Members present:

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


Examination of Witnesses

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


  1. Good afternoon, Minister. We are delighted to see you. May I ask you firstly to identify yourself, well known as you are?
  2. (Mr Jamieson) I am David Jamieson, Parliamentary Under-Secretary of State for Transport.

    (Mr Griffins) Roy Griffins, director general of civil aviation at the DTLR.

    (Mr McBrayne) Ian McBrayne, head of the civil aviation division.

  3. Did you have some opening remarks you wished to make?
  4. (Mr Jamieson) If I may. I am very pleased that we have been called before your Committee and we very much welcome the inquire that you are undertaking. I know the Members of the Committee, like us, were very shocked by the attacks on the World Trade Centre on 11 September last year. These events had very wide ranging, severe repercussions across the aviation world and NATS unfortunately did not escape the harmful effects of these. With NATS's income dependent on traffic volumes and in particular on transatlantic traffic, the resultant exceptionally sharp downturn in the number of flights had a serious impact on the company's revenues and these events did occur just a few weeks after the public/private partnership was created for NATS on 26 July last year. Once the financial consequences of 11 September became clear, all the parties involved realised there was a need to cooperate with a view to devising a strategy that would secure NATS's long term future. NATS management, the government, the Airline Group as shareholders, the Civil Aviation Authority as economic regulator and the four lending banks have all played a part in working towards that solution. On a short term basis, a loan facility has been agreed for a maximum of 60 million up to 30 September 2002. 30 million is being provided by the government and the other 30 million by the four lending banks. Each party is lending on the same commercial terms. The loan facility was announced to the House on 20 March. As yet, NATS have not called upon that loan. A number of measures are envisaged for the longer term. The company is taking steps to reduce its internal costs which will result in savings of 200 million up to 2005. It has also applied to the Civil Aviation Authority for review of the charge cap which has been set for the years 2003 to 2005, to take account of the unprecedented events of 11 September. NATS is not at liberty to increase its charges to offset lost revenues as its European counterparts have indeed done by an average of 12 per cent for 2002. The CAA as an independent regulator is currently in the process of considering NATS's application for review. NATS and its shareholders are also looking at other ways of strengthening the balance sheet. I am sure the Committee will have no doubt noted, notwithstanding the difficulties following 11 September, the new, en route centre at Swanwick. It commenced operation successfully on 27 January this year and this is the first element of the two centre strategy for air traffic control in the United Kingdom. The other is the proposed new Scottish centre at Prestwick and although NATS has found it necessary to defer the operational date of the Scottish centre by some 18 months to two years from the original target date of 2007, existing facilities have been upgraded to ensure that the capacity will be sufficient to meet needs in the meantime. The government believes that the measures that have been taken, together with further measures which are still under discussion, will provide NATS with a sound financial basis for the future and I hope I can provide the Committee, with my officials, with some further assistance in your inquiry.

  5. I am sure you will be able to. Could you start off by telling me why the government seems to be prepared to pay 300 million for the new railway infrastructure? It has issued government guarantees in the form of letters of comfort for the London Underground PPP, but it is only prepared to loan NATS 30 million at commercial rates, despite the fact that the government is a major shareholder in the company.
  6. (Mr Jamieson) The government has had to react in the most appropriate circumstances to this particular company and the circumstances this company found itself in. This company is a partnership between ourselves and the Airline Group and the employees. We had to find the most appropriate way of reacting to the circumstances. It would have been, in any other circumstance, that the loans from the banks would have been available to the company, but the circumstances changed very rapidly in September and we have reacted accordingly, as a responsible shareholder. The money has been matched by the other major shareholder, the Airline Group, through the banks.

  7. Have you had any indication from the banks that they are not particularly happy about their part in the deal and they want to renege on it?
  8. (Mr Jamieson) I have no indication of that. I do not know if NATS themselves have given that indication.

  9. Did your Department check when this general theory became prevalent in the press?
  10. (Mr Jamieson) My Department at the time entered into very long, careful and detailed negotiations on these matters and we were mindful of the position of the banks at the time. These matters would have been considered when we made our 30 million offer.

  11. Before I ask you to identify some of the benefits that NATS derive from this partnership, could I ask Mr Griffins about the two letters he received from Sir Roy McNulty, one dated 11 June and one dated 15 June, both about the PPP and the capital structure? In the letter of 11 June, addressed, "Dear Roy", Sir Roy said, "It seems clear the financial structure as currently envisaged will not work and that significant changes are required." He then reminded you of the things that he thought were important: "Structure must permit long term investment and be capable of delivering capacity." He also said that financial circumstances should not require cuts in staff numbers. He went on in the second letter to talk about the government's public/private objectives and said, "The success of the PPP will be judged against whether these things happened in practice, not against the specific level of proceeds achieved in the short run." He then set out some very grave reservations from NATS about the capital structure and pointed out that the gearing was such that it would normally be unacceptable. He finished by saying that it was important to develop the right solution. Could you tell us what answer you gave Sir Roy in those circumstances?
  12. (Mr Griffins) I cannot recall the exact terms of my written replies to Sir Roy.

  13. Could you paraphrase?
  14. (Mr Griffins) In general, they were letters which, in the circumstances, would have come from a prudent chairman of an organisation as advised by his lawyers.

  15. And one who would not be too happy about a rate of indebtedness that puts it way into a class not normally found in other, comparable companies.
  16. (Mr Griffins) I think I would have explained, though I cannot recall the letter precisely, to Sir Roy, that we were in a competitive context; that the government took seriously everything he said and reacted. There were similar letters at the time which have also been reported from Sir Roy's predecessor as chairman of the Civil Aviation Authority.

  17. Consistency? Interesting.
  18. (Mr Griffins) And indeed from Mr Andrew to me, making the same points. The government reacted. There were some adjustments made.

  19. The gearing was reduced?
  20. (Mr Griffins) The gearing was reduced.

  21. By how much?
  22. (Mr Griffins) By 100 million.

    Chris Grayling

  23. Sir Roy still says that he felt the situation was not satisfactory, even after those changes.
  24. (Mr Griffins) We can check the transcript but I do not think he said that it was not satisfactory. With hindsight, nobody would say it was ideal. Nobody expected the unprecedented events of 11 September.


  25. Except that when he is talking about the gearing of a company in terms of debt he is talking about the situation that existed before 11 September, not the shock that afterwards had a very worrying effect.
  26. (Mr Griffins) The structure was working -- and we will never know whether it would have worked perfectly -- up until the unforeseen and unprecedented events of 11 September.

    Chris Grayling: Was that not the whole point, if the Civil Aviation Authority's warning was that the business plan could not withstand a major shock? They did not identify what the major shock was but the example of the Gulf War was being used; we had the experience of 11 September. There was a whole variety of different scenarios that could have had a dramatic impact on the business, but surely the core point was that the Civil Aviation Authority said to you, "This business plan will not withstand a major shock". Lo and behold, three months later there was a major shock and it does not withstand it. It does suggest they were right and you were wrong, does it not?


  27. Could you also assure us that you took some very robust looks at the whole plan before you went ahead with it?
  28. (Mr Griffins) I can say that. I can also contend that the 11 September events and the impact of those events on the air transport industry are unprecedented and, notwithstanding the concerns expressed in both sets of correspondence, both parties supported the PPP and acquiesced in the PPP at that moment.

  29. Even for a Northern Irishman, it is a funny way of acquiescing if you say you do not think it is going to work. Is that acquiescence? It is not my definition.
  30. (Mr Griffins) As I sat at the back hearing Sir Roy a few moments ago, I think he said he accepted that it was not his decision at the time, that the government as shareholder had the right to choose the basis for the sale. The government did so, I would contend, in a way that the structure as formulated then is being put to the ultimate test at the moment and, even at this moment, with the collaboration of the five parties involved, is surviving and is working.

  31. That is a pretty low common denominator, is it not? You seem to be saying, "We got it wrong but luckily it is still hanging in there." Is that what I am hearing?
  32. (Mr Griffins) I would claim that 11 September was not foreseen by anyone; that it is the most severe impact that the air transport industry has ever felt economically. I heard the Gulf War mentioned. This is worse than the Gulf War. Nobody expected the events of 11 September.

    Andrew Bennett: Presumably we could have copies of your reply, since we have half the correspondence?


  33. And since you cannot remember what you said.
  34. (Mr Griffins) Yes.

    Mrs Ellman

  35. Mr Griffins, you have just said that the events of 11 September could not have been anticipated. What kind of event or disaster was anticipated when the plans were drawn up? Was there anything anticipated that could make a major problem for the predictions you had made?
  36. (Mr Jamieson) We have to remember there was a decline going on in the airline industry at that time. Normal fluctuations which could have been quite dramatic I think were anticipated. What we are saying is that the very special, unusual circumstances of 11 September I do not think could have been anticipated by anybody. What happened then was the whole system went into shock and what Mr Griffins is saying is that what has happened since is that the company has survived, even though it was only six weeks old at the time. The investment we wanted in Swanwick has carried out. I know they have had to hold back the investment for a while in the new Scottish centre but they have operated very successfully in the meantime. Although we have made the loan facility available of 60 million between ourselves and the banks, they have not drawn down that loan facility. Even though the circumstances that came about were totally unexpected, it has survived in that period with the potential of a modicum of help from the banks and ourselves.

    Chris Grayling

  37. Can I just challenge you on one point you have made there? You and Mr Griffins have said that 11 September was unprecedented. As to the event, it may have been but the impact on traffic in the immediate aftermath was less than took place in February 1991 when Desert Storm happened. Therefore, nobody can suggest that there was no precedent for the kind of fluctuation of demand that took place after 11 September. Against that background, surely the fact that the Civil Aviation Authority made that warning and you did not follow it leaves a big question mark over your judgment of the business plan.
  38. (Mr McBrayne) What was unprecedented for NATS in 11 September was the impact on transatlantic traffic. You have heard from earlier witnesses that transatlantic traffic is a very major component of NATS's business and its revenues because of the way that the charges are calculated: as I understand it, something like 44 per cent of NATS's revenues prior to 11 September. That was a stronger effect on NATS in terms of money coming in than at the time of the Gulf War, even though what you say about downturn in traffic overall may be correct.


  39. That is not unique, is it? If you look at what happened in the Gulf War, it was also the transatlantic traffic that suffered very markedly. If you look at the graphs, I am sure Mr Griffins would confirm that although I am not a clever woman I may be right that transatlantic traffic, at the time of the Gulf War, suffered very considerably and in fact there is very little difference.
  40. (Mr Griffins) I would in no way deny your cleverness.

  41. Does that mean I am right or not? I am always a bit worried about men who in no way deny what I have said. I think that means yes, I am right, does it?
  42. (Mr Griffins) It was my impression -- and I had better check my impression -- that the economic impact on the air transport industry, particularly the transatlantic sector, has been deeper and looks like being longer lasting ----

  43. What about Lockerbie? What effect did Lockerbie have? Perhaps you would like to give us some graphs.
  44. (Mr Griffins) It would be a good idea for us to let you have some graphs on this matter.

    Miss McIntosh

  45. The Minister said, which was very helpful, that the transatlantic traffic was already heavily down. I would put it to the Minister that in the year prior to 11 September, from about October -- I have evidence about this from York and north Yorkshire -- the traffic was already substantially down. The figure we got from NATS was that it was about a quarter of the overall fall in revenue for that year. I simply want to establish on the record, so that we are clear, that there was a combination of factors involved.
  46. (Mr Jamieson) I think that is right. I did make the point that there had been a fall already in the traffic but the trend was known about at the time when the PPP deal was struck. All the partners involved in it would have been aware of the situation of the traffic at that time. That was built into the equation. The extra impact of 11 September just was not anticipated so soon after the event. To some extent, although the Gulf War was a blow to the industry, there was a certain amount of anticipation before the Gulf War, because the Gulf War was developing over a period of time. There was no lead in time to what happened on 11 September. I fully understand why you are asking the questions that you are and these are the right questions. They are questions that we have been asking as well in the Department. The other question that we are posing to ourselves is what would have happened had things been as they were previously? What would have happened to NATS then and how would it have survived in these circumstances? What would have been required, almost certainly, would be a very substantial amount of government funding to have helped NATS in its previous incarnation through a period of difficulty; or we could have seen, as we have seen through the rest of Europe, certainly the larger players in Europe, very substantial increases to the airlines. That has not happened in the case of NATS. Even the increases they have asked for are quite modest.

    Chris Grayling

  47. We heard from Sir Roy McNulty that there is no capacity to take another shock of the same kind. I said to him, "Has the business plan today got the robustness to deal with another major shock if, God forbid, that should happen?" He said, in his view, no. I paraphrase but that is what he basically said to us. It may have only taken a small amount of money to keep them alive, but they are certainly not relatively, according to the Civil Aviation Authority, in a better position than they were last summer.
  48. (Mr Jamieson) I accept that, Chairman. If there were another catastrophic event, if there were some terrorist event, something of an entirely different nature, any part of any government department or any private company could find itself in a position with unexpected events with which it had to deal. We certainly hope that that will not happen. We have a lot of contingency planning. You will understand that I cannot in a public arena go through that here. We are planning so that these things do not affect us in the way that this particular event did. However, we would have to act appropriately in the event of some other disaster, just as every other country in the world would be in the same position.

    Mrs Ellman

  49. The Department was criticised for its handling of Railtrack. How far advanced are your contingency plans in the event of a major problem so that there was a need to change the system?
  50. (Mr Jamieson) The situation with Railtrack is very substantially different to the situation with NATS. Railtrack was privatised the way it was in the 1990s. Some say it was a botched privatisation, but it was a wholly private company and that company ran into very serious difficulties of management, of managing projects, and it ran into financial difficulties with huge cost overruns. We have a very different circumstance with NATS. It is very true to say that the management is a good management. The Government has maintained a very substantial interest. We are still the largest single shareholder in the company. We have a large interest in that, and there are no indications with the way that NATS is running at the moment that it is running downhill, as Railtrack clearly was last year. The parallels are not the same. If there were a serious crisis, notwithstanding what has happened in recent months, then there is provision within the Transport Act to deal with that.

  51. If there were serious circumstances you are ready to change direction, are you? Is that what you are telling us?
  52. (Mr Jamieson) We have to. Our responsibility in government is always to make sure that the fail-safe option is there because, just like Railtrack where we could not allow the whole of the railway system to come to a standstill, we could not allow the whole of the airlines and the air system in the country to come to a standstill. The 2000 Act had built into it a provision for those very extreme circumstances. I think it is true to say that before we got to that point the various players - ourselves, the airline group, the company and CAA - together as a partnership all have an interest of course in making sure that the company does operate successfully and it does have a successful future. We are a very long way before we would be facing a comparison to Railtrack.

  53. You are prepared should that happen?
  54. (Mr Jamieson) We have to be. There is provision for that. The preparation was made within the Act and in those circumstances, which we certainly hope will not arise, then we would have to take the appropriate action at the time. As I say, we are a long way from these circumstances and we see no circumstances at the moment in which that would come about.


  55. You are still opposed to the NAVCANADA model, of the sort that was suggested by a previously Committee report?
  56. (Mr Jamieson) We are where we are now with the PPP.

  57. That sounds like quite a profound statement, Minister.
  58. (Mr Jamieson) We are where we are.

  59. I think it sounds better in French but I will not argue with you.
  60. (Mr Jamieson) We are having to deal with the situation as it is. The situation is that we have a PPP, which in my view is working. It has shown itself to be robust. We have new private management which has improved the company.

  61. You can demonstrate to us particular improvements, can you? Would you like to tell us what they are?
  62. (Mr Jamieson) They have made very substantial reductions in the cost of running the company.

  63. So they will not need an increase in the prices?
  64. (Mr Jamieson) They will if they are to carry out their future plans in the business plan. Part of their business plan is to regain some of the money that they have lost in recent months through 11 September.

  65. Of course, they cannot use that as an argument with the CAA, can they?
  66. (Mr Jamieson) I think they can use it as an argument.

  67. It would not be accepted but they can use it.
  68. (Mr Jamieson) I dare say they can use it. That is a matter for them.

  69. You can demonstrate some other enormous advance?
  70. (Mr Jamieson) They are recruiting new air traffic controllers. The Swanwick centre is working very well and the system is operating very efficiently.

    Andrew Bennett

  71. How do you know it is working well?
  72. (Mr Jamieson) We have a role as a Department and as a shareholder in monitoring the activity. I have spoken to the Government directors who have fed back information to me about the operations of the company. We have some good people there as directors including, I might say, one person who was very sceptical originally about the operation of PPP who has reported back very positive things to us. Of course, we look as well at the way the system is operating. The direct customers of course are the airlines and to my knowledge they, too, have not raised any complaints with us about the way in which NATS is operating.

  73. A series of your predecessors as Ministers have made various promises that the computer system could do all sorts of things and that it had considerable scope for expansion and improvement. Are you satisfied that the computer system as delivered is going to be able to do everything that was in the original specifications?
  74. (Mr Jamieson) That is my understanding. There have been some difficulties but the difficulties were with the old system at West Drayton. They were not with the new Swanwick computers. The glitch that happened was with the old system and the problem was very brief.

  75. I am not talking about the present short-term problems, I am really more interested in whether false promises were made by the people who designed the system that it would be able to do all sorts of things in the future and whether all these promises are going to be fulfilled or whether the system is going to be working at considerably below the original promised capacity.
  76. (Mr Jamieson) I understand that the systems that have been built in at Swanwick are capable of doing the things they said they were going to do in the first instance. I would be interested to know if any of parties can bring to me evidence that it is otherwise. I certainly have not seen any evidence. I do not know if my officials have. If that has been presented to the Committee, of course we would be very interested.

  77. I am asking you because you told us that you were very satisfied with what is going on. I would assume that you have had somebody looking at the original specification who has now checked that all the things that were in the original specification, all the capacity that was originally promised has been delivered with the system.
  78. (Mr Jamieson) If that were not the case ---

  79. Not "if that were not the case"; have you done it or not?
  80. (Mr Griffin) It is no secret that Swanwick was late and well over budget. One of the planks of the rationale for the PPP was to bring in improved project management within NATS and bringing Swanwick through to completion successfully is a demonstration that at least that much has worked. I do not think I can expect the present management of NATS to answer for the full delivery of a project the specification of which they had no responsibility for.

    Chairman: I see; no connection with the firm next door.

    Andrew Bennett

  81. So everybody escapes. No one at all was responsible for the original specifications. When we are looking at all these areas into which the Government is going with these complicated computer systems, the start and the finish are never compared?
  82. (Mr Griffin) The start and the finish of the Swanwick project has lasted through a considerable number of Governments.

  83. I understand that, yes.
  84. (Mr Griffin) However, it is up, it is working, and at the moment it appears to be successful. It is something that is pleasing.

  85. It works now, but is it working as it was promised all those Governments ago?
  86. (Mr Griffin) It is there, it is working, it is late, it is over budget but it appears to be delivering what NATS under current management expected it to deliver. If NATS under current management are disappointed they have not said so to us as the Government and the 49 per cent shareholder.


  87. A few conditional tenses in there, even for you, Mr Griffin.
  88. (Mr Griffin) I am sorry, I was striving to be truthful!

    Andrew Bennett: Of course, not to avoid answering the question!

    Chairman: We get the idea; there is no connection with the firm next door. Miss McIntosh?

    Miss McIntosh

  89. When the CAA makes its proposal and it is acting as an independent regulator, the Government will accept that proposal in its entirety?
  90. (Mr Jamieson) The answer to that is yes. The CAA have a procedure to go through, they have consultation to do, but we have no choice, we have no part in that decision.

  91. Would you agree, Minister, as a proportion of the overall costs of running an airline business, that the charges charged by the CAA are quite a small cost as compared with staff costs, fuel costs and leasing costs?
  92. (Mr McBrayne) Yes.

    (Mr Jamieson) Yes.

    (Mr Griffin) Yes.

    Miss McIntosh: It is like University Challenge, is it not!

    Chairman: We got a yes from all three witnesses. Let that be recorded.

    Miss McIntosh: Bearing in mind that it has been a difficult year - and effectively NATS have reduced the charges that they might otherwise have charged as compared to the rest of Europe who put a whacking great 12 per cent on- and bearing in mind that it is a very difficult environment in which we find ourselves because there is a lot of uncertainty post 11 September, would you consider that a part of the air passenger tax which is levied on every passenger could be somehow ploughed back into the airline business?

    Chairman: I am sure Miss McIntosh would want you to know that she has a lively interest in the airline industry.

    Miss McIntosh

  93. This is the tourism sector, it is the BTA.
  94. (Mr Jamieson) Chairman, I am in some difficulty here because this is ultimately a question, of course, for the Treasury.

    Andrew Bennett: They do not like coming to talk to us.

    Chairman: They do not like coming to this Committee.

    Miss McIntosh

  95. As part of the annual spending review might you make a request to the Treasury?
  96. (Mr Jamieson) We might but it would be a very small contributor to the difficulties. The amounts involved are really very small indeed. It is something that we could do. We have had some requests to look at it.


  97. Do not say too much Mr Jamieson, you will frighten Mr Griffin.
  98. (Mr Jamieson) We have had some requests but I have to say the pressure has not been very heavy and most of the airlines are saying the difference would be marginal.

    Miss McIntosh

  99. One last question - and you may confer - the evidence we have taken during the course of the afternoon is that the CAA advice, when it saw the financial structure proposed for NATS, was very late in the day and that you did revise minimally the ratio of debt to the value of the business. Are you satisfied that post 11 September, bearing in mind there could be another impact like 11 September or the Gulf War from where we do not know, that the level the debt to the value of the business is as it should be or do you keep this under review?
  100. (Mr Griffin) May I respond to that?


  101. Please, Mr Griffin. We are back to the 100 million again.
  102. (Mr Griffin) We are. This relates to a previous point raised by Mrs McIntosh.

    Miss McIntosh: It is Miss McIntosh, it is Mrs Harvey, who is married to the airline executive.


  103. Be kind to him, he does not know that.
  104. (Mr Griffin) I will just answer the question. It pertains to the slight downturn which was beginning to emerge. The PPP was announced at the end of March and it was finalised towards the end of July. During that period of time the downturn was starting to become clear. There were negotiations with the airline group at that moment taking account of that downturn, which also took account of the concerns mentioned in the letters from Sir Roy McNulty to me, the letters from Doug Andrew and indeed from Sir Malcolm Field of the CAA. The consequent reduction of 100 million and the strengthening of the financial structure at that time was to take into account that downturn. Then 11 September happened. I heard Sir Roy McNulty say to you that it was quite likely that the CAA in its response to the NATS' application with regard to the price cap would address the question of the financial structure and may even make suggestions, proposals, recommendations, fine. The CAA is one of the five parties whom the Minister indicated -

    Chairman: It is the regulator,

    Miss McIntosh

  105. It is the independent regulator.
  106. (Mr Griffin) It is the wholly independent regulator and I heard my Minister confirm that only five minutes ago. It is one of five parties working on this problem.

  107. Who are the others?
  108. (Mr Griffin) The two shareholders - the government and the airline group - NATS, the company itself, and the lending banks. If that solution which emerges from those five parties playing their different roles produces a stronger financial structure, that is to say a better debt:equity ratio, provided that the Government does not become a controlling shareholder, it would regard that as a good thing and has given strong indications that it will match (but can only match) equity injection.

    Chairman: But it would expect to maintain the same percentage of shareholding without becoming the controlling shareholder so are you assuring us, Mr Griffin ---

    Miss McIntosh: Could he just finish his sentence.

    Chairman: "A strong indication"; does that mean they will match it?

    Miss McIntosh

  109. Could you finish your sentence.
  110. (Mr Griffin) My syntax will be bad but the thought process is all going to the same point. I do not think I can sit here to guarantee that but I can say there is a very strong likelihood (depending on the amounts) that the Government will match such new equity as will come in and therefore leave the company with a stronger financial structure emerging from this solution than it had going into the problem.

    Mr Donohoe

  111. However serious the implications on a very short-term basis were of the events of 11 September, as Miss McIntosh has already said, there was developing a major problem far beyond that. The underlying growth of the airline business was still being demonstrated and is still being demonstrated. What figures, if any, have you got of growth patterns of the industry over the next ten years?
  112. (Mr Griffin) Are you talking about growth patterns of the air traffic control service provision or the aviation industry as a generality?

    Mr Donohoe: Both if you want to.


  113. If we could restrict ourselves to the airline industry that might give us some indication. We can assume that capacity will grow because you have just given us that assurance, have you not?
  114. (Mr Griffin) Yes and the demand for air services, according to the Department's forecasts, which I can let you have but I cannot quote off the top of my head, are certainly growing.

    Mr Donohoe

  115. It is of the order of seven per cent per annum in real terms over the next ten years and if that is the case the business plan produced by the NATS Group is not going to work.
  116. (Mr Griffin) If there is a growth of seven per cent per annum.

  117. They are presuming there will be a growth of seven per cent per annum of air traffic control over the ten-year period of the investment they have put out in the business plan.
  118. (Mr McBrayne) That would be in keeping with the growth pattern we have seen over the last few years. I think it assumes that there is a recovery from 11 September, albeit over time.

  119. Precisely my point, because regardless of the events we have had and how terrible they may have been, the fact is it is a blip in the calculations and it is not for anybody who is considering investing over a ten-year period a very important blip in itself.
  120. (Mr McBrayne) We believe and hope that is correct.

  121. If that is the case then why is it that there was ever a programme that brought us towards the present situation as far as PPP is concerned, given the investment of the Government in the figure that we accepted in the Transport Committee is some 1 million over ten years, which is almost identical to the figures put in the business plan of NATS now, and for the last full year there has not been any investment of any description at all?
  122. (Mr McBrayne) This may be a minor point in your thesis but the last point is not quite correct. There has been a significant amount of capital expenditure of an on-going maintenance kind. There has not been substantial expenditure on new projects.

  123. There has been no expenditure on new procurement systems in the last year, none whatsoever. Based on that, and more parochially, can I ask you a question on the specifics of the Prestwick centre itself. What does the Government do in terms of checking as to the programme so far as the investment is concerned, particularly of the equipment that will be required? Are you not concerned yourselves that there are no real figures to demonstrate that that should bring any confidence to those that wish that centre to be built?
  124. (Mr Jamieson) There is every confidence that the centre will be built. We have an absolute determination that it should be built. NATS have made that very clear and the financial planning and the projections that are involved in that financial planning demonstrate that that is the case. We know it is 18 months to two years late.

  125. But, Minister, they are using as an excuse for that delay the events of 11 September. I have already outlined to you initially in the question I asked the fact that over the ten-year period we are going to get a seven per cent mark up per annum. How is it possible for anybody in those circumstances, without you challenging them, to delay a centre which will be required, of that there is no doubt, and you as a Government Minister and the Government in general have accepted this two-year delay, when you are looking at an upward trend in air traffic and the necessity for such systems is very apparent to even those at the periphery of the industry.
  126. (Mr Jamieson) I accept that that growth may take place in the next few years.

  127. That is almost a certainty in terms of patterns.
  128. (Mr Jamieson) It is the extent to which that growth takes place that is still difficult to predict.


  129. We are not very happy about the fact you do not seem to be putting on a great deal of pressure. Mr Donohoe wants to know why you have not put any pressure on those who have given undertakings and have not so far put any money in the system.
  130. (Mr Griffin) Some comfort for those concerned about Prestwick should have been derived from NATS' announcement as recently as this weekend and the Government's confirmation that the two-centre strategy is a requirement. It was a requirement set out in the contract with our strategic partner. Also in response to Mr Donohoe, to sign up to the kind of growth he has indicated, to sign up to the concept that that will definitely eventuate goes against a lot of your line of questioning as a Committee previously. If you are claiming that NATS as a company needed to be more robust just in case there were other impacts similar to the very severe impact which followed 11 September, I do not think we are in a position simply to breathe out and say, "That was a blip, it is all growth from now on".

  131. Minister, you will give us an undertaking to look at this again and see whether you need to talk?
  132. (Mr Jamieson) Yes indeed.

    Mr Campbell: Are you content with NATS' current operating costs?

    Chairman: I think one of you perhaps ought to answer.

    Mr Campbell

  133. It would be helpful.
  134. (Mr Griffin) We have set a system of economic regulation in place. The costs are being controlled through that system of economic regulation and customers at the moment appear to be getting, certainly in terms of increases in the current year, a better deal than customers elsewhere in Europe.

  135. I am not clear. If we look at the range, people can be delighted, absolutely completely satisfied, or they can be appalled, and then there is the middle. Where are we in that answer?
  136. (Mr Griffin) The Government is not a customer of NATS nor is the Government the day-to-day operator of NATS so the Government is not incurring those costs nor is it contributing to covering those costs.

    Chairman: It is however a shareholder and most shareholders have a view on how the companies in which they hold 49 per cent of the shares are performing.

    Mr Campbell

  137. If I can rephrase it; are you very happy with costs, fairly happy with costs or very unhappy with costs?
  138. (Mr Jamieson) What Mr Griffin is saying is that it is up to the airlines who are the direct customers of NATS to be on that spectrum somewhere. What we can say is that NATS have made very substantial efficiencies. Looking at the circumstances they are in, the increases that they are seeking are very, very modest in comparison to the increases that have already been imposed in a number of other countries. As a comparator that is very helpful to us.

  139. Do I take it that the Department do not have a view on the operating costs?
  140. (Mr Griffin) Not on the operating costs. Can I echo my Minister and offer a gratuitous compliment to the NATS management. In a perverse way the test of 11 September has brought out an exemplary reaction on the part of the new NATS management.

    Chairman: Now I suspect Mr Griffin you are getting into slightly controversial areas. I do not think Mr Campbell has had his answer. Mr Bennett?

    Andrew Bennett: Is a 21 per cent cut in staff numbers a good idea at NATS?


  141. How does that eventuate?
  142. (Mr Jamieson) The company have to operate in a commercial way and the company have to operate in the circumstances in which they find themselves. What they are doing is they are increasing the number of people at the sharp end of air traffic control.

    Andrew Bennett

  143. Overall they are cutting the numbers by 21 per cent.
  144. (Mr Jamieson) If that is appropriate. What we have to make sure is that the system is safe.

  145. You are satisfied that 21 per cent can be cut and it is still safe?
  146. (Mr Jamieson) What we are satisfied with is what is happening is safe and the CAA have an absolute role in making sure that happens. We as responsible government and as the shareholder have to be absolutely assured of that. If we felt that any of the cuts in staff were impinging upon the safety of the airlines we would certainly have a very strong view about that.

  147. 21 per cent can be made. Why was it not made five years ago?
  148. (Mr Jamieson) That is the question we all have to ask because we think the PPP has delivered this because it has brought in private management and it has brought in systems that have allowed these efficiencies to take place so, yes, that is a good question for the Committee to ask. I think we have to ask the question could those efficiencies have been made under the system that existed five years ago.

  149. Let's explore that for a little bit. Over the last ten or 15 years a new system has been put into place which has consumed considerable resources and considerable skills to put that into place. Is NATS going to have sufficient skilled people and sufficient resources to go into the next era? You could say you are proud of Swanwick because you just about produced a steam train but most people are now looking at something like a high speed electric train. If we went to the global navigation systems that people are talking about, has NATS got the resources to get into that market or have we been left totally behind?
  150. (Mr Jamieson) Mr Bennett is quite right in indicating that there have been changes over the years. There are still changes taking place now. What NATS have done is look at further automation of certain of their processes and there have been certain efficiencies they have brought about. The underlying thing on which we have to be assured is that they can carry out the existing operations safely and they can meet future projections of any increase or decrease in air traffic and that they can do that safely and the air system can operate. Those are the things we have to secure.

  151. If we can do what we are doing now, that is alright? NATS does not have to look to the future, so it can be a dinosaur and disappear?
  152. (Mr Jamieson) One of my criteria was that NATS has to respond to any future need, any increase or decrease there may be in airline traffic and in its business plan it has submitted it has to demonstrate that it is capable of meeting this.

  153. There is a question of numbers and there is also the question of major technological change, is there not? Has it got the resources to deal with that major technological challenge over the next ten to 15 years?
  154. (Mr Griffin) I think the answer is yes. It is less likely to be a dinosaur in its present state than it might have been otherwise.


  155. You have always been estimably optimistic, Mr Griffin, that is why we love talking to you. Thank you very much, Minister. We feel much more enlightened now than we did before you arrived.

(Mr Jamieson) Thank you, Chairman, it has been a pleasure appearing before your Committee.