4 The Prospects for the Company

20. So far, since the PPP, NATS has managed to generate enough cash internally to meet most of its investment needs, and the lack of access to bank funds has not been too serious. Its capital spending in the year 2001/02 was £64 million, not a great deal less than it had been planning before September 11th. It expects to spend about £50 million in 2002/03. The main immediate effect of September 11th on the NATS business plan was to postpone the opening of the New Scottish Centre at Prestwick from 2007, probably to 2009. But NATS has not stopped growing new capacity. In the near term the Company intends to increase the number of control sectors, to distribute the work amongst a greater number of controllers. A major exercise to give additional capacity in the North Sea is expected to come on stream in March 2003, to ease a current constraint there and to meet some military needs. The new management has used the last year to think through the risks and opportunities of investment in future systems and how NATS might collaborate with key partners in Europe. 22

21. NATS was reasonably confident that the current difficulties of a lack of external investment would not lead to a risk of demand exceeding capacity, as long as the financial issues could be resolved in the next few months, balancing the interests of existing and new shareholders, lending banks, the Government shareholder and employees. Following the CAA's decision on raising NATS' prices, the Company needed the financial solution to be finalised so that it could continue to move forward.23

22. The risks to the delivery of new air traffic control capacity are not exclusively financial ones. It appears that NATS does not have enough controllers now, even before an expansion in the number of control sectors. In summer 2002 it was 34 controllers short, though it hoped to reduce this shortfall to 12 by peak time this summer. Operational staff at Swanwick are owed, on average, 10 days annual leave, of which about half can be attributed directly to training to convert to the systems at this new centre. The Company has instituted a scheme to buy back outstanding annual leave on a voluntary basis. Around 120 staff have volunteered for additional overtime.24

23. NATS plans to increase the number of controllers from 1421 in 2001 to 1617 in 2011, but many controllers are due to retire in the next few years and the annual intake of trainee controllers will only be increased from 120 to 130. NATS considers that current trainee pass rates are unacceptable and its aspiration is to achieve higher rates and shortened training.25

24. The structure of the PPP provides for an exceptional user contribution in unforeseeable circumstances. The Secretary of State for Transport or the Civil Aviation Authority may apply to the Courts for an "air traffic administration order" on the same lines as in the rail industry. An order would give powers to the Crown shareholder in the event of a failure by NATS to meet its responsibilities. There is a wide range of things that could be done if NATS got into serious difficulties, but the Department felt it had reasonable grounds for supposing that a composite financial solution would be in place shortly. A return to public ownership looked unlikely.26

25. In March 2003 the Department informed us of revised financial arrangements for NATS. This solution envisaged a refinancing through the issue of long term debt in the capital markets.27

26. NATS is subject to safety regulation by the Civil Aviation Authority which licences its operations. We asked NATS whether doubts over safety at Swanwick were the reason why the Authority had given NATS only a time-limited approval to operate. NATS denied this, stating that they thought their approval from the Authority was indefinite. But it is clear from subsequent evidence that NATS approvals were time-limited until the Authority issued a permanent approval on 1st February 2003. The Civil Aviation Authority has since made it clear that their initial approval had been time limited because they had expected the new owners to make changes to the NATS' corporate management structure, and the Authority wanted to allow time for any changes to be identified and to stabilise fully. Following a satisfactory audit by the Authority, a continuous approval was given. The limitation was not associated with Swanwick or the general provision of a safe operational service.²⁸

27. Allowing aircraft efficient flight paths is an important aspect of NATS' operational performance. NATS has stated that it has not measured the extent to which it restricts the flight paths of aircraft through "height capping", including the extent to which this has increased since the new centre opened at Swanwick.29 But information from the European Air Traffic Control Agency Eurocontrol indicates that there was a marked increase in flight level restrictions from July 2002, when Swanwick faced its first summer of operation.30

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