Select Committee on Transport Written Evidence


APPENDIX 29

Memorandum submitted by Dr Ian R Harnett, Harnett Air Services Ltd

  Dr Harnett provides economic consultancy services to a range of UK general aviation organisations, building on his experience in economic forecasting and modelling gained at the Bank of England and as Chief UK Economist, or head of European Equity Strategy at a number of Europe's leading Investment Banks. Harnett Air Services is a small company leasing its single-engined aircraft for flight training and self hire. Dr Harnett is a UK and FAA PPL and is a member of UK & US AOPA and PPL/IR.

OVERVIEW

  The CAA has recently been involved in a number of different initiatives that have placed UK General Aviation (GA) under severe economic and regulatory pressure. The result has been a sharp decline in General Aviation activity, placing the future viability of the industry at risk and contrary to securing the sound development of the civil air transport industry of the United Kingdom" Civil Aviation Act 1982.

  The policy initiatives to which GA has had to respond include the Single European Sky proposal for a GA VFR levy and raised IFR charges; the SRG charging scheme review, increasing licensing, airfield and maintenance costs, the DfT proposal to limit Foreign Registered Aircraft and the introduction of Mode-S transponders.

  The CAA also appeared willing to increase the size of controlled airspace, at the expense of GA access, and allow UK airport operators to impose charging regimes that effectively prohibit GA access to many regional airfields, resulting in sharply lower activity levels. This appears to result from CAA sponsorship of a very narrow definition of civil air transport industry", ie the revenue generating airlines.

  Our main concern is that these initiatives have tended to be introduced with only limited economic analysis of potential impacts on areas of aviation outside the airlines. Indeed, the lack of economic data collected by the CAA on GA—despite its responsibility so to do— means that it is almost impossible to perform accurate economic and regulatory impact assessments for policy changes on UK GA.

  The increased level of concern that these initiatives have bought—which has resulted in high level of consultation responses for each of the proposed changes—has culminated with the current TSC review. Despite this the CAA appears unwilling to heed the concerns of GA—often pressing ahead with changes despite ongoing investigations, such as the Strategic Review of General Aviation. This suggests that the CAA now needs an explicit policy towards GA, guaranteeing access to airspace and airports at a fair price.

  The following represents my detailed comments on the issues identified as areas that the Committee are keen to explore:

1.   The remit, structure, and powers of the CAA

  1.1  The remit of the CAA appears to focus heavily on the role of the British airlines" (Civil Aviation Act 1982), with the need to further the reasonable interests of air transport services" as a secondary consideration. Thus it appears that the remit of the CAA is designed to limit the claims of non-airline activity to UK airspace and airports, despite the positive economic and infrastructure impact that UK GA could provide to many—particularly business users.

  PROPOSAL 1.1  The remit of the CAA should be revised to include a statement of policy towards UK GA which provides for access to airspace and airports similar to the model document produced below.

GENERAL AVIATION POLICY STATEMENT

  General Aviation is critically important to the nation's economy and to the national transportation system. General Aviation plays a crucial role in the flight training for all segments of aviation and provides unique business, personal and recreational opportunities. It makes vital contributions to activities ranging from aviation training, to business aviation, to personal aviation operations, to vintage aircraft preservation and to sport flying including microlight, glider and balloon flights.

  Accordingly it is the policy of the CAA to meet the needs of General Aviation while continuing to improve its safety record. These goals are neither contradicroty nor seperable. They are best achieved by cooperating with the aviation community to define mutual concerns and make joint efforts to accomplish objectives. We will strive to achieve the goals through voluntary compliance and methods designed to reduce the regulatory burden on General Aviation.

  The CAA's General Aviation programs will focus on:

Safety

  To protect safety gains and aim for a new threshold.

CAA Services

  To provide the General Aviation community with responsive, customer-driven certification, licencing, and other services.

Product Innovation and Competitiveness

  To permit the technology advancement of General Aviation.

System Access and Capacity

  To maximise General Aviation's liability to operate in the airspace system and maintain access to airfields.

Affordability and Sustainability

  To allow economic and efficient General Aviation operations, expansion of participation and permit the stimulation of industry growth. To secure the sound development of the General Aviation industry.

  1.2  The Structure of the CAA appears confused. The split between SRG and ERG is not clearly defined. For example, in the SRG Charging Review, there was no evidence of the economic skills of the ERG team being employed. Indeed, the marginal cost pricing preferred by ERG was not adopted, despite most of the regulatory charges being required for commercial reasons.

  1.3  Unlike other nationalised industries there is no effective regulator of the industry that ensures that ALL users of the resources—airspace and airfields—receive access at the lowest possible prices. Elsewhere the regulator ensures that all those companies exploiting the resources for profit attain only a reasonable return on capital—and do not deter competition from emerging (See section 2.5). In the case of aviation, however, the CAA appears to have not linked the charging structure to the returns that accrue from the use of the airspace despite the complaints of users.

  1.4  At present the CAA is Judge and Jury" in many cases, without an adequate (cheap) form of arbitration. For example, with the SRG charging scheme—some 219 responses were received raising 183 separate issues, in 855 identified comments. The net result was only three minor changes in small charges, with no subsequent redress short of the High Court.

  1.5  The executive and non-executive structure of the CAA appears weak. At an executive level the Chairman (Sir Roy McNulty) acts as both Chairman and Chief Executive. The board members are often ex airline or RAF personnel, while the Non-Executive (Part-Time) Board members also fail to represent the broader user groups of the CAA.

  1.6  Most recently, there was also a worrying development when in response to the CAA consultation on SRG charges there was a suggestion that the structure of the JRT was determined partly on the level of financial impact of each sector of UK aviation—regardless of the impact (Section 4.1.2 CAA SRG Response Document).

  1.7  On a similar tack, the lack of an independent Chairperson for official reviews such as the Strategic Review of General Aviation, suggest that despite a major amount of work there is no guarantee that any findings or recommendations will be implemented.

  PROPOSAL 1.2  The CAA structure should be redefined with ERG responsible for the intellectual integrity of the CAA methodologies and cost of CAA services with SRG solely responsible for the regulatory regime.

  PROPOSAL 1.3  The CAA regulatory activity should be overseen by an Office of Air Regulation which would set the economic parameters for the CAA—such as the RPI minus" regimes found in other industries, as well as setting acceptable rates of return for commercial users of the national airspace resources.

  PROPOSAL 1.4  There should be a review of the corporate structure of the CAA board and its internal review committees to provide more external objectivity.

2.   The performance of the CAA in relation to its statutory objectives and functions

  2.1  One of the functions identified for the CAA is the provision of assistance and information. While staff in the statistical departments of the CAA are unerringly helpful it is apparent that there is little information about the WHOLE of the UK aviation industry, with very little data collected on UK General Aviation. It is effectively limited to aerial activity at 60 identified airfields and aircraft and aircrew licensing.

  2.2  This lack of economic information is in contrast to the USA where there is an FAA survey of General Aviation. This General Aviation and Air Taxi Activity (GAATA) Survey." allows detailed analysis of numbers and types of aircraft, hours flown, IFR and VFR, regional activity. This ensures that there is a greater coherence of policy formulation and an ease of economic impact assessment that is not possible with the limited range of UK data.

  2.3  It is also not clear that the CAA has adequately discharged its functions in respect of ensuring that its own policies fit with national transport policy, especially in its policies of access to airspace and airports.

  2.4  The CAA has clearly encouraged airline expansion. In 2004 Commercial Air Transport movements rose to 2.4 million up 85% from the 1.6 million in 1976. This has been at the expense of GA movements. In 1976 GA movements accounted for some 42% of all recorded activity, this has now fallen to less than 23% of all movements. Despite this, the CAA chooses to increase costs on the areas that have lower usage rates, whilst cutting costs for those that are expanding at a non-sustainable rate.

  2.5  There is evidence from the last two decades of how the impact of CAA regulation and charging regimes has encouraged the growth of larger commercial aviation at the expense of smaller AOCs who might provide competition for larger airlines on domestic routes.

  2.6  For example, commercial aircraft registrations have grown at a rate of 60% in each of the last two decades, while the smaller commercial aircraft above 5,701kg and less than 50,000kg have seen zero or negative growth. Despite this, the SRG charging scheme was revised to provide a 50% reduction in large airline variable charges, saving one large airline over £6 million a year) while smaller AOC charges are set to double.

  2.7  We have already commented that the SRG charging regime changes have brought about significant comment. Why is CAA giving the airlines a major reduction in costs (boosting potential supply) at a time when the aviation transport policy is already in trouble due to lack of capacity at major airports? It is also likely that the changes in the SRG charges will negatively impact many smaller and medium sized airfields thus limiting future potential expansion.

  2.8  There has been a lack of adequate impact assessments for a number of changes that have affected UK GA (in fact I cannot recall any having been published for the changes I have been looking at over the last two years). More importantly, the DFT sponsorship statement goes on to state:

    Regulatory Impact Assessments: All primary and secondary legislation relating to the CAA will be subject to regulatory impact assessment. The CAA should seek to reduce unnecessary and over-detailed regulation and ensure that necessary regulation is clear and fair." DfT Sponsorship statement (Section 7.4) (bold added)

  2.9  The bulk of the responses to the SRG charges from AOC operators and GA pilots clearly felt that the regulation was neither clear nor fair. It is also interesting to note that when the UK adopted the new EASA regulatory regimes some 4,000 UK regulations were instantly removed—suggesting that generally the CAA over-regulate"—as was implicitly also admitted in the DfT Foreign Registered Aircraft document:

    In establishing these requirements the CAA, JAA and EASA are obliged to take account of ICAO SARPs. However, the requirements are more detailed than the ICAO standards and often impose a higher standard, although occasionally the requirements may be less restrictive than the ICAO standards." Paragraph 4.

  2.10  It is recognised later in the consultation document that these higher standards" DO NOT appear to have resulted in a significantly improved safety record for the UK versus the US, Bermudan or Cayman registers. This lack of difference makes it difficult to sustain an argument in favour of more detailed" and supposedly higher" standards.

  PROPOSAL 2.1  The CAA should introduce a survey of UK GA in order to establish the trends that will influence policy—similar to that found in the USA.

  PROPOSAL 2.2  Economic Impact Assessments and Regulatory Impact Assessments should be carried out—ex-post by a third party in order to establish whether there has been a systematic bias in favour of airlines and major airports at the expense of other airspace users—and whether National Transport policy has been compromised.

  PROPOSAL 2.2  There should be a REGULATORY AUDIT to see how many other pieces of regulation introduced by the CAA are not germane to General Aviation.

3.   The effectiveness and efficiency of the CAA's regulatory framework and in the general discharge of its duties

  3.1  It should be clear already that there are severe doubts about the effectiveness and efficiency of the CAA's regulatory framework as they impact General Aviation.

  3.2  This is highlighted by the decline that has been seen in UK PPL issuance, down some 40% since 1997 as the costs and complication of obtaining a full JAR licence have increased. Even with the introduction of the NPPL (with lower costs and medical requirements) licence issues are 17% down on 1992 levels—while commercial licences have risen 75% over the same period.

  3.3  One of the biggest issues for UK licensing is why only 2% of UK PPLs have an instrument rating while in the US almost 50% of active PPLs have the increased skills that boost safety as well as giving access to the airways and A class airspace that an instrument rating allows.

  3.4  The regulatory framework may have helped boost commercial aviation activity, but using CAA airfield movement data it is possible to show that General Aviation movements have fallen by almost 30% since the mid 1990s, with private aircraft movements down some 45% at those airfields which handled more than 10,000 movements a year in 1997.

  3.5  The lack of a national airfield policy means that smaller airfields which might provide alternatives are not being protected. The regulatory regime does not protect airspace or access for General Aviation, since revenue generating passengers (or a multinational business) are the only way to pay for increased en-route or airfield landing and handling charges.

  3.6  It is possible that the CAA has cooperated with both the airlines and the airport operators in squeezing GA out of a number of regional airfields. It is apparent that those airfields where GA has been excluded via increased costs have seen there overall activity rates rise rapidly since 1997 (Stansted +85%, London City (+76%) Luton +48%).

  3.7  It is also far from clear that the CAA has been improving its own efficiency. The SRG report fails to explain why 6,624 new license issues and renewals requires a section that costs some £8 million, or over £1,200 per issuance. Indeed, there is no assessment as to whether the size of FCL is appropriate to changing level of PPL activity.

  3.8  The current regime allows airsports groups to self regulate. This could be extended to allow non-commercial aviation regulation to be devolved to representative bodies.

  3.9  The tax on safety" that means that the CAA pays a 6% charge to HMT should be re-examined. This was introduced at a time when government bond yields were higher. It is also clear that the UK Government is a major beneficiary from a safety regime for which it now contributes nothing.

  PROPOSAL 3.1  There should be an examination of the extent to which there is a policy of excluding GA from regional airports (and reduce activity levels in surrounding smaller airfields) so as to maximise revenue generation from airspace and airports.

  PROPOSAL 3.2  There should be a national strategy sponsoring smaller airfields.

  PROPOSAL 3.3  There should be a National Audit Office investigation as to the potential for savings from changed regulatory regimes / devolution of responsibilities to GA or specialist licensing authorities.

  PROPOSAL 3.4  The CAA required return should be cut to a more economically sensible figure and the UK Government required to contribute for the benefit they receive from a lack of aviation related disasters.

4.   The effect of growing international and European Union cooperation on the work of the CAA

  4.1  The introduction of the JAA and now EASA has placed considerable strain on UK General Aviation.

  4.2  The fact that EASA removed some 4,000 regulations, with seemingly limited impact on safety, highlighted that there is scope from integration to align the regulatory regime to a more satisfactory arrangement.

  4.3  The CAA and DfT should explore why 14,500 pilots decided to obtain FAA pilots ratings (over 3,000 of whom have commercial ratings) and why almost 1,700 FAA mechanics, service some 828 N" registered aircraft (of a total fleet of 1,285 Foreign Registered Aircraft), rather than just trying to ban them.

  PROPOSAL 4.1  That the CAA and EASA should as quickly as possible see their regulatory regime converge on that of the FAA, who have successfully encouraged aviation of all types to grow alongside each other, without compromising safety for any parties.

15 November 2005



 
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