Deregulation or Reregulation:

The Regulatory Reform of

Air Navigation Service Providers

Alan Jones&

James Guthrie*

Faculty of Economics and Business, The University of Sydney

Paper presented at the Air Transport Research Society World Conference, UC Berkeley, USA, 21-23 June 2007

*Corresponding AuthorDiscipline of Accounting, Faculty of Economics and Business,The University of Sydney, NSW, Australia.J.Guthrie@econ.usyd.edu.au

Abstract

This comparative study looks at the social and economic regulatory reforms

introduced in the air navigation service (ANS) industry during the past two decades, as a

result of governments restructuring service providers into commercial organisations with

separate legal entities that have greater managerial autonomy and financial independence.

The widespread ownership changes from public departments to private companies,

combined with the ANS industry’s perceived failure of traditional hierarchical

governance structures has provided powerful stimuli for regulatory change, resulting in

the separation of service provider from regulator.

The governance of these ‘new’ enterprises has been achieved through the

establishment of specialist independent regulatory bodies, given the responsibility to

protect ‘public interest’ by promoting social objectives like safety and environmental

protection; and economic controls to mitigate monopoly abuse, by ensuring fair-trading

or anti-trust practices to increase economic efficiency.

The paper argues that as the ANS industry has commercialized, contractualized

and managerialised, governments have responded differently to these pressures causing

some countries to deregulate and others to re-regulate. In particular, the implementation

or non-implementation of pricing regulation models, such as Rate-of-Return or RPI-X is

examined with reference to managerial incentives to increase economic efficiency and

reduce organisational risk from increased elasticity of supply and demand.

In conclusion, this paper shows that government reforms and choice of regulatory

regime have had significant effects on ANSP on organisational sustainability and

effectiveness.

1. Introduction

During the past twenty five years, Air Navigation Service Providers (ANSP) –

along with many other public organisations throughout the world – have been the subject

of reforms under the paradigm of ‘New Public Management (NPM)’ (Aucoin, 1990:;

Hood, 1991). The deregulatory programmes of the Reagan and Thatcher administration

were mirrored by Canada’s Mulroney administration (1984-93) (Savoie, 1994). In

Australia, the managerialist-driven Hawke Labour Government (1983-1991) introduced

radical administrative reforms under the influence of economic rationalism (Dixon,

1996). NPM was a response to the perceived flaws of the ancien regime, or classic

‘Weberian’ hierarchical bureaucracy, governments sought to inject private business

principles and market economics into ANSPs through ‘commercialization1’.

The reforms have often resulted in ‘traditional’ governance structures

(hierarchically controlled public administrations, directly answerable to elected officials),

being replaced by ‘new’ (Peters, 2000) or ‘modern’ (Kooiman, 2003) business-like

governance models.

Beginning with New Zealand, over 40 nations have commercialized their ANSPs

shifting operational and financial responsibility from government to more independent

commercial authorities (Dillingham, 2005), ranging from wholly-owned government

corporations to privatised companies controlled by stakeholders. Governments from both

the left and right have brought about restructuring, including Labour in New Zealand and

the UK and a centre-right government in Germany.

Among those taking this path are:

New Zealand 1987 Airways Corp. Govt owned corporation South Africa 1993 ATNS Govt owned corporation Germany 1993 DFS Govt owned corporation Australia 1995 Airservices Govt owned corporation Canada 1996 Nav Canada Private company (non-profit ‘Trust’) UK 2001 NATS Public-Private-Partnership (PPP) USA 2004 FAA Performance Based Organisation (PBO)

1 ICAO defines commercialization as the ability of an organization to operate like a commercial business, whether it is wholly or partly owned by government or fully privatized (cf Dillingham, 2005:5).

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Contemporaneous with the NPM reforms, the state’s role shifted from that of

service provider to service regulator. We now live in the age of the ‘regulatory state’

(Button, 2005:; Majone, 1994); a concept developed to contrast a distinctive and

emergent form of governance from the instruments and institutions of the ‘public-

bureaucracy state’, which traditionally deployed public ownership, direct state provision

of services, and integrated policy and operational functions. The regulatory state

governance form involves changes in public management characterised by the separation

of operational from regulatory activities, purchasers and providers of public services,

operational from policy tasks within government departments, and the creation of

executive agencies.

Each of these policies shifts the emphasis of control, to a greater or lesser degree,

from traditional bureaucratic mechanisms towards instruments of regulation (Scott,

2003a:4). The control of ANSPs as it now stands is a problem created by

commercialization and more significantly privatisation, one which has been met with the

creation of new regulatory bodies (Foster, 1992). However, as Button & McDougall

(2006:251) conclude:

‘The challenge is to find a regulatory regime to limit any excess in monopoly power that may be associated with ANSPs activities, without stymieing incentive and innovation’.

ANSPs reforms have been the focal point of an expanding body of literature2. The

regulation of business and especially regulation of the privatized utilities has attracted

much attention from both policy-makers and academics (Hood, Scott, James, & Travers,

1999). The majority of studies have taken a ‘technical’ approach to assessing the reforms

by focusing on issues such as ownership and financial structure, performance, board

membership, user fees, price mechanisms, etc. Broadbent and Guthrie (1992) point out

the limitations of purely technical accounts. It is argued studies should not focus on

technical issues in isolation, but rather view them as organisational and social

phenomena, embedded within their broader institutional setting (Guthrie, 1993).

Peele(1993:X) echoes this position stating ‘regulation is too often analysed in narrow

technical terms which neglect the important questions of political choice in regulatory

2 See Button, K (2005:8), Button, K. and G. McDougall (2006:240) and Lewis, I. (2004: 387-388) for more inclusive accounts.

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decisions’. More recently the comparative studies of Lewis (2004), Button (2005),

Dempsey et al (2005), Dillingham (2005), Button and McDougall (2006) and Oster

(2006) have responded to these criticisms by giving greater consideration to

organisations’ institutional context in their accounts.

This paper seeks to add to this latest body of work by also taking an institutional

approach to the historical changes that have occurred in the regulatory regimes of four

ANSPs:

Airservices Australia,

Nav Canada,

National Air Traffic Services (NATS),

Federal Aviation Administration (FAA).

Using logic similar to that employed by Lewis (2004), the cases were selected

from Anglo-American countries considered leaders in NPM and representative of the

major governance models that now exist. As Kay (1987:21-22) points out ‘the best

comparisons are confined to the comparatively few unbiased situations where there are

both public and private firms operating’.

Despite the countries’ similarities, Button (2005) found a diversity of institutional

structures had emerged during the reform process. An institutional approach facilitates a

better understanding of which institutions mattered, and why particular ‘templates’ where

more attractive than others during the implementation of distinctively different regulatory

regimes (Lodge, 2003a). Each country has its own traditions and approaches to regulation

more generally, and any change to a particular industry, such as ANS provision, must be

set within this larger context (Button et al., 2006:250). The range of implementation

styles appear to match very well to the characteristics of the politico-administrative

regimes (Pollitt & Bouckaert, 2000)

The main focus of the paper is reform to economic regulation; including its social

form e.g. Community Service Obligations (CSO). The introduction of private capital into

such organisations necessitates their economic regulation to ensure commitment. Social

regulation which affect safety standards and environmental protection, etc are only

examined from a regime perspective, as their regulation has long been instituted in

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infrastructure industries whether state or privately owned. The record of air safety has

shown public safety has not been compromised since the deregulation of the airline

industry, similarly Dillingham (2005) found safety levels had not been eroded since the

commercialization of ANSPs.

The structure of this article is organized as follows. Section 2 examines the

motivations for regulation and problems of ANSPs as natural monopolies. The paper then

examines the cases, enlisting the analytical framework of Levy and Spiller (1994), who

view regulation as a design problem, consisting of two components; regulatory

governance (Section 3) defined as ‘the mechanisms that societies use to constrain

regulatory discretion and to resolve conflicts that arise in relation to these constraints (op

cit205)’, which will be analysed using Considine’s (2001) three governance models and;

regulatory incentives (Section 4), comprising the rules governing pricing (e.g. ROR &

Price Caps), entry, etc. The concluding Section 5 discusses the implications of successful

or unsuccessful alignment between the governance models and regulatory incentives and

the impact on organisational sustainability and effectiveness.

2. Regulation of ANSPs

‘Regulation is the sustained and focused control, normally exercised by a public agency, over activities that are valued by a community’

(Scott, 2003b:302)

2.1 Deregulation or Re-regulation?

In an attempt to improve efficiency and attract private investment many OECD

countries have implemented economic reforms that have increased the role of the private

sector in the provision of transport infrastructure facilities and services. As the role of the

private sector increased through commercialization/privatization, it seemed logical that

government regulations would be reduced (Rosenau, 1999). But in reality, deregulation

often lead to the opposite (Pongsiri, 2002). Instead of eliminating the need for regulation,

such reforms emphasized the need for effective re-regulation and regulatory institutions

(UNESCAP, 2001:171). Deregulation and liberalization are followed by more rules and

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regulation, allowing growth of the regulatory state and public bureaucracies (Vogel,

1996).

Governments introduce regulation due to a variety of technical justifications and

political motivations. Three theoretical frameworks have gained acceptance as to why

regulation occurs: public interest/legal analyses, interest group theory, and private interest

models (Francis, 1993).

According to the ‘public interest’ school of regulation, many of the technical

rationales for regulating can be described as instances of ‘market failure’ such as natural

monopoly, inadequate information, or externalities. Where monopoly occurs, the market

‘fails’, because competition is deficient (Baldwin & Cave, 1999:9). In such cases, the

regulator must establish incentive schemes or other methods of regulation that induce the

firm to attain the socially optimal outcomes (Train, 1991:2). The ‘public interest’ school

also suggests that,

regulation is only justifiable when regulation is the best way of correcting the market failure, and that the benefits of the regulation outweigh its costs (Vogel, 1996:10).

However, well before the ‘regulatory age’ Posner (1974:340) saw a serious

problem with any version of the ‘public interest’ theory, seeing no linkage or mechanism

by which a perception of the public interest was translated into legislative action.

Nevertheless, this social welfare justification is so widely accepted that the natural

monopoly case is viewed as the prototypical context for government regulation (Priest,

1993).

In the legalist tradition, the implementation of legislation is also part of the

debate. Legislators decide on the type of organisation that will be used, SOEs rather than

departments, regulatory agencies rather than commissions, etc. They also choose the form

these institutional alternatives will take by mandating their governance structure, and

financing and employment arrangements. Legislators specify the participation and

decision rights of the various groups by deciding for example how vague legislation will

be, how much authority will be delegated to officials, and the rights to participate directly

in the organisation’s decision-making process (Horn, 1995:26).

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The enacting legislation governing the commercialized ANSPs differs

considerably in their vagueness, ranging from highly specific contracts to mere guiding

principles. On the one hand Lowi (1969) has long advocated precision and detail in

legislation, archetypal of the UK’s licensing system, so as to avoid ambiguity and

confusion. On the other hand, Ackerman recommended broadly worded statutes that give

officials latitude to implement the regulatory mandate (cf Francis, 1993:8). The Civil Air

Navigation Services Commercialization Act (1996) enabling Nav Canada sits apposite

Ackerman’s recommendations, however the Act’s ‘guiding principles’ particularly its

pricing policies have been criticised by Lovink (1999) for their vagueness, as they

effectively limit judicial recourse by customers. The most common argument for the

passage of vague laws by legislators – and therefore delegating decision making to the

administrative level – is that this delegation reduces legislative decision-making costs

(Horn, 1995:44).

Interest group theorists see regulatory developments as the products of

relationships between different groups and between such groups and the state (Baldwin et

al., 1999:; Francis, 1993). The role of interest groups is crucial in understanding

regulatory policy-making; the institutions of the ‘regulatory space’ allocate the roles and

responsibilities of the various interests (Lodge, 2003b:163). Better organised and

committed groups may seek to transform traditional hierarchical relationships between

the state and producers into a more horizontal three-way relationship between the state,

providers and users. Optimistically group theorists see the emerging regulatory landscape

as a compromise among these groups. McCallum(2002) cites the early involvement of

user groups in the development of Nav Canada’s stakeholder or network governance

model (Considine, 2001) as a key factor in the reduction of overall government

regulation.

The public choice/private interest theory is that individuals, as they act in society,

seek to realize their preferences (Francis, 1993). Private interests have been traditionally

regarded as the key source for the origin of regulation (Stigler, 1971). Emphasis is placed

on such actors to circumvent official regulatory goals and promote ends that are self-

serving and to act in pursuit of such ends as job retention, re-election or enhance wealth.

There are a number of case studies of trucking, airlines, railroads, and many other

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industries that support the view that economic regulation is better explained as a product

supplied to interest groups, than as an expression of the social interest in efficiency or

justice (cf Posner, 1974:350). Public interest is therefore relegated to a minor role in the

development of regulatory regimes (Baldwin et al., 1999).

Utilizing these theoretical perspectives during the following discussions of

regulation will help to understand the emergence of the variety of regulatory regimes and

governance models used to control ANSPs.

2.2 ANSPs as natural monopolies

A natural monopoly exists when a market is served most cheaply by a single firm,

rather than two or more firms (Baldwin et al., 1999). ANSPs exhibit the main

characteristics of natural monopolies as they have considerable economies of scale, are

highly capital intensive, and are crucially important services for other sectors of national

economies (Stern & Holder, 1999).

Substantial economies of scale exist, as the average unit cost of service delivery

decreases as output increases. The most prevalent source of economies of scale is

fixed costs, that is, costs that must be incurred no matter how many units of

output are produced (Foster, 1992:161; Train, 1991:6). Up to 70% of the costs

incurred by ANSPs are labour costs (S&P, 2005) which should also be considered

fixed; as the long lead time required training Air Traffic Controllers makes it

impractical to adjust workforce levels in response to ‘short-run’ fluctuations in

demand.

They are highly capital intensive. Large capital expenditures are incurred by

ANSPs building Control Towers, ground based navigation aids, surveillance

radars, and secure en-route control centres, etc. These costs are substantially

‘sunk’ costs as the specialist equipment and facilities are not transferable across

other markets. While future technology will reduce the level of sunk costs through

the use of virtual towers, Automatic Dependent Surveillance - Broadcast (ADS-

B), Controller-Pilot Datalink Communication (CPDLC) etc., governments need to

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un-bundle these assets if they are to promote competition, as their inclusion make

entry into the market prohibitively expensive for potential competitors.

As part of a wider international transport system their uninterrupted operation and

level of service are integral to a nation’s social and economic development.

ANSPs are considered essential services that cannot be allowed to fail (Shaoul,

2003). Accordingly governments have powerful incentives towards the

sustainability of private investment (Stern et al., 1999:8).

An alternative to regulating natural monopolies was argued by Demsetz (1968)

who posited a lack of competition in a market does not have to translate into a lack of

competition for the market. The contestability of a natural monopoly market depends on

the efficacy of the process of potential competition. Franchise bidding auctions allow

regulatory bodies to choose a supplier on the basis of competitive bids. Accordingly

economies of scale do not of themselves constitute a barrier to entry natural monopoly

(Starkey, 1982:155-156). Indeed the supply of air traffic personnel and services to

governments is increasingly being delivered under contract auctions. The FAA’s Contract

Tower program (of which Airservices is a supplier) and Serco Plc contracts throughout

the Middle East and Canada are examples.

Furthermore Posner (1969:548) cautioned that natural monopoly ‘does not refer to

the actual number of sellers in a market but to the relationship between demand and the

technology of supply’. Satellite communications and surveillance technology has

advanced to the stage where ANSPs can provide services to users in vastly distant

locations, traversing the traditional boundaries of the natural monopolies which are in

fact political constructs historically delineated along national borders or territorial waters.

Few economists (and even fewer politicians) seem willing to abandon regulation

entirely, and the public seems to want to retain the benefits of regulation (Crew &

Kliendorfer, 2002). Therefore the barriers to entry remain, as politicians continue to be

reluctant to cede control of national airspace to foreign organisations, due to issues of

‘public interest’, such as national security, preferring to treat ANSPs as natural

monopolies. Under such conditions where competition for the market is not considered a

viable regulatory mechanism, direct controls are necessary to ensure satisfactory

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performance: controls over profits, specific rates, quality and sustainability of service,

even permission whether to enter the business at all (Posner, 1969:548).

The following section looks at the changing landscape of ANSP regulation since

the early 1980s. The shifting locus of regulatory authority and the decentralisation of

decision-making to various interest groups are examined in each of the four cases.

2.3 Transition of Regulatory regimes

The regulatory scene of the early 1980s differs significantly from that of today.

The new models of regulation sharply contend with traditional models over their

effectiveness in realizing regulatory goals (Francis, 1993:42). The transition of public

organization governance structures and regulatory regimes has evolved incrementally in

most cases, but abruptly in some. Typically the process follows Guthrie’s (1993)

regulatory transformation model. Government departments become Statutory Authorities

with explicit managerial and financial authorities. Corporatization or privatization often

follows, which places the organizations under private company/corporations law and

specifically introduced Acts of Legislation (see Appendix 1.)

In choosing an institutional type, Moe (1995) believes political actors

fundamental task is to find and institute a governance structure that can protect their

public organizations from control by political opponents. The problem is not one of

achieving technical efficiency, as with profit orientated private firms, but of political

control and stability. To this end the legislation enacting and controlling the

commercialized ANSPs often stipulates; board membership (size, composition, political

or user appointment), limits to commercial activities, CSO protection, and consultation

obligations. Fear of takeover, particularly by a multinational or foreign firm, is one

reason why the British government kept a ‘golden share’ of NATS (Foster, 1992) and

why Nav Canada’s assets must revert to the Canadian government if wound up.

The ‘politics’ of commercialization frequently requires the establishment of

separate regulatory agencies to provide reassurance that the public interest would still be

served. Government departments or nominated agencies increasingly regulate the

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provision of services (setting down standards, monitoring for compliance and enforcing)

through the instruments of statutory regulation, contracts and self- and co-regulation.

Regulatory agencies were created to remove regulation from direct political

control and as an alternative to public ownership. It is believed they will improve

regulatory performance and efficiency without having negative side-effects on other

values such as political control and democracy (Christensen & Laegreid, 2005). The

argument for having single industry regulators is that dedicated regulators specializing in

a single industry can more quickly develop the necessary expertise to regulate effectively.

One the other hand cross-industry regulators (e.g. ACCC) can transfer lessons learnt form

one industry to another. Autonomous regulatory agencies are becoming accepted as ‘best

practice’ all over the world – the British Next Steps program alone has created more than

140 new semi-autonomous agencies. Their autonomy, however, leaves them vulnerable

to capture by the interests they were designed to regulate.

Hood (2002) proposes a more self-interested, short-term motivation for the

proliferation of independent regulatory agencies is to reduce political risk, through

‘blame-shifting’. Politicians are able to take electoral credit through arms-length control,

or avoid blame through delegation to an organisation’s executive management. ICAO

however warns politicians who believe risk can be transferred to autonomous public or

private sector organisations stating, ‘It is the state that in the final analysis is responsible

for air navigation services and, therefore, in reality, autonomy cannot ever be

complete’(2004:, S13). Accordingly politicians remain susceptible to reputation damage

as they are unable to transfer political risk.

Regulatory developments during the New Public Management era also included

new forms of oversight (Hood et al., 1999). Uncoupling regulation from other functions

of bureaucracy has increased the ‘relational distance’ between service providers and free-

standing regulatory agencies, resulting in an audit society (Power, 1997), with regulators

obsessed with checking and verifying. The scope, scale and formality of arm’s length

regulation has increased dramatically as the level of hands-on central direction

diminishes (Hood et al., 1999:194).

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The following section looks at the changes that have occurred to the regulatory

regimes and governance structures of four ANSPs as a consequence of NPM reforms.

3. Regulatory governance of four Anglo-American ANSPs

In this section the regulatory regimes of the four Anglo-American countries and

the resultant ANSP governance types are examined. Regime analysis sees regulation as

essentially a political act. It incorporates the relationship between private interests and

public bodies that make governing decisions. The decentralisation of decision-making

reflects the changing relationships between the state, service providers and users during

the past quarter century.

Francis(1993) sees the location of regulatory decision-making as a factor in

defining a regulatory regime. The extent to which regulatory responsibility is located in a

government authority or placed in private organisations influences the nature (heavy-

handed or light-handed regulation (Parker, 1999)), the limits, and the effectiveness of any

particular regulatory regime, which ultimately affects performance and sustainability. As

McDougall & Roberts (2006:25) observed:

‘There are clear linkages between the governance structure and institutional framework, and ANSP performance’.

The following case studies are examined from the perspective of Considine’s

(2001) governance models to help align the regulatory structures with the ideal-type

realisations of public institutions found in OECD countries. Considine identified three3

governance strategies (Table 1.); procedural, corporate-market, and network. Each has

different legislative enactments of regulation, different expectations about the roles of

managers, together with alternative strategies for resource allocation, organisational

dependency and interdependency and accountability (Considine, 2001:23).

3 Considine originally hypothesised the Corporate and Market Governance types as separate. However his study found the hybridized Corporate-Market type both robust and parsimonious.

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Table 1. Governance Models implemented in ANSPs

ANSP Governance type

Rationality Form of Control

Primary Virtue

Service Delivery Focus

FAA Procedural Law Rules Reliability Universal

Airservices & NATS

Corporate/ Market

Management/ Competition

Plans/ Contracts

Goal/Cost Driven

Targets/ Prices

Nav Canada

Network Relationships Co-production

Flexibility Brokerage

Adapted from Considine(2001:24)

The Procedural model is reflective of traditional hierarchies which adhere

strongly to a universal set of rules and procedures. This has been the dominant model of

public organisations until the 1980s. Although rigid in approach and criticized as

inadequate to serve a more dynamic environment, the procedural model is lauded for its

fair and equitable treatment to the public.

The Corporate-Market model has now become the dominant model in an era of

commercialization/privatization. Hierarchical governance is replaced by private

ownership and market incentives. ‘Economic rationalism’ dominates policy with a

preoccupation on achieving quantifiable targets and the bottom-line. Contracts underpin

relationships within the sector, and those between the public sector and its private sector

suppliers (English, Guthrie, & Parker, 2005:29). However the increase in entrepreneurial

behaviour by officials generates scope for goal displacement and raises the prospect of

the corruption of central policy goals by contractors.

Network governance as applied to policy networks (Bőrzel, 1998) shows effective

policy making and implementation is increasingly shaped by the nature of the

collaboration between officials and certain organized interests. Network governance

attempts to avoid potentially predatory behaviour by proposing interdependence as a

binding characteristic. More attention is paid to the development of long-term

relationships with those upon whom they are dependent for the supply of valued services

(cf Considine, 2001:29-30).

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3.1 USA/ FAA (ATO)

The US is the archetypal ‘minimalist state’ with the federal government having

very few State-Owned-Enterprises to privatise. However the US has been characterised

as an ‘uninterested laggard’ in its effort to reform its civil service (Aucoin, 1995). The

fragmentation of the executive, legislative and judiciary branches of US government,

present obstacles or veto points, at each stage of the process – providing limited political

support for administrative reforms to succeed. While the US’s public sector has found it

relatively easy to bring in private sector management concepts such as TQM (Pollitt &

Bouckeart, 2001), each of the past four administrations has experienced difficulty

implementing more significant federal public management reforms (James, 2001).

The FAA remains a traditional vertically integrated government hierarchy,

characteristic of Considine’s (2001:24-26) Procedural governance model. It continues to

be both provider and regulator of Air Traffic Services, whereas all other cases studied

have divested some or all of their safety and/or economic regulation to commissions or

autonomous agencies. In 1993 Vice President Gore’s National Performance Review

(NPR) recommended air traffic operations be reorganized into an independent

government corporation, utilising private sector business practises. As a follow on, the

Clinton/Gore administration proposed legislation to create a not-for-profit US Air Traffic

Services Corporation (USATS), to be governed by a board of directors and a chief

executive officer and regulated at arm's length by the FAA – a structure similar to

Australia.

Congress rejected USATS in 1995 – there was a sense that the public would

continue to hold Congress responsible even though it would have much less control over

a corporation than a government agency. However Congress did adopt some of the

administration's proposals, namely acquisition, personnel, and management reform.

Unfortunately attempts to reform management and corporate culture failed to achieve

significant improvements (Poole, 2000), resulting in a growing number of industry

experts calling for extensive reforms.

In accordance with recommendations from the 1997 National Civil Aviation

Review Commission – also known as the Mineta Commission, President Clinton (2000)

issued an Executive Order (EO) establishing an Air Traffic Organisation (ATO) as a

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Performance Based Organisation (PBO) within the FAA. The PBO legislation, first

introduced in 1996, is explicitly modelled on the experience of the Next Steps

programme and agencies in the UK (Ingraham & Moynihan, 2003:186). Again the

legislation failed to gather any congressional support. The PBO initiative proved to be

disappointing with only three offices established by 1999. Others including the ATO

have been stymied by bureaucratic, union and congressional resistance (Roberts, 2000).

The ATO was eventually established in February 2004; it is governed by a

politically appointed, Air Traffic Services Subcommittee (ATSS) of the FAA’s Aviation

Management Advisory Council (MAC), which functions as a board of directors,

overseeing management and budgetary responsibilities, ensuring it becomes more

customer-driven and performance-based (White House, 2000). However, there remains

considerable confusion about the roles and decision-making responsibilities as between

the Administrator, COO and the ATSS (Snow, 2002).

Concurrent with the ATO’s formal launch, the FAA created a separate Air Traffic

Safety Oversight Service to oversee safety regulation as:

‘Both safety and public confidence in the safety of the system might be enhanced if greater separation between the functions of regulating the ATC system and operating it.’ (Aviation Safety Commission, 1988:25)

Clinton’s EO also proposed Congress reform the way air traffic services are

financed, by replacing the excise tax on passengers with authorization for the Air Traffic

Organisation to set cost-based charges on commercial users of the air traffic system. The

FAA draws the majority of its budget from the Airport and Airways Trust Fund (AATF)

which has fallen by USD $2.0 billion (19.3 %) since 1999, due to reduced airline

capacity, and the increased market share of low-cost carriers. Meanwhile the FAA’s

budget has increased from $9 billion in 1998 to $14 billion in 2004. The FAA continues

to fund operations largely through ticket taxes – a system which FAA Administrator,

Marion Blakey believes is not sustainable (Janes Airport Review, 2005). The proposed

introduction of user fees has resulted in much lobbying between interest groups to

influence FAA fee calculations.

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Regulatory authority of the FAA remains firmly in the hands of Congress.

Political lobbying to protect jobs, or reallocate AATF funds toward non-aviation

purposes has received primacy over opportunities to reduce costs or improve services to

ANSP customers (McDougall et al., 2006). As an example, last year the consolidation of

Control Centres, to gain economies of scale, was rejected by the House 261-166.

Members continue to enjoy their leverage over the FAA bringing home the bacon to their

constituents (Lewis, 2004:402).

Hitherto, the commercialization of the US air navigation system remains in its

infancy (Bozec & Breton, 2003 ).

3.2 Australia/ Airservices

During the 1980s there was a growing consensus among Australian politicians

that the public service had become a ‘law unto themselves’. The need for reform was

illustrated in the government’s white paper on the public service (Commonwealth, 1983)

and the 1984 Public Service Reform Act (Pollitt et al., 2000:201). Hawke (1983-91) and

Keating’s (1991-96) ‘economic rationalist’ governments instituted market-type

mechanisms within the public service. However, many privatisation initiatives in

Australia stumbled in terms of performance, forcing a shift in policy from full

privatisation to degrees of commercialization, including corporatization (Dixon, Dogan,

& Kouzmin, 2004).

In 1995 the Civil Aviation Authority separated safety regulation from service

provision with the establishment of the Civil Aviation Safety Authority (CASA) and

Airservices Australia respectively. Airservices incorporated under the Air Services Act

1995, which stipulates a board composition of Chairperson, Deputy Chairperson, CEO

and six other members. The board is appointed by and accountable to the Minister for

Transport and Regional Services for the performance of Airservices. Its operations are

subject to review, not only by CASA but also the Australian Transport Safety Bureau

(ATSB) who is responsible for air safety investigation.

Airservices operates under the Commonwealth Authorities and Companies Act

1997 (CAC Act), which provides standardized accountability, ethical and reporting

provisions for Commonwealth bodies that are separate legal entities. In the performance

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of its functions and the exercise of its powers, Airservices must, consult with

government, commercial, industrial, consumer and other relevant bodies and

organisations (including ICAO and bodies representing the aviation industry). Airservices

obtains policy advice from a Special Aviation Reform Group (ARG) and more recently

stakeholder groups such as the Australian Strategic Air Traffic Management Group

(ASTRA), which represents Airlines, Airports, Regional Aviation, Pilots, GA and various

government organisations.

Airservices is required to submit a corporate plan to the portfolio Minister and

Finance Minister annually. While the power of veto is retained by the portfolio Minister

who may provide direction relating to the performance of Airservices’s functions or the

exercise of its powers, real regulatory authority has shifted from the state to Airservices’s

executive. Under the Airservices Act, Airservices’s board have greater autonomy to set

prices and charges, allocate resources and attract private funding. Accordingly,

Airservices’s governance has shifted to Considine’s Corporate-Market type. The board is

required to gain prior approval from the Minister in the determination of charges for

services or facilities – unless they are provided under contract. As noted in The McGill

Report, ‘This exception is particularly significant having regard to the fact that the bulk

of Airservices’s services are provided under contracts with it’s customers’ (Dempsey et

al., 2005:235).

Airservices operates under Price-Cap regulation which is used to provide greater

managerial incentive than more traditional Rate-Of-Return (ROR). Airservices must

obtain endorsement from the Australian Competition and Consumer Commission

(ACCC) pursuant to the Prices Surveillance Act 1983 (PS Act), for proposed increases in

the prices charged for terminal navigation, aviation rescue and firefighting and en-route

services. Once notified of the proposed increases, the ACCC will seek submissions from

interested parties before ruling. In 2002, Airservices successfully lobbied the ACCC for

price increases to cover the reduced demand for its services resulting from the downturn

in aviation activity since September 11, 2001 much to the criticism of stakeholders, who

complained:

‘Airservices made a profit the worst year of aviation history.’ (ACCC, 2002:9)

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However the ACCC’s legislative powers are limited, a situation recently

illustrated by a forthcoming ACCC inquiry into oil company price fixing – the 46 th of its

type. Members of parliament, have compared the competition watchdog to a tabby cat

(ABC, 2007) and continue to urge for an increase in its powers.

In the Corporate-Market governance model price becomes a determinant of

service provision. To maintain commitment to Community Service Obligations (CSO)

that are economically unviable, providers must be subsidised. For that reason the

government subsidises Airservices’s costs in servicing remote localities through the

Remote Air Services Subsidy Scheme. The scheme provides a subsidy to air service

operators to provide regular weekly air transport services for the carriage of passengers

and goods, such as fresh food, medical supplies and spare parts, to isolated communities

in remote areas of Australia. The government also provides a Location Specific Pricing

subsidy for Airservices to provide terminal navigation services at some regional and

general aviation airports. The purpose of the subsidy is to limit the effect of location

specific pricing at smaller airports where low traffic limits the ability to meet the real

costs of air traffic control services. Fourteen airports currently benefit from this subsidy

(Budget, 2005).

Airservices’s government ownership and conservative financial structure (S&P,

2005), provides increased protection against increased elasticity in demand. Under the

conditions of the Airservices Act 1995, Airservices need not pay a dividend to the

government, while continuing to borrow from the Commonwealth. In addition it has the

regulatory freedom to pursue external business opportunities through contract

arrangements. For example Airservices provides ANS to the US and Pacific Islands, and

training to China.

3.3 UK/ NATS

The election of Margaret Thatcher in 1979 marked the beginning of an era of

vigorous monetarism. UK inflation had reached alarming levels and policies to reduce

public spending as a proportion of GDP were introduced. The conservative government

of Thatcher (1979-90) – a staunch advocate of NPM managerialist principles –

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marketized and minimized many public function to the private sector, and introduced

market-type mechanisms into the remaining public sector (Pollitt et al., 2000:270-272).

Since the 1980s, public-private partnerships were viewed as a derivative of the

privatisation movement. The effective regulation of public-private partnerships is crucial

to their success (Pongsiri, 2002). This contrasts with the deregulatory aspects of NPM,

which was supposed to roll back the state and give first priority to market interests, this

trend has enhanced the growth of the Regulatory State (Christensen et al., 2005).

‘Privatisation with regulation’ of UK utilities began in 1984 with British Telecom, along

with the creation of the first ‘independent’ regulator, the Office of Telecommunications

(Oftel). Major (1991-97) continued the privatization movement with the sell-off of the

railways and British Coal.

In line with the Next Steps programme, a 1989 Transport Select Committee

Report and 1990 Monopolies and Merger Commission Report recommended the

government split the Civil Aviation Authority (CAA) into two separate organisations to

achieve greater transparency and accountability; however no decision was made on

privatisation at that time (Carling, 1999). In 1995 the government announced its proposal

for NATS to become a public-private partnership (PPP). To facilitate the privatisation

process NATS was incorporated as a wholly owned subsidiary of the CAA on April 1

1996. However it was the final PPP step that has been the most controversial, raising

more questions than answers.

The Select Committee on Environment, Transport and Regional Affairs

Committee’s (SCETRA, 1999:, para 79) second report concluded:

‘The current proposal for a PPP is, in our view, the worst of all the possible options for the future structure of the company’

The PPP was widely opposed and some of its critics proposed alternative models

such as Airways New Zealand’s corporatization (similar to Airservices) and Nav

Canada’s ‘trust’ model. Corporatization was rejected, as a strong motivation for the UK’s

flagship PPP policy is intended to alter the state's role to macro-management or

establishing the `rules of the game’, by removing Ministers and Civil Servants from the

detailed or micro-management of enterprises (Parker, 1999:216).

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Nav Canada’s ‘trust’ model was also rejected as an option for the future of NATS.

The government argued that its non-profit status and ownership structure created little

incentive to maximise efficiency, or improve management practices. NATS informed the

Select Committee that:

‘the trust structure does not provide strong incentives to improve efficiency, nor does it provide access to private sector management expertise and skills which the public-private partnership will afford’ (SCETRA, 1999:, para 74).

Undaunted, the Deputy Prime Minister John Prescott confirmed the government’s

PPP proposal for NATS with the adoption of the Transport Act 2000. NATS was

partially privatised in July 2001 with the government retaining a ‘golden’ share of 49%

share ownership, with 3 board directors. The remainder was divided between a

consortium of seven airlines The Airline Group4 46% (10 directors) and NATS staff 5%

(zero directors). The CAA retained regulatory authority over NATS with the

establishment of two quasi-autonomous agencies; the Safety Regulation Group (SRG)

and Economic Regulation Group (ERG).

The impact of the aviation downturn post 9/11 caused a slump in trans-Atlantic

traffic and severely reduced revenue. Unable to service its debts, UK officials concluded

that NATS was undercapitalised and required a bailout of GBP £60 million to stave off

foreclosure by banks.

The PPP was publicly criticised by leftwing MPs who urging the government to

renationalise NATS, while Liberal Democrats insisted NATS should be turned into a not-

for-profit company:

‘The amazing skills of the private sector, lauded so highly by the government, have brought air traffic control to near bankruptcy. NATS under public ownership produced a massive surplus for the Treasury in every year.’ John McDonnell, UK Labour MP (The Guardian 2002)

Less theatrically Shaoul (2001) found prior to 2001, unlike hospitals, schools and

public transport, NATS had always recovered its costs and been able to pay its bankers,

although it did not give a dividend to the government as owner. However the extra costs

4 The Airline Group is a consortium of seven UK airlines: British Airways, BMI British Midland, Virgin Atlantic, Britannia, Monarch, easyJet and Airtours.

- 19 -

involved in the PPP deal left NATS financially unviable, even without the exogenous

shocks of 2001 (Shaoul, 2003:192).

As a private sector entity its monopoly business is regulated by the Economic

Regulation Group (ERG) of the CAA. Prices are regulated in accordance with the Price-

Capping formula (RPI-X), which has been used extensively in the utilities industry to

create incentives for efficiency. X-efficiency levels are reviewed every five years.

Unfortunately for NATS submissions to ERG to raise prices post 9/11 fell on deaf ears.

ERG maintained a stance recommended by Sibley (2000:2) not to change X, during the

first five years, in order to maintain regulatory commitment – a key element in providing

an effective profit incentive. If X changed NATS may come to regard its profit incentive

as weak.

The government needed to find a lifeline for the company as NATS was not

allowed to fail (Shaoul, 2003). As part of a Composite Solution, NATS received a life

saving capital injection from the government and BAA Plc – the latter now owns 4%

(two directors), while The Airline Group’s ownership was diluted to 41%. In addition,

demand trigger points were added to the pricing structure, shifting a component of risk to

users – if traffic levels decline by more than 20%. In return for concessions to NATS, the

Civil Aviation Authority has obtained, through revisions to the Company's operating

licence, greater oversight of decisions which may carry a financial implication (NAO,

2004).

3.4 Canada/ Nav Canada

The Canadian public service system reflects both its Westminster tradition and

influences from the US, yet remains distinctively Canadian. (Dwiveldi & Halligan,

2003). In similar tradition to other Anglophone countries the Mulroney Administration

(1984-93) made extensive use of business people and also borrowed a number to NPM

ideas from the US and UK. (Pollitt et al., 2000:209). However, Mulroney’s Progressive

government did not enjoy the powers of the UK Prime Minister, who was able to push

through reforms even against significant opposition. The Canadian pathway has been

incremental and anti-doctrinal, with considerable stress placed on sharing and co-

operation. More emphasis was also placed on finding creative forms of ‘Alternative

- 20 -

Service Delivery’ mechanisms (Ford & Zussman, 1997). New features were being

incorporated into Canada’s ‘new public service’ that were centred on a new set of

relationships between government, citizens and external actors (Bourgon, 1997).

The Government, operating partly under the rubric of the NPM established new

institutional arrangements to transportation services. Among these new institutional

arrangements were those governing airports, ports, the St. Lawrence Seaway and the air

navigation system in Canada. (Priest, 2001).

Nav Canada was incorporated under Part II of the Canada Corporations Act in

May 1995 after the Minister for Transport supported the Commercialization Advisory

Committee’s recommendation that ANS be commercialized into not-for-profit, non share

capital, private corporation. This particular structure took shape during extensive

discussions between stakeholders – the government, Air Transport Association of

Canada, Aerospace Industries Association and Unions – over a period of five years.

The Canadian government sold 100% of the Air Navigation System to Nav

Canada in 1996 for CDN$1.5 billion, creating the first fully private ANSP. The

organisation was incorporated by four members, instead of shareholders, under the Civil

Air Navigation Services Commercialization Act, and is governed by a board of 15 (all of

whom must be Canadian citizens and a majority of whom must be Canadian residents as

defined in the Canada Business Corporations Act.) representing key stakeholders, such

as the airline industry (four directors), the government (three directors), General and

Business Aviation (one director), and employee groups (two directors). In addition the

core board elects four independent directors. Nav Canada obtains policy advice from an

Advisory Committee comprising 18 members from stakeholders across Canada.

The Canadian model has been set up as a ‘stakeholder cooperative’ (Dempsey et

al., 2005). Accordingly, Nav Canada’s governance structure typifies Considine’s

Network model as Priest (2001:125) observed:

‘there is a constant balancing of presences named by the founding stakeholders, accompanied by an assigned duty to all stakeholder representatives to put the interest of the corporation at the forefront . . . they cannot make decisions without very high levels of agreement between themselves’.

- 21 -

Nav Canada’s unique structure shifts regulatory authority from the state to user

groups, as board members are, ‘a broad-based constituency of users of the system,

including not only airline representatives . . . but also airports, unions, general aviation

and the government’(Dempsey et al., 2005:244). The trust model also reduces the cost of

regulation due to a decrease in ‘regulatory distance’, permitting ‘light-handed’ economic

regulation to be employed. It is argued a stakeholder board will have a shared interest in

low prices and low cost consistent with higher quality service. Nav Canada is

economically self-regulated within a set of broadly defined pricing ‘principles’; it is able

to propose new or revised fees and charges after a mandatory consultation process.

Nav Canada is financed 100% through the private debt market with a borrowing

capacity of $2.9 CDN billion. Excess revenues are either returned to users in the form of

rebates or lower future fees, or placed in a ‘rate stabilisation fund’ established to protect

against unexpected operating deficits, such as those experienced globally in the aftermath

of the September 11 terrorist attacks, Iraq war and SARS outbreak. The organization’s

financial strategy places importance on maintaining high credit ratings, which are

currently at AA-, just below that of the government, to secure capital funding at

favourable rates.

In line with the majority of ANSP commercializations, safety regulation has been

separated from service provider and remains with the Canadian government. Neither the

introduction of the Canada Airports Act (C-20) nor the Civil Air Navigation Services

Commercialization Act affected the primacy of the Aeronautics Act and the attendant

regulations that govern aviation safety in Canada. Indeed, additional regulations were

developed to prepare for the commercialization, becoming part of the Canadian Aviation

Regulations. According to the terms of C-20, ‘The minister may also order Nav Canada

to provide additional services to northern or remote regions. However, Nav Canada will

receive financial compensation for any financial loss resulting from the enforcement of

this order’(cf SSCTC, 1996).

Industry observers (McCallum, 2002:; Poole & Butler, 2002) cite Nav Canada’s

governance model as an exemplar for the commercialization of other ANSPs. However,

the institutional frameworks of other politico-administrative regimes would raise

significant implementation challenges (Lewis, 2004).

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The examination of these case studies shows the transformation of regulatory

regimes has been affected by each countries institutional framework and NPM reform

objectives.

In the majority, separate safety regulatory agencies have been established in order

to separate economic objectives from social or public interest objectives. Economic

regulation has varied in intensity of ‘hard-handedness’ depending on the resultant

regulatory distance and location of decision-making within the new governance

structures.

The following section presents a short discussion of the economic regulatory

mechanisms implemented by governments to control ANSP’s profit. Price Capping

regulation is used by the UK and Australia, and Canada’s non-profit status which is

implicitly Rate-of-Return (ROR) regulation.

4. Regulatory incentives- economic control mechanisms

The 1980s and 90s saw changes in the theory of regulatory economics. Greater

emphasis has been given to ‘incentive’ issues and the existence of information

asymmetries between the regulator (principal) and the regulated (agent). Traditional

principal-agent theory assumes common knowledge exists about the agent’s costs and

preferences. In reality it is very difficult and expensive for the principal to obtain the

required information of the agent’s activities and cost base. If there are any errors in

assumptions of the regulator, the regulated firm or the consumer will bear the

consequences. As a result, Sibley (2000:6) sees modern regulatory economics ‘focusing

on how to achieve the benefits of ideal regulation without needing the formidable amount

of information required to achieve the ideal outcome’.

4.1 Rate-of-Return Regulation (includes non-profit)

ROR is effectively the imposition of a cost-plus pricing regime, where the

regulator sets prices in such a way that they cover the firm’s cost of production and

include a rate-of-return on capital that is sufficient to maintain investor willingness to

maintain or improve the company’s assets (Baldwin et al., 1999). The main shortcomings

of ROR regulation are that it is in itself partly responsible for the complexity, cost and

- 23 -

legalistic nature of its administration, and that it provides inappropriate incentives to

regulated firms (Foster, 1992:; Liston, 1993).

Under ROR regulation, it is incumbent on the regulator to determine a revenue

requirement based on a firm's accounting costs. Such accounting costs incorporate

operating costs, taxes, allowances for depreciation, and allowed returns. The allowed

return is a ‘fair’ or ‘reasonable’ rate (an estimate of the cost of capital to the firm)

multiplied by a rate base which includes the undepreciated portion of investments

relevant to regulated operations, valued on a historical expenditure basis (Liston,

1993:26). What is fair or reasonable is much argued over by teams of lawyers and

accountants whenever a rate case occurs.

ROR is considered a ‘low-powered’ incentive mechanism, as the firm benefits

little from increased efficiency; knowing that it will be able to cover increased costs with

increased prices. A further flaw in ROR was identified by Averch & Johnson (1962), and

known as the A-J effect is the incentive for firms to over-invest in capital equipment.

Inflating the firm’s cost base by adopting highly capital intensive techniques and by

unnecessary extravagance or ‘gold-plating’, increases the asset base and increases excess

returns (Baldwin et al., 1999). Accordingly the concepts of ‘profit’ and ‘non-profit’

become ambiguous. Managers of non-profit firms may, in effect, divert monopoly profits

to themselves in the form of salaries, bonuses, perquisites, and staff far in excess of what

is required to attract and retain a competent management (Posner, 1969).

The UK government’s criticisms of Nav Canada’s not-for-profit status, which is

implicitly ROR, are well founded. However, the Canadian government had sought to

address the problems of ROR regulation and the A-J effect through the design and

installation of Nav Canada’s unique network governance structure. To reiterate, Nav

Canada’s board are representatives of all user groups, as such gold-plating behaviour

would be detrimental to their own constituents.

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4.2 Price-Capping Regulation

When the UK government sought to privatise SOEs in the early 80s it looked for

an alternative to the ROR regulation, which had been used extensively in the US, to

regulate utilities. The government opted for a plan proposed by Steven Littlechild (1983),

who argued that the rate of price increase for a basket of services should be indexed to an

inflationary price index, the Retail Price Index (RPI)5 minus certain percent annually (X)

which represents an offset for productivity gains. Price-Capping (PC) regulation

addresses the incentive problems and information asymmetries of ROR.

PC regulation has the advantage of simplicity, in its simplest version the regulator

does nothing except impose a cap on the regulated firm’s prices and enforce adherence.

However, as regulators want to mitigate the possibilities of ‘excess’ profit being achieved

by the monopolies, an implied rate of return is calculated. The regulatory authorities, the

ERG in the UK and the ACCC in Australia, thoroughly scrutinize available information

to calculate the firm’s cost of capital using approaches such as the Capital Asset Pricing

Model (CAPM) and makes comparisons to the rate of return of companies with risk

(Betas), similar to NATS and Airservices. In order to forecast this implied rate of return

the ANSPs also use the same methodology. E.g. Airservices employ the services of

accounting firm Price Waterhouse Coopers (PwC, 2003) for this purpose.

In reality the two regulatory mechanisms will converge. ANSPs operate as

monopolies usually protected by such legislation as NATS’s operating licence,

precluding entry. As Liston (1993:39) concludes:

‘it is difficult to understand why a PC-regulated firm would have an incentive to price below the caps or restructure prices in a socially optimal manner . . . if the regulators attach some weight to traditional concerns of distribution and efficiency. In a monopoly situation then, the structure of the market causes PC regulation to develop into something resembling ROR regulation.’

5 The ACCC in Australia uses the Consumer Price Index (CPI).

- 25 -

5. Conclusion

Significant changes to the regulatory regimes and governance structures of Air

Navigation Service Providers have occurred since the 1980s under the umbrella of New

Public Management reform. While the ANSPs studied had similar points of origin, the

institutional arrangements of each nation’s politico-administrative regime have forced the

reforms along divergent trajectories, at different velocities.

In the US NPM reforms were predictably slow, commensurate with its status as a

‘laggard’. The reforms in the UK and Australia followed the well worn institutional paths

of their nation’s government, which dictated regulatory oversight by autonomous

agencies, organisational type, even the incentive mechanisms to be used. Similarly, Nav

Canada’s reform as a co-operative non-profit organisation, while radical in comparison to

the other ANSPs, was typical of the Canadian government’s politico-administrative

philosophy of experimenting with ASD mechanisms. Nav Canada was one of many

Canadian public sector organisations to institute this particular governance structure.

From the comparison of the cases, it appears ANSP sustainability and therefore

effectiveness (from the user’s perspective) is dependant on the alignment of compatible

regulatory regimes, incentive mechanisms, organisational governance structures, and the

ANSP environment. As we have seen problems with misalignment do not appear until

pressure is placed on the system. Cracks opened to varying degrees as a result of the

unprecedented events of 2001. The shift away from government ownership, toward

economically driven, customer focused organisations has increased the firms’

susceptibility to financial uncertainties.

As ANSPs move away from government ownership, regulatory authority should

also be relocated. The transition to corporate governance structures of Airservices and

NATS shifted decision-making to the organisation’s executive. However economic

regulation remained with the government. Due to increased regulatory distance price

mechanisms, particularly for NATS, were set quite rigidly. Fortunately, Airservices was

able to ‘bargain’ a compromise with the ACCC on the basis their prices were not actually

increasing, just returning to previous highs. However NATS’s tightly written operating

licence, its rigid RPI-X pricing regulation, and highly leveraged financial position left it

unable to sustain the post 9/11 downturn. Ironically had the UK government given more

- 26 -

credence to the characteristics of the ANS sector as opposed to its NPM doctrine, an

alternative regulatory regime and governance structure may have resulted, and the

insolvency of NATS may not have materialised. Sibley (2000) sees the problems of

tightly written contractual arrangements during periods of uncertainty as a failure of the

regulatory design.

Further down the path the Canadian government’s decision to use a co-operative

stakeholder or network governance structure, in combination with self regulation has

resulted in a financially resilient organisation. The simultaneous shift of decision-making

and economic regulation toward users, through the board minimised regulatory distance

to the point where Nav Canada could self regulate.

As we have seen, the transfer of regulatory regimes designed specifically for

utilities such as electricity and water companies does not reflect the nature of the ANSP

industry. The sector is limited in its ability to affect supply, and at the same time is faced

with greater elasticity in demand. Hitherto, ANSP regulatory reforms have been more

symptomatic of each nation’s political-administrative agenda, rather than a concerted

effort to tailor regulation to meet the needs of their customers.

- 27 -

6. Appendix 1. Regulatory Restraints on ANSPs

Restraining measuresCountry/ANSP Ownership Regulatory

HistoryCorporate Governance

Substantive Restraints Restraints on system Changes

Enforcement of RestraintsEconomic Safety

United Kingdom / NATS

Publicly owned until PPP in 2001Public retain ‘golden share’ (46%)

NATS Operating License; specifies price cap, and a complex mechanism to resolve regulatory conflicts

Board of directors with advisory stakeholder council

Independent body - CAA (ERG) Price capping, RPI-X; X specified for 5 year price control periods

Independent body CAA (SRG)

Licence can be changed with the consent of NATS. Informal restraints on abuse of power by sovereign

Appeal process to Minister, underpinned by strong judiciary

Australia / Air Services Australia

Publicly Owned; declared a Commonwealth Authority in 1995

1995 Airservices Australia Act; Commonwealth Authorities and Companies Act 1997

8 member board of directors appointed by Minister

Independent body - ACCC ; Prices Surveillance Act 1983

Price Capping, CPI-X, with X specified for 1 year (in transition to 5 year) control periods;

Independent body - CASA (established 1995)

Legislated restrictions on activities. Changes can be made through process requiring the approval of portfolio and finance Minister. Informal restraints on abuse of power by Minister

Appeal process to Administrative Appeals Tribunal, underpinned by strong judiciary

United States/ FAA (ATO)

Publicly Owned Gov't Department; separate PBO established in 2004

1958 Federal Aviation Act

Administrator reports to Sec. for TransportCOO & 9 member board (Air Traffic Services Committee)

Federal Budget Appropriations

Self-regulated - FAA (internal but separate)

Legislated restrictions on activities. Changes can be made with the consent of Congress

Appeals process underpinned by strong judiciary

Canada / Nav Canada

Corporatized 1995 Publicly Owned until 100% Privatised as not-for-profit in 1996

1995 Part II of the Canada Corporations Act; 1996 Civil Air Navigation Services Act

Stakeholder boardof directors

Self-Regulated within broad legislative principles; e.g. non-profit

Independent body -Transport Canada, Office of Air Navigation and Airspace Safety Oversight

Legislated restrictions on activities. By-laws may be changed with the approval of Board of Directors

Appeals process underpinned by strong judiciary

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