Examination of Witnesses (Questions 60-79)
MR CHRIS GIBSON-SMITH AND MR RICHARD EVERITT
WEDNESDAY 1 MAY 2002
60. Could you give us some real figures? What does the percentage matter? What is crucial is what the real figures are.
(Mr Everitt) We are quite a high-cost operation. I accept that.
61. And you are asking for an increase.
(Mr Everitt) We are asking for an increase after a year in which we have decreased. Our increase would average at 5 per cent real for three years.
62. Your 5 per cent yield could be considerably higher in real terms than the 13-14 per cent you have just quoted to us.
(Mr Everitt) In numerical terms, it might be higher, yes.
63. It might cost more.
(Mr Everitt) It might cost more, but do remember, we operate in very complex air space, and that is manpower-intensive.
Chairman: Mr Everitt, after the many years this Committee has devoted to your affairs, you may be sure that we are quite clear about the complexities.
64. One of the benefits of PPP is the introduction of increasingly competitive charges. When would you anticipate that that benefit will be manifest?
(Mr Everitt) I think by taking our charges down in January, when everybody else seemed to be going up, we at least started on that road.
65. Not exactly, if you are now trying to put it back up again!
(Mr Everitt) We are trying to put them up, as I say, by a pretty modest percentage.
66. I do not think that was quite the point really.
(Mr Everitt) No. Of course, what we are looking for is a formula which allows us to make decisions each year within whatever ceiling we are given by the CAA. Furthermore, we are looking to be compensated for the loss of traffic, ultimately to build a stronger financial structure for the business. This is money which we are going to invest, remember. We are talking about investment here and how we receive the money to invest.
67. The CAA did not go along with that argument, did they? They were not terribly impressed when they were talking to you about increases or decreases. Did they accept that argument?
(Mr Everitt) We have not had any formal discussions with the CAA on that yet. We have simply made an application for an increase, and that will be duly examined in accordance with the CAA processes.
68. When you took that decision in January to reduce the charges, presumably you would know that you would lose revenue as a result, which you would have to balance, would you, with a possible disincentive to travel had you left charges at the same level or increased them?
(Mr Everitt) I do not think our charges are that price-sensitive. We did it in accordance with the formula, which was RPI minus 3, so with RPI at 2 per cent, take 3 off, I think we were minus 0.9. We were doing that in accordance with the price formula that was set, and we have obviously had to live within that.
69. I want to bring you back to this source of additional equity. Have you found another source of additional equity, Mr Gibson-Smith?
(Mr Gibson-Smith) We have a competition running. We have interested parties who have come forward, and we are in the middle of that process.
70. How much money would you expect to raise from another source?
(Mr Gibson-Smith) We would like to raise something in excess of £50 million.
71. Do you have a guarantee from the Government that they will match that additional money?
(Mr Gibson-Smith) The Government have said that they would match it.
72. What effect will all that have if the new source of equity which you find is not an airline company?
(Mr Gibson-Smith) It will bring in new skills to NATS. That is one thing it will do.
73. Yes, but you will remember, Mr Gibson-Smith, the arguments that took place as to the reasons why the Airline Group were preferred to other bidders. I ask you: if the new bidder is not an airline company, what effect would that have on your policies?
(Mr Gibson-Smith) In setting the competition up, we have used broadly the same framework that was used for the decisions on the PPP in terms of entry. So the first test is safety impact, and it is an absolute test for us so we need to be clear about that. The second test is the financial robustness of the entity, and the third test is their strategic alignment with our own goals. We have not reached the stage yet where we are able to take those tests and apply them to candidates.
74. So it is quite possible that you will have some difficulty finding a candidate that would fulfil all those qualifications.
(Mr Gibson-Smith) No. My expectation is that we will find a candidate who fulfils them.
75. How long do we expect to wait?
(Mr Gibson-Smith) We are in a process that we hope to have concluded by the end of May or the first half of June.
76. Finally, you have had some severe staff shortages at Swanwick, have you not?
(Mr Everitt) We have had some staff shortages, and indeed, it is a challenge for us.
77. A challenge or severe? Let us not argue too much about words, Mr Everitt. Have you had a severe shortage of staff?
(Mr Everitt) No, we have not had a severe staff shortage, but we have had to manage our staff very carefully at Swanwick. There was one night when we had to close some air space, and that was as we trained additional air traffic control assistants to undertake work in the new facility. That issue was certainly resolved quickly. But it is a challenge to maintain the number of air traffic controllers. It takes a long time to train them, and it necessarily takes time to train them.
78. You have had some problems at terminal control as well.
(Mr Everitt) It is a challenge at both terminal control and at Swanwick to build the number of controllers. That is something that we are very focussed on doing. As I said, according to the business plan we will be training 20 more controllers a year than had historically been the case.
79. So it is not your business plan, as it was before, to lose quite large numbers of staff, which would presumably include controllers?
(Mr Everitt) No, it would not. Our business plan will involve reductions in staff but not controllers.