121. Do you think there is a case for night time radar investment over Edinburgh Airport, there is not yet the traffic. Do you agree if there was a big constraint on finances that that sort of project that would improve safety would not be done. It may not be done anyway.
(Mr Everitt) I would need to consider that. I do not know the circumstances about night time radar in Edinburgh.5
Mr Howarth
122. Ms Lomax, one of the Government's aims for the PPP was to improve management expertise in NATS and when you were answering the chairman's questions at the beginning of the session you made two points which I thought were useful in terms of giving some indication of how these things were measured. The first one is that you said one of the aims was to achieve a stronger commercial framework. I think rather than one answer perhaps over a number of answers you have given some clues to that. The second one was to improve greater efficiency. It would be helpful before I go any further if you could define for me what you mean by stronger commercial framework and if could you define what you mean by efficiency in this particular context?
(Ms Lomax) I was quoting when I used the words "stronger" and "commercial framework" from a memorandum Treasury sent to the Transport Select Committee in 1998, explaining why we were going for the PPP rather than the not for profit solution. I am not sure it is necessarily a word that I would use myself. What do I mean by greater efficiency-
123. I did not ask you to tell me where you were quoting from I asked you what you thought it meant in this context?
(Ms Lomax) I think it means an organisation which uses the resources at its disposal more effectively and more efficiently in perhaps some of the ways that Mr Everitt has been talking about this afternoon, that does not necessarily have the highest charges in Europe, for example.
124. That does not explain the commercial part of it at the time, does it? The definition you have given could apply to any organisation.
(Ms Lomax) Yes.
125. What was distinctive about this particular one?
(Ms Lomax) Commercial pressures come from the scrutiny of the strategic partner and the banks providing a demanding financial framework within which NATS' performance is assessed. For example the business plan is much more widely discussed now than it was in the public sector, people are scrutinising NATS' performance in a demanding sort of way and their ability to attract finance and maintain a good credit rating will depend on their performance. That, I think, is the sort of thing I had in mind when I was talking about strong commercial framework. Those sorts of disciplines come from seeking private finance in the financial market, it is very different from operating in a political competition for finance within the public sector.
126. You went on to talk about greater efficiency, it seems an obvious question and sometimes the answer does not line up with the question, what did you mean by greater efficiency? How would you measure that?
(Ms Lomax) There are a number of different ways of measuring efficiency. At the moment two thirds of the 5,800 people in NATS are not air traffic controllers. (Mr Everitt) We employ just under 2,000 people who are air traffic controllers, of which 1,400 are active, the others are in training. (Ms Lomax) No doubt eventually over a period of time the Airline Group certainly seem to envisage working towards an organisation which basically has more of the resources put into the frontline operation. That would be one way which it might make it more efficient.
127. Any others?
(Ms Lomax) I will ask Mr Everitt.
128. I will be interested in what Mr Everitt has to say however it was you who used the phrases and I was trying to test out what you meant by them.
(Ms Lomax) I was talking about the framework within which NATS was operating and the sort of scrutiny they were subjected to and the sorts of things that people would look at when they would decide whether NATS was performing well. They would certainly be looking at things like whether NATS brought on projects in on time and on budget and got benefits from them. That is what investors were looking for and it is something which it has not been successful at in the past.
129. Are you going to give greater clarity than that, Mr Everitt?
(Mr Everitt) Commercially, as the Permanent Secretary said, the accountability, particularly to the capital markets for the money that we seek and, indeed, to our shareholders is one way. I think we are highly accountable for our performance now, not only to those capital markets but much more widely. We have independent regulators in a way we did not have before, we have economic regulators, we have safety regulators and stakeholder councils, so there is very high accountability. That is part of commercialism. I also think we now have an opportunity to take some of our skills and expertise outside the company and seek to earn from those. We are doing that in a measured way, because these are not easy markets to get into, but I would expect over time we will make good progress in that area too. Procurement is another area. We have spent a lot of time this year improving our procurement arrangements. We have also brought much greater efficiencies in the way that we transact our human resources, our facilities management, we brought all those into single organisations rather than having them scattered all over the business. There is a host of things we are striving to achieve to get greater efficiency, which means greater return for each pound we have available to us. That is really the way I would characterise it.
130. I understand that you are in process of, you might have already introduced it, an executive bonus scheme?
(Mr Everitt) Indeed.
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5 Ev 29.