Examination of Witnesses (Questions 340-359)
SIR ROY MCNULTY AND MR DOUG ANDREW
TUESDAY 11 JUNE 2002
340. What impact will your decision have on the proposed equity attraction into NATS?
(Mr McNulty) I do not know the answer to that. We are aware, informally and from the media, that discussions have been progressing with BAA. We are not aware at this moment in time of the details of such discussions, nor of whatever discussions NATS has been having with the Government. Therefore, I regret, we are not in a position to answer that question.
341. Would BAA's involvement alter your analysis of NATS' request to increase charges?
(Mr McNulty) I do not think it would alter our analysis of the original application which required, in present value terms, an increase in their charges of about £190 million, but as we have indicated in our consultation document we think it may be in the interests of the usersie the airlinesto provide some increase, provided there had been substantial moves towards the financial restructuring that I mentioned.
342. On that point, could you identify any conflict of interest for the Airline Group as part-owners of NATS in relation to any increase in NATS' charges?
(Mr McNulty) I do not think that that gives rise to a conflict of interest as such, in the sense that the charging scheme is uniform across all users. So, insofar as there is an increase which is borne by Airline Group members, the same increase would be borne by non-Airline Group airlines.
343. Before you get to that stage, when there is some proposal or suggestion of an increase, those people that have an interest in NATS could be influencing any future increase because of their power within NATS. Is there a conflict there?
(Mr McNulty) We do not see that. I think NATS has put forward its application, it was supported by the Airline Group, but we look at the application
344. Is that the first or the second one, Sir Roy? When you say it has put forward an application.
(Mr McNulty) It put forward the original application which was supported by the Airline Group. We are expecting, by 21 June, some different proposals from NATS.
345. So you have not got them yet?
(Mr McNulty) We have not yet received those.
346. What analysis have you carried out?
(Mr McNulty) We reviewed the first applicationthe only application we have receivedand the analysis is set out in our consultation document, leading to the conclusion that we were unconvinced that that application should be approved by us, and we set out our reasoning for that and we indicated, in very outline terms, some other possibilities which it really rests with NATS now to develop and come back to us.
347. On the situation of trying to find a level of funding for NATS and the fact that they are now appealing to the non-Airline Group, if the suggested increase in the cap is being considered or applied, would that not have an influence on the non-Airline Group to invest in NATS?
(Mr McNulty) I have had no indication that non-Airline Group airlines are planning to invest in NATS.
348. Have any of the non-Airline Group member airlines made representations to you about the proposed level of NATS' charges?
(Mr McNulty) We would expect to get a response
349. You have had none yet?
(Mr McNulty) Not yet. The twenty-first of June was the deadline we gave. We gave them all a month to come back to us. I would expect that some airlines individually and non-Airline Group airlines collectively through IATA will respond to us.
350. What would be your attitude to that response?
(Mr McNulty) It depends on what they say but we would place considerable weight on what the non-Airline Group airlines say. Obviously, the Airline Group are part of the ownership structure of NATS. We think it is quite important what the non-Airline Group airlines have to say on our consultation document.
351. Are you satisfied that PPP was the right way forward?
(Mr McNulty) I am.
352. You have changed your mind, Sir Roy?
(Mr McNulty) I believe that the PPP was the right way forward.
353. But not this PPP. Is that what you are saying?
(Mr McNulty) In most respects we can see that the structure and the concept is working. I was of the view, as you raised yourself
354. As we all know.
(Mr McNulty)that the financial structure, perhaps, was not the optimum one, and unluckily that has proved to be the case, but it might have worked had things all gone well. It might have worked.
355. So the honest answer to Mrs Ellman is "Yes, but it was the wrong PPP"?
(Mr McNulty) It was a PPP with a financial structure which, certainly in the circumstances, has proved to be inappropriate. In other respects, in terms of performance, in terms of
Chairman: We understand the caveat, Sir Roy. I think we are quite clear that we all agree it was a mistake.
356. In your preliminary considerations to NATS' application to increase charges you refer in paragraph 1.19 to three reasons for potential concern. Some of those are extremely serious. You talk about the possible position of banks financing the futurevery serious matters. How important do you think those concerns are in relation to the structure?
(Mr McNulty) We think those reasons for concern are important, which is why we have raised them in the document, and it is really the central reason why we think that the other possible options that we have outlined should be given consideration by the users.
357. How serious do you think those concerns are?
(Mr McNulty) They are significant potential concerns, I think is the way we describe them in the document.
358. You have concerns for the future of NATS?
(Mr McNulty) Yes, there are concerns about how NATS might develop, particularly if it was under very severe financial constraints and to an extent, in some circumstances, under the control of the banks.
359. No doubt you have studied quite closely what has happened to Railtrack and the position of the regulator. What lessons do you draw from that in terms of your own possible involvement as regulator in the event of a collapse of finance?
(Mr McNulty) I could not claim that we have carried out an extensive study of Railtrack and the role of the regulator. We are obviously aware in general terms of what has happened. What we are much better informed about are the duties that we have and the regime within which NATS is operating. In these circumstances, our role is very clear, as an independent regulator: to review the application they make to us, to consider the various interests that the Act requires us to consider and to reach a reasoned judgment based on that.