Mr Bacon explained that he had difficulty in understanding the table in the NATS Annual Report and Accounts which sets out directors emoluments in the financial year 2001-02. The table is attached at Annex 1.
It would appear that Mr Bacon's reference to a 70% increase in what he termed the "cost of the upper range of management" is most probably a reference to the increase in payments made to directors between 2000-01 and 2001-02-ie the difference in the table at Annex 1 between £683.8k and £1,166.8k. The latter figure is a combination of £1,105.3k (the total for 2002 at the top of the page) and £61.5k (the total for 2002 at the bottom of the page).
As will be clear from the table, this 70.6% increase in Board costs is almost entirely accounted for by payments made in respect of compensation for loss of office (£311.3k), and the additional fees of the three Partnership directors appointed by the Government (£61.5k). The compensation payments were made to members of the NATS Board who were required to resign when the PPP transaction was completed, in particular to Sir Roy McNulty (who subsequently went on to become Chairman of the Civil Aviation Authority) and to Mr Bill Semple (who was subsequently appointed as a NATS Partnership Director). Both appointments were made through open competition.
At a recent annual conference of the air traffic controllers branch of the trade union, Prospect, a motion was passed criticising the "bonus payments" paid to Mr Semple and another senior manager, Mr Colin Chisholm. Prospect has since apologised to Mr Semple, because the union had advised Mr Semple (a union member) on the terms of his severance arrangements and had determined them to be fair. The union had also actively supported his candidature as a Partnership Director.
Prospect have also sought to distance themselves from misreporting in the media about bonus payments made to Mr Chisholm. The table at Annex 1 explains that Mr Chisholm received a bonus of £62.1k in 2001-02. £22.7k of this sum was for successfully achieving targets in relation to safety performance and delays. The operational performance of NATS in 2001 was exceptionally good, as was made clear in the foreward to the UK Airprox Board's Report for 2001. The Chairman of the Board, which is independent of NATS, wrote: "These latest [airprox] statistics show that trends on total airprox numbers in UK airspace continue to decline by small but important margins. During 2001 a total of 195 Airprox were filed for assessment. This figure is the lowest annual total since combined pilot/controller records began in 1990. Incidents involving Commercial Air Transport aircraft fell sharply to 82. Moreover there were no Risk A cases at all. Sixty-four were risk C-no risk of collision". We believe it is reasonable to provide a modest incentive to the head of the UK's air traffic control operation to maintain and improve flight safety.
We reported in our earlier memorandum to the Committee that there had been six NATS attributable risk bearing Airprox incidents in 2002, compared to nine in 2001. However, following recent assessments made by the UK Airprox Board of incidents earlier in the year, the total to the end of November has now been revised down to five. None of these were Risk A incidents.
Mr Chisholm also received a special bonus (£39.4k) for bringing the Swanwick Centre into operation in January this year. The development of Swanwick was the most complex project ever undertaken by NATS and, following serious technical problems in the mid 1990s, a number of steps were taken to get the project back on track. The turning point came in 1998 when Mr Chisholm was given the accountability for re-planning the project and managing the programme through to its completion. The plan presented by Mr Chisholm to the NATS Board in February 1999 achieved all of its major milestones in respect of software development, the programme of controller conversion training, and the schedule for project completion. Since completion, the system has continued to be robust in operation-the system having failed once in May, which is a far better track record than almost any other new computer system of equivalent complexity. Mr Chisholm received the bonus for successfully delivering into operational service a project costing £623 million, against the schedule agreed in February 1999. There have been problems with staffing at Swanwick this year, but our view is that a bonus payment for completing a project of this complexity and importance to the UK economy is appropriate.
The other director to receive a bonus in 2001-02 was Mr Nigel Fotherby. His main task in 2001 was to ensure that the company's role in the financial and project management aspects of the PPP transaction was conducted diligently and effectively. This involved an exceptional amount of work and the outcome, which resulted in proceeds to the taxpayer of getting on for £800 million, was reflected in a bonus to Mr Fotherby of £24.1k. There is no criticism in the National Audit Office Report of the role played by the NATS' finance team in determining the financial structure of the company.
It should be noted that the Annual Report and Accounts in question covers the financial year 2001-02. The general arrangements for the bonus scheme were thus set while NATS was still in the public sector, before the PPP transaction was completed. The scheme was contractual in nature and lacked any "ability to pay" clause, however the Report explains that, in practice, the 2001-02 bonus awards were scaled back reflecting the company's financial difficulties. The Report also makes clear that there was no general salary increase for managers in April 2002. This constraint applied to the individuals referred to above.
The inference in Mr Bacon's question is that NATS operates an unreasonably generous bonus scheme for executives and that this is a consequence of the PPP. This is clearly not so given the nature of the scheme and the sums involved. The current scheme is explained in more detail in paragraphs 4.15 and 4.16 of the NAO Report.