WEDNESDAY 8 DECEMBER 1999
_________
Members present:
Mrs Gwyneth Dunwoody, in the Chair
Mr Brian H Donohoe
Mr Clifford Forsythe
Mr Bill O'Brien
Mr Bill Olner
Mr George Stevenson
_________
MEMORANDUM SUBMITTED BY THE DEPARTMENT OF THE ENVIRONMENT,
TRANSPORT AND THE REGIONS
EXAMINATION OF WITNESSES
LORD MACDONALD OF TRADESTON, a Member of the House of Lords, Minister
for Transport, MR CHRIS MULLIN, a Member of the House, Parliamentary
Under Secretary of State, MR IAN McBRAYNE, Division Manager, Civil
Aviation Division, and MR DAVID McMILLAN, Division Manager, Air
Traffic Division, Department of the Environment, Transport and the
Regions, examined.
Chairman
303. Good afternoon to you, Ministers, in the plural. I apologise
for keeping you waiting. Would you like to identify yourselves for the
record, please?
(Lord Macdonald of Tradeston) My name is Lord Macdonald, I am Minister
of State at the DETR and the Minister for Transport.
304. Thank you, my Lord.
(Mr Mullin) Chris Mullin, Under Secretary of State at the DETR.
(Mr McBrayne) Ian McBrayne, Head of the Civil Aviation Division in the
DETR.
(Mr McMillan) David McMillan, Head of the Air Traffic Division in the
DETR.
305. Thank you very much. Could I ask if either of the Ministers
wish to make any general comments?
(Lord Macdonald of Tradeston) Chairman, if I may say briefly, as the
Committee is aware, the Government has just laid before Parliament the Bill
which will enable us to set up a public-private partnership for NATS. We have
listened carefully to the critical voices but we do remain committed to the
PPP. We accept, as you have heard repeatedly today, that our air traffic
system is the best and safest in the world and safety certainly remains our
top priority. We believe that the Bill will create a proper separation
between the operation of air traffic control and safety regulation, as you and
others have been pressing us to do for some time. The PPP will also secure
substantial new investment in the region of about œ1 billion over the next ten
years so that NATS can safely handle the ever increasing air traffic in the
skies. It will guarantee the two centre strategy for NATS by ensuring that
the new Scottish centre goes ahead. We do not believe that private sector
operation will be detrimental to safety. NATS is, and will continue to be,
subject to some of the most stringent safety regulatory standards in the
world. The independent public sector safety regulator will ensure that
continues to be the case and there will be no profits before safety as far as
we are concerned. We believe there will be a better business focus. NATS is
a new partnership company outside the public sector and as such it will be
able to take the management and investment decisions on commercial grounds.
It will have access to commercial opportunities denied within the private
sector. The introduction of the right strategic partner, a partner of our
choice, will bring in the investment and project management skills to make the
best use of that freedom. Some have argued for a different solution, such as
a publicly owned company or trust, these will address some of our objectives
but we believe that only a PPP can address them all. That is why, despite
opposition from people whose views we very much respect, the Government has
decided to proceed with the PPP. We are still talking to the aviation
community, particularly to the trade unions, about the safety structures
inside the new corporate frameworks of the new company and inside its
stakeholder council. I think on the basis of that we can expect a
constructive debate over the coming weeks and months and obviously this
inquiry is central to that process. My colleagues and I stand ready to assist
in any way that we can.
Chairman: Thank you, my Lord.
Mr Donohoe
306. We heard earlier about this one billion pounds and you have
made mention of it. If there was to be front loading, would there be a
requirement for that, front loading of the money that would come at you with
revenue?
(Lord Macdonald of Tradeston) From what we have seen of the plans for
investment it is a relatively even loading over the ten years. There had been
a feeling that it might be very lumpy, and it could be in the odd year or two,
but we believe that it is phased over the ten years in a regularly even
fashion. We have also seen the details of the one billion pounds of
investment and some of it is obviously commercially confidential but some of
it was offered to you by Mr Semple and Sir Roy earlier.
307. We heard about the fact that there was the potential for
rationalisation. Was part of the calculation that you would be raising money
from the assets that were sold?
(Lord Macdonald of Tradeston) Our understanding in terms of the
rationalisation, certainly at the operational end, is that the requirements
would be for more operators in the near to medium term future. We have heard,
as you have heard today, that longer term at the end of perhaps a decade then
new technologies will come in which might change fundamentally the operation
of Air Traffic Services.
308. What would happen if instead of building a second centre at
Prestwick it was to be built at Swanwick, what would be the savings then?
(Lord Macdonald of Tradeston) We have not looked at possible savings
of that kind because we have been committed to a two centre strategy.
309. That is not necessarily the same thing. A two centre
strategy would be to build another one at Swanwick, not one at Prestwick and
you would still have your two centre strategy.
(Lord Macdonald of Tradeston) To build another centre at Swanwick?
310. Yes.
(Lord Macdonald of Tradeston) I think for a number of reasons, and
some of them may be related to security, if we have two centres and they are
dispersed in that fashion then we believe it will be beneficial for the future
and we believe the capacity that is growing so rapidly, almost inexorably, at
seven/eight per cent a year obviously means the two centre strategy ensures
against that kind of growth in the future.
311. You indicated that you had looked at other models. In the
Department of Trade and Industry they have responsibility for the Post Office.
The Ministry has considered that as potentially being able to be maintained
within Government ownership. Why have you not considered that as being the
first choice as far as air traffic is concerned?
(Lord Macdonald of Tradeston) We felt that the comparison with the
Post Office was not exact because the scale and complexity of the investments
required are quite different. The NATS investment involves large complex
state of the art systems and these require project management skills and
expertise which NATS, as the management today, have accepted they do not have
in-house. The Post Office investment is generally much less complex and its
track record in managing its own business is better than the track record of
managing projects of a kind like Swanwick that the NATS management have found
problems with. We also believe that the nature of the markets is very
different. The Post Office is exposed to competitive pressures in the market
but NATS is not. The majority of its business, the En-Route Air Traffic
Service, is a monopoly and that is not exposed to competitive disciplines in
that way. We are not in the overall scheme of things giving the Post Office
unfettered freedom, we will appoint its board and there will be a strategic
plan and the Post Office will be subject to Government control and any
borrowing over 75 million a year without prior Government approval will not
be allowed. The Post Office also remains under the public sector pay
constraints.
312. Part of the PPP is to maintain a Golden Share. Have you any
knowledge of when a Golden Share has ever been used by any administration in
any of the privatisations there have been?
(Lord Macdonald of Tradeston) The Golden Shares - we are preferring to
call them Special Shares - we have a list of them drawn up. We have got them
in the case of BAA, the Government has a Special Share there, that is one of
the areas where there has been some concern inside the EU challenging that
share. There is a list of 22 companies here with Special Shares in them
ranging from Cable & Wireless through to areas like UK Nirex, through Rosyth
Dockyard, AEE Technology, Scottish Power, PowerGen has special shares in BSEL,
Belfast International Airport and so on.
313. When has the Government ever needed to use them to any
effect?
(Lord Macdonald of Tradeston) I am not in a position to say but
perhaps if any of my colleagues want to come in on that. Clearly in this case
the Golden Share, the Special Share, if you like, would be related to security
concerns. Again, as you heard earlier, that makes it particularly defensible
against any challenge from the EU which might challenge other companies which
seem to be more national champions rather than fundamental security
considerations.
314. There are people who are inside where there is a Golden Share
and they say that they are worthless.
(Lord Macdonald of Tradeston) I have no knowledge that a Golden Share
guaranteed before Parliament has later been overridden and proved to be
worthless.
315. Has there been an occasion when the Golden Share has actually
been used, that is the point? I have no record.
(Lord Macdonald of Tradeston) I would make the presumption the other
way around, that because the Golden Share is in place it has been doing its
work.
Chairman
316. That is a matter of opinion, my Lord. Could you supply us
with an exact list of the companies involved and we could make a value
judgment on how those companies have behaved towards the national interest.
It might make it a little clear from our point of view and we can then take
a value judgment.
(Lord Macdonald of Tradeston) Indeed.
Mr Stevenson
317. Could I just ask one more question about the Special Share.
If this Special Share, as you now call it, is essential to maintain public
accountability, why is it necessary to hold on to 49 per cent of the shares
in any case?
(Lord Macdonald of Tradeston) Because we believe that by giving 46 per
cent of the shares to a commercial partner we can drive the business forward
through their commercial expertise and so on, that is obvious. We want
Government to share in the upside of whatever gain there is in the future.
We believe that there is a very exciting, expanding market - not just
expanding in the UK and Europe but globally - and we believe if the right
strategic partner is found for this business then it can win an increasingly
important share of a consolidating industry and it would be good for the
United Kingdom Government if it retained its 49 per cent share in that.
318. It then begs the question, does it not, that if that is the
case, that Government wants to share in the success by holding on to the 49
per cent, why not hold on to 100 per cent and change the status and then
benefit even more?
(Lord Macdonald of Tradeston) We do not believe that the NATS company
under present management and under public control in the future would have the
commercial skills, the expertise, the incentives, to develop in the way that
we believe they can as a new partnership company.
319. That leads me on nicely to my next question. In your
memorandum dated October 1999 you say in relation to the IPOC model that it
is untried: "All the benefits claimed for the untried IPOC model..." -
untried. Surely the Airways Corporation of New Zealand is just that, an IPOC
model, and that surely cannot be described as "untried"?
(Lord Macdonald of Tradeston) I think you were asking for further
clarification on New Zealand and its achievements and intentions earlier
today. What I can say is that we could achieve some of the objectives through
IPOC tried or untried, but we believe that there is not inside there the
proper economic regulation or the real efficiency drivers if it remains a
public sector body. We believe that the private sector motivation with a
strong independent regulation would provide the incentive to keep costs as low
as possible and also extend NATS operations into new markets. We believe that
with those operational skills introduced by a strategic partner they would
stand a much better chance of success.
320. So the description of the IPOC model being untried in your
memorandum is not the case?
(Lord Macdonald of Tradeston) Untried in Britain. I would be
suspicious of comparisons with other countries which are rather different in
nature from the United Kingdom, as we have heard, in their air traffic
services.
321. Finally, you have concurred - I jotted down somewhere here -
that both NATS and the CAA were saying about the NavCanada model that it was
unable to access private sector skills and expertise and on the Airways
Corporation of New Zealand model NATS are saying more or less the same thing.
I think, Lord Macdonald, you have concurred generally with that view. What
detailed analysis has your Department done that leads you to that conclusion
in relation to those particular models? Have you done a detailed analysis
that has led you to that conclusion? What evidence have you got?
(Lord Macdonald of Tradeston) Can I turn here perhaps to the two
officials, madam Chairman, just to describe the work which the Department has
done in that area.
Chairman
322. I am sure they are excellent gentlemen who will tell us
exactly what they have done.
(Mr McMillan) As you know, we issued a consultation document last
summer. As a result of that, we have had a number of presentations and
publications sent to us, including from the trade unions who were particularly
concerned with the IPOC model. We also were aware of what the situation had
been in NavCanada and Airways Corporation of New Zealand. We looked at that
in Government and we set it against the proposition which the Government
already advocated for a public-private partnership. The Government's
reasoning is as set out in response to the consultation document. We have
looked at those things and we have come to the conclusion that yes, there are
benefits in all of these things, but you do not get all the benefits which you
get from the PPP.
(Mr Mullin) Could I add to that, Mr Stevenson. There is a difficulty
that most of the other models offered to us would not get us out of the
problem that we are bound by Treasury constraints when it comes to raising the
very large sum of investment which is required, and that is not an irrelevant
consideration.
Mr Stevenson
323. So neither the NavCanada models nor the Airways Corporation
of New Zealand ones are subject to their public treasury restraints?
(Mr Mullin) I do not think any of us are experts on the New Zealand
or Canadian treasury rules, but we do know sufficient about our own to know
that the Chancellor is not about to write out a cheque for œ1 billion to
underwrite the necessary investment. Therefore, that is one of the reasons -
it is not the only one, but it is one of the reasons - why we have to look at
other models.
324. Minister, in the context of my question, if you have rejected
those alternative models, for the reasons which have been established here
today - and an additional reason is the public sector borrowing rules - it is
surely relevant to ask whether you have understood whether those alternative
models are also subject to that, and that if they are, how they have overcome
them? Surely it is relevant to the comparisons?
(Mr Mullin) It may be relevant, but the facts are that we are in the
United Kingdom, we are dealing with the British Treasury and we know that we
have to raise more than œ1 billion in investment. I understand the point you
are making.
Chairman
325. Does BNFL count against the PSBR?
(Mr Mullin) I am afraid I cannot answer that.
326. It is really rather relevant, is it not, because that is in
the United Kingdom, I think?
(Mr Mullin) It is, but all I can answer for is what we have been
advised relating to NATS.
Mr Stevenson
327. Can I therefore take it, without being rude enough to put
words into your mouth - I would never do that - that it is reasonable for the
Committee to conclude from the answer to my last question to the Minister that
the Government has not done an analysis as to whether, in the way NavCanada
and Airways Corporation of New Zealand have been modelled, their financial
activities count against their countries' borrowing requirement or are
consistent or otherwise with treasury rules in those countries, or how they
have overcome those possible impediments?
(Mr McMillan) Can I briefly answer that question?
328. Just a minute. If I might, I put the question initially to
the Minister. If he wants to direct it, he can.
(Mr Mullin) Mr McMillan is more likely to know the answer than I am,
so why not try him.
Chairman
329. Such becoming modesty.
(Mr Mullin) Years of experience.
330. Mr McMillan?
(Mr McMillan) I think the straightforward answer to your question is
that those organisations exist in Canada and they exist in New Zealand. Ways
have been found in those countries to accommodate the operation of the
companies, so the answer is that yes, they meet their rules.
Mr Stevenson
331. Can we therefore have the details which the Department has as
to how they have overcome that important objection which the Minister has put
forward? I fully appreciate that, and I fully appreciate the light of his
comments, but I think it is relevant that we ask this question and I think it
is relevant that we get the detailed answers from you. Can I ask one last
question about Golden Share or Special Share. When the Committee earlier on
asked this of the Chair of NATSL, Roy McNulty, he said - I think I quote him
correctly - that no discussions had taken place with the EU Commission on the
validity or otherwise of Special/Golden Share. Lord Macdonald, has your
Department had such discussions? If so, what has been the reaction?
(Lord Macdonald of Tradeston) No, we have not asked for advice there,
because we are confident that the Special Share which we will put in place
here has a dimension of national security attached to it which will ensure
there is no problem with it.
332. Would it not be sensible to make those enquiries, so that if
there is a problem, the Government is confident that its case would stand
scrutiny?
(Lord Macdonald of Tradeston) Certainly I shall do that, Mr Stevenson,
and it may even be that those enquiries have been made and fed into the
certainty that I am giving.
333. Finally on the issue of Golden Share, the Government, as of
today's date, has not made any enquiries about the compatibility of
Golden/Special Share with the EU, but at some stage in the future it intends
to do so, even though the Government has come forward with the PPP?
(Lord Macdonald of Tradeston) No, I would not accept that. We would
have made enquiries, clearly, of all our relevant officials involved in
Europe, we would make all that experience available to them, and they may have
taken soundings of them.
334. Has that been done?
(Mr McMillan) We have given a presentation to the Commission services
on government proposals on NATS.
Chairman
335. And?
(Mr McMillan) They raised no objection to doing that informal discussion
in relation to the Golden Share distribution matter.
336. They raised no objection?
(Mr McMillan) No.
337. They did not express a view; they simply did not say, "Not a
good idea"?
(Mr McMillan) No.
(Lord Macdonald of Tradeston) I do not think we would be minded to go
and ask permission in that sense, if that is the implication.
Mr Stevenson: Thank you.
Mr Forsythe
338. I was interested here in the Special Share of Belfast
International Airport. Is that share still in existence?
(Lord Macdonald of Tradeston) Certainly it is still on my list here,
Mr Forsythe, and I believe it would still be in existence.
339. I understood that the airport had been sold?
(Lord Macdonald of Tradeston) Belfast International Airport?
340. Yes.
(Lord Macdonald of Tradeston) Yes, but my understanding ----
Chairman
341. It has been sold, and the Golden Share was therefore not
used.
(Lord Macdonald of Tradeston) I would have to come back to you on
that. I am afraid I do not know the detail on that.
Mr Forsythe
342. You do not know the detail?
(Lord Macdonald of Tradeston) No, I do not know the detail of it. As
I say, it is on the list of 22 companies some of which have Special Shares in
them which are not relevant to my Department.
343. I am certainly interested, madam Chairman, because there was
a considerable profit made. Indeed, I am surprised you do not know, because
there was a special report from the Public Accounts Committee about the
Belfast International Airport, so if that is the type of Special Share which
is going to go into the new system for NATS, it would certainly raise concerns
with me in the future if the Special Share was not capable of retaining the
public interest as far as air traffic control was concerned. It is a
different matter for an airport certainly, although there is still an interest
there because it was paid for by the public purse at one particular time and
received a considerable number of grants from Europe. If we are now saying
that that is the type of Special Share which is considered here, I think it
should be looked at very carefully.
(Lord Macdonald of Tradeston) My apologies for not knowing about it,
it is not something that has come over my desk in the Department in my four
months in this job. What I would assume has happened in the case of a Special
Share, and given that there might be a strategic aspect to it, is that that
would then be accommodated inside a new shareholder agreement. So I would be
very surprised if the Government had made any concessions there which were not
compatible with what was not embodied, entrenched indeed, in a shareholder
agreement. However, as I say, I am not familiar with the details of it,
because it clearly pre-dates my taking this post.
Chairman
344. I think we would, however, value some comment on that
incident.
(Lord Macdonald of Tradeston) Indeed.
345. After all, airports are of quite considerable importance. Is
it acceptable for regional airports to borrow funds outside the PSBR? If so,
why is it not acceptable for NATS to do the same thing?
(Lord Macdonald of Tradeston) We believe that again we are dealing
with different businesses here. There is clearly a large asset base in a
large airport, and a different stream of revenue and profitability from the
kind that you see in NATS. It is a quite exceptional business. You have
heard earlier some profiles of the profitability of it, but the profitability
is not remarkably high, and the turnover is again a regulated turnover, so it
seems to me that it is a different business, therefore you could not easily
translate commercial practice from one to the other.
346. Do you know about the degree of investment which we are
talking about? There are something like six regional airports, are there not,
which are involved in this kind of arrangement?
(Lord Macdonald of Tradeston) Yes, and they do have limited borrowing
freedom. I should stress, though, that they are limited and they can borrow
only for their existing operations inside the United Kingdom. Clearly that
falls well short of what we are looking for.
347. Yes, but the purpose of it is not what we are arguing about
for the moment. We are arguing about the particular economic arrangements.
Since there are six regional airports in this category, and we are talking
about ten years of investment, I think the Committee would like to know some
of the sums that we are talking about here.
(Lord Macdonald of Tradeston) Indeed, and we shall try to produce that
as quickly as possible for you, madam Chairman. We have been quite open that
we are looking to review the financing of public corporations on an individual
basis, and those solutions are bound to vary. We are looking for the right
solutions for industries which are very different.
348. Mr Mullin?
(Mr Mullin) Could I add to that that I would be very surprised, Mrs
Dunwoody, if the total sums which those airports which you mentioned are
allowed to borrow come to anything like what is required in the case of NATS.
Also, the revenue stream from NATS is much smaller, I would guess, than the
likely revenue stream from those airports. I am not sure it is compatible.
349. No, that may not be so, Minister, but what is interesting to
me is whether or not you have done any calculation of the degree of indemnity
the Government would have to offer to a buyer, in view of the fact that most
private buyers might have reservations at taking on an industry which is so
clearly and directly involved in safety, in case they found themselves,
because of the operation of machinery which they have taken over from you, at
the short end, at the sharp end, of a bad crash. Have you done that sort of
calculation? It would affect the price, and already this afternoon we have
had some evidence about the price. You have presumably thought of that?
(Mr Mullin) I am not quite clear of the point you are making.
350. If I sell you something, Minister, and it does not work,
unless you are a very bad businessman, are you not likely to ask me to
indemnify you in case somebody takes out some kind of action against me in the
case of an accident which might arise from your equipment?
(Mr Mullin) NATS already carries insurance of about œ1.5 billion which
it would pay out in those circumstances.
351. You think that would be sufficient for a private buyer who
might be faced with a very real difficulty?
(Mr Mullin) That will cover any disaster which was attributable to
NATS.
352. You would factor that into any sale, on the assumption that
that would be sufficient?
(Mr Mullin) Well yes, but no doubt any business looking at buying NATS
is going to take that into account. I must say, our indication is that there
are a number of businesses who are interested in buying NATS, and no doubt you
are aware of this.
353. Minister, as I have said to you before, I have no difficulty
finding people who are interested in it. Large numbers of people, some of
them foreign owned, have large sums of money available to buy other people's
assets. That is not a new thing in the United Kingdom. Indeed, over the last
ten or 14 years we have seen many instances of foreign buyers wanting to come
in and take our assets. That is not what I am asking you.
(Mr Mullin) No, but we share your concern. We are going to take a
close look at the likely applicants, and it will be a very careful process.
Mr Donohoe
354. Therefore, it is not going to be sold to the highest bidder?
(Lord Macdonald of Tradeston) No, it will be sold to the most
appropriate strategic partner.
Chairman
355. But you have not consulted with the European Commission
officials as to the rules which would operate in relation to what I would call
non-United Kingdom buyers?
(Lord Macdonald of Tradeston) I think our officials clearly would be
aware of the niceties of any rules.
356. It is not the niceties, my Lord, it is the effects.
(Lord Macdonald of Tradeston) Indeed.
Mr Stevenson
357. Could I follow your question to the Minister, Chris Mullin.
He talked about revenue stream not being adequate to sustain the necessary
investment. Is that opinion based on current revenue stream or is it based
on future revenue stream, given two factors: one, the anticipated opening of
the centre at Swanwick, and two, the growth levels, which have been confirmed
here again today, of demand of something like 5 per cent or more growth per
year? Which is it based on, today's or future revenues?
(Mr Mullin) It is based on the foreseeable revenue stream.
358. How far is "foreseeable", may I ask?
(Mr Mullin) I am not an expert in this field, but I would have thought
we certainly can see the next ten years, because we are talking about a ten-
year investment.
Mr Donohoe
359. This is a question I asked earlier, and nobody could give me
the answer to it. How much do you think that you will sell it for?
(Lord Macdonald of Tradeston) I think we have said in our
documentation that we provided that for the share which was available - the
46 per cent - it might be around œ350 million, but we would wait to see,
clearly, the outcome of that tendering process and bidding process.
360. So if there was only œ100 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 œ350 million?
(Lord Macdonald of Tradeston) Yes, it is carrying a debt of around
œ300 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 œ300
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 borrowing
requirement.
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 œ350 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 œ15 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 œ12 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 œ30 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 greater authority. It would
include our Department, the Ministry of Defence, the airlines. It would have
too, possibly in the chair of that, 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, perhaps one in a non-
executive role and another as a non-executive board member. 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."
380. He has been saying something of the kind for some time, I
think.
(Lord Macdonald of Tradeston) He is the senior chap in EUROCONTROL.
From what we have heard from people in the business today, it seems he will
be an accelerating trend. I am sure, again from what I have seen of NATS
projections going forward, they anticipate business on a whole number of
levels, different services being sold across the world.
381. So you have an example that you can offer the Committee, and
presumably Herr Wolfgang Philippe also has one?
(Lord Macdonald of Tradeston) I could not offer you examples -----
382. France? Spain?
(Lord Macdonald of Tradeston) ----- since they might well be
commercially confidential. I do know, however, that there have been
discussions held with NATS management about work which they might have taken
on which they feel inhibited about progressing under the present arrangement.
383. Yes, we heard about Fiji.
(Mr Mullin) Not Fiji.
384. Gentlemen, I think you have been very helpful. We will have
other questions to ask you in due course. I think we may well bring you back
at the end of our evidence, but it would be helpful if we could have the extra
information which we have asked you for this afternoon.
(Lord Macdonald of Tradeston) Indeed. Thank you, madam Chairman.
