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Thursday 29 September, 2005

Civil Aviation Auth.

CAA Announcement

Civil Aviation Authority
29 September 2005


News Release

29 September 2005

CAA ANNOUNCES FORMAL PROPOSALS FOR NATS' PRICE CONTROLS

Formal proposals for the regulatory price controls of National Air Traffic
Services (NATS) have today been published by the Civil Aviation Authority (CAA).

The proposed price caps cover NATS (En route) plc's (NERL's) Eurocontrol and
Oceanic businesses for the five years beginning 1 January 2006 and 1 April 2006
respectively.

For the Eurocontrol price control the CAA is proposing an average annual real
term reduction in the pence/kilometre allowance of 3.4 per cent each year over
the period 2006-2010.  The cumulative reduction over the five years is around 15
per cent.  These are the same figures the CAA published in May 2005 when it
sought views on its firm proposals.

As indicated in May 2005, the CAA also proposes to strengthen the financial
incentives on service quality by introducing penalties expected to be up to a
maximum of £24 million a year in the event that average annual NATS delay
exceeds 45 seconds per flight, and introduces a mechanism which provides a
greater financial incentive in relation to delays early in the morning and
longer delays.

The CAA also proposes to establish new price controls for NERL's Oceanic
business for the five years starting on 1 April 2006.  This proposed control is
the same as in the CAA's firm proposals published in May and provides for an
annual 4 per cent reduction in prices in real terms.

At the same time the CAA is also seeking comments on a proposed revised
Regulatory Policy Statement.  This reviews the CAA's performance against the
earlier Regulatory Policy Statement it published in March 2003 and sets out its
broad policies for the next price control period (2006-2010) and beyond.

Dr Harry Bush, CAA Group Director, Economic Regulation, said: 'The proposals we
are putting forward today are good for customers.  They will benefit from lower
prices over the next five years and NATS will have stronger incentives to
improve its operational performance.  At the same time, NATS will be able to
proceed with necessary investment to modernise the UK's air traffic system.

'The proposals are challenging for NATS  - as they should be.  But we believe
they strike the right balance between the interests of NATS, and its direct
airline customers and the passengers they carry.'

NATS has agreed to the price controls the CAA is proposing today.  The CAA will
take responses from other interested parties into account when making its final
decision which it expects to publish, together with a final Regulatory Policy
Statement, in December 2005.  The final date for the receipt of comments is 28
October 2005.

The paper can be found on the CAA website (www.caa.co.uk) in the 'Economic'
section, click on 'News'.

For further information please contact Chris Mason on 020 7453 6026.

Notes to Editors

1.   The NATS price control review was launched in March 2004 when the CAA
     explained and sought comments on its proposed approach to the review and
     identified the main issues for the review.  The CAA subsequently published 
     two sets of detailed proposals for consultation.  The first was its initial
     proposals published in November 2004, and the second its firm proposals
     published in May 2005.  The main purpose of this final (statutory) round of
     consultation is to seek views on the detailed licence conditions that will
     implement the new price controls for the Eurocontrol and Oceanic businesses 
     of NATS.

2.   The CAA received six written comments on its firm proposals published in 
     May 2005.

3.   The basic levels of the price caps we proposed for both the Eurocontrol and
     Oceanic businesses, and the incentives we proposed to address delays 
     arising in the Eurocontrol business, are unchanged from those published in 
     May 2005.  There are two technical adjustments in relation to the recovery 
     of bad debts (chap 5, paras 43-48) and the base on which some elements of 
     the delay term are calculated (chap 5, para 28).

4.   The timetable for the remainder of the review is as follows:

     28 October 2005                    Comments due on CAA proposals

     December 2005                      Publication of the CAA's final decision
     1 January 2006                     New Eurocontrol Price Cap takes effect
     1 April 2006                       New Oceanic Price Cap takes effect

5.   Today's paper covers the main price control, which applies to charges 
     levied by NERL's Eurocontrol business, which ceases on 31 December 2005, 
     and the control on charges levied by NERL's Oceanic business, which expires 
     on 31 March 2006.

6.   The Eurocontrol business provides air traffic services to aircraft using
     controlled UK airspace.  In 2004, the Eurocontrol business served around 2
     million flights.  The Oceanic business is a much smaller business than the
     Eurocontrol business. It provides air traffic control services for the 
     North Eastern area of the Atlantic.  In 2004/05, the Oceanic business 
     served 356,000 flights.

7.   As its starting point, the CAA has taken the objectives set out in the
     Transport Act 2000.  Subject to maintaining a high standard of safety, 
     these are: to further the interests of users; to promote efficiency and 
     economy by NERL; to secure that NERL will not find it unduly difficult to 
     finance its activities; to take account of the UK's international 
     obligations. The CAA must also impose the minimum restrictions consistent 
     with the exercise of its duties. It has also sought to follow Better 
     Regulation Task Force Principles, namely that regulation should be 
     proportionate, accountable, consistent, transparent, and targeted.


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