TUESDAY 11 JUNE 2002

__________

Members present:

Mrs Gwyneth Dunwoody, in the Chair
Andrew Bennett
Mr Gregory Campbell
Mr Brian H Donohoe
Mrs Louise Ellman
Chris Grayling
Helen Jackson
Miss Anne McIntosh
Mr Bill O'Brien
Mr George Stevenson

__________

MR DAVID JAMIESON, a Member of the House, (Parliamentary Under-Secretary of State, Aviation), MR ROY GRIFFINS, Director-General, Civil Aviation, MR IAN McBRAYNE, Divisional Manager, Civil Aviation Division, Department for Transport, examined.

Chairman

  1. 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?

    2. (Mr Jamieson) Mrs Dunwoody, I am David Jamieson, Parliamentary Under-Secretary of State at the Department for Transport.

  2. And you have brought with you?

    3. (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.

  3. Do you wish to say something, briefly, to us, Minister?

    4. (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.

  4. We are both honoured and flattered, Minister.

    5. (Mr Jamieson) Not as honoured an flattered as I am, Mrs Dunwoody. I think if I appear any more often people may begin to talk.

  5. Some of us have only got rumour left, Minister.

    6. (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 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.

  6. 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?

    7. (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 that shareholding the Government has as well.

  7. 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?

    8. (Mr Jamieson) Yes, I think that is true, Mrs Dunwoody.

  8. So it is not quite true to say the partnership is between the three other members, is it?

    9. (Mr Jamieson) I think it is a partnership between the three parties who have an interest and have a stake in that.

  9. 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 Griffin is always full of precise information. I am sure he has that at his fingertips.

    10. (Mr Griffins) No. I can work towards it. The receipts on the day of the establishment of the PPP were, I believe, £765 million.

  10. That is the overall - what the Americans call - ballpark figure?

    11. (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.

  11. 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?

    12. (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 Griffin, that it is £30 million the banks have staked, not £730 million?

    Chairman

  12. No, Mr Griffins, I think, was saying £765 million was the original figure, £35 million in a note and £30 million from the Government.

    13. (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

  13. 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?

    14. (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

  14. There is an element of dispute about that, I think, Minister. Mr Griffins will mutter in your ear if asked.

    15. (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

  15. 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?

    16. (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.

  16. 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?

    17. (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

  17. 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?

    18. (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

  18. So, in reality, their view has not changed and there are still concerns.

    19. (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

  19. 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?

    20. (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.

  20. 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 believe 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?

    21. (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.

    Mr O'Brien

  21. Are you anticipating that British Airports Authority will become a strategic investor in NATS? If so, by how much?

    22. (Mr Jamieson) That would appear likely, yes.

  22. If BAA do not invest, where will NATS make up the shortfall in the future?

    23. (Mr Jamieson) If they do not, then they would have to seek another equity partner.

  23. Will the Government be involved?

    24. (Mr Jamieson) At the moment the commitment we have made is what we would match any funding that had been raised through the private sector. That is our assurance we have given at the moment.

  24. In this discussion of BAA investing in NATS have they approached the Government for concessions in any way?

    25. (Mr Jamieson) No.

  25. Would it alter your policy on the airport capacity in the south east?

    26. (Mr Jamieson) No.

  26. Has that been raised?

    27. (Mr Jamieson) No.

  27. Are NATS or BAA suggesting that BAA's involvement is dependent on the stimulus of a financial contribution from the Government? Have they raised this at all?

    28. (Mr Griffins) I have been slightly closer to these talks than the Minister. On that one, I cannot give a categorical no. I think there is an expectation. I think, indeed, there is an expectation on the part of all the parties involved in putting together this financial solution that each will play a part; that is to say, NATS, the existing shareholders, the new potential shareholders, the regulator (and I saw signs that the regulator recognises that) and the lending banks - the financiers, as he called them.

  28. How firm is the consortium, the arrangements, that you refer to? How far advanced are they?

    29. (Mr Griffins) The hope is that in order to meet the timetable set out in the CAA's process there will be a proposition which is on the way to being formed to be put to the CAA when NATS goes back to the CAA in order to meet the timetable on 21 June. The CAA has said that it hopes then to come to a decision by the end of July. I can envisage an iterative process carrying on during the period.

    Chairman

  29. There are a lot of nods and winks in that, Mr Griffins, are there not?

    30. (Mr Griffins) Yes, but it does have a couple of firm dates in it.

  30. It has a couple of firm dates if everybody does what they mildly understand to be the case. The CAA tells us "We have not been involved, we have not been asked for anything special, we do not expect to be reaching that conclusion"; you say to us "I am very clear, all the parties concerned must have a say"; we say to you "Have any concessions been asked for?"; you say "No". You then say "Nevertheless, of course, the package put together will have to be looked at with all of the parties contributing something". I may be naive but it seems to me there is a little tiny gap here and there opening up. Am I wrong, Mr Griffins? I can deal with Mr Jamieson later.

    31. (Mr Griffins) I do not think there is a gap appearing, Madam Chairman.

    Andrew Bennett

  31. It is wide open!

    32. (Mr Griffins) It was wide open and what we are trying to do is bridge the gap, and I think when the solution is reached - and I believe there will be a solution reached - the gap will have been closed.

    Chairman

  32. When a solution is reached, of course, but if there is not a solution reached then it will not be closed. The reality is, are you assuring the Committee that there is now a firm timetable, that everybody knows the part they have to play and they are already prepared to come up with something in order to make that formula work?

    33. (Mr Griffins) I cannot give that assurance on the part of organisations for which I am not responsible. However, I am sitting here with my Minister and I know the Government is prepared to do that.

  33. So the fact that some of those organisations do not seem to fully understand the situation is because nothing has been decided?

    34. (Mr Griffins) I believe each of those organisations that I mentioned is fully aware of the part that it has to play and I think the ones you have heard, even so far today, have demonstrated that they understand it.

    Mr O'Brien

  34. I come back to the original question: in view of the situation as you outline - the doubt, the gaps and everything else - if BAA decides not to fund where will the shortfall be made up? Will it be the Government?

    35. (Mr Jamieson) Perhaps I inadequately expressed my answer a moment ago. We would have to face that situation if it arose, but at the moment there are negotiations that are on-going and if those negotiations are successful then the Government will look to maintaining its shareholding of 49 per cent, but that situation has not arisen yet. At the moment we do not anticipate the whole of that amount being provided by Government.

    Mr Donohoe

  35. When NATS was brought into being as its present form, we were told that part of the selling of it was that you would be able to sell this system abroad. How confident are you, as a Government, that that is likely?

    36. (Mr Jamieson) I think what we have seen of the operation of NATS, both before it was in the PPP and after, is that it is highly successful at doing its job and - dare I say - I think it is, if not the best in the world, it reflects some of the best practice that there would be in the world.

  36. As a fairly major shareholder, how much have you estimated to build into its future over the next ten years is going to be on the basis of investments going into foreign countries?

    37. (Mr Jamieson) I do not think that has been part of our consideration.

  37. Why is it that NATS is amongst the highest chargers in Europe?

    38. (Mr Jamieson) That is a very good question. Previously it was in the state sector and it ran a high-quality service but some would argue that perhaps it was inefficient. What we have seen since the PPP was set up is that they have had to find cost-savings, there are great efficiencies now with the systems and equipment they are using and we have moved from being the highest chargers in Europe now down to about the third-highest in Europe. That is partly because other European countries, since September 11, have had to put all the extra costs that they have incurred on to the users, whereas in real terms NATS charges are actually still falling. There are very few other European countries - and certainly not any major countries - where that is in fact the case.

  38. What approaches, if any, have you had from SERCO?

    39. (Mr Jamieson) You mean as a Government? I am not aware of any approaches.

  39. Do you expect to have any approaches from SERCO, given the situation is now very much in the balance? I put this as a question earlier to NATS. When the original bid was made they were the second-highest bidder.

    40. (Mr Jamieson) I could not anticipate whether or not SERCO would be making any approaches to us.

    Chairman

  40. I think we want to move on from that. However, I would just say that you do keep referring to 11 September as being the point that created so many of NATS difficulties, but the evidence shows that they were in financial difficulties before that. As a matter of courtesy I should inform you that we were told that many of the sort of economies that you have just been lauding under the Public Private Partnership have not yet been put into operation. I hope I do not misinterpret what I was told. Therefore, it seems a little difficult to understand how the points that you have raised in relation to their finances actually operate.

    41. (Mr Jamieson) What has happened, of course, since September 11 is the income that NATS gets, particularly from the over-flight, have dropped on average in the last eight to nine months in the region of about 9 per cent over the previous year.

  41. One understands that, but of course you are implying that it is only September 11 that has caused difficulty and, in fact, it is not.

    42. (Mr Jamieson) I think, had the situation as it was prior to September 11 obtained when the growth over the previous year was, on average, probably in the region of 4-5 per cent, had that continued to take place I think they would have been in a very different position today than they are now.

    Chairman: We will doubtless come back to that.

    Mrs Ellman

  42. Minister, do you require your officials to keep you informed of any expectation BAA might have of the Government, should it invest in NATS?

    43. (Mr Jamieson) Of any expectation ---- ?

  43. Of any expectation in relation to possible changes in Government policy.

    44. (Mr Jamieson) I would think officials would, in the course of events, keep me informed of such things, yes.

  44. Can I ask Mr Griffins, has he kept his Minister informed of the precise expectations BAA might have on Government policy should it decide to invest in NATS?

    45. (Mr Griffins) I regard it as my duty to keep my ministers informed and had they made any conditions I would have informed them. They have not.

  45. Mr Griffins, you did refer to an expectation of Government. What did you mean by that?

    46. (Mr Griffins) There is an expectation of a Government contribution - financial contribution - as a responsible shareholder to the solution, and that is what we told the Committee last time and what we have said publicly.

  46. That is the only expectation?

    47. (Mr Griffins) That is the only expectation, yes.

  47. Has the Government considered alternative ownership models for NATS, given the record of Railtrack?

    48. (Mr Jamieson) I think the simple answer to that is those were all considered prior to July last year. Yes, other models were considered at that time and were discussed in some considerable depth. We are now in a situation where we believe that the PPP is working well and I am pleased to say that that seems to be the view of the CAA as well, from the consultation document we have in front of us.

  48. How many contingency alternatives have you worked into this?

    49. (Mr Jamieson) There is provision within the Transport Act that in extremis there are provisions, but we look to be a very long way away from that situation.

  49. Are you aware that the United States is reported to be considering the Canadian model, NAVCANADA, for its air traffic control? Would that have an influence on you?

    50. (Mr Jamieson) No, I have no information on that.

  50. Are you concerned that the CAA acts both as a safety and economic regulator for NATS? Do you think those two responsibilities could be in conflict?

    51. (Mr Jamieson) No. I think that was an issue from previous recommendations from this Committee, so the CAA took on those roles, and the role of providing services was separated out from the safety regulator.

  51. You are satisfied there is no conflict there?

    52. (Mr Jamieson) Yes, I am satisfied there is no conflict.

    Mr Campbell

  52. Minister, on the assumption that BAA becomes a strategic investor in NATS and, subsequent to that, if the CAA were to allow higher charges at airports to airlines, do you think that would create a conflict of interest?

    53. (Mr Jamieson) No, because the CAA acts as an entirely independent regulator. I think from the document you have here their analysis shows that they are independent. I do not think there would be any conflict of interest there. If we did see any conflict of interest that arose, then obviously we would have to look at that most carefully.

  53. So you would not anticipate any change in policy in relation to airports in the south east subsequent to that?

    54. (Mr Jamieson) I cannot see any reason why we would do that, no.

    Andrew Bennett

  54. Where are we up to with the Aviation White Paper?

    55. (Mr Jamieson) The consultation documents will be with us this summer. There have been very long and protracted discussions going on in setting up those consultation documents, but those will be with us. The White Paper is expected towards the very end of the year.

  55. The summer. Can you be a bit more precise than that? Some of my constituents think we have already had it.

    56. (Mr Jamieson) Yes, somebody pointed out to me mournfully that we are only ten days away from the nights drawing in again. We certainly hope before Parliament rises for the summer recess. It is our ambition to have the documents ready by then for consultation.

  56. Would it be possible that you would delay in publishing those documents rather than dash the unwritten expectations of the British Airports Authority?

    57. (Mr Jamieson) No.

    Andrew Bennett: Would you agree that it is pretty important that if we are going to have an extra airport in the south east of England it is not dominated by British Airports Authority?

    Chairman

  57. Do you understand the question, Minister? We are saying to you, if there is some nod and a wink in the general direction of the location of another airport in the south east which benefits the BAA, would it seem unlikely to you that this might be interpreted as being part of a deal?

    58. (Mr Jamieson) I think we have got to see what the consultation paper says ----

    Andrew Bennett

  58. If we are talking about transparency and there is not any hidden agenda from the British Airports Authority, is it not very important that those consultation documents are out in the open as soon as possible, so that people know exactly what is in them and that there is not some back-hander that is, in effect, coming from the Government for helping them out of the NATS difficulty?

    59. (Mr Jamieson) I would agree that the documents should be out as soon as possible. It was our hope to get them out earlier than the present moment. They have been enormously complicated and getting the documents right and consulting the various bodies internally just to get them ready for consultation has been very, very difficult indeed. However, I can assure you that that is in no way related to the matters that we are discussing today. It is entirely separate, and the teams of people working on them are entirely separate as well.

  59. Are you happy that the CAA is both the safety and economic regulator? Is there a conflict between those two?

    60. (Mr Jamieson) I think that question came a moment or two ago and I said that I was content with the two roles, yes.

    Miss McIntosh

  60. I would like to refer to the table that the Minister very kindly furnished us with on 7 June. I just want to get confirmation the figures. The Minister said earlier, and the figures seem to bear this out, that two months after September 11 the November figures were forecasting a 12 per cent reduction in air traffic. That corresponds with an 11 per cent reduction in February/March 1991, round about the time of the Gulf War.

    61. (Mr Jamieson) Mrs Dunwoody, I wonder if you would just bear with me. When we looked at the previous graph that we produced (we looked at it in more detail earlier on this week), we felt that just in presentation it was not as good as it might have been. In other words it was not very easy to read and it took some interpretation. The figures are complex. What we have done is reprinted the graph in colour which helps differentiate the lines, which is difficult. We have also got the zero line in the right place, so the axes on the graph are in the right place. We have also projected back ----

    Chairman: We are delighted to know that your educational skills have not deserted you, Minister.

    Miss McIntosh: Can you confirm the original table? These figures actually contradict your earlier figures.

    Chairman

  61. What you are telling us is this one might be right or am I over egging the pudding?

    62. (Mr Jamieson) No, Mrs Dunwoody, the other graph is correct, I think it is just quite difficult to read.

    Chairman: It is correct as long as you work for the Department.

    Miss McIntosh

  62. If I could stay with these figures that you gave us earlier because on the figures you gave us earlier - if I could stay with those because my eyesight is not what it used to be - on the page which relates to current data for September 11, the figures of November 2001 very briefly were projecting a 12 per cent downturn in traffic.

    63. (Mr Jamieson) Could I just ask which line we are on now, Mrs Dunwoody?

    Miss McIntosh: You give it by months.

    Chairman: This is the previous graph and not your four colour effort.

    Miss McIntosh

  63. Yes, unfortunately you do not number the pages. At the top, the current data, 11 September terrorist attacks and the line I am referring to is the November 2001 line.

    64. (Mr Jamieson) Yes.

    Miss McIntosh: In which the figures project a 12 per cent downturn in traffic. The figure for the next page, the Gulf War data, January 16 1991 to February 28 1991, shows - and I am just asking you to confirm these figures - that the figures for that month of the Gulf War were similarly down 11 per cent. These are your figures and I am asking you to confirm your figures.

    Chairman

  64. Are you telling us in simple terms, because I am a simple person, the original graph was incorrect or that was it was correct and unreadable and you have therefore produced a readable edition which although it may appear superficially to have differences in fact is the same information put in a more easily understandable form?

    65. (Mr McBrayne) Can I help, Chairman? To the best of our belief all the information we have given you is consistent.

  65. That is a great comfort to me.

    66. (Mr McBrayne) The graph which we have just given you is merely, we hope, a clearer presentation of what we gave you before and reflects the figures for transatlantic flights from the tables which Miss McIntosh is quoting.

    Miss McIntosh

  66. Can I just stay with the original graph we only got on 7 June and have had time to look at. I just want you to confirm that the figures were approximately the same, 12 per cent reduction for the 11 September terrorist attacks and 11 per cent reduction in the Gulf War?

    67. (Mr McBrayne) In terms of immediate impact, yes.

  67. It is not a trick question.

    68. (Mr McBrayne) In terms of immediate impact that is right.

    Miss McIntosh: What was the recovery time after the Gulf War as opposed to projections of recovery time after September 11?

    Chairman

  68. That is a bit clearer from the graph.

    69. (Mr Jamieson) Yes. I think this is where this graph is more helpful. I was concerned when we revisited the way that we had presented the information that it was correct but actually quite difficult to follow. The other thing that I asked is that we did look back to 12 months previously so that we could see properly the trends and they are shown here. I think if we look at the graph now - and remember these are the percentage increase or decrease on the 12 month previously - we can see the Gulf War figure there is at around about 12 per cent decrease on the month of the event whereas the current situation was about five per cent. We can see what happened then after the Gulf War there was a very rapid recovery and in fact 12 months afterwards, of course as we would expect, there was a huge leap back upwards, as you would expect because it is a 12 month on 12 month figure. There was a rapid recovery. What we can see in the current situation is that there has been a fairly static situation at about minus 10, minus 11, and the current situation is that it is slightly increasing and the estimate that we have made at the end there is that there should be some small recovery.

    Miss McIntosh

  69. That is the estimated forecast?

    70. (Mr Jamieson) Yes. But the actual figures, from the last one where there is a little arrow saying "estimate", the previous ones were the actual figures they demonstrate so in fact we are still very much in a situation where if you look at the graph it is probably an average of about minus 10 or minus 11 per cent on the previous year and as you can see, just looking at the purple line, after the Gulf War there was a very rapid recovery and of course at the time of Lockerbie it really made no difference at all in terms of the growth of the industry, the industry carried on growing very considerably at that time.

  70. Presumably, Minister, you will be attending and have attended the Council of Transport Ministers meetings in Brussels when they discuss this proposal of additional security measures being passed on?

    71. (Mr Jamieson) No, I have not attended those meetings, the Minister of State has attended those meetings.

  71. Are you able to share with us what the Government's view is on this and what it will mean for NATS?

    72. (Mr Jamieson) Yes, Mr Griffins has been party to the briefings and may be in a better position to tell us about that.

    (Mr Griffins) Yes, thank you, Minister. The Government's general principle on security costs is that the industry pays for its costs not the taxpayer.

  72. You will resist the proposals? Are you going to have any allies?

    73. (Mr Griffins) In general it does not come down to allies and enemies. It is normally left to Member States to choose whether to defray the airports and airlines' security costs. If they choose to, and I know some European Member States do choose to, they can do so. If they maintain the principle that the airlines, the airports, the industry in general pay their respective costs the countries that think that are allowed to apply that policy; we think that.

    Chairman

  73. Can I just ask you finally, what exactly did the Government pay in conjunction with NATS in professional fees to secure the PPP? Mr McBrayne, they are all looking at you.

    74. (Mr McBrayne) In round terms, Chairman ---

  74. Within £100,000 or so or the odd million.

    75. (Mr McBrayne) Within a million I think £40 million.

  75. Oh, just 40 million. Is that now completely covered? We have now paid off all those so there should not be an extra sum added in?

    76. (Mr McBrayne) We are still receiving advice from both investment bankers and external lawyers so we are still incurring some costs.

  76. We are still incurring some costs. Can we put the odd million estimate on that?

    77. (Mr McBrayne) I cannot give you an exact figure at this moment but we can certainly let you have one.

  77. We would like a detailed note on how much that is, how many people are still advising and how long you expect that to go on for and what the total cost will be?

    78. (Mr McBrayne) Certainly.

  78. Thank you very much. Minister, did any alarm bells ring in the Department when you saw the latest business plan and the amount of exposure of NATS?

    79. (Mr Jamieson) We were concerned about the financial situation and therefore we wanted to see the new equity partner come in and we wanted to see its financial position secured for the future, yes.

  79. Did you think this might have a terrible sense of deja vu and resemble something like Railtrack?

    80. (Mr Jamieson) No. In no way at all. In fact, the more I have looked at this the more firmly I am of the view that we have here a company that is operating very successfully. They have good management. They are operating safely.

  80. Has the management changed since you were telling us they were not very efficient in the run up to PPP?

    81. (Mr Jamieson) I think what has happened is we have now got some private sector management expertise in there.

  81. Doing what?

    82. (Mr Jamieson) That has brought about efficiencies.

  82. In what sense? They have not yet done anything about the assistance, as far as I know they have not changed the way in which companies are operating, we already have problems with the software.

    83. (Mr Jamieson) The problem with the software, Mrs Dunwoody, would have existed whoever had owned NATS.

  83. I make no estimate of whether it would or would not. You have told us that in the run up to the PPP they probably were not very efficient and now they are. I am saying if it is the same management could you identify where?

    84. (Mr Jamieson) I think with new private sector management in there, they are effecting certain efficiencies in the way they operate.

  84. They are opticians, they are handing out glasses to the controllers.

    85. (Mr Jamieson) Also, I think considering the very considerable problems that they have had, financial problems, and the problems that they have had since September 11, I think to have opened Swanwick in the way that they have has been very successfully handled and I think they look a very good and professional organisation.

  85. We have always had the greatest admiration in this Committee for the National Air Traffic Services who have operated under an extremely difficult regime with great pressures on them, none of them to do with the efficient working of the National Air Traffic Services so I do not think there is any question of us criticising them, Minister, I am just interested in where this enormous change has taken place. Are you quite convinced that sufficiently diligent measures were taken before the PPP to look at, and indeed analyse, the sensitivity of the financial and business forecast?

    86. (Mr Jamieson) I think it was handled very carefully and diligently at the time. I think all the other models were looked at very carefully. I think as I have said earlier had there not been a big downturn, particularly in the transatlantic traffic, we would have been in a very different situation today in that the financial position would have been secure and all the other things that the CAA are saying about NATS as it stands today would have been true also. I think the financial position would have been secure as well.

  86. Finally, Minister, could I just ask you to put your imagination into a situation where for one reason or another no other equity buyer comes forward and the banks then decide this is a rather poor investment and they require Her Majesty's Government to take the rest of the shares off their hands or alternatively to put this organisation into administration, what would the attitude of Her Majesty's Government be and do you think that is totally unbelievable as a scenario?

    87. (Mr Jamieson) I think it is extremely unlikely. There is provision within the Act. If in extremis the company was not operating effectively and the finances were not operating effectively then there is a provision there to put into administration. I can say with very considerable confidence that is not the sort of discussion that we are having. The discussion that we are having is that it is a company that is operating well, there are financial difficulties which the CAA and we have recognised and we are looking to get the extra equity partner in there to assist the company. Once that has been done and the Government has played its part in putting its share in, I think that NATS has a very good financial future as well as the future that clearly it has in supplying the air traffic services that it does.

  87. Finally, you give us a 100 per cent guarantee that Her Majesty's Government intend to maintain, whatever the situation, exactly the same percentage of equity in the company?

    88. (Mr Jamieson) Yes, that is our intention.

  88. Thank you very much. We are always delighted to see you all.

(Mr Jamieson) But none more delighted than us, Mrs Dunwoody, to appear before you. Thank you very much.