Select Committee on Transport Minutes of Evidence


Examination of Witnesses (Questions 40-59)

SIR ROY MCNULTY, MR JOHN ARSCOTT, MR MICHAEL BELL AND DR HARRY BUSH

11 JANUARY 2006

  Q40  Clive Efford: They are big swings and roundabouts. The Economic Regulation Group achieved a profit of £1 million for the year ended 31 March 2005 compared with just £49,000 in the previous year; that is a significant difference.

  Dr Bush: I think one of the problems you have got here is the law of small numbers. The Economic Regulation Group is a pretty small operation and it has some big projects, the timing of which are uncertain, washing through it, for instance the price reviews which are the biggest things that we do. If the timing of those changes or the need for consultancy, which is actually a major thing that washes through changes, that will affect those figures very substantially. I think the figures you are referring to are basically because of that. It came about around the time of the NATS price review.

  Q41  Clive Efford: What issues has the Audit Commission raised with management in the last 12 months?

  Sir Roy McNulty: We have no involvement with the Audit Commission. We are required to have external auditors in the way that a normal limited company would have.

  Q42  Clive Efford: I am sorry, I should have said the Audit Committee.

  Sir Roy McNulty: The Audit Committee reviews the plans that the external auditors have, it reviews the plans that our internal auditor has, it reviews with the auditor at the end of the accounts any issues they wish to raise, it looks at the management letter which the auditors provide us with of things that we ought to improve in our accounting processes in one way or another, and it basically provides us with the assurance that everything that should be done from an audit and an accounting point of view is being done properly.

  Q43  Clive Efford: You told us in your submission of 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." We have heard from Prospect that you are having difficulty recruiting in the Air Traffic Services Investigation arm of the CAA. Would you care to comment on that?

  Sir Roy McNulty: I do not think today we have major difficulties. Sometimes we have a few posts not filled. We are in the same position as any organisation in that when some people leave you have got to go out and hire replacements and you have some vacancies for a period. In 1999 this Committee had a review of the safety aspects of the CAA and there were major problems at that time, particularly in relation to air traffic controllers and pilots. Since then, working with the Department for Transport, we have had a degree of flexibility to move towards market rates and the salary imbalance is not a serious problem anymore in terms of recruitment.

  Q44  Clive Efford: Prospect has said to us that the issue is a difficulty in recruiting staff because of lower salaries paid by the CAA and that that continues to be a problem.

  Sir Roy McNulty: We have the flexibility to add market supplements to our normal salary ranges and compete. The trouble is that the market is always moving slightly ahead of us. Prospect has been very successful in various negotiating venues so they certainly are usually a bit ahead of us, but we have the ability to catch up using market supplements and it is not a major issue for us today.

  Mr Bell: Within the last year we have arranged a market supplement for air traffic controllers specifically to address this issue. I was advised only this morning that we are now fully up to complement in that area.

  Q45  Chairman: Do you mean you have given them more money?

  Mr Bell: Yes.

  Q46  Clive Efford: We have been told that within the past 18 months there have been two separate recruitment exercises which failed to attract sufficient suitable candidates thus leaving posts unfilled. Are you saying that problem has now been resolved?

  Mr Bell: I am, yes.

  Q47  Clive Efford: Is there a problem in maintaining a balance in your workforce? Is there a danger of taking on too many ex-Service people at the expense of the civil aviation?

  Sir Roy McNulty: No, I do not think so. The main area where we have ex-Service people is in airspace policy. Perhaps I might ask John Arscott to comment on that.

  Q48  Chairman: It has been said to us there are too many people with an ex-Service background because they do not have immediate knowledge of civil aviation.

  Sir Roy McNulty: That is a particularly difficult question for Mr Arscott to answer as he came from there!

  Mr Arscott: We always approach the task from the point of view of adopting the best person to fill the job and fortunately in this country we have such a joint and integrated air traffic management system that broadly speaking, whether the individual comes from the civil community or the military community, certainly in the area radar context there is a general understanding across both specialisations. As Sir Roy said, where we have specific jobs where we need particular skills which can only be found in one or the other, for example fighter pilots as opposed to civil air traffic controllers, we have a mechanism to pay market supplements to get the expertise and the skills base that we need and we do that.

  Sir Roy McNulty: For the sake of completeness I should say also that in the Safety Regulation Group there are some ex-military people, but it would be in the range of five to 10% of the total, it is not large.

  Q49  Clive Efford: The fact that their experience is from the military rather than civil aviation does not present problems, does it?

  Sir Roy McNulty: Absolutely. They are ex-military but they have a specialist discipline perhaps in air traffic control, airspace planning, may be in maintenance or something like that. They have the disciplines that we look to recruit.

  Q50  Clive Efford: Finally, have you determined what the environmental implications of the Aviation White Paper are for the Airspace Policy Department? What steps have you taken to recruit the relevant levels of expertise and how have you budgeted for this?

  Mr Arscott: We are working very closely with the department, BAA and the various other interest groups on the development of the Government's White Paper. The environmental research and consultancy department, a group of people who work for me who are essentially noise and environmental experts, are doing a lot of work to contribute to this, but at the moment the evaluation is not complete, work is still going on and I am sure at an appropriate time the balance between operational imperative and environmental impact will have to be made, but likely as not it will be made by the Government.

  Q51  Mr Wilshire: I wanted to go back to a point that Mr Efford was touching on in terms of finance. I am conscious this is the Transport Committee, but I read your annual report and accounts and I realised that we need to be a finance committee to get involved in some of the detail that is there and we are not that. On page 60, where you have got your auditor's report, it says, We are not required to consider whether the board's statements on internal control cover all risks and controls or form an opinion on the effectiveness of the group's corporate governance procedures or the group's internal controls." You are a public corporation. As a member of the Transport Committee I would look to the Public Accounts Committee to tell me whether or not your financial performance was efficient and effective rather than legal, which is what I take Pricewaterhouse to be saying, that this is a legal set of accounts. You are unable to be checked over by the National Audit Office and therefore be brought before the Public Accounts Committee. How can I and my constituents at Heathrow, who are utterly dependent upon your safety regulations to live happily in my constituency, be sure that you are efficient and effective if we cannot get at the audit of your accounts because you are somehow the exception to the rule of being checked over by the NAO?

  Sir Roy McNulty: I honestly do not know the background as to why it is as it is. As you know, the CAA is set up as a statutory corporation. It is required to have an audit rather like a limited company would have and we have that with PWC. I do not understand why the NAO is not involved, but we can get the background researched and provide a note to the Committee on why it is like it is.

  Q52  Mr Wilshire: Do I understand from that that you would be content for the NAO to be able to look at your accounts?

  Sir Roy McNulty: I do not have a view on it. It is not an issue.

  Q53  Mr Wilshire: Could I encourage you to have a view?

  Sir Roy McNulty: We will look at that as well. We will provide a note explaining the background and we will give you our views about the NAO being involved.

  Mr Wilshire: My understanding is that the Government is arguing—and I do not know whether it is the current or previous government—that because you are financed by the airlines somehow you are different.

  Chairman: I do not want to labour this point too much because we have got a lot of things to do.

  Q54  Mrs Ellman: Your safety performance indicators include upper limits and target rates. What is that all about? Surely you should just be looking at zero in terms of that.

  Mr Bell: What we have done is take a pragmatic look at the safety record which, as I have said to the Committee when they visited the Safety Regulation Group, is second to none in Europe and twice as good as the Americans. What we have done is not take the unrealistic proposal that we should have no accidents because the only way you can achieve zero accidents is by grounding aircraft. What we are doing is taking a pragmatic look at the current achieved safety levels, estimating what would happen if they were not improved and setting a set of targets to reduce those. You will notice that the indicator boundaries that are published reflect a reduction. Our aim is to continue to improve and to reduce but we do not want to set an unrealistic target of zero and then fail to meet it. This is something that the FAA did a few years ago at the end of the Nineties and then they dropped it very quickly when they discovered the sheer impossibility of it. If you look at the graph that we supplied in relation to the number of Western built jets and passenger fatalities, we have only had one since 1989. In effect the one that we do focus the majority of our effort and our resource on, as Sir Roy said, where large numbers of passengers are carried, is where the risk to the people underneath is significant and in that area we have been very successful.

  Q55  Mrs Ellman: Are you confident that you can maintain that standard if there is a move to light touch regulation?

  Mr Bell: Yes. I think this question of a move to `light touch regulation' is quite emotive. It is not something that I recognise as having been said recently with any particular relevance, it has been something that we have been engaged in for as long as I have been in the CAA and that has been a continual reduction in the number of people dealing with an ever increasing number of companies and an increasing reliance on the companies to introduce self-regulatory systems such as safety management systems and safety related quality systems which enable us to satisfy ourselves with less of an audit. To some people that does represent an unacceptable phase of progress but for us it seems the only practical way to go forward, to maintain the safety level while reducing our number of staff.

  Q56  Chairman: British Airways, who were always looked upon as being extremely careful and safe, has been criticised very strongly recently for their maintenance procedure. Is it not true that relying on the reputation of a company and its self-regulation might in itself throw up some rather difficult questions?

  Mr Bell: I would accept that that is an issue. At the time British Airways suffered these problems which were widely reported in the press a few weeks ago there were a number of issues associated with a large reduction in their engineering staff. We were working on the problem throughout and I can assure you that that particular issue was addressed about a year before the report actually was published.

  Q57  Chairman: One would hope so, Mr Bell, because it was not exactly a new thing for lots of us who had watched the steady deterioration of a lot of their aircraft, particularly on their domestic routes and been told by many people about the problems in the engineering division and, therefore, it seems rather sad that it took over 12 months before there was any kind of open and firm criticism.

  Mr Bell: We do run a process of monitoring with some 10,000 reports a year and these are open and transparent.

  Q58  Chairman: Where does the line lie between self-regulation and the light touch and removing yourself from a situation where you could come up with an immediate and quite firm opinion that would safeguard the passenger?

  Mr Bell: That is a very complicated question. Defining that line is a matter of expert judgment.

  Q59  Chairman: Life and death are quite complicated. The end is simple, you are or you are not.

  Mr Bell: We have the option of removing the Air Operator's Certificate from a company and there are examples of us doing that over a number of years.


 
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