WEDNESDAY 9 JANUARY 2002
Mrs Gwyneth Dunwoody, in the Chair
Examination of Witnesses
MR DAVID JAMIESON, a Member of the House, Parliamentary Under Secretary of State, MR IAN DEVLIN, Director of Transport Security, and MR ROY GRIFFINS, Director, Aviation Directorate, Department for Transport, Local Government and Regional Affairs, examined.
(Mr Jamieson) Can I say I am very pleased to be here this afternoon. Can I firstly ask my two officials to introduce themselves.
(Mr Griffins) I am Roy Griffiths, Director General of Civil Aviation.
(Mr Devlin) I am Ian Devlin, I am the Director of Transport, Security Division.
(Mr Jamieson) Mrs Dunwoody, with your permission if I can make a few brief introductory remarks. Can I firstly say, I have been on a select committee for some years, five years, and this is the first time I have appeared on this side of the fence, so to speak.
(Mr Jamieson) Can I also at this point pay particular tributes to some of the officials, not only those that are here, but some of them in the Department and in other parts of our organisation who have done so very much since September 11, some of them have worked very long hours giving advice to airlines and to airports, they really have done a very special job. I would like to put that on record. It is not often said, but I am probably one of the few people who have had the opportunity to see how hard and loyally some of those people have worked. What I will do, as always, is endeavour to give you the fullest responses. You will appreciate this is a highly complex area and I am sure that my officials on occasions may be able to help perhaps with more of the detail or if anything that I say may be inaccurate I am sure they will be rapidly putting me right. Everything that needs to be said has been said about the tragic events of September 11. It certainly ushered in a very critical period for the airline industry. Up to that point the industry in the United Kingdom particularly had been a success story. We see now that the government has some role in trying to restore that industry back into the shape that it was previously. I think there is an area where we have a legitimate role. An example of that role that we have is maintaining the confidence of the travelling public, overseeing the safety and security arrangements and I think also making sure with our European colleagues the framework for fair competition for the airlines. I think the area where the government does not have so much a role is I do not think we are in a position to buck the market place or we are not in a position to say how many people should be flying or to artificially try and boost demand, it would be wrong for us to do so. I think also there is a danger that we could find ourselves protecting the industry from long-term trends of supply and demand which have to take place in the market place. I think the other area is that we certainly fought the European Commission on were the state aid issues and we are keeping a very close contact with them on that. In Section 2 of our written evidence to you, Chairman, we submitted in November last year we did flag up that there would be a number of areas, possibly, that would be out of date by the time we got here to the Committee. If I could just cover a few of those. There are quite a few areas which need updating now but if I could just cover a few of those. Certainly the new European Union Regulations and the Common Rules on Aviation Safety, we welcome and they are having an effect of securing common levels of security across the Community. Some of those additional levels of security, I am pleased to say, were already being carried out in the UK and we were already compliant. Certainly there has been a precipitous decline in air traffic since the 11th September. We are told that the figures for September, comparing September 2000 with September 2001 it is 11.5 per cent reduction for September for BA ---- Sorry, it is 14.6 for October, it is 11.5 for November but 8.5 for December which seems to suggest that there is a slowing down, if you like, of the fall off of traffic.
(Mr Jamieson) For BA, yes.
(Mr Jamieson) That is right. Those are the figures which we think are probably a fairly good proxy for the airlines in this country. The other thing that is very difficult to assess, Chairman, at this stage is there is a lot of speculation as to whether what happened on September 11th would cause a greater or lesser effect than what happened after the Gulf War. As yet that is very difficult to make an assessment on but obviously my Department are keeping very closely in touch with that. I think the two other areas where we need to just update our written evidence, Chairman, is on the insurance with the failure of the commercial market in insurance. We underwrote the insurance cover from late September and at the moment we have that cover in place until 23rd January this year. We are looking at that, of course, on a week by week, month by month basis and in our evidence to you, also, we said that the European Union had set a deadline for the ending of the Government support for insurance, we had said it was the end of September, of course they have now moved that to the 31st March. I think at that time we will probably, ourselves and the European Union, be in a better position then to see how the Japanese and the US airlines are supporting their own industry and we will be in a position then to make an analysis of how we may react. Chairman, those are my brief opening remarks which I hope are helpful. If we are not able to answer anything today, either because of time or a lack of expertise or knowledge here we will be very happy to write to you or, if you so wish, we will be delighted, of course, to come back again.
Chairman: That is very helpful, Minister. Can I begin by saying that I am glad you have paid tribute to those working in the Civil Service in the aviation industry, particularly in your own Department. There are many of us who believe that the expertise in your Department is not only amongst the highest not only in the transport industry in the United Kingdom but also in world terms and personally I would be extremely worried if I thought it was not appreciated in ministerial circles that the British Civil Service is not only capable of providing very high standards of support for transport policies but is frequently far better informed than many of the people with whom it has to deal. I suppose I should add in parenthesis that we do not always get the complete information that we should like from your civil servants but that is undoubtedly a matter of choice and not of lack of information.
Mr Donohoe: Good training.
(Mr Jamieson) I am not aware of any discussions that we had at that time. The United States, Chairman, acted very, very rapidly indeed and I think unilaterally. I am not aware of any discussions that the United States had with any other country about the action they took. They took action which they felt was appropriate to their own country, some may argue that they over-reacted. They have a different scale of problem to ourselves. They had the complete shut down of all of their airlines and, of course, the scale of their airlines is very substantially greater, particularly on the domestic market, than our own. They took action which they felt was appropriate. In the United Kingdom, we have had a little bit more time to reflect carefully on how we should react and we are taking what we think is appropriate action.
(Mr Griffins) Thank you, Chairman. Two responses. One we did not, as the British Government, talk to the United States Government. In answer to your previous question, we did not receive representations or information from the US Government prior to their aid package. The European Commission, indeed the Commissioner herself, took up the matter with the US Administration.
(Mr Griffins) We have used various channels of information either directly or through our Embassy in Washington.
(Mr Griffins) Not to my knowledge, Chairman.
(Mr Griffins) Not to my knowledge.
(Mr Jamieson) No. I think there were no discussions with us and to my knowledge I think there were very little discussions between the insurance companies and those people who they were insuring. It was a measure that was taken very rapidly and very quickly and I am not aware of any discussions that were held between insurance companies and ourselves.
(Mr Jamieson) Indeed, I think that was the case.
(Mr Jamieson) The reaction we had to take, Chairman, was to react to the immediate circumstance. The reduction of the amount of cover that the airlines have would have invalidated totally the leasing arrangements they have to operate and in fact the whole of the system would have closed down. We had to act very quickly to step in to the role and that is precisely what we did. We have reviewed the issue on a week by week, month by month basis. I have to say as well that we were the very first country to react and many of the other countries now have emulated the scheme that we have put in place.
(Mr Jamieson) Well, certainly it is not our ambition to become an insurance company for the airline industry but, however, you will understand that we had to act in these particular very special circumstances. As I say, we are reviewing this on a week by week, month by month basis and, of course, we are working with our European Union colleagues as well, it is most important that we do that. We believe that there is movement now within the insurance market and we hope this month we will start to see some movement in the commercial arrangements. Certainly it is not our ambition to have a long term engagement in underwriting the insurance of the airlines.
(Mr Jamieson) We believe that if discussions are taking place, which they should be, between those who are insured and those doing the insuring, we are hopeful now that the commercial market will reinstate itself.
(Mr Jamieson) For airlines, as you will know, we have announced a package just before Christmas of £40 million worth of assistance in terms of compensation for the close down over London for flights into Israel and flights across the Atlantic, so there is a compensation package which is in place for that. Before we had that in place we had discussions with the airlines as to what would be appropriate and we have had discussions with others as well. We have given them until the middle of this month when they can come forward and put forward a request for funding from that fund. That is specifically for airlines and it is specifically focused on the loss of business over the four days after 11 September. The airports of course is an entirely different matter. At the moment there is no package in place that would cover extra security for the airports.
(Mr Jamieson) We made the package available at the end of last month. After discussions with the airlines which went on for some weeks, we then made the offer of £40 million just before Christmas, and we have asked the airlines to come forward in the next week or so with their proposals for any claim they want to make on that particular fund. I have to stress that it is only the airlines that can access that fund; it is not the airports. Other than the advice we have given - and there is an enormous amount of advice and intangible assistance which has been given to airports and other people offering security - the only other arrangement at the moment is that some of the police forces certainly after 11 September did offer assistance in quite large numbers in some areas, and it is has yet not been decided as to whether or not that will be reclaimed but that is a matter, of course, between the local constabulory and the airport and it is not a matter which we have any say in.
Chairman: There are some good rows to come. Mr Grayling?
(Mr Griffins) The answer is no, curiously enough, for events of this magnitude. Indeed, the negotiating relationship in the talks between ourselves and the United States has continued and has continued constructively.
Andrew Bennett: Constructively?
(Mr Griffins) The impact of 11 September has not been constructive. I think relative to some occasions over the long period that we have had talks with the United States, now would be a moment when I would describe our relationship with them as "constructive". I cannot feel anybody behind me hitting me in the back at the moment suggesting that I am wrong.
(Mr Griffins) Yes.
Chairman: Are you going to tell us even if it is ---
(Mr Griffins) I said yes there is a likelihood.
Chairman: There is a likelihood?
(Mr Griffins) It is getting very difficult now to forecast. I think your word was "possibility" and I must say yes to possibility.
(Mr Griffins) It is nice to be here!
Chris Grayling: Given that possibility, we heard earlier from Mr Tarry of Commerzbank his view that the Open Skies agreement that took place between Germany and the United States and between France and the United States should perhaps have required those countries' national carrier airlines to give up slots at their principal airports. Is the Government confident that an agreement which required British Airways to give up slots at Heathrow would not create an adverse competitive position for BA in comparison with its principal European rivals?
(Mr Griffins) I do not think that is the case. This is a matter between the competition authorities and the carriers concerned.
Chairman: Give up while the going is good!
(Mr Griffins) I could not speak to you with any authority on that. Given that I would want to help the Committee, if the Committee would like us to send a note on that, I am very happy to do that.
Chairman: I think we should be delighted to receive a note on that.
Chris Grayling: That would be helpful.
(Mr Jamieson) No, I have not seen that report.
Mr Stevenson: I see, fine. Just on the slots ---
(Mr Jamieson) Indeed.
(Mr Griffins) From the last time I was before the Committee on this issue - and I can put this either way - I am sorry to say that there has been little development in our policy but, on the other hand, I could also say that our policy has remained consistent and it remains that which was broadly endorsed by the Committee at the time.
(Mr Griffins) What we want is a full and fair liberalised market between us and the United States. If it was possible to persuade the US Government to open their market totally, either/or with both cabotage - that is to say foreign airlines serving within the US markets - and/or waving their controls over ownership and control of US carriers, that would be excellent.
(Mr Griffins) It is worth aiming at eventually.
(Mr Jamieson) If I can say in a broad brush way, the scenario that you painted, where the Americans would not concede to anything, clearly would not lead to any agreement being made. We have to strike an agreement and all these things are negotiations where we have to give and take. We would have to strike an agreement which was of some advantage to the United Kingdom. Any bilateral agreement could not be wholly to the advantage of the other party. We would have to be getting considerable advantages out of it before we would sign up to it.
(Mr Jamieson) They could do. There would be a package of things which would have to be to our advantage and some of those things could be component parts of it.
(Mr Griffins) I can answer that point while picking up the last point too. Pending nirvana, that is to say the fully liberalised market which the Committee's common sense tells it will be a long time coming, the pragmatic approach is to find another way pro tem. The other way is to get access for our carriers to the US hinterland through alliances. Alliances, however, have to be acceptable to the competition authorities and such remedies as the competition authorities require - and you have heard different arguments as to whether there should be any - need to be accepted by the carriers involved. Given that that happens, and it is a big given, the quid pro quo for that would be access to Heathrow. Slots we are told, and the carriers make this point, are available and can be made available. It is not for this part of Her Majesty's Government to opine on what might flow from the competition authorities' consideration, that is to say our own competition authorities and the Department of Transportation - there is an important point there - in the United States. Were that also to release slots clearly there are more slots available there, were that to happen.
Mr Stevenson: So any pragmatic agreement based on access through alliances would be in the Government's own pro tem.
(Mr Griffins) Yes, we would prefer nirvana.
Chairman: I imagined you were defining the third way there.
(Mr Griffins) I think I said the quid pro quo would be access to Heathrow.
(Mr Griffins) Yes.
Andrew Bennett: There would not be the slots to Manchester and Teeside and places like that.
(Mr Griffins) May I answer?
(Mr Jamieson) Yes.
(Mr Griffins) I do not want to monopolise the answering here.
(Mr Griffins) What I think is on offer is not guaranteed slots with access.
(Mr Griffins) There are slots there. There is movement in the slot market. We, the UK, would like to see greater movement in the slot markets. We are pressing in Europe to shift the regulation which does control this. We are pushing to get variations in that regulation in a number of ways to facilitate a market in slots and, as I think I said last time, to give Member States a greater flexibility in how they can control the slots vis a vis their own regional services. That flexibility, which was referred to earlier this afternoon, is exceedingly limited as it stands at the moment.
(Mr Jamieson) Perhaps if I could take that. Firstly in terms of the negotiated agreement. The negotiated agreement could give access to Heathrow but I think what Mr Griffins is saying is it would then depend on the availability, just as any other airline has to depend on the availability of those slots before they can get access in reality. At the moment they do not have the access at all but to get that access they would have to trade those slots in some way. I fully understand your feeling about regional airlines. The argument often put up by British Airways is that the slots that they use for their regional services interline and feed in to their international services. So the argument they usually put up is that is the reason they keep them. I think if we found ourselves in a circumstance where there was severe pressure on regional slots we would probably then get in requests for public service orders and protection of those slots from various parts of the country. At the moment, of course, that is not happening, we have only got one request in at the moment, but we would obviously have to react to that changed circumstance as it came along.
Chairman: I want to go as quickly as I can. Mrs Ellman?
(Mr Jamieson) I do not think so, no, because at the moment particularly into Gatwick where many of the services go, there is no real pressure on their slots and slots are becoming available. We were under pressure for a while over BA coming out of Belfast, and we could have made all sorts of preparations, but what we found was that in fact another airline stepped in and I think the evidence you had before you at your last oral session was that British Airways said that they were losing on that particular line but another airline stepped in and said it was the best line that they had. I am not sure that we can prepare for that circumstance. We will have to see what happens. We would listen very carefully, as we have in the case of Inverness who has made an approach to us, and we have listened very, very carefully to the argument they have put forward for protecting their slots from Inverness to Gatwick.
(Mr Jamieson) The simple answer to that is yes. Regional links are absolutely vital and the more peripheral the areas are in the country the more important those links are, particularly for inward investment, and I am thinking of some of the more far flung parts of the country, Scotland and Cornwall come immediately to mind, as areas where there is still fairly low inward investment and still some economic development to be made, and strong arguments will be put forward in those areas. So the simple answer to your question is, yes, we would have concerns.
(Mr Jamieson) We do support it already, as you know. We have underwritten somewhere in the region of £10 million of overdraft on that particular fund when pressure was put on it some years ago. The bonding arrangements have worked successfully up to now. If there were further pressure on that fund then we would have to act appropriately. To take that matter further, we would actually need primary legislation. If there were the pressure on that fund and if the circumstance arose, then of course we would come to Parliament and bring that legislation forward if the circumstances arose.
(Mr Jamieson) I think the answer to that is simply yes.
(Mr Jamieson) NATS have made an approach to the Government for additional funding.
(Mr Jamieson) There is no actual figure that we have been asked for but they have come to us as a shareholder not as the Government. As a shareholder they have approached us, they have also approached the Airline Group. Our response to that is obviously we are looking at that and negotiating with NATS. We have obviously got to make an assessment of how the cash flow improves over the next few weeks and months - and that is very uncertain at the moment - and on the basis of that we will make our reaction as a responsible shareholder in the company. We are still the largest shareholder, 49 per cent, and we will react as any responsible shareholder would.
(Mr Jamieson) NATS are still completely committed to the Scottish sector and so is the Government. We were asked by NATS after 11 September if there could be a pause in the building programme there and we acceded to that because of the massive reduction of income they had at that particular time. We are still totally committed to the centre but it will, of course, depend on how the industry picks up in the next weeks and month. I said earlier some of the indications are fairly optimistic that it will pick up, but we will have to gauge that on a month-by-month basis as we go on but the commitment is still very strongly there.
(Mr Jamieson) Are you saying that BAA said £10 million?
(Mr Jamieson) Our role in government is to make sure that the security and safety issues are being met and we in the Department have inspectors that go out and check that security is at the levels we want.
(Mr Jamieson) I can say that it is very regularly.
(Mr Jamieson) One figure I happen to hold in my head is that there have been 50 visits to Manchester Airport, to give you just one example of the level of checking that there is.
(Mr Jamieson) Yes indeed.
(Mr Jamieson) The proposal we have at the moment for £40 million extra assistance to the airlines covers insurance and it covers the issues I talked about earlier. At the moment we have no plans to make any extra funding for security available to airports. This is a difficult issue, but we see this in terms of the airlines. It is a compensation issue specifically for the four days. The difficulty would be if we had some on-going commitment to security to the airports. This could be seen then as a subsidy issue rather than compensation, and it would also be, of course, subject to discussions within the European Union on state aid rules. At the moment, it is our feeling still very strongly that security and the cost of security at the airports should be met by the consumer and ultimately the person who pays for the cargo or pays for the ticket.
Mr Donohoe: One final question to Mr Griffins, and you can answer it as well, Minister, if you want, going back to an earlier point: do you not think it is long overdue that these negotiations are taken away from the United Kingdom Government and given to the European Parliament to determine and to negotiate, given that it is, after all, a pan-European negotiation that would be more likely to bring about success?
(Mr Griffins) In due course they may well be just that.
Chairman: Thank you very much, that is as far as we are going down that road. Miss McIntosh?
(Mr Griffins) The answer to that is no because I do not believe that is achievable within the next two months.
(Mr Griffins) I think yes we can and if I can correct what I must have said wrongly, I did not intend to say that we were negotiating for what I termed Nirvana, which was full access to the US market with the hope of achieving that in the next few months. I did say yes to the question that there was a possibility of our concluding an agreement and that agreement would be based on the pragmatic approach which I believe was broadly endorsed by the Committee last time we presented it to them, which was achieving that through a system of alliances, but alliances which were acceptable to the competition authorities as a first step.
(Mr Griffins) The answer is yes, but merely as figures because I read the transcript of that last hearing.
Miss McIntosh: My final question is to Mr Jamieson. The CAA have called for primary legislation. The Air Travel Trust Fund, which was set up in 1975, is now in debt and primary legislation is required to provide the powers to impose a levy to recoup the cost of a fund for holiday makers. The CAA have said in written evidence that they expect an increase in the number of collapses of companies, possibly including larger companies. Will you give an undertaking to this Committee today that you will make parliamentary time available to bring such primary legislation before this House before the summer session this year?
(Mr Jamieson) I think the simple answer is the answer I gave earlier that if there were catastrophic collapses then we would obviously have to act proportionately and appropriately and time would have to be made available.
(Mr Jamieson) That would be one option.
(Mr Jamieson) Sorry, I did not hear that.
(Mr Jamieson) It will be produced in the autumn.
(Mr Jamieson) Yes, indeed. We are totally committed to that and we are still very much on course.
(Mr Jamieson) This is a difficult area, Chairman. As I talked about earlier, it is very difficult for us to take action that is going to interfere artificially with the market. All throughout the airline industry from the people who are actually operating the airlines right down to the people who are making the meals and the sandwiches that go on the aeroplanes, all of these people have been hit in some sort of way and that is very much regretted. What I can say to Mr Bennett is this: some of those jobs that have been lost, and very regrettably - fortunately we are in a position where our economy is doing well, it is still buoyant and doing well in comparison to many other countries which have been affected by September 11th - many of the jobs, not all, have gone in areas of very high employment in the South East.
(Mr Jamieson) I think if it contracted very substantially, and we felt that was a risk to impeding future growth and recovery, then I think it would be appropriate for us to take action. Those very skilled people, we are not aware of those people being laid off in large numbers. Sadly I think a lot of the people who have lost their jobs in these circumstances are often people with low skills and some of those people who do the low paid, low skill jobs, it is those largely, I am afraid, who have suffered in the present circumstances.
(Mr Jamieson) We are working with the European Union on this issue, Chairman. At the moment the summer slots for this year will be protected for next year and we are anticipating that there will be a decision that the winter slots will be protected again for next year. This will be very much an interim measure and it would be a measure that would, if you like, react to the present circumstances but it is not something, I think, we would see going on a long term basis.
(Mr Jamieson) That is a matter we will have to consider, it is a matter we are carefully balancing because, equally, some of the airlines will recover very rapidly, they will get their traffic back next year we hope, but it is an area where we have a very, very careful balance and obviously it is something which we have had to give very careful consideration to.
Chairman: Minister, you are very kind and I think you have been saved by the bell. Thank you very much.