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NATS (En Route) Plc /CAA Regulatory Appeal Provisional Findings Report

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NATS (En Route) Plc /CAA Regulatory Appeal Provisional Findings Report NATS (En Route) Plc /CAA Regulatory Appeal Provisional findings report 24 March 2020 © Crown copyright 2020 You may reuse this information (not including logos) free of charge in any format or medium, under the terms of the Open Government Licence. To view this licence, visit www.nationalarchives.gov.uk/doc/open-government- licence/ or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: [email protected]. The Competition and Markets Authority has excluded from this published version of the provisional findings report information which the inquiry group considers should be excluded having regard to the three considerations set out in section 244 of the Enterprise Act 2002 (specified information: considerations relevant to disclosure). The omissions are indicated by []. Contents Page Summary .................................................................................................................... 1 Background ................................................................................................................ 1 Our approach to the reference .............................................................................. 3 Whether a failure to set a price control and impose the appropriate modifications operates, or may be expected to operate, against the public interest .................. 4 Whether the effects adverse to the public interest could be remedied by modifications to the licence conditions. ................................................................ 5 Service Delivery Targets ................................................................................. 5 Traffic Forecasts .............................................................................................. 5 Opex ................................................................................................................ 6 Capex .............................................................................................................. 7 Non-regulated income ..................................................................................... 9 Pensions .......................................................................................................... 9 Oceanic ......................................................................................................... 10 Cost of Capital ............................................................................................... 11 Overall assessment of the price control .............................................................. 12 Next steps ........................................................................................................... 12 1. Introduction ......................................................................................................... 13 2. Background ......................................................................................................... 15 The NATS Group ................................................................................................ 15 Overview of NATS company structure ........................................................... 15 NERL ............................................................................................................. 16 Industry background ........................................................................................... 17 Air traffic control (ATC) .................................................................................. 17 Air traffic controllers (ATCOs) ........................................................................ 18 Recent trends in air traffic movements .......................................................... 19 Other relevant context for RP3 ........................................................................... 19 Airspace modernisation ................................................................................. 19 Airspace Modernisation Strategy ................................................................... 20 Airspace Change Organisation Group (ACOG) ............................................. 20 Upgrading of IT systems and technology ...................................................... 21 ADS-B ........................................................................................................... 22 Other regulatory decisions ............................................................................. 22 Regulatory environment ...................................................................................... 22 International and supra-national regulation ................................................... 22 UK regulation ................................................................................................. 24 The price control ................................................................................................. 25 RP3 price review ................................................................................................. 27 RP3 process .................................................................................................. 27 CAA approach to RP3 ................................................................................... 27 NERL’s reasons for rejecting CAA Decision for RP3 ..................................... 28 Third parties ........................................................................................................ 30 3. The Reference and the Legal Framework ........................................................... 32 The Reference .................................................................................................... 32 Statutory Duties .................................................................................................. 33 The CMA’s approach .......................................................................................... 34 The CAA’s view ............................................................................................. 34 NERL’s view .................................................................................................. 34 1 Our approach................................................................................................. 35 4. Failure to set a price control and the public interest ............................................ 37 Introduction ......................................................................................................... 37 Main Parties’ views ............................................................................................. 37 Our assessment .................................................................................................. 39 Our provisional conclusion .................................................................................. 40 Structure of the rest of our provisional findings ................................................... 40 5. Service quality and environmental targets and incentives .................................. 42 Introduction ......................................................................................................... 42 CAA Decision for RP3 ......................................................................................... 42 Service quality targets ................................................................................... 42 Service quality incentives .............................................................................. 43 3Di environmental target ............................................................................... 45 3Di incentives ................................................................................................ 45 Overall financial incentives ............................................................................ 46 RP2 incentive outturns .................................................................................. 46 NERL’s view ....................................................................................................... 46 CAA’s view .......................................................................................................... 48 Other evidence.................................................................................................... 48 Our approach ...................................................................................................... 49 Our assessment .................................................................................................. 50 Our provisional conclusions ................................................................................ 51 6. Traffic forecast .................................................................................................... 52 Introduction ......................................................................................................... 52 CAA Decision for RP3 ......................................................................................... 53 NERL’s view ....................................................................................................... 53 CAA’s view .......................................................................................................... 54 Other evidence.................................................................................................... 54 Our approach and assessment ........................................................................... 55 Accuracy and reliability of information ........................................................... 55 Independence ...............................................................................................
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