Select Committee on Transport Minutes of Evidence

Memorandum submitted by the Civil Aviation Authority



  1.  The Edwards Committee, set up in 1967 to inquire into the British civil aviation industry, recommended that all aspects of civil aviation regulation should be brought into one organisation, which would also be responsible, jointly with the Ministry of Defence, for provision of air navigation services. This should be a civil aviation authority, established as a statutory corporation independent of the Crown rather than a Government department. The Government accepted this recommendation, and the CAA was established as a public corporation by the Civil Aviation Act 1971 on 1 April 1972.


  2.  The CAA's general objectives are set out in Section 4 of the Civil Aviation Act. These require the CAA to perform its functions in the manner it considers best calculated to secure that British airlines provide services which satisfy all substantial categories of public demand... at the lowest possible charge consistent with a high standard of safety in operating the services and an economic return to efficient operators on the sums invested in providing the services and with securing the sound development of the civil air transport industry in the UK; and to further the reasonable interests of users of air transport services".

  3.  The CAA is a public corporation whose constitution and functions are conferred by legislation: the Civil Aviation Act 1982, the Airports Act 1986 and the Transport Act 2000. The Board of the CAA is responsible for all the CAA's activities.

  4.  The Secretary of State for Transport is accountable to Parliament for the CAA's proper discharge of its duties. The Aviation Directorate of the Department for Transport (DfT) sponsors the CAA. There are close and frequent contacts with the DfT across the range of responsibilities.


  5.  The CAA is overseen by its Board, and has an Executive Member and a Policy Committee for each of its major specific responsibilities—airspace policy, safety regulation, economic regulation and consumer protection. The Non Executive Members contribute to the Policy Committees, and they also chair the Remuneration Committee, Audit Committee, and the meetings of the Trustees of the Pension Scheme. The CAA has a number of ancillary bodies, which are independent and sit outside the CAA's core regulatory functions. These are the Air Transport Users Council (AUC), UK Airprox Board (UKAB), Air Safety Support International (ASSI), and the Air Travel Trust (ATT).

  6.  Members of the Board are appointed by the Secretary of State for Transport, generally following open competition and in consultation with the Chairman of the CAA, and are responsible for all aspects of the CAA's organisation and performance. The member who has responsibility for airspace policy is de facto appointed jointly by the Secretary of State for Transport and the Secretary of State for Defence, and the member with responsibility for national security is nominated by the Secretary of State for Defence.

  7.  The CAA's Remuneration Committee consults annually with the DfT to review Board Members' performance and performance related remuneration.

Powers and statutory functions of the CAA

  8.  These are principally set out in primary legislation. The main provisions are:

    (a)  Section 3 1982 Act—licensing of air transport, licensing the provision of accommodation in aircraft (air travel organisers' licensing), the provision of air navigation services, the operation of aerodromes and the provision of assistance and information together with such safety regulatory functions as are conferred on the CAA by Air Navigation Orders;

    (b)  Part IV Airports Act 1986—economic regulation of airports;

    (c)  Part I Transport Act 2000—regulation of air traffic services (other than safety) and the CAA's air navigation functions.

  9.  The CAA's main statutory functions are:

    —     civil aviation safety regulation;

    —    advising and assisting the Secretary of State on all civil aviation matters;

    —    determining policy for the use of UK airspace so as to meet the needs of all users, having regard for national security, economic and environmental factors, while maintaining a high standard of safety;

    —    economic regulation of the designated airports and of the provision of air traffic services;

    —    licensing and financial fitness of airlines; and

    —    licensing of air travel organisers.

  10.  Many of the CAA's functions and duties are prescribed in secondary legislation made under Section 60 of the Civil Aviation Act 1982. The Civil Aviation Bill currently before the House of Lords gives the CAA functions in relation to the health of air travellers.

  11.  In addition, Regulation (EC) 1592/2002 of the European Parliament and of the Council on common rules in the field of civil aviation and establishing a European Aviation Safety Agency (EASA) and its implementing regulations place functions on the CAA as the UK's competent authority" (designated under the Aviation Safety Regulations—SI 2004/77). Regulations (EC) 549/2004, 550/2004, 551/2004 and 552/2004 of the European Parliament and Council establishing the Single European Sky together with their implementing regulations place obligations and responsibilities on the CAA as the UK's National Supervisory Authority (designated by SI 2004/1958).

CAA's independence of Government

  12.  The CAA's regulatory decision making process is independent of Government and Government respects that independence. The CAA has an agreed Sponsorship Statement with the DfT, its sponsoring department. The statement sets out frameworks for policy, structure, planning and financial matters, external accountability, monitoring and review matters. The Sponsorship Statement recognises that while the DfT may issue guidance to the CAA on general and specific areas of Government policy, that guidance will take full account of the CAA's statutory duties and must not conflict with them.


  13.  Since the separation of National Air Traffic Services (NATS) from the CAA in 2001, the CAA has developed a mission statement to articulate its overall purpose as the integrated aviation regulator. That mission is to provide best practice regulation and expert advice that are independent and enable civil aviation to best meet the needs of its users and society in a safe and sustainable manner". In pursuit of that goal, the CAA has reviewed and refined its corporate structure to ensure that the four key regulatory functions, and the provision of policy advice, are carried out effectively and with greater cohesion. The CAA Board, with its Executive Members from the regulatory groups, and its independent non-Executive Members, all supported by professional operational specialists expert in their respective fields, ensures that the CAA's regulatory activities are carried out in a controlled manner. All non-regulatory activities are managed centrally by the Finance & Corporate Services Director. Within this structure, the CAA is able to balance effectively the sometimes competing priorities of the regulatory disciplines, while ensuring that safety remains its overriding objective.


  14.  The ways in which the CAA performs its functions and achieves its objectives are described below, grouped into the four primary regulatory activities, with a further section summarising the CAA's role as a provider of policy advice.

Safety Regulation

  15.  The CAA's functions in relation to safety are derived from Section 3 of the Act and from the Air Navigation Order. They are the registration of aircraft, the safety of air navigation and aircraft (including airworthiness), the certification of operators of aircraft and the licensing of aircrews and aerodromes.

  16.  In the 2003 Aviation White Paper, the Government stated that The Government, the CAA and the industry are determined to ensure that we maintain the [UK's] high safety standards, identify potential threats and seek appropriate improvements". In addition to its general objectives set out in Section 4 of the Act, the CAA recognises the UK's international treaty obligations to comply with the Chicago Convention. In line with these various objectives and obligations, the CAA aims to further develop the UK's world-class aviation safety environment by driving continuous improvement in aviation safety.

  17.  In the UK, there are 49,700 active holders of private and professional pilot's licences, 224 public transport operators, 12,000 licensed aircraft maintenance engineers, 2,100 licensed air traffic control officers, 143 licensed aerodromes and 17,848 UK-registered aircraft. To monitor the activities of this complex and diverse industry, the CAA employs a team of specialists having a wide range of skills, eg active qualified airline pilots, expert aircraft maintenance engineers and air traffic controllers.

  18.  The CAA sets UK safety standards and publishes requirements and compliance guidance which support them. The CAA grants licences, certificates, authorisations and approvals to applicants when it is satisfied that specific criteria have been met. The CAA's staff are in regular contact with industry at all levels—from over the counter transactions for pilot licensing, to audit teams visiting major manufacturers and airlines in the UK, and taking part in standardisation visits with multi-national teams. The CAA carries out regulatory oversight of these licences, certificates, authorisations and approvals and has the power to vary, suspend or revoke them if it cannot be satisfied of a holder's continued ability to achieve the required standards.

  19.  In support of this regulatory framework, the CAA produces a Safety Plan which reports annually on the UK aviation industry's safety performance and highlights the safety improvements upon which the CAA intends to focus in the forthcoming years. The CAA engages with industry on this Plan and seeks to take forward its proposals in a cooperative way. To ensure that as much safety information as possible is available, the CAA maintains a Mandatory Occurrence Reporting scheme. Information is provided from sources such as aircraft operators, manufacturers and maintenance organisations as well as from other safety organisations and individuals such as pilots, air traffic controllers and airside workers. Reports are analysed to assess the safety implications and appropriate action is taken. In this way, the CAA keeps closely aware of actual and potential hazards to flight and this information is disseminated to the industry through regular reports.

  20.  The CAA maintains a close liaison with the DfT's Air Accidents Investigation Branch and ensures that the Branch's recommendations addressed to the CAA are properly considered.

  21.  These activities represent the principal components of the CAA's safety regulatory system which seeks to ensure that the UK's good safety record is not only maintained but is, where possible, improved. This regulatory system will need to be adapted as the European Aviation Safety Agency expands its functions in the years ahead.

Economic Regulation

  22.  The CAA's economic regulatory functions are the economic regulation of airports, which stems from the Airports Act 1986, and the economic regulation of National Air Traffic Services (NATS) under the Transport Act 2000. Both of these give the CAA a range of statutory duties in relation to the users of airports and air traffic services and to the providers of these services. Subject to the effective performance of its regulatory functions, the CAA must also impose the minimum of restrictions on the companies it regulates. It must also act consistently with the UK's international aviation obligations. A duty that is specific to airport regulation is to encourage timely investment to satisfy future demand while for air traffic services regulation, safety is the overriding statutory objective. Also in relation to air traffic services, the CAA has a duty to secure that NATS does not find it unduly difficult to finance its activities. In contrast to some other regulators, the CAA is given no explicit duty to encourage competition in either the airport or air traffic control sectors. It cannot therefore deal with structural issues as part of its own regulatory responsibilities but could do so as part of a public interest review by the Competition Commission. The Government can also seek advice from the CAA under Section 16 of the 1982 Act.

  23.  A challenge for the CAA in performing its economic regulatory role is to strike the appropriate balance between its different duties and their impacts on users and providers. The CAA also seeks to ensure that regulation is both targeted and proportionate. In performing its economic regulatory functions, the CAA recognises as paramount the maintenance of safety standards for airports and suppliers of air traffic control services.

Airport regulation

  24.  Economic regulation is focused on those airports that have been designated by the Secretary of State—Heathrow, Gatwick, Stansted and Manchester—where the CAA has to set limits on the charges these airports may levy on airlines. The limits are reviewed every five years involving the CAA and the Competition Commission and new price caps are established for the following five years. There have been a number of reviews since the mid 1980s. In the early reviews, it was possible to set price caps that produced significant reductions in user charges in real terms, reflecting the scope for cost efficiencies following the privatisation of the British Airports Authority in 1987, continuing traffic growth and accompanying increases in commercial spend at airports and the comparatively low levels of capital expenditure within the investment cycle. More recently, however, as airports have invested significantly in major new facilities to cater for future passenger growth and to renew outdated infrastructure, price caps have stopped falling or, at Heathrow, prices have had to increase. At Manchester, while the scale of airport investment has been smaller than at BAA's airports, the airport has been able to invest in expanded facilities, including a new second runway, within the RPI-X" cap on user charges set by the CAA.

  25.  At the last review the CAA sought to address the quality of service provided at the designated airports to airlines and their passengers, through financial penalties for poor performance against set standards.

  26.  The CAA is currently embarking on the process of setting price caps for the five years from April 2008 (from April 2009 for Manchester). Investment in both new and upgraded airport facilities is again expected to feature prominently.

NATS regulation

  27.  Regulation of NATS is more recent, dating from the inception of the Public Private Partnership (PPP) in 2001. NATS is regulated through a licence, issued by the Government, which is monitored and enforced by the CAA. NATS' charges are subject to five year price caps. The first control was fixed by the Government at PPP. This was subsequently modified by the CAA as part of a restructuring of NATS' finances in the wake of the events of 11 September 2001. The CAA has announced its final decision on the price caps for 2006-10, which will provide for continuing reductions in charges to airlines in real terms, while allowing NATS to carry out its major programme of investment.

  28.  Service quality, measured by the length of delays to aircraft and passengers caused by NATS, is directly incorporated into the price control through a system of bonuses and penalties. The maximum annual penalty to which NATS is potentially exposed is being increased from £10 million to £24 million in the next control period. The CAA is also well aware of the serious impact that individual system failures can have on the travelling public as well as on airlines. The CAA is currently reviewing with NATS the causes of the several failures that have occurred in 2005, the measures taken to deal with them and the lessons that have been learned.


  29.  The CAA has long been in the vanguard of removing unnecessary regulation which limits airlines' ability to open up markets, and played a key role in delivering the liberalisation of air services within the EU in 1993. Since then, the CAA's role in regulating routes and fares has reduced significantly, although there is the occasional high profile case, as with the allocation of new rights to the Indian market in 2004. Far fewer staff are now involved in airline issues, focusing mainly on:

    —    support to DfT negotiators in bilateral and multilateral air service agreement discussions, and to DfT and the Commission in the context of ongoing EU/US discussions; and

    —    analysis of industry issues for publication or for advice to the Government. A recent example was the CAA's study of fifth freedom rights from regional airports which led to the DfT decision in October 2005 to liberalise such rights.

Consumer protection

  30.  The CAA's functions in relation to consumer protection are also derived from Section 3 of the Act with respect to the licensing of the provision of accommodation in aircraft and the licensing of air transport. In both cases the CAA fulfils the UK's obligation to comply with EC regulations.

The ATOL Regulations

  31.  The ATOL Regulations place restrictions on who may sell air travel within the UK. The main way that businesses can do so (other than being an airline or travel agent) is to hold an ATOL. The Regulations permit the CAA to grant ATOLs, subject to a check on each applicant's financial stability (which the CAA can waive) and a check on their fitness (which is mandatory). They also permit the CAA to suspend or revoke ATOLs if it ceases to be content on those grounds.

  32.  The Regulations' purpose is to prevent financial losses suffered by the public in a market where advance payment is the norm, and in which a seller's collapse would seriously disrupt the trip of anyone overseas. The licence checks are intended to exclude poorly financed or dishonest businesses from the market.

  33.  The CAA applies financial testing to all but the smallest ATOL holders, and puts most effort into the larger ATOL holders whose collapse would cause most disruption. For the largest ATOL holders, the CAA aims to identify companies and groups whose chance of a collapse in the next peak season is unacceptably high and, unless such groups can be refinanced in time, suspend and revoke the licences in the low season, when there will be least disruption to customers.

Managing the consequences when ATOL holders collapse

  34.  The CAA manages a system that provides refunds and repatriation for travellers covered by ATOL in accordance with an agreement with the Trustees of the Air Travel Trust who took over responsibility for this task in 1986. This system enables the UK to meet (for air travel) the requirement of the European Package Travel Directive to make arrangements for the refund and repatriation of the customers of insolvent package sellers.

  35.  The CAA currently requires ATOL holders to provide financial protection against their own insolvency, usually in the form of bonds. When an ATOL holder collapses, the CAA uses the bond money to enable customers abroad to complete their holidays as intended, and refunds customers who have not yet travelled. If the bond money is insufficient, the CAA uses funds from the Air Travel Trust Fund to make up the difference.

  36.  The Air Travel Trust Fund was set up in 1986 by the Secretary of State for Transport and was originally funded by an industry levy. It is not part of the CAA but is managed by the CAA and the Trustees, who are CAA Board Members.

UK airline operating licences

  37.  The EC Regulation on the licensing of air carriers requires undertakings established in the EC and operating aircraft for remuneration within the EC to hold an operating licence, granted by the authorities of the Member State in which the undertaking has its principal place of business. The CAA is required by the DfT to perform most of those licensing functions for the UK, although some are reserved for the DfT.

  38.  The EC Regulation requires the licensing authority to ensure that the undertaking's principal place of business is the Member State in which it is established, that it is owned and controlled by EC nationals, that (in some circumstances) it can meet specified financial tests, and that it is adequately insured and possesses an appropriate Air Operator's Certificate. The final decision on nationality is reserved for the Secretary of State for Transport.

  39.  In considering UK carriers' ongoing financial positions, the CAA applies the Better Regulation principle of proportionality by examining carriers in a degree of detail dependent on the impact that a collapse would have on the travelling public. The largest passenger carriers are regularly examined in detail, whereas middle tier passenger carriers are examined less frequently. The CAA does not monitor the positions of the smallest passenger carriers, or carriers whose collapse would not impact members of the general public (such as dedicated cargo airlines). The CAA has powers to suspend and revoke licences, subject to a right of appeal to the Secretary of State for Transport, and it normally exercises this power only where such action would be likely to reduce public financial losses caused by the collapse.

  40.  There is no financial protection scheme (equivalent to ATOL) for the customers of airlines; moreover, if the CAA were to suspend or revoke a licence it could precipitate the collapse of the airline and hence causes financial losses to the airline's creditors, including the public. EC legislation permits any carrier licensed by another Member State to operate within the UK and the CAA has no discretion over this.

Other consumer protection functions

  41.  The CAA implements other EC consumer protection legislation on behalf of the UK Government, such as legislation giving passengers rights if they are denied boarding a flight or if the flight is delayed or cancelled. It also provides advice both to the Government and to the EC on proposed and existing legislation in this area.

Airspace policy

  42.  The CAA's airspace policy functions are set out in the Civil Aviation Authority (Air Navigation) Directions 2001 (Directions), and the Guidance to the Civil Aviation Authority on Environmental Objectives relating to the exercise of its air navigation functions (the Environmental Guidance). The CAA is required to develop, promulgate, monitor and enforce a policy for the sustainable use of UK airspace and for the provision of necessary supporting infrastructure for air navigation.

  43.  The CAA's airspace policy objectives are set out in the Transport Act 2000. The CAA's primary objective is to ensure the most efficient use of airspace consistent with safety and expedition and in doing so the CAA aims to satisfy the requirements of users of all aircraft, taking account of wider airspace interests, environmental objectives, national security and international obligations. Where those requirements conflict, the CAA will resolve the matter having regard to its statutory duties. The CAA also aims to facilitate integrated operation of air traffic services by the Crown and others and to impose minimum restrictions on air traffic service providers, consistent with its other objectives. The Directions include a number of core requirements and these are provided at Annex 1.

  44.  The CAA is responsible for sustaining the joint and integrated UK civil and military air traffic service. The joint arrangements are reviewed at the Joint Air Navigation Services Council (JANSC) and sustained through a Memorandum of Understanding (MoU) between the CAA and MoD and through the NATS En-Route Licence. The purpose of the JANSC is to enable the CAA to oversee the arrangements between NATS (En Route) plc (NERL) and the MoD and ensure that air traffic services continue to be provided on a joint and integrated basis. It is the arena for discussing and resolving differences of opinion and disputes between NERL and the MoD concerning arrangements set out in the Operating Protocol and seeks to keep to a minimum the occasions on which disputes are referred to the CAA.

  45.  Changes to airspace arrangements (which include procedures for the use of controlled airspace in addition to its design) are only made after consultation and where it is clear that an overall environmental benefit will accrue or where airspace management considerations and the overriding need for safety allow for no practical alternative. To meet its statutory airspace policy objectives, the CAA has developed and published an Airspace Change Process. The Process allows for consultation on proposals with representatives of airspace users, aerodrome operators and providers of air traffic services and other bodies and individuals as appropriate who may be materially affected by any changes proposed by the CAA in UK air navigation arrangements. In addition, guidance is given on the representative bodies that are to be consulted in respect of the environmental impacts of the change. Typically, this is to County and District Council level, although in some cases it can be more extensive.

  46.  The Environmental Guidance lays out the requirements for taking into account the environmental impact of air operations as the CAA performs its air navigation functions. These requirements focus on:

    —    the need to reduce, control and mitigate the environmental impacts of civil aircraft operations, and in particular the annoyance and disturbance caused to the general public arising from aircraft noise and vibration, and emissions from aircraft engines; and

    —    the need for environmental impacts to be considered from the earliest possible stages of planning, designing and revising airspace procedures and arrangements.

  47.  In addressing airspace issues, safety is the overarching priority while environmental matters and the potential impact on ATC capacity are secondary, sometimes competing, aspects. In addition, the CAA is required to provide expert technical advice to the Secretary of State on environmental matters and in this respect the CAA maintains the noise model for the designated airports.

Policy advice

  48.  The CAA also plays a role in providing independent policy advice on aviation issues to Government (and increasingly also to the European Commission). In doing so, the CAA aims to synthesise the aviation expertise at its disposal to provide broad-based, strategic advice, including:

    —    formulating and developing policy on core aviation issues;

    —    collaborating externally with national and international aviation organisations and regulatory bodies; and

    —    providing a link between the industry and the Government.

  49.  One example of how the CAA has taken forward its strategic policy advice role was its input to the 2003 Air Transport White Paper, where the CAA augmented its regular contact with various Government departments by producing a detailed document in response to the Government's consultation document. [1]In this document, the CAA brought together its expertise in the fields of safety, airspace policy, environmental impact and economic regulation and policy to produce a comprehensive input to the Government's policy development.


Safety regulation

  50.  International civil aviation is governed by the Convention on International Civil Aviation (the Chicago Convention) which also established the International Civil Aviation Organisation (ICAO). This organisation maintains a set of Standards and Recommended Practices with which Member States of ICAO are obliged to comply. The obligations of the UK Government under the Convention are exercised through the Secretary of State for Transport and his Department.

  51.  Both UK and European legislation provides the framework for UK's compliance with the ICAO Standards and Recommended Practices. The European legislation, in the form of EC Regulation No 1592/2002, provides the framework for the airworthiness and environmental type certification of all aircraft and associated products and parts, designed, manufactured, maintained or used by persons under the regulatory oversight of EU Member States. This Regulation also established the European Aviation Safety Agency (EASA) and defines responsibilities of EU Member States' National Aviation Authorities (NAAs).

  52.  Primary and Secondary UK legislation provides the framework for the operation of aircraft, licensing of aircraft crew and air traffic controllers, provision of air traffic services and the operation of aerodromes. Part of this framework, in particular the operation of aircraft and the licensing of aircraft crew, is based on requirements produced by the Joint Aviation Authorities (JAA), an associated body of the European Civil Aviation Conference (ECAC). ECAC represents the civil aviation regulatory authorities of a number of states which have agreed to co-operate in developing and implementing common safety regulatory standards and procedures. The role of the JAA within the European arena is reducing and after 2006 the JAA will only be involved with ECAC states that are not EU members. The remaining work of the JAA in respect of EU member state activities will be transferred to EASA on 1 January 2007.

  53.  UK legislation continues to provide the framework for the certification of aircraft to which the European Regulation 1592/2002 is not applicable. The types of aircraft excluded from the Regulation are mainly either very small aircraft, such as microlights, or historic and ex-military aircraft.

  54.  Both the European and UK legislation define the accountabilities of those charged with setting and overseeing standards in the UK aviation domain. The UK CAA is empowered via this legislation to grant authorisations, approvals, exemptions, ratings, certificates and licences. The ability to approve, issue, refuse, suspend, revoke or vary in respect of the above, ensures that the CAA operates within an effective and balanced regulatory framework.

  55.  The UK safety record demonstrates the effectiveness of this regulatory framework over the past decade. The main indicators used by the CAA to track the safety performance of the UK aviation industry have, with one exception, shown a downward trend in the fatal accident rate over this period. The exception was an increase in the UK registered AOC large public transport helicopter events, where one fatal accident occurred in 2002 after six years without a fatal accident.

  56.  Another assessment of the UK's flight safety record is provided below and shows the UK's rate of fatalities per million flight hours for western built jets (excluding business jets) above 5,700kg Maximum Take-off Weight Authorised, for all types of airline operation over the last two decades, in comparison with worldwide figures.

Western built Jet Rate of Fatalities - Worldwide vs United Kingdom Operators

  57.  The UK's safety record can also be assessed in comparison with other EU Member States. The graph below compares the fatal accident rate of western built jets and turboprops registered in the UK with other EU Member States over the period 1987 to 2004.

  58.  General aviation fixed wing and helicopter fatal accident rate data has shown a general downward trend over time. The fatal accident rate for other" aircraft, such as gliders, microlights, gyroplanes, airships and balloons has varied over time but has shown an overall stable trend. The graph below illustrates these trends.

UK Registered General Aviation Fatal Accident Rate:

  59.  It is recognised that there are many factors which influence the UK safety record, not least the maturity and professionalism of the UK industry, which is responsible for managing the risks associated with its activities. However, the part played by the CAA and the DFT in creating and maintaining a balanced regulatory framework has been fundamental, and remains vital to its continued success.

Economic regulation

  60.  The statutory framework for regulating NATS follows the standard UK model where there is a licence to which the regulator can add conditions including, where appropriate, price cap conditions, with the agreement of the regulated company or, failing agreement, after a reference to the Competition Commission. The regulation of airports on the other hand is unique in several respects. It is Government, rather than the regulator, which decides the airports that should be subject to price cap regulation; the setting of price caps is mandatory for fixed periods of five (or in some circumstances, six) years; and the CAA has to make a reference to the Competition Commission before it can re-set the price caps. Such a framework limits the CAA's flexibility to tailor its regulation to the airports market as it evolves over time. However, within such constraints, the CAA has sought to develop its regulatory processes, for example by encouraging more joint working between airports and airlines within the forthcoming airports price cap review.

  61.  The special role of the Competition Commission in airport regulation can also add to the complexity of the review process in terms of accountability, time and cost. For some years it has been the Government's stated policy that the roles of the CAA and the Competition Commission should move to the standard regulatory model under which the regulator takes the decision which can then be appealed by the regulated company to the Competition Commission.

  62.  Despite the framework's limitations, the CAA is generally seen as an international leader in airport regulation. Successive price cap reviews have enabled, subject to planning and the investment cycle, significant investment at the designated airports with consequential benefits to users.

Consumer Protection

  63.  The ATOL Regulations were made in the 1970s when the great majority of UK leisure travel took place on charter carriers and hence was protected by ATOL, and when scheduled carriers were mostly state owned and hence very unlikely to collapse. In those circumstances the arrangements provided UK air travellers with a high degree of assurance that they would neither lose advance payments made for air travel nor be stranded abroad if their travel provider were to collapse.

  64.  Over the last five years particularly, the market has changed dramatically. Low fares, suitable for leisure travellers, are available from scheduled carriers (including no-frills carriers) and few scheduled carriers are protected from collapse by being state owned. These factors mean that many more air travellers are vulnerable to the effects of insolvency. The change is occurring rapidly. In the five years to 2004, the percentage of leisure air travellers protected by ATOL fell from 87% to 66% and the downward trend is continuing.

  65.  Whereas over the last 19 years ATOL has enabled over 200,000 travellers to continue their holidays despite the collapse of their tour operator, and provided refunds to over one million people, in future it will protect a decreasing proportion of travellers. Although the tour operation industry is supportive of this mandatory scheme because it gives consumers confidence, many believe that they now face unfair competition from air carriers and consequently are selling an increasing proportion of their own business outside of ATOL. The CAA is now actively considering, in consultation with the industry, how the cost of offering ATOL protection could be reduced.

Airspace policy

  66.  The Airspace Change Process is relatively new in comparison to many other practices in other parts of the CAA and it continues to evolve in order to meet new challenges. Nevertheless, the process ensures that the Director of Airspace Policy fulfils the Air Navigation Functions that are vested in him through the Directions. Over the last two to three years, environmental issues have dominated the debate with public interest heightened, in part through the raising of awareness on aviation matters due to the debate, publicity and road shows surrounding the Air Transport White Paper. The process ensures that the views of all airspace users and those who might be affected by the change are taken into account and that the evidence is provided to demonstrate that consultation, in line with the Better Regulation Task Force guidelines, has taken place and that the rationale for the change has been set out. In most cases this is to enhance safety, increase capacity and reduce delay. In many cases there is also an environmental benefit through the introduction of revised procedures.

  67.  The effectiveness of this regulatory framework is apparent in the output of the airspace change process. For example, in the case of the North Sea Airspace Change that was approved in 2003, pre departure delay, on the North Sea ATC sectors run by NATS, accounted for some 20% (about 327,000 minutes) of the total annual NATS attributable delay before the change. In addition to reducing delays, the airspace change also met the MoD's requirements for airspace in which training could take place in the full operating envelope of modern combat aircraft. In the case of the East Midlands airspace change introduced in 2005, safety was enhanced by routeing traffic away from a known choke point, deconflicting flows in the Midlands area. Furthermore, environmental benefits were achieved by avoiding centres of population and introducing revised approach procedures that keep aircraft higher for longer.



  68.  A key challenge facing all regulators is to ensure that they regulate in the most efficient and effective manner possible, with interventions focused where they can do most good. This challenge lies at the heart of the CAA's mission statement and of its responsibilities to the aviation industry. To achieve that end the CAA focuses on where it can do most good in discharging its duties—in the areas of safety, improved regulation and business efficiency, all of which will benefit consumers and the environment.


  69.  The overall effectiveness of the CAA in discharging its particular responsibilities in respect of safety is demonstrated by the high level of aviation safety that the UK has achieved since the formation of the CAA. The CAA has been proactive in identifying issues and trends that could have had a negative impact on the UK safety record, and in instigating remedial action.

  70.  Findings from the audits performed by ICAO to ensure that its Member States comply with its Standards and Recommended Practices are another measure of the CAA's effectiveness as a safety regulator. The UK (principally SRG) was audited in July 2000 and ICAO concluded that overall, the framework in place for the regulation of civil aviation activities in the UK mainland is comprehensive and up-to-date and complies with all international requirements necessary for the control, supervision and enforcement of civil aviation activities". A follow-up visit in July 2004 concluded that the UK had exceeded ICAO's expectations" in addressing all the findings from the 2000 audit. An expanded ICAO audit programme has recently been established, which will cover all aviation regulatory activities, and it is expected that the UK will next be audited in 2007.

  71.  The CAA has worked closely with other aviation safety regulators to identify best practice and where applicable adopt more efficient ways of working. A recent exercise consisted of a comparative study carried out with the National Aviation Authorities (NAAs) of Germany, Sweden, Italy, and Spain.

  72.  The study found that from this group of five, only the CAA has a proactive safety regulatory management system, that the CAA's customer service ethos is more developed than in the other NAAs, and that the UK's co-operative approach to safety involves a higher level of interaction with industry. Despite these additional demands, a comparison of the staffing levels found that the CAA's utilisation of resources compares favourably with the other NAAs. Across the regulatory areas studied, the CAA handles 50% more approved organisations per inspector/surveyor than any of the other NAAs in the study, and is also using the most efficient combination of technical and support staff. This finding is particularly significant when considered together with the safety performance achieved in the UK.

  73.  Safety is paramount in all aspects of the work of the CAA and staff in all Groups are aware of the potential impact that many aspects of their work can have on the safety of the aviation industry. DAP staff play an essential role in a variety of safety related activities, including the design and approval of instrument flight procedures, the production of aeronautical charts and data that are used in flight procedures, and the airspace arrangements that permit the safe interaction of all airspace users in the heavily used airspace over the British Isles. For example, DAP and SRG staff are actively engaged in the work to harmonise the differing demands of the MoD and those regional airlines that operate outside the confines of the UK controlled airspace (airways) structure. A number of fresh initiatives have been put in place to address the potential for conflict in uncontrolled airspace, and this work continues.

Better regulation

  74.  The CAA is a signatory to the Enforcement Concordat and aims to follow the five Better Regulation Task Force (BRTF) principles of Proportionality, Accountability, Consistency, Transparency and Targeting. To work actively towards achieving better regulation for the industry, the CAA has taken part in, or is reviewing or developing, the following initiatives:

    —    The CAA contributed to the review of the economic regulators conducted by the BRTF in 2001 and supported the recommendations of that review, allowing for the fact that the framework for the economic regulation of airports differs from that for other sectors. In April 2005, the BRTF asked the regulators to report on how they had implemented the Task Force's recommendations. The CAA's response confirmed how it had implemented each of the relevant recommendations.

    —    In 2004, the CAA took part in the review of regulatory inspection and enforcement carried out for the Government by Phillip Hampton. When the CAA assessed the impact of the recommendations contained in the Hampton report following its publication in March this year, it reached a number of positive conclusions. Many of the positive aspects of the report were already incorporated into the CAA's policies and working practices. The CAA concluded that it would adopt a pragmatic approach to implementing the report's other recommendations, as part of its continuous improvement strategy.

    —    The CAA aims to ensure that the scale of its regulation is proportionate by taking proper account of the circumstances of a particular case. Examples of current initiatives to provide best practice regulation include the Light Aviation Airports Study Group, chaired by the CAA, which aims to assess industry proposals on new regulatory concepts that may be applied to light aviation airport activities, and the review which is taking place of the regulatory oversight methods for approved companies in order to increase efficiencies and reduce overall costs to the organisations. Other examples of steps already taken or which are planned include:

    —  the progressive withdrawal from the regulation of air fares flowing from market liberalisation so that less than 1% of airline fares now have to be filed with the CAA;

    —  adopting more flexible and simplified approaches towards aviation data collection which has enabled a significant reduction in staff resources;

    —  encouraging more of the work usually carried out by the regulator in an airport price cap review to be taken forward jointly by airports and their airline customers through a process of constructive engagement" in areas where they are better placed than the regulator to form judgments;

    —  implementing EC aviation legislation in ways that do not impose unnecessary burdens on the aviation industry; and

    —  reviewing whether the conditions in NATS' licence now place an unreasonable burden on the company in terms of reporting requirements.

  75.  The CAA complies with the Cabinet Office Code of Practice on Consultation where appropriate and its work on developing regulations and requirements is undertaken in full co-operation with the aviation industry. All primary and secondary legislation relating to the CAA is subject to Regulatory Impact Assessment (RIA) and this is carried out openly and effectively. For example, DAP used the RIA process when proposing changes to aircraft equipment such as the Mode S Enhanced Surveillance and the introduction of Phase 1 and 2 of the Airborne Collision Avoidance System (ACAS) II during 2004-05.


  76.  The main stakeholders in the CAA's consumer protection work are licence holders, UK airlines and the public. The CAA ensures that its work remains aligned with its stakeholders' requirements in a number of ways.

    —    Close contact with the regulated industry: the CAA maintains a regular dialogue with senior airline and tour operator representatives on matters relating to developments in the industry and in regulatory matters. It also regularly attends travel industry events across the UK, to represent the CAA's position and to listen to issues raised by smaller businesses and members of the public.

    —    Public consultations: in pursuing its role in providing advice to the Government on the adequacy of the legal framework, the CAA consults extensively with consumer bodies, industry representatives and others. The information is made available as widely as possible through the national media and the CAA's web site.

    —    Public surveys: to assess the impact of its work on ATOL, and public attitudes to insolvency protection, the CAA commissions public surveys on specific topics. The results of the surveys influence the future direction of the CAA's work.

    —    ATIPAC: the Air Travel Insolvency Protection Advisory Committee was formed by the Secretary of State for Transport to advise the DfT and the CAA on matters relating to the protection of air travellers against insolvency. It comprises representatives of consumers, the travel industry and independent travel experts.

    —    AUC: the Air Transport Users Council was established by the CAA to represent the interests of air transport users, on matters relating to consumers' experiences of air travel, even where they fall outside the regulatory scope of the CAA.

  77.  The CAA has for the past two years managed a significantly increased ATOL workload while keeping cost increases to the minimum possible. In two years the number of licence holders (although not the volume of passengers carried) has increased by around 30%, while total costs have increased in real terms only by 2%. This has been achieved through introducing streamlined processes, as well as new arrangements under which some checking and administrative work is carried out on the CAA's behalf by specified private companies and trade associations.

Gauging consumer needs

  78.  The CAA conducts face to face interviews with departing air passengers, annually at Heathrow, Gatwick, Stansted, Luton and Manchester and every three or four years at other major regional airports. By the end of 2005 some 280,000 departing air passengers will have been interviewed during the year.

  79.  The CAA Passenger Survey is designed to identify and measure factors that may help explain demand for commercial air travel to, from and within the UK. The fieldwork and analysis is conducted by the CAA with significant financial support from the private sector. The data has a wide-range of uses within the CAA, Government and the aviation industry. The consumer benefits as the data and analysis is used by the aviation industry to inform decisions on the planning of air services and airport facilities.

Airport regulation

  80.  In regulating airports the CAA seeks and takes account of the views of the Air Transport Users Council, which represents passenger interests, during the five yearly reviews of Heathrow, Gatwick, Stansted and Manchester airports. The CAA does not wish to impose on airports a blueprint for passenger service standards given the evolving nature of the airline business and changing passenger needs. However, at the last review completed in 2003, we brought within the regulatory regime some basic quality measures at Heathrow, Gatwick and Manchester airports.

Air fares

  81.  The CAA prefers airlines to be free to set their own fares under the constraints of competition and with a minimum of regulatory intervention. However, outside the EU single market, Government-imposed restrictions under bilateral air services agreements can confer market power on airlines. In such cases, the CAA, after taking into account the relevant circumstances, is prepared to intervene to ensure that consumers have basic on-demand travel at a price reasonably related to the cost of its provision.

Regional air services

  82.  In February 2005, the CAA published a comprehensive study of the development of UK regional air services over the last 10-20 years. This was based on CAA statistical data and on interviews with representatives of regional airlines, airports and regional bodies. It examined both the overall growth of the market and issues associated with connectivity to London and hub airports elsewhere in Europe.

Business effectiveness, governance and staff

Financial performance and cost control

  83.  Over the years the CAA has made considerable efforts to improve the efficiency and effectiveness of its operation but this has been particularly evident since the events of 11 September 2001. The CAA's manpower has fallen from 1,091 in 2001 to 957 in 2005, a reduction of over 12%. During the same period, commercial flights have increased (by some 10%), as have the CAA's responsibilities and workload. The CAA's operating costs, excluding ASSI, have fallen by over £3 million (2.6%) which in real terms equates to a reduction of more than 9% compared to inflation. Much of this efficiency has been generated by close scrutiny of accommodation costs, actively engaging staff on improving CAA processes, and by moving to more electronic means of interchange with industry, including publishing documents on the Internet rather than traditional printing.

  84.  All CAA costs are recovered from those subject to the CAA's regulation (the regulatory sector) via statutory schemes of charges, or in the case of air navigation services, from the UK's share of route charges payable to Eurocontrol. The UK is unique in Europe in having to recover all its costs, including a return on capital employed, from the aviation industry. Through its charges consultation process, the CAA ensures that activities and costs are subject to regular scrutiny by regulatees. This unique method of funding aviation regulation in the UK, and the resulting scrutiny it generates, encourages the CAA to continue to drive for efficiency and cost effectiveness.

Performance indicators

  85.  Annex 2 provides an overview of the performance of the CAA in relation to service standards and cost. Examples of improvements include:

    (a)  ATOL: over recent years the CAA has reduced the time taken to process new applications, although last year the time increased as a result of a 50% increase in the number of applications. Despite this growth in the number of ATOL holders, the time taken to renew existing licences has remained significantly lower than five years ago. These improvements have been achieved while holding total ATOL costs more or less constant.

    (b)  Pilot Licensing: the Personnel Licensing Department (PLD) is required to turnaround professional and private pilot licence and other applications within a 10 working day target and, to achieve its stated service standards, 90% of applications must meet this target. Performance indicators show that the average number of days taken to grant flight crew licences and associated licence ratings has reduced in the two year period 2003-05 with private licence turnaround reducing from 7.5 working days in 2003 to 4.8 days by 2005 and professional from 5.9 working days in 2003 to 3.1 in 2005. This has been achieved during a period of increased licence transactions.

    (c)  Cost Performance: despite increases in areas of responsibility and cost pressures from insurance, the overall cost per passenger of the CAA's activities is projected to fall to 48p by 2009-10, down from 73p in 2001-02. The overall cost of the CAA in 2001-02 was £123.3 million reducing to £120.0 million in 2004-05. Further cost reductions are anticipated in later years as a result of continuing efficiency measures and further staff reductions resulting from the development of European Regulation.

SRG costs and charges review

  86.  Although the CAA consistently fulfils its statutory objective of recovering its costs from those it regulates, it became increasingly clear that some sectors of the industry have been paying more than their fair share of SRG costs. In 2004, the CAA Board appointed a Joint Review Team (JRT) comprising representatives from different parts of the industry, the CAA and the Government to take a thorough look at the system and make recommendations for improvement. The aim of the review was to achieve charges mechanisms that were more cost related, fair and reasonable, which minimised cross-subsidies between and within Charges Schemes, and improved the transparency of SRG's charges overall. As a result of the review, proposals were developed for revisions to the Charges Schemes that could, over a period of five years, have a significant impact on charges to certain sectors of the aviation industry. The Board modified the final JRT proposals and gave final agreement in May 2005 to charges covering an initial 15-month period. The CAA then conducted an extensive public consultation. It is the CAA's intention to phase in the modifications to the charges structure in order to alleviate the financial impact on the smaller operators and is seeking to minimise as far as possible the impact that the proposed increased charges would have on general aviation. The transition arrangements will also allow several further reviews of SRG's regulatory approaches to be undertaken.


  87.  As part of the review of SRG's costs and charges in 2004, a firm of consultants was employed to undertake an independent benchmarking exercise of the CAA's support functions to establish the relative efficiency, and hence value for money, of the functions. The reference group used for the analysis comprised a variety of best performer organisations from different sectors, which included large FTSE 100 companies, a small number of airlines and public utility companies.

  88.  The results showed that the CAA support functions provide an efficient and high quality service. The Finance and Procurement functions were shown to represent good value for money and exceptional performance was reported for all of the functions in at least 30% of the activities included in the review.


  89.  The CAA operates a CAA-wide Management System, which sets out the CAA's policies, principles and procedures that underpin day-to-day operations, which is monitored along with all financial and HR matters through the CAA-wide Executive Committee. This System delivers cross-CAA processes, which ensure established best practices are consistently applied.

  90.  The CAA Board recognises the importance of good corporate governance and has ensured that appropriate corporate governance procedures are in place within the CAA and are regularly reviewed.

  91.  The CAA Board is the key element of the CAA's governance and compliance and its composition has already been outlined in paragraph 5. Reporting to the Board are Executive Members who have delegated responsibility for operations and management, and for the development of strategy and policies, subject to the Board's approval. Each Group has its own Policy committee, which includes at least two non-executives. The Policy Committees develop plans and strategies, review key policy issues and monitor progress on the Business Plan and cost efficiency. Executive Members and senior management keep the Board informed of developments within each regulatory Group through regular presentations. The Board has a formal schedule of matters reserved to it, and is provided with information to enable it to maintain the strategic direction and to monitor the overall performance of the CAA, including key business risks.

  92.  For the purpose of taking key regulatory decisions (for example price controls at designated airports and allocation of frequencies to airlines on routes where capacity is scarce) which are reserved by law to a Member of the CAA, panels of up to three Members are appointed by the Board to hear the evidence and decide the case. Similar panels also hear appeals from licensing decisions taken by CAA officials. In this capacity, the CAA Members sit as a quasi-judicial tribunal under the supervision of the Council on Tribunals.

  93.  The Non-Executive Members have responsibilities to ensure that strategies proposed by the Board are fully discussed and critically examined. Their different backgrounds and experience complement those of the Executive Members and bring an independent judgement to Board decisions.


  94.  The CAA's ability to fulfil its statutory remit, to deliver its Corporate Plan and to relate effectively to the aviation sector both in the UK and internationally, is primarily dependent on the capability and quality of staff. The CAA's ability to attract, retain, develop and motivate high quality staff with appropriate skills, knowledge, experience and competencies will determine current and future success.

  95.  The CAA is an Investor in People and actively encourages and supports the continued learning and development of employees, and promotes diversity and equality of opportunity for all. The CAA's Performance Management process ensures that staff are clear about what is expected of them, and that they are given frequent feedback on how they are doing, along with opportunities to develop their careers. Employees are recruited with a wide variety of backgrounds—principally aviation, principally private sector.

  96.  The involvement and participation of staff is vital, and both formal and informal arrangements are in place for consultation with all employees on matters such as Health and Safety and all matters relating to the business. The CAA has good relationships with its Trade Unions (TU), Prospect and PCS, and works closely with TU officials and representatives.


  97.  On environmental matters, the CAA's activities are largely undertaken by DAP within the Environmental Guidance issued by the Secretary of State and through the work of the Environmental Research and Consultancy Department (ERCD). The work of ERCD is highly respected and the department is frequently called upon to complete noise assessments for the DfT or airports. Understanding of tranquillity, emissions and noise continues to develop and the CAA remains focused on the relevant issues. The Airspace Change Process gives proper regard to the environmental impact of the change, but the challenge remains to balance the public's desire to fly and the airlines' willingness to meet that demand, with the impact on the environment, particularly in the vicinity of airports. Increasing public awareness of the impact of aviation and a willingness to voice concerns, often encouraged by special interest groups, has made it almost impossible in recent years to reach consensus. However, provided the CAA operates in accordance with its statutory duties, the Government objectives will be achieved.


  98.  The UK airline industry is the leader in Europe and the success of UK aviation has played, and continues to play, an important role in the UK economy. The UK has a mature and responsible aviation industry that is both innovative and in possession of a strong safety culture. The CAA contributes widely to this through its safety oversight of the industry, coherent policy on economic and airspace issues, and protection of the public against insolvency by tour operators. The CAA's duty to recover fully its costs from those it regulates places a financial burden on the aviation industry that is not mirrored in most other countries. Nonetheless, the overall regulatory environment, and the high safety standards that are set and achieved by the CAA in partnership with industry, have enabled UK aviation to mature and flourish. Similarly, the public's confidence that advance payments made to tour operators are safe has assisted the development of the tour operation industry.

  99.  The net result is that, in the 30 years since its inception, the CAA has successfully contributed to improvements in aviation safety in all areas, but specifically in large public transport and North Sea helicopter operations, pressed for a liberalised aviation market and tariff deregulation, enabled over 200,000 travellers to continue their holidays despite the collapse of their tour operators and contributed to the development of harmonised European regulation.


  100.  Aviation is a global business and the CAA is pleased to have played a significant role in the international developments that have brought about major benefits to the aviation industry and users of air transport services. Examples of such developments include the formulation of common safety requirements by the Joint Aviation Authorities (JAA), the adoption of minimum levels of insurance for airlines operating in the European Economic Area (EEA) and the liberalisation of aviation within the single European market.

  101.  International developments, particularly those in Europe, look likely to have an increasingly significant impact on the CAA. The CAA will continue to adopt a pro-active and co-ordinated approach towards Europe and will seek to ensure that the UK's position and objectives are reflected in major European developments. The CAA's view is that some recent EU initiatives did not take sufficient account of the views of parties with practical aviation experience, or consider adequately the impact of the proposed rules. For example, the new legislation on rights for passengers affected by denied boarding, delays and cancellations was not the subject of a regulatory impact assessment before being implemented and, in practice, has caused confusion and dissatisfaction among passengers and airlines.

  102.  The CAA will also seek to ensure that it has the necessary policy and influencing skills to be a leader in the debate on the development and implementation of European and other international initiatives. The CAA recently organised a conference on the Future of Aviation Regulation in Europe, to encourage debate about how to create a much clearer and more effective framework for such regulation—a framework based on a genuine partnership between European institutions and national aviation authorities.

  103.  To promote a healthy UK aviation industry and benefit the consumer, the CAA will continue to utilise its expertise to assist and advise Government in areas such as liberalisation and slot reform, EU/US negotiations and bi-lateral agreements, and competition and consumer policy.

  104.  Two areas of special significance for the CAA at this time are EASA and the Single European Sky.

European Aviation Safety Agency (EASA)

  105.  EASA has now been operational since September 2003. The CAA, through numerous working groups and the provision of direct assistance to EASA, has contributed significantly to the development of EASA's rulemaking and aircraft certification activities. In addition, the CAA has provided advice to industry and support and advice to the DfT at the EASA Management Board meetings.

  106.  The CAA is strongly supportive of the concept of EASA, seeing potential for major benefits from raising safety standards across Europe, and from the creation of a level playing field as regards safety. It is essential, of course, that EASA develops in ways which are consistent with the Government's stated policy aim of maintaining the UK's present high safety standards, identifying potential threats and seeking appropriate improvements.

  107.  The CAA is committed to helping EASA to succeed in its mission and to become the world-class regulator which Europe needs for aviation safety. The CAA will continue to monitor the Agency's actions and offer assistance, support and co-operation as the Agency requests. It has, however, become evident that EASA still has significant difficulties to resolve, some as a result of constraints imposed by the European Commission's staffing and financial Regulations.

  108.  If these issues remain unresolved for much longer, it will be difficult for EASA to re-gain the confidence of Member States and stakeholders. It is particularly important that these difficulties are resolved soon, as the Commission has signalled its intent to extend EASA's responsibilities to include rulemaking and standards for air operators and their flight crew by 2007 and Air Traffic Management and aerodromes by 2010.

  109.  As EASA assumes more responsibilities and functions, the CAA will continue to manage, through its transition plans, the effects of these developments on SRG staffing and funding requirements. The overall objective of matching resources to workload and addressing the issue of surplus staff above the number needed for long-term and transitional tasks will be a challenge for the CAA until EASA is fully established and the transition is complete.

Single European Sky (SES)

  110.  Single European Sky (SES) is a European Commission initiative, launched in 1999 when air traffic control delays were at their peak. The European Parliament approved four high level regulations, to give effect to SES, in March 2004 and these are supported by a range of Commission Regulations covering such matters as flexible use of airspace, airspace classification, charging for air navigation services, certification of air navigation service providers and the interoperability of systems. Further implementing regulations are envisaged. The key SES aims of eradicating delays and increasing capacity address a genuine need and the initiative has the potential to deliver significant benefits to UK aviation through:

    —    providing Europe-wide standards and regulatory frameworks backed by enforcement powers;

    —    better, more direct routeing for aircraft, bringing fewer delays and reduced costs;

    —    the possibility of environmental benefits through reduced fuel burn;

    —    separation of regulation from service provision across Europe; and

    —    market opportunities for the UK aviation sector through the introduction of common standards.

  111.  The CAA is a strong supporter of the SES and provides technical advice on safety, legal, economic and airspace aspects to assist the DfT in promoting the UK position in Europe and in seeking to shape SES legislation to accommodate and, if possible, reflect UK best practice. The DfT and the CAA, working together, have succeeded in moderating the Common Requirements for the Certification of Air Navigation Services Providers, limiting the extent of the Airspace Classification Regulation, promoting the UK system of joint and integrated civil/military provision of air traffic services and gaining flexibility for national requirements in the SES regulations.

  112.  The CAA's primary objectives, in its work on the SES initiative, are to preserve UK safety standards and to argue for proportionate regulation and maximum subsidiarity. While the CAA supports greater harmonisation across Europe, one size does not necessarily fit all. The UK aviation market is, in many ways, more advanced than elsewhere in Europe, for example there is commercialised provision of air traffic services, contestability for the provision of these services at airports, economic regulation of the designated airports and a licensed company (NATS) as the monopoly en-route service provider. The CAA does not wish to see existing benefits to airspace users lost in the name of uniformity and believes that regulation should be proportionate to the risk posed by the services in question. The European Commission does not always follow best regulatory practice in developing legislation and the CAA, alongside the DfT, seeks to remedy the Commission's deficiencies in consulting the industry and keeping stakeholders informed. In this latter respect the CAA has engaged with the aviation industry through a wide variety of consultation mechanisms including workshops, seminars, information papers and regular bulletins. The effectiveness of these arrangements has been widely acknowledged by UK and other European bodies.

  113.  The CAA has been designated as the UK National Supervisory Authority for the SES initiative and, as such, will be required to supervise and enforce the application of the SES legislation and to assess compliance with the regulations.

  114.  Also relevant to SES is the SESAR project, which aims to define and implement a Master Plan for European air traffic management to provide a harmonised and fully interoperable Air Traffic Management network—exploiting new operational concepts and technology and delivering enhanced safety and efficiency, while minimising environmental impact. The CAA will engage in the Project Definition phase of SESAR to provide guidance on its safety requirements and comment on the outputs. The project's Implementation Phase is due to begin in 2007, at a cost of some €30 million per year until 2020, and the CAA has concerns over the arrangements for the funding and governance. The Commission has proposed a Joint Undertaking involving itself, Eurocontrol, and private sources (including stakeholders). The CAA remains unclear as to how the interests of national Governments and air navigation services providers will be adequately represented.

November 2005

Annex 1


    —    The continuation of the body known as the Joint Air Navigation Services Council (JANSC).

    —    The production and maintenance of a co-ordinated strategy and plan for the use of UK airspace for air navigation.

    —    The development, application and maintenance of a national policy for the classification of UK airspace, including design criteria, rules, guidelines and common procedures.

    —    The co-ordination of temporary changes in the utilisation of UK airspace to meet special air navigation requirements.

    —    The development, monitoring and enforcement of a national policy for the use and assignment of civil aeronautical radio frequencies and Secondary Surveillance Radar codes.

    —    The establishment and publication of consultation arrangements with the MoD, DfT and air traffic service providers.

    —    The provision of advice to Government in both the national and international arenas.

Annex 2



  CAA Corporate Plan 2005 (and previous plans).

  Performance Indicators from CAA Annual Report and Accounts 2005 CAA Staff Numbers from Group Business Plans for 2006-07.


  The graph below shows the volatility of airline traffic, particularly long-haul traffic, to world events. It clearly shows the impact of the terrorist attacks on 11 September 2001, the conflict in Iraq in the first quarter of 2003, the outbreak of SARS in May 2003 and the subsequent recovery after each of these events. The graph reflects traffic volumes (in terms of revenue passenger kilometres) since 2000, indexed month-by-month using 2000 levels as a base. It shows that Association of European Airlines (AEA) airline traffic is now above 2000 levels including traffic on the North Atlantic route.

Airline Traffic: % Change compared to 2000

  The impact of world events on AEA airfreight volumes was relatively more subdued as indicated in the graph below. While AEA total international passenger traffic did not recover to the 2000 levels until 2004, the airfreight market shows more resilience with traffic levels rebounding by mid 2002 and remaining steady for much of 2003 before rising again early in 2004. As a result, total Freight Tonne-Kms (FTKs) for AEA airlines in 2004 were almost 15% above the 2000 level. However, the 11 September 2001 event had a sharper and more lingering impact on the UK airfreight market due to the relatively high exposure of UK airlines to the North Atlantic freight services. Even so, the strong recovery since the end of 2003 has resulted in the FTKs of UK airlines in 2004 being 20% higher than the 2000 level, although in terms of freight tonnes at all UK airports, the 2004 volume of traffic is just 2% above that in 2000.

AEA and UK Airlines Freight Traffic: % Change compared to 2000

  The graph below left shows one measure of aviation activity—total commercial flights in UK airspace—which counts each civil flight in UK airspace once. The graph below right shows Available Seat Kilometres (ASKs)—the number of seats available for sale for each stage of a flight by stage distance—which summarises the level of UK airlines' activity.


  The CAA uses a number of indicators to monitor against its service and performance and there are several codes of practice and service standards in place across the organisation. The CAA is also a signatory to the Government's Enforcement Concordat.

1.   Air Travel Organiser's Licensing (ATOL)

  As part of its consumer protection role, the CAA manages the ATOL scheme which licenses air travel organisers to protect consumers financially. There is a published Code of Practice for the ATOL scheme that sets out its principles of service and commitments for service levels, which has been approved by the Cabinet Office's Regulatory Impact Unit. The time to decision" indicators (below) reflect the CAA's performance on making ATOL decisions. The Code of Practice targets are decisions within an average of eight weeks of receiving necessary information for both new applicants and renewals. Both of these targets have been consistently met.

Average No. of Weeks for New ATOL applications Decisions

  There was an increase of more than 50% in new applicant ATOL applications in 2004-05 principally due to the introduction of amended ATOL Regulations at the end of 2003, the Small Business ATOL approach and a Third Party Agreement with the Travel Trust Association. This has had an impact on the average time taken to decision, which has increased to 3.8 weeks.

  Performance in both categories improved in 2003-04 despite a significant increase in the number of new applications as a result of new ATOL Regulations in 2003. The workload increase was offset by the adoption of further streamlined approaches to smaller licences and by new IT developments.

Average No. of Weeks for ATOL Renewals Decisions

  The average time taken to reach a decision on renewal applications has remained relatively stable despite the increased workload. This was helped by the introduction of more efficient working methods to process the smallest firms, who comprise the majority of the additional caseload licensed during the year.

2.   Professional and Private Pilot Licences

  In exercising its primary responsibility for the safety regulation of UK registered aircraft, one of the CAA's major tasks is the granting and issue of flight crew licences and associated ratings. The indicators below show, for professional and private licences, the average number of days taken to grant and issue flight crew licences and associated ratings, and the number of licences issued per CAA licensing staff member.

  The staff effort used to calculate issues per staff is derived from a time recording information system. This is the fourth year that the Personnel Licensing Department (PLD) has used the revised and simplified time code structure relevant to this Performance Indicator. As a result, a direct comparison cannot be made with financial years prior to 2001-02.

  Private licence and rating applications have declined in the fourth quarter of 2004-05, but these applications can be subject to variation from quarter to quarter in addition to seasonal variations. Overall, volume trends continue upwards and turnaround times have been held or reduced.

  Towards the end of 2003, the PLD had to refocus its resources to clear a substantial and unexpected increase in licence transactions as can be seen in the graphs above. Revised work processes were implemented, but the full extent of the improvements were not realised until early in 2004-05.

  The CAA introduced Joint Aviation Requirements for Flight Crew Licensing (JAR-FCL) in July 1999. The additional work necessary for the implementation of JAR-FCL, associated IT projects and continued high demand for UK national licences as they were progressively phased out added significantly to the workload of the Flight Crew Licensing Department, which had a mitigating effect on productivity during 1999. This situation was rectified during 2000 with the number of days to issue licences improving dramatically on the previous year.


3.   Cost control

  It is the CAA's policy to ensure that the costs passed to industry are tightly controlled and efficiently managed. The CAA will continue to face considerable challenges managing its workload and projects within its limited financial resources and all efforts will be made to ensure that expenditure is kept to a minimum.

3.1  CAA unit cost indicator

  The diagram below shows the trend in two important unit cost indicators for the CAA— unit cost per flight and unit cost per passenger.

  The graph has been compiled using the published CAA costs (Total Operating Costs before Income Equalisation, ASSI and DfT contribution to Eurocontrol) up to 2004-05 and the forecast costs for 2005-06 to 2009-10. All costs have been adjusted for inflation to show 2004-05 outturn costs. The forecast flights uses the CAA's base case forecast for Commercial Flights. The forecast passengers uses the CAA's base case forecast for Terminal Passengers.

  The graph shows a steady decline in unit costs over the period of the Plan with the total cost of all of the CAA's activities amounting to 48 pence per passenger by the end of the period.

CAA Unit Cost indicator (2004/05)


  The graph below shows an alterative view to the unit cost trends. At constant 2001-02 prices, despite increased insurance costs, the CAA has been extremely effective at reducing overall operating costs.

CAA Opearating Costs

3.2  Cost per ATOL-Protected passenger

  The unit costs of managing ATOL increased in the late 1990s following a decision to spend more on monitoring and enforcement so as to protect the Air Travel Trust. The increase has since been offset by productivity gains. The result for 2004-05 is broadly constant, as the upward pressure on unit costs arising from new small licence holders is absorbed by the introduction of more efficient ways of coping with the workload. These measures include streamlined arrangements for Small Business ATOLs and the use of third party administrative arrangements. Air Travel Organisers' Licensing charges amount to less than 16 pence per protected passenger.

Cost Per ATOL-Protected Passenger

3.3  Comparison of yearly movements in total costs, ASKs and RPI

  The graph below illustrates the yearly percentage movement of total operating costs as compared to movements in the Retail Price Index and Available Seat Kilometres flown by UK registered airlines. The graph shows that the CAA's total costs are forecast to remain below or just equal to RPI for the period of the Plan.

Comparison of Yearly Movements in Total Costs, Asks and RPI

4.   Rate of return

  The CAA's regulatory sector, comprising Safety Regulation, Economic Regulation and Consumer Protection, is normally required to achieve the higher of either an average annual 6% rate of return on the average current cost of capital employed, or break-even after charging interest and tax.

  Following the downturn in the aviation industry, the Government waived the required rate of return to a break-even for the financial years 2001-02 and 2002-03 but imposed a requirement that the lost rate of return be recovered in subsequent years in addition to the target set for the annual rate of return. Some of this was recovered during the financial year ending March 2004, where a 9% return was achieved. The remainder has been fully recovered in the year ending March 2005, with the Regulatory sector having achieved a return of 18%.

Rate of Return

5.   Staff numbers

CAA Staff Numbers as at 31 October

  CAA total staff numbers in October 2001, excluding subsidiary companies were 1091.5, by October 2005 that number had fallen to 957 a reduction of over 12%. As stated in the 2005 Corporate Plan, SRG's staff numbers are now significantly influenced by the development of EASA, and will continue to be so during the next planning round.

1   The future development of air transport in the United Kingdom-the Civil Aviation Authority's response to the Government's consultation documents on air transport policy-June 2003. Back

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Prepared 8 November 2006