Examination of Witnesses (Questions 380-399)
MR DAVID JAMIESON, MR ROY GRIFFINS AND MR IAN MCBRAYNE
TUESDAY 11 JUNE 2002
Chairman
380. Thank you for coming, Minister. I apologise for keeping you waiting. We do know our place but, unfortunately, people will hold votes in the middle of sessions. Can I ask you, firstly, to identify yourself and your colleagues?
(Mr Jamieson) Mrs Dunwoody, I am David Jamieson, Parliamentary Under-Secretary of State at the Department for Transport.
381. And you have brought with you?
(Mr Griffins) I am Roy Griffins, Director-General of Civil Aviation, at the same department.( Mr McBrayne) Ian McBrayne, Head of the Civil Aviation Division in the same department.
382. Do you wish to say something, briefly, to us, Minister?
(Mr Jamieson) Yes, Mrs Dunwoody. Firstly, can I say it is a pleasure to be here again. I think this is the third time I have been in front of your Committee in as many months.
383. We are both honoured and flattered, Minister.
(Mr Jamieson) Not as honoured and flattered as I am, Mrs Dunwoody. I think if I appear any more often people may begin to talk.
384. Some of us have only got rumour left, Minister.
(Mr Jamieson) Can I say this is an important subject, and quite rightly your Committee has concerned itself with this matter over a number of years, and the fact that you are having a second oral hearing over your present study is a clear demonstration of the importance which you attach to the fortunes of NATS at the present time. I welcome that and my colleagues and I are pleased to have a further opportunity to assist in your deliberations. The Government believes that the stability of NATS, operational and financial, is crucial. Operational matters are principally a matter for NATS themselves—their management—and I know they have appeared before you earlier this afternoon. There have been some glitches recently which, of course, we all regret. Great care was taken to ensure that safety was not compromised. That is of paramount importance to us in Government and, of course, to you and to all travellers and users of the air services. Fundamentally, NATS' operations continue to demonstrate the technical excellence for which they are so well-respected, and I think it is a tribute to the management that the new control centre at Swanwick has opened successfully and on time, despite the distractions of NATS' financial position. NATS' long-term financial stability is a responsibility shared by a number of parties. You have already heard this afternoon from two of those parties, NATS themselves, who are making considerable efforts to reduce their costs through increased efficiency, and the CAA as the independent regulator, which since the last hearing has set out its ideas on the way forward on pricing. The Government, Mrs Dunwoody, as a responsible shareholder will play its part too. We discussed last time what that part might be, and we are ready today to try to answer whatever further questions you may have for us.
385. That is extremely helpful, Minister. Could I just say that last time you said "NATS is a partnership between ourselves, the Airline Group and the employees." The reality is a bit different, is it not? The partnership is with the £730 million stake that the banks have got in the company, which gives them rather a whip hand, does it not?
(Mr Jamieson) What I said, Mrs Dunwoody, at that time was that the interested parties were ourselves, the Airline Group and the employees. We, as a Government, have an interest in safety and the smooth running of our airlines, but we also have a specific role as the custodians of the shareholding the Government has as well.
386. Yes, but the point is, surely, that if I have a £730 million stake in your partnership I am going to be a pretty big partner, am I not?
(Mr Jamieson) Yes, I think that is true, Mrs Dunwoody.
387. So it is not quite true to say the partnership is between the three other members, is it?
(Mr Jamieson) I think it is a partnership between the three parties who have an interest and have a stake in that.
388. Then let me ask you something different: if you allow for the deduction of fees to advisers, the repayment of debt, the latest loan or grants from the Government, could you tell us what the net receipt from the NATS' PPP to the CAA and the Government has been? Mr Griffins is always full of precise information. I am sure he has that at his fingertips.
(Mr Griffins) No. I can work towards it. The receipts on the day of the establishment of the PPP were, I believe, £765 million.
389. That is the overall—what the Americans call—ballpark figure?
(Mr Griffins) I think that was a precise figure. I think £800 million had been the ballpark figure. The Government took £35 million in deferred proceeds, which is in a loan note, which is currently in NATS, and receipts of £765 million. The only money that the Government has advanced since then has been a loan on exactly the same terms as the banks of £30 million and £30 million has come from the banks, and that is a short-term lending facility which runs out at the end of September.
390. When we come to the charges, the CAA did tell you it might be necessary with the company's financial structure to review NATS' charges soon after privatisation. Did you accept that argument?
(Mr Jamieson) We certainly took that argument into consideration with the points made at the time. I think, with hindsight, if we look at how NATS has operated over the time from its inception, I think had the events of September 11 not taken place we would have seen a company that would have been in a good financial condition. I see the CAA in the document also do say that it is a sound company and they make a lot of good comments about it. I think had the events of September 11 not happened we would have been here today saying it was sound financially as well.
Mr Donohoe: Can I ask a question on this point? Are you saying, Mr Griffins, that it is £30 million the banks have staked, not £730 million?
Chairman
391. No, Mr Griffins, I think, was saying £765 million was the original figure, £35 million in a note and £30 million from the Government.
(Mr Griffins) Since then, this is a fairly recent, short-term loan, £60 million in total was put in equally by the lending banks of £30 million and the Government's contribution of £30 million. I think the £730 million figure was the senior loan which is within the company and owing to the lending banks arising from the original deal.
Chairman: We will come back to that.
Chris Grayling
392. Can I take the Minister to the evidence that we took earlier from NATS relating to their discussions with BAA? To begin with they talked about a figure potentially to be raised from an agreement with BAA of between £50 and £65 million, for which they implied they would be seeking match-funding from the Government. Clearly that is a step ahead of any figure we have seen previously. At the evidence session we held a month or so ago there was talk of an additional £100 million being required, so an additional £30 million on top is a more substantial commitment generally from both the private sector and from the Government. Can you say what the Government's view is of that potential increase in funding requirements?
(Mr Jamieson) I believe that the Heads of Terms Agreement has been settled with BAA and I think that has now been put in the public domain in the hearing that you had.
Chairman
393. There is an element of dispute about that, I think, Minister. Mr Griffins will mutter in your ear if asked.
(Mr Jamieson) I am sure he will, Mrs Dunwoody. I believe a figure of between £50 million and £65 million has been talked about. What we have said consistently is that the Government would match the appropriate private sector contribution. I think what we have to accept in all this is that had we not got a PPP then the Government would have found itself in a position of providing all of that extra funding that NATS needs at the present moment. So we are providing our share of that, if you like, when the appropriate time comes and when a figure comes before us.
Chris Grayling
394. Are you satisfied that the raising of that finance—and we have heard from NATS earlier that they are planning to raise that finance partly in the form of debt finance rather than equity and that it will also be used to reduce or to pay off existing debt, with the implication that the money is coming in at one end and going out at the other—will strengthen NATS' balance sheet to a point that it is more able to withstand the kind of turbulence we have seen in the past year?
(Mr Jamieson) We have not seen the details of that yet, and when we see the details of any agreement that is in an embryonic stage then, obviously, we will look at all aspects of that because we want to satisfy ourselves that the long-term financial future of NATS is secure.
395. You will recall that last time we had a discussion about an exchange of letters between yourself and Sir Roy McNulty last summer. Have you received any more recent representations of concern from the CAA or any guidance or any opinions that they have put into the frame to try and shape what the Government's view is in relation to the refinancing of NATS in order to strengthen the balance sheet?
(Mr Griffins) There has been nothing specifically from the CAA to us. The CAA has been consistent in its views and these views are reflected in the consultation document to which you have referred earlier. Could I clarify that Sir Roy McNulty's letters to me earlier in the year were not in his position as Chairman of the CAA but he was then the Chairman of NATS.
Chairman: That makes it totally different, thank you.
Chris Grayling
396. From your own perspective, are you still getting expressions of concern from the CAA about the financial structure of NATS or not? Has that trail gone quiet or are they still banging on your door?
(Mr Griffins) I repeat that the CAA has been consistent in its views, and those views are reflected in its response to the original application by NATS and in its consultation document.
Chairman: Oh we do enjoy having you here, Mr Griffins, we really do.
Chris Grayling
397. So, in reality, their view has not changed and there are still concerns.
(Mr Griffins) I think the concerns, insofar as they do remain, were expressed only about ten minutes ago by the now Chairman of the CAA, who is Sir Roy McNulty.
Chairman: You are not going to get any further with that.
Chris Grayling
398. One of the concerns has to be—and I ask you this from your perspective as shareholders in NATS—the European aviation market is potentially in for quite a fluid period; there is discussion about a European sky, there is projected growth in the low-cost sector but, at the moment, NATS appears to be plugging holes in the dam rather than investing for the future or being in a position to invest for the future. Are you concerned that its balance sheet will not be strong enough to take advantage of the opportunities that may exist down the track?
(Mr Jamieson) I think, Mrs Dunwoody, it is important in getting financial stability that, in fact, it can meet those targets. I think the new package should allow, I believe, another one million passengers to be handled, so yes that is an important feature. Just coming back to the point about the CAA, I think what is different now is that in the executive summary of the consultation document in Section 1.5 the CAA do set out very clearly their view of NATS and they say it is a successful commercial entity and they say that the revenues are higher than the costs. All sorts of things there are very encouraging but, like us, they do share concerns about the financial structure. We have concerns about that, which we share with them. That is precisely why we want to see the new equity partner come in and that is why, as a shareholder, we want to play our part in making sure that the financial future is rosy for them.
399. It is not an equity-share partner, it is a debt partner. It is quite an important difference, if the money has to be repaid, as I understand it. I guess the question underlying what I am saying is: is this it? We have gone from a point where seven or eight months ago the department was certainly giving rise to the belief that there would not be extra funding required, but we have since had some emergency loans and we are now talking about the Government putting in £65 million more cash, which is a figure which has risen in the last few weeks. Is this it?
(Mr Jamieson) I think if we had not had September 11 we could have said it was it back when the PPP was set up. It has succeeded, it has worked and I think there would have been financial stability now had we not had that event. What we cannot say is what other major, huge catastrophic event may take place, although, of course, we hope that that does not happen. Notwithstanding something totally unexpected, I would say that this is it—in terms of the financial settlement.
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