Examination of Witnesses (Questions 160-179)
5 MAY 2004
SIR ROY
MCNULTY,
MR JOHN
ARSCOTT, AND
MR ALEX
PLANT
Q160 Mr Stringer: Sir Roy, last time
you were here you sent us a note explaining that your costs as
regulator to the aviation business have gone up higher than the
rate of inflation. Is not the conclusion we can draw from Mrs
Ellman's question that not only have your costs been going up
for regulation in this country, but there will be an extra cost
of your European regulation on top of that, and what are you going
to do to cut those costs?
Sir Roy McNulty: I think the discussion
we had last time related to a particular aspect of our regulation
which is the regulation of airports, and that is very much governed
by the cycle in which we do the regulatory reviews. At times it
is lower, and at times it is higher when there is a lot of activity.
I think the CAA's costs overall have been coming down in real
terms. There is an issue to which we do not yet know the answer
as to the effect of something like the European Aviation Safety
Agency (EASA), where you are creating at a European level a new
layer of regulation and the national aviation authorities still
have responsibilities to exercise. The CAA is unique within Europe
in that we recover all our costs from the industry, so we have
a very active dialogue going on within the industry. I think the
airline representatives earlier referred to a joint review which
we are undertaking with them as to what will be the effect of
the European Aviation Safety Agency (EASA), when will it happen,
and what should the CAA be doing to reduce its costs in that situation.
Many of the answers to that are not available today because there
is not enormous clarity as to how fast the European Aviation Safety
Agency will evolve, but we are conscious of the need to keep our
costs to the industry to a minimum. We share a lot of data with
the industry as to what our costs are, and we will continue to
work at that to provide the best value for money that we can.
Q161 Mr Stringer: The previous witnesses
we had before us today all identified a prejudice against aviation
within the European Commission. They do not believe they have
a level playing field compared to inland waterways or rail. Do
you agree?
Sir Roy McNulty: I think we can
detect that at times and, frankly, even within this country as
well. Some people have prejudices as to which kind of transport
is better than others. Because aviation is relatively successful,
both economically and in terms of growth, some people see it as
a fair target to receive their pet schemes. I would agree with
what one of the airline representatives earlier said, that we
would like a level playing field both within Europe as between
different modes of transport and, indeed, within this country.
Q162 Mr Stringer: And what are you doing
to try and achieve that?
Sir Roy McNulty: We represent
as best we can within Europe the views we have concerning the
development of the aviation sector and, as has been mentioned
several times in this session, the European Commission has a lot
of catch-up learning to do on aviation matters. Similarly within
this country we express our views as best we can, both to the
department with which we principally deal and also more broadly
and publicly, that if there are issues which are common to different
transport modes they should be dealt with commonly.
Q163 Mr Stringer: You have said that
when there is a European regulatory framework you trust and hope
that that will be implemented evenly throughout the 25 countries
of the European Union. Why should aviation be different from virtually
every other area of regulatory activity within the EU?
Sir Roy McNulty: I accept that
as partly rhetorical. All I can say is that I think we have a
reasonable hope that it will be better than what we have at the
moment, because while a lot of good work has been done by the
JAA to set common standards, in a number of countries the application
and implementation of those standards leaves a lot to be desired—a
great deal to be desired. I think the clear intention of the European
Aviation Safety Agency (EASA) is to ensure not only common rules
but also much more common implementation; there will be an audit
mechanism which, from initial signs, will be an effective one
to check how implementation is going, so we will have something
to bolster implementation which we have never had before.
Q164 Clive Efford: I am tempted to ask
you what we can do to improve the Commission because each and
every one of our witness has questioned the breadth of knowledge
that the Commission has in this area, but I think I will pass
on that and leave it on the table as a rhetorical question! What
is the CAA view of the application of public service obligations
under EU legislation to protect United Kingdom regional routes
to Heathrow and Gatwick?
Sir Roy McNulty: As you know,
the Department is in consultation on this. The White Paper said
that the Department would look afresh at the use and application
of public service obligations (PSOs) within the United Kingdom.
We in the CAA would tend to see public service obligations as
a bit of a last resort but at the same time we recognise that
leaving things open to the commercial market does not provide
all the answers. We will submit our evidence to the Department
as part of this consultation, and hopefully by later this year
the Government will have arrived at some greater clarity on the
way forward.
Q165 Clive Efford: What about this issue
in terms of EU legislation and how that has an impact?
Sir Roy McNulty: The consultation
being undertaken at the moment is within the current EU framework
where there is the opportunity to introduce public service obligations.
It is widely used in some countries like France; less widely used
in other countries.
Q166 Clive Efford: With the potential
delay of ten years before there is a new runway at one of London's
airports, will the CAA use this regulatory oversight to ensure
the United Kingdom is able to maintain a balanced network, and
could the EU trans-European network programme be used to achieve
this?
Sir Roy McNulty: I am not aware
of anything in the trans-European network programme that is going
to impact on that issue within 10 years. I think the only area
where it is likely to come into play is within the context of
the Single European Sky and perhaps the development of common
air traffic control systems. There is some talk about trans-European
network funding being used to assist that but that is the only
case I know of.
Q167 Clive Efford: What about in the
more congested areas around Heathrow and Gatwick?
Sir Roy McNulty: I am not aware
of any discussion in that context. In so far as there is a solution
in the near term to air traffic control capacity in the south
east, it will come through the investment and efforts within National
Air Traffic Services (NATS) to bolster their capacity in the next
5-10 years.
Q168 Clive Efford: And is there any scope
for the EU to intervene in your charging to BAA in terms of the
pressure on you to accelerate their investment programme?
Sir Roy McNulty: That certainly
has not been the case to date. Obviously the investment programme
that BAA have at the moment in Terminal 5 is being funded through
the charges levels we set at the moment. As and when they come
forward with projects to expand capacity at Stansted and/or Heathrow,
then obviously the charges we set will be set at levels that allow
that investment to be paid for.
Q169 Clive Efford: And that will be done
purely on the basis of your judgment?
Sir Roy McNulty: That can be done
within the existing regulatory regime which we operate under statutory
provisions here. It is not a European scheme.
Q170 Chairman: Sir Roy, you said that
public service obligations are a bit of a last resort. Have you
seen the advice that has been given to government in relation
to charging at airports by the National Economic Research Association?
Sir Roy McNulty: No, I have not
seen that.
Q171 Chairman: It is quite important
because it is suggesting that European airports are under-used,
and one way in which you can increase the use of airports is to
develop a market slot, and presumably allow people simply to bid
and the highest bidder will then get the slots they want at the
airports they want. That must have quite an effect, must it not?
The consultants are reporting to the European Union to the effect
that any European airports could be significantly reorganised
on the basis of that kind of open slot market?
Sir Roy McNulty: As I say, I have
not seen it.
Q172 Chairman: Have you seen it, Mr Plant?
Mr Plant: I have seen the NERA
report. I have not read it all, I must admit, because it is quite
long, but I have read some of it and have heard a presentation
by one of the authors which explained some of the headline messages.
Q173 Chairman: And what would be your
view of that report and its conclusion?
Mr Plant: Certainly the position
that the CAA have taken on the desirability of having a secondary
trading market in slots is one that the NERA report seems to broadly
support, so I would to that extent be in agreement with that element
of it. Where you have a scarce resource, as at Heathrow, having
a fluid secondary market would seem a better way of allocating—
Q174 Chairman: And therefore, in general,
you would agree with the idea that only larger planes which are
fully booked and are capable of doing long haul trips would be
preferable, because that would automatically of course impact
on any regional air flight, would it not, and Sir Roy has just
told us that he thinks public service agreements are bit of a
last resort.
Mr Plant: There would be an impact.
Our starting point would be to say that where you have a scarce
resort like that you need some way of trying to see how you can
most efficiently use it, and the starting point would be to say—
Q175 Chairman: I know where you are starting
from. I am only interested in where we are going to finish up.
Mr Plant: Clearly, if you have
a market in slots it does not necessarily deliver everything you
might want.
Q176 Chairman: I think we could say that,
after 18 years of Conservative transport policy.
Mr Plant: There may be some areas
where the market does not deliver you what may be a desirable
outcome, but it is a good place to begin because it allows those
who value the slots most to use them so you get a more efficient
usage at the starting point, but it does not necessarily give
you everything you want.
Q177 Chairman: Would you agree that QANTAS,
for example, paid £10 million recently for their slots?
Mr Plant: There was pay such an
amount paid for slots at Heathrow. If you had a more fluid, proper
secondary market, part of that value may be driven down further
compare to the current quasi market we have in place.
Q178 Chairman: You mean they might only
have paid £5 million instead of £10?
Mr Plant: Possibly. Once you have
a market in place you have a way of better dealing with the beginning
position. But to come to your end position, as Sir Roy said, we
recognise that in not every case would it deliver everything you
want, and that is why you might want to look at whether you can
use public service obligations in certain circumstances.
Q179 Chairman: Would you be discussing
anything like that with the Commission who, after all, have no
experience of this at all, do they?
Mr Plant: We have rather more
been discussing with the Government about how the forthcoming
consultation will be framed, and we will be putting our views
into that consultation when it comes out.
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