Dear Colleague
In my last business update to you I explained the balance that is required in seeking to reward our employees, satisfy shareholders and maintain a healthy and viable company during a recession. Some of you may also remember me talking about the importance of profit as it enables us to achieve these objectives. However, generating profit is becoming more challenging because of falling traffic levels, rising costs and significant pressure on prices as we consult customers about Control Period 3.
This is why it continues to be important to save £45m from NERL’s controllable operating cost base by the end of Control Period 2 (March 2011). I last updated you on the progress we are making at the end of February and since then a number of decisions have been taken about how we intend to make the remaining cost savings. I would like to share these with you.
Before I go further, I want to be clear about the £45m, as I think there is some confusion surrounding it. Our controllable operating costs are around £321m per year. We have to identify ways to reduce this cost base by £45m by the end of Control Period 2 (March 2011) and thereby bring it down to £276m per year. Importantly, these savings then have to be sustained on an ongoing basis and costs cannot subsequently be brought back in to the business.
What we’ve done so far
So far we have secured savings worth £23 million. This has been achieved by focusing on our top priorities and bringing forward plans which have enabled us to release a number of contractors and permanent employees. I appreciate that for many of the line managers and employees concerned, this hasn’t been an easy process.
Over 90 contractors have been released in total – most of whom have already left the business. 160 permanent employees will be leaving the business on a voluntary basis through this financial year.
As a consequence, affected business areas are working to ensure that outstanding projects and activities are stopped, slowed down or redistributed.
Through local plans that your General Managers have been working on, we are confident that we can secure and deliver savings of a further £6 million by the end of Control Period 2. Elsewhere in our central business plan we should be able to save a further £5 million by the end of Control Period 2.
This leaves £11 million to find before the end of Control Period 2.
Making the remaining savings
We have spent the last couple of months considering a wide range of options and talking to our Trade Union colleagues. As a consequence we have decided to focus on four particular areas through which we intend to make efficiencies, each one of which will be sponsored by a member of the Executive team:
Operational Resourcing
This is about making savings at the heart of the operation. Working with our Trade Union colleagues, its primary focus will be on manpower requirements, working practices and rostering at our centres, affecting both ATCOs and ATSAs. The intention is to find efficiencies through better rostering and efficiently applying existing working practices. We will also explore changes to working practices where this would be beneficial.
Night-Time Operations
During the night shift both Swanwick and Prestwick are operational with minimal air traffic. This results in an inefficient and costly service from the perspective of resources used. We therefore believe there is some scope to deliver a more cost-effective and efficient night time operation.
Centres as Businesses
This is about understanding exactly how much it costs for our centres to operate and includes activities undertaken by external and internal suppliers to a centre such as ATC support services and Facilities Management. By having complete transparency of these costs it will enable our centres to understand and compare all of the costs of delivering the ATC service, to challenge their suppliers and ensure that we deliver the best value for money.
Teams involving people from right across the business are being put together for each one of the above projects and our Trade Union colleagues have been invited to participate in each of them.
Overhead Value Analysis
This sounds complicated but it’s a simple way to help individual business areas establish which activities they should be doing less of, tackle more efficiently or stop doing altogether. This is particularly important for those areas which have already released or, are in the process of releasing people and need to ensure that work load is appropriately managed. Supported by experts from the business, it will be rolled out to business areas from June so that they can identify their own action plans.
By October we will have a better idea of the savings each of these projects can produce and the exact timeframes in which we will deliver them. We will also understand whether we need to take further steps to secure any remaining savings needed. However, I can say with certainty that the outcomes of these projects, together with local plans will lead to further redundancies. We will try to achieve this through voluntary means and remain committed to the principles of theredeployment and redundancy agreement. Also non-staff costs will be challenged.
NATS does have a positive future beyond these difficult times. However, right now we need to continue to take decisive action to ensure we start Control Period 3 with a lower cost base and shape our business to be agile and responsive for when the economy returns and generates growth in flights and our income.
As always you have my commitment that I will keep you informed about what this means for you and our business.
Regards
Paul Barron
Chief Executive, NERL