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Select Committee on Environment, Transport and Regional Affairs Third Report

DEVELOPMENTS AT NATIONAL AIR TRAFFIC SERVICES

Costs and delays incurred as a result of the PFI

22. Although NATS claims that it will save up to £100 million by proceeding with the New Scottish Centre on a conventional procurement basis, the decision to opt for a PFI contract, and then to abandon it, has meant that the company has incurred costs which it would not have faced if the PFI had not been adopted in the first instance. NATS told us that in May 2000 it had settled a claim with Sky Solutions for work undertaken in respect of the New Scottish Centre contract. The settlement totalled £7 million.[84] Moreover, the decision in 1993 to choose a PFI arrangement had required the specification of the project to be re-written, and other changes made. Time was also spent on tendering, and the resulting bids had to be evaluated and negotiated. These activities, NATS told us "added several years of delay to the project and hence significantly increased the level of project support costs. In addition, the costs of specialist advisers would need to be added to the cost",[85] although NATS could not calculate precisely the costs which arose specifically as a result of the PFI.[86]

23. NATS also told us that as a result of the delay in opening the New Scottish Centre it had proved necessary to implement a programme of work at the current Scottish Area Control Centre in order to sustain operations there until the new Centre becomes operational. These works include a new bank of workstations for military use, a new discrete Military Voice Communication System, a Radar Data Processing and Display System, the creation of new sectors, and a new Domestic Operations Room Layout. The total capital costs of the Sustainability Programme is £6.4 million plus internal engineering costs of £2.3 million.[87] More than £15.7 million has been spent unnecessarily because of the Government's insistence, contrary to the clear and consistent advice of NATS itself, to opt for a PFI contract for the New Scottish Centre, and its subsequent decision to abandon the contract. We unreservedly condemn this waste of NATS' revenue.

24. Moreover, the project, which should already have been completed, has been delayed by seven or eight years. NATS told us that "the current centre can accommodate a limited number of additional sectors, but there will then be no further space in the operations room for subsequent expansion".[88] As a result, growth in capacity will become constrained which, the IPMS told us, will eventually cause delays to aircraft.[89] The IPMS also noted that no guaranteed funding is in place to complete the centre, and invited us to press for urgent progress.[90] We agree with the IPMS. It is extremely disappointing that the project has been so much delayed by the decision to opt for a PFI contract. In order to ensure that capacity in the airspace currently controlled by the Scottish Area Control Centre is not constrained we urge NATS to proceed with the construction of the New Scottish Centre without delay.

Benefits of the New Scottish Centre

25. In their evidence to us, both British Airways and the British Air Transport Association questioned the high project cost of the New Scottish Centre,[91] which is expected to be approximately £400 million.[92] British Airways commented that "the costs of the proposed New Scottish Centre are extremely high and we have seen no evidence that they are justified by benefits of increased capacity or reduced delays".[93] In reply, NATS told us that the New Scottish Centre was a key element of its two centre strategy, and would provide both the physical space and the new technology needed to "provide the platform for increasing airspace capacity throughout the life of the building, over the next thirty to forty years".[94] Moreover, it would replace existing, ageing equipment, it would be able to provide contingency cover in the event of a catastrophic failure of the New En Route Centre, and the fact that it will share systems with the New En Route Centre would allow reductions in maintenance and upgrade costs.[95] Although the arguments in favour of the 'two-centre strategy' seem persuasive, we recommend that NATS clarify for its major customers the benefits that the New Scottish Centre will bring.

THE OCEANIC FLIGHT DATA PROCESSING SYSTEM

26. The United Kingdom is, by international agreement, responsible for providing air traffic control services for aircraft over the eastern part of the Atlantic Ocean, in the Shanwick Oceanic Control Area.[96] The Oceanic Area Control Centre is based alongside the existing Scottish Area Control Centre at Prestwick. The principal system in use at the Centre is the flight data processing system (FDPS), which processes information on air traffic crossing the Shanwick region.[97]

27. In the early 1990s, the need for a new Oceanic FDPS was identified. It was intended that the new system would provide much greater capacity, reliability and functionality than the current system.[98] In particular the new system would provide a platform to permit the implementation of satellite-based management of air traffic over the North Atlantic, a development which had been proposed by the International Civil Aviation Organisation.[99] Like the New Scottish Centre, it was decided that the new system should be procured under the Private Finance Initiative. In November 1994, a competition to find a supplier was announced, and in July 1997 the PFI contract was awarded by NATS to EDS Limited.[100] The term of the concession agreement was to be thirteen years, including a period for design and installation of the new system.

Recent developments

28. There were a number of problems with the contract, and, as a result, NATS and EDS underwent "a number of unsuccessful attempts to resolve these including a renegotiation of a number of the contract terms".[101] However, after the critical design review at the end of May 2000, during which EDS was required to demonstrate that its designs met NATS' requirements, NATS terminated the contract.[102] The company cited EDS' failure to deliver the review to the scope and extent required by the contract, although EDS does not accept this assessment.[103] NATS, advised by Bechtel, are currently deciding how to take the project forward, although the provisional plan is to buy and adapt an 'off-the-shelf' system to provide a replacement system by 2004, and to add functions to it as required in the future.[104]

Cost of the Oceanic PFI contract

29. In its evidence about the Oceanic FDPS contract, the IPMS told us that it did "not believe that the Private Finance Initiative was an appropriate route for financing or running this vital part of the UK air traffic control service".[105] That view is supported by the fact that the contract has been terminated, and by the subsequent decision to opt for an 'off-the-shelf' alternative. Although it was unable to specify the amounts involved, NATS conceded that "costs have been incurred [in relation to the Oceanic FDPS project] with specialist advisers and on internal project support costs. NATS has also had to incur costs on sustaining the current system and has let a number of support contracts".[106] It is also currently negotiating with EDS about the value of work already carried out on the project, and about contractual issues arising from the critical design review. Given the difficulties experienced in the PFI arrangements for the New Scottish Centre, and NATS' opposition to the use of the PFI in that case, we are again surprised and disappointed that NATS was required to proceed with the procurement of a new Oceanic flight data processing system under similar arrangements. We therefore condemn the fact that resources have been wasted in preparing a PFI contract which has subsequently been abandoned.

Delays to the new Oceanic FDPS

30. A need for a new Oceanic flight data processing system was identified in the early 1990s: it is clear, therefore, that its introduction has been much delayed. Both the Government and NATS pointed out to us that the existing system remains capable of operating for some time, and has become increasingly reliable over time.[107] In addition, they told us that "the timescale for implementing a replacement Oceanic FDPS system has been extended as a result of decisions by the International Civil Aviation Organisation",[108] principally that satellite-based management of air traffic will not now be required until some time after 2005.[109] Although we acknowledge that the need to introduce a new Oceanic flight data processing system has become less pressing, we are nevertheless disappointed that it has been so delayed. We urge NATS to take steps to ensure that a suitable new system is put in place as soon as possible.

THE NEW EN ROUTE CENTRE

31. In 1988 it was decided that a New En Route Centre, at Swanwick in Hampshire, should be constructed to replace LATCC by 1996. Construction of the building which would accommodate the Centre began in 1991, and was completed by 1994. Since then the project has suffered repeated delays, caused mainly by poor project management by NATS, and by problems with the computer systems at the new Centre: the Government told us that "previous delays to the Centre resulted from over-optimistic time-tabling and ongoing technical problems".[110] We have commented on the delays at length in previous reports.[111] The date on which the Centre will become operational has been repeatedly revised, until in October 1998 the Government told us that the Centre will open "probably [in] early 2002".[112] In July 2000, NATS confirmed that the target date for the Centre to enter operation (known as the 'O-date') is 27 January 2002.[113]

Slippage in the timetable

32. NATS told us that good progress had been made towards the date on which the New En Route Centre would come into operation.[114] For example, the number of 'programme trouble reports', or software bugs, in the system at the Centre fell from a reported 200 in August 2000 to 120 by 8 November 2000, when NATS gave evidence to us,[115] and to 99 by 24 November.[116] The company's Chief Executive told us that the aim was to reduce the number to 20 or 30 by the date of technical handover of the system, scheduled for 20 December 2000.[117] He said that twenty to thirty bugs "is a number that we can manage".[118] In fact, at the time of technical handover only six programme trouble reports remained.[119]

33. The Chairman of NATS, however, told us that he could not guarantee that the New En Route Centre would in fact open on the target date.[120] Indeed he acknowledged that the date "is not without risk, [but] it is a feasible date to aim for".[121] In February 1999 NATS developed a detailed 'plan to completion' which sets fifteen target dates by which stages of the project should be completed. The first nine, up to August 2000, were met.[122] However, technical handover of the New En Route Centre from engineering to operational staff on 19 December 2000 took place two months behind schedule.[123] Although NATS remains confident that the Centre will open on 27 January 2002,[124] it also anticipates that the remaining target dates by which certain aspects of the project should be completed will be missed.[125] British Airways stressed that, "as users, we are concerned that the implementation date of January 2002 should be met".[126] We note that slippage in the timetable for completing the later stages of development of the New En Route Centre is already expected, and we also note the Chairman's unwillingness to guarantee that the Centre will become operational on the target date. We trust that NATS will redouble its efforts to ensure that the Centre is opened on time.

Availability of functions when the Centre opens

34. The IPMS told us that "some features of the Swanwick system will not be available at 'O-date'".[127] The Chief Executive of NATS agreed that there will be "one feature that the controllers would like [which will not be available] ... called requested level. It is ... not absolutely crucial in any way".[128] Indeed the IPMS conceded that the absence of certain features "should not unduly affect the New En Route Centre's introduction but may add to controller workload".[129] NATS told us that the system as delivered would meet the original specifications required, although the company had "a list of things that we want to add beyond 'O-date', improvements, enhancements, things that will help us to cope better".[130] The evidence we have received suggests that all necessary functions will be available to controllers at the New En Route Centre when it becomes operational.

Availability of staff when the Centre opens

35. The IPMS told us that the New En Route Centre might not have the number of air traffic control officers it needs to be fully operational on 27 January 2002: indeed, the union claimed that "we will be some 50 air traffic controllers short".[131] As a result, the IPMS said, "the number of sectors available at the start of operations is likely to be reduced, with a consequent reduction in overall capacity".[132] The Guild of Air Traffic Control Officers expressed similar concerns about the number of controllers needed at the new Centre, and said that "if Swanwick were to open with less than the numbers required, the Guild would need assurances that safety would not be compromised".[133] We also have been told informally that NATS has made arrangements for the Scottish Area Control Centre to take over some of the sectors previously covered by LATCC in order to facilitate the handover to the New En Route Centre.

36. NATS, however, denied that there was any shortage of air traffic controllers. It told us that "a key requirement is to have sufficient validated controllers in place for the start of operational services at Swanwick in January 2002. Manpower projections indicate that the supply of controllers will be sufficient to meet operational requirements".[134] The Chief Executive claimed that far from being short of controllers, there are already "some sixty [extra controllers] in the area control operation at LATCC who are a deliberate build-up of an overbearing".[135] NATS said that this 'overbearing' has been created "to meet New En Route Centre development requirements".[136] The evidence we received from staff and from management about possible shortages of air traffic controllers at the New En Route Centre on the date that it is due to open is contradictory. We recommend that NATS re-examine the matter, consulting with staff, and take whatever steps are necessary to ensure that adequate numbers of controllers are available to permit the new Centre to open at full capacity on 27 January 2002.

Cost of the New En Route Centre

37. In 1998, we were told that the New En Route Centre would be delivered for a total cost of £475 million, a figure not dissimilar to the original estimate of £462 million in 1991.[137] The review of the project conducted by Arthur D. Little, however, concluded that the true cost of the Centre by the time it opened was likely to be £625 million.[138] In addition, NATS internal costs, including project management costs and Swanwick staff costs from project initiation until the operational date, were estimated at £76 million to £86 million,[139] and there were further costs, relating to operational staff time and training, site acquisition, buildings and other projects, which were not assessed.[140] In 1998, we observed that "it is not satisfactory that £443 million has so far been spent on the New En Route Centre with no benefit to air passengers".[141] We have now been told that "the New En Route Centre System of itself, without doing anything to it, will give us a ten to fifteen per cent, possibly even a twenty per cent, increase in capacity".[142] Given the relatively modest increases in capacity made possible by the New En Route Centre, and given its original estimated cost of £462 million, its actual cost of over £700 million is disgracefully high. Moreover, there remains confusion and lack of clarity over the precise total costs of the New En Route Centre. These costs, including NATS internal costs relating to the project, must be clearly stated without delay. We recommend that NATS explore with its suppliers means by which it may benefit from any re-sale of the technology to be used at the Centre, in order to recover at least some of the costs it has incurred.

EXISTING STAFF SHORTAGES AT NATS

38. The roster for training all Area Control staff based at LATCC for the New En Route Centre has now been published. NATS told us that the roster includes "over 21,000 individual allocations of staff to activities".[143] The IPMS described the roster as "very tight, causing restrictions on leave and other difficulties including the ability to resource non-operational areas such as training".[144] The union also said that "it is a major task to actually keep a system working, together with training people for a new task".[145] The Guild of Air Traffic Control Officers told us that the roster "will result in a shortfall of controllers of between 15 per cent and 25 per cent at LATCC, with significant flow control measures being necessary ... this will undoubtedly place an increasing workload and associated stress on the air traffic controllers concerned".[146] Again, NATS dismissed these concerns: it told us that the 'overbearing' of sixty controllers at LATCC "will be used to provide cover for operational conversion training".[147] The Chief Executive of the company assured us that "we have got enough controllers to do this".[148]

39. There are, in any event, concerns about staff shortages even before the conversion training for the New En Route Centre begins. British Airways told us that "staff shortages have caused significant episodes of delay and this problem appears to be increasing".[149] The IPMS reinforced the point, claiming that "all large units (ie. those with over 30 air traffic control officers) are experiencing a shortage of up to 20 per cent of their operational requirement".[150] The IPMS also said that following the planned introduction of a new sector for Terminal Control at LATCC "peak air traffic control officer shortfall could reach 40 per cent".[151]

40. NATS argued, as before, that far from being short of controllers it had 1,312 controllers in post compared to a requirement for 1,254 controllers across the entire NATS operation.[152] The company subsequently told us that in Area Control at LATCC there were already 360 controllers available to meet a budgeted requirement for 300, and that there would be 374 available by June 2001.[153] For Terminal Control operations at LATCC, however, although NATS currently had a full complement of 255 controllers, there would be a "slight shortage" of 10 to 14 controllers after the introduction of two new sectors in early 2001.[154] The Chief Executive of NATS also said that air traffic growth of five to six per cent each year meant that there was a demand for new sectors, and thus for more air traffic controllers.[155] He told us that NATS had stepped up its training programme to deal with any shortage of controllers: the company had been recruiting approximately a hundred controllers each year, and aimed to increase that figure by as much as fifty per cent.[156]

41. Although there was disagreement about the degree to which there is a shortage of air traffic controllers, it was generally accepted that there was a shortage of engineers. The IPMS said that there were difficulties in recruiting and retaining engineering staff, due to the buoyancy of the computing and telecommunications jobs market, the desire of engineers to work on new technology, rather than the legacy systems typical of NATS, and the fact that long-term job prospects at LATCC were not good.[157] NATS told us that there were 210 engineers in post at LATCC, compared to a budgetary requirement of 215, and that NATS Software Services had 204 staff in post against a budget of 207.[158] The company is currently recruiting to fill eleven posts to cover these vacancies and forthcoming retirements. The Chief Executive agreed with the IPMS about the difficulties of recruiting staff, but said that he thought "our pay rates are fairly competitive".[159]

42. Although we note the view of NATS management that current staff shortages are either very slight or do not exist at all, there are consistent reports of staff shortages at LATCC, particularly amongst engineers. We are also concerned about the availability of air traffic controllers during the period that the conversion training roster for the New En Route Centre is in place. We recommend that NATS keep a close watch on the situation, and that it ensure that it takes steps, including if necessary increasing rates of pay, to attract sufficient numbers of staff into the company.

Conclusions

43. Recent events illustrate the difficulties facing NATS at the moment, and underline the fact that the company is in an unsettling period of transition, caused in particular by delays in bringing both the New En Route Centre and the New Scottish Centre into operation. Some of the problems we have commented on in this report, such as the delays which have afflicted the New En Route Centre, are attributable to poor management by NATS; some, such as the delays and wasted resources which resulted from insistence on utilising PFI arrangements for the New Scottish Centre, are the fault of Government; and others, such as a shortage of software and other engineers, particularly to work on legacy systems like those at NATS, are wider issues, perhaps beyond the company's control.

44. The opening of the New En Route Centre and the New Scottish Centre will not mark the end of NATS' investment plans. It has already set out its preferred investment plan for the future.[160] Its plan is described as 'consolidation plus tools', which consists of consolidating all NATS functions in the two centres at Swanwick and Prestwick by 2010,[161] by bringing together Manchester Area Operations and London Terminal Control with the New En Route Centre at Swanwick,[162] and the introduction of new computer systems partly to automate air traffic control procedures.[163] NATS itself describes the plan as 'high risk',[164] and "very challenging in terms of technical requirements and timescales ... [it is] consequently rated as high risk to maintain the proposed timetable".[165] Such comments have led British Airways to observe that "it is difficult for users to have confidence in this approach, especially before the New En Route Centre has been implemented successfully".[166] Indeed, it would seem to be prudent for NATS to wait until the New En Route Centre is operational, and progress has been made with the New Scottish Centre before it embarks on a 'high risk' plan of further investment.

45. As we have said, NATS has for a long time faced uncertainty, with repeated delays in its major investment projects, the New En Route Centre, the New Scottish Centre and the Oceanic flight data processing system. We are pleased to note, notwithstanding the reservations we have expressed in this Report, that promising progress is now being made in all three areas. Nevertheless, given all the problems the company has faced, it is obvious that now is not an appropriate time to subject NATS to further upheaval. We therefore strongly recommend that the proposal to implement a public-private partnership affecting the company be postponed, at least until the New En Route Centre has been successfully brought into operation.

84 See NATS02A, p.6. Back

85 NATS02A, p.6. Back

86 See NATS02A, p.6. Back

87 See NATS02A, p.7. Back

88 NATS02A, p.7. Back

89 See Q.73. Back

90 See NATS07, paras.12 and 13. Back

91 See NATS05, para.21, and NATS06, para.4. Back

92 See HC Deb, 20 March 2000, col.400w; see also Winning design unveiled for New Scottish ATC centre, NATS Press Notice, 7 November 2000. Back

93 NATS05, para.21. Back

94 NATS02A, p.7. Back

95 See NATS02A, p.7. Back