Select Committee on Environment, Transport and Regional Affairs Appendices to the Minutes of Evidence


Memorandum by British Airways (NATS 05)

NATIONAL AIR TRAFFIC SERVICES (NATS)

  1.  The Transport Sub-committee of the Environment, Transport and Regional Affairs Committee is undertaking an inquiry into National Air Traffic Services, including developments at both Swanwick and at Prestwick and the failure of systems at West Drayton on 17 June. BA is pleased to be given an opportunity to provide evidence on these matters. We begin with a discussion of the nature of the ATC business and its impact on BA and then address the three areas identified by the Committee for its inquiry.

NATS AS A BUSINESS

  2.  NATS is a sizeable business, with annual revenues of £568 million, a return on capital of 8.4 per cent and 5,500 staff. Although NATS is still in public ownership, it has been operating as a commercial undertaking at least since 1996, when it was made a limited company and run as an autonomous subsidiary of the CAA. The CAA's involvement in NATS is primarily that of safety regulator. NATS also works within formal CAA Directions and an operating agreement with the SoS for Defence, both dating from 1996. NATS presents itself as a business, with its own independently audited annual report and Board of Directors.

  3.  BA is NATS' largest customer, contributing £102 million in revenues in the last financial year. So far as BA is concerned, NATS is a major supplier of a vital service. We pay a full commercial rate for the service and we expect to receive a safe and efficient service in return. Currently, however, there is no contract between NATS and the airlines and no system of economic regulation.

THE SERVICE PROVIDED BY NATS

  4.  NATS' service is of a high quality in two areas: their commitment to safety and their ability to manage the complex and densely used airspace over the UK, especially the London terminal area. We have a very high regard for the professionalism of their staff, who we consider to be amongst the best in the world.

  5.  In the Eurocontrol Performance Review Commission's annual report on the performance of European ATC[1], NATS emerged as having the highest unit charges[2] of the 26 countries analysed, with rates 65 per cent above the European average. Some of this premium is accounted for by five variables identified as the prime cost drivers. When allowances have been made for the effects of these variables, NATS' charges are still 16 per cent above the European average.

  6.  Delays remain a serious concern because of the costs and inefficiency they impose on airlines and passengers alike. According to NATS' figures, the percentage of flights delayed by NATS in the year 1999-2000 was 6.9 per cent and the average delay per delayed flight was 17.1 minutes, a significant improvement over the previous year. Applying this to the 1,943,000 flights in UK airspace, this equates to a total delay of 38,209 aircraft hours over the year, and, assuming a rough average of 100 passengers/flight, a delay of 436 passenger delay years.

  7.  It is essential that last year's improvement in delays is sustained and improved. BA is concerned that NATS is prepared to allow delays to worsen over the next four years. They have planned for 4 per cent capacity growth each year until 2002, but movements are currently increasing at a faster rate. Last year, movements increased by 6 per cent and the figure for January-July 2000 is 5.4 per cent. NATS' own high level forecasts show movements growth of 5.5 per cent a year up to 2010. It is clear to us that faster capacity growth is needed.

  8.  It is also important that NATS comes up with a robust plan for dealing with expected and unexpected manpower shortages as soon as possible. Over the past few months, staff shortages have caused several significant episodes of delay and this problem appears to be increasing. Contingency arrangements are also needed to address potential staff shortages especially over the period of NERC training and handover.

  9.  In their proposed "Service and Investment Plan" (published in April 2000), NATS have proposed targets for flight delays attributable to NATS in UK airspace. These are 10 per cent for the percentage of flights delayed and an average of 15 minutes per delayed flight, or an average of 1.5 minutes for every flight operated. The figure of 1.5 minutes represents a substantial deterioration over current performance, where the delays average 1.19 minutes for all flights. Eurocontrol recommend that the average flight delay should not exceed 1.1 minute per flight centre in order to respect the current 3.5 minute/flight target across the Eurocontrol area (each aircraft flies over an average of 3.1 centres per trip). We do not wish to see a deterioration over current delay performance and we expect to see a significant improvement once NERC is implemented.


PUBLIC PRIVATE PARTNERSHIP

  10.  BA supports the Government's proposals for a public private partnership of NATS with an accompanying system of independent economic and safety regulation. We have responded to the initiative by joining with seven other UK airlines to form the Airline Group to bid to run NATS. The Airline Group is one of four consortia who have submitted formal bids. We are not at liberty to provide further details of our bid at present.

17 JUNE: SYSTEMS FAILURE AT WEST DRAYTON

GENERAL COMMENTS

  11.  The systems failure on 17 June caused unprecedented disruption of services which was very damaging to British Airways and its passengers. We have been told by NATS that the cause of the problem was the failure of the FDPS flight data processing system, caused by routine software revisions made on 15 June. It appears that there were warnings of problems the day before. We do not understand why it took NATS as long as it did on 17 June to recover their software to the previous version.

  12.  NATS have acknowledged that the failure "should not have happened" and that: "It is no excuse that this has never happened before." An independent review of the events leading to the failure has been commissioned, but we have not yet seen the results.

BUSINESS CONTINUITY ISSUES

  13.  NATS appears to have a rudimentary approach to business continuity, relying only on hardware redundancy and fall back to manual systems with dramatically reduced capacity. They accept that there were communication difficulties and this made it more difficult to respond effectively to the crisis and to contain its effect on airspace users. NATS are now taking part in a working group with British Airways, Heathrow Airport Ltd and others to review NATS' ability to respond in a crisis and to identify how some of the difficulties could be overcome through better understanding and coordination.

  14.  The main lesson to be learned from the crisis is that NATS' procedures for business continuity are inadequate and need urgent and extensive improvement. Falling back on manual systems is no longer an adequate response. NATS' reliance on computer systems is increasing and the risk of failure needs to be positively managed along with other business risks. It is not clear how NATS' plans for a two centre strategy will provide future contingency for business recovery in the event of hardware or software failure, or loss of a building.

THE TURNBULL REPORT

  15.  All companies listed on the London Stock Exchange are required to comply with the Combined Code of the Committee on Corporate Governance. This includes a report on internal control referred to as the Turnbull Report, published in September 1993[3]. This guidance is provided as good governance practice in the area of managing business risk. Among the risks listed in the report, failure of a major change initiative, skills shortage and business continuity are all included as areas to be considered.

  16.  NATS is not obliged to comply with the Turnbull Report because the Government has decided against selling NATS through a Stock Exchange floatation. Nonetheless, we believe that Turnbull provides a good framework for NATS, whether or not it is obliged to implement it. It would be illogical if NATS did not comply simply because of the mechanics of the sale process.

BUSINESS CONTINUITY IN BA

  17.  British Airways has experience of business continuity, which we manage as part of our emergency planning function. We have offered to assist NATS wherever we can. The main elements of BA's programme are set out in the Annex.

RECOMMENDATIONS FOR NATS

  18.  We think NATS should address the following matters:

    —  Manual fall-back is no longer sufficient because the capacity available is insufficient to continue the operation at acceptable levels;

    —  The scope for creating additional capacity by making arrangements with the Military and/or neighbouring airspace providers could be examined;

    —  Processes for quality control of software upgrades is needed and very fast recovery procedures for software and data in the event of a failure;

    —  Clearly defined procedures need to be drawn up within NATS for decision making in the event of a crisis, separate from the normal operational business processes, so that exceptional matters can be addressed with minimum disruption to operational staff;

    —  Decision making in a crisis needs to be fully coordinated with NATS' close business partners—including NATS' own airport control towers as well as airports, major airlines and others;

    —  Procedures should be agreed both for prioritising flights in the event of a severe constraint and methods of returning operations to normal once capacity of the system is restored;

    —  External bodies need to be able to communicate freely with NATS and to be given accurate information about the state of the crisis, decisions taken by NATS and the likely prognosis, without compromising NATS' ability to respond to the crisis—this is likely to require a dedicated information centre, closely coordinated with the decision making team;

    —  NATS needs to agree with its customers the cost of setting up these systems against the benefits of reduced risk and ability to operate in a crisis; and

    —  Robust and well rehearsed procedures for business continuity need to be introduced as soon as possible and to be established and tested well before the implementation of the New En-Route Centre (NERC) in January 2002.

  19.  In concluding our comments on this issue, we believe that if NATS had had better management processes for system upgrades and business continuity, the effect of the failure on 17 June would have been much less severe and might even have been avoided altogether. We have no complaint with the operational staff who responded as well as they could in difficult circumstances. NATS have declined to compensate our losses but they have agreed to address the subject of business continuity. In particular, they have recently agreed that a national approach is needed and they have agreed to work with BATA to achieve this. British Airways endorses the need for an effective national business continuity programme and we would like to see this treated as a very high priority.

NSC—THE NEW SCOTTISH CENTRE

  20.  British Airways has supported a two centre strategy provided that any particular proposal can be justified on the basis of a cost/benefit analysis. We are disappointed that a contract has been signed without users being given the opportunity to review the business case.

  21.  The costs of the proposed NSC are extremely high and we have seen no evidence that these are justified by benefits of increased capacity or reduced delays. We have not seen an analysis which demonstrates the timescales over which increased capacity is needed in Scotland, nor do we know the extent to which the NSC will provide business continuity for the NERC centre. We think that the consultative mechanisms employed by NATS are inadequate for addressing these issues and we are in discussion with them to find practical ways of improving this.

  22.  NATS' proposed investment plan, with the NSC as a major element, is described by NATS as "high risk" (Table 1.1 of the Service & Investment Plan.) It is difficult for users to have confidence in this approach, especially before NERC has been implemented successfully.

  23.  We supported the CAA's recommendation that assets in the course of construction are not remunerated, since this weakens the incentives to implement major projects on time.

  24.  We do not know what plans NATS have to address the gap left by the failure of the FDPS2 project earlier this year.

NERC— THE NEW EN-ROUTE CENTRE AT SWANWICK

  25.  We cannot comment on the state of the project. As users, we are concerned that the implementation date of January 2002 should be met. As customers, we have been paying the depreciation costs for some time and would view with deep concern any further delay or increase in costs.

  26.  the Service and Investment Plan states in 1.5. 9-10 that the NERC system already needs to be upgraded, since parts of the system are effectively obsolete.

  27.  We have asked the CAA to incorporate service quality in its system of economic regulation. This is necessary in the period before and after NERC becomes operational.

  28.  NATS have told us they will have difficulty in staffing their operation at the current centre because of NERC training requirements coinciding with expected manpower shortages. There is little that airlines can do if capacity of UK airspace is reduced, even if warning is given. It is essential that NATS makes alternative contingency arrangements to cope with operational demand without compromising safety or increasing delays.

October 2000


1   PRR3 published in May 2000 and available from the internet at www.eurocontrol.be/dgs/prc Back

2   This relates to the en-route charges, expressed as cost per kilometre. Back

3   A "Boardroom briefing" on implementing Turnbull is available on the Institute of Chartered Accountants internet site: www.icaew.co.uk. Back


 
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