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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 809-ii House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE TRANSPORT committee
THE WORK OF THE CIVIL AVIATION AUTHORITY
Wednesday 18 January 2006 MR KEITH JOWETT, MR MIKE TOMS, MS ROWENA BURNS and MR IAN HALL MR ROGER WILSHIRE, MR ANDREW CAHN, MR MICHAEL O'LEARY, MR RICHARD CHURCHILL-COLEMAN and MR BARRY HUMPHREYS
MR MARTIN ROBINSON, MR MARK WILSON, MR PAUL DRAPER and MR MIKE STEEDEN Evidence heard in Public Questions 228 - 402
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Transport Committee on Wednesday 18 January 2006 Members present Mrs Gwyneth Dunwoody, in the Chair Mr Jeffrey M Donaldson Clive Efford Mrs Louise Ellman Mr Robert Goodwill Mr Eric Martlew Mr Lee Scott Graham Stringer Mr David Wilshire
________________ Memoranda submitted by Airport Operators Association, BAA plc, Manchester Airports Group and National Air Traffic Services
Examination of Witnesses
Witnesses: Mr Keith Jowett, Chief Executive, Airport Operators Association, Mr Mike Toms, Director of Planning and Regulatory Affairs, BAA plc, Ms Rowena Burns, Director, Group Strategy, Manchester Airports Group and Mr Ian Hall, Director, Operators, National Air Traffic Services, gave evidence.
Chairman: Lady, gentlemen, may I pray your indulgence while we do some housekeeping. Members of Parliament having an interest to declare? Mr Martlew: Member of the Transport & General Workers and General Municipal Workers. Clive Efford: Member of the Transport & General Workers. Graham Stringer: Member of Amicus and previously a director and chairman of Manchester Airport plc, the predecessor of Manchester Airport Group. Chairman: Gwyneth Dunwoody, ASLEF. Mrs Ellman: Member of the Transport & General Workers Union. Q228 Chairman: Lady and gentlemen, you are most warmly welcome this afternoon. As you came imagine this is the first time an in-depth inquiry has been undertaken into the work of the CAA. We welcome, therefore, your evidence which will be of enormous benefit to us. May I ask you, first, to identify yourselves for the record, starting with Mr Jowett, and then I am going to ask you if you have something to say and cut you off if you say it! Mr Jowett: Keith Jowett, Chief Executive of the Airport Operators Association representing 72 airports across the United Kingdom. Ms Burns: Rowena Burns, Strategy Director for the Manchester Airports Group. Mr Toms: Mike Toms, Planning and Regulation Director, BAA plc. Mr Hall: Ian Hall, Operations Director, NATS. Q229 Chairman: I do mean it when I say is there anything any of you would like to say? Mr Jowett: I might just state that although we will be holding our own individual positions, which I am sure the Committee will wish to explore, we do subscribe generally to a strong view about the professionalism exhibited by the CAA over many years. We have some concerns, of course, about the developments of the future introduced by Europe's increasing responsibilities in these areas. I am sure those things will come out during our discussion. Q230 Chairman: That is helpful, Mr Jowett. I think Sir Roy has admitted he is not entirely perfect, perhaps we can accept there are the odd things we can criticise. Several of you have pointed to the need for a greater degree of integration and co-ordination between the Department for Transport and the CAA, mainly in areas of policy development. How serious is this lack of co-ordination? Mr Jowett: May we ask Mr Toms to address that in the first place. Mr Toms: The issue is an issue of principle at the moment and how serious it is will become clear in the next year or so. If I may exemplify the potential nature of the problem: the Government's Air Transport White Paper, which was produced after a huge amount of public consultation and a great deal of analysis, set out one specific policy which is the policy that Stansted should have a new runway as soon as possible with a target date of 2012. The CAA has said, quite correctly, that it is not its duty to implement Government policy and that its statutory duties may lead it to a different position. If it was to lead it to a different position on the right date for the development of Stansted's runway that would create a significant policy tension for us because we could build the runway to one date, we could build it to the other but we cannot build it to both. Q231 Chairman: Anything else? That is a major problem but any other aspect of their work which strikes you? Mr Toms: That is probably the most outstanding one, Chairman. Q232 Chairman: Is it a structural problem, this lack of co-ordination? Mr Toms: I think it is a combination of structure and conduct. If I can exemplify this slightly. The structural issue is straight forward in as much as the CAA are under some legislative constraint. It has duties and its duties do not include the implementation of Government policy. The tension is built into the system. A bit of tension is not bad in the system but given that tension exists I think that there is a challenge for the CAA and Government to find ways to accommodate each other's policies and find the greatest possible clarity and commonness of ground so they can give clear policy signals to us. The challenge is to work the difference as effectively as possible so we can know where we are. Q233 Chairman: You are not saying in effect they do not give you a clear view of a policy, what you are saying is frequently there are conflicting policies? Mr Toms: There can be conflicting policies, yes. Q234 Chairman: Does the Department take that much notice of the advice that it gets from the CAA, because that is one of their functions after all? Mr Toms: I think the Department does take the advice of the CAA. It is interesting though that in the build-up to the Air Transport White Paper, in which we participated a great deal, the CAA was not wholly engaged in the analytical work which led to the determination of policy. Had that level of engagement been greater, the scope for common understanding would have been greater on areas like traffic and market analysis, traffic forecasting. Q235 Chairman: Can I ask Manchester Airport Group: we have heard accusations that it is not possible for the CAA as a single organisation to reconcile all these conflicting demands, but particularly in relation to the area of regulation you have said that you think they have got a good balance. Is it an easy one or does it require constant review? Ms Burns: I think it requires constant review. I would echo Mike Toms' comments in general about the nature of the tension between the CAA and the DfT. I do not think it is structural. The CAA's primary duty requires it to consider how best the needs of airlines and their users can be promoted through the development of infrastructure and that necessarily means the CAA needs to take a view about the growth in passenger demand. It would make every kind of common sense for the CAA and the DfT to do that in a collaborative fashion. Q236 Chairman: You are not suggesting, for example, if its facilities are split up, its regulatory duties are split up, that would be easier for the CAA? Ms Burns: No, I think it is a matter of will more than organisational structure. Q237 Chairman: Lack of will or direction? Ms Burns: The dialogue between the DfT and the CAA on this matter and I think on other issues could be closer. Could the DfT encourage that more than they do, I think possibly yes, they could. Q238 Chairman: You are not suggesting a single transport regulator? Ms Burns: No. Q239 Graham Stringer: Can I ask BAA whether they believe that the CAA should continue to treat the three mainland airports as one body to be regulated or whether they should be economically regulated separately? Mr Toms: That is a core issue of policy for the CAA which it will have to determine in the next regulatory review. I would not want to take the time of this Committee in trying to have that review now. I want to make one point about the way in which they approach that issue which is that for around 20 years the Government, the CAA and the Competition Commission have a common view of how pricing should be done in the South East, and that was a system view of pricing. That view was the view which drove the early development of Stansted and the early development of Stansted creates a competitive basis which has delivered lower fares and higher choice to passengers. The CAA changed that policy, despite the preference of the Competition Commission in 2003. It changed it without any analytical evidence as to what the consequences of that change would be. Q240 Chairman: Are you sure of that? Mr Toms: We saw none, Madam Chairman. Q241 Chairman: Not quite the same thing. I will take your word for it. Mr Toms: We saw none and we have asked to see it. Q242 Chairman: You asked to see it? Mr Toms: Yes. Q243 Chairman: Were you told no or was there a policy of omission in place? Mr Toms: What we were told at the time was this was a first principles decision based upon a theoretical analysis, a first principles analysis of how the market should function. What was important to us was there was a clear understanding in the end of what the on the ground consequences would be for the amount of capacity, air fares and choice. That was what we missed and what we hope the CAA will address when it looks at this issue again in this review. It started, and we are very pleased to see they are doing market analysis, but we think they have a way to go before they know what the position is. Q244 Graham Stringer: I find that answer extraordinary. What you are saying is you not only have no view about the way new runways should be, that should be left to the Government, but you have no view about how you should be regulated, either collectively or individually as airports. I find that extraordinary for a business to say that. Can you explain why you do not have a view between those two positions? Mr Toms: I do not recollect having said that we have no view of where new runways should be provided. Q245 Graham Stringer: This is not something I have made up. You will find BAA representatives, at various inquiries by this Committee, saying that it was the view of the Government as to where runways should be put. Mr Toms: I was the person who gave that evidence at your last investigation. Q246 Chairman: We remember, Mr Toms. Mr Toms: I am sure you do. The position has changed substantially since then. We have a clear policy framework which says the next runway should be at Stansted and we are very happy with that policy framework. The Government says it should be at Stansted, we will adopt that policy and we will promote it energetically. You can see from the investment we have undertaken since then we are promoting Stansted development but we are determined upon the early delivery of Stansted runway. I think we have a very clear policy on that. I am not saying we have no view on system and stand alone pricing, what I am saying is that is an issue which is an issue for the next regulatory review. It is an extremely complex issue. We think it should be determined on the ultimate test of what is best for passengers. The evidence we have so far is that what has been best for passengers has been the early production of capacity at Stansted to generate competition between airlines. We do not care whether this is called system pricing, stand alone pricing, any other kind of pricing, what we want is a regulatory structure which allows us, and incentivises us, to deliver Stansted as early as possible. The language is not important. Q247 Graham Stringer: Answering the question is important as to whether you want Stansted regulated separately and from your answer I still do not understand whether you do want it regulated separately. I might interpret what you are saying - and you can correct me if I am wrong - that behind all those words is what you want is cross-subsidy from the other BAA airports for Stansted. Is that what you are saying? Mr Toms: I am going to try and answer that in the context of the remit of this investigation, if I may, which is the purpose, performance and function of the CAA. What we are saying in this relation, and we want to say a little more than this because we have a lot of separate discussions with the regulator, is that the CAA needs to organise itself to properly address what the benefits are of different ways of pricing. There are not just two ways, there is not just stand alone and system pricing. There are different ways of doing stand alone, there are different timing processes. This is a cat which can probably be skinned many different ways and we do not want to play now what we think the right way is because I expect within the next year a number of different ways will emerge. I can tell you that what we do want is an outcome which delivers the runway as soon as possible because that is in the best interests of passengers. Q248 Graham Stringer: Can I ask that question again but in a different way: do you want a pricing system which gives you subsidy from Heathrow and Gatwick to Stansted? Mr Toms: I do not recognise the concept of subsidy as you have described it, I have to say. All the issues are subsidised to the extent that the drinkers and smokers and car parkers at the airports are meeting the cost of airline operations. Q249 Graham Stringer: Mr Toms, that is slightly disingenuous, is it not? I did not intend to go along this line of questioning but you understand apportioning costs to particular airports that are associated with those airports, apportioning costs associated with Heathrow to Heathrow, those associated with Gatwick to Gatwick and those associated with Stansted to Stansted. If when you look at the income against those costs you are taking the surplus from Gatwick and Heathrow then you are cross-subsidising. I think, and there is no point beating about the bush, you are trying to not tell this Committee that what you want is subsidy for that extra runway at Stansted. Is that what you are telling us? Mr Toms: I am not conducting a negotiation with the regulator with this Committee. Q250 Graham Stringer: So you are not going to tell us? Mr Toms: No, I think it is an issue which is properly the subject for the regulatory review. For us to deal with it in short form, in a session such as this, is not doing justice to the complexity of the issues. Q251 Chairman: Mr Toms, if I thought you were being asked things which were unfair I can assure you I would stop you. I would stop the questioning and I would stop the progress of the Committee. It is a legitimate line of questioning and you have come before us before and expressed a very clear view. I take it for the moment we are not going to get an answer, is that probably the best thing to accept? Mr Toms: You are not going to get any more answer than I have given you, Madam Chairman. Q252 Graham Stringer: Can I move on to Manchester Airport. This is a small question I hope you can clear up. In your written evidence you accuse the CAA of being slow to bring in new technology, and you mention particularly light emitting diodes for lights on the runway. When we asked the CAA those questions they denied any knowledge of it or that they were slow introducing new technology. Do you think you could help us by expanding on your evidence? Ms Burns: The example that we alluded to in our written evidence to you was a form of lighting which is in regular use, and has been for a number of years, at airports right across Europe. The technology in question is highly reliable, has been proven in practice to be highly reliable, reduces maintenance costs, and generally improves efficiency which must be in the interests of the airlines, the airports and our end users, the passengers. The CAA have yet to licence that technology for use in the UK, we do not know why. Q253 Chairman: Have you asked them to have it licensed? Has anyone asked to have it licensed? Ms Burns: Yes, indeed, Madam Chairman. Q254 Graham Stringer: That is very helpful. On a bigger question, in terms of economic regulation, do you believe that Manchester Airport should be economically regulated by the CAA? Ms Burns: Madam Chairman, the first thing I would say is that we are an airport which is driven by the demands of the market and the pricing that we propose to airlines is driven by our belief that we operate in a highly competitive environment, indeed increasingly competitive, as evidenced by the development of new airports which are on the fringes of our catchment area and sharing the ability to serve that catchment airport. We believe, also, as a business that the right way for us to proceed is in a collaborative relationship with our airline customers. We have been very active over the years - increasingly active - in forging partnerships with our airline customers. The CAA's approach to the next quinquennial review, the process of constructive engagement, is we believe a step in the right direction in that it is actively proposing that airports and airlines should seek to resolve issues between themselves, reducing the scope of the regulatory intervention, if you like, to that of the court of last resort and to deal with matters which airlines are not competent to negotiate with airports directly. Q255 Mr Martlew: On that point, and obviously having a constituency in the North, I am very conscious that Manchester does not only own Manchester but they own quite a few northern airports, the reality is that there would be a concern if it was just left to the markets that you could exploit that situation. Ms Burns: I do not believe so. Our airports in the North include Manchester Airport, obviously, and Humberside Airport to the east. Q256 Mr Martlew: Liverpool? Ms Burns: I regret to say, Madam Chairman, that Liverpool is not in our ownership. The overlap between the catchment areas of our airports is minimal and indeed there are two airports which sit between Humberside and Manchester Airport. Q257 Mr Martlew: None of any size in comparison with Manchester. There are four large airports in England, Manchester is one of them, it serves the north of the country. Ms Burns: It is one of a number of airports that serve the north of the country. Q258 Mr Martlew: It is the largest by far, is it not? Ms Burns: Madam Chairman, it is the largest by far and it is also the case that Liverpool is the fastest growing airport in the North of England. Mr Jowett: If I may contribute from a more independent position. The present designation of airports was introduced nearly 20 years ago now in a very different historical context. Since then, of course, we have seen radical change in airport ownership and the activity of airports across the country. If you look at the North of England today, where Manchester is located, it is in a very strongly competitive position alongside, as Ms Burns has said, a number of strongly growing competitors. Therefore it is a candidate, one would think, for the regulators to review the position of it, as I think Mr Bush said last week when he was here at this table. Q259 Clive Efford: Mr Jowett, perhaps you would like to start and others can come in, how has the new model of constructive engagement between airports and airlines in the airports review process gone so far? The CAA has adopted a new approach of airlines and airports working together, can you comment? Mr Jowett: It takes a number of angles. It is early days yet. There is the economic side and the safety side. On the economic side there have been some good attempts at constructive engagement between the parties; that has had mixed success across the UK. One or two airports represented by my colleagues here have had more difficulty with that than others. On the safety side, there has been a high degree of engagement between the safety regulator at airports, certainly in terms of some of the regulations or practices in seeing how they can become more objective-based rather than prescriptive by nature, and that has opened up new areas of discussion between us to the benefit overall of the industries and our ultimate end user, the consumer. Q260 Clive Efford: Have any of your members expressed any concerns about the position of any particular organisation, for instance BAA in its position, that without competition the concept of constructive engagement will not operate efficiently? Mr Jowett: No, Madam Chairman, certainly that has not been raised by any of my members who are airport bodies. We operate in the UK, as you know, in a very diverse market, very largely privatised and very competitive between the number of major groups and independently owned airports and operated airports across the UK. None of them has raised an issue concerning BAA. Q261 Clive Efford: Mr Toms, is it correct to say there has been little progress in terms of constructive engagement at Stansted and, if so, can you give us a reason? Mr Toms: I will just set it in its context very quickly. The CAA embarked on a process of encouraging airlines and airports to try and agree the major issues for regulation in advance of a review in the aftermath of the last review. I think it is fair to say a lot of airlines were very bruised by the outcome. Actually we welcomed it in principle because we needed to find ways to get together to talk to our customers better, more clearly, and with less confusion and less ill-will, although we always have a realistic expectation that the outcome might not always work. I think it is fair to say that we have worked very hard at constructive engagement over the last year. We have invested a very large amount of money in it. At all three South East airports we have adopted the same approach, the same culture, the same information base for constructive engagement. The CAA's current thinking, as we understand it, is that process is working at Heathrow with the Heathrow airlines, at Gatwick with the Gatwick airlines but it is not working at Stansted with the Stansted airlines. Q262 Clive Efford: Is it true to say that at Stansted, as suggested, the BAA, because of its position, will not engage constructively in this process? Mr Toms: No, it is not true. If I can give you some examples of the way we have engaged in the process. We have provided the airlines with our capital expenditure programme in great detail. We have provided the airlines with our traffic forecasts in considerable detail. We have provided airlines with an analysis of our operating costs. We have held a long series of meetings to discuss these issues with airlines. We have given them the same information as we have given the Heathrow and Gatwick airlines, which is information which Heathrow and Gatwick airlines have been able to work on. For reasons which you are probably better asking Stansted airlines about, the Stansted airlines have found it difficult to respond with the same degree of engagement as the Heathrow and Gatwick airlines have. Mr Jowett: If I can just add to that, the regulator, the CAA themselves, have commented that the additional information being sought by the airlines is not pertinent to the process of constructive engagement that they have proposed. Q263 Clive Efford: It has been suggested to us that Stansted are saying that the power is skewed against airlines and that there is no incentive for BAA to engage constructively. Has anyone got any comment on that? Mr Toms: Stansted Airport is regulated and any power we have in the market is regulated upon us. In that respect we are not in a position of unconstrained ability to do what we want, the regulator has told us he wants to engage constructively and we have gone step by step through the process the regulator has expected us to produce. We know that if we perform badly or if we perform in an unreasonable way, at the next regulatory review the CAA or the Competition Commission will come along and make us pay the price. There is every incentive for us to do this. Apart from anything else, it is a good idea to talk to your customers and we do try and do that as far as possible; it has just not been as productive at Stansted. Ms Burns: Can I come in on that point, if I may. I think the constructive engagement process is the application of common sense. Q264 Chairman: You find a lot of common sense in the aviation industry do you, Ms Burns? Ms Burns: Perhaps patchy at times. It must be in the interests of airports to engage with their customers. I believe that the approach the CAA have taken in attempting to foster a dialogue between us is one which makes it relatively simple for airports to respond and does not impose obligations which are more onerous than those we would impose upon ourselves. It is early days yet at Manchester to see how the process will work because we are a year behind the BAA in respect of the commencement of the next quinquennial review but the early indications are that there is considerable appetite amongst our airline customers for engaging with us in that process. Q265 Clive Efford: We have received evidence, also, that the CAA does not take full account or properly understand the economics of low cost air services when it is undertaking its regulatory role. The evidence we have had suggests that is not applied in the case of Stansted. Would you agree that the CAA regulates according to one size fits all rather than taking it by the particular organisation it is regulating? Ms Burns: The current structure of economic regulation, as you say, applies in the same way to all of the economically regulated airports. I think there must be a question as to whether that is sensible going forward. The process of constructive engagement does allow sufficient flexibility I believe for airports and airlines to adapt their approach to individual circumstances pertaining at particular airports and, to that extent, it does pave the way for an approach which is more particularised than it has been in the past. Mr Toms: It is interesting that in the consultation paper recently published by the CAA on the policy issues for the regulatory review the paper is very heavily weighted towards the discussion of issues which are particularly relevant to the low frills or low cost sectors of the market. Indeed, they are clearly very much in the CAA's mind. I think it is fair to say the CAA is struggling towards a full understanding of how this sector of the market works and the challenge for the next year is for us and the airlines themselves to inform the CAA so they do understand it before they make their pricing decisions. Q266 Mr Scott: Mr Jowett, you stated in your written evidence that some CAA employees were too specialised and there are skill shortages in the safety regulation group. Do you believe the CAA has sufficient resources to recruit and retain appropriately skilled individuals? Mr Jowett: The challenge for the Civil Aviation Authority at the moment is the continental model being adopted through EASA means that in the ultimate long-term there will be not the need for the number of experts that they currently employ today, let alone additional ones. Therefore, attracting and retaining appropriately skilled staff within the organisation is always going to be a challenge for them in this context and setting. There have been examples, which we could provide outside of this occasion today, of where in our view there has been insufficient ability to respond to questions and queries. I think the airlines, who you are seeing later in the day may also have their own examples pertinent to that. Q267 Mr Scott: We heard from the CAA that EASA is not yet fit for the purpose. Would you agree with that view? Mr Jowett: It is not a matter of direct consequence to us at the moment because, as you are aware, they currently do not have a remit for regulating airports. Q268 Chairman: It will be, Mr Jowett. If there is a Europe-wide authority you will not escape their attention for very long, will you? Mr Jowett: Madam Chairman, no, I was going to concur that we are very concerned about the way the future may develop. We look at what is happening with the regulation of certification and maintenance standards and as we detect, both from what our peers in the airlines and aerospace industries say, and indeed from what was said at this table last week by the CAA themselves, all is not happy in that setting. Certainly EASA have taken on, it would appear, more than they are able to properly address at the moment and their ambitions to extend those responsibilities to air traffic services and airports do concern us. We do not believe that they should even consider or plan for the adoption of airport regulation until they are well on top of, and demonstrably so, their existing remit and responsibilities. Q269 Mr Scott: Do you believe the creation of EASA was a good idea in principle? Mr Jowett: There are certain benefits from having a single authority, a single set of standards that apply throughout Europe. Having said that, of course, airports are already determined and regulated by ICAO standards under annex 14. We hope that if and when EASA begin to determine such matters, or have the responsibility for airport regulation, they will pay very, very close attention to ICAO standards which have been universally adopted worldwide and not seek to double regulate. The CAA have been generally careful not to burden us with additional regulation, although there have been occasions; we would certainly be very worried if there were yet more examples of that coming from EASA. Q270 Mr Scott: Is their creation a good idea or not? Mr Jowett: I believe it remains to be determined. I think I would have to adopt the same line as the Chairman of the CAA who himself last week spoke to this Committee and said at this moment it has not yet got there, if it carries on as it is we will become increasingly concerned. We hope the CAA will exercise increasing influence in Brussels over the role and future direction of EASA and over its policies and standards. Chairman: We get the general idea, Mr Jowett. Q271 Mr Wilshire: Could I follow that by saying that last week Sir Roy said to me in this Committee that my constituents, right next door to Heathrow, would be less safe in the future if something was not done about EASA. Can I ask all of you what would you do to make my constituents safer rather than at risk? Mr Hall: I cannot be clear about the context in which Sir Roy made his remarks. Q272 Mr Wilshire: In the context of EASA, as it is, I specifically asked him the question that if something is not done will my constituents be less safe in the future, to which he said yes on the record. Mr Hall: On the broad principles, the standards which the CAA maintains in the UK, and particularly the air traffic standards, we believe are at an appropriate level and a higher level than is the standard across Europe. If his concern is that EASA ultimately will lead to lowering of standards then my response to that is as far as National Air Traffic Services is concerned we will continue to have safety as our paramount aim and we will continue to invest in order to maintain the safety standards that we do at the moment. Our concerns in terms of EASA and the relationship that the CAA has with EASA are ensuring that we have a level playing field in terms of single European sky, development of air traffic services across Europe, and no dilution of the safety standards that we have. Q273 Mr Wilshire: If EASA were to adopt a lower standard than the safety standards NATS currently enforces, what would NATS then do, apply new standards? Mr Hall: No, we would not. Even as it stands at the moment we do not apply a minimum standard to safety. We are continually working with both the CAA and in Europe, establishing improvements to safety management and air traffic systems. Q274 Mr Wilshire: You are entirely satisfied that whatever the CAA may say to you, or EASA may say to you, you will have the authority to disregard that if it is diluting safety standards? Mr Hall: The requirements to be set inside the UK, certainly underneath our economic regulatory review, allow us to agree with the customers whatever equipment and standards we think are appropriate. So long as we have an effective way of investing in the systems and being reimbursed for the investments that we make then there is no reason why safety standards should reduce. The only question would be whether EASA started to introduce and impose standards which somehow meant that we were forced to lower our standards, and I cannot see how that would happen. Q275 Mr Wilshire: Can I ask one other thing about safety. You are being either incentivised or penalised, depending on which way you look at it, to reduce delays in the mornings by financial arrangements, to try and put it neutrally. If you are subject to financial pressures to reduce delays, does that not compromise safety? Mr Hall: No, it does not and it does not have to at all. The issue around the delays in the morning simply means that where, and at the request of the airlines, they want to improve punctuality at that particular time of the day, then we will point the resource in that direction. If there is a reduction in resource at some other time of the day, then we would distribute the workload accordingly. There is no correlation at all between safety standards and the financial arrangements early in the morning. Q276 Mr Wilshire: There are financial penalties which are higher for delays in the morning than at other times. That is an economic pressure to change your working arrangements. How can you meet that financial pressure without compromising safety? Mr Hall: So long as we continue to meet the traffic growth uniformly across the system then we will not incur those penalties. Our analysis indicates that the arrangements, put in at the request of customers, would simply mean that we would prioritise those flights against flights at other times of the day but not that we would reduce safety standards in the morning. Q277 Chairman: Before you leave that, you say that the regulatory reviews of NATS are long, complex, time-consuming and costly, and you would like to see them shorter and simpler. How are you going to simplify a process with much complex material involved? Mr Hall: The regulatory review has been thorough and it has been extremely transparent. The arrangements under single European skies and the fact that we are the only service provider to have that transparency does put us in a considerably weaker position. Q278 Chairman: You are saying everybody else is secret so they do better than you? Mr Hall: It is secret which means that when it comes to openness and benchmarking, when it comes to our ability to consider what will happen under single European skies in terms of expansion, everybody else can see our books and we cannot see anybody else's books. Q279 Chairman: That is a minor disadvantage, I will give you that. Does the CAA say anything to you about developing methods for minimising delays without compromising safety? Mr Hall: The way in which the particular delay penalty was set up was a part of the extensive discussions under the CP2 review, so, yes, we did discuss it. There is no particular conversation about how in particular we are going to meet the delay penalty without reducing safety. There is an inherent assumption that is what we are going to do and that is what we are doing. Q280 Chairman: Are you secure in the knowledge yourself that two parts of the same organisation are not giving you contradictory signals? Mr Hall: I am absolutely convinced about that because the permissions that we sought under the CP2 for investments in safety improvements and so forth were agreed and the costs that we put in there for increase in actual numbers and so forth of the CP2 were also approved under this process. I am quite satisfied it is balanced. Q281 Mr Donaldson: The Airport Operators Association has questioned the need for the CAA to earn a rate of return of capital of six per cent arguing that this ultimately puts UK airports at a competitive disadvantage. Is your preferred solution a reduction in the rate of return or a fundamental change in the funding arrangements such that the taxpayer bears part of the cost? Mr Jowett: I think there is such a long history of the charging arrangements in the UK that it would be invidious to propose costs going back on to the UK taxpayer. However, we are certainly not on a level playing field with our continental peers and it needs to be recognised that aviation is an international activity and it would be ever so easy, increasingly in this day and age, for activity to relocate itself to the continent in many cases if the costs here became prohibitive. Our concern is that we are being double penalised. As well as paying all of the costs of our regulator, which is not the case on the continent, we are also being charged what essentially becomes a profit margin to the Government for that regulation. We think that is highly inappropriate and I believe that has already been brought to your attention. It represents an assumed risk on capital of about three and a half per cent over and above inflation, and we cannot see that this business, in terms of revenue flows to the Government, has any risk at all relating to it. Q282 Mr Donaldson: Do any of your colleagues want to add anything to that? Ms Burns: No. Q283 Mr Donaldson: Do you think moving to a system in which the Government part funds the CAA might help alleviate perceptions amongst some that the CAA is not independent of the bodies it regulates? Mr Hall: I suppose an argument could be posited that way. I do not suppose it would have much credence with the industry itself particularly or with the public in general. It would be nice if that was the case but it is not something we are advocating. Q284 Mr Donaldson: Why do you say it would not have much credence with the public? Mr Hall: I believe the public perception of the CAA is that it is a highly professional regulator. Amongst all the regulators, both aviation regulators across Europe and one might argue amongst regulators here in the UK of other utilities, it is probably the best regarded in terms of its independence and professionalism of its activities. The costs of it and the potential for double regulation are matters which concern us but I do not think those would impact upon public consciousness or concern. Q285 Mr Donaldson: Manchester Airports Group and the Airport Operators Association have argued that the CAA's cost base must be kept under close scrutiny. We have heard from others that regulatory costs in the UK are higher than elsewhere. What view do you take of the current level of costs? Mr Hall: We would argue that there is opportunity for the CAA to re-examine its budgets, staffing, resources and to use them more efficiently, particularly in the growth of the continental regulator for aviation safety. That was not an argument that the Government should bear some of those costs, it was an argument that the CAA should look more carefully at its own resourcing. Q286 Mr Donaldson: Who do you think should perform the role of scrutinising the CAA's cost base? Should it be the CAA itself, the regulated organisations or an independent body? Mr Hall: I have not taken a view on that personally. I think there could be a case for the National Audit Commission to consider the matter but it should be developed through further work. Perhaps I will ask my colleagues if they have a comment to make? Ms Burns: Madam Chairman, only this in the case of Manchester, which is the most important thing is for transparency in the costs. A considerable amount of work has been done in recent years to improve the transparency of costs from the CAA to its regulatees. I think there is more scope to go further with this work and I would much prefer that approach than to introduce a third party into the process which in the end will merely add more costs somewhere. Q287 Chairman: Is that a yes or a no for the NAO? Mr Hall: I think it is a no. Q288 Chairman: Are you saying yes if the NAO is cheaper, no if it is more expensive? Ms Burns: No, if it is more expensive. Q289 Chairman: No if it is more expensive but that is the only objection. You are not saying we should not have an independent scrutiny, you are saying only if it does not cost anything? Ms Burns: I am certainly not saying we should not have an independent scrutineer. I think the obligation in the first instance is for the CAA to convince both its airlines and its airports that it is conducting itself in a cost-effective manner. Mr Jowett: I would like to concur with my colleagues on that. Q290 Chairman: In which case, forgive me, we are going to move on because we are running out of time. I am going to ask you finally if any other of you have got any comment on the National Audit Office and the need for it to investigate the CAA as opposed to its existing scrutiny systems? Mr Toms: My understanding at the moment is that the National Audit Office does not have the power to scrutinise the CAA's finances. Q291 Chairman: We are not suggesting it has but that does not mean to say that we could not recommend it. We write the laws, you know, we sometimes rewrite the laws, sometimes we have been known to rewrite the rewrite! Mr Toms: While you are contemplating rewriting of the rewriting of the rewriting, our normal predisposition is not to suggest additional layers of regulation, and what we do not want is the guards guarding the guards guarding the guards in this situation. Cost control of an organisation is normally best done by its owner, and I think there is a question which may be addressed here about in what form the DfT itself, as the sponsoring department for the CAA, wants to make sure that it is satisfied as to the cost levels in the organisation. Q292 Chairman: Have you looked at the CAA's Regulatory Impact Assessments? Mr Toms: I have not seen any. Q293 Chairman: Anybody else? Mr Jowett: No, Madam Chairman. Ms Burns: No. Q294 Chairman: You have not had occasion to look at those. Are you all in favour of the recommendations of the Hampton Report? Mr Jowett: In broad principle, Madam Chairman, yes. Q295 Chairman: In broad principle. Do you think an increasingly light touch approach to regulation might compromise the CAA's safety standards? Mr Jowett: The CAA talk about a light touch approach to regulation, we would not, from the industry side, always perceive it that way. Certainly in terms of standard setting and regulation compared with some of our continental neighbours or with North America it would not be deemed that way. Progress and movement towards further, as the CAA would say, light regulation, we would endorse. We do not believe that there would be a safety issue. Safety is at the forefront of our minds. It must not be compromised but we believe further moves in that direction would not so compromise it. Chairman: On that note, Mr Jowett, Madam, gentlemen, may I thank you for your attendance. We are very grateful. Memoranda submitted by British Air Transport Association, British Airways, Ryanair, TUI UK and Virgin Atlantic
Examination of Witnesses
Witnesses: Mr Roger Wilshire, Secretary General, British Air Transport Association, Mr Andrew Cahn, Director, Government and Industry Affairs, British Airways, Mr Michael O'Leary, Chief Executive, Ryanair, Mr Richard Churchill-Coleman, Group Legal Counsel, TUI UK and Mr Barry Humphreys, Director, External Affairs and Route Development, Virgin Atlantic, gave evidence. Q296 Chairman: Good afternoon, gentlemen. Can I ask you to introduce yourselves for the record, starting on my left, your right. Mr Wilshire: I am Roger Wilshire. I am the Secretary General of the British Air Transport Association representing UK registered airlines. Mr Cahn: I am Andrew Cahn, Director of Government and Industry Affairs at British Airways. Mr O'Leary: Michael O'Leary, Chief Executive of Ryanair. Mr Churchill-Coleman: Richard Churchill-Coleman, Group Legal Counsel for TUI UK. Mr Humphreys: Barry Humphreys, Director of External Affairs and Route Development, Virgin Atlantic Airways. Q297 Chairman: Does anyone have anything brief to say before we begin questions? Mr Wilshire: On behalf of UK registered airlines on the panel this afternoon, I would like to thank you for inviting us. In a highly regulated and international business, we believe the CAA is a very professional and very well-respected aviation regulator, and relationships between the UK airlines and the regulator are generally quite good. However, the CAA does face a number of external challenges and we believe needs to change to adapt to these circumstances, therefore we welcome this inquiry and the opportunity this afternoon to give further evidence to you. Q298 Chairman: Thank you. We are always delighted to be welcomed by somebody. Mr Cahn, British Airways says that the CAA was effectively a collection of four separate regulators. Can you give us some examples where you believe the present structure has affected the CAA's customers negatively? Mr Cahn: I do not think the structure has necessarily affected the customers negatively except that you have four regulatory areas all under one group. I think it is open to question whether this is the ideal structure. All we would suggest is that the time is right for looking again at the structure, it has not been looked at for 40 years since the Adams Review in the 1960s. That is why we welcome the inquiry you are conducting today because I think you have identified a lacuna which needs to be looked at. Q299 Chairman: Are you suggesting that the CAA's economic and commercial activities ought to be transferred to a single transport economic regulator for all modes? Mr Cahn: No, I do not think I am. I do not believe there is a conflict between the economic regulation and the safety regulation. I think those two can be conducted by the same organisation. It is absolutely right, however, that there is a clear separation between those two because safety regulation is, of course, always paramount in our business. Q300 Chairman: Gentlemen, if an organisation was set up from scratch to regulate civil airlines, how similar would it look to today's CAA? Mr O'Leary: Speaking for Ryanair, I think it would look radically different from what the CAA looks like today. From an economic regulatory point of view the CAA is an abject failure in regulating either the airports or NATS. The purpose of a regulator is to replicate, as best it is possible, the effects of competition where competition does not exist. If you take the UK airline industry at the moment, thanks to the efforts of the low fares airlines, we now have one of the most competitive airline industries in Europe if not the world. We have one of the least competitive and least efficient industries in terms of the regulated airports and NATS. Evidence abounds in NATS, which is regulated by the CAA, we have the highest rate of air traffic control service charges of the 32 euro-controlled countries. The British NATS is the most expensive in Europe. Regulation is clearly failing. Q301 Chairman: You do not think some of the others are highly subsidised by various means? You have not heard of it. Mr O'Leary: I am not here to answer for the others, we are simply here to say, speaking on behalf of users, who are both airlines and passengers, one has to ask the question why, after years of regulation by the CAA, are British passengers/British consumers paying the highest euro-control charges of any of the 32 countries in Europe. Q302 Chairman: You feel that this is due to incompetence? Is there a specific area in which you notice something that they do not do or do do that other air regulators do not? Mr O'Leary: I think there have been many examples in recent years of incompetence on the part of the CAA in terms of regulating the industry. Q303 Chairman: Such as? Mr O'Leary: The one that comes to mind more recently in the case of NATS was the financial crisis that arose in NATS as a result of the failed refinancing when NATS was taken over by the airline group. The response of the CAA as regulator was not to require the airlines' group to bail NATS out of its problems or to make up the financial shortfall, it was to award a further price increase to NATS requiring airlines and consumers to pay yet higher charges to this regulated monopoly because they had made a mess of their refinancing. As in all cases where section 39 of the legislation says the objective of the CAA is to have regard or to advance the interests of users, in the case of the refinancing of NATS it was to tax the users, to bail out the failed refinancing of the market. Q304 Chairman: You do not feel some of our major airports are lowering the charges that they place on the users? Mr O'Leary: Certainly the policy of the BAA airports in London in particular is to charge the highest possible charges, to waste the greatest amount of capital it is possible to waste and then pass it back to customers over the next 40 or 50 years in the form of higher charges. Q305 Chairman: Is not charging the highest price the market will bear called capitalism, Mr O'Leary? Mr O'Leary: No, capitalism is underpinned by competition. Q306 Chairman: I see. Mr O'Leary: Where competition delivers lower costs and better service for consumers, which is why competition between the airlines in the UK has delivered such benefits for the consumers and why the absence of competition between the regulated London airports and the continuing incapacity, unwillingness, as you will describe it incompetence of the CAA in regulating the major London airports has resulted in higher charges. Chairman: It is nice to know that you are so clear about not wanting any more cross-subsidisation. Q307 Mr Donaldson: We have received evidence that there is poor integration and co-ordination between the Department for Transport and the CAA in some areas of policy development. Is this something you recognise and, if so, can you give examples? Mr O'Leary: I think, with respect, you are not looking at the core issue here again from the point of view of users, whether those users are airlines or passengers. The relationship fundamentally between the CAA and the Department for Transport is largely immaterial to us, it is the relationship between the CAA and the regulated monopoly, in this case the BAA, which is of primary concern. The CAA was long ago captured by the BAA. Q308 Mr Donaldson: Mr Cahn? Mr Cahn: Two points. If I may return to your earlier question about what changes might be needed for the CAA. I do think it is worth considering the impact of the gradual shift in regulatory responsibilities to the European Union. That is an on-going process which clearly is happening quite widely. It is half-way there, it is not yet complete, but as that process unfolds clearly the nature of the CAA and the resources devoted need to change to respond. That is the great driver for looking, again, at the responsibilities of the CAA and the way it is structured. To address Mr Donaldson's question, there is an issue about the relationship between the CAA and Government, and that is that the CAA is asked by Government to offer policy advice quite frequently. We are very happy that should be the case, they are a source of expertise and I have confidence in their expertise. The problem I have is that it is we, the industry, who pay for that policy advice with no opportunity to give a view on whether we would wish to pay for that advice. Therefore, it is quite right that the Government should be able to seek policy advice from the CAA but they should pay for it when they do it, and it should not be burdened on the industry because, of course, that burden immediately goes through in the end to the passenger. Mr Humphreys: It is important to remember the Civil Aviation Authority is an independent regulator. The Department for Transport is a Government department. There are bound to be differences of approach and view, therefore, and overwhelmingly those differences are managed satisfactorily. Sometimes they are not, we had the case very recently on ATOL licensing where the CAA took a very different position than the Government did. From Virgin's point of view, we were certainly on the side of the CAA on that. There have been other cases as well but, on the whole, these differences are fairly minor and are managed very well, I would suggest. Q309 Chairman: You would say when we are told that EASA is not fit-for-purpose, rather than start worrying about the transfer of duties from CAA to EASA we should be very careful to maintain the levels of safety and care that the British need in terms of their consumers and passengers? Mr Humphreys: Certainly I think we should be very careful to maintain safety standards. Whether the creation of EASA will lead to a reduction of safety standards is another matter though. I think we are concerned about the way EASA is operating at the moment. We support EASA as a principle. We think more effort needs to be put into making it efficient and well-run but it is early days, and hopefully these things will evolve. Q310 Mr Donaldson: Gentlemen, do you think the Department takes sufficient heed of advice from the CAA when advice is given? Mr Cahn: I do not see how we can know the answer to that question because we do not know the advice that is given and we do not know the conclusions that the civil servants draw or that ministers draw from them. It is simply a question we cannot answer but that makes my point, again, we are paying for advice which we do not see, which we cannot comment upon and which we have not commissioned. Q311 Mr Donaldson: In the case of financial protection for air travel, the CAA was asked to undertake a full study of the issues, only to find that the recommendation of the one pound levy was abandoned. Do you have a view on that? Mr O'Leary: I could not agree more with the Department for Transport in objecting to the proposal for the one pound levy. The one pound levy would be a tax on UK consumers which would create a £100 million a year fund for the CAA, fundamentally, to fund the failure of the CAA to properly oversee the economic licensing and regulatory function. It also dates back to an era, I do not know whether it is the 1960s or 1970s and package holidays, when people used to get stranded abroad with no means of getting home. We have had other examples in recent years. When EU Jet collapsed last year the low-fares airlines immediately stepped into the breach and offered EU Jet passengers £25 repatriation to the UK. There is not a requirement anymore, thanks to the widespread availability and choice of airline services and the incredibly low fares that are available to and from the UK, for a £100 million per annum fund for the CAA, it was a crazy idea and the Department for Transport is absolutely right to reject it. Mr Cahn: If I may, I would like to agree with Mr O'Leary on that. I thought it was quite an extraordinary proposal from the CAA to create in effect a slush fund of £500 million, which was the original proposal, where there was no market failure and there was no need. There are insurance products available on the market for any passenger who feels the need to have protection. There is no evidence of a widespread incidence of people being stranded overseas. This would simply have added a financial burden to a large number of passengers and, in particular, to the financially secure airlines. We thought that it was a bureaucratic intervention in the market and wholly unnecessary. I thought it was a good decision by ministers. Q312 Chairman: So it is not true that British Airways was returning with empty seats, leaving people behind and was offering deals which disadvantaged passengers quite severely? Mr Cahn: In the past there have been airline failures, for example when Sabena failed or Swissair failed, and we have always transported passengers freely. Q313 Chairman: I am talking about this instance. This is the one that has been raised. You have raised it before the Committee. We have been told that planes were returning with empty seats and passengers were not allowed to use them and British Airways took only a small percentage. In terms of the low-cost airlines, Mr O'Leary, we were told that some were quite helpful and some were not. I think I am getting a nod at the end of the table. Mr Humphreys, can you imagine that some airlines would be helpful and some would not? Mr Humphreys: This might come as a surprise to you, but I very much disagree with what British Airways has said here. As you know, we were very supportive of the CAA's proposals. I do not think Mr O'Leary has done justice to those proposals. As to his example of EU Jet, the CAA did a very detailed study of what actually happened and the evidence suggested strongly that many passengers were left stranded and those that were helped ended up paying a lot more than they would otherwise have done. Chairman: I think that is clear from the evidence. Q314 Mr Scott: Mr O'Leary, going back to what you said about the collapse of EU Jet, if you had not had the capacity on Ryanair to return those customers, would you have put on extra flights at £25 to return those customers? Mr O'Leary: Yes, and we have done so in the past. I think, with respect, the question you asked misses the point. The point that I was trying to make was that before this Committee we are trying to look at the performance of the CAA. I have now given two examples. One was the bailout of NATS, where the CAA's solution was to tax passengers. Secondly, in order to refund the CAA's own ATOL fund the CAA's proposal was to tax passengers. In the case of certainly the Stansted G2, which I know we will come to eventually, the CAA's proposals will be to tax passengers. Yet in section 39 of the Airports Act one of the guiding instructions or imperatives for the CAA is to forward or advance the interests of users and what you see the CAA repeatedly do is tax users, not advance their interests. Q315 Chairman: That is not necessarily a tax on passengers when what you are offering them is a defence against being abandoned, but I will not labour the point. Mr O'Leary: With respect, the solution to passengers being abandoned is for passengers to book with financially strong airlines. Q316 Chairman: I would be interested to see which ones those are. Mr O'Leary: Certainly Ryanair, Flybe, British Airways and Easyjet are among the most financially sound airlines, with strong balance sheets. If passengers want to go with the fly-by-night airlines who come and go, they will have to decide if they want to avail themselves of the travel insurance or not. However, what the CAA was proposing is the equivalent of taking 15 points off Chelsea at the end of every season and transferring them to Sunderland. It is a crazy idea. Mr Scott: That sounds fair enough! Q317 Mrs Ellman: Mr Cahn, you have argued that the CAA should be audited by the National Audit Office. Why should that be when it is funded by industry and not by the government? Mr Cahn: May I just come back and have one last go on financial protection for passengers? My Chairman is speaking in New York today and, amongst other things, he is arguing that our industry should be treated as a normal industry and not as a special case. I think this is a very good example where moral hazard is being engaged by proposing that our customers should be treated as customers. In the automobile industry if you buy a car, if you buy double-glazing, if you buy clothes or you buy a house, nobody suggests there should be a government-levied tax. What we would like in British Airways, which is indeed a financially secure airline, is to see our industry treated as a normal industry. Q318 Mr Martlew: It would be much easier not to impose this tax, as Mr O'Leary says, if there was an official agreement amongst the major airlines that they would bring people back. Why have we not got such an agreement? Mr Cahn: We have an unofficial practice amongst scheduled airlines that where a scheduled airline fails we will bring passengers back, and all the experience over the years is that we have done that. We did that when Sabena failed, we did that when Swissair failed and you can be confident that we will do it in the future if a scheduled airline fails. I think that there are divisions within the industry and I do not see that we necessarily have an obligation for all airlines, but we will do it where a fellow IATA airline is in trouble. Mr O'Leary: I think the simple answer to your question is there is no problem with them. We have no difficulty in reaching an agreement whereby passengers on a failed airline will be repatriated free-of-charge. Ryanair would sign up to that tomorrow. Chairman: It is nice to be in such an open-spirited industry. Q319 Mrs Ellman: Can I return to the National Audit Office? Mr Cahn: Nobody is regulating the regulator. The CAA is one of only two regulators in this country which is not audited by some external body, the other being the FSA and this does not seem to us to be right. I am not saying the NAO is necessarily the right body to do it, but it is the one which came to us and that is why we suggested it. What we are clear about is that it would be beneficial if there was some external audit if only to challenge the CAA, as any organisation needs to be challenged with an external perspective. Q320 Mrs Ellman: Is there any problem with transparency of information about the work of the CAA? Mr Cahn: There is a problem about transparency of charging and of costs in particular where we would find a lot of benefit in having a clearer idea of their real costs and therefore what charges should be passed on to us and to the passenger. Mr O'Leary: In the case of Stansted in particular, we receive these regulatory accounts. The regulatory accounts are completely unintelligible, they have large sums of costs just plugged in there. As one of the major Stansted airlines, we are still attempting to isolate 12 months later what exactly is in these accounts and we are receiving no assistance from either the CAA or the BAA in that respect. We have no idea what is in Stansted's accounts. Q321 Mrs Ellman: Does anyone have any specific proposals on what could be done to improve transparency, and have there been any discussions between yourselves and the CAA on any of these issues? Mr Wilshire: Speaking on behalf of the airlines that were involved with other parts of industry in the review with the CAA on their charges and costs, we did get an improved level of transparency in doing that review and we have been promised ongoing improvement in the transparency as far as their charges are concerned, but it is a difficult area and it is an area that I think the CAA needs to continue to work at in providing for us who are paying for these costs that sort of transparency that enables us to understand what activity is going on and, in particular, the activity changes in relation to EASA which is coming downstream towards the CAA. Q322 Mrs Ellman: Has anyone here been involved in any discussions with the CAA about improvements in transparency or accessible information? Mr Wilshire: We were part of the study I referred to, the joint review with the CAA, as were other parts of industry, the manufacturers, airports and air traffic controllers. We did ask for information and we got a much better level of information than had previously been the case, but that needs to continue going forward. Mr Humphreys: I think there are differences between different parts of the CAA in this respect. I think the economic group has always been relatively good in terms of transparency and consultation. The safety group traditionally has not been as good but, as Mr Wilshire says, they have improved enormously, under pressure from the airlines, over recent years and hopefully that progress can be maintained. Q323 Mrs Ellman: Mr Churchill-Coleman, you have given evidence which says that the CAA is mainly a 9 to 5 organisation and you are a 24/7 one. How do you think the CAA could improve? Would it mean increasing its costs? Is it really necessary? Mr Churchill-Coleman: As Mr Wilshire has alluded to earlier, one of the issues here is a matter of adaptation by the CAA to the EASA regime. At the moment the CAA is perhaps more heavily weighted towards its regulatory function and less towards its monitoring function on the ground. What we seem to suffer day-to-day is a lack of engineers, where perhaps there has been some cost efficiency but that is inappropriate given that the CAA's remit is expanding in that area. Q324 Mrs Ellman: What about the Better Regulation Commission which has now been set up, has that made any difference to the work of the CAA? Mr Wilshire: In general terms we have not seen any change yet in the CAA, although we are in the process of talking both to the DfT and to the CAA over issues to do with better regulation. We believe there is a need for Regulatory Impact Assessments for most of the major changes in regulation and we have not seen many of those in the past from the CAA, there have been some but very few and therefore it is an area that is outside the normal better regulation agenda. We welcome the ability to go in with the CAA and discuss ways of improving things. We also think there is an opportunity to improve the administrative efficiency of the CAA through electronic and other normal business means and there are ways in which things could be streamlined with cost benefits both to the CAA and to the industry itself. Mr Cahn: Perhaps I could be just a little bit more complimentary to the CAA in this area. I think in the past they have not followed the principles of better regulation, but I think they are making considerable efforts to move there. We do not think that the principle of light regulation is the proper regulation for our industry, where safety is paramount and will always be paramount. We think the right principle is proportionate regulation. Therefore, in areas of economic regulation of monopolies, for example, there will always need to be substantial amounts of regulation. In some areas of economic regulation, for example, perhaps there should be a lighter touch. I think the CAA has some way to go in to making that shift, but they have recognised that and they are moving towards it. Q325 Mrs Ellman: Have any of you seen any of the CAA's Regulatory Impact Assessments and had the opportunity to study them and perhaps comment on them? Mr Churchill-Coleman: I have been involved quite closely in the consumer protection Regulatory Impact Assessment but not in any technical assessments. They seem to be quite light on those. Q326 Mrs Ellman: What was your view of the assessment you saw? Mr Churchill-Coleman: I thought it was in-depth and well studied and I personally thought the outcomes were well recommended. Clearly I represent the tour operator industry which suffers from what we feel is an anti-competitive disadvantage in being subject to the ATOL regulations unlike our scheduled colleagues, so perhaps I have a different view from others at this table. Q327 Mrs Ellman: Has anybody else seen any of the assessments and had an opportunity to comment on them? Mr Wilshire: Not personally, although I have heard of one or two Regulatory Impact Assessments over the last few years, but I have not dealt with any of those directly myself. Q328 Mrs Ellman: What about the lighter touch regulation concerning safety, is there any general concern that that is going to jeopardise safety? Does anyone have a view on that? Mr Churchill-Coleman: I think I would echo what Mr Cahn said earlier, which is that I think lighter touch might be a bit of a misnomer. What we are looking for is simplicity and effectiveness in regulation, not necessarily reducing it. Simpler application of the existing regulations, more accessibility to them so that our engineers who work within their parameters more easily is what we are looking for, and I am not sure I see that as lighter touch, just more effective application of the regulations. Q329 Mrs Ellman: It has been suggested there might be fewer inspections at organisations that perform well. Would that give you any concern in that that could lead to a change of attitude in those organisations? Mr Wilshire: The process of safety regulation is important to us and we welcome it, but it is important to recognise the investment made by airlines and others in aviation over the years into safety management systems. These moves have been encouraged by the CAA, we think rightly. I think now we have a much stronger structure in place throughout the whole industry and therefore it is appropriate that the CAA changes its approach to monitoring and to monitoring the system as much as the individual events. I think it is very important that this type of approach is taken throughout Europe as we move towards an EASA rule-based system. Q330 Mr Scott: Mr Cahn, British Airways says that tighter regulatory standards do not necessarily lead to higher safety standards. Could you explain what you mean and provide an example? Mr Cahn: It is very much what Mr Wilshire has just said and what Mr Churchill-Coleman said. It is not much use just having a form-based regulation where you tick boxes. What you need is to have a focused regulation which makes clear what is required and clarity of regulation. The greatest danger to safety is a lack of clarity, confused regulation and overlapping regulation. Q331 Chairman: An example, please? Mr Cahn: I think it is very clear that there is a danger of overlapping regulation between EASA and the CAA and that is something which needs to be kept constant. Q332 Chairman: Perhaps you could give us a note detailing the things you have in mind as you specifically said, "We are pleased that SRG has started to move towards a risk-based approach to safety". Mr Cahn: I will submit a note, Chairman. Q333 Mr Scott: Are the safety regulation charges now proposed by the CAA reasonable and fair? Mr Wilshire: This is safety regulation charges, I presume and those paid for by the UK industry. The airlines over a number of years have been paying in excess of their share of the costs of the safety regulation charges in the past, following the review that I referred to earlier, and changes are now beginning to take place, but it will take a number of years before we are in a position where the airlines are paying approximately what its costs to regulate them. The charges themselves cover all of the costs of the CAA's SRG and our concerns going forward are that these charges are appropriate to the costs necessary to implement what would become the EASA-based rules for the future. So it is important for the safety group within the CAA to restructure, which it is beginning to do, to address this change and their costs should come down and proportionally our charges will come down as well. Q334 Clive Efford: How has the model for constructive engagement between airports and airlines and the airports review process gone so far? Mr Cahn: We welcome the fact that it was introduced. As was said in the last evidence session, Chairman, the previous quinquennial review was not as well conducted as we believed it would be and there were many bruised feelings at the end of it and a feeling that the process had not worked well. Constructive engagement seems to me a sensible and appropriate response by the CAA to the criticism which we and others levied at them. How has it gone? It is early days. It is going quite well. It is better at some airports than others and better with some participants than others. The point I would make is that you cannot expect too much. Constructive engagement is not going to end up with an agreement between the different parties because they have radically different interests, but it is quite sensible to try and clarify the issues, to get rid of the undergrowth and identify the real areas of disagreement. In that sense it is useful. Mr O'Leary: At Stansted, constructive engagement is the sham that it was always designed to be. Constructive engagement on its own is meaningless. Constructive engagement without some penalty on either side for failing to engage in constructive engagement is not really constructive engagement. There is a built-in penalty for the airlines who fail to engage in constructive engagement. The BAA rammed through their ludicrous spending projects, the CAA rubberstamped them and the airlines and our passengers will be paying the fee forever. There is no downside, unfortunately, on the other side. There is no penalty for the BAA failing to engage in constructive engagement, which is what has been played out in Stansted for the last 15 months. There has been a repeated attempt by the BAA in particular to characterise the low-fares airlines at Stansted, the Ryanairs and Easyjets, as the 'crazy boys', we would object to anything, we are not interested in paying for anything and in actual fact that is unfair and untrue. The process is wider; it also involves British Airways who share our view in a lot of what has gone on at Stansted. Let me describe how constructive engagement has happened at Stansted for the last 15 months. In the run up to the Stansted Generation 2 document there was the proposed spending of £4 billion of our money over the next ten years. We have been looking for the traffic forecasts that underpin the need for a second runway at Stansted, but for 15 months, up until 16 December, we have been told we cannot have them, they are not ready, they are not available. We got them at six o'clock on 16 December. Why? It is because on 17 December this document was published. So the constructive engagement has involved the airlines at Stansted looking for traffic forecasts for 15 months to underpin this proposal. We got them the night before it. What we also got in exactly the same week was a notice from the CAA hidden down in appendix E on page 158 of its consultation paper which said that the CAA have concluded that constructive engagement is not possible at Stansted, it has been a failure. The airlines have been looking for traffic forecasts for 15 months and we get them the night before the BAA produce this document, and on the same day the CAA say constructive engagement is not possible at Stansted. Well, of course it is not possible when the BAA has no interest in engaging in constructive engagement with the airlines. The Stansted airlines unanimously (and that includes British Airways) called it 'a glorified waste, excessive, gold plating, Taj Mahal, a complete waste of our money and passengers' money for the next 30 years'. It was signed unanimously by all of the Stansted airline users and yet the CAA has said, "It doesn't matter. Constructive engagement is not possible at Stansted. We will now decide what will get built at Stansted." Q335 Clive Efford: Is it fair to say that this approach has gone well at Gatwick, Heathrow and Manchester? What do you put that down to? Why is there such a difference between the approach of the airlines at Stansted and those at the other airports? Mr O'Leary: At the other airports the BAA are not talking about blowing £4 billion when they only need to spend less than £1 billion and they are not talking about doubling charges to the airlines. At Heathrow it is going well because T5 is being built, BA is getting the shiny bauble, BA is quite happy with that and so it is all working and that is fine. At Stansted you have the low-fares airlines that have delivered the traffic growth in recent years, BAA has had nothing to do with it and we want to continue to deliver it. We support no cross-subsidisation even though the BAA is back looking for more cross-subsidisation, and we support the fact that the airlines at Stansted should pay for the facilities at Stansted. We could not be clearer on it. All we want is something put in to the design or the location of each of those facilities. The BAA has been 15 months preparing this document on the second runway and all the other shiny baubles at Stansted. The consultation says on page 19 that the process of identifying the options was wide in its scope, covering wide spaces, with close parallel and non-parallel runways, options to the east and north-east. The people they got to advise on it were "independent environmental experts, architects, engineers, cost consultants, as well as the BAA's own in-house experts". You will have noticed that missing from this list were airlines or passengers. It is all done in-house. At a Stansted users' meeting yesterday we finally got some detail on the traffic forecasts for the next 30 years at Stansted. Guess what they are based on? A middle manager in the BAA has forecasted that this is what the traffic will be at Stansted for the next 30 years. Did he consult with any airlines? No. Were any soundings taken? No. They have paid £20 million of preliminary expenditure getting consultants involved. We asked if we could have their reports and we were told there were not any reports. We asked how they got their input and we were told they had open briefing sessions and someone took down the notes. This person spent £20 million taking down notes. This is what passes for consultation at Stansted. There is not any consultation. The problem for the airline users at Stansted is that BAA is to be rewarded by ramming through £4 billion-worth of spending because the CAA has already, on the day that this was published, said constructive engagement cannot happen at Stansted. Q336 Clive Efford: Mr Cahn, it was suggested that BA takes the same approach at Stansted. Mr Cahn: Unfortunately I do not have Mr O'Leary's eloquence so I would not associate myself with every word that he has uttered. What I think is true, and I certainly agree, is that I find it a disappointment that BAA have been focusing so much on Stansted. I noticed that when Mr Tomkinson gave evidence in a previous evidence session he said that the Government White Paper recommended a runway at Stansted and he left it there. My recollection is that the White Paper also recommended that a runway should be built at Heathrow subject to some environmental concerns being met. Our interest is to ensure that the BAA builds capacity where the business case is overwhelming, where the passenger demand and airline demand is overwhelming and where the interests of the country clearly require it. My disappointment is not so much as Mr O'Leary's is over what is happening at Stansted, it is that the same degree of effort is not yet being put in to develop Heathrow. Q337 Mr Goodwill: Mr O'Leary, what is your customers' reaction when they find that they are paying many times more for the charges of tax on a ticket than they are for the actual journey? What is the feedback you get from them about the service that they are getting from the airports and the regulatory system? Mr O'Leary: Our customers do not really associate themselves as ever getting a service from an airport. I have heard the previous witnesses giving evidence about their care for customers while they are trying to ramp up the charges. Most of our customers, from the point when they enter the airport to the point when they depart the arriving airport, have a view that somehow their interrelationship is with the airline through the whole thing. When the airports make a mess of the baggage handling, which frequently happens on a Saturday morning in Stansted, Ryanair gets the blame, it is not the airport. We will be decommissioning the CAT 3 landing aids from February through to September to upgrade runway works. We will have numerous diversions from Stansted over the next seven months of the BAA decommissioning CAT 3 landing aids. We will get the blame. I would go back to the point we made previously and I do not want to get back on to it, that is the lunatic tax of £1 a ticket that was proposed by the CAA. For 20 per cent of our customers last year the air fare they paid to Ryanair was zero. Q338 Chairman: I do not think you read our report. We are not going down that road again, but come back some time and I will take you through it gently. Mr O'Leary: Whenever you wish to invite me, Chairman. Q339 Mr Goodwill: Perhaps we should move on to the European Aviation Safety Agency. I think the criticisms that we have heard of the CAA today are nothing compared to the criticisms that we heard last week from Sir Roy McNulty about the way that safety may be compromised by transferring competences to this new European agency. Do you share those very real concerns? Mr O'Leary: Speaking personally, I do not because the ultimate arbiter of safety is going to be each individual airline, not what the CAA or EASA do. I think the evidence of the last 20 years in the UK is we have the safest industries in the world. Mr Cahn: I speak with some personal interest because I worked in Brussels at the time when the plans for EASA were developed. Q340 Chairman: So we can blame you? Mr Cahn: Please do. I hope you blame me for the good things as well as the bad things. Q341 Chairman: There is lots of scope, Mr Cahn. Mr Cahn: There is a lot of scope. EASA has good parts and bad parts. I am convinced that the concept of EASA remains a correct one and I do not think anybody at this table would wish to return simply to the JAA approach. However, what is true and I would agree with Sir Roy about is that EASA has made a poor and disappointing start. There is excessive bureaucracy, there is inadequate funding and there is poor management. Q342 Chairman: So apart from that, it is fine? Mr Cahn: Yes. I believe that EASA itself has the scope to contribute to great safety in Europe. Q343 Chairman: If we live long enough it will be great. I want to ask a question of BATA. The Committee has heard of a case where a passenger was taken ill on a domestic flight and was simply left to fend for herself in an unknown airport far from her destination, the plane was diverted and the pilot subsequently refused to carry the passenger, despite medical staff declaring her fit to travel. What is your policy in such cases? Mr Wilshire: I do not know the case to which you refer. Q344 Chairman: I have no doubt that the Member, who is a member of this Committee, will gladly give you copies of the correspondence. What happened was that they were left to fend for themselves at Liverpool Airport on Sunday evening and they had to pay £180 for a taxi to Bristol, nor have they been reimbursed. So you do not have a particular policy about that set of circumstances? Mr Wilshire: Chairman, I think this needs to be investigated in terms of which airline. Q345 Chairman: We will happily send you copies of the correspondence with the agreement of the MP. Why do airlines refuse to carry people with reduced mobility, Mr O'Leary? Mr O'Leary: We do not and we never have done. We welcome all passengers with reduced mobility and always have. Q346 Chairman: I am sure that will be very good when it is publicised. What about the scheduled airlines, do you have problems with ferrying anyone with reduced mobility? Mr Humphreys: Certainly from the point of view of my airline, we go to enormous trouble to take care of passengers with reduced mobility and we carry many of them all the time and indeed we win many awards for doing so. As far as I am aware most other scheduled carriers are in a similar position. Q347 Chairman: Have you ever considered that you might be prosecuted under health and safety legislation and therefore decide it was not in your interests? Mr Humphreys: No. Q348 Chairman: And you, Mr Cahn? Mr Cahn: No. Mr O'Leary: No. Mr Cahn: I absolutely associate myself with what Mr Humphreys has said. We go to great lengths to provide for passengers with reduced mobility. There is, however, a regulatory issue. Currently we have legislation contemplated in Brussels and in the United Kingdom and in Washington all covering the same area. We are very keen to contribute to legislative action to look after such passengers, but it should be co-ordinated legislation so we do not have conflicting or overlapping regulation. Q349 Chairman: So we do not have to do anything until we get worldwide agreement, is that it? Mr Cahn: Worldwide agreements will always be the best. I suspect that will not work. Agreements at a Community level and then agreements across the Atlantic would be beneficial. Q350 Chairman: BATA says that the difference in costs of registration, even after proposed changes to safety regulation charges, will be 50 per cent more than in Ireland and five times more than in Germany. Can the CAA achieve efficiencies large enough to bring their fees into line with the rest of Europe? Mr Wilshire: Eventually, yes, based on EASA setting the rules and the implementation of those rules being consistent across all European states. Q351 Chairman: What is a fair rate, for example, when we are considering a six per cent rate of return on capital, because although it has been presented as being, somehow or other, an added tax, it would certainly be regarded by most regulators as a realistic assessment of the use of facilities and capital? Mr Humphreys: I have great difficulty understanding what that return on assets is actually for. I believe when the CAA was set up in 1972 certain assets were transferred from the government to the CAA, but that was 30-odd years ago and most companies would have long since written off assets such as those. I am not aware of any additional money put in by the government or assets of any form because the CAA since then has been self-financing. It is not clear to me at all why there should be a return. Q352 Chairman: Since it is an industry-financed organisation, why do you think the National Audit Office, which is very much a government department, should have a role in the auditing of the CAA? Mr Humphreys: For the reason that Mr Cahn mentioned, that the CAA by definition and quite rightly is a monopoly. Someone should have a look at monopolists to ensure that they are efficient and effective. Q353 Chairman: Do you think one way you could get round that would be by reference to the Competition Commission? Mr Humphreys: That may be an alternative, but I am not sure the Competition Commission is really set up for that sort of investigation, but it is worth looking at. Q354 Chairman: If there was an automatic referral to the Competition Commission would it not automatically ensure that you had your rights protected as airport users? Mr Humphreys: Perhaps. The Competition Commission, if I understand it correctly, is primarily interested in competition. There cannot be competition when it comes to a regulator. That is why I say I am not sure that is the ideal organisation to look at it. Q355 Chairman: Several times today you and various other people have suggested that the interests of consumers in airlines are absolutely parallel, particularly in relation to the regulation of airport charges. Why do you think that should be suggested? Mr Humphreys: If as airlines we do not associate ourselves with the interests of our customers we would very rapidly go out of business. Q356 Chairman: Why should the customer automatically be regarded as having the same interests as the airlines when it comes to charges for airports, which is one of your normal overheads presumably unless you take to landing in a field? Mr Humphreys: Because the charges that the airports make on the airlines get passed on to the consumer and therefore he has a direct interest in what the airports charge. Q357 Chairman: So we are assuming that everything will be passed on. Mr Cahn, you have argued the process of improving airspace changes needs to be reformed. Why and how? Mr Cahn: We are now entering a period when airspace is particularly heavily used and ever more congested, particularly in the south-east of England. We think that the traditional way that that part of the CAA has approached the regulation of airspace is simply too slow, it has taken typically four or five years to make any changes, it is too cumbersome and does not respond to the needs of the market. For example, if there are to be changes at any of the airports in the south-east of England to achieve the objectives set out very clearly in the December 2003 White Paper of maximising the use of the current infrastructure in the south-east of England substantial changes to airspace will be needed and that will take a very long time if the old processes are used. Q358 Chairman: Do you think it is common that the height indication of flight paths is changed on a piecemeal basis? Mr Cahn: I think that it perhaps is not as well co-ordinated as it might be. I am really talking about the time it takes and the way the process is developed. Q359 Chairman: Do you think the environmental impact of these changes is ever considered in sufficient depth? Mr Cahn: I think that the environmental impact of all aspects of aviation is getting ever higher in terms of policy importance. Q360 Chairman: We know that. Do you think that on the question of a change of flight paths there is sufficient account taken of environmental issues? Mr Cahn: Yes I do. I think environmental issues are taken very seriously, not least by BA, which is the industry leader in dealing with environmental issues. Mr Wilshire: We believe the CAA do and have to take environmental issues into consideration. In this area they are advised by the DfT. I think it is very important that the DfT advice is robust on these matters. We would support that because we believe that aviation development and growth is possible in a sustainable way. Chairman: Gentlemen, you have been very instructive. Thank you very much for coming. Memoranda submitted by Aircraft Owners and Pilots Association, British Business and General Aviation Association, GA Alliance and Society of British Aerospace Companies
Examination of Witnesses
Witnesses: Mr Martin Robinson, Chief Executive, Aircraft Owners and Pilots Association, Mr Mark Wilson, Chief Executive, British Business and General Aviation Association, Mr Paul Draper, Chairman, PPL/IR Europe, GA Alliance, and Mr Mike Steeden, Director, Civil Air Transport, Society of British Aerospace Companies, gave evidence. Q361 Chairman: Gentlemen, thank you for being patient. I am sorry to have made you wait. May I ask you, firstly, to identify yourselves, starting on my left? Mr Steeden: Mike Steeden, Director of Civil Air Transport at the SBAC, which represents about 2,500 companies operating in the civil air transport, defence and space markets. Mr Draper: Paul Draper, member of the General Aviation Alliance, which is a grouping of nine major organisations in general aviation with about 70,000 subscription payments. Mr Wilson: Mark Wilson. I am the Chief Executive of the British Business and General Aviation Association. I am speaking for those companies operating in the general aviation market and, insofar as it may be of interest to the later questioning, I am a vice-chairman of the EASA advisory board. Q362 Chairman: Lucky old you! Mr Robinson: Martin Robinson. I am the Chief Executive of the Aircraft Owners and Pilots Association, representing private aircraft owners, pilots, flight training organisations, many of which pass their pilots on to the airlines. Q363 Chairman: Thank you very much. You are all in the general aviation sector which we all believe to be very important. Could you tell us why you think your particular sector is distinct from airlines and other parts of the aviation industry? Mr Wilson: On the basis we sit on the cusp between commercial and general aviation, maybe I will start and my colleagues can follow. Firstly, we must note that the international standard called general aviation is not what people would automatically assume. I think most of my colleagues would agree the definition is that it is everything except for the airlines and the military. Where it is particularly different is that general aviation primarily comprises individual or small- and medium-sized companies, or those companies that share the characteristics of SMEs. We therefore manage to serve areas that the scheduled airlines do not, we go where they do not, they cannot or they will not, and I think we are important in terms of regional development, certainly as far as my members are concerned and there are obviously other interests which I will defer to my colleagues to outline. Mr Draper: I think we are also different in that we not only cover business, we cover the training of pilots who ultimately many end up within the airlines, but sports and recreational purposes is of ever-increasing importance within general aviation. Q364 Chairman: That is very useful. Do you know what the contribution of general aviation is to the UK economy? Mr Robinson: Currently there is a study which is being undertaken in conjunction with funding from the Department for Transport, the results of which we are waiting to learn. Q365 Chairman: And its parameters are about the economic contribution. It is presumably the economics of the industry. Mr Robinson: It is indeed, yes. Q366 Chairman: When do you expect that to report? Mr Robinson: We think there will be a preliminary report available by the end of January and we can make that available to you. Q367 Chairman: Have you all contributed to that in some way? Mr Robinson: We have. Mr Steeden: Chairman, may I have a shot at responding to the initial question just to clarify? With due respect to my friend's definition of general aviation, I think there is a commonly accepted usage that tends to distinguish between the large civil transports that are used by the major airlines and the lighter aircraft community. As far as the SBAC is concerned, our members operate across the full range of markets here. We serve both the airlines in terms of providing components, systems, air frames into that large civil air transport area and we also have companies that serve the lighter end of the market. We range from small- and medium-sized enterprises all the way up to the large companies such as Rolls Royce, BAe Systems and Airbus UK. Q368 Mr Martlew: On the funding and the efficiency of the CAA, do you really believe that you get value for money from the CAA? Mr Wilson: What we would probably contend is that the CAA is not the organisation it would be if it was just there to regulate general aviation and, therefore, we believe that we are paying a disproportionate sum because the regulation itself and the body itself is not set there to regulate general aviation, it is set there, as is laid down in its remit, to look after the large airlines and particularly to ensure that the airlines are able to be provide services to UK citizens. It is a worthy goal but not one we feel we should be paying for. Q369 Mr Martlew: So what is the solution? Mr Wilson: You can either have regulation which is proportional throughout and we recognise that may place a bureaucratic burden on the CAA itself, but I think just having a one-size-fits-all level of regulation, such as exists for commercial operations today, is not useful. It is not sensible for somebody who wishes to operate pleasure flights round a beach during the summer to have to approach the same document as British Airways has to approach. Q370 Mr Martlew: Do you believe that the six per cent return is justified? Mr Robinson: No. Mr Draper: It is really a tax on safety in effect. Q371 Mr Martlew: If they do not get the return then will there not be a tax on the taxpayer. Mr Draper: Not necessarily because the CAA is self-funded by the participants and that includes us. Q372 Mr Martlew: So you are happy for it to be self-funded and not to pay a return? Mr Draper: Indeed it should be self-funded. We do not necessarily need to be a part of that regulation in that it needs to be risk based and proportionate. Over the years general aviation in various sectors has been very successfully self-regulated without a problem, such as the gliding community for 60 years, the PFA and various other sectors and we believe that is the way that it should move and there should be more self-regulation providing it is properly safety based. Mr Steeden: In terms of value for money from the CAA, I think I share views that have been frequently expressed already. As far as our members are concerned the relationship with the CAA is long standing and it is highly professional. I do not believe that our members would see an issue. Our area of concern is primarily the certification of products and services and so in that area I do not think we have an issue. On the six per cent return, again I share some of the views that have been expressed here. I believe the actual number this year in terms of the rate of return on average capital employees is running at something like 18 per cent, which is something of a catch-up exercise following the 'holiday' that followed on from 9/11. I would observe that from the point of view of companies in our community that is a very nice arrangement if you can get it. I do not think that they understand why that sort of facility should be provided. I think they probably would have some measure of difficulty with it. I think they would look at the rates that you can achieve these days on retail savings investments and ask why this particular privilege is being drafted. It is not the biggest issue out there for us as far as the CAA is concerned but I think those would probably be the views. Mr Draper: My colleague has mentioned an 18 per cent return and that is in an environment where charges from the CAA to the GA community are increasing and I think questions need to be asked. Q373 Clive Efford: Do you believe that general aviation pays its fair share in terms of recouping the costs of the services that the CAA provides? Mr Wilson: I think it does. If the regulation was proportionate then the user pays principle can be carried forward. If the regulation is disproportionate then you end up with a disproportionate impact on particularly smaller- and medium-sized companies, which I think goes against the policy not only of this country but within Europe. Q374 Clive Efford: So you are not suggesting a charge for the service rendered but on a pro rata basis based on the size of the organisation? Mr Wilson: No. I am noting that if you are a small organisation the amount of burden not only that you pay in terms of fees to the CAA but that it takes in terms of your personnel is significantly larger as a proportion of your turnover than if you were a larger company, and that is our concern. Because regulation is not proportionate at the present time the fees cannot be done on a user pays basis. We believe that general aviation does pay its way. Q375 Clive Efford: What do you mean by regulation is not proportionate? Is there not a minimum standard that everyone is going to have to meet however big they are? Mr Wilson: That is precisely the problem. The regulations tend to have been developed with larger interests in mind, not with general aviation in mind. Our colleagues across the Atlantic enjoy a completely different set of regulations for smaller air transport operations to their larger cousins and we do not have that here, it is one-size-fits-all. Mr Robinson: In a recent consultation exercise with the Civil Aviation Authority AOPA initiated, along with the support of colleagues like the BBGA, an independent report which was produced by Helios Technology into the actual impact of the CAA's charges on our sector of the aviation community, a copy of which we are quite happy to forward to you. This report bears out a lot of what Mr Wilson has been saying about the fact that the smaller companies pay a disproportionate level of charges in relation to their turnover. Q376 Mrs Ellman: Sir Roy McNulty admitted he had not paid sufficient attention to general aviation and he said that was going to be put right, and he referred to the joint review. Are you confident there will be changes? Where would you like the major changes to occur? Mr Draper: I do not think we are confident that the changes will be made to assist general aviation. One of the prime changes we would suggest needs to be made is that general aviation needs to be recognised by having a representative on the board of the CAA. There is no GA representative on the board and we believe that, understandably though it is that they have a remit to look after the airlines, GA is left out of the picture. It has very little, if any, mention in the CAA Chairman's annual report and it does not figure in their corporate plan. We are a large sector and we are a different sector and we need to be looked after or regulated in a different way. Mr Wilson: As you will have seen in our written evidence, we would propose the development of an actual policy for business on general aviation, something that we hope could be allied to the review of the aviation White Paper that is expected to be undertaken this year. We think that would strengthen the position of the industry and ensure that Sir Roy and his successors will pay suitable attention to general aviation in the future. In his defence, Sir Roy has instigated reviews on general aviation which we are most welcome to be participating in and we hope they will have a fruitful outcome. Maybe that could lead towards policy. Mr Robinson: I welcome Sir Roy's comment, of course. However, they are probably a little bit too little, too late with the advent of EASA coming on-stream. In the future most of our members will be under some form of European regulation. Perhaps I could quote from an interview we conducted with Mr Gooding(?). He says in the interview that it is their intention to reduce the burdens on general aviation which they are very aware of, and he also goes on to say that we need general aviation in Europe and we need to promote it because it is weak. If we could get our own Civil Aviation Authority to come out and say words like this it would be such a boost to our community. Q377 Mrs Ellman: Should the CAA be audited by the National Audit Office? Mr Robinson: I believe the CAA does its best through the finance advisory body on which I sit to be as transparent as possible with its fees and charges. However, as has been stated previously, I think it would be a good measure if there was some kind of independent external audit and the National Audit Office seems the right body to conduct that independent review. Q378 Mrs Ellman: The Hampton Report suggested that regulators move towards risk-based assessments. Have you seen any changes in relation to general aviation in this area? Mr Wilson: Not yet, but all of us are engaged in discussions with the CAA that are based on some of the premises of the Hampton Report and we would hope that risk-based regulations, with proportionality in the way it is brought forward, would come out of some part of the aforementioned strategic look at general aviation. Mr Steeden: As we move towards EASA and away from the CAA I think the recommendations of Hampton and the work that has been done generally by the Better Regulation Task Force need to be taken up by EASA in formulating the way forward as far as their processes are concerned. That is something that perhaps has not happened yet, although the Better Regulation Task Force has already produced reports in the area of regulation by the European Commission and its agencies. That is where the emphasis of Hampton and where the emphasis of better regulation needs to lie now. Q379 Mrs Ellman: Is there any concern that light-touch regulation might compromise safety? Mr Robinson: Not if it is risk-based. Mr Draper: I would like to endorse that comment, Chairman. Q380 Mr Goodwill: I am getting the impression that General Aviation seems to be the poor relation and everything seems to be focused on the airlines and you are a bit of an add-on. Would that be a right impression? Mr Wilson: I think it is right that the small proportion of aircraft flying without us, as the airlines do, have the greatest attention. We would actually say if you follow risk-based regulation through that is correct. Where we have a problem is where we are forced to pick up regulation which was clearly designed for others. Mr Draper: This brings us back to the comment which was made by earlier parties represented here in terms of the beneficiary pays or the user pays being the principle. At the moment the user pays and we believe very much that it should be the beneficiary that pays. It is a fact that because of the increasing amount of commercial airline traffic in this country in particular, the General Aviation community is being kept out of airspace, which one would say is our common right to be in, in that we are having to pay for the costs of the increased airspace funnelling the aircraft that are wanting to use it into narrower and narrower corridors and less of it being available. As the airline industry increases in size this will become ever more the situation. So we are paying. Q381 Mr Goodwill: Is this disadvantaging companies whose main business is not aviation? For example, I am thinking of Ford Motor Company who fly engineers to their Cologne plant from the UK and find difficulty getting slots and they are being disadvantaged. Is that affecting the wider economy of the UK, the fact that commercial operations that use General Aviation find they cannot operate as freely as they would like? Mr Wilson: Ford Motor Company are members of ours. It is indeed a problem in terms of slot access. General Aviation does not seek any great favours, what we seek is fairness. For instance, we were effectively squeezed out of Heathrow because of slot access. Around London a number of airports have sprung up, as indeed recommended in the White Paper, to look after the interests of business and General Aviation: Farnborough, Biggin Hill, et cetera. I think it is important that communities, councils if they are involved in their particular airport, understand the overall benefit of General Aviation. Studies that we have show that access to sensible classes, business class, in terms of efficiency and timescale of travel is about third or fourth on the list of inward investment decisions. That is the type of thing which frequently can be provided by General Aviation aircraft whether it is a business or an individual flying their own aircraft. To cut that down is something that the country would do it at its risk. Mr Robinson: In relation to things like the Hampton Report, and we welcome the Hampton Report, there is a need inside the Civil Aviation Authority for them to understand the outflow of that report and to look at things like Regulatory Impact Assessments, small business impact tests, competitive analysis. A good example of where that would have been useful was the introduction of JAA FCL which has had a huge impact on General Aviation. There are fewer instrument rated pilots and there are fewer multi-engine pilots. These statistics are from the CAA's own data. The reality is that General Aviation is in a decline. Over ten years ago we were issuing 40 per cent more licences than we are today. The activity at airports is down between 25 and 37 per cent. Access to regional airports is extremely difficult as the pricing policies of these airports keep General Aviation operators out. Taking a light twin to Bristol Airport, one of our members recently faced a bill of £180. The problem for General Aviation is that it is being sucked up into the commercial area when it really needs a fresh look at how it can continue into the future. Q382 Chairman: To be devil's advocate for a moment, the pressures of economics are always going to come into play, are they not? If there is a limited amount of space, and that includes airports as well as facilities generally, does it not mean that there will be pressure on prices? Mr Robinson: That may be true, however one of the people speaking earlier on today was talking about the slowness at which the CAA reacts to the introduction of new technology. If we saw a GPS-based approach being introduced to more General Aviation airfields we would have more opportunities for General Aviation to fly safely into a greater number of airfields and not need to come into the regional airports. The French have done this. The French have already set this up, but we seem to want to gold plate it and take a long time before we introduce it. Q383 Chairman: To be fair, the French are fairly brutal in their approach to using the Armee de l'Air in air traffic control and the use of airspace. They are rather more rigid in the general control of their airspace, do you not think, or am I being unfair? Mr Robinson: That has not been my experience of flying in France. Most of the French airfields are owned by the local authorities who seem to want to promote those airfields. Mr Draper: If I can just add to Mr Robinson's comments. There is a safety issue in relation to access to regional airports for the General Aviation sector in that if we cannot get into these airports which have facilities to enable us to practise our instrument landings, for example, then we cannot be as safe as we ought to be and, therefore, that should be encouragement to introduce this other new technology. Q384 Clive Efford: We have touched on what this question relates to but GA Alliance argues that the CAA over-regulates General Aviation massively, sometimes to the detriment of general safety. Other than aircraft and pilots registering abroad, can you give examples of the CAA's regulatory regime being detrimental to safety? Mr Draper: There is a sort of inbuilt safety for safety's sake when it is not actually required. It is in the thinking, in the ethos of the CAA. Can I come back to you with some examples of that afterwards, please? Q385 Clive Efford: Can I perhaps prompt a response. What we have been given in evidence is that, for instance, relating to the UK instrumental rating, the number of pilots who hold that qualification is two per cent in comparison with America where it is 50 per cent and that is an area where the system is failing. Mr Draper: I can respond to that, Chairman. The requirements of the JAA instrument rating acquisition now are so difficult and for a private pilot to set aside three months or more to obtain a rating they cannot afford to do so if they are in business or any other activity. It costs a great deal of money and takes a great deal of time and effort. Alternatively, the American system, to which most of them have migrated as a result, is where they can obtain an instrument rating much more easily and yet it does not make any difference to the standards of being required to fly. They are operating in the UK, admittedly with an American registered aeroplane, equally as safely as a UK instrument rated pilot. Furthermore, if there was any question that they were not as safe the CAA would have to do something about all the American pilots coming in on commercial entry forms. Q386 Clive Efford: You say that it is extremely expensive, can you give us some idea of exactly what costs are involved? Mr Draper: Around £30,000 but I can come back to you with some bigger figures. Q387 Clive Efford: To get the same qualification would be a fraction of that, would it? Mr Draper: Absolutely. Q388 Clive Efford: It would pay to go all that way? Mr Draper: Pilots do do that. The issue is the acquisition of more safety for pilots. The CAA and other authorities should be promoting pilots increasing their safety ratings and this is one way of doing it, by making it easier for them to get ratings. These private pilots are not wanting to fly a commercial airliner, they would have to get commercial ratings to enable them to do that, they want to be able to fly their small General Aviation aircraft more safely, more reliably during weather conditions in the UK and Europe and thereby do their business. Q389 Clive Efford: Mr Wilson, can I return to you. You said that you feel that the CAA is reluctant to use its powers in some areas such as ramp checks on non-UK registered aircraft because they cannot recover the cost from the foreign registered owner. What hard evidence do you have that the CAA acts in this way? Mr Wilson: Our concern is one where there are an awful lot of aircraft, say business aircraft, that arrive at Luton over a weekend and we would be surprised if there were permits in place for all of those aircraft if they are commercial carriers. Because there is not such a threat of a ramp check we are concerned, and of course we cannot prove this without the ramp checks having taken place, that some of those aircraft will arrive, declare themselves to be non-commercial flights simply on the basis there is not a ramp inspection that is likely to take place, and therefore circumvent the regulations requiring commercial carriers to register with the Department for Transport before they fly in. Q390 Clive Efford: You can give no specific evidence to demonstrate this is the case, it is just a suspicion you have? Mr Wilson: It is a strong suspicion but obviously we cannot until such ramp inspections take place. Q391 Chairman: What sort of percentages are you talking about, Mr Wilson? I am sure that something like this happens but what percentage of flights would this be? It would be a way to circumvent all sorts of laws presumably, not just the ramp checks. Mr Wilson: I would not say it is a majority but it is a minority that is not insignificant. Beyond that it would be difficult to say. There are an awful lot of aircraft that will arrive and I think those people who are based at Luton or other airports, I do not want to just highlight Luton here, would question the fact whether those aircraft truly were commercial or non-commercial. Q392 Chairman: Have you ever raised that with the CAA? Mr Wilson: It is more an issue with regard to the Department for Transport. Our concern that we were outlining in our submission was that there should be more funding directed to the CAA from the DfT to conduct these ramp checks. Q393 Chairman: What response did you get? Mr Wilson: People have looked at individual cases where we have provided information where we believe an operation has taken place illegally and in my relatively brief tenure in this post we are not aware of any action having been taken. Q394 Clive Efford: Assuming this is taking place, to what extent do you think safety is compromised? Mr Wilson: It is unlikely to have a huge impact on safety but what it is doing is distorting competition. Q395 Clive Efford: I do not understand. It would concern me if somebody operating from abroad knew that they could regularly fly in and avoid the checks. The objective of the checks fundamentally is safety, is it not? They could actually be flying unsafe aircraft in and out of the country. Mr Wilson: No. I think what is more the case is there are permit restrictions on commercial aircraft coming into any country and an operator will wish to avoid those permit restrictions as opposed to undercutting safety. Q396 Chairman: What you are saying is that these are commercial flights that are re-jigged as being personal flights and, therefore, they escape the sort of controls that a commercial competitor would have to comply with. Mr Wilson: That is exactly it. Our point in the submission was to say we believe there should be greater funding from DfT to enable the CAA to conduct more of these checks. Clive Efford: Do any of you have examples of where the CAA avoids using their powers similar to this situation? Q397 Mr Martlew: Just on the funding side, are you saying the government should give the CAA money to do these checks or should it come out of self-financing? Mr Wilson: My understanding is that is the case today. Q398 Mr Martlew: So the government do pay? Mr Wilson: Yes. This is somewhere where the government is seeking that airlines or aircraft coming into the UK are safe. That has the added advantage of ensuring they are abiding by permit restrictions as well. Q399 Clive Efford: Was the General Aviation sector encouraged to be part of the CAA's cost review? Were the views of the GA ---- I am taking it from the faces in front of me that I know the answer already. How were the views of the GA community received by the CAA? Mr Wilson: I was a part of the joint review team formed in this regard. It was something that we regarded very much as a working group to look at future charging mechanisms for the authority. We were unable to reach an agreement on key parts of that and, therefore, BBGA did file a minority report when that process was concluded. It was very much the working group which then decided what action to be taken by the CAA Board. Our concern was the joint review team focused very much on how to distribute charges within the current framework and we would far sooner have seen a review with regard to who is the ultimate beneficiary, is it correct that aviation companies pay for policy development work which is frequently not done in other sectors, things of this nature which were not covered to the same degree. Mr Steeden: Being with but not of the GA community can I answer that question on behalf of the aerospace manufacturers and service providers. We were represented on the joint review. As far as I recollect, we were not party to the GA minority report. I confess, I do not know the details of that but I think it is important to register that fact. Q400 Clive Efford: Just to put a specific point: why should the airline industry subsidise General Aviation in terms of safety standards? In particular, why should the recreation sector of aviation be subsidised in that way? Mr Robinson: Could I answer that and say the General Aviation community and those people who seek flying careers actually take a huge subsidy into the airline with them, somewhere between £50,000 and £100,000. The cost of becoming a professional pilot today, if that is your desire, unless you come from a very wealthy background or parents who are prepared to finance your training through remortgaging their house, is extremely difficult for individuals from relatively less well-off means to pursue a career as a professional pilot. Whether it is right or not for there to be a cross-subsidy, the fact of the matter is flight training organisations form the nurseries for the airline world ultimately. Whether British Airways recruits pilots directly or not is not the issue. The Regional Airline Association has said on numerous occasions, "Please do not pull General Aviation, they supply our pilots". There is a kind of pecking order here. People go to a regional airline and they gain experience with a regional airline and then move up into the main air carriers. I would illustrate General Aviation as being like a house of cards with GA at the bottom and if you start to pull around at the bottom ultimately the whole lot will tumble down. Our members do pay charges and they pay for everything that the CAA has a charge for. If there is an element of cross-subsidy it is not totally clear to us where that cross-subsidy actually lies. Mr Draper: There is another point here relative to charges in particular in that we do not have a level playing field. Commercial airline traffic saves itself £800 million a year in fuel duty, £2 billion a year in VAT, whereas General Aviation, private individuals using it for recreational, social and some business as well, pays fuel duty and VAT and has no means of recouping it. Therefore, the field cannot be regarded as level and, furthermore, as I said earlier, we are being kept out of more and more controlled airspace to the benefit of the airlines. The great majority of the passengers, your constituents, are going on holiday and the like, great, that is absolutely what we want them to do, is it not, but part of the cost of going on holiday has to be to pay proper airfares and the like. Maybe that needs to be looked at in relation to the actual total charging scene across CAA charges. Mr Robinson: Can I come back to your point about the review. The Cabinet Office Better Regulation Unit recently informed us that the Civil Aviation Authority should have conducted Regulatory Impact Assessment, a small business test, competitive analysis in relation to the recent increase in their charges because the increases that they have put forward have gone outside the known formula. Q401 Chairman: Would you be kind enough to give us a copy of that correspondence? Mr Robinson: I am currently awaiting a letter from the Cabinet Office at the moment. Q402 Clive Efford: Has the CAA's new cost structure had any impact on safety regulation in the way that General Aviation practices it? Is there a knock-on effect? Mr Robinson: Ultimately, private individuals fund their flying from their taxed income and they will have a proportion of the income available for flying. The higher charges, the fewer the hours they can fund. The best safety device on any aircraft is a well-trained pilot and safety is enhanced by having pilots flying, not just by pure regulation. Chairman: Gentlemen, you have been very helpful and really very interesting indeed. Thank you very much for your evidence.
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