Examination of Witnesses (Questions 180-199)
MR DAVID JAMIESON, MR ROY GRIFFINS AND MR IAN MCBRAYNE
WEDNESDAY 1 MAY 2002
180. Could you also assure us that you took some very robust looks at the whole plan before you went ahead with it?
(Mr Griffins) I can say that. I can also contend that the 11 September events and the impact of those events on the air transport industry are unprecedented and, notwithstanding the concerns expressed in both sets of correspondence, both parties supported the PPP and acquiesced in the PPP at that moment.
181. Even for a Northern Irishman, it is a funny way of acquiescing if you say you do not think it is going to work. Is that acquiescence? It is not my definition.
(Mr Griffins) As I sat at the back hearing Sir Roy a few moments ago, I think he said he accepted that it was not his decision at the time, that the government as shareholder had the right to choose the basis for the sale. The government did so, I would contend, in a way that the structure as formulated then is being put to the ultimate test at the moment and, even at this moment, with the collaboration of the five parties involved, is surviving and is working.
182. That is a pretty low common denominator, is it not? You seem to be saying, "We got it wrong but luckily it is still hanging in there." Is that what I am hearing?
(Mr Griffins) I would claim that 11 September was not foreseen by anyone; that it is the most severe impact that the air transport industry has ever felt economically. I heard the Gulf War mentioned. This is worse than the Gulf War. Nobody expected the events of 11 September.
Andrew Bennett: Presumably we could have copies of your reply, since we have half the correspondence?
183. And since you cannot remember what you said.
(Mr Griffins) Yes.
184. Mr Griffins, you have just said that the events of 11 September could not have been anticipated. What kind of event or disaster was anticipated when the plans were drawn up? Was there anything anticipated that could make a major problem for the predictions you had made?
(Mr Jamieson) We have to remember there was a decline going on in the airline industry at that time. Normal fluctuations which could have been quite dramatic I think were anticipated. What we are saying is that the very special, unusual circumstances of 11 September I do not think could have been anticipated by anybody. What happened then was the whole system went into shock and what Mr Griffins is saying is that what has happened since is that the company has survived, even though it was only six weeks old at the time. The investment we wanted in Swanwick has been carried out. I know they have had to hold back the investment for a while in the new Scottish centre but they have operated very successfully in the meantime. Although we have made the loan facility available of £60 million between ourselves and the banks, they have not drawn down that loan facility. Even though the circumstances that came about were totally unexpected, it has survived in that period with the potential of a modicum of help from the banks and ourselves.
185. Can I just challenge you on one point you have made there? You and Mr Griffins have said that 11 September was unprecedented. As to the event, it may have been but the impact on traffic in the immediate aftermath was less than took place in February 1991 when Desert Storm happened. Therefore, nobody can suggest that there was no precedent for the kind of fluctuation of demand that took place after 11 September. Against that background, surely the fact that the Civil Aviation Authority made that warning and you did not follow it leaves a big question mark over your judgment of the business plan.
(Mr McBrayne) What was unprecedented for NATS in 11 September was the impact on transatlantic traffic. You have heard from earlier witnesses that transatlantic traffic is a very major component of NATS's business and its revenues because of the way that the charges are calculated: as I understand it, something like 44 per cent of NATS's revenues prior to 11 September. That was a stronger effect on NATS in terms of money coming in than at the time of the Gulf War, even though what you say about downturn in traffic overall may be correct.
186. That is not unique, is it? If you look at what happened in the Gulf War, it was also the transatlantic traffic that suffered very markedly. If you look at the graphs, I am sure Mr Griffins would confirm that although I am not a clever woman I may be right that transatlantic traffic, at the time of the Gulf War, suffered very considerably and in fact there is very little difference.
(Mr Griffins) I would in no way deny your cleverness.
187. Does that mean I am right or not? I am always a bit worried about men who in no way deny what I have said. I think that means yes, I am right, does it?
(Mr Griffins) It was my impressionand I had better check my impressionthat the economic impact on the air transport industry, particularly the transatlantic sector, has been deeper and looks like being longer lasting
188. What about Lockerbie? What effect did Lockerbie have? Perhaps you would like to give us some graphs.
(Mr Griffins) It would be a good idea for us to let you have some graphs on this matter.
189. The Minister said, which was very helpful, that the transatlantic traffic was already heavily down. I would put it to the Minister that in the year prior to 11 September, from about OctoberI have evidence about this from York and north Yorkshirethe traffic was already substantially down. The figure we got from NATS was that it was about a quarter of the overall fall in revenue for that year. I simply want to establish on the record, so that we are clear, that there was a combination of factors involved.
(Mr Jamieson) I think that is right. I did make the point that there had been a fall already in the traffic but the trend was known about at the time when the PPP deal was struck. All the partners involved in it would have been aware of the situation of the traffic at that time. That was built into the equation. The extra impact of 11 September just was not anticipated so soon after the event. To some extent, although the Gulf War was a blow to the industry, there was a certain amount of anticipation before the Gulf War, because the Gulf War was developing over a period of time. There was no lead in time to what happened on 11 September. I fully understand why you are asking the questions that you are and these are the right questions. They are questions that we have been asking as well in the Department. The other question that we are posing to ourselves is what would have happened had things been as they were previously? What would have happened to NATS then and how would it have survived in these circumstances? What would have been required, almost certainly, would be a very substantial amount of government funding to have helped NATS in its previous incarnation through a period of difficulty; or we could have seen, as we have seen through the rest of Europe, certainly the larger players in Europe, very substantial increases to the airlines. That has not happened in the case of NATS. Even the increases they have asked for are quite modest.
190. We heard from Sir Roy McNulty that there is no capacity to take another shock of the same kind. I said to him, "Has the business plan today got the robustness to deal with another major shock if, God forbid, that should happen?" He said, in his view, no. I paraphrase but that is what he basically said to us. It may have only taken a small amount of money to keep them alive, but they are certainly not relatively, according to the Civil Aviation Authority, in a better position than they were last summer.
(Mr Jamieson) I accept that, Chairman. If there were another catastrophic event, if there were some terrorist event, something of an entirely different nature, any part of any government department or any private company could find itself in a position with unexpected events with which it had to deal. We certainly hope that that will not happen. We have a lot of contingency planning. You will understand that I cannot in a public arena go through that here. We are planning so that these things do not affect us in the way that this particular event did. However, we would have to act appropriately in the event of some other disaster, just as every other country in the world would be in the same position.
191. The Department was criticised for its handling of Railtrack. How far advanced are your contingency plans in the event of a major problem so that there was a need to change the system?
(Mr Jamieson) The situation with Railtrack is very substantially different to the situation with NATS. Railtrack was privatised the way it was in the 1990s. Some say it was a botched privatisation, but it was a wholly private company and that company ran into very serious difficulties of management, of managing projects, and it ran into financial difficulties with huge cost overruns. We have a very different circumstance with NATS. It is very true to say that the management is a good management. The Government has maintained a very substantial interest. We are still the largest single shareholder in the company. We have a large interest in that, and there are no indications with the way that NATS is running at the moment that it is running downhill, as Railtrack clearly was last year. The parallels are not the same. If there were a serious crisis, notwithstanding what has happened in recent months, then there is provision within the Transport Act to deal with that.
192. If there were serious circumstances you are ready to change direction, are you? Is that what you are telling us?
(Mr Jamieson) We have to. Our responsibility in government is always to make sure that the fail-safe option is there because, just like Railtrack where we could not allow the whole of the railway system to come to a standstill, we could not allow the whole of the airlines and the air system in the country to come to a standstill. The 2000 Act had built into it a provision for those very extreme circumstances. I think it is true to say that before we got to that point the various playersourselves, the Airline Group, the company and CAAtogether as a partnership all have an interest of course in making sure that the company does operate successfully and it does have a successful future. We are a very long way before we would be facing a comparison to Railtrack.
193. You are prepared should that happen?
(Mr Jamieson) We have to be. There is provision for that. The preparation was made within the Act and in those circumstances, which we certainly hope will not arise, then we would have to take the appropriate action at the time. As I say, we are a long way from these circumstances and we see no circumstances at the moment in which that would come about.
194. You are still opposed to the NAVCANADA model, of the sort that was suggested by a previous Committee report?
(Mr Jamieson) We are where we are now with the PPP.
195. That sounds like quite a profound statement, Minister.
(Mr Jamieson) We are where we are.
196. I think it sounds better in French but I will not argue with you.
(Mr Jamieson) We are having to deal with the situation as it is. The situation is that we have a PPP, which in my view is working. It has shown itself to be robust. We have new private management which has improved the company.
197. You can demonstrate to us particular improvements, can you? Would you like to tell us what they are?
(Mr Jamieson) They have made very substantial reductions in the cost of running the company.
198. So they will not need an increase in the prices?
(Mr Jamieson) They will if they are to carry out their future plans in the business plan. Part of their business plan is to regain some of the money that they have lost in recent months through 11 September.
199. Of course, they cannot use that as an argument with the CAA, can they?
(Mr Jamieson) I think they can use it as an argument.