House of Commons - Transport, Local Government and the Regions

Select Committee on Transport, Local Government and the Regions Eighteenth Report

IV. THE NEW BUSINESS PLAN

37. NATS has formulated a "new ten-year investment plan which will put £1 billion into new air traffic systems", increase capacity by 50 per cent, reduce delays by 40 per cent and allow it to handle a further one million flights a year by 2011.[95] Central to its plans are cost savings of about £200 million by reducing staffing costs, "procurement efficiencies" and rationalisation of operations into fewer sites.[96]

38. NATS has pressures on both its operating costs and capital expenditure. It states that it has "already reduced its planned expenditure aggressively", and notes not only that there is no realistic scope for further reductions, but also that there are "significant challenges" in achieving those reduced targets.[97] It states that:

(b) there is no contingency for operating costs overruns within the NATS business plan"."[98]

39. NATS concluded that "there is no realistic opportunity to cut back on its operating costs below current budgets and even current operating costs budgets are under severe pressure".[99] It also contends that there is a trend toward "a culture where the opportunity for savings and deferments starts to become a more central objective than successful operation and development of the business".[100]

Staffing issues

40. NATS' business plan includes a reduction in overall staff numbers "as a result of modernising and standardising NATS equipment systems".[101] The planned staff reductions are in air traffic assistants, engineering, support and through reducing the use of contractors.[102]

Figure 3: Planned number of staff, 2002 to 2006[103]

	2002	2003	2004	2005	2006
Air Traffic Control Officers	1946	1940	1972	2001	2033
Air Traffic Control Engineers	1346	1229	1170	1122	1049
Air Traffic Services Assistants	1144	1016	966	884	866
Management and Support	1089	907	828	801	695

41. Figure 3 shows the changes planned to the number of air traffic control officers, engineers and assistants, and management and support staff. The company intends to increase the number of air traffic controllers.[104] NATS has just under 2,000 air traffic controllers and plans to train 130 to 140 a year in order to reach a total of 2,200 in five years' time.[105] There have been staff shortages, and Mr Everitt, chief executive of NATS described it as a challenge even to maintain the number of air traffic controllers.[106]

42. NATS intends to reduce the numbers of engineers by about 200 over the next four years.[107] The Guild of Air Traffic Control Officers is concerned that engineering staff reductions will be a "simple 'numbers exercise' with financial savings as the sole criteria".[108] It was also concerned that the emphasis on reducing the numbers of contractors would have a serious impact on core skills in research and development. Many essential skills are provided by contractors, with permanent staff acting primarily as managers of the programmes.[109] The reduction in engineering staff seems misplaced given the probability of teething problems with the new systems at Swanwick. Engineering skills will be essential for NATS to develop and expand. Experience has shown that loss of engineering expertise is not easy to recover.

43. NATS plans to reduce the number of air traffic service assistants from 1,144 to 866 by 2006 through "the implementation of new technologies, automating functions currently performed by assistants".[110] One of the roles of the air traffic assistants is to provide vital support to controllers during manual operation in the event of a computer failure.[111] Mr Everitt told the Sub-Committee:

112

Mr Chisholm told us that when considering "downsizing linked to technology", it was important to be sure that the technology was "sufficiently robust and such instance would be very, very rare and when they occurred you would still have an adequate manual fallback".[113] NATS confirmed that it would not "remove those assistants", if there were doubts that such events would be very rare, or that there was "sufficient adequate fallback without those assistants".[114] At present NATS is not convinced of either of rarity of such events or the adequacy of the fall back position.[115]

44. We are not convinced that NATS' systems are sufficiently robust to enable it to reduce the numbers of safety-critical staff. Air traffic control assistants are vital to the safe operation of air traffic control, and it is incredible that NATS intends to reduce their number so soon after moving into a new, highly complex operating environment. It is essential that NATS and the CAA clearly demonstrate a substantially greater level of robustness in computer equipment at Swanwick before embarking on the planned reductions.

45. Prospect criticised NATS' decision to run down the Business Development Unit, without which it would not be expected to increase the vital income provided by selling its expertise abroad.[116] NATS must balance its need to reduce costs with its future development. The opportunities for NATS to sell its expertise to others and develop new sources of income should not be missed for short-term financial savings.

DISPLAY SCREENS

46. In January 2002, the Health and Safety Executive (HSE) assessed the display screen equipment at Swanwick air traffic control centre. It identified concerns relating to the clarity and readability of certain information on the display screens, and to the design of keyboards and workstations. It had been reported that confidential safety reports by air traffic controllers at Swanwick had referred to difficulties in distinguishing certain figures and letters on the new radar display screens, which had led to controllers misinterpreting the altitude and destination of aircraft. NATS confirmed the existence of the reports but disputed their interpretation.[117] The HSE sent a report to NATS on 15 March 2002 detailing its concerns and asking for an action plan.[118] NATS accepted all of the HSE's recommendations, established a joint working group and is prototyping changes to the screen fonts.[119] The company aims to have the changes in place in November.[120] According to NATS and the CAA Safety Regulation Group, at no time has safety been jeopardised as a result of the display screens at Swanwick.[121]

Capital expenditure plan

47. Under its licence NATS is required to implement a significant investment programme. Its current financial situation has led to its lending banks withdrawing access to its existing capital loan facility.[122] Its lenders state that "at present it is unlikely that NERL will be able [to] meet the reinstatement conditions attached to the existing long-term facility for capital expenditure, or to secure new funding from other sources".[123] NATS calculates that a cashflow shortfall of about £100 million will result from not having access to that facility, which represents about a quarter of the "already reduced capital expenditure currently planned for the remainder of the first Control Period"[124] NATS notes: "Over 60% of the planned capital expenditure in CP 1 is essential for sustaining safety, capacity and service continuity at their existing levels."[125] The net effects of a reduction in NATS' capital expenditure could be "significant additional capacity constraints" towards the end of the decade, increased operational expenditure in the short to medium term, and higher charges in the second control period .[126] Annex 1 provides NATS' breakdown of the reductions in its capital investment plans in CP 1, which it values at £97 million.[127]

48. As part of the reassessment of the capital investment plan, NATS decided to defer completion of the new air traffic control centre at Prestwick in Ayrshire. The Prestwick centre has had a long history of false starts and delays in its planning, funding and construction. The previous project completion date target of 2007 has now been delayed by a further 18 months to two years.[128] However, NATS has confirmed that site preparations and piling work have been completed, and reaffirmed its long term commitment to build the new centre.[129] We welcome the statements of commitment to the Prestwick centre, but, given the financial considerations and the inauspicious precedent set at Swanwick, we find it highly unlikely that it will be operational until well after the new intended completion date in 2009.

49. NATS' capital investment programme is critical. A failure to deliver the improvements in capacity will have dire consequences for the aviation industry and the United Kingdom economy. The capital programme is an essential plank in the company's business plan that would allow a rationalisation of operations into fewer sites.

COMPUTER FAILURES

50. NATS's computer systems has failed three times in recent months—at West Drayton on 27 March and 10 April, and at Swanwick on 17 May.[130] Mr Everitt explained that the failures at West Drayton were caused by the flight data processor, which is a "piece of software ... 20 or so years old".[131] The failure at Swanwick involved a communications fault between workstations, which arose following a routine operation to enter data overnight.[132] NATS is conducting an inquiry into the incidents to establish whether further adjustments are required to ensure the long-term robustness of the system.[133] Both NATS and the Government are content that safety was not compromised by any of the failures at West Drayton or Swanwick.[134]

51. If NATS' business plan is to succeed, the company must demonstrate that its computer systems are robust and will increase the productivity of its controllers. The Committee is not convinced that the systems at Swanwick have shown either the necessary robustness or the productivity required.

52. NATS is not required to pay compensation for the delays that it caused. Ryanair state that "all airlines were forced to refund passengers for cancelled flights due to the sheer incompetence of NATS", and recommends a "compensation mechanism that would make NATS accountable directly to passengers for long delays and cancellations caused by their continuing inefficiency".[135] NATS confirmed that it was not intending to pay any compensation because it is exempted from doing so under the Transport Act 2000[136] The Committee recommends that the Government reconsider the exemption from compensation. NATS is supposed to benefit from the private sector pressures introduced by the PPP. It should be subject to the pressures of financial penalties in situations where it has failed to deliver its services to its customers.

Longer term prospects in air traffic control

53. The Government supports proposals for a Single European Sky, which involve greater interoperability between the various suppliers of air traffic services. The Government stated:

"In the long term, closer integration between Europe's air traffic service providers seems likely, particularly given the need to enhance efficiency so that future air traffic levels can be accommodated safely."[

137

The project does not require the integration of service providers but focuses on more collective management of the European air traffic management system. In the long term, closer integration between Europe's air traffic service providers seems likely, particularly given the need to enhance efficiency so that future increases in air traffic demand can be accommodated safely.[138] The Committee doubts that a financially vulnerable NATS would be able to play an appropriately significant role in a more centralised European air traffic control service.

54. New satellite-based air traffic control systems are being developed that would remove the requirement for service providers to be geographically close to the air space they control. NATS is not in a position to be the leading player in these advances in air traffic control and is in danger of losing customers in the longer term. The Government must react to the possible erosion of NATS revenues by alternative providers of new air traffic control technologies. At present, NATS is far from capable of meeting the challenges of the long term future of air traffic control services in the United Kingdom. The cost-cutting and penny-pinching mentality foisted on NATS merely to survive will leave it ill-equipped to compete with the new satellite-based air traffic control service provision being developed in Europe and North America.

95 QQ 1, 18; HC Deb, 10 June 2002, col 759w. Back

96 Q 270; Ev. pp 75-77. Back

97 NATS' Response, para 3.10. Back

98 Ibid, para 3.12. Back

99 Ibid, para 3.15. Back

100 Ibid, para 3.28. Back

101 QQ 18-19; Ev. p 52. Back

102 QQ 80-84, 270. Back

103 Ev. p 76. Back

104 Q 79. Back

105 QQ 20-22, 78. Back

106 Q 79. Back