TUESDAY 11 JUNE 2002
Mrs Gwyneth Dunwoody, in the Chair
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.
(Mr Jamieson) Mrs Dunwoody, I am David Jamieson, Parliamentary Under-Secretary of State at the Department for Transport.
(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.
(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.
(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.
(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.
(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.
(Mr Jamieson) Yes, I think that is true, Mrs Dunwoody.
(Mr Jamieson) I think it is a partnership between the three parties who have an interest and have a stake in that.
(Mr Griffins) No. I can work towards it. The receipts on the day of the establishment of the PPP were, I believe, £765 million.
(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.
(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?
(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.
(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.
(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.
(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.
(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.
(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.
(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.
(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.
(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 Jamieson) That would appear likely, yes.
(Mr Jamieson) If they do not, then they would have to seek another equity partner.
(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.
(Mr Jamieson) No.
(Mr Jamieson) No.
(Mr Jamieson) No.
(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.
(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.
(Mr Griffins) Yes, but it does have a couple of firm dates in it.
(Mr Griffins) I do not think there is a gap appearing, Madam Chairman.
(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.
(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.
(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 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 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.
(Mr Jamieson) I do not think that has been part of our consideration.
(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.
(Mr Jamieson) You mean as a Government? I am not aware of any approaches.
(Mr Jamieson) I could not anticipate whether or not SERCO would be making any approaches to us.
(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.
(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.
(Mr Jamieson) Of any expectation ---- ?
(Mr Jamieson) I would think officials would, in the course of events, keep me informed of such things, yes.
(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.
(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.
(Mr Griffins) That is the only expectation, yes.
(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.
(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.
(Mr Jamieson) No, I have no information on that.
(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.
(Mr Jamieson) Yes, I am satisfied there is no conflict.
(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.
(Mr Jamieson) I cannot see any reason why we would do that, no.
(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.
(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.
(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?
(Mr Jamieson) I think we have got to see what the consultation paper says ----
(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.
(Mr Jamieson) I think that question came a moment or two ago and I said that I was content with the two roles, yes.
(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.
(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.
(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.
(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.
(Mr McBrayne) Can I help, Chairman? To the best of our belief all the information we have given you is consistent.
(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.
(Mr McBrayne) In terms of immediate impact, yes.
(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?
(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.
(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.
(Mr Jamieson) No, I have not attended those meetings, the Minister of State has attended those meetings.
(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.
(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.
(Mr McBrayne) In round terms, Chairman ---
(Mr McBrayne) Within a million I think £40 million.
(Mr McBrayne) We are still receiving advice from both investment bankers and external lawyers so we are still incurring some costs.
(Mr McBrayne) I cannot give you an exact figure at this moment but we can certainly let you have one.
(Mr McBrayne) Certainly.
(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.
(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.
(Mr Jamieson) I think what has happened is we have now got some private sector management expertise in there.
(Mr Jamieson) That has brought about efficiencies.
(Mr Jamieson) The problem with the software, Mrs Dunwoody, would have existed whoever had owned NATS.
(Mr Jamieson) I think with new private sector management in there, they are effecting certain efficiencies in the way they operate.
(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.
(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.
(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.
(Mr Jamieson) Yes, that is our intention.
(Mr Jamieson) But none more delighted than us, Mrs Dunwoody, to appear before you. Thank you very much.