Examination of Witnesses (Questions 220-239)
MR DAVID JAMIESON, MR ROY GRIFFINS AND MR IAN MCBRAYNE
WEDNESDAY 1 MAY 2002
220. Who are the others?
(Mr Griffin) The two shareholdersthe government and the Airline GroupNATS, the company itself, and the lending banks. If that solution which emerges from those five parties playing their different roles produces a stronger financial structure, that is to say a better debt:equity ratio, provided that the Government does not become a controlling shareholder, it would regard that as a good thing and has given strong indications that it will match (but can only match) an equity injection.
Chairman: But it would expect to maintain the same percentage of shareholding without becoming the controlling shareholder so are you assuring us, Mr Griffin
Miss McIntosh: Could he just finish his sentence?
Chairman: "A strong indication"; does that mean they will match it?
221. Could you finish your sentence.
(Mr Griffins) My syntax will be bad but the thought process is all going to the same point. I do not think I can sit here to guarantee that but I can say there is a very strong likelihood (depending on the amounts) that the Government will match such new equity as will come in and therefore leave the company with a stronger financial structure emerging from this solution than it had going into the problem.
222. However serious the implications on a very short-term basis were of the events of 11 September, as Miss McIntosh has already said, there was developing a major problem far beyond that. The underlying growth of the airline business was still being demonstrated and is still being demonstrated. What figures, if any, have you got of growth patterns of the industry over the next ten years?
(Mr Griffins) Are you talking about growth patterns of the air traffic control service provision or the aviation industry as a generality?
Mr Donohoe: Both if you want to.
223. If we could restrict ourselves to the airline industry that might give us some indication. We can assume that capacity will grow because you have just given us that assurance, have you not?
(Mr Griffins) Yes and the demand for air services, according to the Department's forecasts, which I can let you have but I cannot quote off the top of my head, are certainly growing.
224. It is of the order of seven per cent per annum in real terms over the next ten years and if that is the case the business plan produced by the NATS Group is not going to work.
(Mr Griffins) If there is a growth of seven per cent per annum.
225. They are presuming there will be a growth of seven per cent per annum of air traffic control over the ten-year period of the investment they have put out in the business plan.
(Mr McBrayne) That would be in keeping with the growth pattern we have seen over the last few years. I think it assumes that there is a recovery from 11 September, albeit over time.
226. Precisely my point, because regardless of the events we have had and how terrible they may have been, the fact is it is a blip in the calculations and it is not for anybody who is considering investing over a ten-year period a very important blip in itself.
(Mr McBrayne) We believe and hope that is correct.
227. If that is the case then why is it that there was ever a programme that brought us towards the present situation as far as PPP is concerned, given the investment of the Government in the figure that we accepted in the Transport Committee is some £1 billion over ten years, which is almost identical to the figures put in the business plan of NATS now, and for the last full year there has not been any investment of any description at all?
(Mr McBrayne) This may be a minor point in your thesis but the last point is not quite correct. There has been a significant amount of capital expenditure of an on-going maintenance kind. There has not been substantial expenditure on new projects.
228. There has been no expenditure on new procurement systems in the last year, none whatsoever. Based on that, and more parochially, can I ask you a question on the specifics of the Prestwick centre itself. What does the Government do in terms of checking as to the programme so far as the investment is concerned, particularly of the equipment that will be required? Are you not concerned yourselves that there are no real figures to demonstrate that that should bring any confidence to those that wish that centre to be built?
(Mr Jamieson) There is every confidence that the centre will be built. We have an absolute determination that it should be built. NATS have made that very clear and the financial planning and the projections that are involved in that financial planning demonstrate that that is the case. We know it is 18 months to two years late.
229. But, Minister, they are using as an excuse for that delay the events of 11 September. I have already outlined to you initially in the question I asked the fact that over the ten-year period we are going to get a seven per cent mark up per annum. How is it possible for anybody in those circumstances, without you challenging them, to delay a centre which will be required, of that there is no doubt, and you as a Government Minister and the Government in general have accepted this two-year delay, when you are looking at an upward trend in air traffic and the necessity for such systems is very apparent to even those at the periphery of the industry?
(Mr Jamieson) I accept that that growth may take place in the next few years.
230. That is almost a certainty in terms of patterns.
(Mr Jamieson) It is the extent to which that growth takes place that is still difficult to predict.
231. We are not very happy about the fact you do not seem to be putting on a great deal of pressure. Mr Donohoe wants to know why you have not put any pressure on those who have given undertakings and have not so far put any money in the system.
(Mr Griffins) Some comfort for those concerned about Prestwick should have been derived from NATS' announcement as recently as this weekend and the Government's confirmation that the two-centre strategy is a requirement. It was a requirement set out in the contract with our strategic partner. Also in response to Mr Donohoe, to sign up to the kind of growth he has indicated, to sign up to the concept that that will definitely eventuate goes against a lot of your line of questioning as a Committee previously. If you are claiming that NATS as a company needed to be more robust just in case there were other impacts similar to the very severe impact which followed 11 September, I do not think we are in a position simply to breathe out and say, "That was a blip, it is all growth from now on".
232. Minister, you will give us an undertaking to look at this again and see whether you need to talk?
(Mr Jamieson) Yes indeed.
Mr Campbell: Are you content with NATS' current operating costs?
Chairman: I think one of you perhaps ought to answer.
233. It would be helpful.
(Mr Griffins) We have set a system of economic regulation in place. The costs are being controlled through that system of economic regulation and customers at the moment appear to be getting, certainly in terms of increases in the current year, a better deal than customers elsewhere in Europe.
234. I am not clear. If we look at the range, people can be delighted, absolutely completely satisfied, or they can be appalled, and then there is the middle. Where are we in that answer?
(Mr Griffins) The Government is not a customer of NATS nor is the Government the day-to-day operator of NATS so the Government is not incurring those costs nor is it contributing to covering those costs.
Chairman: It is however a shareholder and most shareholders have a view on how the companies in which they hold 49 per cent of the shares are performing.
235. If I can rephrase it; are you very happy with costs, fairly happy with costs or very unhappy with costs?
(Mr Jamieson) What Mr Griffins is saying is that it is up to the airlines who are the direct customers of NATS to be on that spectrum somewhere. What we can say is that NATS have made very substantial efficiencies. Looking at the circumstances they are in, the increases that they are seeking are very, very modest in comparison to the increases that have already been imposed in a number of other countries. As a comparator that is very helpful to us.
236. Do I take it that the Department do not have a view on the operating costs?
(Mr Griffins) Not on the operating costs. Can I echo my Minister and offer a gratuitous compliment to the NATS management. In a perverse way the test of 11 September has brought out an exemplary reaction on the part of the new NATS management.
Chairman: Now I suspect Mr Griffin you are getting into slightly controversial areas. I do not think Mr Campbell has had his answer. Mr Bennett?
Andrew Bennett: Is a 21 per cent cut in staff numbers a good idea at NATS?
237. How does that eventuate?
(Mr Jamieson) The company have to operate in a commercial way and the company have to operate in the circumstances in which they find themselves. What they are doing is they are increasing the number of people at the sharp end of air traffic control.
238. Overall they are cutting the numbers by 21 per cent.
(Mr Jamieson) If that is appropriate. What we have to make sure is that the system is safe.
239. You are satisfied that 21 per cent can be cut and it is still safe?
(Mr Jamieson) What we are satisfied with is what is happening is safe and the CAA have an absolute role in making sure that happens. We as responsible government and as the shareholder have to be absolutely assured of that. If we felt that any of the cuts in staff were impinging upon the safety of the airlines we would certainly have a very strong view about that.