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Lord Trefgarne: My Lords, I am most grateful to the Minister for that assurance. It is most reassuring. I have a meeting in the near future with a senior CAA official who will no doubt confirm it. I am grateful to the Minister.
Lord Macdonald of Tradeston: My Lords, I am grateful for that intervention. I turn to the questions raised by the noble Lord, Lord Smith of Clifton. Perhaps he will forgive me for not going too deeply into some of the other transport matters he raised as I have been dealing with them in other ways and at other times this week. He asked specifically about the financial "get out" clause. We have tried to build on the experience of previous transactions in order to develop a more robust contractual framework which will bind in the strategic partner. We believe that the government partnership directors on the board of NATS will help ensure that the NATS PPP delivers on its undertakings.
As regards the objective criteria by which we try to define and measure success, the Airline Group and the Government will agree a business plan which will contain certain specified "deliverables", as the jargon has it. They will all be set out clearly. The CAA in the
public sector will, as ever, deploy best practice economic regulation to keep the company up to the mark.As to the single sky, we believe that under the PPP NATS will be well placed in Europe. The Airline Group has already developed relationships with neighbouring ATC providers. That will form the basis of a very strong position in what we anticipate from previous debates will be rationalisation across European skies in the years ahead. We have tried to make clear that the criteria on which we have made our judgment are based on an objective and impartial assessment. Any implication that somehow we made the decision for political convenience, or to try to match some of the demands made with great conviction in earlier debates by noble Lords, must be placed in the context of a very rigorous, objective and impartial analysis of a number of important criteria. At the end of that assessment there was clear blue sky between the bid of the Airline Group and that of its nearest competitor.
I turn to the point raised by my noble friend Lord Shore about replacement of the Swanwick systems over the years ahead. I am not entirely clear as to what the replacements would be. I accept the general point that technology should not remain in service as long as some of that with which our air traffic controllers must work at the moment. Some of the screens of circular design to be seen when one visits Prestwick appear to be quite quaint. From my discussions with air traffic controllers, like all professionals they appear to be very pleased by the anticipated investment which will give them new equipment. I anticipate that if we have an accelerated pace of technology, under the new system Swanwick will be the first to benefit from it.
These days advanced systems like Swanwick are subject to very regular upgrading and replacement, and often the process is a very organic one. I for one am pleased that the Airline Group stands ready to enhance the level of investment to modernise the systems, and its concept of running competitions to ensure that it has the best systems for UK air traffic control appears to make good sense.
My noble friend Lord Shore also queried the wisdom of a penalty for delays caused by air traffic control in relation to any particular flight. I entirely agree with him that safety must be paramount and there must be no incentive to compromise. I have gone to some lengths to analyse the suggestions put to me by the CAA in trying to find a middle way with the management of NATS and its aspirations. My noble friend referred to the suggested 5 per cent as a tightening of the charge regime for each year up to 2005 for NATS en route services. Perhaps my noble friend will be pleased to hear that I modified that and set a cap which began at 2.2 per cent, rather than 5 per cent, and then went to 3 per cent, 4 per cent and finally 5 per cent in 2005. That has been greeted very warmly by NATS management and there has been no complaint about it.
Similarly, in relation to delay, it was put to me by NATS management that the proposals of the CAA, based on one year of operation, might be tough to
meet. I asked the CAA and our own officials to look at an average across four years to try to get a fairer datum line. They have come up with a system on which the CAA is prepared to compromise and NATS management very much welcomes it. I have tried to meet my noble friend's point.
Lord Shore of Stepney: My Lords, I am grateful to my noble friend for giving way. In his very full Written Answer in January my noble friend spelt out a helpful and more relaxed charging system. But I did ask: of what exactly is it a percentage? My noble friend was good enough to tell the House what the charge would be in three years' time; namely, a figure in excess of £5 million, and that thereafter it would be 5 per cent, but 5 per cent of what?
Lord Macdonald of Tradeston: My Lords, since NATS is a monopoly service provider it is regulated by the RPI minus x formula. Therefore, the x factor has been set for the period of five years. That factor would have been 5 per cent. Therefore, my noble friend can see how cumulatively 5 per cent over five years coming off RPI might be a considerable tightening of the screw. I hope that that satisfies my noble friend's inquiry on that matter.
As to the single skies initiative, noble Lords will be aware that, faced with the kind of expertise from noble Lords to my right who have been both Ministers and closely involved in European operations, in some of these areas my remarks are somewhat tentative. But I believe that the single sky is fundamentally a benign attempt simply to rationalise the way in which the various jurisdictions in air traffic control co-operate. In particular, we are trying to do that through institutional reform. We believe that through a single sky policy we shall be able to reduce air transport delays and their costs in Europe and provide the infrastructure to increase capacity, because by 2015 Europe will be coping with 7 million more flights and 1 billion more passengers than in 2000. Therefore, the provision of systems across Europe to handle that level of traffic safely represents a substantial challenge.
As I argued from the beginning of this debate, if consolidation is inevitable, when scores of national jurisdictions can be handled by half a dozen centres across Europe, we want to try to ensure that we in Britain not only control our own skies but are able to offer our expertise, based on an improved technological platform, to countries all over Europe, particularly small ones. Let us not forget that, if we want to, we can control Siberia from Swanwick, so there is a very real opportunity for a British-based company to help others to rationalise their skies.
I will now deal with some points raised by my noble friend Lord Hoyle about partnership directors. We have held discussions with the trade unions on the whole process of selecting the partnership directors to be appointed by the Government. Those discussions have centred on the types of people who might be suitable and what criteria should be used in their selection. That will include how they might best fulfil a role in safeguarding the safety of NATS. We have
advertised for people to put their names forward under the new process, and we have arranged for people to consider putting forward their names. That process is ongoing, and I do not believe that I can properly say much more about it. We hope to have directors selected by the time that the PPP is due for completion, and as to that we are aiming for 1st June.My noble friend Lord Hoyle also asked about pensions and the trust of promise. I can assure my noble friend that we are in the final stages of discussing the trust of promise deed with NATS and the Law Debenture Trust Corporation which is likely to act as trustees. The trust will be in place before completion of the PPP. As outlined earlier by my noble friend Lord McIntosh, we believe it will guarantee that while NATS employees remain within that they can also continue in membership of the CAAPS scheme. Staff who transfer with their work to another employer will be entitled to membership of a scheme that is identical in all material respects to CAAPS.
My noble friends Lord Clinton-Davis and Lord Brett have played a remarkably positive role. I bring that matter to noble Lords' attention because at times we may have seemed to have been at odds. But, with their collective experience of IPMS, BALPA and of public life, they have helped me enormously in understanding some of the difficulties that the staff have had in accepting some of our policies. They pointed me toward areas of the legislation where our Bill might be, and indeed was, improved. Both noble Lords have served the public interest very well.
My noble friend Lord Clinton-Davis asked about the public interest in the context of the stakeholder council. There will be three government-appointed directors. Like the noble Lord, we believe that the stakeholder council will allow people to come together and for broader interests to be represented by the government-appointed directors on our partnership board and the PPP board. Therefore, I readily reinforce his call for partnership. I endorse his comprehensive seven-point appraisal of the positive aspects of the winning Airline Group bid.
I am particularly delighted to be able to share my noble friend Lord Brett's optimism. I, too, believe that the winning bidders are well positioned to keep their promise. They have no exit strategy. Clearly, they are locked into the proper functioning of this new company by the most powerful of all self-interests. Again I should like to thank the noble Lord for the robust role that he played in helping us to improve the Transport Act.
I thank the noble Baroness, Lady Thomas of Walliswood, for her complimentary remarks. I understand her party's reservations about the public/private partnership. I hope that the noble Baroness will accept that the CAA can be both an economic and a safety regulator. I foresee no difficulty there. The economic and safety groups within the CAA are used to acting together; for example, the advice given to the Government by the economic
regulator on the setting of the NATS charges was reviewed by the safety regulator. Should there be any conflict, the CAA board would address the issue.On the question of the staff shares, I can reassure the noble Baroness that the pension position of staff, while remaining in the CAA, will be unchanged by the separation of NATS. On the new shares for employees--I anticipate the question of the noble Lord opposite--of the over £100 million of equity involved in the bid, 5 per cent will go to staff and £500 will be free. The share scheme would be for the initial allocation only. Any further staff proposals would be for the strategic partner to decide in consultation with the other shareholders and the Government.
I was asked what the value might be in the future. With regard to the total sum in cash received for the transaction, your Lordships may remember that we were looking at removing a debt of some £330 million and perhaps receiving £300 million on top of that. Therefore, in the past, I have offered £650 million as a possible total. The total amount is around £800 million. The valuation of the company is probably over £900 million and nearer to £1 billion now. So noble Lords can see that if people get a percentage of this company at an early stage on what would be a percentage of £100 million, were the company to be floated in future and a proper valuation put on it, there would be a considerable upside for those who held the shares.
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