Select Committee on Transport Minutes of Evidence

Memorandum submitted by the Department for Transport

The Transport Committee inquiry into the work of the Civil Aviation Authority (CAA) is grouped around five headings. The Department's Memorandum follows that format.


  1.  The CAA is a public corporation whose constitution and functions are conferred by legislation. The main legislative provisions conferring its functions and governing its activities are contained in the Civil Aviation Act 1982, the Airports Act 1986, the Transport Act 2000 and in implementing regulations made under Regulation (EC) 1592/2002 and Regulation (EC) 549/2004. The Board of the CAA is responsible for all the CAA's activities.

  2.  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 sponsors the CAA, and there are close and frequent contacts with the Authority across the range of its responsibilities. The CAA is not part of the Crown.

  3.  The Secretary of State (in consultation with the Secretary of State for Defence where appropriate) sets the policy framework for the CAA by:

    —  agreeing overall priorities and objectives each year with the CAA;

    —  monitoring the performance of the CAA in relation to agreed objectives;

    —  appointing the Chairman and members of the Board of the CAA;

    —  setting the terms and conditions of such appointments (with consent of HM Treasury);

    —  appointing the CAA's external auditors;

    —  issuing any general guidelines or specific directions, including an annual accounts direction; and

    —  laying the annual report and accounts before Parliament.

Statutory functions

  4.  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.

  5.  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.

  6.  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—Statutory Instrument 2004 No 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 Statutory Instrument 2004 No 1958).

Remit and powers

  7.  The CAA's general regulatory remit is set out in section 4 of the Civil Aviation Act 1982, which requires 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"

  8.  Other specific duties are also set out in legislation, including section 68(1) of the Civil Aviation Act 1982, section 39(2) of the Airports Act 1986 and sections 2, 70 and 87 of the Transport Act 2000. In some cases these replace the CAA's general remit in section 4 of the 1982 Act.

Planning and Financial remit

  9.  The CAA, after consultation with the Department, prepares and submits an annual Corporate Plan covering a five year period. This provides information on objectives; performance indicators; performance targets; timing; and costs. It takes account of current planned resource allocation to the CAA and provides any further information about resource requirements as requested by the Department.

  10.  The CAA does not have monies voted to it by Parliament but must recover its operating costs, plus a rate of return set by the Government, through charges on the aviation industry for its regulatory services and on users of UK airspace through the EUROCONTROL en route charges system. Certification activities carried out on behalf of EASA are funded under contract by the Agency. The CAA carries out its activities so as to achieve value for money and to meet the requirements of regularity and propriety. The CAA consults on its budget annually with the industry and, pursuant to section 11 of the Civil Aviation Act 1982, the CAA consults the Secretary of State before making its charges schemes. Guidance in relation to financial propriety in the public sector is set out in Government Accounting and the Fees and Charges guidance published by HM Treasury.

  11.  The CAA counts against the Departmental Expenditure Limit (DEL), which is determined by HM Treasury and is expected to meet the financial requirements set out under that framework. Its overdraft requirements (eg to cover late payments from airlines) must have prior approval from the Secretary of State and HM Treasury.

Return on Capital Employed (ROCE)

  12.  The CAA is required to achieve an average annual rate of return on average current cost of capital employed equivalent to 6%, or break-even after interest and tax, whichever is the greater. This 6% required return on capital employed is used to pay National Loan Fund (NLF) interest, NLF loan repayments, and for the funding of minor capital expenditure and taxation. The return will also be used to fund the cost of transition from the UK basis of regulation to the EASA model during EASA's transition period to full operation from 2005-06 until 2008-09. DFT and HM Treasury have agreed this additional temporary use of the ROCE funds.


  13.  The CAA is run by its Board, and has a Group Director and a Policy Committee for each of its major specific responsibilities including airspace policy, safety regulation, economic regulation and consumer protection. In addition, it has a number of Non Executive Directors whose work includes chairing the CAA's Remuneration Committee, Audit Committee, and the Trustees of the Pension Scheme. They also contribute to the Policy Committees. The CAA has a number of ancillary bodies, which are independent and sit outside its 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).

Board members

  14.  The 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. The Department sets objectives for the Chairman and Executive Directors of the CAA.

  15.  There are yearly consultations between the CAA's Remuneration Committee and the Department to review Board Members' objectives and related remuneration uplifts, which the Department must then refer to HM Treasury. The Committee is principally responsible for advising the CAA Board in relation to the annual performance related pay scheme for Executive Directors.


  16.  The Chairman is responsible to the Secretary of State for the overall direction and management of the CAA within the policy framework set by the Secretary of State and has a particular responsibility for the proper discharge by the Board of its collective role.

  17.  The Secretary of State and the Chairman of the CAA meet regularly (approximately quarterly) to discuss matters of current interest. The Director General Civil Aviation and the CAA Chairman also meet regularly (approximately monthly) for a similar purpose. The CAA's and the Department's legal advisers meet quarterly; and the Department's Divisional Managers meet whenever necessary with their CAA counterparts. There is considerable day to day contact between staff at lower levels of the Department and the CAA, and this is encouraged by both organisations, as are secondments between them.

  18.  In pursuit of its objectives the CAA works closely with the Department and the aviation industry in the UK and abroad, with the European Aviation Safety Agency and with international aviation organisations. Working relations between the Department and the CAA are good.


  19.  The CAA's regulatory framework is sound. The UK has continued to maintain one of the best aviation safety records in the world. The aviation industry is competitive; air traffic and passenger numbers continue to rise. To sustain this position the CAA submits its regulatory effort to constant scrutiny for areas of improvement; it subscribes to, and has been actively involved in the Better Regulation Task Force Regulation—Less is More" report and it continues to try to improve efficiency and reduce its regulatory cost base. The CAA will be subject to standardisation inspections by EASA.


  20.  The policy framework is set by the International Civil Aviation Organisation (ICAO) and increasingly the European Community. Domestic policy is shaped by ICAO standards, recommended practices and procedures and, more recently, the adoption of the four top-level Single European Sky regulations. These regulations set out the framework for European airspace design and regulation. The CAA, as National Supervisory Authority, will be subject to a peer review process under the Single European Sky legislation.

  21.  Directions issued by the Secretary of State in 2001 set out the responsibility of the CAA, through its Directorate of Airspace Policy (DAP), to develop, approve, monitor and enforce policy for the safe and efficient allocation of UK airspace and the sustainable use of that airspace. In addition, guidance to the CAA (2002) on the environmental objectives relating to the exercise of its air navigation functions, sets out the framework within which DAP will discharge the CAA's air navigation functions.

  22.  The Guidance and Directions are designed to ensure that proposals for airspace changes are brought to the attention of affected parties, are properly assessed and that environmental impacts are mitigated as much as possible. Changes should normally only be made where it is clear, after consultation, that an overall environmental benefit will accrue or where the airspace management considerations and the overriding need for safety allow for no practical alternative. In certain cases, where there are significant environmental impacts, the Secretary of State's consent is required before changes are confirmed and promulgated by DAP.

  23.  The National Air Traffic Management Advisory Council (NATMAC) is a non-statutory advisory body sponsored by DAP to assist the Directorate to develop airspace policies, configurations and procedures and to ensure that due attention is given to the diverse requirements of all UK airspace users. The Director chairs the committee and membership covers the wide range of aviation interests.

Joint and Integrated Air Traffic Management

  24.  Under the Transport Act 2000, the CAA has an obligation to facilitate the integration of civilian and military air traffic management. The Civil Aviation Authority (Air Navigation) Directions 2001 require the CAA to oversee the arrangements between a licence holder and the MOD to ensure that air traffic services continue to be provided on a joint and integrated basis. The Joint Air Navigation Services Council (JANSC) is the principal means of achieving this aim. Currently, NATS is the only holder of an en-route licence and the JANSC acts as the forum for discussing and resolving differences of opinion between it and the MOD. The JANSC is chaired by the Director of Airspace Policy.


  25.  The Civil Aviation Act 1982 lay on the Secretary of State and the CAA complementary duties in relation to the regulation of aviation safety. The Secretary of State is responsible for encouraging measures for promoting safety in the use of civil aircraft; ensuring that international obligations are fulfilled; issuing permits to foreign registered aircraft; and appointing inspectors to carry out air accident investigations. The CAA's responsibilities under the Act include advising the Secretary of State on all civil aviation safety matters, and carrying out all related regulatory activities, including enforcing legislation on behalf of Ministers. This balance of duties has worked well and the UK air transport industry has a good record with accidents kept low despite the rapid rise in traffic levels over the past two decades. The system has also received good reports under the audit programme set up by the International Civil Aviation organisation.

  26.  The safety regulatory framework is increasingly being set by the European Community. European Regulation (EC) 1592/2002 set out essential safety requirements for the airworthiness of aircraft and products and established the European Aviation Safety Agency. The Regulation lays down complementary roles for Member States and their national authorities, such as the CAA, and for the Agency.

  27.  Certain products, such as home-built aircraft or smaller microlights, are outwith the scope of EASA and all regulatory responsibility, both rule-making and certification, remains with the CAA. For the majority of aircraft and products rules are set at European level and are implemented either by the Agency or the CAA as the UK's Competent Authority. The CAA can be involved by the Agency in drafting rules and must be consulted formally on all proposals for rules that are implemented by the CAA as a competent authority.

  28.  As a competent authority the CAA continues to issue certificates of airworthiness in respect of individual aircraft; approvals to UK maintenance and production organisations; licenses to maintenance engineers and approvals to organisations responsible for their training. The procedures which the Authority is required to follow as a competent authority are laid down in Commission Regulations (EC) No 1702/2003 and No 2042/2003. The Department would not expect to be involved in these activities on a day-to-day basis. The CAA's and other national authorities' performance will be inspected by the Agency under the terms of a Commission Regulation on standardisation currently being negotiated; the Department is seeking to ensure that the UK Government will be engaged in the consideration of the inspection reports and any follow-up action.

  29.  A number of functions which historically had been undertaken by the CAA are now the responsibility of EASA, namely the design and environmental approval of products, parts and appliances; design organisation approvals; and approvals of maintenance and production organisations outside the Community. Since the Agency assumed these responsibilities in September 2003 it has needed to use the CAA and other national authorities to carry out many certification responsibilities on its behalf whilst it builds up its own staff. Currently these activities are carried out on the basis of contractual arrangements between the Agency and the CAA, under which the Agency pays the Authority for its services and charges the industry directly in line with a Commission regulation on EASA fees and charges. These contractual arrangements are intended to be transitional, but the final extent and timing of internalisation of all the activities in the Agency is subject to detailed discussion between the Agency and Member States. Risk management processes have been set up to ensure the right number of staff, with the right levels of experience, are secured for both the Agency and the CAA and other national authorities.

  30.  Proposals are expected shortly for extending the scope of the EASA Regulation to cover the safety regulation of airline operators and their personnel. This proposal will set out essential requirements in these fields and a division of certification and licensing responsibilities between the Agency and the national authorities. Under the proposals the CAA would retain responsibility for issuing air operator certificates and licences for flight crew.

  31.  The CAA has played a key role in the adoption of uniform safety standards for air traffic management through its work on the EUROCONTROL Safety Regulatory Requirements (ESARRs). ESARRs form the basis of many of the Single European Sky Implementing Rules being developed by the European Commission at present. The proposal mentioned in the paragraph above is expected to include a suggestion that ATM safety will eventually become part of the role of EASA.

  32.  The Government is working with the CAA to ensure that the European regulatory structure delivers an efficient, high quality safety regime in Europe and maintains the current high safety standards in the UK. The Government welcomes the priority afforded to these objectives by the CAA and recognises the considerable effort made by the Authority in their pursuit.

Foreign aircraft

  33.  The CAA has no responsibilities for overseeing the safety of foreign aircraft visiting the UK: their safety regulation and oversight is the responsibility of their home States. However, the CAA has assisted the Government in the policies it is pursuing to ensure that these responsibilities are being met. We have a programme for inspecting a number of foreign aircraft visiting UK airports and pay the CAA to carry out the necessary safety checks. The CAA has also provided experts, funded by Government, to support the programme of ICAO safety audits of States; we have this year funded a CAA expert on a three year secondment at ICAO headquarters in Montreal to help develop the safety audit programme further.


Allocation of scarce bilateral capacity

  34.  The UK has special procedures to govern the allocation of scarce capacity between airlines, designed specifically for circumstances where market forces are prevented from operating properly due to bilateral restrictions.

  35.  The available capacity is allocated by the CAA following a public hearing at which the airlines concerned, and other interested parties, are allowed to submit evidence in support of their proposals for services on the route or routes. The CAA will consider this evidence and decide between the applicants on the basis of its view on which proposal will bring the greater benefits to consumers. The successful airline will be awarded the frequencies, and other airlines will have their route licenses conditioned to prevent them operating more (or perhaps any) services on the same routes until bilateral circumstances change.

  36.  There is a currently right of appeal to the Secretary of State for Transport. Most CAA decisions have been appealed, but the Secretary of State has departed from the CAA's conclusions only infrequently. There is a clause in the Civil Aviation Bill currently before Parliament to remove this right of appeal to the Secretary of State.


  37.  As part of the Department's procedures for processing applications by UK airlines wishing to lease foreign registered aircraft, ERG provides advice to the Secretary of State on the length of the proposed lease and the temporary needs or exceptional circumstances that give rise to the application. This is needed for him to determine whether the applicant should be granted a waiver from the requirement in Article 8.2(a) of Regulation 2407/92 that aircraft used by air carriers licensed in the UK should be placed on the UK register. In addition, before a waiver can be granted, SRG must declare itself satisfied in accordance with Article 10 of the same Regulation that the leased aircraft will be operated to safety standards equivalent to those required of a UK airline. The Department values the CAA's input in this area, especially in difficult cases, as the CAA is seen by the industry as an expert and independent body whose involvement in the handling of leasing applications is a guarantee of impartiality and sound decision making.


  38.  Despite the UK Government's efforts to liberalise our air services agreements wherever possible, the continuing presence of bilateral constraints can confer market power on airlines, and the CAA will consider intervening where it concludes that airlines are exploiting this to the disadvantage of users. In such circumstances, it will be concerned to ensure that all those who require it on international scheduled services have available basic on-demand travel at a price reasonably related to the cost of its provision. In general however, the CAA's preference is for airlines to be free to set their own fares with a minimum of regulatory intervention, and in markets where competition between airlines is unconstrained it does not usually intervene in airlines' fares proposals.

  39.  Within the EU, the generally liberal fares regime contained in Regulation 2409/92 allows Member States to withdraw a basic fare which is found to be excessively high in relation to the costs of providing the service, and to take action against predatory pricing. If required the CAA will advise the Secretary of State on these matters, though in practice the powers have been very rarely invoked.

  40.  The Department is content that the CAA's approach to fares regulation meets the needs of consumers in what is now generally a mature and competitive marketplace.

Economic regulation of airports and air traffic control

  41.  Under the Airports Act 1986, the CAA is responsible for the economic regulation of about 50 airports with an annual turnover of £1 million in two of the last three years. For the non-designated airports, economic regulation is very light touch. In addition, it sets the maximum level of airport charges at BAA's London and Manchester airports every five years which, in practice, has been the CAA's dominant airport regulatory function. The CAA has to perform its regulatory functions in accordance with its statutory duties which include furthering the reasonable interests of users and encouraging timely investment.

  42.  In addition, and as set out in the Transport Act 2000, the CAA is responsible for the economic regulation of air traffic services in the UK. In accordance with a licence issued in 2001, NATS provides air traffic control services in the UK. The CAA reviews the pricing regime for these services every five years. The Transport Act 2000 requires the CAA to perform these regulatory functions in accordance with its statutory duties which include, subject to a primary duty to maintain high standards of safety, furthering the interests of users so far as they relate to the range, availability, continuity, cost and quality of air traffic services.


  43.  The CAA runs the Air Travel Organisers' Licensing (ATOL) scheme and the Air Travel Trust Fund, which provide financial protection for travellers and meet the Package Travel, Package Holidays and Package Tours Regulations 1992 (SI 1992 No 3288).

  44.  The Department has recently asked the CAA to review the system of financial bonding under ATOL within the constraints of the existing legislative framework and make recommendations on the way forward to Government.

  45.  The focus of the review will be on reducing the costs to ATOL holders that arise from the current bonding arrangements. It will consider moving from bonds to a single per-customer transparent levy to build up a fund, encompassing the Air Travel Trust Fund, for meeting ATOL holders' refund and repatriation obligations under European Legislation.

  46.  The principal areas of consideration will be:

    —  an enforceable collection mechanism;

    —  the size of the fund and the period of build-up;

    —  transitional arrangements; and

    —  whether in the absence of bonding, changes to CAA's financial monitoring of the industry are required.

  47.  The CAA will consult the industry during this review and will aim to identify a solution within six months.


Better Regulation

CAA's review of safety regulation (SRG) charges

  48.  The CAA is required under S.11 of the 1982 Act to carry out regular reviews of its safety regulation charges. As part of the review process, the CAA must consult with industry and the Secretary of State before the revised schemes of charges are published.

  49.  The CAA recently concluded an extensive review of its SRG charges, managed by a Joint Review Team comprised of representatives from the UK aviation industry, DFT, and the CAA. One of the important issues the review addressed was the need to ensure that different parts of the aviation sector paid their share of the cost of safety regulation, and to reduce the amount of cross subsidy between sectors. The CAA engaged in a full and open consultation process on the new charges and the reasons for them before putting their proposals before DFT ministers for approval.

CAA's review of the Airspace Change Policy

  50.  The CAA has regulatory responsibility for the Airspace Change Process. The essential criterion that the CAA seeks to achieve through the process is a greater efficiency in the use of airspace that is mitigated, in environmental terms, to the greatest extent possible.

  51.  DAP is currently reviewing its Airspace Change Process with a view to having a revised process in place by Summer 2006. The key driver for the review is to secure an improved fit with emerging EU and national legislation and guidance on regulatory practice. The Department welcomes this review and its intended aim to deliver a revised process that will be as transparent and as resilient against successful legal challenge as possible.


  52.  The CAA is required to maintain management information and accounting systems which enable it to review its financial and non-financial performance against budgets and targets in line with the corporate plan. The CAA's performance against key targets is reported in its annual report and accounts. The annual report reflects the corporate plan, and reports on outcome against plans.


  53.  The CAA is accountable to Parliament through the Secretary of State for its functions. In the light of the financial duties placed on the CAA by the Civil Aviation Act 1982, there is no formal appointment of an Accounting Officer for the CAA. The Department's Accounting Officer, where he considers it necessary, writes to the CAA Director of Finance giving guidance and advice on the stewardship of public funds and the duties and responsibilities of an Accounting Officer. The CAA complies with the Code of Good Practice on Corporate Governance in as far as it is appropriate for a Public Corporation and the particular circumstances of the CAA.

Annual Audit

  54.  After the end of each financial year, the CAA prepares an annual report of its activities, together with its audited annual accounts. These are compliant with the Report and Accounts Direction issued by the Department, with Treasury approval.

  55.  The CAA's accounts are audited by independent auditors appointed by the Secretary of State under section 15 of the Civil Aviation Act 1982 as amended by the Civil Aviation Act (Auditing and Accounts) Order 1984. The CAA submits the audited accounts to the Secretary of State, who ensures copies are available to Parliament.

  56.  Before the annual report and accounts are submitted to the external auditors, the CAA sends copies to the Department for comment. Copies are normally with the Department by 31 July each year. The CAA also provides responses to all issues raised in the auditor's management letter in time for these to be incorporated into the management letter.

Service Standards

  57.  The Department encourages the CAA to publish and maintain a statement of the service and standards which it provides to its customers, in line with the Government's public service principles.


  58.  The Department encourages the CAA to consult the aviation industry and others affected by its activities on matters such as standards, new regulations and charges, in advance of decisions of specific interest to them. The CAA aims to comply with the Cabinet Office Code of Practice on Consultation where appropriate.

Regulatory Impact Assessments

  59.  All primary and secondary legislation relating to the CAA are subject to regulatory impact assessment. Regulatory Impact Assessments are conducted in accordance with the guidance issued by Cabinet Office to ensure necessary regulation is clear and fair. European legislation affecting the CAA is also subject to regulatory impact assessment.


  60.  EU legislation has created an open and competitive single market in aviation in which UK airlines have flourished. Progressive technical harmonisation is working to ensure the protection of safety, consumer and environmental interests.

  61.  Common European safety standards, effectively implemented in all aspects of aviation system, including in due course airports and air traffic service providers, would help achieve the goal of a seamless, efficient and safe system. The successful development of the EASA system has a pivotal role in achieving that objective through the drafting of common safety rules and through monitoring, where applicable, the implementation of those rules by national authorities such as the CAA. The precise scope and timing of such development needs careful consideration alongside work on developing the regulatory framework for the implementation of the Single European Sky.

  62.  The Single European Sky Regulations established the overall regulatory framework necessary for the creation of the Single European Sky. The emphasis now is on developing the supporting legislation necessary to implement the Single Sky. The UK is continuing to work with the European Commission and other Member States to seek the best outcome for UK aviation stakeholders.

  63.  Work on the development of the European regulatory framework will need to address how much should be done centrally and how much at national level; whether all aspects of safety rule-making should be undertaken by the same body; and what the relationship should be between safety, airspace and economic regulation. There will be implications for the CAA and it will be important to ensure that the Authority is able to maintain the skilled workforce it needs to carry out whatever duties fall to it under the emerging regulatory framework. The Department and the CAA are working closely on developing sustainable solutions.

  64.  The recent conference hosted by the CAA on the Future of Aviation Regulation in Europe has done much to expose the issues facing the industry and its regulators. The European Commission has agreed to continue the debate through a further round of discussions. It is expected that this work will feed in to the work being done by the Department in the EUROCONTROL context which is considering the future of that organisation and ATM regulation, research and training in a Pan-European context.

Working with the CAA internationally

  65.  It is important that the UK position in international negotiations is clear to other States. The Department therefore places great value on working with the CAA to ensure that this is the case through recognising and respecting the expertise of each. The CAA has a duty to advise Ministers on technical issues and regulatory policy development. In recognition of this advisory role, the Department will seek the views of the CAA when drawing up the proposed line for international meetings; and on who should represent the United Kingdom's view.

  66.  The UK participates in the work of the International Civil Aviation Organisation (ICAO) to the fullest extent possible. Broadly speaking, ICAO's task is to develop international technical, environmental and safety standards for aviation and to foster the development of international air transport. The Government seeks the CAA's advice on the development of ICAO policies and has established procedures to consult the CAA on the provision and funding of experts to serve on a range of ICAO Groups to which State representatives are invited.

28 November 2005

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