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Public Administration CommitteeWritten evidence submitted by Dr Chris Gibson-Smith (CSR 16)

NATIONAL AIR TRAFFIC CONTROL SERVICES LTD

THE POSITIVE IMPACT OF INTRODUCING PRIVATE SECTOR BUSINESS SKILLS AND LEADERSHIP

Introduction

This note provides a brief overview of National Air Traffic Control Services Ltd (NATS) and the benefits it gained from the input of private sector leadership under Dr Chris Gibson-Smith, who was NATS Chairman between 2001 and 2005. It covers:

1.What NATS is.

2.NATS’ Public Private Partnership.

3.The impact of 9/11.

4.NATS’ transformation into a financial and commercial success.

1. What is NATS?

NATS Holdings Ltd (NHL) has been a Public Private Partnership (PPP) since 26 July 2001.

It provides air traffic control services for UK airspace and the eastern part of the North Atlantic through its Civil Aviation Authority (CAA) regulated subsidiary, NATS (En Route) plc.

It operates two air traffic control centres, at Swanwick in Hampshire and Prestwick in Ayrshire.

NHL also provides air traffic services at 15 airports in the UK and at Gibraltar through NATS (Services) Ltd, a commercial business not subject to regulation and which also provides engineering, consultancy (including training), defence and aviation information management services to customers in the UK and more than 20 other countries.

NATS’ Public Private Partnership

At completion of the PPP on 26 July 2001 the Crown sold 46% of the company to a strategic partner, The Airline Grou1 (AG), and transferred 5% to employees.2

Alongside enhancing safety culture, the need to bring in private sector business skills was a key Government objective for the transaction.

The then Transport Minister Lord MacDonald declared that the introduction of private sector finance and management skills would create “a better business focus ... [NATS] will be able to take management and investment decisions on commercial grounds. It will have access to commercial opportunities denied within the public sector ... [the private sector] will bring in the investment and project management skills to make the best use of that freedom”.3

This was against a background of a £1 billion investment programme it needed to deliver over 10 years, with a target of increasing capacity by 50% in the face of year on year traffic increases. It also needed to repay substantial debts—see table.

The Impact of 9/11

Rapid decline in air traffic movements, particularly on trans-atlantic routes, due to 9/11 had a severe unforeseen impact on NATS finances. 9/11 left NATS formally bankrupt and it was eventually recapitalised with help from BAA and HM Treasury.

As a result, a further £30m was loaned to NATS by the Department of Transport, with another £30 million supplied by the banks which underwrote the part-sale of NATS—Abbey National, Barclays Capital, HBOS and Bank of America.

The Transformation of NATS into a Commercial Success

2001—05 was the most turbulent period in NATS’ history, and it emerged much stronger at the end of the period. During his Chairmanship, which began just ten days before 9/11, Dr Chris Gibson-Smith oversaw the complete financial restructuring of the company, led it to the best operational performance in its history and created a stable platform on which it could invest in the renewal of its technology and play a key role in shaping the provision of air traffic control services in Europe. Key achievements during this period included overseeing plans for:

A strong safety record—safety went from an average of twelve serious near misses to zero.

A programme of cost savings and very active cash management.

Delivering efficiencies through reducing the number of main sites.

A planned substantial reduction in overall staff numbers of around 700—principally through a voluntary retirement programme amongst support workers made possible through efficiency gains.

Movement of staff terms and conditions of employment closer to market norms and increasing productivity through changes to working practices.

The renewal of NATS technology systems infrastructure.

Bringing the Swanwick centre into operational service.

Launching a £1 billion investment plan.

Launching a £127 million programme to replace radar equipment at 20 UK sites.

Winning a multi-million pound 20-year contract to provide Bristol International Airport’s air traffic control service.

Winning NATS’ first overseas contract with a three-year agreement to provide air traffic control services for RAF Gibraltar.

Raised a £700 million bond from the financial markets, which enabled NATS to secure its capital independence from HM Treasury.

The financial performance of NATS in 2005 was strong, with a pre-tax profit of £68.8 million, up from 2003–04’s £1.8 million profit and losses of £29.1 million and £79.9 million in the previous two years:

Revenues rose by £39.7 million to £638.9 million as traffic increased by almost 5% year-on-year, with NATS handling 2.2 million flights, a new record.

Average delay per flight was just 15 seconds, half 2003–04’s level and the lowest in the company’s history, from three and a half minutes.

Net income increased from a loss of £3.6 million to a profit of £39.9 million in 2004–05, driven primarily by a 6.6% revenue growth, ahead of costs increases.

This financial performance enabled NATS to reduce net debt by £67 million to £630 million and declare its first dividend (of £5 million) since PPP.

NATS is now acknowledged as a world leading, diversified global leader in innovative air traffic solutions and airport performance.

January 2013

1 Thomas Cook, Monarch, easyJet, British Airways, Virgin Atlantic, BMI, TUI

2 Subsequently on 19 March 2003 BAA Airports Limited acquired a 4% shareholding, with AG’s shareholding reducing to 42%.

3 Q305, Environment, Transport and Regional Affairs Select Committee Oral Evidence Session 8 December 1999

Prepared 5th September 2013