Appendix 2
I am responding to the Transport Committee Report:
Financial Protection for Air Travellers: Second Report 'Abandoning
Effective Protection', which was published on 4 February 2006.
I would like to thank the Committee for their interest
in this matter and for their positive reaction to the work carried
out by the CM. Below is our response to the three specific points
which were directed at the Authority.
i. "We deplore what turned out to be wildly
over-optimistic estimates from the CAA in 2004 that the extra
analytical work would take a "maximum" of three months.
Estimates for work made to this committee must be accurate."
In my Oral Evidence given to the Committee on 30
June 2004, as part of the Committee's previous inquiry into financial
protection for air travellers, I said that I estimated the additional
cost benefit analysis required would take a maximum of three months.
There were many reasons, a number of them itemised
in the Committee's Report, why the Government's overall timescale
for response evolved as it did. However, the work on economic
analysis which started in late November 2004 and was finished
in March 2005. took just over three months. That being so, I do
not accept that the estimate I gave to the Committee was "wildly
over-optimistic".
The CM does regret that the Committee was not kept
better informed of the evolution of the overall timetable.
ii. "Given the CAA Chairman's comment to
us on 2 November that "If we hear information that leads
us to believe that something ought to be looked at we have, on
occasion, contacted the regulatory authority in the country concerned",
and his suspicion that the company may not have been viable, it
might have been reasonable to expect that the CAA would have pressed
its concerns urgently on the Irish Commission for Aviation Regulation,
EUjet's regulatory body, even on the basis of "rumours".
Had such action been taken, it is possible that the problems experienced
by thousands of UK travellers could have been avoided earlier
in the year. We accept that EUjet was not regulated by the CAA.
We hope that the CAA will intervene more courageously in future
if presented with similar circumstances."
The regulation of a non-UK EEA airline is a matter
for the relevant member state even if that airline operates flights
from the UK.
If the UK had concerns about the financial viability
of a non-UK EEA airline, the only option would be to approach
the authorities in the relevant Member State. The CAA's view is
that it should only do so if it has concrete evidence to present.
The CM would lack credibility if it approached another national
aviation authority on the basis of rumour or press speculation
and it may risk inappropriately suggesting that another licensing
authority was not fulfilling its obligations.
Because the CM would not be responsible for licensing
such an airline, it is unlikely to have information that was not
already available to the relevant national aviation authority.
The CM would normally only have access to information that was
in the public domain. Even if there were specific grounds for
concern, the CAA could not make such fears publicly known as this
would potentially hasten the failure of the airline and leave
the CM open to stakeholder claims. It would also be in danger
of undermining other national aviation authorities and the UK
could potentially face other repercussions as a result.
In the specific case of EUjet, the CM kept the situation
under review by closely following the press coverage and public
statements made by PlaneStation, EUjet's owners. Indeed, the information
available to the CM at the time indicated that EUjet was addressing
its financial situation. Until a few days before EUjet ceased
operations, the CM's understanding of the position was that PlaneStation
was taking legitimate action to refinance the Group. As stated
in the CM's supplementary memorandum of 24 November 2005 (Transport
Committee ref Evl9), PlaneStation announced the sale of 75% of
the business park adjacent to Manston Airport on 28 June 2005.
In fact, the PlaneStation Group made a further announcement to
its investors and the City on 20 July 2005 confirming that the
sale was proceeding as planned, but five days later declared the
suspension of its operations when the sale fell through.
"It is absurd that the present rules prevent
the CAA regulating a company's aviation activity where the majority
of its flights depart from this country. We hope that a common
sense solution is being pursued vigorously by the CAA and the
Government with the European Commission.
As stated in the CAA's supplementary memorandum of
24 November 2005 (Transport Committee ref EvI 9), EC Regulation
2407/92 requires that the principal place of business of a licence
holder be in the Member State that grants the company's Operating
Licence. The European Commission is currently looking at Regulation
2407/92 as part of its review of the '3rd Package" of measures
for liberalising the air transport market. We recognise that in
a single market the location of a carrier's operations and where
it is licensed can diverge and realise that this is an issue that
requires further serious consideration. We will be looking closely
at this issue in the context of the European Commission's review,
but the CAA will be indicating to the Commission that this is
an issue it should consider.
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