Select Committee on Transport Minutes of Evidence


Memorandum submitted by Manchester Airports Group Plc

1.  INTRODUCTION

  1.1  The Manchester Airports Group Plc (MAG) welcomes this opportunity to set out its views on the work of the Civil Aviation authority (CAA). As the UK's second largest airport company, MAG owns and operates Manchester, Nottingham East Midlands, Humberside and Bournemouth Airports. The four airports handle some 28 million passengers and over 400,000 tonnes of freight per annum.

  1.2  Manchester Airport is one of only four UK airports to be subject to price regulation by the CAA and MAG therefore has a particular interest in this aspect of the CAA's work.

  1.3  In this paper, we will briefly cover all of the areas identified by the Committee for its inquiry. However, given the importance of price regulation to our business, we will focus on the effectiveness and efficiency of the CAA's regulatory framework and the effectiveness and efficiency of the CAA in discharging its duty as it relates to this. We will also comment upon the interaction between the CAA and the Competition Commission in this regard. Finally, we will examine the CAA's activities in relation to international air services, including the effect of closer co-operation with the EU in this area. The remainder of this document follows the structure set out by the Committee in its 13 October Press Notice.

2.  ISSUES OF INTEREST TO THE COMMITTEE

Remit, structure and powers of the CAA

  2.1  The Civil Aviation Act (1982) (the Act") sets out the constitution of the CAA and its functions, together with its general objectives. Without restating these, MAG considers that the provisions of the Act continue, in all. major respects, to be appropriate to the duties that the CAA has been tasked with. Nevertheless, we would observe that an anomaly that exists in relation to the economic regulation of airports, whereby the CAA is obliged to make a reference to the Competition Commission before reaching a decision on an airport's price control review. This is discussed in more detail below, in the section on the effectiveness and efficiency of the CAA's regulatory framework.

Performance in relation to statutory objectives and functions

General observations

  2.2  The functions of the CAA include the licensing of air transport, aircraft, provision of air navigation services and operation of aerodromes.

  2.3  The general objectives set out in the Act require the CAA to carry out these functions in the manner best calculated to secure that British airlines provide air transport services at the lowest charges, consistent with a high standard of safety and an economic return" and with securing the sound development" of the UK air transport industry. This must be achieved in a manner that furthers the reasonable interests of users of air transport services.

  2.4  Beyond this, the CAA has a duty to consider environmental factors when licensing certain aerodromes (as specified in an order made by the Secretary of State). This includes minimising as far as reasonably practicable any adverse effects on the environment and any disturbance to the public.

  2.5  MAG considers that, in almost all respects, the CAA achieves the difficult objective of balancing these (sometimes conflicting) aims, to the benefit of airlines, airports, air transport users and the wider community. That is not to say, however, that all parties are satisfied with the outcomes in all cases.

Airspace consultation process

  2.6  Specifically, recent changes to the controlled airspace around one of MAG's airports, Nottingham East Midlands, have highlighted the difficulty associated with achieving the objectives set out in paragraph 2.3 above, even when carried out in accordance with its environmental obligations. In this case, the CAA approved changes to the controlled airspace at Nottingham that not only achieved the objective of ensuring the sound development of air services (in this case both passenger and freight operations), but did so in a manner that ensured fewer people were overflown and at higher altitudes than was previously the case.

  2.7  However, our experience during this process suggests that the consultation process set out by the CAA (CAP 725) is not sufficiently comprehensive for such a sensitive issue. Indeed, community concerns about the proposed changes at Nottingham were such that, after the initial statutory consultation, we felt it necessary to seek a delay in implementing the changes (which the CAA had approved on the basis of the first consultation) and a significantly wider consultation was then held, including many stakeholders not currently included in the CAA guidance.

  2.8  Given the increasing environmental sensitivity of communities affected by aircraft operations, and the growth in air transport envisaged by the Government's 2003 White Paper The Future of Air Transport", we would propose that this specific area of the CAA's functions, in particular the process that it follows (and requires the operators of licensed aerodromes to follow), be updated to ensure that it remains appropriate and relevant to today's needs.

Aerodrome Safeguarding Requirements

  2.9  Turning to the Aerodrome Safeguarding requirements (ie the requirement to restrict developments and obstacles on and around airports), these are based upon the performance characteristics of post-war aircraft rather than today's. As such they can be unnecessarily restrictive and are at times difficult to apply a reasonable risk assessment to. For example, with a risk-based approach it might be possible to build airport hotels three storeys higher than is currently the case.

Operational Issues

  2.10  As regards operational issues, one area of concern to MAG relates to the reluctance of the CAA to embrace new technologies, such as LED technology for airfield lighting. This has been on the market for a number of years now, with all the main manufacturers offering products. However, current CAA rules do not permit us to use it, so that airports must instead continue to use old technology that has inferior performance and higher running costs.

  2.11  The time taken to secure regulatory approval of Air Traffic Control (ATC) related equipment can also be unacceptably long, causing delays to projects, ultimately adding to our costs for keeping contracts or project teams supported for longer than might otherwise be necessary. The CAA has also increased the advance notification period for being advised of new projects to a minimum of 60 days for ATC-related projects, significantly increasing the time it takes to implement new developments.

  2.12  Following on from this, it is our experience that the CAA is now less willing (or able) to act as a source of knowledge, expertise and advice on operationally-related matters than it has been in the past. Previously, airports were able to rely on advice from CAA experts when they encountered a problem that they did not necessarily have the experience to solve alone. Now, the CAA appears unwilling to fulfil this role, expecting airports to decide for themselves and tell the CAA how they intend to approach a problem. One explanation for this might be that the CAA no longer maintains the same level of expertise; another could be that concerns about legal liability inhibit this and instead encourage the CAA to stick to the letter of the regulations. The latter possibility is borne out by the CAA's requirement for airports to present a risk assessment for any issue that does not explicitly meet the requirements of the regulations. The nature of the risk assessment being requested is, however, not always clear, since there is no guidance for the format or methodology to be used. Moreover, instead of providing feedback on the quality of the risk assessment report (which would help airports improve their submissions in future), the CAA will simply offer a no objection" response.

Financial Oversight of Airlines

  2.13  Finally, on a separate issue that relates to the function of licensing of air transport, MAG has recent experience that indicates that the CAA's financial oversight of air transport operators could be improved. In this case, the financial failure of one of MAG's airlines customers, Air Scandic, has left the airport company exposed to a significant financial loss.

Effectiveness and efficiency of the CAA's regulatory framework

  2.14  Overall, we believe that the regulatory framework within which the CAA operates is broadly appropriate in order for it to fulfil the duties placed upon it. As mentioned in paragraph 1.3, however, the fact that the CAA is obliged to make a reference to the Competition Commission before reaching a decision on an airport's price control review is, in our view, both inappropriate and unhelpful.

  2.15  The reasons for this are twofold. First, the additional administrative burden placed upon the regulated company is enormous, both in terms of the substantial management resources that are necessary in order to meet the obligations of what is effectively a duplicated review process. This represents a very significant cost to the airport being regulated in its own right, even before the actual financial charge for the Competition Commission's review (£1.5 million for the 2002 review of Manchester Airport) is taken into account. Second, the CAA—as the overall regulator of the industry—is far better placed than the Competition Commission to make decisions on its own objectives and functions.

  2.16 Furthermore, airports are unique among regulated entities in the UK in having such an onerous regulatory burden placed upon them; in all other regulated industries, a referral to the Competition Commission only occurs where agreement cannot be reached between the regulator and the company being regulated. MAG is therefore of the view that this highly unsatisfactory arrangement, which appears to add no value in terms of the CAA meeting its objectives, ought to be brought to an end at the earliest opportunity.

Effectiveness and efficiency of CAA in the general discharge of its duties

  2.17  Consistent with the comments made so far in this paper, we believe that the CAA is largely effective in the discharge of its duties. As regards the efficiency of the CAA, without further analysis of its productivity, in particular its output versus manning levels etc, it is not possible to comment in detail. However, in relation to the cost of the CAA, it is important that these continue to be kept under close scrutiny.

  2.18  In terms of specific examples where the effectiveness of the CAA in discharging its duties can be examined, in addition to the points covered in paragraphs 2.6-2.13, which relate to safety regulation, MAG would offer two further examples that relate to its role in economic regulation. The first is the CAA's conduct of the quinquennial price regulation review of Manchester Airport, and the second is the recent work undertaken by the CAA on government policy in relation to the granting of fifth freedom traffic rights to foreign airlines serving regional airports.

  2.19  With regard to the quinquennial price regulation reviews, we believe that the CAA has, overall, conducted previous reviews in an effective manner. Where we and the many airline customers that have had input into the review process have sought improvements to the process, the CAA has shown a willingness to take such views into account. This has resulted in significant changes to the way in which the CAA is proposing to conduct the forthcoming reviews of the BAA London airports and Manchester Airport, including a shift in the CAA's approach towards a new model of constructive engagement" between airports and their airline customers. It is too early to judge whether this new approach will lead to a more effective review process, but the preliminary indications at Manchester appear positive.

  2.20  Turning to the CAA work that underpinned its advice to the Department for Transport on the recently-announced change to UK policy on the granting of fifth freedom traffic rights to foreign airlines serving regional airports such as Manchester, MAG would note that this was a highly complex piece of analysis, which the CAA is very well suited to undertake. Whilst it was not possible for the CAA to take into account the totality of the economic and social benefits that such a change in policy might deliver to the UK regions, it nevertheless produced an authoritative and well-researched paper which took into account the interests of air transport users, airports and UK airlines, as well as the wider national interest. The methodology and data used were of a high quality and provided a sound basis on which to assess the balance of benefits to the UK of different policy outcomes. This piece of work provides a good example of the CAA's effectiveness in the general discharge of its duties.

Effect of growing international & EU co-operation

  2.21  MAG believes that the CAA has a vital role to play in advising the Department for Transport on international air services policy, whether this is in respect of the UK's bilateral air services agreements or in the context of EU policy in the field of air services.

  2.22  There are many situations where the CAA's detailed understanding of international air services can provide important input to the policy making process or the detailed negotiations (eg the study on fifth freedoms cited above). This can apply to the UK's bilateral arrangements or to multilateral arrangements being contemplated by the European Commission. (It is worth noting that the CAA has seconded its former Head of International Aviation to the European Commission to advise it on such matters). Given the expansion of the EU's mandate on international air services, the CAA's involvement is likely to increase, especially in such areas as regulatory convergence with the US on competition rules and dispute resolution etc.

  2.23 Equally, there are many pieces of EC legislation affecting air transport, such as rules concerning slot allocation, ground handling and so forth, on which the CAA provides HMG with advice and assistance. MAG considers that the CAA's expertise is crucial in helping to ensure that such legislation is subject to rigorous review prior to being passed. Once again, it seems likely that the CAA's work in this area will continue to expand in future.

3.  CONCLUSION

  3.1  MAG believes that the CAA's remit, structure and powers continue to be appropriate. In terms of meeting its objectives in carrying out its statutory functions, it is our view that (notwithstanding certain exceptions outlined earlier), the CAA achieves these. Nevertheless, the costs of the CAA need to be kept under review.

  3.2  We also consider the CAA's overall regulatory framework to be broadly effective, though we do not believe that the economic regulation of airports should involve an automatic referral to the Competition Commission. This is an area where an urgent review of the current framework is needed.

  3.3  It is also our view that the CAA is effective in the discharge of its general duties, though there are clearly areas such as airspace consultation and certain issues pertaining to the operational oversight of airports that could benefit from improvement.

  3.4  In terms of international aviation, the increasing international co-operation that results primarily from the greater involvement of the EU in such matters is, we believe, both inevitable and an appropriate role for the CAA to take upon itself. This may have implications for the allocation of resources within the CAA, but is something that MAG supports.

  3.5  To conclude, MAG considers that, whilst there are areas requiring improvement, the CAA has proved itself effective in meeting the difficult challenge of balancing its various objectives and providing advice and assistance to Government, to the benefit of air transport users, UK airlines, airports and the wider national interest.

15 November 2005



 
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