Examination of witnesses (Questions 245-259)
MR RICHARD EVERITT AND MR COLIN CHISHOLM
TUESDAY 11 JUNE 2002
Chairman: Good afternoon, gentlemen. Before we begin we do have a little bit of housekeeping to carry out.
Mr Stevenson: George Stevenson, member of the Transport and General Workers' Union.
Chairman: Gwyneth Dunwoody, Rail, Maritime and Transport Union.
Mrs Ellman: Louise Ellman, member of the Transport and General Workers' Union.
Miss McIntosh: Anne McIntosh whose husband is an airline executive at Delta Airline and I have an interest in BA, BAA and BAE.
Chris Grayling: Chris Grayling, I have no current links but my old company has done work with NATS.
Chairman: Your company was?
Chris Grayling: Burson Marsteller.
245. Thank you very much. That is a nominal interest. I think you now know, gentlemen, all there is to know about us so perhaps we can now find out something about you. Can I ask you first of all to identify yourselves for the record.
(Mr Everitt) I am Richard Everitt. I am Chief Executive of National Air Traffic Services.
(Mr Chisholm) Chairman, I am Colin Chisholm, the Chief Operating Officer of NATS.
246. Thank you. Gentlemen, have you concluded the competition to find a suitable candidate for additional equity?
(Mr Everitt) I think to say we have concluded would not be quite correct. We have had extensive discussions with BAA and BAA have indicated that they will be prepared to make an investment in NATS, yes.
247. What happens if you do not find a firm offer from a new investor in place by the time your September deadline runs out?
(Mr Everitt) We have concluded heads of terms and we now are moving into a position of hopefully concluding a firm contract. I think we are very optimistic that that will be successful and, as the Chairman indicated at the last hearing, that is an important part of the solution of finding a sound financial basis for NATS.
248. Yes, because you have got a deadline, have you not?
(Mr Everitt) We have a short-term loan facility which expires at the end of September. We have not yet drawn on that loan facility, we will do so at the end of the month.
249. Could I ask does NATS believe that the public-private partnership has been a completely useless deal?
(Mr Everitt) I am sorry, I could not hear you.
250. PPP, has it been a completely useless deal?
(Mr Everitt) No, not at all.
251. What is the future then for NATS as regards the PPP?
(Mr Everitt) We have a PPP structure in place in which the Government is our biggest shareholder. We have faced an unprecedented set of circumstances and I think as a team we have responded to that set of circumstances in the way that you would expect us to respond. We have looked at our costs and we have identified how we are going to reduce our costs over four years by just over £200 million. We have gone to our regulator to seek an adjustment to our price formula and we have sought additional investment support and we are well on the way to securing that, I think, having now identified BAA as the new investment partner. We would expect, as they would expect, that the Government will seek to maintain its 49 per cent shareholding. In addition, so far as our customers are concerned, we have actually reduced our prices this year despite a 17 per cent reduction in our income relevant to our forecast.
252. Is there any truth in the fact that it has been suggested by someone in NATS that it will limit the freedom that you were looking for in the movement of investments, etc.? Is there any truth in that, that you are concerned about freedom?
(Mr Everitt) No, I am not overly concerned about freedom. Where we are at the moment is we are having to take a very cautious view about how we use our cash while we sort this refinancing out. It is by a careful use of our cash over the last nine months that we have managed to live on our cash flow over that period and not increase our borrowings. Certainly the objective of this is to get ourselves on to a much firmer financial basis and I think the sort of work that we are doing offers the prospect, if we can get everybody aligned, to achieve that.
253. What are the prospects of getting everyone in line?
(Mr Everitt) I think they are reasonably good. The CAA, of course, as the Committee will be well aware, has issued its consultation document in which it rejected our initial application but it has signalled possible courses of action that it would be prepared to consider if our customers supported them. What I am focused on, and indeed what we as a team in NATS are focused on, is the investment and talking to the customers as I do regularly, and indeed have seen three of them in the last four days, it is very clear that they are prepared to pay a price to secure the investment but they want to make sure that price is a reasonable price. I think we can put a package together, as the CAA have invited us to do, which will allow us to get ahead with the investment programme.
254. Has BAA given an indication of what amount they will be investing?
(Mr Everitt) Yes, they have indicated between £50 million and £65 million. If that were matched by Government we would be talking between £100 million and £130 million. It is not a gift, clearly it is an investment.
255. I suspected it might not be a gift, Mr Everitt. I am not quick on the uptake, in fact I rarely understand what is told to me, but on this occasion I did suspect it was not a gift.
(Mr Everitt) My apologies.
256. I understand that three-quarters of your revenue comes from the non-Airline Group of airlines. Have they expressed a view on your application for an increase in charges?
(Mr Everitt) I think it is right to say yes, it is about three-quarters, just under three-quarters. We are in close contact with IATA as the main representative of the non-Airline Group airlines, indeed we have the Secretary-General of IATA on our board. We have not yet got a concluded view from IATA but we will be seeing them in the course of next week and keeping them informed of the way our thinking is going.
Miss McIntosh: Is my understanding correct that in the way the charges are levied some might argue there is discrimination in favour of the low cost, no-frills carriers, particularly those operating new routes working against the interests of the regular scheduled carriers? If that is the case, or if it is perceived to be the case, are you seeking to rectify that in the review of charges?
257. Answer yes or no.
(Mr Everitt) I do not think it does discriminate, no. We have a common charge. What you might be referring to is that the Eurocontrol charging base on which we are required to operate is based upon weight and distance. I think our operation is particularly complex because we have about 85 per cent of aircraft that take off or land from UK airports. That complexity is not readily recognised in a weight and distance formula. It is quite a complicated subject, I am afraid.
258. If I can just hold you there. Is my understanding correct that if the scheduled carriers are taking a lot of the cargo their weight volumes will be higher so their charges will be higher?
(Mr Everitt) No, I do not think that is quite the point because
259. Mr Everitt, do you want to give us a note on this because I do not want to spend a long time on weight versus distance versus X.
(Mr Everitt) I would be very happy to give you a note on that.