NATS statement on 2011-12 financial performance

NATS’ strong operating and financial performance reflects our success in meeting key targets which deliver significant value for airlines in the form of flight efficiency, reduced fuel burn and some of the lowest levels of delay in Europe.

This year alone we enabled around 25,000 tonnes of fuel savings, worth roughly £17m, through improvements to flight profiles. We also introduced an environmental metric as part of our performance plan which is forecast to enable reductions in our airline customers’ fuel bills by c £120 million at today’s prices – we believe this provides a model for Europe in reducing CO2 and fuel burn.   And our average delay of 7.3 seconds per flight is about one tenth of the European average, which helps save airline costs across their operations.

As a result of our commitment to deliver benefits to airlines, in 2012 NATS received a best-ever annual customer satisfaction score with 81.1% of customers satisfied or highly satisfied with our service.  This evidences that many of our customers value the service that we provide.

The price control review conducted by the CAA in consultation with airlines for 2011-2014 (CP3) for NATS’ economically regulated business allowed a pre-tax return of 6.8% p.a. on its regulatory asset base. This reflects the CAA’s assessment of our cost of capital, taking into account both cost of equity and cost of debt, recognising that we have to raise finance on the capital markets.  Actual returns, measured on a basis consistent with the regulatory assumptions used by the CAA when setting the price controls, are set out in the company’s published regulatory accounts.

As explained in the financial review section of NATS (Holding) Limited’s accounts (page 22) there are some significant differences between the accounting profit which is prepared in line with International Financial Reporting Standards and the regulatory return, which is lower and which is cash based (using the economic regulatory building block model described on page 22, the principles of which are commonly used by regulators in other sectors in the United Kingdom).

The main reasons include:

  • Lower historical cost depreciation compared with regulatory depreciation which is indexed to enable the replacement of the capital investment base; and
  • Lower accounting pension costs using best estimate assumptions prescribed by accounting standards compared with the cash contributions agreed with Trustees which include a margin for prudence

The actual regulatory return that NATS En Route Limited (our regulated business) will generate in CP3 will be recorded in the company’s regulatory accounts which measure this on a basis consistent with regulatory assumptions used by the CAA when setting the price controls for CP3.

According to information provided in November to Eurocontrol for the 2012 calendar year, the highest charges (excluding the CRCO administration fee) were Switzerland €99.13/CSU followed by United Kingdom €79.54, Italy  €78.55,  Germany €74.19 and Belgium €73.77.

NATS En Route Limited’s public-private partnership (PPP) legacy pension obligations for existing members, which are protected in law and which the company has to fund fully, are the reason why its determined unit rate is currently higher than other European ANSPs many of whom do not have similar type obligations.  We have significantly restructured our pension arrangements, closing the defined benefit scheme to new members, capping pensionable pay and opening up a lower cost new defined contribution scheme.  This will ensure that our pension costs will reduce significantly as the proportion of employees in the new scheme grows.

We have reduced our controllable underlying direct costs by 33% in real terms since the PPP in 2001 and we will work hard to achieve further reductions to mitigate increases in pension costs driven by market factors beyond our control.

While price is important, it is equally important to relate it to the service and value that we provide to airlines, passengers, business, the environment and the wider economy.

Posted in Reports, Uncategorized

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