Public Private Partnership for
National Air Traffic Services Limited
This brochure has been prepared on behalf of the Secretary of State for the Environment, Transport and
the Regions (DETR) to provide preliminary information regarding the proposed Public Private Partnership
(PPP) for National Air Traffic Services Limited (NATS), a wholly-owned subsidiary of the Civil Aviation
Authority (CAA). It does not constitute, or form part of, an offer or invitation to sell or issue, or any
solicitation of any offer to purchase or subscribe for, any shares in NATS and/or any holding company
or subsidiary of NATS and neither it, nor the fact of its distribution, is to form the basis of, or be relied
on in connection with, any contract therefor. The information contained in the brochure has not been
verified by DETR, NATS, the CAA or any of their respective advisers. Information regarding the proposed
PPP process is based on current Government policy or plans and is subject to change without notice.
None of DETR, NATS, the CAA or their respective employees, agents or advisers accepts any
responsibility for the accuracy or completeness of the contents of this brochure (including any opinions
expressed) and no representation or warranty, express or implied, is given by any such person as to the
accuracy or completeness of such information or opinions. Interested parties should rely upon their own
enquiries and assessment of the risks and opportunities associated with any investment.
1. PPP process and objectives
1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . .................................. . . . . 1
1.2 PPP process and timetable . . . . . . . . . . . . . . . .................................. . . . . 1
1.3 Overview of NATS . . . . . . . . . . . . . . . . . . . . . .................................. . . . . 2
1.4 Investment opportunity . . . . . . . . . . . . . . . . . . .................................. . . . . 3
1.5 Contacts and further information . . . . . . . . . . . .................................. . . . . 5
2. Design of the PPP
2.1 NATS’ organisational structure . . . . . . . . . . . . . . ............................... . . . . . 6
2.2 What is air traffic control. . . . . . . . . . . . . . . . . . . ............................... . . . . . 6
2.3 Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............................... . . . . . 7
2.4 International framework. . . . . . . . . . . . . . . . . . . . ............................... . . . . . 8
2.5 Proposals for the PPP . . . . . . . . . . . . . . . . . . . . ............................... . . . . . 8
3. The NATS business
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . ................................ . . . . 10
3.2 UK air traffic services . . . . . . . . . . . . . . . . . . . . ................................ . . . . 10
3.3 Airport services . . . . . . . . . . . . . . . . . . . . . . . . ................................ . . . . 11
3.4 North Atlantic (Oceanic) services . . . . . . . . . . . ................................ . . . . 12
3.5 Miscellaneous income. . . . . . . . . . . . . . . . . . . . ................................ . . . . 13
3.6 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . ................................ . . . . 13
4. Financial and operating performance
4.1 Service unit growth. . . . . . . . . . . . . . . . . . . . . . . ............................... . . . . 15
4.2 Oceanic traffic growth . . . . . . . . . . . . . . . . . . . . ............................... . . . . 15
4.3 Historic revenue and profit targets . . . . . . . . . . . . ............................... . . . . 16
4.4 Historic operating costs . . . . . . . . . . . . . . . . . . . ............................... . . . . 17
4.5 Capital structure. . . . . . . . . . . . . . . . . . . . . . . . . ............................... . . . . 18
5. Industry developments
5.1 The challenge facing the ATC industry . . . . . . . ................................ . . . . . 19
5.2 NATS’ strategy and investment programme . . . ................................ . . . . . 20
5.3 New technology . . . . . . . . . . . . . . . . . . . . . . . ................................ . . . . . 23
5.4 Future opportunities . . . . . . . . . . . . . . . . . . . . ................................ . . . . . 23
5.5 Further information and statistics . . . . . . . . . . . ................................ . . . . . 25
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
A. Consortium Partnering List consent form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
1. PPP PROCESS AND OBJECTIVES
On 11th June 1998, the Government announced its intention to create a Public Private Partnership
(PPP) for National Air Traffic Services Limited (NATS). Following an extensive consultation process,
the Government published its PPP proposals on 27th July 1999, announcing its intention to introduce
a strategic partner into NATS.
The Government’s detailed proposals for the legal and regulatory framework for the future provision
of air traffic services in the United Kingdom are contained in the Transport Bill which was introduced
into Parliament on 1st December 1999. Proceedings of Standing Committee E on the relevant
provisions of the Bill took place between 18th January 2000 and 10th February 2000. Third reading
of the Bill was completed on 10th May 2000.
The Government’s policy towards PPPs in general is described in “Public Private Partnerships: the
Government’s Approach”, published on 15th March 2000. The PPP document (which is available on
the HM Treasury website) outlined the need to devise solutions which are tailored to the particular
circumstances of the public enterprise or public service concerned.
1.2 PPP process and timetable
It is the Government’s intention to put in place arrangements to grant effective control of NATS
to a strategic partner. The Government is to sell 46 per cent of its interest in NATS to a strategic
partner with a further five per cent being made available to employees. Voting arrangements will
ensure that the strategic partner has effective control and that NATS is classified to the private sector.
The Government’s ongoing financial investment in the PPP will be protected through a shareholders
agreement and the right to nominate a minority of the directors. More detail about the design of the
PPP is provided in Section 2.5.
The Government’s primary objective for NATS is to establish a partnership between the public and
private sectors to provide the UK with the world’s best air traffic services in terms of safety, efficiency
and capacity to meet increasing demand. In particular, it aims to:
• enhance aviation safety in the UK by separating regulation (CAA) from service provision;
• ensure that NATS has access to the necessary project and complementary commercial
management expertise to provide for its long-term development as a safe and efficient national
air traffic service provider;
• ensure the strategic partner takes responsibility for managing NATS’ strategy, investment
programme and new business development;
• ensure NATS has access to adequate capital without adding to pressure on public sector
• introduce new incentive and performance based regulation to replace the existing “cost-plus”
regime, to encourage timely and appropriate investment and ensure value for money for NATS’
• provide NATS with the commercial freedom to develop its business, within the necessary
framework of incentives, regulations and other disciplines;
• ensure long term value for money for the taxpayer and generate initial proceeds to help fund
other transport programmes;
1. PPP PROCESS AND OBJECTIVES
• maintain NATS' contribution to national security through effective civil/military joint working; and
• maintain effective accountability to Government as shareholder, to the CAA as regulator and to
the wider public interest.
The strategic partner may be a single investor or a consortium of investors. The Government wishes
to attract a world class strategic partner into the NATS PPP with the ability to add value to the existing
business. This partner must be able to demonstrate the capability and commitment to provide the
necessary complementary skills to NATS’ existing world class operational talents. In particular, the
Government regards this as an opportunity to introduce and strengthen management skills in areas
such as project management, system integration, business restructuring, cross-border business
development and stakeholder relations. Applications to participate in the PPP will be open to any
investor who meets these objectives, provided that the investor:
• is a fit and proper person;
• is acceptable on national security grounds; and
• can demonstrate satisfactory solutions to any actual or perceived conflict of interest.
It is proposed that the CAA will be NATS’ safety, airspace and economic regulator post PPP. This will
effectively separate safety regulation from service provision and maintain safety regulation within the
public sector. This is a key element of the Government’s proposals to ensure that safety remains
paramount to the PPP. The new system of incentive-based economic regulation for NATS will include
a separate RPI-X regime for each of NATS’ monopoly en-route businesses. This will provide a
predictable maximum level of charges for NATS’ customers while allowing NATS to benefit from
efficiency savings and performance improvement between periodic reviews.
Subject to the enactment of the Transport Bill, the indicative PPP timetable is:
Phase Likely timing
Expressions of interest / pre-qualification June-July 2000
Tender process H2 2000
Bid evaluation and completion Q1 2001
Credit Suisse First Boston (CSFB) has been engaged by the Department of the Environment,
Transport and the Regions (DETR) to manage the PPP process on behalf of the Government.
1.3 Overview of NATS
The primary aim of NATS’ business is to plan and operate air traffic services for its airspace users
efficiently, and above all, safely. In doing so, NATS aims to deliver increasing volumes of air traffic
without significantly increasing delays or charges.
NATS is the sole provider of en-route air traffic services in UK airspace and currently operates three
main air traffic control centres at West Drayton (near London), Manchester and Prestwick (in
Scotland). A new control centre is under development at Swanwick, which will result in the phased
transfer of operations from West Drayton and Manchester. Development of another new centre is
underway at Prestwick.
1. PPP PROCESS AND OBJECTIVES
As well as en-route services, NATS provides approach and aerodrome control services at
13 aerodromes in the UK, including the major commercial airports such as Heathrow, Gatwick,
Manchester, Stansted, Birmingham and Glasgow. NATS also provides services over a large portion
of the North Atlantic Ocean from its Prestwick centre.
NATS currently handles approximately two million flights per year (nearly one quarter of which use
Heathrow), making NATS the third largest air traffic control provider in Europe in terms of flights
handled. However, the smaller size of UK airspace compared to that of Germany and France (the
largest European providers), and the higher proportion of flights that land in the UK rather than simply
overfly, makes ATC service provision in the UK more complex than in most European countries,
requiring ongoing capacity enhancement and continual systems development and integration.
1.4 Investment opportunity
NATS benefits from a strategically important geographic location at the “gateway” between North
America and Europe. It has an excellent safety reputation and proven ability to manage high density,
complex traffic patterns. The PPP will give the strategic partner the opportunity to control a national air
traffic service provider with a world-wide reputation for outstanding operational expertise and the
commercial freedom to deploy these skills internationally.
UK traffic levels continue to show sustained growth, with year on year growth in Eurocontrol Chargeable
Service Units (the basis of 75 per cent of NATS’ revenue) averaging over seven per cent in the past six
1. PPP PROCESS AND OBJECTIVES
Summary financial data for NATS is shown below:
Year to 31 March (£m) 1997/98 1998/99 1999/00E1
Total revenue 535.0 552.0 568.1
Operating costs (451.4) (439.2) (453.2)
Income equalisation2 10.6 (1.6) (5.3)
EBITDA 94.2 111.2 109.6
Depreciation (48.7) (47.6) (46.4)
Operating profit before interest and tax 45.5 63.6 63.2
Net interest (36.5) (32.7) (28.1)
Profit before tax 9.0 30.9 35.13
Net debt 373.2 308.3 300.4
Total assets less current liabilities 570.0 544.1 591.3
Average employees during the year 5,150 5,298 5,415
1. Management latest year end (un-audited) forecasts.
2. NATS is currently subject to the Eurocontrol agreement under which any difference between income and defined costs should be
recovered from or returned to users of en-route navigation services by amended charges in later years. Any such difference is
provided for as an asset/liability within an income equalisation account.
3. FRS 15 is now mandatory and its impact is included in 1999/00 figures. Previous years are stated pre FRS 15.
There is a growing recognition, both from airline and ATC service provider user groups, that the
continuation of the status quo for ATC service provision in Europe does not provide the best model
for future industry development. Wolfgang Philipp, Eurocontrol’s senior director stated in August last
“Air traffic control efficiency is very difficult in government systems….they are always limited by
government rules and a lot of limitations. Separation from government control is the only way, in the
longer run, to give air navigation service providers the financial and managerial freedom to run their
businesses. Nationalist thinking disappears and business thinking arrives.”
The requirement for innovation, development and consolidation within the European ATC industry is
illustrated by the following charts, which show forecast airspace density in 2005 against the current
system of fragmented service provision:
1. PPP PROCESS AND OBJECTIVES
In recent years there have been various initiatives to encourage greater harmonization between ATC
providers, such as Eurocontrol’s current European ATM Programme (EATMP), with the objective of
improving the overall efficiency of the European ATC system. Although these initiatives have produced
some positive results, the delay situation in Europe during the summer of 1999 was so severe that the
European Commission is now examining the situation. A High Level Group under the chairmanship
of the Deputy President of the Commission, Loyola De Palacio, is likely to recommend to the European
Council that extensive changes be made to the industry. Basing their conclusions on the principles of
separating regulation from service provision,
treating European airspace as a single sky and
introducing competition into as much of the market
as possible, it is likely that the present structure of
government ownership and separate national
authorities will evolve so that there is increased
network management, cross border planning and
international service provision.
The UK Government has had discussions with the
EU Commission about the design of the PPP and
is of the opinion that it fits within the Commission’s
single sky proposals.
New En-route Centre (NERC), Swanwick
To respond to the challenge of continued traffic
growth, NATS is in the process of delivering its Centre Development Plan (using major new ATC
centres at Swanwick and Prestwick). This strategy will replace and update existing facilities with
modern technology. Once completed, NATS believes this will give the PPP one of the world’s most
sophisticated ATC platforms in terms of safety, system capacity, productivity and reliability. The new
en-route centre (NERC) at Swanwick is expected to be fully operational by Winter 2001/02.
The complexity of modern ATC centres, and the scarce technical expertise required to develop and
operate them, may see some countries reviewing their options for providing ongoing ATC services.
This in turn could increase demand for NATS’ services in areas such as consultancy, research and
development and international service provision.
1.5 Contacts and further information
All enquiries in relation to the NATS PPP should be directed to either of the following contacts at CSFB:
Nick Dunn Philip Iley
Investment Banking Division Investment Banking Division
Credit Suisse First Boston Credit Suisse First Boston
20 Columbus Courtyard 20 Columbus Courtyard
London E14 4DA London E14 4DA
Telephone: 44 (0)20 7888 7436 Telephone: 44 (0)20 7888 7681
Fax: 44 (0)20 7888 8295 Fax: 44 (0)20 7888 8295
Email: firstname.lastname@example.org Email: email@example.com
Under no circumstances should any party make any enquiries of, or hold any discussions with, any
representatives, members of the Board, employees, officers or consultants of NATS or the CAA in
connection with the proposed PPP without the prior written consent of DETR or CSFB.
To assist parties wishing to develop bidding consortia or partnerships for the NATS PPP, CSFB is preparing
a list of interested parties. If you wish to have your organisation’s name included on this list, see Appendix A.
It is envisaged that preliminary site visits and presentations by NATS’ management will be offered to
potential investors prior to Expressions of Interest being submitted. Please contact CSFB should you wish
2. DESIGN OF THE PPP
2.1 NATS’ organisational structure
The CAA was separated from central government in 1972 when NATS became jointly accountable to the
CAA and the Ministry of Defence (MOD). On 1st April 1996, NATS’ civil elements were incorporated as
a wholly owned subsidiary of the CAA, providing air traffic services on behalf of the CAA. Its current
organisational structure (which was revised in February this year) is shown below:
Sir Roy McNulty
Govt & Int Legal Procurement Audit
[ tbc ] Kate Gregory Deputy [ tbc ] John Burton
CE Office Corp Comms Colin Chisholm Project Mgt Safety
Andrew Picton Adrian Moorey [ tbc ] Euan Black
Personnel & Central Operations &
Networks & Systems Strategy & Regulation Finance
Services Customer Services
Phil Escritt Hugh Westaway Nigel Fotherby
Tony Motture Keith Williams
Infrastructure IT Services R&D Systems Area control Airports Business
Services Frank Agnew Services Peter Wilde Development
Ray Johnson John Nordbo Peter Finch
2.2 What is air traffic control
In essence, air traffic control is the provision and operation of a system for monitoring and controlling
aircraft in controlled airspace. This is carried out through a network of control centres, radars,
navigational aids and other communication and data systems which support air traffic controllers who
provide instructions to pilots.
NATS operates within two Flight Information
Regions (FIRs) in the UK – the London and
Scottish FIRs. It also provides an Oceanic
service over part of the North Atlantic. Within the
FIRs, a network of corridors has been
established. These corridors, or airways, are
usually ten miles wide and reach up to a height
of 24,500 feet from a base of between 5,000
and 7,000 feet. The area above 24,500 feet is
known as upper airspace.
Airways mainly link busy areas of airspace
known as terminal control areas which are
normally above major airports. At a lower level
are the control zones which are established
around each airport.
All these areas are designated “controlled airspace” and to fly in them pilots must accept the
supervision of air traffic controllers. Pilots are required to file a flight plan for each journey, containing
details such as destination, route, timing and height.
2. DESIGN OF THE PPP
Outside controlled airspace, it is normal for pilots to take full
responsibility for their own safety although they can ask for
Military controllers offer an air traffic service to aircraft in
uncontrolled airspace in the UK. They also work closely with
their civilian colleagues to provide a fully integrated service to
all users. Military personnel also provide services to aircraft
crossing airways, for those flying above 24,500 feet and to
aircraft in distress.
Aircraft in the initial or final stages of their flight are managed by
controllers at the airport itself. When aircraft join the airways
system, responsibility for handling them passes from the airport
to controllers working at the appropriate area control centre. A
flight through the airspace of an FIR could pass through several
“sectors” of airspace, each managed by a different team of
NATS Airspace Sectors
NATS’ primary function is to ensure safe separation between aircraft, while handling ever increasing
volumes of traffic. This is achieved through a programme of system development and enhancement
(which adds capacity to the system) which is supported by established and effective safety
management processes. 16 1.4
Risk bearing Risk bearing
airprox airprox per
14 100,000 1.2
The key measure used by NATS to assess its 14
safety performance is the number of risk-bearing 11
controller and pilot reported Aircraft Proximity 10
Events (Airprox) in which NATS contributed to the 8
cause. Airprox reports are investigated by an 6
independent body – the UK Airprox Board 4
Risk bearing airprox
(UKAB). 2 0.2
Risk bearing airprox per 100,000 movements
NATS has set itself a target of 0.9 risk bearing 1994 1995 1996 1997 1998 1999
Airprox per 100,000 movements on a three year Three year rolling average. The risk bearing figures for 1999 are
rolling average. To put this in context, there were NATS’ estimates and remain subject to review by the UKAB.
three risk bearing Airprox in 1999 out of the two
million movements handled by NATS.
NATS continues to look for ways to improve the overall safety of the system and a number of safety
improvement actions are underway directed at reducing the probability of incidents.
Research and development programmes are focused on developing sector productivity tools, safety
assessment and performance monitoring and safety alerting systems. NATS has a strong reputation
in these areas and is a major contributor to international programmes.
2. DESIGN OF THE PPP
2.4 International framework
2.4.1 Chicago Convention
The United Kingdom, as a signatory to the Convention on International Civil Aviation signed at Chicago
on 7th December 1944 (the “Chicago Convention”), is bound by international treaty to ensure the
provision of air navigation services (comprising the development of policy in the use of airspace, as
well as air traffic services) in its airspace. By virtue of Article 28 of the Chicago Convention, the United
Kingdom has undertaken, so far as it may find practicable, to provide in its territory radio services,
meteorological services and other air navigation facilities to facilitate international air navigation, in
accordance with the standards and practices recommended or established from time to time pursuant
to the Chicago Convention. NATS provides these services in the UK.
In addition to this obligation to provide air navigation services in national airspace, the United Kingdom
has undertaken, pursuant to an agreement with the International Civil Aviation Organisation (ICAO) (a
body constituted by the Chicago Convention), to provide air navigation services jointly with Ireland in
the Shanwick Oceanic Control Area (the north-eastern sector of the North Atlantic).
The United Kingdom is a signatory to the Eurocontrol International Convention relating to Co-operation
for the Safety of Air Navigation and the Multilateral Agreement relating to route charges signed at
Brussels on 13th December 1960 and 12th February 1981 respectively. A revised Eurocontrol
Convention was opened for signature on 27th June 1997. The United Kingdom has announced its
intention to ratify this Convention. The European Community has signalled its intention to accede to
membership of the Eurocontrol Organization, following the ratification of the revised Eurocontrol
Convention by Member States.
Eurocontrol’s primary objective is the development of a coherent and co-ordinated air traffic control
system in Europe. Membership of Eurocontrol commits the United Kingdom to, inter alia, observance
of the Eurocontrol rules and procedures for the calculation and collection of charges for en-route air
navigation services. En-route services are generally regarded as those provided with respect to
airspace other than that immediately surrounding an aerodrome.
At its meeting on 16th July 1999, the Commission of Eurocontrol agreed to provide for the introduction
of an alternative system of independent economic regulation into the charging system. This will allow
NATS’ en-route charges to be regulated by an RPI-X incentive based regulatory regime and, as part
of the PPP, the Government intends to adopt this alternative charging basis.
2.5 Proposals for the PPP
In advance of the creation of the PPP, the Government introduced legislation to make the necessary
changes to NATS and its operating and regulatory environment. House of Commons report stage and
third reading of this legislation (the proposed Transport Act) was completed on 10th May, 2000.
Currently, the duty to provide air traffic services in the UK, and any area outside the UK for which it
has undertaken to provide these services, is placed upon the CAA under the Civil Aviation Act 1982
(the “1982 Act”). In turn, the CAA is required to ensure that this duty is undertaken on its behalf by
NATS under the Civil Aviation (Air Navigation Services) Directions 1996 (the “1996 Directions”). The
1996 Directions also provide the framework for the provision of the joint and integrated civilian and
defence air traffic service.
2. DESIGN OF THE PPP
Charges for air traffic services are currently imposed by several regulations made by the Secretary of
State pursuant to the 1982 Act. In addition, the CAA is currently empowered under the 1982 Act to
detain, and ultimately sell, aircraft in the case of non payment of overdue charges. It is expected that
this existing legislative framework will be replaced by one into which NATS will fit as a PPP.
Prior to the PPP, ownership of NATS will be separated from the CAA. This will separate air traffic
service provision (provided by NATS) from regulation and also from airspace policy (governing the
design of, and access to, airspace). The existing safety regime will be preserved and, where
necessary, enhanced. The CAA will continue as the single aviation regulatory body with primary
responsibilities for safety, economic regulation and airspace policy (along with its other existing
responsibilities including consumer protection via its ATOL scheme). Separate groups within CAA will
have responsibility for each of the primary areas with the individual department heads coming together
as directors on the CAA Board.
More significant changes are expected in the field of economic regulation. As a result of the agreement
secured with Eurocontrol, the UK intends to replace the present cost-plus charging arrangements with
an incentive-based structure. This will take the form of the RPI-X model, with periodic reviews. This
will provide a predictable maximum level of charges for NATS’ customers while allowing NATS to
benefit from efficiency savings and performance improvements between reviews. It is also expected
that NATS will benefit from growth in the UK aviation market as well as new international opportunities.
It is anticipated that the first X factor will cover five years and will be set before final bids are invited
for the PPP.
Oversight of these arrangements will be the responsibility of the CAA, under a new licensing regime
applying to NATS’ monopoly en-route and Oceanic businesses. NATS’ licence is also expected to
contain conditions relating to the forecasting and planning of service capacity, the achievement of
service standards and the prohibiting of cross-subsidy, direct or indirect, to or from the licensed
The vehicle for the PPP is expected to be a limited company incorporated under the Companies Act
1985, with shares held by the strategic partner, the Government and employees. In contrast to past
privatisation flotations, the Government proposes to put in place joint venture arrangements
appropriate for this innovative public private partnership. To protect its financial interests as a minority
investor, the Government will principally rely on a shareholders agreement with the partner, setting out
details of how the two shareholders will co-operate and reserving certain matters for their decision
alone. While not currently envisaged, the partnership agreement will allow the Government
shareholding to be diluted to a minimum of 25 per cent at its sole discretion.
The Government also expects to hold a special share similar to those previously retained. This will
provide protection, complementary to that in the new legislation, regulatory regime and licence, on key
matters which may affect the public interest and national security in the event of a potential subsequent
flotation of NATS.
Taken together, it is the intention that these arrangements will grant effective control to the strategic
partner, while seeking to protect the Government’s financial interest and the character of the PPP.
Parties requiring further information about the PPP framework should contact CSFB.
3. THE NATS BUSINESS
NATS has three main revenue sources (these are shown in more detail in Section 4.3):
1. UK air traffic services:
• En-route charges to qualifying flights using UK controlled airspace
• Revenue from the MOD for facilities and services provided
• Charges to North Sea helicopters
2. Airport traffic services:
• Charges to aircraft operators for air traffic services provided at BAA’s UK airports (with the
exception of Southampton who pays NATS direct)
• Revenue from other airports that have contracted for service provision from NATS
3. North Atlantic (Oceanic) traffic services:
• Charges to qualifying flights for the services provided by NATS in the north-eastern sector of
the North Atlantic
3.2 UK air traffic services
3.2.1 En-route charges
Approximately 75 per cent of NATS’ total
revenue comes from en-route charges.
En-route revenue is collected in uro by the
Central Route Charges Office of Eurocontrol
in respect of qualifying flights using UK
NATS hedges its exchange rate exposure by
buying forward exchange contracts.
En-route charges in the 29 European states
which are members of Eurocontrol are currently
set by a standard formula which has the following London Area and Terminal Control Centre (LATCC), West Drayton
• airlines are charged on the basis of Chargeable Service Units (CSU);
• CSU are calculated according to a formula that combines distance flown and the weight
of the aircraft concerned;
• the unit charges are set in advance, on a calendar year basis, based on forecast
recoverable costs and levels of traffic; and
• the Eurocontrol charging formula allows for service providers to recover their defined
chargeable costs (including an appropriate rate of return). If a service provider over or
under recovers, the formula requires an adjustment in later years to correct this.
3. THE NATS BUSINESS
Eurocontrol unit rates and CSU numbers for the past five years are shown below:
o 31 December
Year to 31 December 1995 1996 1997 1998 1999 2000E
Eurocontrol Unit Charge (£)1 55.86 58.12 56.28 52.04 50.00 49.50
No. of CSU (million) 6.13 6.67 7.05 7.77 8.34 8.782
1. This is NATS’ element of the unit rate. In addition to the NATS sterling element of the unit rate, the Eurocontrol unit charge (which
is denominated in uro) also includes minor administration charges levied by DETR and Eurocontrol.
2. This is NATS’ latest estimate for CSU to 31st December 2000.
The numbers of CSU have been restated below according to NATS’ financial year (to 31st March).
During a financial year, NATS will derive en-route revenue from two different calendar year charges.
For example, in the 1998/99 financial year, there were 7.94 million CSU, of which approximately 77
per cent occurred in 1998 and were charged at the rate of £52.04 and 23 per cent occurred between
January and March 1999 and were charged at the rate of £50 per CSU.
Year to 31 March 1995/6 1996/7 1997/98 1998/99 1999/00 2000/01E
No. of CSU (million) 6.30 6.73 7.20 7.94 8.45 8.911
1. This is NATS’ latest estimate for CSU for the current financial year.
As NATS is the monopoly supplier of en-route services in the UK, it is proposed that the Eurocontrol
Unit Charge be made subject to RPI-X price regulation post PPP.
3.2.2 MOD revenue
NATS currently receives three streams of income from the MOD. The majority is from an operating
agreement which covers the sharing of common support facilities. Other income is obtained from
services provided to the Defence Procurement Agency at Aberporth and Larkhill, and from a range of
engineering and data services provided by Infrastructure Services Division.
NATS and the MOD are currently in negotiations to formalise their existing cross service provision,
shared facilities and associated arrangements, via contract, prior to the PPP transaction.
3.2.3 North Sea helicopters
North Sea helicopter activity is predominantly oil company activity to and from platforms in the North
Sea. Separate charging schemes operate for the Northern and Southern areas of the North Sea. For
both areas, NATS currently charge a flat rate charge per round trip for a flight from any place in the
UK to a vessel or an offshore installation. Such flights are not currently charged as part of the
Eurocontrol route charges system. CAA/NATS grant dispensation from helicopter charges for flights
made for the purpose of search and rescue operations.
3.3 Airport services
NATS is the major provider of ATC services at UK airports,
handling the majority of air transport movements (ATMs) in the
UK via its 13 airport contracts. These contracts are awarded
periodically by the airport owners and are open to competition.
NATS currently provides services at eight of the ten busiest
passenger airports in the UK (only 8th ranked London Luton
and 9th ranked Newcastle do not use NATS’ services). NATS
is currently in advanced negotiations with the operators of
London Luton airport in regard to commencing the provision of
Heathrow Control Tower
3. THE NATS BUSINESS
Movement and landed tonnage data for the 1999/00 financial year for the 13 airports using NATS’
services are shown below:
Year to 31 Fixed Helicopters Total Change Landed
March 2000 Wing Movements 1999/00 tonnes
Heathrow 461,647 715 462,362 2.3% 31,543
Gatwick 255,877 319 256,196 1.0% 12,617
Stansted 156,867 1,661 158,528 16.4% 4,346
Edinburgh 101,403 1,834 103,237 3.8% 2,287
Glasgow 102,747 675 103,422 2.6% 2,023
Aberdeen 61,779 39,210 100,989 -11.4% 946
Southampton1 N/A N/A 47,877 N/A N/A
Manchester 184,486 178 184,664 0.9%
Birmingham 116,921 4,324 121,245 9.0%
Belfast International 71,364 32,308 103,672 8.5%
Cardiff 64,465 1,284 65,749 -1.4%
London City 46,289 0 46,209 16.1%
Farnborough N/A N/A 15,377 4.0%
1. At BAA airports (with the exception of Southampton), NATS charges the airlines directly based on a landed tonnage formula. At the
other airports, NATS charges the airport owner, who in turn charges the airlines. NATS took over service provision at Southampton
on 1st April, 2000.
3.4 North Atlantic (Oceanic) services
Under agreement within ICAO, seven countries provide air traffic control services over the North
Atlantic: UK (via NATS), US, Canada, Iceland, Portugal, Denmark and Norway. NATS provides en-
route air traffic services over the Shanwick Oceanic Control Area, an area of some 500,000 square
miles to the west of the UK and Ireland.
In 1966, the service provision in the Shanwick Oceanic Region (provided from Shannon and
Prestwick) was consolidated at Prestwick although Shannon continues to provide high frequency
radio cover for the area. The Irish Aviation Authority charges separately per flight for the provision of
this communications service.
In addition, NATS, on behalf of the Governments of
Denmark and Iceland, collects charges on
international flights which pass through the sovereign
airspace of the state concerned, but do not take off
from or land in that state. These arrangements are
expected to be formalised prior to the PPP. The
charges are payable to the CAA and are collected on
its behalf by NATS which retains a management fee
(which is not to exceed five per cent).
North Atlantic Oceanic Control Areas
3. THE NATS BUSINESS
NATS charges airlines using the Oceanic region on a per flight basis (ie. not according to their weight
and distance flown as per Eurocontrol en-route revenue). The current charge for civilian flights in the
2000/2001 financial year is £55. RAF and USAF military flights are given a £2 charge reduction per
flight. Other foreign military are required to pay the full rate.
The historical trend in Oceanic charges and chargeable flights is shown below:
Year to 31 March 1995/96 1996/97 1997/98 1998/99 1999/00
Civil and foreign military charge £85 £73 £60 £63 £62
Civil and foreign military flights 241,668 256,074 276,065 303,246 330,849
RAF/USAF charge £83 £71 £58 £61 £60
RAF/USAF flights 10,084 8,599 9,010 8,692 7,948
As NATS is the monopoly supplier of en-route services in the Shanwick Oceanic region, it is proposed
that the Oceanic flight charge be made subject to a separate RPI-X formula post PPP.
3.5 Miscellaneous income
NATS generates income through the provision of a range of services to DETR, Eurocontrol and the
European Commission. NATS also receives income from other sources e.g. through providing
training, consultancy services, sub-letting surplus property and renting radio mast space.
As at 31 March 2000, NATS employed 5,504 staff as well as approximately 300 contract staff.
NATS employees can be categorised into four
5,138 5,154 5,237
areas: air traffic controllers (ATCOs), air traffic
Other assistants (ATSAs), engineers and others.
An ATCO’s role is to issue instructions, advice
and information to pilots via radio in order to
Air traffic achieve safe, orderly and expeditious flow of
2,000 air traffic.
1,000 controllers At area control centres, ATCOs use radar
information to keep aircraft separated as they fly
1995 1996 1997 1998 1999 2000
along airways and also give them the most
Numbers as at 31 March. (ATCO numbers include student ATCOs) efficient routes to their destination.
At aerodromes, ATCOs guide departing aircraft as they taxi from their stand to the runway and ensure
that they take off safely. For arriving aircraft, the aerodrome controller is responsible for ensuring that
it is safe to land on the runway and for issuing instructions to guide the aircraft safely to its stand on
the apron. Between the area controller and the aerodrome controller is an approach controller – who
uses radar to guide and sequence aircraft into the most efficient order for landing.
3. THE NATS BUSINESS
Air traffic controllers are recruited quarterly following a rigorous screening process,
and receive their initial training at NATS’ College of Air Traffic Control. NATS also
has a long record of training controllers from around the world, taking full benefit
from the fact that English is the international language for aviation. After initial
training, controllers “validate” at specific units following a period of location based
training. Annual competency checks are also conducted.
Air traffic controller
NATS’ engineers have various functions. About 775 support and maintain the
current operational equipment and some 550 are responsible for specifying,
procuring or developing new software and systems to enhance the
performance of the ATC system. NATS has its own College of Engineering
Training, which trains an annual intake of direct entry graduates. Engineers
maintain currency through a substantial training programme aimed at ensuring
that they remain competent to work on the latest equipment.
ATSAs carry out support tasks in both operational and non-operational ATC
Engineer environments. At area control centres and airports, ATSAs generally provide
support to operational ATCOs. The transfer of area control operations to Swanwick and the
application of new technology will lead to a reduction of the current ATSA task.
The “Other” staff form about 20 per cent of the workforce and provide the normal business support
functions including management, administration, scientific, secretarial, accountancy and personnel
More than 500 employees have completed the Certificate of Management Studies (CMS)
qualification. Of these, a further 10 per cent have gone on to
complete a Diploma of Management Studies (DMS) course. A
number of employees have also been sponsored through
NATS employees are members of the Civil Aviation Authority
Pension Scheme. It is the Government’s firm intention that
employees of the company at the time of PPP will be entitled
to remain part of that scheme and that NATS will become a
Non Associated Employer. Gatwick Control Tower
The Government attaches great importance to the protection of pension rights for existing NATS staff.
4. FINANCIAL AND OPERATING PERFORMANCE
4.1 Service unit growth
As highlighted in Section 4.3 approximately 75 per cent of NATS’ revenue comes via en-route
services, based on charges levied on aircraft according to Chargeable Service Units (CSU). Growth
in CSU over the past 15 calendar years is shown below:
Chargeable Service Units
(Annual Increase %)
NATS is currently experiencing a sustained period of high CSU growth. In the opinion of NATS this is
due to three main factors:
• an increase in the number of North America-Europe flights due to increased competition,
de-regulation on certain routes, and to recent airline decisions to switch capacity from Asian to
North Atlantic routes;
• the increase in North Atlantic traffic also has a knock-on effect on CSU, because the average
distance flown in the UK tends to increase as more flights come into UK airspace via
north west Scotland and travel the full distance in UK airspace to London or on to Europe;
• supply side stimulation by the low fare carriers, rather than traditional demand led growth.
This is largely concentrated around the south east airports (such as Luton and Stansted) where
these carriers are based. .
At the beginning of 1998, Eurocontrol amended the way it calculated the distance of a flight path. This
was amended from the most frequently flown route (MFFR) between airport pairs to route per state
overflown (RSO). Under the MFFR calculation, the distance element of the Eurocontrol charges
attributed to a certain flight was fixed, regardless of the route actually flown. Under the RSO, the
distance element of the charge varies according to the route actually flown. This change added
approximately two per cent to the 1998 CSU growth figure.
4.2 Oceanic traffic growth
Given the importance of the North Atlantic (Oceanic) traffic flow to the CSU forecasts, the changing
competitive, regulatory and airline alliance environment across the North Atlantic is resulting in rapidly
changing traffic patterns.
4. FINANCIAL AND OPERATING PERFORMANCE
Growth in the total number of Oceanic flights (ie civil, RAF/USAF and foreign military) over the past
15 years is shown below:
Total Oceanic Flights
(Annual Increase %)
Total chargeable Oceanic flights for the year to 31st March 2000 were 338,797 representing a
8.6 per cent increase on the previous financial year.
4.3 Historical revenue and profit targets
A summary of NATS’ historical revenue performance is shown below:
Year to 31 March (£m) 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00E1
Eurocontrol en-route revenue2 353.0 349.0 383.5 400.7 412.6 424.0
MOD cost sharing 38.8 42.6 28.6 29.7 28.8 30.9
North Sea helicopters 4.2 4.5 4.2 4.2 3.4 3.2
Other UK air traffic services 4.1 4.2 3.0 4.7 4.2 5.0
UK AIR TRAFFIC SERVICES 400.1 400.3 419.3 439.3 449.0 463.1
Charges to users of BAA airports3 61.4 60.3 55.3 53.8 54.3 56.9
Other airport revenue 13.7 14.9 15.5 17.3 19.3 19.1
AIRPORT SERVICES 75.1 75.2 70.8 71.1 73.6 76.0
OCEANIC SERVICES 20.0 21.3 19.4 17.1 19.6 21.0
Miscellaneous 6.2 6.7 8.2 7.5 9.8 8.0
TOTAL REVENUE 501.4 503.5 517.7 535.0 552.0 568.1
1. Management’s latest year end (unaudited) estimates.
2. Eurocontrol revenue is stated net of exchange rate gains/losses.
3. The charges to airlines using BAA airports have been reduced by NATS for six consecutive years.
The UK Government currently sets a target for NATS to make an eight per cent (pre-interest) rate of
return on average capital employed revalued at current cost. This target rate has applied annually since
1998 and is not affected by the performance in previous years. This target applies separately to all of
NATS’ activities, except contracts obtained through competition.
4. FINANCIAL AND OPERATING PERFORMANCE
As at 31st March 2000, NATS’ historic-cost capital employed was £578.7 million, defined as:
• total assets less current liabilities (except loans which are repayable within one year of the
balance sheet date)
• less: provision for liabilities and charges (except provisions for deferred tax)
• less: accruals and deferred income (ie MOD contributions to fixed assets and other
The current-cost uplift is calculated by applying indexation to fixed assets at historic-cost. As at
31st March 2000, this indexation uplift was £56.6 million. Using this methodology, NATS’ current-cost
capital employed as at 31st March 2000 was therefore £635.3 million. In the year to 31st March 2000,
NATS’ current-cost operating profit before interest and tax was £56.1 million.
4.4 Historical operating costs
NATS has four main cost items – employee costs; service and materials; repairs and maintenance and
meteorological services provided by the UK Meteorological Office (“Met Office”). A breakdown of
NATS’ cost base is shown below (data for 1994/95 is not available):
Year to 31 March (£m) 1995/96 1996/97 1997/98 1998/99 1999/00E1
Wages and salaries 175.7 174.9 180.1 190.8 207.0
Indirect staff costs 57.0 66.7 64.5 55.1 60.4
Average numbers of staff during the year 5,230 5,168 5,150 5,298 5,415
Employee costs 232.7 241.6 244.6 245.9 267.4
Service and materials (excl. Met Office) 58.8 52.9 50.8 43.4 42.5
Met Office costs 28.8 26.7 27.4 26.5 25.5
Repairs and maintenance 30.8 31.5 40.7 36.6 37.5
Other operating and general 31.2 57.1 54.9 62.5 64.3
Research and development 8.9 6.2 6.1 3.0 2.3
Operating costs (pre exceptionals and grants) 391.2 416.0 424.5 417.9 439.5
Exceptional items - - 42.22 34.33 26.93
Other operating income - (9.3) (9.1) (8.3) (8.2)
Deferred Government Grants (6.5) (5.5) (6.2) (4.7) (5.0)
Operating costs (post exceptionals and grants)384.7 401.2 451.4 439.2 453.2
Depreciation 50.3 48.1 48.7 47.6 46.4
TOTAL COSTS pre income equalisation 435.0 449.3 500.1 486.8 499.6
Income equalisation 5.2 13.2 (10.6) 1.6 5.3
TOTAL COSTS post income equalisation 440.2 462.5 489.5 488.4 504.94
1. Management’s latest year-end (un-audited) forecasts.
2. Exceptional costs of £22 million in respect of a reorganisation provision for the new en-route centre at Swanwick, exceptional costs
of £5.2 million in respect of future net losses arising out of the sub-letting of a surplus property and an exceptional item of £15 million
representing NATS’ contribution to the European Geostationary Navigation Overlay Service (EGNOS).
3. System and software support costs including design changes and maintenance at the Swanwick centre following the acceptance of
the system from Lockheed Martin in April 1998.
4. FRS 15 is now mandatory and is reflected in the 1999/00 numbers. When re-stated, the effect on 1998/99 will reduce costs by
£5.1 million (£5.7 million in 1997/98 and £6.1 million in 1996/97).
4. FINANCIAL AND OPERATING PERFORMANCE
Employees were discussed in Section 3.6. Some of NATS’ other cost items are discussed below:
Service and materials – includes items such as utilities, rent and rates, computer costs and
Met Office costs – The Met Office provides international forecasting services as required by ICAO
and additional services and products for aviation users.
Repairs and maintenance – includes a range of maintenance costs e.g non-operational IT, furniture
and fittings, telecommunications equipment, buildings, mechanical and electrical equipment.
Other operating and general – includes the cost of professional fees, travel and subsistence,
postage, printing and stationery and the charge made by the CAA for a range of services. Prior to
1996/97, NATS was an internal division of the CAA and therefore did not produce its own accounts
and was not charged for services provided by the CAA. This recharge largely accounts for the
increase in this category of cost in 1996/97.
Other operating income – This relates to the charge made on CAA by NATS for a range of services
Deferred government grants – Government grants on capital expenditure and MOD contributions
in relation to fixed assets are treated as deferred income which is credited to the profit and loss
account by instalments over the expected useful economic life of the related asset on a basis
consistent with NATS’ depreciation policy. Grants of a revenue nature are credited to income in the
period to which they relate.
Income equalisation - Eurocontrol States have agreed that any difference between income and
defined costs should be recovered from or returned to users of en-route navigation services by
amendment of charges in later years. Any such difference is provided for as an asset/liability within an
income equalisation account. This will be amended if, as expected, the UK adopts the alternative
RPI-X charging arrangements.
4.5 Capital structure
When NATS was incorporated on 1st April 1996, it received an initial loan from the CAA of £442.5
million. This represented NATS’ share of the total CAA debt owed to the National Loans Fund (NLF).
The terms of the loans require that, as amounts become due and payable by the CAA to the NLF,
NATS is to repay its share of the loans to the CAA. As at 31st March 2000, NATS’ net debt position
was £300.4 million (this represents outstanding loans of £329.7 million, less a cash balance of £26
million and amounts due from the parent company). All loans have fixed interest rates, with the
average rate being 9.7 per cent.
The intention for the PPP is to classify NATS to the private sector and so NATS will settle its loans
with the NLF and refinance its debt requirements with commercial lenders. This will either be done
prior to the PPP transaction occurring or debt re-financing proposals will form part of the PPP bid
requirements. The PPP represents an opportunity to ensure that NATS’ ongoing capital structure
balances the need to lower NATS’ cost of capital with the requirement for it to be prudently financed
in order to meet its ongoing cash requirements.
5. INDUSTRY DEVELOPMENTS
5.1 The challenge facing the ATC industry
In NATS’ view, the main challenge facing today’s ATC industry is to maintain and improve the present
high levels of safety in the face of the year-on-year growth in global air travel. The expectation is for
this growth to continue, due to ongoing deregulation of the airline industry; increased routes and
frequencies offered by the airlines; globalisation of trade; decreasing fares; and higher disposable
incomes. According to the International Air Transport Association, international scheduled passenger
traffic in the UK will increase, on average, by 5.8 per cent per year between 1999 and 2003 and by
5.3 per cent per year in Western Europe as a whole.
NATS has experienced high growth by virtue of the UK’s location at the major traffic gateway between
Europe and North America, by the continued importance of the London airports as leading
international hubs and by the recent advent of low fare airlines in the UK.
ATC within Eurocontrol is currently provided from 69
ATC centres, by 29 national ATC service providers,
operating many different hardware systems and
software languages. ATC providers in Europe have
traditionally been government-owned, providing
services within national airspace.
This situation will need to change if Europe is to
provide for the expected future growth (as shown in
these Eurocontrol traffic forecast density diagrams).
Capacity must increase both within the upper and
lower airspace, and at airports in order to keep up
with demand. This will require significant investment
if existing safety and service levels are to be
maintained and to prevent delays worsening for
The ATC charges levied on airlines continue to
represent a material element of operating cost to
airlines despite price reductions made in recent years.
However, the impact of traffic delays has a potentially
greater effect on an airline’s profitability because of the
impact on service standards and cost structure – for
instance through higher fuel and labour costs and less
efficient utilisation of aircraft.
The airline industry has faced similar cost and
customer service pressures in recent years. The
outcome is a developing network of airline alliances,
joint ventures and consolidation. European airports
are also responding to these pressures, with several
airports already privatised or in the process of being
5. INDUSTRY DEVELOPMENTS
5.2 NATS’ strategy and investment programme
NATS has recently undertaken a comprehensive analysis of its business and markets as part of its
strategic planning activity. All NATS stakeholders agree that safety must remain paramount.
NATS’ goal is to maintain absolute safety levels (given growing traffic levels) by continuing to constrain
capacity where necessary, introducing new safety enhancing tools and procedures, further developing
its understanding of safety events and causes, and working to further improve the effectiveness of
international safety regulation.
Implementing NATS’ Long Term Investment Plan will be key to providing the capacity and service
standards demanded by its customers and delivering longer term efficiencies. In the short term,
delivering the company’s Centre Development Plan (NERC and NSC) — to time and budget — is
The plan is dominated by investment in the UK ATS business, for which the proposed investment
supports a strategy of:
• delivering additional capacity from a combination of further sectorisation together with initial
• two new centres using common system platforms and application software, each providing
contingency for the other; and
• a mix of national ground-based and multi-national satellite-based infrastructure services.
5.2.1 Centre Development Plan
NATS’ Centre Development Plan, produced in the early 1990s, was reviewed and updated in 1997
and provides for the relocation of all civil and military en-route ATC operations (from the existing sites
at West Drayton, Manchester and Prestwick) into two new, high integrity centres at Swanwick and
Prestwick. In the event of a loss of service from one centre, the other centre will provide significant
contingency capability. The strategic partner will be under a legislative and contractual obligation to
complete both centres.
To minimise support costs and facilitate contingent operations, the two new centres are expected to
use common software. For planning purposes, NATS assumes there will be a major upgrade
approximately every 10 years, driven by changes in ATC operations and new and available technology.
5.2.2 Swanwick (NERC)
The new en-route centre (NERC) at Swanwick, which will provide ATC service for all aircraft flying
within the London Flight Information Region, is progressing in accordance with the revised schedules,
giving a planned fully operational date of Winter 2001/02.
The building is complete and the operational systems were accepted from the supplier (Lockheed
Martin) in April 1998. Technical transfer, which passed control of the ATC systems from the project
team to the operational engineers, was achieved on schedule in March 1999. Last May, a series of
large scale simulations using up to 50 operational controllers were completed successfully.
Operational work-up continues, with the ATC and engineering teams developing and validating their
procedures for full operation. Testing is taking place with the NATS data and communications
infrastructure to ensure that the new systems can be safely introduced into service.
5. INDUSTRY DEVELOPMENTS
Following delays in the NERC programme, DETR commissioned an independent technical audit of the
Swanwick facilities in 1998 by the Defence Evaluation and Research Agency (DERA). The DERA team
“Having examined the core operational system at NERC, together with previous audit work carried out
by NATS specialist advisers, the DERA Audit Team is strongly of the opinion that NERC will
satisfactorily meet its primary purpose. We have found no evidence to suggest that it should be
abandoned in favour of an alternative system development. Furthermore, subject to the development
of appropriate operational procedures and tools, NERC has the inherent capability to handle safely a
greater traffic load than will ever be possible at LATCC.”
To obtain a copy of the DERA report, contact CSFB.
The current work-up phase is on schedule to be completed by the end of this year and will be followed
by a 12 month programme to train the air traffic controllers currently operating at LATCC in West
Drayton to operate their new equipment and procedures. The training programme will be phased, with
the aim of minimising impact on service delivery during Summer 2001.
Swanwick Control Centre
Following the introduction into service of the Swanwick Centre, the en-route function of the
Manchester Control Centre (MACC) will be transferred to Swanwick in accordance with the Centre
Development Plan. Further programmes will transfer in due course the residual Terminal Control and
Military operations at LATCC to the Swanwick centre.
NATS believes that NERC will be one of the largest and most technically advanced ATC centres in the
world. In addition to providing increased traffic handling capacity for the immediate future, the modern
system design facilitates the incorporation of new tools to improve controller productivity in the
medium and longer term.
Swanwick has been designed to easily accommodate the new technology being developed within the
industry (discussed further in Section 5.3) .
5.2.3 New Scottish Centre
The New Scottish Centre (NSC) at Prestwick is similar to the Swanwick centre although the building
will be much smaller because the operational area is smaller than at Swanwick and use will be made
of existing buildings to provide non-operational accommodation (whereas the Swanwick centre was
constructed at a new site with no existing infrastructure).
5. INDUSTRY DEVELOPMENTS
The systems design is similar but the rapid pace of technological change has allowed NATS to select
the next generation hardware when compared to Swanwick. The core software is approximately
95 per cent common.
When first conceived, the NSC was to be financed via the Private Finance Initiative (PFI). Following
the announcement of the PPP, NATS and the Government conducted a review of the PFI contractual
arrangements for the NSC. Early in 1999, they concluded that the project should proceed via
conventional procurement to better meet the objectives of NATS’ strategic plan. Lockheed Martin has
been contracted under the first phase of a framework agreement to provide the software and
hardware elements of the NSC system. Facility design and construction is in the final phase of
re-tendering and early phases of construction should commence at Prestwick in late summer 2000.
NATS has engaged an external project manager (Bechtel) to assist with the NSC project.
The current target date for the NSC to enter into operational service is Winter 2006/07.
5.2.4 FDPS2 Project
The air traffic control capacity of the existing Oceanic Control Centre (OACC) for the North Atlantic
and the efficiency of the ATC service which the centre provides are heavily reliant on the Oceanic
Flight Data Processing System (FDPS). This is in the process of being replaced by the new FDPS2.
The objectives of the FDPS2 project are to:
• improve service reliability, thereby reducing costly delays to the users of the Oceanic service;
• provide additional capacity to meet forecast traffic growth; and
• meet international commitments to utilise emerging satellite-based data communications
In order to meet business objectives, the FDPS2 project will be required to deliver a new OACC
FDPS2 operational system, a new OACC training centre, and a facility to test future modifications to
FDPS2 is currently being developed by EDS under a PFI. The project is a 13 year contract,
comprising a three year development and a 10 year in-service period. The FDPS2 contract, let in June
1997, is based on a very comprehensive technical specification produced by NATS, key milestones
to be achieved and a binding in-service date for the operational system of Spring 2002. The contractor
will receive an annual availability fee from NATS for the ten years the project is in service.
The contractor’s revenue is reduced in the event of late delivery and will also be reduced in the event
of inadequate in-service performance (measured primarily in terms of system availability).
In order to enter service in Spring 2002, the FDPS2 will also require a Voice Control System and
accommodation – these are being separately procured by NATS. The intention is eventually to house
it in the New Scottish Centre.
5.2.5 Global Navigation Services
Aviation navigation services in the future are expected to be provided by Global Navigation Satellite
Systems (GNSS). It is therefore important for NATS to remain involved in the provision of such
services. NATS has invested both financial resources and professional expertise in the European Geo-
stationary Navigation Overlay Service (EGNOS) which is a pan-European project. This project will
address the limitations of the existing military satellite navigation systems by providing the additional
levels of accuracy, integrity and reliability necessary to provide a navigation service for all users and in
particular to meet requirements for all phases of flight in the civil aviation domain.
5. INDUSTRY DEVELOPMENTS
NATS plans to be part of a consortium of leading European aviation service providers who will
establish an Operating Entity. EGNOS is the cornerstone for future European GNSS developments
and this Operating Entity will maximise future potential user revenue streams by being part of the
European Galileo project.
5.2.6 Radar surveillance services
NATS provides en-route radar-based surveillance services, using both primary and secondary
surveillance radar systems, from 20 sites throughout the UK.
The continued provision of radar-based surveillance services is dependent upon the maintenance
and/or replacement of the existing operational equipment. The current sensor systems have capacity
limitations likely to constrain NATS’ ability to provide high integrity Air Traffic Services in the next few
years. Most systems have reached the end of their design life, and in some cases significantly exceed
Long-term requirements for surveillance services are being addressed in international forums and
Eurocontrol has established a Surveillance Standard. This Standard defines the general and
operational requirements for radar based surveillance services in en-route and major terminal area
airspace. Moreover it recognises the trend away from the primary surveillance radar to the use of
co-operative secondary surveillance radar for civil air traffic operations.
5.2.7 Flight Data Processing Plan
The Flight Data Processing development plan supports the centre development strategy, in particular
the introduction of controller productivity tools. The key strategic features are:
• a shift towards processing of flight trajectories rather than flight data;
• increased interoperability across national boundaries
The replacement flight data processing system will also provide medium term conflict detection
capability and support functions such as metering and sequencing tools, which depend on data about
aircraft and availability of slots in European airspace. NATS favours a joint programme to produce a
common Flight Data Processing system, and has already taken part in a joint requirements process to
achieve commonality with other European service providers.
5.3 New technology
The ATC sector is already seeing the benefits of technology standardisation within related industries,
such as information technology and telecommunications. For example, datalink technology is
beginning to offer significant advantages over voice communications, and surveillance data can now
be shared with control centres in other countries. In NATS’ opinion, NATS is at the forefront of the
international groups developing the application of these technologies.
The projected levels of demand indicate that NATS’ ability to add capacity through conventional means
(i.e. sectorisation) reach its limit somewhere in the period 2005-10. Extra capacity will therefore be
added by increasing sector productivity through the introduction of software support tools. These will
automate certain tasks, and provide the controller with more information in managing potential conflict
situations. NATS’ investment programme includes the development of such software support tools,
and the underpinning technologies required to support them.
5. INDUSTRY DEVELOPMENTS
The plan envisages three overlapping but distinct phases which are oulined below:
Elimination of the use of paper flight strips will allow electronic entry and display of controller
instructions and is a pre-requisite for the use of additional support tools. The Future Area Control Tools
Support (FACTS) research programme is initially focused on medium-term conflict alert based on
improved trajectory prediction. Later phases will study the application of metering concepts to achieve
streamed flows of aircraft.
The first phase of the implementation of tools is scheduled between 2004 and 2008. As well as the
additional capacity that these tools deliver, the increased sector productivity has the potential to
reduce unit costs, whilst the increased information available to controllers contributes to improving
5.4 Future opportunities
Being at the forefront of automation development will be a key future opportunity for NATS. To support
this, the company already undertakes extensive research and development on future ATC automation
tools. It is embarking on a number of technology initiatives aimed at improving time to market
performance and enhancing the company’s level of innovation. NATS continues to dedicate significant
research and development effort into future technologies, such as satellite related communication,
navigation and surveillance which is likely to be widely introduced over the next ten years.
NATS is focusing much attention on improving its cost competitiveness relative to other ATC service
providers in Europe. New financial measures and internal systems are being introduced to improve
cost management. Activity based costing and benchmarking are already providing new insights into
identifying areas for improvement.
NATS is establishing a new business development organisation to support its goal to become a
leading player in a future liberalised ATM market. The main business development opportunity for
NATS will be the capacity to export its existing internal expertise successfully and profitably.
NATS has major strengths in terms of its geographic location, excellent safety reputation and proven
ability to manage high density complex traffic patterns. The pending introduction of a new, highly
sophisticated ATC system at Swanwick, and NATS’ research programmes geared towards the safe
management of large traffic volume, should provide a platform for the NATS PPP to exploit some of
the opportunities that are expected to emerge internationally.
5. INDUSTRY DEVELOPMENTS
5.5 Further information and statistics
Regularly updated information concerning NATS, the CAA, the UK Government and economy can be
found at the following web sites:
www.nats.co.uk National Air Traffic Services Limited
www.caa.co.uk Civil Aviation Authority
www.detr.gov.uk Department of the Environment, Transport and the Regions
www.hm-treasury.gov.uk HM Treasury
www.open.gov.uk Central Government Information Service. Links to all Government
www.eurocontrol.be The Eurocontrol site contains reports prepared by Eurocontrol’s
various divisions on the European ATC network, including comparative
benchmarks on the amounts of traffic handled per State, unit costs,
delays and its various ongoing strategy programmes.
Airprox Aircraft proximity event
ANS Air navigation services
ATC Air traffic control
ATCO Air traffic controller
ATM Air traffic movement (or air transport movement for airports)
ATS Air traffic services
ATSA Air traffic assistant
CAA Civil Aviation Authority
CSFB Credit Suisse First Boston (Europe) Ltd
CSU Chargeable service unit
DERA Defence Evaluation and Research Agency
DETR Department of the Environment, Transport and the Regions
EATCHIP European air traffic control harmonisation and integration programme
EATMP European air traffic management programme (successor to EATCHIP)
EBITDA Earnings before interest, tax, depreciation and amortisation
EFL External financing limit
EIB European Investment Bank
FDPS Flight data processing system
FIR Flight information region
HMT Her Majesty’s Treasury
ICAO International Civil Aviation Organisation
LATCC London Area and Terminal Control Centre, West Drayton
MACC Manchester area control centre
MFFR Most frequently flown route
MOD Ministry of Defence
NATS National Air Traffic Services Limited
NERC New en-route centre, Swanwick
NLF National Loans Fund
NSC New Scottish centre
OACC Oceanic control centre
PPP Public private partnership
RSO Route per state overflown
ScACC Scottish area control centre
WBT Working balance threshold
APPENDIX A: CONSORTIUM PARTNERING LIST CONSENT FORM
To assist those wishing to develop bidding consortia or partnerships for the NATS PPP, CSFB is
preparing a list of potentially interested parties. If you wish to have your organisation’s name included
on the list (which CSFB proposes to make available to all parties on the list), please confirm your
request in writing directly to CSFB using the consent form shown below. The completed consent form
may be faxed or mailed.
Please note that the list will only be made available to parties who have themselves consented to be
named on the register and whom DETR and the CSFB consider have a bona fide interest in the NATS
PPP (either directly as a strategic partner or as adviser/consultant).
Fax No: 44 (0)20 7888 8295
Investment Banking Division
Credit Suisse First Boston
20 Columbus Courtyard
London E14 4DA
NATS Public Private Partnership
We confirm our organisation’s consent to its name being included on the “List of Interested Parties.”
We understand the “List of Interested Parties” will only be distributed to other consenting parties that
DETR and CSFB believe have a bona fide interest in the NATS PPP. We wish our details to appear
Company name: .....................................................................................................
Type of organisation: .....................................................................................................
Contact person & title: .....................................................................................................
Telephone & fax: .....................................................................................................
Please sign and date all returned consent forms.