CAA: GOVERNMENT OBJECTIVES (Hansard, 13 November 1991)

My right honourable friend sent the following letter recently to Mr. Christopher Chataway:

"This letter sets out the objectives which the Government wishes you to pursue as Chairman of the Civil Aviation Authority in fulfilment of the statutory functions of the Board. In the case of conflict between these objectives and the authority's statutory duties, the statutory duties must prevail.

General Objectives

Safety. Your overriding objective must be to ensure that the CAA continues to promote, in an efficient and cost-effective way, high standards of safety in all aspects of civil aviation. I have made it clear that safety is the responsibility of the CAA and it is not my intention to interfere in the discharge of its duties.

Regulation. Subject to your responsibility for safety, and to other explicit statutory requirements, the authority should impose as few burdens as possible on those whose activities it regulates. The UK civil aviation industry has to bear the full costs of regulation and the authority must therefore continually strive to ensure that regulation is no greater than necessary.

I would expect your charges in relation to the services of the economic regulation and safety regulation groups to cover their costs and to provide the required rate of return on investment without rising faster than the rate of inflation, taking one year with another, unless there were very good reasons for them to do so, and in all events to be as low as is compatible with the proper discharge of their responsibilities.

Costs and Quality of Service. The authority should keep its costs under constant review and, where appropriate, should devise formal cost reduction programmes. Quality of service should also be carefully monitored. In the light of these considerations and of your overriding safety objective, in the course of your first year of appointment you should review all performance targets and indicators (including the development of appropriate unit cost indicators) for the authority, and put to me proposals for the future, with a view to our agreeing them in time for inclusion of the targets in the 1992 corporate plan. You should continue to keep under review your arrangements for consulting users about the authority's charges and I would be glad if you would cover this point in particular in your first annual report to me.

The Environment. While I have primary responsibility for regulating environmental disturbance attributable to civil aviation, in planning and providing its air traffic control services, the authority should assess the possible effects of any changes on the 36WA environment, including the effects of noise. The department should be notified in any cases where the authority considers that adverse effects are likely to be significant. The authority should also maintain its capacity to provide expert technical advice on environmental problems.

External Relations. The authority must continue to seek to maintain good communications with Parliament, industry and the public so that each properly understands the CAA's various roles. It will be your continuing responsibility to deal, in correspondence and otherwise, with the concerns of Members of both Houses of Parliament as they affect the authority's activities.

The authority is both a regulator of the industry and a monopoly supplier of many air traffic control services, and you should ensure that the industry is kept in close touch with your plans, and has full opportunities to tell you of their views. The safety regulation group finance advisory committee is an example of a valuable consultation mechanism, and you should ensure that it is continued effectively.

Public Sector Financial Disciplines

The authority should continue to stay within its external financing limit each year and the associated investment approvals limits. It should also continue to provide the Government with regular, timely flows of information so that the authority's performance can be monitored both generally and more specifically against agreed strategies and targets and the external financing limit.

Over the three year period ending in 1991–92, the authority has been working to a target annual average rate of return on average capital employed of 8 per cent. on a current cost basis; this target has applied to all the authority's activities, except UK airspace air traffic services and Highland and Islands Airports Ltd. You should plan on the basis that this target will be maintained for the next three-year period, beginning in 1992–93, but it will be subject to review in the autumn of this year.

Corporate Planning

The authority should prepare corporate plans reflecting the objectives in this letter (and the outcome of the previous annual investment and financing review), including the external financing limit. Each year's plan should be submitted to me no later than April each year.

Organisation

You should ensure that an appropriate structure and management systems are in place to provide a cost-effective and commercial approach within the authority, with effective control of both capital and current expenditure, so that the authority can take a corporate view of its priorities, set targets for parts of the business and ensure that they are achieved.

The recent Monopolies and Mergers Commission report on National Air Traffic Services (NATS) made a number of recommendations, almost all of which 37WA were accepted by the authority. These recommendations should be implemented in a timely fashion. I attach particular importance to those recommendations concerning manpower planning, for which appropriate systems need to be developed without delay.

Objectives for Economic Regulation

Within the relevant statutory requirements, and working with the department in the international arena, the authority should act to ensure that as far as possible, the UK travelling public is served by a healthy competitive multi-airline industry. Further steps towards liberalisation and the creation of a single market within the European Community will bring important changes in the next few years (on matters such as route licensing, the approval of fares, and probably the allocation of airport slots), the authority should continue to be ready to advise the Government on necessary changes to policy and to legislation, and to revise its statement of policies on air transport licensing appropriately in response to changes in both.

It is important that the economic regulation group's costs remain under effective control, so that increases in charges are kept to a minimum.

Objectives for National Air Traffic Services

The National Air Traffic Services (NATS) is run jointly between the authority and the Ministry of Defence with staff provided by each. You should be aware of the ministerial directions to NATS which I shall soon be revising with the Secretary of State for Defence. The directions will continue to require NATS to provide airspace capacity, on a cost effective and timely basis, to meet the needs of airspace users both civil and military but, recognising the increasing demand from aircraft operations, they will invite you—in consultation as necessary with the Secretary of State for Defence—to advise me on appropriate action in the event of demand for airspace exceeding capacity.

To this end it is essential that NATS's capital programme is implemented in a thorough and effective way, with due attention paid to project appraisal and to the delivery of projects (notably the new en-route centre and the central control function) punctually and to budget. This will be a key resonsibility for the new chief executive of NATS. The authority have already made significant changes in NATS's project management arrangements, but it is important that these are maintained and followed through, and that the possible need for further changes is kept always in mind.

I also attach great importance to effective international working on air traffic control (ATC) matters; I look to the authority for full support in helping to implement the plan endorsed by the European civil aviation conference ministers for harmonising and progressively integrating their ATC systems. Together with the chief executive of NATS, I should like you in due course to consider with your 38WA board whether the new NATS organisational structure is proving to be appropriate to the ever-increasing international dimension of ATC work.

There have been long-running negotiations with BAA on the provision of aerodrome navigation services. I hope it will be possible to bring these to a conclusion soon, to put this important relationship on a firm footing.

Objectives for Safety Regulation

The authority has its own safety responsibilities, but it is important that recommendations by the Air Accident Investigation Branch (AAIB) which are accepted should be followed up with all due promptness. I should like you to continue to send me a report annually on the way in which this is being done.

My predecessor was concerned at last year's increases in the charges made by the authority's safety regulation group. Since then a review of the group's operation has been conducted and recommendations have been made. I would be grateful for a report by the end of the financial year as to what has been done in the light of the consultants' report.

The group's future staffing levels and the level of charges to industry should reflect improvements in efficiency and working practices without of course compromising the effectiveness of the group's safety functions. Progress on achieving this should be included in your annual reports on the achievement of your objectives.

The safety regulation group is already playing a prominent role in international organisations such as the European Joint Aviation Authorities and should continue to do so. However, I would ask you to ensure that, as the role of such bodies grows, there should be as little duplication as possible between their work and that of the group.

Objectives for Scottish Aerodromes

The primary objective for the authority's Highlands and Islands Airports Ltd. (HIAL) subsidiary should be to seek to break even on its non-oil related operations after grant, consistent with ensuring that the aerodromes continue to meet the social needs of the communities which they serve. I would also be glad if you would examine the scope for unit cost indicators for HIAL.

General

The CAA is established as a nationalised industry separate from Government, and as such it should be free to pursue objectives and responsibilities, within the corporate plan accepted by the Government and the internal financing review provision agreed for the next three years. You and your Board are responsible for the day-to-day management of the Authority and can expect to carry this out without interference from Government. At the same time, I am accountable to Parliament for the overall performance of the authority and I have specific functions in relation to a variety of matters affecting the authority. It is 39WA therefore important that I and my officials have access to the information that bears on my responsibilities, and you should ensure that there continues to be close relationship between my department and the authority on all matters of mutual concern.

I expect from time to time to review these objectives with you. I attach importance to receiving regular reports at the end of each financial year on your progress in implementing these objectives."