Select Committee on Transport Minutes of Evidence

Memorandum submitted by National Air Traffic Services Ltd


  1.1  National Air Traffic Services Ltd (NATS) welcomes this inquiry by the Transport Committee into the remit and work of the Civil Aviation Authority (CAA).

  1.2  As the UK's leading provider of air traffic management services NATS, in common with the rest of the aviation industry, works on a daily basis with the Safety Regulation Group (SRG) and the Directorate of Airspace Policy (DAP) on matters pertaining to policy and procedures for air traffic control and airspace management in UK airspace.

  1.3  As the monopoly provider of en-route air traffic services under licence established by the Secretary of State, and regulated by the CAA, NATS also maintains a constructive working relationship with the Economic Regulation Group (ERG) which sets the charging framework within which NATS operates.

  1.4  From the early 1970s to 1996 NATS was managed as a joint CAA/MoD activity. The civil side of NATS was established as a Companies Act company in 1996, following which it was set up as a Public Private Partnership in 2001, thereby creating a logical separation of provider from regulator to foster a more transparent and customer-focused organisation.

  1.5  Today NATS is owned 49% by the Government, 42% by The Airline Group (a consortium of UK airlines including British Airways, bmi British Midland, Virgin, My Travel, Monarch, Britannia and easyjet), 4% by BAA and 5% by its staff. The company continues to provide its services on a joint and integrated basis with the MoD, through a contract mechanism.

  1.6  NATS has a productive relationship with the CAA in terms of the day-to-day conduct of business. It provides effective challenge on safety performance and safety management, and on other regulatory matters. NATS sees the CAA's major challenge, moving forward, as being to ensure it has a clear and strong strategic direction to help guide the development of future regulation under the emerging Single European Sky (SES) initiative, and to ensure it plays a leading role in promoting the interests of UK plc.

  1.7  In answer to the Committee's specific questions we offer the following observations, noting that we do not offer comment on all aspects of the CAA in respect of all the questions:


  2.1  REMIT: The CAA's current remit from the Government places upon it and in particular upon the DAP, a difficult balancing act in representing the interests of a wide range of general and commercial aviation bodies and the Ministry of Defence (MoD). In NATS' view the CAA achieves fair balance; the DAP has been particularly successful in supporting the joint and integrated relationship between NATS and the MoD by maintaining equitable arrangements for the allocation of airspace in the UK. Overall, the result is a UK air traffic control service which safely accommodates greater volumes of traffic, with higher levels of efficiency, than anywhere else in Europe.

  2.2  STRUCTURE: In NATS' view, the CAA's high level structure is effective. In governance terms, NATS believes there is considerable benefit in a unitary regulator able to weigh and balance the competing considerations of safety, economic and airspace regulation under a unitary Board.

  2.3  Within the DAP we believe the balance between MoD representation and civil representation requires critical appraisal. Whilst NATS appreciates the difficulty of balancing all issues it has on certain occasions felt the MoD perspective has been emphasised a little too strongly.

  2.4  POWERS: NATS believes the CAA's powers, as expressed through the Civil Aviation Act, Transport Act and the Air Navigation Order are sufficient and fit for purpose.

  2.5  The CAA's powers are generally well applied, especially in respect of urgent situations. NATS would encourage an increasingly proactive approach to setting policy objectives and providing early advice on emerging issues. For instance, the industry is still awaiting guidelines expected in early 2005 on windfarms and their effect on aviation.


  3.1  Notwithstanding our comments above, NATS believes the CAA performs well.

  3.2  SAFETY REGULATION: SRG provides thorough oversight of NATS' safety performance and safety management processes, although this can be resource-intensive for both organisations. As NATS continues to improve its safety management processes, we expect that there will be opportunities to reduce the regulatory process to mutual advantage (for instance, it may be possible to reduce SRG's involvement in controller training and validation). We would encourage SRG to continue to develop a regulatory regime proportionate to risk, so that their resources can be applied most effectively. Overall, however, NATS believes that SRG continues to be the most effective safety regulator in Europe and applies standards which are generally accepted as being the highest in Europe.

  3.3  ECONOMIC REGULATION: The CAA monitors NATS' compliance with its licence conditions and reviews the charge control for the next control period with a view to resetting the price-caps for the NERL en-route and oceanic services. A review has just been completed and it is expected that new price-caps will be in place for the start of the new control period on 1 January 2006. NATS' view is that the CAA has carried out its review in a professional manner with full cognisance of all stakeholders. NATS believes, however, that the proposed price caps are tough and reflect the wider industry's disproportionate attention to transparency on details of NATS' cost and efficiency which are not available readily from other European ANSPs.

  3.4  NATS also works with the ERG on economic policy and in particular the advice it gives on charging for air navigation services. The CAA acts as the principal adviser to the DFT, playing a key role:

    —  UK Panel Member on the ICAO Air Navigation Services Economics Panel (ANSEP).

    —  Key adviser to the DFT on SES issues.

    —  Adviser to the EAPC and the SES Stakeholder Forum on economic and charging issues.

  3.5  NATS has worked closely with the CAA in these areas and appreciates not only the high standard of technical ability of the CAA staff involved but also their willingness to listen to and, where appropriate, take into account NATS' views. We believe this has helped produce a strong UK position in both ICAO and in Europe.


  4.1  NATS believes the CAA could be more proactive if the regulatory framework was reviewed to provide more flexibility. This applies to each area of the regulation by the CAA and although not comprehensive some supporting detail is included below.

  4.2  AIRSPACE POLICY: DAP owns the processes used by the sponsors (such as NATS) of changes to controlled airspace dimensions or air routes. It also determines policy on issues such as the design and application of future RNav (area navigation) applications and approval of RNav Initial Approach Procedures. Progress on these, and determination on new developments, such as enhanced RNav, can at times lag behind the operational need to implement them. There must be scope to improve these processes to deliver enhanced safety, support specific environmental objectives, increase the efficiency of UK airspace and reduce delays which result from demand pressures on the current airspace and ATC infrastructure. For instance, NATS has been alerted to intended changes in the process for Airspace Change Proposals (ACPs), but has not yet been consulted in shaping these changes despite being the main sponsor bringing forward such requests.

  4.3  SAFETY REGULATION: NATS supports SRG's intention to move away from prescriptive regulation towards more objective based regulation (ie stating what needs to be achieved, rather than prescribing a solution, as in the case of ACPs). This is essential as air traffic service providers are better placed to decide on practicable solutions. This also avoids the problem of blurring the ownership of operational accountability, which properly lies with the service provider.

  4.4  ECONOMIC REGULATON: NATS believes that the CAA's regulatory consultation in general, and the NATS price review specifically, is transparent and accountable. However, it is a long, complex, time-consuming and costly process. Most customers do not have the time or resource to engage in such protracted consultation and NATS would therefore like to see a shorter, simpler process.


  5.1  NATS believes the CAA is a professional organisation with capable people in key positions who work extremely hard to accommodate many different customers with widely differing agendas.

  5.2  The CAA's expert teams have great respect for their colleagues across the industry and we appreciate their consultative methods of working. For instance, NATS' recently proposed structure for enhanced environmental assessment and consultation in respect of airspace development has been well supported and developed into a joint approach, though it is true to say that on some occasions NATS had hoped for more precise guidance on emerging issues.

  5.3  The CAA could improve co-ordination on sensitive policy issues. For instance, the DFT will on occasions provide apparently conflicting policy guidance (eg environmental and capacity advice on airspace configuration) which means the CAA is then required to interpret Government intentions into a policy framework. The subtleties of this can be challenging to respond to, and interact with.

  5.4  However, NATS also believes the CAA needs to continue to review its own charging regime, and its ability to put the right resources in place to discharge its duties.

  5.5  NATS currently pays a single charge for safety regulation of en-route air traffic services. Without any breakdown of the CAA's costs it is difficult for NATS to assess whether it is receiving value for money or whether resource is being focused effectively.

  5.6  Notwithstanding the fact that consultation on the appropriateness of NERL's licence will be taking place next year, NATS believes the licence as it stands to be onerous and costly to administer. For a number of licence conditions, we believe the cost of compliance more than outweighs the benefits.

  5.7  Appropriate cost/efficiency benchmarks are not readily available, but the regulatory charges reported for other European states appear to be lower than in the UK. We note that the Government sets the CAA a target rate of return of 6% on capital employed. This implies a risk premium of 3.5%, which is very high for an organisation that bears little or no risk.

  5.8  NATS believes there must be scope to reduce costs (in the same way as NATS is required to cut costs under the terms of the regulatory framework), and increase transparency. Given that there is no regulation for the CAA, NATS would support a regular independent review of its charges to provide a check on efficiency and effectiveness.

  5.9  The extension of the CAA's regulatory role as required by SES legislation has the potential to stretch the resources of the organisation. It is therefore important that the CAA continuously reviews allocation of resources to ensure that they are deployed efficiently and effectively.

  5.10  One of the keys to effective regulation is consistency of message from within the CAA. NATS understands the spectrum of priorities across ERG, SRG and DAP and would support even greater cross-checking and alignment, through the unitary Board mechanism. This is especially important in areas relevant to safety and our ability to deliver an effective service.


  6.1  The CAA has recently taken on the role of National Supervisory Authority for the UK; under the SES Regulations each EU member state is establishing a NSA to assess and approve all ANSP proposals for SES work. Although the CAA is still in the early stages of discharging this function there is a lack of clarity on how it will work in practice. NATS is deeply involved in SES work under the SESAME initiative and requires a structure which clearly identifies NSA responsibilities and their relation to safety regulation and other CAA functions.

  6.2  Above all, the role of NSA gives the CAA an opportunity to shape the direction of European policy to UK standards. This will require focus, leadership, resource and commitment to drive through, and NATS encourages the DFT to continue to support the CAA's ability to maximise this opportunity.

  6.3  SAFETY REGULATION: The Single European Sky is currently transforming the ANSP industry, particularly with the increasing influence of the European Air Safety Agency (EASA); this is a significant challenge for the CAA to ensure it remains at the forefront of EASA's development to help develop a framework for safety regulation across Europe to ensure the highest standards whilst avoiding duplication and over-regulation. NATS will continue to offer the CAA its full support in moving this forward.

  6.4  Whilst NATS believes the SRG is the most rigorous and effective safety regulator in Europe, it would like the CAA to lobby for other European states develop a similarly rigorous regulatory framework to ensure that there is a level playing field across Europe and, even more importantly, that standards are levelled up rather than down. Until there is consistency of standards across Europe, NATS will continue to bear a higher cost of compliance than other European ANSPs.

  6.5  ECONOMIC REGULATION: The regulatory regime in the UK is not entirely consistent with emerging SES regulations, which could risk putting the UK and NATS at a disadvantage. The current debate on airports charging is an important example of the DFT, CAA and NATS working together to ensure a combined UK voice is presented to the EC.


  7.1  The CAA demonstrates a high level of competence in working with NATS and the DFT to further the interests of UK aviation. NATS welcomes the CAA's inclusion of expertise from elsewhere in the industry.

  7.2  The ERG has been fair in monitoring compliance with the NERL Licence and has taken a tough line in setting NERL's price-caps. The ERG demonstrates awareness of the principles of good regulation, as defined by the Better Regulation Task Force (transparent, accountable, proportionate, consistent and targeted). The CAA's charging mechanisms need to be more transparent and subject to independent, periodic review to ensure that customers including NATS can be sure they are receiving value for money.

  7.3  The overriding priority for the CAA going forward must be its role in the development of the Single European Sky and ensuring it has sufficient influence to ensure that UK standards, both for safety and for the cost of regulation, are those which set the benchmark for the Single European Sky.

17 November 2005

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