidding process of a kind which I am sure
you, on behalf of the taxpayer, will applaud if it delivers the
kind of sums which are available, as you say, in Canada.
368. We certainly take a very great interest
in it. How much have you already spent, if you include Government,
plus NATS and plus CAA, to prepare for this?
(Lord Macdonald of Tradeston) I am sorry?
369. In preparing for the PPP, how much have
you already spent?
(Lord Macdonald of Tradeston) In preparing for the
PPP, I would imagine it would probably be around £15 million
to date.
370. Is that the Government, or is that plus
NATS, or is that plus CAA? What would you imagine it would be?
(Lord Macdonald of Tradeston) In total we have spent
in the DETR on consultative spend approximately £12 million.
If I were looking at this from a commercial perspective, then
in a deal you might spend 3 per cent on commercial advisers' costs—2
to 4 per cent, say—certainly in the previous commercial
deals in which I have been involved. So I would think it would
settle certainly around £30 million in total for advisers'
fees.
371. Just a small amount. How do you respond
to the concern that NATS is going to be distracted if it is going
to be diversifying overseas for all these new management contracts,
and who would take the can back if anything went wrong with those?
(Lord Macdonald of Tradeston) I do not see the possibility
of distraction in the core activities, madam Chairman. We have
been working in some detail with the trade unions on every aspect
of their concerns about safety and structures. We are still involved
in that process. One important thing which I think we have brought
to that discussion is a suggestion that in a tendering process
of this kind, potential bidders might actually be assured of the
extra safety factors which you put in place. If they know that
those are entrenched inside the deal which you are about to do—the
shareholder agreements, the licensing agreements—then every
potential bidder can price in the cost of that embedded safety.
We therefore believe that whatever structures are necessary should
be evolved in discussion with the trade unions and other parties
in advance. They should also be outlined in whatever documents
are issued, and therefore the costs of that going forward will
be apparent to everybody involved.
372. It is not just the cost, is it? The Government
presumably wants to have some way of ensuring that a private buyer
will entrench in the deal some protection for the national interest
of the United Kingdom?
(Lord Macdonald of Tradeston) We entrench certainly
the interests of the United Kingdom in the deal. Just on safety
factors, perhaps I can say that we want to entrench safety structures
there which are perhaps better defined than those which exist
at present, and we are told those are the best in the world, they
are entirely exemplary.
373. So we are going to have better than the
best in the world?
(Lord Macdonald of Tradeston) We think that in the
new structures we can improve on that, because we shall have government
directors on the board. We can put lines of communication for
safety concerns in place throughout the company which go up to
board level. We can use the stakeholder council.
374. What power will this stakeholder council
have?
(Lord Macdonald of Tradeston) The stakeholder council
will have a consultative power, but it would speak with great
authority. It would include our Department, the Ministry of Defence,
the airlines. It would have too, possibly in the chair, one of
the government directors on the board. One of those government
directors could also have responsibility at board level for safety,
and the structures could be built to make sure that all the present
practices were entrenched and in fact were amplified as well,
as required.
375. So it would be able to alter the policies
and the management, is that what you are telling us? When it was
speaking with authority it would also have the power to change
the management and the policies?
(Lord Macdonald of Tradeston) It would have the power
to change policy, clearly, by the authority of what it said being
taken up by the government directors on the board, and also, one
would expect, since every director has the same responsibilities
under corporate governance, by non-executive directors who would
outnumber, one imagines, the executive directors on the board,
if there were any areas of potential conflict.
Chairman: Lord Macdonald, you are facing a Committee
who all speak with authority, and it has not done any good in
changing people's policies.
Mr Stevenson
376. Very quickly, I apologise for coming back,
but it is on this revenue stream. I have a request, please. Is
it possible for the Committee to have details of the Department's
assessment of the ten-year revenue stream for NATS and what investment
it is assessed that would sustain?
(Mr Mullin) I am sure that is possible, yes.
Chairman
377. Can we ask you what proportion of the Government's
shares in NATS will be non-voting?
(Lord Macdonald of Tradeston) The number that is compatible
with giving operational control to the strategic partner. Of course,
the powers of Government or the concerns of Government would be
protected by the Special Share and also protected, I would imagine,
in the shareholder agreements too.
378. What proportion of the company's directors
do you think would be appointed by the Government?
(Lord Macdonald of Tradeston) Again, madam Chairman,
this has yet to be decided, but I would assume that in most companies
you might have four executive directors appointed. If you have
a strategic partner you would want them to bring in their non-executive
directors as well. It may be a consortium which bids, and we would
have to see what that dictated. However, on the Government side,
we would be looking for two or three non-executive directors,
and again perhaps my own advice would be to try to ensure that
the non-executive directors outnumbered the executive directors
on the board.
379. What evidence is there of any other country
in the world seeking to follow your example?
(Lord Macdonald of Tradeston) At the
moment I think we have the opportunity to take a lead in this
area. If I may quote something which I think is relevant, madam
Chairman, Wolfgang Philippe, EUROCONTROL Senior Director, stated
just a couple of months ago—and I quote—"Air
traffic control efficiency is very difficult in government systems.
They are always limited by government rules and a lot of limitations.
Separation from government control is the only way in the longer
run to give air navigation service providers the financial and
managerial freedom to run their businesses. Nationalist thinking
disappears and business thinking arrives."
| 
