91. It was thought it would not at the time.
(Mr Glicksman) As the report says, the definitive view would have been subject to a detailed assessment because it would have depended how exactly the body would have been structured.
92. Mr Everitt, you have decided not to distribute dividends. Is that right?
(Mr Everitt) We are not in a position to distribute dividends but the position of the Airline Group as shareholder is that they went into this on the basis that they would not seek a commercial return on their equity. At the end of the day, it will be for the board and the shareholders to decide on dividend distribution. There cannot be a prospect of that for some years.
93. How happy were you taking on a structure where the debt was so large that you had to borrow effectively the entire cost valuation of the business from banks, such a small amount of 65 million effectively was put into buy it, the rest was all in debt to the banks?
(Mr Everitt) I certainly looked at it. From a personal point of view I came into this job on completion of the PPP and looked at the testing that had been done against scenarios in the first two years and whilst it was clearly going to be tight it looked to be doable. The real change, of course, has been the unprecedented down turn since September 11.
94. The aim or one of the reasons for doing this right from the beginning was the 100 million a year of new investment that it was estimated the system needed to bring it up to the modern standards and keep investing in it. Is that going ahead as planned?
(Mr Everitt) I have already answered that. We did 64 last year and we will do just over 50 this year. We clearly have to tailor our short-term capital investment to the circumstances in which we find ourselves, that is one where cash has had to be conserved while we go through the restructuring of our finances, part of which is the application to the Civil Aviation Authority.
95. Do you anticipate you will be able to keep ahead of the game?
(Mr Everitt) In our business plan in two years we are planning to spend in excess of 100 million, yes. We will get back on track and I think we will be able to manage the risks much better.
96. Ms Lomax, this is a huge undertaking, where a lot of modelling was given, where huge amounts of work went in, where £44 million of Government money was spent on advice and a range of decisions had to be taken. Do you think on the whole that we have ended up with a better, more robust structure than we would have had if the sale had not happened and there had not been any restructuring?
(Ms Lomax) There have been some very significant benefits from the PPP, even in the very difficult circumstance it has had to live with. For example every other air traffic control body in Europe and North America has responded to the down turn since September 11 by raising prices, sometimes by very significant amounts. That has happened because they are subject to economic regulation, which is part of the PPP process, and that is a significant benefit. I think that the whole PPP process clarified and strengthened the safety framework in an important way. You can say, well that was not absolutely necessary, but actually the process of developing the PPP meant that issues were addressed, like the safety frame works, in a way which I think put NATS in a stronger position. Those are just two examples.
(Mr Everitt) We have also been able to attract new management, as it were, to complement the existing management, and that has been an important development.
97. You have their services for remuneration.
(Mr Everitt) One has to attract the right people and that has not been easy in the uncertainty we have been in, but it is critical for our future.
(Ms Lomax) The real proof of PPP will come in the longer term because what it was really about was providing a sustained flow of investment, which is something you can never be assured of in the public sector because there is always the risk of capital rationing in circumstances which are way beyond the concerns of individual public sector bodies. Over a period of time you ought to see a more sustained flow of investment into NATS and that will enable it to grow a culture in which people who are good at project management can make a future, so we will get a stronger project management culture throughout.
98. Given the constraints that NATS has in its structure, really its income is in the price it charges, are you comfortable with the fact that the regulatory system assumes downward pressure on prices?
(Ms Lomax) I think that NATS had the highest charges in Europe by some margin as far as I can make out. Even allowing for the greater complexity of the airspace over the south east of England NATS charges are pretty high. It was believed in the aviation sector that there was scope for genuine improvements in efficiency. I think NATS has been under pressure to manage the position in the way that it has and it is not necessarily an unhealthy matter. The Regulator's first duty is to have regard to safety. I think that we have a framework which safeguards safety but also puts serious pressure on NATS to be more efficient.
99. Mr Everitt, are you happy with that? (Mr Everitt) Yes, I think the regime that we have
asked for-which is the RPI-2 for each of the next three years with an indication that that sort of level will continue into the next five year period, which starts in '06-is a reasonable balance and will keep pressure on the business for efficiency. I think that is what our airline customers expect, indeed they hold us out as the model. If you talk to IATA or any of the representative groups this is the way they want to see air traffic control in Europe go. As the Permanent Secretary said we reduced our charges last January and we will reduce them this coming January. Very few major suppliers in Europe have done that. The average increase last year in Europe, last January, was 12% in a very depressed aviation scene.
Geraint Davies
100. On that last point, Mr Everitt, am I right to say all of the prices went up just before NATS was sold off? I am right, am I not? The charges to airlines from NATS increased before the transaction occurred?
(Mr Everitt) I have no idea. Not that I am aware of. I do not think so.