Sustaining Improvements in NATS’ Performance and Financial Resilience into the Future

The UK Civil Aviation Authority has today published for consultation its price control proposals for the En Route part of NATS’ air traffic control business (NERL) for Control Period 3 (CP3), which will run for four years from 2011 to 2014. 

The proposals give NERL strong incentives to sustain into the future the much improved delay performance it has achieved in the current control period (CP2). The CAA proposes a target average level of performance at 12.5 seconds per flight with additional incentives to reduce the delay of the most delayed flights. This compares with average flight delays of around 25 seconds for most of the current control period. NERL will also be required to meet service quality standards during the period of the Olympics and Paralympics when several thousand additional flights are expected. To ensure NERL is able to sustain this high level of performance into the future the CAA is allowing for investment of £563m (outturn prices) for CP3. This is intended to deliver new systems that will enhance NERL’s capacity to handle traffic growth, as well as enabling it to play a full role in European technological development. This follows the significant capital expenditure programme in recent years culminating in the consolidation of operations at just two air traffic control centres in Swanwick and Prestwick. NERL has reduced its operating costs in CP2 and for CP3 the CAA is proposing an allowance for operating costs some three per cent tougher than NERL’s March 2010 Business Plan. The CAA is proposing a pre-tax real cost of capital of 7.5 percent which is 150 basis points below NERL’s estimate. However, some of NERL’s costs such as pensions are forecast to rise significantly in CP3 which, along with traffic levels in 2010 being lower than anticipated, will have the effect of causing an initial price increase in 2011. Thereafter prices would return to a downward path and by 2014 would be seven per cent lower in real terms than at the end of CP2. Commenting on the proposals, Dr Harry Bush, CAA Group Director of Economic Regulation, said, “The CAA’s CP3 price control proposals will be implemented around a decade after the part-privatisation of NATS and the subsequent financial and risk sharing arrangements (known as the Composite Solution) which followed the exceptional events of September 11, 2001. These arrangements have enabled NERL to fund its investment programme and deliver improved service quality for the benefit of customers whilst maintaining strong financial resilience. “The current economic climate and operating conditions highlight the importance of maintaining this financial resilience. The CAA is proposing to do so by imposing direct controls on the extent of NERL’s gearing, a shift away from the emphasis that has previously been placed on credit ratings.” The CAA is making these proposals before European regulatory arrangements under a Single European Sky (SES II) have been finalised. The CAA will take these European developments into account and expects to issue an update in July. Given the environmental and other benefits from having a flight efficiency metric, NERL has accelerated its work programme in this area and the CAA is hopeful that a metric incentivising environmental efficiency can be developed in time for CP3. The CAA expects to publish its proposals regarding the introduction of a flight efficiency metric in late August, following NERL’s work. 

 

Source: Air Transport News