HL Deb 29 March 2001 vol 624 cc439-67

4.28 p.m.

The Minister of State, Department of the Environment, Transport and the Regions (Lord Macdonald of Tradeston)

rose to move, That this House takes note of the progress in addressing concerns and explaining and implementing the public private partnership in relation to National Air Traffic Services, as established by the Transport Act 2000.

The noble Lord said: My Lords, during the final stages of the Transport Act in November last year, amendments were made to defer the implementation of the planned public/private partnership for National Air Traffic Services Limited until three months after Royal Assent. I said then that the Government remained firmly committed to setting up the PPP but that we undertook to use the time to consult interested parties further on the detail of the proposal and to report back to Parliament at the end of that period. The Government have placed a copy of their report in the Libraries of your Lordships' House and of another place.

In our previous debate, the noble Lord, Lord Brabazon of Tara, suggested that we would also use the lime to select the strategic partner for NATS, and so we have. As announced on Tuesday, the Government have selected the Airline Group as their preferred bidder for NATS. I shall refer further to that in the course of my remarks today. I know that the selection will be a matter of considerable interest to your Lordships.

I should like, first, to remind your Lordships of the commitments that we made on the 29th November and to illustrate how we have met them. We assured the House that we would, in consultation with interested parties, work on the detail of the PPP and make sure that we had got it right. We undertook to ensure that all concerned fully understood the proposals, and that action was taken to deal with the real concerns that had been expressed.

As we promised, we have consulted air users both through meetings and through written consultation. Commercial airlines, business aviation, leisure flyers, passengers and airport operators have all been given an opportunity to air their views. The general message was that there should be safe, efficient and economic provision of services and management of airspace, supported by proper consultation by NATS on a continuing basis about strategic and detailed operational matters, and that there should be no discrimination in the provision of services. That is a message with which the Government agree, and there are safeguards in both the Act itself and in the air traffic services licence—which is enforceable through the Act—to ensure that safe, efficient and economic services are provided, and that airspace is managed in a way which recognises the legitimate needs of all classes of user.

Membership of the stakeholder council—the formal body for consultation on strategic and policy matters—was discussed at a meeting between users and Ministers, and I can assure your Lordships that users, and in particular general aviation—including leisure flyers—will be properly represented on it.

We attach particular importance to fulfilling our commitment to talk to staff and their representatives. We have brought the unions and the bidders together: a team of IPMS and PCS members met members of the three consortia who submitted final bids in January and took the opportunity to discuss a range of staffing and strategic issues with them. We have continued to hold meetings with the unions on matters of concern; and my colleagues and I have visited NATS' main sites to talk to staff at all levels and address their concerns.

With the leave of the House, I shall dwell a little on the matters discussed there. To my regret, the unions are still not in favour of the PPP, although I was pleased to see that they welcomed the choice of the Airline Group as the preferred bidder. They expressed concern that the PPP may prove incompatible with safety, notwithstanding the safeguards that the Government have put in place. The unions' commitment to safety is admirable and we all share it, but I trust that they will come to appreciate the efforts of noble Lords here today in strengthening those safeguards and in enhancing the benefits of the PPP.

The safeguards are enumerated in the report, but I briefly remind your Lordships that the safety matters covered include: the separation of regulation from service provision; a statutory obligation on the Government and the CAA to set safety ahead of all other regulatory considerations; a statutory obligation on holders of air traffic services licences to provide a safe system; powers for the CAA to direct a service provider, in the interests of safety, to provide such services as the CAA considers appropriate; and the establishment of a board-level safety review committee within NATS which will be chaired by a government-appointed partnership director.

Safety is paramount for all of us. We do not accept that private sector status is incompatible with the maintenance of the highest safety standards, but we have none the less done all that has been asked of us, and more, to protect safety. We believe that we are putting into place a robust safety structure in which we can all repose confidence. We can be sure that the Airline Group will have every incentive to operate a safe system.

We believe that we are putting equally robust safeguards in place to protect the public interest and national security. I can assure your Lordships, as I can assure NATS trade unions, that the Ministry of Defence has worked with my department in developing many of the details of the public/private partnership. The MoD's contribution to key issues such as the legislative provisions in respect of crisis, war and emergency; the institutional structure for airspace policy—especially the air navigation directions to be given under Section 66 of the Act; the air traffic services licence; and the evaluation of the bids for the PPP has been considerable and very welcome. The joint, integrated provision of services will continue and there will be no discernible change after the PPP is set up.

National security is well protected through the Act and the wider PPP framework, as the report describes. The Government are taking extensive powers through the Act, through certain provisions in the air traffic services licence, through the appointment of partnership directors, and through the strategic partnership agreement and the golden share provisions to ensure that we can influence NATS whenever and wherever the wider public interest dictates. The PPP will free NATS from those public sector controls which are inhibiting its development, and the strategic partner will control the day-to-day running of the company. This is very far from being a cut and run privatisation.

The main "public sector control" which is inhibiting NATS—and arguably UK aviation—is, of course, the financial one. I can assure your Lordships, and NATS staff, that we have made very sure that our preferred bidder is committed to making the investment we need, and has demonstrated the ability to take the investment programme forward. As we have said many times, NATS' operational skills are second to none, but there is room for further improvement in areas such as project and investment management. Our preferred bidder, the Airline Group, will strengthen NATS' skills base in these and other respects.

Commitment to making the investment is, of course, crucial. The strategic partnership agreement will bind the partner to the investment programme. But I remind your Lordships that we have also made provisions within the initial price controls so as to make doubly sure that there would be a smooth transition to the PPP, and that management could focus on getting the change and investment programmes right during the early years. Even though the CAA had made allowances in the price cap it recommended to me, I set a somewhat lighter price control in the early years of the PPP.

Perhaps I may refer briefly to other measures that we have put in place to protect—

Lord Clinton-Davis

My Lords, before my noble friend continues, will he explain why NATS, as presently constituted, could not do what he wants? It may be that some change in legislation would be required, but the point is fundamental in our assessment of what he has to say.

Lord Macdonald of Tradeston

My Lords, if I understand the noble Lord's question, it relates to an area that we have debated thoroughly in this House on many occasions; namely, the concern that over the span of initially a decade and beyond, with the vagaries of public financing, it might not have been possible given the competition with other priorities in government to ensure that NATS had the necessary level of investment and could produce the value for money required by the Government in that time.

Perhaps I may proceed to the other measures that we have put in place to protect the interests of NATS' staff. In addition to the measures that I have mentioned, we have safeguarded membership of the CAA pension scheme—or a scheme identical in all other material aspects—for existing NATS' staff. We have ensured that no individual member of the scheme is materially worse off as a result of the restructuring of the scheme. We are making 5 per cent of the equity in the NATS PPP available to staff in acknowledgement of their contribution, past and to come, to the success of the company, including an initial gift of £500 of employee partnership shares for each and every member of staff; and the staff will be represented on the stakeholder council.

When I visited them recently, staff at Prestwick welcomed the legislative guarantee that the new Scottish centre would go ahead, but sought our assurances over the services that the centre will provide. The new Scottish centre will service the Scottish flight information region, which is part of the UK's national airspace, and the oceanic region, and will provide contingency cover in case of systems failure at Swanwick or West Drayton. I can assure your Lordships, and NATS staff at Prestwick, that the Airline Group is committed to the two centre strategy of which the new Scottish centre is an integral part.

We are committed to the PPP and our selection of the Airline Group as preferred bidder is a key milestone in the implementation of the Government's transport strategy. We have, throughout the process, listened and responded positively to the concerns expressed by NATS staff, by the aviation industry, by your Lordships and in another place. We have subjected our proposals for the PPP to continuous scrutiny, and we are satisfied that the PPP is the right course of action. It will contribute to safety by effecting complete separation between regulation and service provision, keeping regulation in the public sector and in the hands of an experienced regulator with wide-ranging powers; ensuring that NATS has access to essential investment capital, outside the bounds of government control, to maintain existing safety standards against predicted increases in traffic levels; and by bringing in new skills to improve NATS' project management capability.

The PPP will also allow long-term investment planning unhampered by government spending constraints. The contract that we have signed with the Airline Group will secure over £1 billion of investment in NATS over the next 10 years, with an accelerated programme to deliver the great majority of that spending in the first seven years. It will also provide the right structure of incentives and disciplines to maximise efficiency through economic regulation; introduce new management skills—for example, in investment and project management—to supplement NATS' operational strengths, and develop best private sector practice; provide NATS with the opportunity to develop its business, for example, by expanding overseas; and provide greater transparency in charges.

In the Airline Group we have selected a preferred bidder who will help us achieve all our objectives from the PPP, and who will bring their expertise and commitment, as users, to this partnership—a commitment that includes commitment to a high standard or safety. After all, who has greater interest in robust safety management than air users who depend on the provision of safe and efficient services? They will provide the management capability and investment to ensure that NATS can continue safely to meet the growing demand of air travellers in the future. They will also introduce appropriate management skills to NATS while maintaining good industrial relations. The Government look forward to working with the Airline Group to provide a highly successful future for NATS through a true partnership between the public and private sectors. I beg to move.

Moved, That this House takes note of the progress in addressing concerns and explaining and implementing the public private partnership in relation to National Air Traffic Services, as established by the Transport Act 2000.—(Lord Macdonald of Tradeston.)

4.42 p.m.

Lord Trefgarne

My Lords, the House will be grateful to the Minister for introducing his Motion this afternoon. He undertook to do so during the passage of the legislation a few months ago. Speaking for myself, I support the privatisation of NATS—and, I believe, that I speak for all of us on this side of the House. This is not, of course, full privatisation; it is partial privatisation. None the less, it is welcome.

I was most grateful to the noble Lord, Lord Marshall of Knightsbridge, who was good enough the other day to invite me and my colleagues from the Popular Flying Association to a briefing on the proposals, which we found most impressive. Of course, general aviation did not take a position as to which of the various bidders was the one we preferred; indeed, that was a matter for others. However, what we heard from the Airline Group, as those involved have come to be called, was certainly impressive. Whatever one may think of the various proposals, they will all end up by bringing more capital and investment into NATS. That is clearly very much to be desired and welcomed.

However, there is one matter that has not as yet been satisfactorily resolved. I trust that the Minister will be able to give me some assurances in that respect. The noble Lord will not be surprised when I remind him of the problems of general aviation just outside controlled airspace which, in some areas. presently enjoys the provision of what is called the "lower airspace radar service". NATS has no duty to provide that service. It is not provided for in the licence that will be issued. However., it is fair to say that it does provide such a service in a few cases where the facilities available enable it to do so. I am told that something like £1 million or £1.5 million a year is spent on the provision of that service, but it is far from comprehensive. It is not available everywhere. Moreover, in a number of other areas, that service is provided by the Ministry of Defence where it can be obtained through the radar facilities available to the RAF or Royal Naval aerodromes.

However, the provision of the lower airspace radar service is steadily reducing these days. A number of services have been withdrawn in recent months and years to the considerable concern of the general aviation movement. It is said that the problem arises from the fact that there is no money for the provision of the service; that general aviation would not be willing to pay for it; and, that, therefore, it must he withdrawn. I am not sure that the Government are right in that view—if, indeed, that is the view that they take. Through the duty on aviation gasoline, general aviation provides between£10 million and £12 million to the Exchequer each year. I am told that the Chicago Convention, which governs such matters, provides that that revenue ought to be used for the provision of aviation infrastructure. So we do have a problem with the provision of the lower airspace radar service—

Lord Hoyle

My Lords, I find it something of a contradiction in terms when the noble Lord says that he is in favour of complete privatisation, but then proceeds to make a special plea for such a service to be provided for nothing.

Lord Trefgarne

My Lords, I am not for one moment saying that it should be provided "for nothing". I was just explaining that it ought to be paid for by the revenue already provided by general aviation for that very purpose. As I said, the duty on aviation gasoline—the fuel largely, but not exclusively, used by general aviation aircraft—generates a revenue of between £10 million and £12 million a year to the Treasury. Under the provisions of the Chicago Convention, that revenue is supposed to be used for the provision of aviation infrastructure. I hope that it can be so used.

We should be quite happy if NATS had a duty to provide such a service. Of course, there would then need to be a mechanism for providing the revenue; it cannot be assumed that the airlines would be willing to pay for all of the service. Indeed, that would not be right. However, to some extent, the service is to the benefit of the airlines in any event. Therefore, there is room for discussion on that point.

I am more concerned that the lower airspace radar service should be operated one way or another. I give way.

Lord Clinton-Davis

My Lords, I am obliged. Can the noble Lord explain how the airlines would benefit from what he said? That is an absolutely crucial point.

Lord Trefgarne

My Lords, the interface between non-controlled airspace and controlled airspace is one in which the airlines are very much interested. There is an interface, for example, in the Stansted area, where there are real problems with integrating general and commercial aviation, which is not covered by the provision of the services available from so-called "Essex radar". The latter provides no service for general aviation. Thus there is an interface between the boundary of the Stansted area and where general aviation operates which is causing great difficulties, both for commercial air transport and for general aviation. Indeed, I have been in discussion with the Civil Aviation Authority and NATS as to how we can resolve the matter. As it happens, there are no military aerodromes in that particular region, so the service cannot be provided in that way.

There is a problem with flights outside controlled airspace. I agree that that is largely an issue for general aviation to resolve. However, as I said, there is an interface between general and commercial aviation. Another example is the Luton control area, where there are difficulties as to the provision of the services for general aviation and where it would be of benefit to commercial aviation if the interface could be made more "user friendly", if I may use that expression.

I recognise that there is no case for a large contribution from NATS—which, inevitably, comes from the commercial airlines—for the provision of services for general aviation. However, I believe that there is considerably more scope for co-operation between the two at no real cost to either, which would provide a more efficient and effective service. In any event, there is a significant revenue stream available from general aviation that comes from aviation gasoline. Of course, no such revenue derives from commercial aviation because, by and large, it does not operate on gasoline and the turbine fuel is not taxed in the same way. I hope that the Minister will take that into account when deciding what steps he can take to resolve the problem.

4.49 p.m.

Lord Smith of Clifton

My Lords, I, too, am grateful that the Minister has fulfilled his commitment to report back to us three months after the passing of the legislation. By any measure, this has been a particularly bad week for government transport policy—not, for that matter, that there have been many good ones. It has been especially bad for that part of their policy which is based, if that is not too strong a word for so shaky a concept, on their PFI/PPP schemes. First, there has been the damning report from the National Audit Office, which heavily criticised both Conservative and Labour governments for the way in which PFI has been applied to the financing of the Channel Tunnel rail link. Creative accountancy of a de Lorean kind seems to have been adopted to fudge the figures. That comes as no surprise.

Lord Clinton-Davis

My Lords, I am grateful to the noble Lord for giving way. Many of us are very tempted to explore the possibilities with which the noble Lord has prefaced his remarks. But I do not believe that it is an advantage to put together all the aspects of part privatisation or nationalisation. Each issue ought to be considered on its own merits. I believe that the noble Lord is inviting the House to come to a conclusion about forming a view on the whole issue.

Lord Smith of Clifton

My Lords, the noble Lord, Lord Clinton-Davis, may be anticipating that that is what I am going to do, but I am developing a point which has direct relevance to the development of the NATS/PPP. Such fudging is implicit in all PFI/PPP schemes precisely because they themselves are the result of an intellectually flawed idea: the underlying premise is incoherent. The cost overruns, which private sector management techniques were alleged to prevent, have been very considerable. The risk of such overruns were meant to be borne by the private investors. That has been one of the central claims made by the advocates of the PFI/PPP. In reality, the small print escape clauses now require the public to pick up the tab. It appears that the private backers in PFI/PPP schemes are in an almost win-win situation.

Secondly, this week has seen the collapse of the talks between the DETR and Mr Bob Kiley, the Transport Commissioner for London, over the future funding and management of London Underground. The Government have doggedly stood by their PPP proposals to fund Tube modernisation which the highly expert Mr Kiley condemns as highly flawed and unworkable, and place the travelling public at very great risk in terms of safety. That is his opinion. It is one that is supported by those papers which have seriously investigated the matter. Earlier, Mr Hague, seeing the way the wind was blowing for once, thought it prudent to U-turn and reversed Tory policy for privatising the Tube.

Thirdly, we have today the announcement that the airlines consortium has emerged as the "preferred bidder" for the Government's PPP for the National Air Traffic Control Services.

We on the Liberal Democrat Benches have been alone in our total opposition to taking NATS out of public ownership. No good argument has ever been advanced for the privatisation or part-privatisation of NATS. However, in the light of the dogmatic stance of the Chancellor of the Exchequer that NATS would not continue to be funded by government, even though that is by far the cheaper option, we pressed, along with others, that a not-for-profit public trust along the lines of NavCanada was the next best option to public ownership. We stood by our guns and, in the event, almost alone, we divided your Lordships' House on the issue.

In selecting the airlines consortium as their preferred bidder, by their own standards the Government may well have fallen between two stools. On the one hand, they have belatedly acknowledged the weight of public opinion and the views of the relevant unions because the consortium appears to be offering itself as a "not-for-profit" undertaking, whatever that may mean operationally. Is this another de Lorian-type gimmick? Perhaps the Minister can enlighten us. How will he guarantee that other airlines, which are not part of the consortium, will not be discriminated against? After all, the consortium can raise air traffic fares and that is merely a bookkeeping transfer in their own accounts, but it will bear heavily on the profitability of other airlines.

On the other hand, during the passage of the legislation setting up the Act the Minister made much play of the need to bring in private sector techniques in the management of NATS: indeed it was his only tune. Yet clearly he has not chosen the best bidder on this criterion. The recent commercial performance of many of the airlines involved has not been good and they possess no relevant experience. Moreover, the Government's choice breaches the cardinal business principle that users of services should be separated from the suppliers. There is a real risk that we shall see a repetition of the ill-fated attempts to let British shipowners run the lighthouses.

The Novares Consortium, led by New Zealand air traffic control, which is one of the most technologically advanced and profitable in the world, would have been more likely to introduce the private sector techniques that are so slavishly worshipped by the Government. How does the Minister reconcile the choice of preferred bidder with the earlier stance he took so strongly as regards both the management techniques he wanted and the importance he attached to the incentives provided by the profit motive which he staunchly asserted would add to safety in the air?

More importantly—and this is the crux of the matter— how do the Government think that they will be better at negotiating this PPP than they have been in the past as the NAO report demonstrates? Neither do the protracted and excruciating negotiations over the London Underground give grounds for confidence: indeed, quite the opposite.

Quite specifically, I ask the noble Lord the following questions. How will he avoid get-out clauses in the small print of the contract so that the private partners can evade their financial commitments? In the negotiations, will the future strategy for air traffic control be based on explicit criteria for measurable improvement? How will that strategy regain the position of the United Kingdom as the best air traffic control system in Europe—it has slipped because of the confusion and procrastination over the future of NATS—which will be necessary as a competitive advantage in the negotiations for the creation of an integrated European control system?

These questions must be answered and the Government must really smarten up their act if this NATS/PPP is not to go the same way as the Channel Tunnel rail link. The deal must not just be allowed to evolve.

4.57 p.m.

Lord Shore of Stepney

My Lords, I do riot wish to be churlish, so I should like to begin by congratulating my noble friend on fulfilling his promise to the House to come back, after a decent interval, to present his proposals to us. I believe that is almost the Fast word of comfort that I can offer him. I believe that he has made a serious error and he has not explained it. It would be of great service to the House and the public if we were able to get to the bottom of this extraordinary enterprise. Why are we changing fundamentally a system which, on the whole, has performed remarkably well? What is the case for breaking up a system which quite clearly gives enormous priority to safety, which is recognised as such, and which gives great confidence to pilots, air controllers and the general public?

Why are we making this radical change and introducing a new element, a so-called strategic partner which, once it has been done, opens the door for further change? I noted what my noble friend said about golden shares and so on, but I am not sure that they are not shortly to be outlawed by the European Court of Justice. They are not universally accepted in the European Union. We may well be opening the path to what the noble Lord opposite would welcome; namely, full privatisation. There is case for it, but I find it very difficult even to begin to formulate a case, as did my noble friend in his opening remarks.

What reasons have been put forward? I think we have had two. The one in which the greatest investment has been made is the alleged costs of maintaining a modern system of air traffic control. Quite frankly, that is wholly unconvincing. We are rolling in surplus money and redeeming the national debt because there is nowhere else sensibly that we can think to put that money. Many years ago I was in charge of our air services and, heaven forbid, president of Eurocontrol for a short period. In my view, more sensible policies were being pursued in those days. There has never been a problem of financing the modernisation of the air traffic control system.

However, we have a problem and we all know what it is. The massive investment that was put into the modernisation via the Swanwick development has been delayed for so long that it has put us, and particularly our air controllers, under severe stress. I believe that it is at last to begin to come into operation later this year. That undoubtedly will be a vast improvement and a great release from the strain. But that, apparently, is not good enough. The moment the new regime is put in place it is intended to scrap the system which will have been inherited, and over a seven-year period replace it with another system whose reputation, provenance and nature I know not of, nor does the Minister I suspect, or anyone else. The new system may be even less successful than the inherited system which will be scrapped. As we said, that will cost £1,000 million over a seven-year period. Financing is, frankly, not a problem. We must lay that on one side.

But having done that, the question then arises: if that is not the reason, what is? My noble friend hastily asserts—although, to be fair, he has said this on other occasions—that it is not just a matter of important investment, but of project management skills. I am not overwhelmed by that argument. It is a shot in the dark. Project management skills in this vast area on the frontier of technology are very uncertain. I seem to recall that British Airways, for which I have normally a high regard, suffered a crashed computer system worldwide only a week or two ago. I am not saying that that would happen if it took over air traffic control, but it is no good just asserting that we shall have better project management. I cannot accept that as a convincing argument.

I turn to the scheme which my noble friend has put forward. I suppose one could say that it is the best of a bad lot. Of the bidders at least this one has adopted the guise of non-profit making; that is, it will not seek to make commercial profit pressures, or rather avoidance of loss pressures—that is what the problem would be—a factor in making its decisions. To that extent, safety will have overriding priority.

But there is another factor. My noble friend will recall his Written Answer to a Question tabled by my noble friend Lord Brett as recently as 23rd January when he was asked about the efficiency charge, as it were, the cap, that the CAA will in future impose upon the new NATS or its successor. It is, of course, to be a so-called "efficiency saving". Something like 5 per cent per annum must be, as it were, provided for. I am not quite sure how the calculation is arrived at, but nevertheless if the operator experiences delays or falls down on its performance it will be subject to pre-agreed penalties amounting to 5 per cent—of precisely what I do not know—in money terms, rising to at least £5 million in three years' time.

I do not like the process of imposing penalties for delays and poor performance when safety is the overriding consideration. Railtrack gave a terrible demonstration of what happens if penalties are threatened. Operators cease to give safety the overriding consideration that it should have. I know that my noble friend will say, "I have slightly eased the proposed regime". However, I am not sure whether that is good enough. I should certainly like to hear much more detail as regards why he feels confident that that is not a factor which need concern us.

I have tried to think about this whole problem. We know that there will be a great increase in air traffic over the next 15 years, as there has been over the past 20. That is nothing new. We must cater for that. We are also aware that flights can be delayed. Only yesterday in the newspapers there was a list of charter flights that had been delayed. Scheduled flights may also be subject to delay. Clearly we want to have as efficient a system as we possibly can. What are the factors that make for efficiency? How relevant is the formation of the new partnerships company to those factors?

If I may detain the House a little longer, I would say that there are two categories which have to be considered with regard to safety. First, who regulates the air routes across Europe, of which the United Kingdom obviously is part? Who determines the space between one air corridor and another? Who determines the frequency of flights and take-offs? Those matters comprise the very core of regulation.

As I understand it, we are about to hand over that regulation to a European authority which has hardly featured in our debates. Eurocontrol is almost on the eve of being handed over to a body, basically the European Commission—no doubt it will give itself a slightly different title—which will acquire at once majority control over all decision-making in Eurocontrol. It will cease to be an intergovernmental body and will become an extension of the European Union's common policy. Is it not odd that we have not had a word of explanation of how that fits into the present scheme of things? Perhaps it does not fit in at all.

Let us face the fact that the regulations that will now be made by majority decision by the new Eurocontrol will be one of the key ingredients in achieving safety, regularity and good service for Britain in its traffic with Europe—and not only with Europe because the new body will take over negotiating our air traffic rights with countries outside Europe. We fly occasionally to places like North America, South Africa, Australasia and elsewhere, do we not? Why should all that fall into the hands of the European Union with its offensively described "single European sky"? I have never heard such nonsense as a "single European sky". There is a global sky of which we are a part, and there is a British sky which is a component in it. The European sky is a fiction. It is simply another example of the endless ambition of the European Union to take over every aspect of our national life.

I have mentioned the major factor of safety in air service provisions. I wish to touch on a few others. Do we have enough air traffic controllers? Will numbers be a problem? We have enough, just about. The figures are quite promising. We had 1,162 controllers in 1991; the number rose to 1,700 in 1997; and at the beginning of this year the figure was 1,957. That is a fairly large increase. Looking to the future, the number of air traffic controllers under training has been increased by about 50 per cent. So handing over NATS to a new body, with the new system introduced for European air traffic, will have no effect on one of the key components—the supply of air traffic controllers. That is in hand. It is doing very well, thank you, and does not need to be disturbed.

What about other factors? There is the possibility of considerable adjustments and savings of space if we can get the right regime between civil and military air use. But that is a British internal problem which is not to be decided outside these shores by Brussels. Indeed, it could have quite serious implications for our defence, military planning and general secrecy. The noble Lord, Lord Tebbit, intervened recently to point out that British air space stretches to about 20 degrees west. In other words, it covers a large area of the Atlantic particularly sensitive to American military transport. To have all that brought within a Brussels civil regime and reported on will not necessarily be welcomed on the other side of the Atlantic. No doubt we could make improvements in dividing our space between civil and military use. But that is now wholly within our own authority and capacity to deal with.

In the last annual report of NATS, the figure for delays in taking off over the UK was 23 per cent down in the year 1999. That is quite remarkable. It was 24 per cent up on the European continent. Most people accept that density and overcrowding of the skies is on the continental side rather than over the British Isles or Scandinavia. So that factor does not affects us directly, although perhaps indirectly.

On safety, it was good to have the NATS report that despite the increase in air traffic the number of so-called air proxies—the near misses; the worrying ones—has decreased in recent years.

The only factor which would greatly affect the adequacy of air traffic facilities, and so on, in Britain is airport policy. If we had more airports we would have potentially less overcrowding. If we had more runways, we might also achieve the same effect. But I know nothing about proposals for increasing that capacity. It has nothing to do with the proposals that the Minister has brought before us. So I am left with a genuine puzzle. What on earth is all this about? One does not undertake an exercise simply for the fun of humiliating the Chief Secretary to the Treasury. There must be a more serious purpose. So when the Minister replies, will he please give us some of the information that this debate lacks so desperately?

5.16 p.m.

Lord Brett

My Lords, like other noble Lords I welcome the content of the Minister's statement. My welcome may not be echoed by air traffic controllers. They may probably have had a sense of relief that the choice made was the most sensible of those available. I think that they would have agreed with many of the sentiments in the early part of the speech of my noble friend Lord Shore of Stepney. They would have admired his tenacity in fighting this single battle on so many fronts. They would probably not have agreed that all air routes lead to Brussels; and my noble friend may have lost them somewhat towards the end of his contribution. However, my noble friend asked a number of questions which I am sure the Minister will be delighted to answer. It will relieve me of the temptation so to do.

We have heard about choices made and legislation already enacted. That is why I do not feel tempted to reopen arguments. That does not mean that the policy adopted by the Government was the correct one. However, in the aftermath of that decision, the Airline Group has put together a proposal which has borrowed a number of features some of which are in the Canadian model to which some of us were very attached. The Government have declared it to be a not-for-profit model. To be fair, some of the airlines in the consortium have been "not-for-profit"—but on those occasions it was accidental. On this occasion, it is more deliberate.

There is a slight problem about the 5 per cent shareholding in a not-for-profit organisation. I urge the Minister to ask the Airline Group and the trade unions to discuss fairly quickly how that conundrum is to be resolved.

By instinct and training, air traffic controllers do not dwell on the past. It would not be in the interests of those of us who fly if they spent their time worrying about the flight that passed 20 minutes ago and had already landed. They move on. I believe that they will move on from the legislative decision to have a PPP. They will be greatly relieved, and will have greater confidence, that they have in the strategic partner in the Airline Group those with a vested interest in safety and those who have given assurances which are believed in terms of long-term investment. In the main, airlines have a long-established and reasonable record of good industrial relations. It is a record built on the exchanges between strong trade unions and strong management. I should be happy to see that continuing in the future.

Air traffic controllers to whom I have spoken in the past 24 hours have some concerns. In so many cases where there are franchises—from railways to proposals for commercial television—what is said on the first day of a company creation, or bid, may not be repeated two to three years later.

Comparing the three bidders, the trade union representatives and their colleagues were impressed by the fact that the Airline Group does not have an exit strategy. To use an aviation term, it is in there for the long haul. It is a bit churlish to say that we have made the best of a bad job. The group has a better track record for the future than that—if it is possible to have a track record for the future. It is willing to give a good account of the air traffic control operation. Issues such as the distance between flight levels and the ordering of airline take-offs and landings are operational, not regulatory matters. We have to concentrate on ensuring that the operation is safe and expeditious, in that order. In that sense, because of the Airline Group's enlightened self-interest—its members carry the passengers and they watch each other hawkishly—there is a good prospect that it will make a success of the operation.

Like some of my noble friends, I should have preferred it if we had not gone down this route but, given that we have done so, the Minister has handled it with commendable skill in this House and outside. From a very difficult situation, he has put forward a proposal in which I have more hope and faith than I had three months ago when we last debated the subject.

5.21 p.m.

Lord Clinton-Davis

My Lords, first, I ought to declare a number of interests. I am a former aviation Minister and served under the guidance of my noble friend Lord Shore. I looked after transport and the environment in the European Commission. I am also President of BALPA—the British Airline Pilots Association.

I should come to the rescue of my noble friend the Minister, although I do not really have to do that. My noble friend Lord Shore attacked him for not having put forward a policy on airports, but he is proscribed from making the most important decision of all—on Heathrow. He cannot say whether he supports a fifth terminal. My noble friend is entitled to the benefit of my defence.

I have listened carefully to the Minister. He has not totally convinced me that NATS should be completely changed. I should have preferred the solution that commended itself to previous Labour Governments and to my noble friend Lord Shore of making no essential changes to NATS. Of course some changes can be made, but it is a mistake to change the personality, so to speak, of NATS beyond anything that we recognise.

It is important that the public interest should be underpinned. We may require additional legislation for that. That may be the province of my noble friend the Minister. However, although I would have preferred NATS to be financially supported and improved in the manner that I have described, it is clear that NATS and its staff are prepared to go down the route that the Minister has outlined today.

The airlines that have formed the Airline Group have given a great deal of thought to what can be achieved to ensure their safety and that of the passengers whom they carry. As I understand it, the Conservative view is that everything could be left to the free market. I hope that I am not doing the House a disservice by mentioning the possibility that that view could prevail. I do not think that it will. It is not viable or acceptable to public opinion. The British Market Research Bureau conducted a poll in October 1999 with a sample of 1,019 adults—over 16—across the UK. It found that 72 per cent opposed privatisation, while 16 per cent supported it. Some 84 per cent came to the view that air safety should be the priority for air traffic control. That underlines what the Minister said today. In addition, 68 per cent believed that air safety standards would be damaged by privatisation. Those views still apply today.

The Minister has said—in no uncertain terms—that air safety must never be compromised. If there is to be a change, what route should be followed? As I have already said, I would prefer no essential change. However, there is an urgent ongoing need for parties such as the Airline Group, the stakeholder council and the flight crews to come together before the idea is cemented. Their involvement is key to the issue.

The Airline Group has declared that it is a not-for-profit organisation. That will be totally different from all other bidders. It is very important to emphasise that. BALPA, of which I am proud to be president, strongly approves of that, as does the IPMS, of which my noble friend Lord Brett was the general secretary until he took his place in this House. The group should be held to that in no uncertain way. I trust that the Government will take that view and I look to the Minister to reinforce that point when he replies.

As I said, I have finally come to the view that the Airline Group put together a reasonable bid. I came to that view for seven reasons. I am sorry to weary the House with them. First, the income from air traffic control would be re-invested, not channelled to shareholders. Secondly, the group would provide a stable structure in terms of finance and technology. The Airline Group's partners are committed to the long term, particularly in the area of finance, which is crucial for investment. Thirdly, as all noble Lords who have spoken in this debate have acknowledged, the group would provide the greatest expertise in terms of managing the UK's congested, capacity-constrained airspace. Fourthly, the Airline Group would reinforce and extend the safety culture that makes NATS a world leader in terms of safe and efficient ATC management. Fifthly, it would put the UK's ATC system first. However, in the longer term, the Airline Group would seek to develop "unlicensed business"—I stress that I use those words with quotation marks—overseas. Sixthly, I hope and believe that the company will provide an inclusive stakeholder council with input from controllers and pilots. We heard something about that today. Seventhly, the group would emphasise the need for better people management as the key to delivering a successful partnership.

Finally, I turn to the question of conflicts of interest, which is raised in today's Guardian. There is no essential conflict of interest so far as the Airline Group and good air traffic control is concerned. I also believe that the matter is minimised by the way in which the group put forward its bid. Importantly, it offers stewardship of the United Kingdom air traffic control resource through its most committed customers and users. The group has a fundamental and inherent interest in maintaining and upgrading the air traffic control system.

As I said earlier, although I should have preferred us to go down the route that I have described, I commend my noble friend for listening carefully to what controllers and pilots have to say on this issue. However, they, too, would have preferred the situation that I referred to earlier. They have been careful to demonstrate that they could accept the route that the Minister has taken. I commend him for going to airports and listening to air traffic controllers and pilots. As he recognises, they are in the front line.

5.35 p.m.

Lord Hoyle

My Lords, I have made my position on this subject perfectly clear. I was in favour of NATS remaining in the state sector but I understand that just remaining in the state sector was not all that was required. I should have preferred a free-standing company in the state sector. I say that because of my experiences on the Select Committee on Trade and Industry in another place. We saw how the Post Office's profits were being clawed back by the Treasury. It would have been important for the Post Office to stand alone. However, we went through that argument in another place and in my view the argument is now dead and we have to look to the future. The Airline Group offers the best prospect in that regard, particularly in the long term. We have been assured that it is coming in to stay.

I also welcome the fact that the Airline Group is what it says it is; namely, a non-profit making commercial enterprise. That, too, is very important. That arrangement resembles another of the ideas that we advanced in relation to the Canadian trust, which was a non-profit making venture.

I understand that in certain respects the group may have a vested interest in running the system. However, above all else it will be interested in safety. After all, it is their planes and those of other airlines that have to be brought down and guided to airports safely. It will pay for the operating costs through licences, which means that it has an interest in maintaining efficiency along with safety. I therefore welcome the proposal.

Like my noble friend Lord Clinton-Davis, I thank the Minister for the way in which he dealt with the matter. The situation was very difficult for him—he came in rather later than some others. He was always receptive to people—he would meet them—and he would always discuss the situation with us. I am glad to put that on the record.

I thank the directors and staff of NATS for the way in which they behaved in very difficult circumstances. They did not know what the future would be but they ran an important service efficiently and co-operated by looking at the choices and advising people—Ministers and Civil Servants in particular. They gave their full co-operation to whatever proposal would apply.

I also pay tribute—in view of my background, one would expect me to do so—to the trade unions. We have in the House two previous general-secretaries of the unions, including my noble friend Lord Brett. The unions did not want to go down this path but they looked at it and asked, "What is the best for the future? What is best for consumers and our members? Where should we go?" They could have made life very difficult. I am pleased to pay tribute to them.

I want to ask the Minister several questions, which I hope he will answer. He said that the pension arrangements were in place, but I should like him to go into a little more detail on that and say whether that includes the "trust of promise". He answered one of the questions I intended asking when he said that each employer would receive £500. Initially there was discussion as to whether it would be £500 or £1,000.

I turn to the three directors to be appointed by the Government. One of those directors is to be approved by the trade unions. How far has my noble friend gone down that road? What discussions has he had with trade unions in that regard? I believe that if we want to carry the unions with us and they are to have confidence in us, the sooner those discussions begin the better.

Another point relates to the safety review committee. That too will be chaired by a government director. That committee is absolutely crucial in relation to the future of air traffic control. I know we cannot be privy to all the negotiations, but can my noble friend say what progress has been made in finding a suitable person to chair that committee?

We have been talking about the long-term interests; that the airlines should be encouraged to stay and not withdraw. What provision has been made to make it, while not impossible, difficult for the airlines to withdraw? Also, if they enter into partnerships, what veto does my noble friend hold if he believes that one of the partners is unsuitable, particularly when safety must be the top priority in this matter? I look forward to hearing my noble friend's response to those questions.

5.42 p.m.

Baroness Thomas of Walliswood

My Lords, I thank the Minister for his report to us today in fulfilment of the promise he made at the end of our work on what seemed like an extraordinarily long and difficult piece of legislation, although it takes up only a small part of the Transport Bill. The Minister assured the noble Lord, Lord Brabazon—he can no longer play his normal part on these Benches in this discussion because of his new role—that he would produce the report, and he has fulfilled that commitment. His account of his contact with the unions, the employees and a wide number of other interests was extremely valuable and I look forward to reading the report in full.

I shall briefly go backwards before I turn to the later part of the Minister's report. Liberal Democrats in both Houses objected forcefully and consistently to the NATS PPP. As my noble friend said, we still have strong doubts about the long-term value of the PPP process as a means of raising the —1 billion needed over the next 10 years to modernise the air traffic control system in this country. As we have learnt in recent weeks, joint funding arrangements often require a larger investment from the public sector than at first envisaged; and, of course, the investment has to be paid off at a higher rate than government borrowing or a bond issue would attract.

All in all, Liberal Democrats remain totally at odds with the Government in their fascination for this inappropriate model for public services. However, as the noble Lord, Lord Brett, elegantly reminded us, this battle is lost, at any rate for the time being, and we now have to consider what the current negotiations have yielded to those who have taken an interest and to the service.

My noble friend drew attention to the weakness of the preferred bidder, and I look forward to hearing the Minister's response to my noble friend's comments and questions. But using the SWAT analysis, the airlines' bid also had some advantages as compared with the other two players in the field who were apparently still interested in taking over the PPP. They have a strong interest in safety. As the noble Lord, Lord Hoyle, said, that balances their natural interest in keeping fees to a reasonable level. That balance of interest should reassure those who, inside and outside Parliament, expressed fears that safety would be compromised by the PPP.

The transfer of safety regulations to the CAA is also to be welcomed. In his opening statement the Minister referred to the importance of the economic regulation under which the PPP will operate. Can he tell the House how the CAA will reconcile its dual responsibility for both safety and economic regulation? How will it work in practice? For example, is the body to be divided into two halves? Will different people think about the two subjects and fight internally before advice is published? How will it work in practice?

Here I repeat my thanks to the Minister for responding to a suggestion which I made in a moment of desperation; that is, that the overriding importance of safety—a matter with which many of us struggled during the early part of our discussions on the Bill in this Chamber—should be written into the beginning of Part I of the Transport Act. Indeed, the noble Lord fully and generously satisfied that requirement. It is characteristic of his responses—he does not always respond; Ministers do not—that he does so wholeheartedly and we are grateful for that.

Before I move away from this area, I should like to ask what the phrase "not for commercial return" actually means. It does not seem to mean something around which I can easily get my head. I believe I understand what "not for profit" means, and certainly understand what "not for operating profit" and "not for profit beyond operating costs" means; but I do not understand the meaning of, "not for commercial return". It would be helpful if the Minister could give us a little more information in that regard.

Another aspect of the bid which concerns me is the fact that foreign airlines may worry that a take-over of NATS by the UK airlines will disadvantage them. That could happen in a number of ways. There are already a continuing series of disagreements between other airlines and the major British airlines, particularly BA—a major shareholder in the new bid—as to slots. Have such concerns been expressed? If so, what reassurance has the Minister been able to give?

A point on which nobody has touched is what happens to the employee shareholding after it has first been distributed. The Minister was kind enough to write to me on 5th March which covered some of the questions I raised in the debate on the draft order on 27th February and I understand how the system will work in the initial period. However, it is clear that these shareholders will not be able to take their shareholding out of the business. Does that mean that, in return for their shareholding, they will get a director of the new company? If they do not profit from the shareholding, I am not sure what benefit there would be.

In his discussions with the Airline Consortium, I wonder whether the Minister has thought further about what would happen in the event of there being an increase in the total number of shares by one means or another. Would the then employees share equally in the increased number of shares, as they will with the existing number of shares?

Concerns were expressed at an earlier stage by those employees of the CAA who are not air traffic controllers or anything to do with that side of the CAA's business. They will therefore remain with the CAA and not go over to the new company. Their concerns were about their future pensions. Can the Minister reassure the House that such pensions are fully safeguarded?

This is the last performance of a long-running show. We all hope that there will not be a sequel. As sometimes happens in the theatre, interest has waned and the curtain is falling. Other shows will soon take to the road. Perhaps the actors will move on to new roles. There is nothing left for me to say except how much I have enjoyed the camaraderie established across all Benches during the debates on the Bill, and how grateful I am for the solid support given to the Front Benches by my colleagues behind me.

5.52 p.m.

Lord Dixon-Smith

My Lords, I, too, welcome the opportunity to discuss once again the emotive issue of the Government's proposed public/private partnership for our National Air Traffic Services. It is somewhat ironic that the Government are scrambling to push this matter through Parliament just as there is every prospect of a general election, while at the same time they profess to believe that our national air traffic interests would best be served by a single European system, as it seems was discussed by the Prime Minister in Stockholm last week. Are we to assume that the views of the Government are tailored by the audience to which they speak?

It is widely accepted that the National Air Traffic Services (NATS) urgently needs greatly increased investment to allow it to develop and operate a world-class system for the 21st century. We have supported the principle that NATS should be transferred to the private sector, particularly to release NATs from capital programme controls and Treasury controls. Where we take issue with the Government is in their chosen scheme. We would have floated the business to create a great, new, independent, British plc, able to benefit from partnerships of their own choosing with arrangements to protect national security, and immune from EU interference.

To those who believe that that would be rash, I cite the example of the UK aviation industry, one of Britain's great success stories. The reforms of the 1980s, when it was taken from national control, helped to create an aviation industry second only to the USA and pre-eminent in Europe. It contributes more than £10 billion, over 1.4 per cent, to the UK's GDP; it directly employs over 180,000 and supports a further 380,000 jobs. It contributes £2.5 billion in taxes and accounts for 11 per cent of UK exports of services. It is also an industry with an unrivalled safety record. That is the benefit of privatisation.

The Government have announced that the Airline Group should be a strategic partner for NATS. We congratulate the Airline Group on its success. It has a deep appreciation of the safety issues involved. The public will be able to have full confidence in the safety of the service in future. The Conservatives will honour those contracts after the general election, if the hoped-for result arises, and ensure that NATS is able to operate in a stable and positive framework. That said, and although we welcome the announcement, I find myself wondering quietly if it might not have been better if the announcement had been made in the normal way, on the Floor of this House rather than through a press report. That is a minor matter. I do not wish to lower the tone on what is a generally happy and joyous occasion.

We have discussed the problems of the PPP for NATS on many occasions. As the Minister is aware, my noble friend Lord Brabazon of Tara tabled an amendment to the Transport Bill which gained the support of Members of this House and, I am pleased to say, of all parties. It sought to delay this ill thought-through and rather convoluted compromise until the Government had given it the proper consideration that it both requires and deserves.

When the Government used their considerable majority in the other place to send the Bill back to us, we agreed to allow the Bill to progress on the condition that the Government report to this House in three months' time with progress on its further consideration. As I have said, I am grateful to the Minister for calling this debate. However, so far the Minister has been unable to answer the majority of concerns raised by my noble friend, people in the industry and members of the Labour Party.

Today, the Minister has not been able to answer one of our reasons for objecting to this deeply unpopular compromise; that is, that the Government still have no mandate to privatise NATS, especially after the virulent anti-privatisation comments such as those made by Andrew Smith in 1996 when he said, our air is not for sale". We believe that the electorate should have had an opportunity to see the proposals in the Labour Party manifesto before the next election. As has been said, there is a precedent for such a delay. In 1982, the privatisation of BT was delayed until after th.e next election because it was seen as a controversial proposal which had not been in a manifesto.

There are other concerns. As was mentioned by the noble Lord, Lord Shore of Stepney, last year, the EU Commission issued an opinion challenging the legality of so-called "golden shares" on the grounds that they are a barrier to the freedom of capital and the freedom of establishment within the European Union. That means that no government can any longer rely on any provision in UK law to protect the national interest.

Given the Government's record in choosing selected bidders or strategic partners, as exemplified by the sale of the Dome, and the present hiatus over the London Underground, are the Government satisfied that they will be able to reach a satisfactory conclusion to the negotiations with the Airline Group? Is it a question of third time lucky?

The possibility of foreign control of NATS has serious national security implications. The concerns are amplified by recent cases before the European Court of Justice which ruled that issues of national security are not immune from European Court of Justice jurisdiction. That means that government directions to the privatised NATS to secure the national interest in the future could be ruled illegal by the European Court of Justice. How does the Minister foresee our national interest being protected under the PPP in any future emergency?

What have the Government done or said in the past three months to reassure the DETR Select Committee in another place, which stated, The current proposal for public-private partnership for NATS is, in our view, the worst of all the possible options for the future structure of the company"? I have not heard the answer to that. What have they done to reassure members of the Labour Party, such as the former Labour Transport Minister, who said: the key dialogue in air traffic control is that between the pilot and the air traffic controller, and the Government would make a great mistake if they proceeded with a policy that is opposed by airline pilots. I urge the Government to reconsider and accept one of the alternative models—the independent publicly owned company or the not-for-profit trust"? I believe that to some extent the Minister has answered the staff but he has not answered the former Labour Transport Minister.

What have the Government done to reassure those who work in the aviation sector? The Institution of Professionals, Managers and Specialists seems far from convinced by the Government's plans, despite numerous meetings. In a letter to my noble friend dated 12th March, the general secretary, Paul Noon, stated: NATS staff remain opposed to the planned privatisation of NATS. If anything, the views of our members …have hardened as more detail becomes known and discussions have taken place with bidders. Indeed, NATS staff have voted by a very large percentage (91 per cent) in a high turnout to be balloted on industrial action should their safety concerns not be met". How does the Minister now view the possibility of industrial action? Is he satisfied that he can resolve the concerns of the staff involved?

Perhaps the Minister will answer some of our concerns over the future of NATS under the Government's plans. What contingency plan do the Government have in the event of the strategic partner selling its share in NATS? Would the Government have any say in what was to happen if their selected bidder chose to sell out to some other business enterprise?

Can the Minister be sure that the Government's plans will prevent our air traffic services being controlled by a foreign company which might compromise our national interest or security in the future? Are the Government sure that fines for delayed flights will not constrain management decisions about incentive remuneration and safety management? Will the Minister tell the House how much NATS currently owes on outstanding loans?

The noble Lords, Lord Brett and Lord Hoyle, posed another question: what is the value of the 5 per cent of the equity which is to be held in trust for the staff? We hear that perhaps 500 shares will be issued to each member of staff. If there is to be a non-commercial return on the enterprise, how are the staff to benefit from their holding in the equity if at the end of their careers it must be handed back to the staffs share trust? The staff will need to have those questions answered clearly. Finally, can the Minister tell us when Swanwick is expected to come into operation?

The only things which are clear from the Government's handling of the sell-off of NATS is that, four years on, the delay in finding a solution to the funding crisis has not so far been helpful or beneficial to the industry; and concerns within the industry, the Labour Party and the House at large have not been fully addressed. How do the Government justify pressing ahead with these plans when they have failed to reassure those whom they most affect? Although we welcome the fact that we now know the selected bidder, we cannot approve of the methods the Government have employed to bring this matter to a conclusion.

6.4 p.m.

Lord Macdonald of Tradeston

My Lords, we have had many interesting debates on the subject and today's debate has been no exception. The comments and questions raised have been so dense and so well informed that I quail at the prospect of trying to answer them all in the time available. However, your Lordships can be assured, that any questions I do not deal with adequately I shall deal with subsequently in correspondence.

We have all come to the debate knowing that the volumes of air traffic continue to increase. We all accept that air users, airlines, general aviation and the travelling public expect that aircraft movements will be managed in a way which avoids undue delay and does not impose excessive costs and maintains safety, which is the paramount consideration. Your Lordships reflected those concerns, together with the concerns of staff and shareholders, throughout the period we have been planning for the PPP and have successfully done so again today.

We are on the brink of establishing the PPP. We have fulfilled our commitments which we gave to your Lordships in November and I am grateful for the compliments offered in regard to the extent of our consultation. We have talked to key shareholders and have tried to address their concerns. We have now selected a strategic partner, we have signed the necessary documents and we are moving towards completion and, I hope, a satisfactory conclusion.

I now turn to the individual points raised and I shall begin with the noble Lord, Lord Trefgarne, who asked about the provision of lower air space radar services. He will remember that recently we had a thorough, informative and worthwhile debate on the issue. It is true that NATS will not have a duty in its licence to provide for lower air space radar. That is because the services are provided by different operators in different places according to the facilities available.

However, I am pleased to reassure the noble Lord that a duty is being laid on the CAA to organise an acceptable level of provision. That is confirmed in the air navigation directions which the Secretary of State has today given to the CAA. I am aware of the issues which have arisen at Stansted and Luton and I know that the CAA is considering them carefully. I am also delighted that the noble Lord met the noble Lord, Lord Marshall, to discuss some of the issues and I look to him to take them forward in a spirit of co- operation with the Airline Group as it comes into operational control of NATS.

Lord Trefgarne

My Lords, I am most grateful to the Minister for that assurance. It is most reassuring. I have a meeting in the near future with a senior CAA official who will no doubt confirm it. I am grateful to the Minister.

Lord Macdonald of Tradeston

My Lords, I am grateful for that intervention. I turn to the questions raised by the noble Lord, Lord Smith of Clifton. Perhaps he will forgive me for not going too deeply into some of the other transport matters he raised as I have been dealing with them in other ways and at other times this week. He asked specifically about the financial "get out" clause. We have tried to build on the experience of previous transactions in order to develop a more robust contractual framework which will bind in the strategic partner. We believe that the government partnership directors on the board of NATS will help ensure that the NATS PPP delivers on its undertakings.

As regards the objective criteria by which we try to define and measure success. the Airline Group and the Government will agree a business plan which will contain certain specified "deliverables", as the jargon has it. They will all be set out clearly. The CAA in the public sector will, as ever, deploy best practice economic regulation to keep the company up to the mark.

As to the single sky, we believe that under the PPP NATS will be well placed in Europe. The Airline Group has already developed relationships with neighbouring ATC providers. That will form the basis of a very strong position in what we anticipate from previous debates will be rationalisation across European skies in the years ahead. We have tried to make clear that the criteria on which we have made our judgment are based on an objective and impartial assessment. Any implication that somehow we made the decision for political convenience, or to try to match some of the demands made with great conviction in earlier debates by noble Lords, must be placed in the context of a very rigorous, objective and impartial analysis of a number of important criteria. At the end of that assessment there was clear blue sky between the bid of the Airline Group and that of its nearest competitor.

I turn to the point raised by my noble friend Lord Shore about replacement of the Swanwick systems over the years ahead. I am not entirely clear as to what the replacements would be. I accept the general point that technology should not remain in service as long as some of that with which our air traffic controllers must work at the moment. Some of the screens of circular design to be seen when one visits Prestwick appear to be quite quaint. From my discussions with air traffic controllers, like all professionals they appear to be very pleased by the anticipated investment which will give them new equipment. I anticipate that if we have an accelerated pace of technology, under the new system Swanwick will be the first to benefit from it.

These days advanced systems like Swanwick are subject to very regular upgrading and replacement, and often the process is a very organic one. I for one am pleased that the Airline Group stands ready to enhance the level of investment to modernise the systems, and its concept of running competitions to ensure that it has the best systems for UK air traffic control appears to make good sense.

My noble friend Lord Shore also queried the wisdom of a penalty for delays caused by air traffic control in relation to any particular flight. I entirely agree with him that safety must be paramount and there must be no incentive to compromise. I have gone to some lengths to analyse the suggestions put to me by the CAA in trying to find a middle way with the management of NATS and its aspirations. My noble friend referred to the suggested 5 per cent as a tightening of the charge regime for each year up to 2005 for NATS en route services. Perhaps my noble friend will be pleased to hear that I modified that and set a cap which began at 2.2 per cent, rather than 5 per cent, arid then went to 3 per cent, 4 per cent and finally 5 per cent in 2005. That has been greeted very warmly by NATS management and there has been no complaint about it.

Similarly, in relation to delay, it was put to me by NATS management that the proposals of the CAA, based on one year of operation, might be tough to meet. I asked the CAA and our own officials to look at an average across four years to try to get a fairer datum line. They have come up with a system on which the CAA is prepared to compromise and NATS management very much welcomes it. I have tried to meet my noble friend's point.

Lord Shore of Stepney

My Lords, I am grateful to my noble friend for giving way. In his very full Written Answer in January my noble friend spelt out a helpful and more relaxed charging system. But I did ask: of what exactly is it a percentage? My noble friend was good enough to tell the House what the charge would be in three years' time; namely, a figure in excess of £5 million, and that thereafter it would be 5 per cent, but 5 per cent of what?

Lord Macdonald of Tradeston

My Lords, since NATS is a monopoly service provider it is regulated by the RPI minus x formula. Therefore, the .x factor has been set for the period of five years. That factor would have been 5 per cent. Therefore, my noble friend can see how cumulatively 5 per cent over five years coming off RPI might be a considerable tightening of the screw. I hope that that satisfies my noble friend's inquiry on that matter.

As to the single skies initiative, noble Lords will be aware that, faced with the kind of expertise from noble Lords to my right who have been both Ministers and closely involved in European operations, in some of these areas my remarks are somewhat tentative. But 1 believe that the single sky is fundamentally a benign attempt simply to rationalise the way in which the various jurisdictions in air traffic control co-operate. In particular, we are trying to do that through institutional reform. We believe that through a single sky policy we shall be able to reduce air transport delays and their costs in Europe and provide the infrastructure to increase capacity, because by 2015 Europe will be coping with 7 million more flights and 1 billion more passengers than in 2000. Therefore, the provision of systems across Europe to handle that level of traffic safely represents a substantial challenge.

As I argued from the beginning of this debate, if consolidation is inevitable, when scores of national jurisdictions can be handled by half a dozen centres across Europe, we want to try to ensure that we in Britain not only control our own skies but are able to offer our expertise, based on an improved technological platform, to countries all over Europe, particularly small ones. Let us not forget that, if we want to, we can control Siberia from Swanwick, so there is a very real opportunity for a British-based company to help others to rationalise their skies.

I will now deal with some points raised by my noble friend Lord Hoyle about partnership directors. We have held discussions with the trade unions on the whole process of selecting the partnership directors to be appointed by the Government. Those discussions have centred on the types of people who might be suitable and what criteria should be used in their selection. That will include how they might best fulfil a role in safeguarding the safety of NATS. We have advertised for people to put their names forward under the new process, and we have arranged for people to consider putting forward their names. That process is ongoing, and I do not believe that I can properly say much more about it. We hope to have directors selected by the time that the PPP is due for completion, and as to that we are aiming for 1st June.

My noble friend Lord Hoyle also asked about pensions and the trust of promise. I can assure my noble friend that we are in the final stages of discussing the trust of promise deed with NATS and the Law Debenture Trust Corporation which is likely to act as trustees. The trust will be in place before completion of the PPP. As outlined earlier by my noble friend Lord McIntosh, we believe it will guarantee that while NATS employees remain within that they can also continue in membership of the CAAPS scheme. Staff who transfer with their work to another employer will be entitled to membership of a scheme that is identical in all material respects to CAAPS.

My noble friends Lord Clinton-Davis and Lord Brett have played a remarkably positive role. I bring that matter to noble Lords' attention because at times we may have seemed to have been at odds. But, with their collective experience of IPMS, BALPA and of public life, they have helped me enormously in understanding some of the difficulties that the staff have had in accepting some of our policies. They pointed me toward areas of the legislation where our Bill might be, and indeed was, improved. Both noble Lords have served the public interest very well.

My noble friend Lord Clinton-Davis asked about the public interest in the context of the stakeholder council. There will be three government-appointed directors. Like the noble Lord, we believe that the stakeholder council will allow people to come together and for broader interests to be represented by the government-appointed directors on our partnership board and the PPP board. Therefore, 1 readily reinforce his call for partnership. I endorse his comprehensive seven-point appraisal of the positive aspects of the winning Airline Group bid.

I am particularly delighted to be able to share my noble friend Lord Brett's optimism. I, too, believe that the winning bidders are well positioned to keep their promise. They have no exit strategy. Clearly, they are locked into the proper functioning of this new company by the most powerful of all self-interests. Again I should like to thank the noble Lord for the robust role that he played in helping us to improve the Transport Act.

I thank the noble Baroness, Lady Thomas of Walliswood, for her complimentary remarks. I understand her party's reservations about the public/private partnership. I hope that the noble Baroness will accept that the CAA can be both an economic and a safety regulator. I foresee no difficulty there. The economic and safety groups within the CAA are used to acting together; for example, the advice given to the Government by the economic regulator on the setting of the NATS charges was reviewed by the safety regulator. Should there be any conflict, the CAA board would address the issue.

On the question of the staff shares, I can reassure the noble Baroness that the pension position of staff, while remaining in the CAA, will be unchanged by the separation of NATS. On the new shares for employees—I anticipate the question of the noble Lord opposite—of the over £100 million of equity involved in the bid, 5 per cent will go to staff and £500 will be free. The share scheme would be for the initial allocation only. Any further staff proposals would be for the strategic partner to decide in consultation with the other shareholders and the Government.

I was asked what the value might be in the future. With regard to the total sum in cash received for the transaction, your Lordships may remember that we were looking at removing a debt of some £330 million and perhaps receiving £300 million on top of that. Therefore, in the past, I have offered £650 million as a possible total. The total amount is around £800 million. The valuation of the company is probably over £900 million and nearer to £1 billion now. So noble Lords can see that if people get a percentage of this company at an early stage on what would be a percentage of £100 million, were the company to be floated in future and a proper valuation put on it, there would be a considerable upside for those who held the shares.

Lord Dixon-Smith

My Lords, I am sorry to press the matter further. But if these shares are to be returned on an employee's retirement to an employees' shareholding trust, the value of the appreciation would not then be available to retirees. Perhaps the Minister could inform me further.

Lord Macdonald of Tradeston

My Lords, I would look for a negotiation which puts in place a system that reflects a shared judgment of the value of the company as the scheme goes forward. The monies that we have received have been taken on by the Airline Group together with the debt and so on.

A question was asked about the phrase "not for commercial return". The noble Baroness will be able to ask the Airline Group because it is for that group to define exactly what nuances it means by "not for commercial return". As I understand the matter, it is simply that the Airline Group does not intend to extract profit. So whatever profits there are, in terms of its operating profit, would be reinvested in the group. Although the group has made it clear to us that in the early years the priority will be in ensuring that investment goes into Britain and the focus of its activities is in improving our air traffic control services, in the years ahead, it has said that if there is any expansion of the group, it will try to expand the business internationally as well. I believe that that will bring with it extra value.

The noble Lord, Lord Dixon-Smith, implied that somehow my being here today signalled the onset of an election. He need not be unnerved. This matter was promised a long time ago and for some time 1st April has been the deadline for the deal. I agree with the noble Lord on the importance of the UK aviation industry. I was pleased that he greeted the Airline Group's success so warmly. The noble Lord asked whether we have a mandate to privatise NATS. We have no intention of privatising NATS. Our air is not for sale. Our air is to be managed in partnership. It will be managed in the partnership of public and private skills.

We believe that the golden share, which also exercised the noble Lord's concern, will protect the strategic dimension of NATS. We have no concerns about that special share. The special share arrangements are only one part of a comprehensive range of safeguards for the various government and public interests in the provision of air traffic services. The main significance of the special share is in the event of a flotation of NATS, for which the Government have no current plans.

The Government believe that the provisions included in the Transport Act and in NATS' articles of association in relation to that special share are not inconsistent with the provisions of the Treaty of Rome. The Government do not consider that any of the existing special share arrangements in UK companies are inconsistent with Community law. They are committed to defending very vigorously all challenges to such arrangements.

On the question of national security, the Government will ensure that the strategic partner can be entrusted with the national security and aviation safety. NATS' licence requires the licensee to inform the Secretary of State if control of its operations, or even the ability to exercise material influence, changes hands. The licence may be revoked if such a change goes ahead, despite being deemed by the Secretary of State to be detrimental to the national interest. That will enable the Government to see that after the initial sale the PPP remains in the hands of fit and proper persons. I am delighted that so many noble Lords have seen the Airline Group as very fit and very proper persons.

Conscious of the time, I end by saying again how valued are the contributions noble Lords have made to our thinking on this matter. I should like to thank in absentia the noble Lord, Lord Brabazon of Tara, for his courtesy, good humour, his incisive arguments and, of course, his encyclopaedic knowledge of aviation affairs, which is so resonant in his name. We shall all miss his involvement with the transport portfolio, but we wish him well in his new role.

On Question, Motion agreed to.