The UK terminal ANS market and NATS (article)

  The UK terminal ANS market and NATS (article)

  1.     Introduction: The UK terminal ANS market and NATS

  2.     European Regulation and CAA decisions.

  3.     Evolution of costs in the terminal ANS market in the UK

·         DATA Problems

ü  Analysis of cost units: from TNSU to airport movements.

ü  Definition of TANS costs, problems to separate costs between En-route and terminal.

·         Evolution of TANS costs.

ü  Comparative analysis of the five biggest ANSP: AENA, DFS, DSNA, ENAV, and NATS.

v  “type of change” factor.

v  Evolution of NATS cost per IFR movement with NATS ATCO cost per hour.

  4.     Conclusions

  5.     Bibliography and data

1.       Introduction

 Historically, air navigation service provision at British airports was conducted on a self-supply basis at each airport. However, after NATS was established, it built up a strong position in the national market, especially at the largest airports, providing ANS in congested airspace, and improving interfaces between En route and terminal services.  SERCO also supplies ANS at some small civil and military aerodromes in the UK, although it does provide ANS at a number of larger overseas airports, such 54 towers in the USA, and Abu Dhabi and Dubai airports[1]. But most of middle size aerodromes in the UK are self-provided of air traffic control service, as we will see later

Creation of NATS

NATS was created in 1972 when responsibility for sponsoring the civil air traffic service component was transferred to the newly formed Civil Aviation Authority. With respect to air traffic control, service provision and safety regulations were being conducted within the same organization. This had at least the potential for a lack of transparency and external accountability[2].

 This potential conflict of interest was partially solved in 1996, when NATS moved from an in house part of the CAA to a wholly owned subsidiary (under the Companies Act auspices). The declared objectives were: to operate as a private company, to achieve transparency, and to separate service provision and regulatory functions. [3]

 But a further impulse towards partial privatization was starting to be seriously considered. Sir Roy McNulty, Chairman of NATS from 1998 and during the years leading up to establishing the PPP (public- private- partnership) in 2001, declared under prevision of continuous rise in traffic volume and changing industry environment, that a PPP would be positive because[4]:

-          “By freeing NATS from government financial constraints, it will secure the funds we need to create an air traffic control system capable of meeting future demand”. 

To provide capital investment.

-          “A new, more commercial environment – and the consolidation that is bound to follow – will open opportunities for efficient and successful operators to expand “.

A more commercial-oriented management.

-          “It will also provide incentives to maximize efficiency and deliver better value to our customers”.

A more professional and efficient management.

 Since the beginning, safety issues raised doubts, and the future of the “no blame culture” of NATS was questioned by unions.

 Finally, the perceived need to raise substantial capital was a dominating consideration for the Government, and a PPP was deemed to be the best way to bring in fresh capital from the private sector. In his speech to the Labour Party, Prescott noted that, ‘‘It needs over a billion pounds to keep up with growing air movements.’’[5]

 Privatization 2001: problems

 The establishment of the PPP in 2001 meant that NATS changed from being one company, to four. This new corporate structure  comprised  a holding company (NATS holding Limited), a management company (National Air Traffic Services Limited), and two principle operating subsidiaries: NATS (En Route), and NATS (Services) Limited.

  Initially, the shares of the holding company were divided:

-          49%: Government .

-          5%: employees.

-          46%: private companies.

 Two main bids competed, Nimbus (participated by SERCO), and the Consortium (consortium of UK- based airlines). The winning bid was made by the consortium (845 million GBP), above the one made by Nimbus (750 million). At this time, NATS debt was 330 million.

 The consortium stated repeatedly that they would operate the firm in a “not for commercial profit basis”, what represented a big advantage in this bid process:  ‘‘The choice of the Airline Group had other advantages. It had presented its bid as being on a ‘not for commercial return’ basis, which means that in the short to medium term at least, any profits would be ploughed back into the business, and no dividends paid.’’ (UK House of Commons, 2002).

  Shortly after the consortium made its offer, the banks refused to lend the money unless the bid was reduced.  It was then reduced to 758 million (still above Nimbus offer). But then things changed dramatically, the consortium, instead of investing 758 million (plus the costs of privatization made by the government), financed the operation throw:

-          Put in equity of 50 million.

-           Loans TO the newly formed company of 733 million (what can be seen as a leverage buyout).

 Due to the loans, NATS debt passed from 330 to 733 million.

 This new and huge debt, plus the September 11^th events, put the company in a very weak economic situation.  The level of transatlantic traffic decreased a 14%, and 43% of revenues[6]. Due to this radical new scenario, the banks, which had set up a 650 million capital facility in addition to the loan for the purchase, concluded that NATS would not be able to meet its debt service obligation from 2005 to 2010[7]. As a logical consequence, the banks cancelled the borrowing facility, what meant a real possibility of the company going into administration.

  The solution (“Composite solution”) came from BAA and the Government. BAA bought to the Consortium a 5% of NATS for 65 million, and the Government  made an injection of the same quantity (65 million). The operation, advised by Credit Suisse First Boston, implied a cost reduction of 10% of costs over the years 2002- 2006 (170 million).

 Summarizing, PPP had two main objectives:

-           achieving funds for future investments

-           Improving management (economic efficiency and commercial- customer orientation).

It is clear that the first one was not achieved.

Current situation of ANS provision in  the  UK Airports[8]

The provision of the 30 top airports in the UK (data 2008) is as follows:

Airport	ATMs in 2006 (000s)	Ownership	ANSP
1. Heathrow	473	BAA Ltd44	NSL
2. Gatwick	256	BAA Ltd	NSL
3. Manchester	213	MAG	NSL
4. Stansted	192	BAA Ltd	NSL
5. Edinburgh	119	BAA Ltd	NSL
6. Birmingham	109	LAs/AGI/Employees	NSL
7. Aberdeen	102	BAA Ltd	NSL
8. Glasgow	99	BAA Ltd	NSL
9. Luton	83	Luton Council	NSL
10. London City	74	Global Infr. Partners	NSL
11. Bristol	66	MacQuarie	NSL
12. Newcastle	59	Local Auths & Copenhagen Apt	Self-supply
13. East Midlands	57	MAG	Self-supply
14. Belfast Intl	49	ACDL / Abertis	NSL
15. Liverpool	48	Peel Group	Self-supply
16. Southampton	46	BAA Ltd	NSL
17. Belfast City	38	Ferrovial	Self-supply
18. Leeds Bradford	38	Bridgepoint	Self-supply
19. Norwich	24	Omniport	Self- supply
20. Cardiff	22	ACDL / Abertis	NSL
21. Inverness	21	HIAL	Self-supply
22. Prestwick	19	Infratil	Self-supply
23. Exeter	16	Regional & City Airports (Balfour Beatty)	Self-supply
24. Humberside	14	MAG	Self-supply
25. Blackpool	14	City Hopper Airports Ltd	Self-supply
26. Kirkwall	13	HIAL	Self-supply
27. Durham Tees Valley	13	Peel Group and local authorities	Self-supply
28. Bournemouth	12	MAG	Self-supply
29. Scatsta	11	Consortium with Bristow Helicopters, Shell, BP and others	Serco
30. Coventry	11	CAFCO (Coventry) Limited	Self-supply

 Although some changes have happened since 2008, what seems relatively clear is that the final decision of an airport operator is whether self-providing the air traffic control service or contracting it out with NATS, a semi-public provider. Third providers (apart from NATS), like SERCO, does not have a strong position in the UK market.

2.    European Regulation and CAA decisions

·         Commission Regulation (EC) Nº 1794/2006 modified by (EC) Nº 1191/2010

·         Commission Regulation (EC) Nº 391/2013

·         CAP 1004:  Single European Sky - Market Conditions for Terminal Air Navigation Services in the UK

·         CAP 1157: The CAA´s approach to the regulation of terminal air navigation service for RP2

 Commission Regulation (EC) Nº 1794/2006 modified by (EC) Nº 1191/2010

  In this regulation,   the European Commission established a common charging scheme for air navigation services. This scheme implied some requisites of transparency related to terminal ANS costs and units rates.

  The regulation open the possibility of choosing   a “Determined Cost method”  for calculating rates, method that will be compulsory in the future. All the countries but France have postponed the application of “Determined cost method” till 2015.

 The only way to avoiding the common charging scheme for airports with less than 150.000 IFR movements a year is to fulfill Annex 1 conditions. Another exception is that every state may decide to let out of the regulation aerodromes with less than 50.000 movements a year.

 Summarizing (Annex 1 conditions):

-          Supply side: a number of firms able to provide ANS, and no entry barriers.

-          Demand side: capacity of the airport to choose and change of ANS provider, and the existence of cost pressure on ANS costs (competition and pressure on costs).

 The process (annex 1) must be carried on with the consultancy of airports.

 We will focus on the next regulation due to its similarity with this one, and the fact that it is going to be derogated at the end of this year.

 Commission Regulation (EC) Nº 391/2013

 From January 1^st  2015 onwards, and for the RP2 (reference period 2). This common charging scheme is oriented as (EC) 1794/2006 (transparency, accountability,..) but with the characteristic of imposing the “determined cost method” for calculating terminal ANS costs.

 In the “determined cost method” (applicable to En Route since January 1^st 2012), the amount charged to users is determined prior to the reference period, and the difference between actual and terminal cost is borne/retained by the ANSP.

 Regarding to terminal ANS, the aim of the commission regulation is clear: “Where it is established that terminal air navigation services and/or CNS, MET and AIS services are provided under market conditions, Member States should be able to decide for these services not to calculate determined costs, not to calculate terminal charges, not to set terminal unit rates and/or not to set financial incentives”[9];  it means, when market conditions are applicable to the provision of ANS, CNS, MET, and AIS, the state can decide to not apply the common charging scheme for those services.

  Summarizing the article, the exceptions to the “common charging scheme” are:

-          Airports with less than 70.000 IFR movements a year[10]. The government of the country can decide either to apply the regulation or not.

-          Terminal air navigation services and CNS, MET and AIS services subject to market conditions[11]; basically, let the market works.

The conditions for determining   whether terminal air navigation services and/or CNS, MET and AIS services are provided under market conditions are defined in Annex 1, and they are as follows:

a)      The extent to which service providers can freely offer to provide or withdraw the provision of these services

b)      The extent to which there is a free choice in respect to service provider, including, in the case of airports, the option to self-supply

c)       The extent to which it can be chosen from a range of service provider

d)      For terminal air navigation services, the extent to which airports are subject to commercial cost pressures or incentive- based regulation

e)      Where the provider of terminal air navigation services or CNS, MET and AIS services also provides en route air navigation services, these activities shall be subjected to separate accounting and reporting

All these topics are analyzed in the CAP 1004

CAP 1004:  Single European Sky - Market Conditions for Terminal Air Navigation Services in the UK

Advice to the DfT under Section 16(1) of the Civil Aviation Act 1982

  After some studies and analysis, the position of the CAA (and DfT) is quite clear, they do not support the idea of a contestable market of ANSP in the UK: “The CAA considers that there is evidence pointing in different directions in judging market conditions against the criteria set out in Annex 1 of the Regulation” [12]

Related to the issues of Annex 1, CAA found some “barriers”, let´s see them:

Ø  The extent to which service providers can freely offer to provide or withdraw the provision of these services.

The CAA does not identify statutory barriers, but they do identify three economic barriers:

ü  “a lack of clarity on the relationship between NATS Services Limited (NSL) and NATS and En Route Limited (NERL)”[13]

ü  NATS Deed of a Trust of a Promise (ToaP)[14]

ü  air traffic control officer (ATCO) licensing requirements and career progression.

Ø  The extent to which there is a free choice in respect to service provider, including, in the case of airports, the option to self-supply.

 Here, the big barrier CAA found was the “airport operator´s tolerance of transitional risks of service provision”[15]. The study also names “transparency of TANS costs, and airport operator´s ability to move to self supply”[16] as other barriers.

           

All these topics are analyzed in the CAP 1157

CAP 1157: The CAA´s approach to the regulation of terminal air navigation service for RP2

The RP2 regulations for terminal ANS applies to the following UK towers with more than 70.000 IFR movements a year:

-          Heathrow Airport

-          Gatwick Airport

-          Manchester Airport

-          Stansted Airport

-          Edinburgh  Airport

-          Luton Airport

-          Birmingham Airport

-          Glasgow Airport

-          London City Airport

 The considerations of the CAA about future reforms   deal with these  topics:

1.       Contracts

Safety, environment, capacity and cost efficiency are the factors which an airport should take into account when awarding a contract, and not only economic (cost efficiency) aspects.

2.       As the terminal ANS in the UK airports is paid mainly through “revenues obtained from contracts or agreements between air navigation service providers and airport operators”, the CAA intends to establish a charging zone level target with the expectations that contracts for TANS will be the instrument to achieve it (the “cost target”).

3.       The CAA considers that airport or third party ownership of operational assets will help contestability, as assets will be transferred to the incoming provider without the participation of the incumbent.

4.       Cost transparency and clarity of information are key and common factors in all this process.

3.    Evolution of costs in the terminal ANS market in the UK

3.1   DATA problems

a)      Cost vs. Taxes

The reason why we are using costs instead of final prices for analyzing the evolution of the market (contestability) is simply because we have not got these data, at least in the UK.

 From the analyzed countries, three of them fund the terminal ANS costs through terminal air navigation charges[17]: France (99%), Germany (100%), and Italy (94,6%). But Spain only funds a 10,5% of costs through taxes. And the UK, as it has 2 charging zones:

 UK – zone A[18] : Not available data

 UK  - zone B[19]: 0%

  In the UK-zone B the costs are not recovered through charges. The service is provided through contracts between the airport operator and the ANS Company.  It is the airport who decides how to charge the air company for this service. Most of the cases there is not even a special charge for it. So, there is not a relationship between service and charge.

        This case is contemplated in the Commission Regulation (EC) Nº 391/2013 (art 4.3):

“The determined costs of terminal air navigation services shall be financed by terminal charges imposed on users of air navigation services, in accordance with the provisions of Chapter III, and/or other revenues”.

  This reasoning is supported by NSL profits.

 

As long as NSL has profits, we can consider the company is charging a price to the airport operator higher than its costs. The final price that the aerodrome is paying to the ANSP (NSL) covers costs and gives profit. It means that, at least, all the costs and their increases are transferred to the aerodrome (and its final users).

 It is important to remark the fact that NATS (Service) Limited and NATS En-Route have their accountancy totally separated, in order to do not mix regulated with unregulated activities.

 This data[20] are expressed in millions of GBP

b)      TSU vs. IFR Airport movements.

From TSU(terminal service units)  to IFR  airport movements.

   When analyzing and comparing costs, the charging unity more used is the TSU (terminal service unit), what is:

       with X= 0,7

 But until 2014, X can be a value between 0,5 and 0,9.  From 2015 onwards, X= 0,7  for all the countries.

 What we can say about the concept of TSU, it is that evidently is based on the “cargo” and “payment” capacity (passengers included),  more than in the real cost it represents.

 On one hand, when analyzing the terminal ANS cost structure of the 13 biggest UK airports[21], we see that between 44% and 60% of total costs are staff costs. And the biggest part of staff costs is ATCO salaries.

 On the other hand, the distribution of ATCO´s in a Control Tower is directly (not proportionally) related to the number of IFR movements.   Depending on the number of expected traffic (normally only IFR are considered in big airports), there will be a distribution of frequencies (more airplanes= more frequencies). And normally, a fixed number of ATCOs are assigner per “open” frequency.

The cost of providing terminal control service to a small executive IFR traffic is more or less the same than the cost of providing control service to an A380, or a B747. Furthermore, sometimes, a training (and very slow) school IFR traffic causes much more work-load than a commercial traffic (A320, B737, etc); the reason is that a light IFR traffic is slower than a commercial traffic, ant it occupies the approach area longer than a fast commercial traffic, demanding more attention for its operation.

 That is why, in this analysis I have decided to use the unit: cost/IFR movement

c)      Definition of TANS costs, problems to separate costs between En-route and terminal.

Art 8.2 (Commission Regulation (EC) Nº 391/2013)

The cost of terminal services shall be related to the following services:

(a) aerodrome control services, aerodrome flight information services including air  traffic advisory services and alerting services;

(b) air traffic services related to the approach and departure of aircraft within a certain distance of an airport on the basis of operational requirements;

(c) an appropriate allocation of all other air navigation services components, reflecting a proportionate distribution between en route and terminal services

NATS definition is: “TANS are defined as the approach and aerodrome control services provided at an airport….”[22].

 The main problem here is that the breakdown of terminal ANS costs into TWR operational units and APP operational units is not available for any state. Not even APP and En-route costs.

 But, we are not interested in comparing costs among countries. We are interested in the evolution of these costs in each country, especially in the UK.

 The impossibility to compare TANS costs among different providers is clarified in these points:

·         PRR2013 6.7.4: This point clarifies why cost comparisons are not possible among the different  ANSPs

“Among the identified reasons for differences in terminal ANS unit cost are: the States’ discretion on defining their Terminal Charging Zones (TCZ), including the number of TCZ and the number and size of aerodromes; the charging policy, including charging formula until 2014 and applied cost-allocation between en-route and terminal; the traffic levels and complexity, and the scope of ANS provided. This introduces comparability issues when analysing and benchmarking terminal ANS performance levels across States/TCZ/airports “

·         PRR2013 6.7.6 highlights an important issue:

“Low terminal ANS unit cost in UK TCZ B could be partly due to the fact that for the London airports (which account for most of the traffic in UK TCZ B), the cost data submitted only covers the aerodrome control service provided by NATS Services Ltd (NSL). In fact, Approach control for the London airports is provided by NATS En-Route Ltd (NERL) and recovered through a separate London Approach Charge, for which no cost information is currently separately reported to the European Commission.”

 Summarizing, sometimes, TANS include APP (approach) costs, and sometimes not; and, as we do not know exactly which countries and which airports  do or do not include it, we cannot make direct comparisons.

But  as in the UK:

-          In airports when TANS data include APP costs, this service (APP) is provided jointly with TWR (Glasgow: NSL; Newcastle: Self-supply).

The ANS paid/contracted by the airport operator will include APP + TWR, and we can perfectly analyze the evolution of these costs in the medium/ long- run.  Because both services are contracted, and they can be contracted out with another ANSP (or to be Self-supplied).

-          In airports when TANS data only include TWR service, everything is easier. The APP service is not included, and the airport operator knows exactly what it pays for the TWR service, and in case it decides to change the ANSP, the airport manager.

 Total TANS cost is exactly the amount of money subject to be contracted out, and it includes the ANS (TWR and/or APP) subject to be contracted out.

 As long as this situation remains more or less stable in time, we can perfectly analyze the evolution of costs.

3.2 The evolution of TANS market in the UK

First of all, we will make a consideration. When asked, NATS declared that the UK TANS market was contestable[23]. In case this is true, it is obvious that the pressure of the market and the potential entrant threat (mainly the own airport operator, which can self- supply the service) will have the effect of disciplining the market; that means, putting pressure on costs.

 Furthermore, between 1999 and 2008 there were some ANSP changes in the UK TANS market:[24]

Airport	Date of transfer	Previous ANSP	In-coming ANSP	Notes
Liverpool	July 1999	NATS until 1982, then Serco	Peel Airports (self-supply)	Switched to self-supply following acquisition by Peel Airports.
Southampton	April 2000	Self-supply	NSL
Luton	November 2000	Self-supply	NSL
Glasgow Prestwick	January 2001	NATS	Infratil (self-supply)	Switched to self-supply on change of ownership
Bristol	November 2005	Self-supply	NSL

 These changes mean there is a certain interest/pressure of Airports on reducing ANS costs.

 Let´s see how these costs evolved, compared with the other 4 big ANSP in Europe:

 ATM/CNS Costs per IFR movement

YEAR	AENA	DFS	DSNA	ENAV	NATS (€)	NATS(£)	EUR/GBP
2012	140,96 €	113,66 €	124,12 €	101,79 €	102,30 €	83,00	0,8113
2011	143,70 €	105,40 €	125,08 €	98,98 €	91,15 €	79,12	0,868
2010	156,27 €	100,25 €	130,01 €	94,27 €	93,54 €	79,51	0,85
2009	215,48 €	99,57 €	132,32 €	101,14 €	88,19 €	78,49	0,89
2008	196,45 €	81,89 €	124,22 €	98,55 €	77,73 €	62,18	0,8
2007	174,98 €	84,24 €	114,33 €	88,55 €	92,74 €	65,84	0,71
2006	157,51 €	79,64 €	108,34 €	90,20 €	80,08 €	54,45	0,68
2005	157,27 €	79,29 €	108,59 €	91,24 €	81,24 €	55,25	0,68
2004	156,18 €	94,84 €	112,40 €	141,47 €	73,47 €	49,96	0,68
2003	138,47 €	100,29 €	103,17 €	124,38 €	72,91 €	50,31	0,69
2002	111,47 €	104,01 €	99,40 €	105,31 €	75,18 €	47,36	0,63

 If we analyze the evolution of ATM/CNS per IFR movement in percentage terms, it is somehow surprising:

YEAR	AENA	DFS	DSNA	ENAV	NATS (€)	NATS(£)	EUR/GBP
2012	126,45%	109,28%	124,87%	96,66%	136,08%	175,24%	0,8113
2002	100%	100%	100%	100%	100%	100%	0,63

The increase in costs of NATS, in GBP, has been sharper than any other of the big 5 ANSP provider. Later we will see the causes of this result.

 We observe as well, that the “type of change” between the Euro and the GBP is softening the rise of the costs.

 This comparison can be even more shocking if we analyze, for the same ANSP, the evolution of:

-          ATM/CNS Cost of 1 IFR flight-hour controlled.

-          ATM/CNS Cost of 1 IFR airport movement.

	AENA(€)		DFS(€)		DSNA(€)		ENAV(€)		NATS(€)		NATS(£)
Year	2002	2012	2002	2012	2002	2012	2002	2012	2002	2012	2002	2012
Flight-hour	391	520	462,1	600	364,5	437,4	390,2	511,3	634,2	451,6	399,5	366,4
Airp. Movem	111,5	141	113,6	104	99,4	124,1	105,3	101,8	75,2	102,3	47,36	83

The same data expressed in percentage terms:

	AENA(€)		DFS(€)		DSNA(€)		ENAV(€)		NATS(€)		NATS(£)
Year	2002	2012	2002	2012	2002	2012	2002	2012	2002	2012	2002	2012
Flight-hour	100%	132,5%	100%	129,8%	100%	120%	100%	131%	100%	71,2%	100	91,7%
Airp. Movem	100%	126,5%	100%	109,3%	100%	124,9%	100%	96,6%	100%	136,1%	100	175,2%

Differences are quite remarkable. NATS En-Route has adjusted its cost structure since the privatization (2001). As it is written in this article, the “Composite Solution“ came with an agreement of a reduction of 10% of costs (mainly support costs). This adjust did not happened in NSL.

But, which are the main factors affecting costs (and its evolution) of ANSP?

Factors affecting costs of ANSP

Three are the key[25] elements, when speaking about costs:

-          ATCO´s salaries

-          ATCO´s productivity

-          Support costs (costs incurred when producing a “unity” of product, apart from ATCO wages)

 ATCO productivity is important for En Route services, and support costs evolves quite slowly in time; so, when dealing with TANS cost evolution, the main factor, by large, is ATCO´s salaries.

Now, we are going to analyze the relationship between ATCOs salaries and ATM/CNS cost per IFR movement for the “big five” ANSP.

Dividing the analysis in two groups:

Año	AENA (Euros)		DFS (Euros)		DSNA (Euros)
	ATCO/hour	ATM cost/unit	ATCO/hour	ATM cost/unit	ATCO/hour	ATM cost/unit
2012	160	140,96 €	172	113,66 €	97	124,12 €
2011	164	143,70 €	154	105,40 €	92	125,08 €
2010	170	156,27 €	149	100,25 €	91	130,01 €
2009	193	215,48 €	140	99,57 €	92	132,32 €
2008	191	196,45 €	138	81,89 €	86	124,22 €
2007	184	174,98 €	124	84,24 €	79	114,33 €
2006	168	157,51 €	108	79,64 €	68	108,34 €
2005	161	157,27 €	104	79,29 €	64	108,59 €
2004	154	156,18 €	102	94,84 €	60	112,40 €
2003	135	138,47 €	96	100,29 €	60	103,17 €
2002	103	111,47 €	72	104,01 €	58	99,40 €
CORR COEF	0,890		0,334		0,924

 And the 2^nd group….

Year	ENAV(Euros)			NATS(Euros)		NATS (GBP)
	ATCO/hour	ATM cost/unit	ATCO/hour		ATM cost/unit	ATCO/hour	ATM cost/unit
2012	108	101,79 €	120		102,30 €	97,356	83,00
2011	106	98,98 €	106		91,15 €	92,008	79,12
2010	101	94,27 €	106		93,54 €	90,1	79,51
2009	97	101,14 €	103		88,19 €	91,67	78,49
2008	97	98,55 €	96		77,73 €	76,8	62,18
2007	97	88,55 €	95		92,74 €	67,45	65,84
2006	94	90,20 €	99		80,08 €	67,32	54,45
2005	82	91,24 €	83		81,24 €	56,44	55,25
2004	88	141,47 €	85		73,47 €	57,8	49,96
2003	76	124,38 €	76		72,91 €	52,44	50,31
2002	74	105,31 €	71		75,18 €	44,73	47,36
CORR COEF	-0,386		0,858			0,965

Correlation Coefficients are very demonstrative of what is happening. NATS (NSL) has the highest Correlation Coefficient (when considering GBP); it means that the company has suffered a labor cost increase which has been directly transferred to its cost structure. It has not been absorbed by any improvement in ATCOs productivity, or a reduction of Support costs. ATCO wages are defining the cost tendency.

 Furthermore, looking at

	CORRELATION COEFFICIENTS OF ATM-CNS Costs PER UNIT
	in €	in LCU (Local Currency)
	0,25	0,18
Excluding UK	0,14	0,14
Excluding Spain	0,29	0,20
Excluding Germany	0,25	0,17
Excluding France	0,11	0,03
Excluding Italy	0,45	0,37

These correlation coefficients corroborate our conclusions, the exclusion of  NSL (NATS) in our schemes will reduce the relationship between ATCOs wages and costs determinantly.

We should dedicate more time to see the role of DSNA (France). Its “leader” role within the “five big” ANSP cannot be ignored. Perhaps its ATCO union (salary demands) is being followed by the other ANSP, showing them the way. This is for another paper.

4.      CONCLUSION

From 2002 to 2012, NATS TANS cost/ IFR Movement has increased a 77% (in LCU), it is  three times the increase of the second one (AENA: 26´45 %).  This increase in costs is strongly related to the increase of ATCOs salaries (75% in LCU). During this period (2002-2012), NATS (Service) Limited has continued giving service to the main UK airports (no one has rejected its services)

Although NATS defends that the UK TANS markets is contestable, the CAA has declared that some barriers do exist, which impede the correct functioning of a contestable market. These barriers are mainly:

-          Risk aversion of Airport managers to change the ANSP.

-          ATCOs labor market (licenses, career progression, mobility….).

 We could think that we are in a perfectly contestable market, and we have suffered an “ATCO salary price shock” which affects to all the providers in the UK. The fact that NSL has not lost an only ANS contract in this time reinforces this theory. UK ATCOs salaries are not above European salaries of the “big five”. That explains that there has not been a movement of ATCOs to the UK. UK ATCOs wages are simply catching up the sector medium wages.

 But this theory is hardly sustainable by several issues:               

-          The basic objectives of a contestable market are: lower prices (costs?), higher efficiency levels, and lower profits.

From 2007 to 2012, in the UK TANS market,  NATS unitary costs have increased a 26% (in LCU), profit has doubled from 14,4 million GBP  to  29,5  million GBP (104%) , while revenues have increased from 137,4  to 201,2 million GBP (46%).

 The only possible explanation is that some barriers are permitting a big increase of profits, at the time that costs experiment a dramatic raise.

-          There are no more firms operating in the UK TANS markets but NSL, only NATS is an important “third provider”. Kessides and Tang (2010) deal with size distribution and contestability of the market. One prediction of this theory is that the size of the firm will reach the optimum in absence of barriers.  

The fact that there are no real competitors to NSL as a third provider can give as an idea of real barriers.

 All this happen in a sector (UK TANS market), where staff salaries and operating costs amount the most part of the total cost (90% approximately of total TANS costs). Sunk costs are not a barrier of entry.

 All these data are sufficient to confirm the existence of barriers in the market, and that we are not in a contestable market.

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[1] 2008 data

[2] M. Goodlife, “The new UK model for air traffic services – a public private partnership under economic regulation”

[3] Argent 1996/1997

[4] McNulty (2000)

[5] Prescott 1999

[6] UK House of Commons, 2002

[7] Yates, 2003

[8] Assesment of Contestability under Annex 1 of the Air Navigation Services Charging Regulation (EC) Nº 1794/2006

[9] Consideration (8) of the (EC) 391/2013

[10] Article 1.5

[11] Article 3

[12] CAP 1004, Executive Summary point 4

[13] CAP 1004, Executive Summary point 5

[14] CAP 1004, Executive Summary point 5

[15] CAP 1004, Executive Summary point 5

[16] CAP 1004, Executive Summary point 5

[17] Overview of Terminal ANS Costs and Charges (2009-2014) for States participating in the SES Performance Scheme. TNC final data – November 2013 (Performance Review Body)

[18] Edinburgh, Luton, Birmingham, Glasgow, London City, Aberdeen, Nottingham East Midlands, Bristol, and Newcastle.

[19] Heathrow, Gatwick, Manchester, and Stansted

[20] NATS (Services) Limited Annual Report and Account

[21] Overview of Terminal ANS Costs and Charges (2009-2014) for States participating in the SES Performance Scheme. TNC final data – November 2013 (Performance Review Body)

[22] NATS, Terminal Air Navigation Services (TANS).

 Draft RP2 Business Plan (2015-2019)

[23] CAP1157 2.5

[24]Assesment of Contestability under Annex 1 of the Air Navigation Services Charging Regulation (EC) Nº 1794/2006

[25] We could include size of Airports and Air Traffic control Centres (ACC), because  Economies of scale; but we consider they are not important when analyzing the tendency.