THE McGILL REPORT on GOVERNANCE OF COMMERCIALIZED …

THE McGILL REPORT on

GOVERNANCE OF COMMERCIALIZED AIR NAVIGATION SERVICES =

by Paul Stephen Dempsey*

Richard Janda† Yaw Nyampong‡

John Saba§ and

Joseph Wilson**

McGill University Centre for Research on Air & Space Law

I. Introduction II. International Requirements

A. Organizational Structure B. Regulatory Oversight

C. Fees and Charges III. Australia

A. Government Ownership and Control B. Board Independence, Qualifications, and Appointing Process C. Accountability and Transparency Requirements D. Restrictions on Revenue Sources E. Access to Capital Markets F. Safety and Economic Regulation Authorities G. Price and Service Controls

= The McGill University Center for Research in Air & Space Law would like to thank the Donner Canadian Foundation for their generous support of this research project. This report was a collaborative effort of the authors. Prof. Dempsey had primary responsibility for drafting Parts I (Introduction), II (International Requirements), VII (Ireland) and the text of XIII (Summary and Conclusions) of this report, though all authors participated in the formulation of Part XIII. Professors Janda and Wilson prepared Parts VIII (Netherlands) and XI (Switzerland), and Prof. Janda prepared Part V (France), with assistance from David Dubrovsky. Mr. Nyampong prepared Parts III (Australia), IX (New Zealand) and X (South Africa) of the report. Dr. Saba prepared Parts IV (Canada), VI (Germany), and XII (United Kingdom). * Tomlinson Professor of Law and Director, Institute of Air & Space Law, McGill University. A.B.J. (1972), J.D. (1975), University of Georgia; LL.M. (1978), George Washington University; D.C.L. (1986), McGill University. † Associate Professor, McGill University. B.S. (1981) Toronto; LL.B. (1985) McGill; B.C.L. (1985) McGill; LL.M. (1987) Columbia University. ‡ Research Fellow, Centre for Research on Air & Space Law, McGill University. LL. B (Hons.) (1998) University of Ghana, Legon; LL.M. (Air and Space Law) (2005) McGill University. § D.C.L., LL.M., LL.B., M.A., B.A., McGill University. ** Assistant Professor of Law, Lahore University of Management Sciences. B.A. (1989) LL.B. (1992), Punjab University; LL.M. (1995), University of Georgia; LL.M. (1996), D.C.L. (2002), McGill University.

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214 A N N A L S O F A I R A N D S P A C E L A W VOL. XXXI

H. Appeals Processes I. Liability Protection by Government or Private Insurance J. Liability to Taxes

IV. Canada A. Ownership and Control

1. Corporate Structure - Goals/Objectives of NAV CANADA 2. Corporate Structure - Other Key Characteristics 3. Corporate Structure - Some Amendments Require

Government Approval 4. Corporate Structure – Non-Share Capital Entity

B. Qualifications and Appointing Process 1. Governance Structure 2. The Voting Members 3. The Board of Directors – Appointment, Qualifications

and Removal 4. The Board of Directors – Functions and Committees 5. The Board of Directors – Independent Functioning 6. The Advisory Committee 7. Officers of the Corporation C. Accountability and Transparency Requirements 1. Accountability/Disclosure Regime 2. Corporate Governance Committee 3. Disclosure and Transparency – General Framework

4. Disclosure/Transparency – Securities Law Disclosure Regime and Obligations

5. Disclosure/Transparency – Information Broadly Disclosed by NAV CANADA under Corporate By-laws and Securities Laws

D. Restrictions on Revenue Sources E. Access to Capital Markets F. Economic and Safety Regulation 1. Government Oversight 2. Economic Regulations

2.1 “Natural” Monopoly Reality 2.2. “Natural” Monopoly Recognized 2.3. Regulation of the Natural Monopoly

3. Safety Regulation 3.1. Service Provider and Safety Regulator and Distinct 3.2. NAV CANADA’s Safety Performance Regulated

by Transport Canada 3.3. NAV CANADA’s Duties towards Transport Canada 3.4. Transport Canada’s Monitoring Processes 3.5. Handling Conventions, etc. 3.6. Other Bodies and Consultative Mechanisms with

an Effect on the Safety Oversight of NAV CANADA 4. Note on International Negotiations G. Price and Service Controls 1. User Fees & Services – General Framework 2. User Fees & Services – Specific Rules 3. Additional Specific User Charge Rules 4. User Charge Appeal Procedure 5. Service Controls

2006 MCGILL REPORT ON GOVERNANCE OF COMMERCIALIZED 215 AIR NAVIGATION SERVICES

H. Liability Issues V. France A. Government Ownership and Control B. Qualification and Appointment Process 1. DSNA Headquarters Departments 2. DSNA Operations Department 3. DSNA Technical Department C. Accountability and Transparency Requirements D. Restrictions on Revenue Sources E. Access to Capital Markets F. Safety and Economic Regulation Authorities 1. Safety Regulator 2. Economic Regulator G. Price and Services Control H. Appeal Processes I. Liability Protection by Government or Private Insurer J. Rationale for Restructuring of DGAC K. Compliance with ICAO Recommendations VI. Germany A. Government Ownership and Control B. Qualification and Appointing Process C. Accountability and Transparency Requirements D. Restrictions on Revenue Sources E. Access to Capital Markets F. Economic and Safety Regulation 1. Economic Regulation 2. Safety Regulation G. Price and Service Controls H. Liability Issues VII. Ireland A. Government Ownership and Control B. Qualification and Appointing Process C. Accountability and Transparency Requirements D. Restrictions on Revenue Sources E. Access to Capital Markets F. Safety and Economic Regulation Authorities G. Price and Service Controls H. Appeal Processes I. Liability Protection by Government or Private Insurance VIII. Netherlands

A. Government Ownership and Control 1. Brief History

B. Qualification and Appointment Process 1. Supervisory Board 2. Executive Board 3. Management Board 4. Safety Management

C. Accountability and Transparency Requirements D. Restrictions on Revenue Sources E. Access to Capital Markets F. Safety and Economic Regulation Authorities

1. Safety Regulation


2. Economic Regulation G. Price and Services Control H. Appeal Processes I. Liability Protection by Government or Private Insurance J. Rationale for Corporatization K. Compliance with ICAO Recommendations

IX. New Zealand A. Government Ownership and Control B. Board Independence, Qualifications and Appointing Process C. Accountability and Transparency Requirements D. Restrictions on Revenue Sources E. Access to Capital Markets F. Safety and Economic Regulation Authorities G. Price and Service Controls H. Appeal Processes I. Liability Protection by Government or Private Insurance J. Liability to Taxes X. South Africa A. Government Ownership and Control B. Board Independence, Qualifications and Appointing Process C. Accountability and Transparency Requirements D. Restrictions on Revenue Sources E. Access to Capital Markets F. Safety and Economic Regulation Authorities G. Price and Service Controls H. Appeal Processes I. Liability Protection by Government or Private Insurance J. Liability to Taxes XI. Switzerland A. Government Ownership and Control 1. Other Services 2. Brief History 3. Share Capital 4. Group Structure and Shareholding B. Qualifications and Appointment Process C. Accountability and Transparency Requirements D. Restrictions on Revenue Sources E. Access to Capital Markets F. Safety and Economic Regulation Authorities 1. FOCA: Safety Regulator 2. Economic Regulator G. Price and Service Control H. Appeal Processes I. Liability Protection by Government or Private Insurance J. Rationale for Corporatization K. Compliance with ICAO Recommendations XII. The United Kingdom A. Government Ownership and Control B. Qualifications and Appointing Process 1. Board Membership 2. Board Functions 3. Board Committee Structure


C. Accountability and Transparency Requirements D. Restrictions on Revenue Sources E. Access to Capital Markets F. Economic and Safety Regulation 1. Economic Regulation 2. Safety Regulation G. Price and Service Controls H. Liability Protection by Government or Private Insurance XIII. Summary and Conclusions A. Government Ownership and Control B. Qualifications and Appointment Process C. Accountability and Transparency Requirements D. Restrictions on Revenue Sources E. Access to Capital Markets F. Safety and Economic Regulation Authorities G. Price and Service Controls H. Appeal Processes I. Liability

I. Introduction

he purpose of this report is to canvas the governance issues raised by the commercialization, corporatization and privatization of Air navigation services [ANS].1 For this report, “commercialization” is defined as the range of organizational options and regulatory

frameworks that introduce commercial practices to what is or was a government department. Among the entities studied are a department with access to capital markets and user fees, several government corporations, a public-private partnership and a non-share capital, private corporation. There are further variations in safety and economic regulation, appeal processes and legislated requirements. The terms “corporatization” and “privatization” are considered as options within the umbrella concept of “commercialization.” Nevertheless, since most of the case studies we have chosen involve a form of corporatization, that is the term we will use most frequently.

T

When an ANS is put at arm’s length – or in some instances elbow’s length – from the central government – the following issues of governance arise: how are ownership and control addressed, how does the appointment process to a governing board work, what mechanisms are put in place to ensure accountability and transparency, what flexibility does the corporatized entity acquire to finance its operations through fees and access to capital markets, how does it interact with 1 ”Among the traditional functions of government, air traffic control (ATC) is provided for the purpose of preventing collisions between aircraft in the air and between aircraft and obstructions on the ground, as well as expediting and maintaining an orderly flow of air traffic. In addition to ATC, the effective management of air traffic requires associated services such as meteorology, search and rescue, and telecommunications, as well as the provision of aeronautical information such as charts.” Ira Lewis, “Analysis of Alternative Institutional Arrangements for Reform of US Air Traffic Control” (2004) 7 Int’l Public Management J. 385 at 386 [hereinafter Lewis, 2004].


government bodies established to oversee safety and economic regulation, what price and service control are imposed upon it, and what are the applicable judicial processes, both as regards appeal from fee determinations and as regards general third party liability? These questions have been addressed by comparing the experience of ten countries that present a spectrum of modest to thorough-going corporatization, although none of the countries in this study have yet proceeded to full-fledged privatization. The effort here is to identify both common themes and approaches as well as to identify some basic policy divergences that must be addressed in the design of any ANS corporatization. This introduction provides some general context to the governance of corporatized ANSs. The second section sets out the international legal and policy framework within which these issues should in principle be addressed by members of the International Civil Aviation Organization. Sections III to XII present the individual case studies. Section XIII presents a summary and conclusions that we draw from the assembled case studies.2 ANSs are manifestly important to the safety and efficiency of air transportation. Safety and security of flight depend upon the proficiency of their provision. They also impact airline economics both in terms of the charges they impose upon users of the system, and the delay and circuitous routings they can impose on aircraft operations. Air transportation is an essential component of the infrastructure of global trade, and creates wealth beyond the revenues it generates for carriers. It is for these reasons that the safety, security, reliability, efficiency and cost of ANS are of particular interest to governments, airlines, and ultimately, the traveling and shipping public.

Harvard economist John Kenneth Galbraith observed, “In all countries the economic system depends on and develops from the state financing of highways, airports, postal services and urban infrastructure of the most diverse and essential sort.”3 Traditionally, airports and air navigation services have been established and operated by governmental institutions, usually departments, funded by the national treasury and staffed by government civil servants.4 Financing and procurement requirements were those of any governmental institution, and typically were characterized by elaborate bureaucratic personnel, funding, and procurement requirements. Typically also, air navigation services and their economic, safety and airspace regulation were vested in the same institution.5 Revenue earned by these entities usually flowed back to the

2 Many of the issues discussed here are addressed in the report of Robert Poole and Viggo Butler, How to Commercialize Air Traffic Control (Reason Foundation, 2001), online: Reason Foundation <http://<www.rppi.org/ps278.pdf> (date accessed: 31 March 2006). 3 Bev Desjarlais, “Doug Young’s Defection Shows His True Colors” Hill Times (5 June 2001) at 16. 4 Paul Dempsey, Air Commerce & the Law (Coast Aire, 2004). 5 Civil Air Navigation Services Org. (CANSO), Corporatisation of Air Navigation Services (Aug. 1999), online: CANSO < http://www.canso.org/NR/rdonlyres/DE778478-6399-4941-B242-2BD343E98905/0/corporatisationreport.pdf#search=‘Corporatisation%20of%20Air%20Navigation%20Services’> (date accessed: 12 December 2005) [hereinafter Corporatisation of Air Navigation Services] at 9.


national treasury, and was sometimes used to fund other, non-aviation, projects or services.6 More recently, governments have begun to “commercialize” “corporatize”, or partially “privatize” their airports and ANS providers. These so-called “private” (usually governmentally-owned) corporations usually are managed as business enterprises, following market-based commercial practices.7 In 1966, the British Airports Authority [BAA] became the first major public corporation established to manage airports. Initially, it was a government corporation; later, BAA became a government-owned company; about two decades after its formation, it was privatized, with the government assuming a minority ownership position.8 This gradual transitional model also appears to have fallen into favor in the provision of ANS, beginning in the modern era with New Zealand’s corporatization in 1987,9 though Switzerland formed a private body to provide ANS as early as 1921. Furthermore, as a general rule, when the provision of ANS is spun-off from core governmental institutions, the oversight responsibility for safety and economic regulation is retained within them.10 The problems identified with having traditional government institutions provide ANS include:

Governmental institutions have had difficulty in keeping pace with the capital needs of ANS to accommodate rapidly growing traffic demands and maintain high levels of safety in aviation;11

Governmental institutions usually are restricted in their ability

to borrow money in capital markets to finance infrastructure improvements.12

Governmental institutions are subject to governmental

procurement and decisional policies and practices, imposing bureaucratic efficiency impediments;13 and

Governmental institutions are subject to civil service labor costs

and staffing levels undisciplined by market forces.14

6 Ibid. at 4. 7 Francis Schubert, “The Corporatization of Air Traffic Control: Drifting between Private and Public Law” (1997) XXII (2) Ann. Air & Sp. L. 223 at 224 [hereinafter Schubert, 1997]. 8 Int’l Civil Aviation Org., Study on Privatization in the Provision of Airports and Air Navigation Services (ICAO Doc. ANSConf-WP/6 2000) at 2-3. 9 ”[I]t may be prudent for the States to proceed slowly and in stages.” Ibid. at 9. 10 Lewis, 2004, supra note 1, at 389. 11 Int’l Civil Aviation Org., Conférence sur l’économie des aéroports et des services de navigation aérienne (Montréal, 19 – 28 June 2000) (ICAO Doc. ANSConf-WP/9 (2000)), online: ICAO < http://www.icao.int/icao/en/atb/ansconf2000/docs/wp09f.pdf#search =‘ICAO%20Doc.%20ANSConfWP%2F9%20%282000%29’> (date accessed: 23 December 2005). 12 Corporatisation of Air Navigation Services, supra note 5 at 8. 13 Schubert, 1997, supra note 7 at 226. 14 Corporatisation of Air Navigation Services, supra note 5 at 5.


Reasons advanced for the transfers of ANS from governmental departments to government corporations and non-governmental entities include:

Typically, they are financially self-sufficient, weaned from government subsidies;15

They are better able to raise capital in the market, and thereby meet growing capacity needs;16

They are more efficient, and more capable of reducing costs for users, and subsidy requirements from governments;17

They can have governance structures allowing users greater access and input on decisionmaking;18 and

They usually move to a more equitable user-charge approach to cost allocation.19

However, commercializing ANS providers may subject their governments to liability for their negligence, for the sovereign international legal obligations of a State over its airspace are nondelegable; State liability sometimes may be avoided where ANS providers are governmental institutions, particularly those which embrace the common law doctrine of sovereign immunity.20 Similarly, once ANS services are performed by a non-governmental entity, they may be subject to various forms of taxation. Labor organizations also express concern about the loss of civil servant status and protection.21 Concerns also have been raised by users about the potential for monopoly abuse by ANS providers in terms of higher fees and/or poorer service. For example, the airline industry’s trade association, the International Air Transport Association [IATA], expressed these concerns:

ANS commercialization may have a negative side, in particular when the principal objective is to maximize profits. No matter what organizational form an airport or ANS entity assumes through the process of commercialization, it remains by its nature a monopoly on which the users are completely dependent. There are a growing number of cases of abuse of this monopolistic situation by newly created commercial organizations, often with the complicity of the governments concerned.

15 Schubert, 1997, supra note 7 at 231. 16 Corporatisation of Air Navigation Services, supra note 5 at 4. 17 Ibid. at 5. See also, ICAO Doc. ANSConf-WP/9 (2000), supra note 11; Janie Treanor, “Privatization v. Corporatization of the Federal Aviation Administration: Revamping Air Traffic Control” (1998) 63 J. Air L. & Com. 633 [hereinafter Treanor, 1998]. 18 Schubert, 1997, supra note 7 at 228. 19 Ibid. at 230. 20 Paul Dempsey, “Privatization of the Air: Government Liability for Privatized Air Traffic Services” (2003) XXVIII Ann. Air & Sp. L. 95. On ANS liability more generally, see Francis Schubert, “Legal Barriers to a Safety Culture in Aviation” (2004) XXIX Ann. Air & Sp. L. 19. 21 Marc Baumgartner, President of the International Federation of Air Traffic Controllers’ Associations, argues that since the principal costs of ANS is personnel costs, the only way to reduce these costs are either by reducing the number of personnel, or increasing their productivity. He also notes that, “after an initial pay increase the negotiations for the collective bargaining agreement have become tougher than before.” Marc Baumgartner, “Restructuring of Air Navigation Services” Scope (Oct. 2003) [hereinafter Baumgartner, 2003].


IATA’s experience is that, in many cases, commercialization has resulted in significant increases in the airport and ANS cost base that are used to determine charges. In addition, the promised increases in efficiency and productivity have not always materialized.22

Some of these concerns may be ameliorated by government ownership and/or government economic and safety regulation of the ANS provider, and requirements for transparency and user consultation.23 IATA urges that ANS charges be:

Determined on the basis of transparent, fair and reasonable costs; In conformity with international agreements and obligations of

the individual State; In line with the International Civil Aviation Organization’s

[ICAO] principles on user charges; and Subject to economic oversight, preferably through an

independent, neutral body.24 ICAO refers to the non-governmental entities that governments create to operate ANS as “autonomous authorities.” By autonomous, ICAO means that the entity should have greater freedom from government in conducting its financial affairs – that it should be self-financing, subject to business taxes, and earn a return on capital – but still regulated by government.25 However, the ANS trade association, the Civil Air Navigation Services Organisation [CANSO], prefers the term “corporatized body.” Both refer to an entity that exists outside the government civil service arena having limited commercial freedom to provide ANS. CANSO believes that the descriptive term “corporatized body” is preferable to “autonomous organization” in order to emphasize that autonomy is limited, and that States continue to ensure that ANS conforms to the requirements of the Chicago Convention and the Annexes promulgated thereunder.26 IATA points out that the terms “privatization”, or “corporatization”, or “autonomization” can be substituted for the term “commercialization”, and includes an array of organizational types, on a sliding scale of government ownership and control: ANS Organizations Degree of Commercialization

State Authority (CAA) 0% Autonomous State Entity State-owned Corporation (Crown corporation) Concession/Lease (all or part of the facilities) Partial Privatization (e.g. non-aeronautical) Not-for-profit (stakeholder owned) Corporation Fully Privatized Company (publicly traded shares) 100%27

22 ICAO Doc. ANSConf-WP/26 ¶¶ 2.2-2.3(2000). 23 But it has been argued that governments have “failed in most of the cases to insure that the oversight (regulatory bodies) function assured a safe and financially viable translation of the objectives into reality.” Baumgartner, 2003, supra note 21. 24 ICAO Doc. ANSConf-WP/26 ¶ 2.4 (2000). 25 Corporatisation of Air Navigation Services, supra note 5 at 4. 26 Ibid. 27 ICAO Doc. ANSConf-WP/26 A-2 (2000).


We agree that “corporatized body” better describes this type of entity, though we must emphasize, this is a species of life with many sub-species. There is not one model of a corporatized ANS provider, but they have many similar characteristics. Some are State corporations, while others are limited-liability corporations, or public companies, with varying degrees of governmental ownership and oversight.28 Typically, corporatized ANS providers are established by legislation promulgated by the national legislature or parliament, which defines their governance. According to Professor Shubert:

In principle, a state can delegate a specific function under its competence to an autonomous public entity or even to a private corporation, provided that (1) the relevant act is actually a function attributed to the State by domestic law; and (2) the State institutes proper supervision over the activities of the corporatized entity. Corporatization is a formal process which affects the basic structure of the providing agency while the nature of the services provided remains a function of public law even when delegated to a private entity.29

Corporatized ANS providers usually are run by a Board of Directors appointed by a government minister. They are usually subject to generally accepted accounting principles, subject to audit, and transparency requirements. For most such corporatized bodies, the government is the sole shareholder.30 They are ordinarily established with a mandate to become financially self-sufficient.31 An ICAO study performed in 2000 surveyed governments in an attempt to evaluate how airport ANS were performing. It found that, in most States, ANS was performed directly by governmental institutions. In a relatively few but a growing number of States, ANS was being performed by “autonomous entities”. In all but one of these States (i.e. Canada), ownership remained with the government. In most States where ANS has been delegated to a corporatized entity, the State continues to regulate, or has authority to approve, user charges, and safety.32 Of the States responding33 to the ICAO survey:

67% imposed cost-based navigation charges; 63% followed ICAO cost-recovery policies in setting charges; 57% of ANS providers designate charges subject to

governmental approval, while 28% of governments set ANS charges directly:

28 Schubert, 1997, supra note 7 at 230. 29 Ibid. at 235. 30 Corporatisation of Air Navigation Services, supra note 5 at 7. See also ICAO Doc. ANSConf-WP/42 (2000). 31 ICAO Doc. ANSConf-WP/9 (2000). 32 Schubert, 1997, supra note 7 at 237; Sally Gethin, “Is Privatization the Answer?” ATM (Nov./Dec. 1994). 33 Of ICAO’s 188 member States, the largest number responding (75) constituted only 40% of its membership.


45% applied a transparent accounting system; 45% required mandatory consultation with users in setting charges 42% had regulatory provisions restricting monopoly abuse.34

At this writing, many nations are considering the commercialization, or privatization, of ANS. Proponents of privatization point to the experiences of Australia, Canada, and the United Kingdom as proof that privatization lowers costs. Critics of privatization point to these same foreign examples,35 and the experience of privatized airports in the US,36 as proof that, when the cost of increased liability is included, promised economic savings evaporate.37 Proponents of corporatization in the US insist that the ANS provider, the Federal Aviation Administration [FAA], has missed numerous Congressionally-imposed deadlines on the introduction of new technology,38 and has aging equipment, sluggish procurement policies, budgetary restraints, and bureaucratic policies and procedures.39 The FAA has been criticized more harshly in various quarters as having a culture that was “in a time warp,” “resistant to change, defensive and turf-conscious”, “secretive rather than open; self-interested rather than public spirited and highly resistant to change”, “characterized by dysfunctional management”, and “a self-perpetuating bureaucratic morass of inaction and self-protection.”40 By 2002, the FAA had lost its jurisdiction over aviation security, when it was transferred to the nascent US Department of Homeland Security.41 In December 2003, President Bush signed the Century of Aviation Reauthorization Act which postponed further privatization, but only for one year.42 The issue remains a lively one in the United States and in many other countries. 34 ICAO Doc. ANSConf-WP/9 (2000). 35 See National Air Traffic Controllers Association (NATCA), “Air Traffic Control Privatization”, online: NATCA <http://<www.natca.org/legislationcenter/priv ATCcountries.msp> (date accessed: 2 September 2003). 36 For example, on July 19, 1997, two general aviation aircraft collided in mid-air three miles south of Chicago’s Meigs Field, killing all seven occupants. Plaintiffs alleged the crash was the result of the fact that there was only one inexperienced and inadequately trained controller in the tower at the time, a staffing level inadequate to traffic needs, no supervisor was present, and that the sole air traffic controller had been working for four hours without a break. It was also alleged that the FAA knew, or should have known, that the Meigs tower was understaffed by people inadequately trained to meet FAA safety requirements, and that the FAA’s failure to exercise due care was the proximate cause of plaintiffs’ deaths. Allegations of negligence causing death such as these raise issues of liability for the individual controllers, the private contractors and the federal government. Alinsky v. United States, 156 F. Supp. 2nd 908, 915 (N.D. Ill. 2001). 37 ”Foes of ATC Privatization Armed With New Ammunition”, Airline Financial News (10 Mar. 2003); “Controllers Union Sees ‘Folly’ In Privatized ATC”, Airline Financial News (17 June 2002). 38 Cletus Coughlin, Jeffrey Cohen & Sarosh Khan, “Aviation Security and Terrorism: A Review of the Economic Issues” (Sept./Oct. 2002) Federal Reserve Bank of St. Louis Review 13. 39 Treanor, 1998, supra note 17 at 633. 40 See Ronald Lofaro & Kevin Smith, “Rising Risk? Rising Safety? The Millennium of Air Travel” (1995) 25 Transp. L.J. 205 at 211-12 and sources cited therein. 41 Paul Dempsey, “Aviation Security: The Role of Law in the War against Terrorism” (2003) 41 Columbia Journal of Transnational Law 649. 42 ”Capital Watch”, Seattle Times (13 Dec. 2003) at A6. Paul Dempsey, “Privatization of the Air: Government Liability for Privatized Air Traffic Services” (2003) XXVIII Ann. Air & Sp. L. 95.


The intent of this study is not to weigh in for, or against, the political issue of whether ANS should, or should not, be corporatized, autonomized, or otherwise reorganized.

This study begins with an examination of the international requirements and standards recommended for governance and operation of ANS. This is followed by an analysis of the legal structures of ten nations which have gone down this path (i.e. Australia, Canada, France, Germany, Ireland, The Netherlands, New Zealand, South Africa, Switzerland, the United Kingdom). This report concludes with an effort to compare and contrast them along substantive lines, and evaluate their compliance with the ICAO recommended standards as a benchmark. Where appropriate, it identifies “best practices”, and makes recommendations. In this way, we hope, nations that are considering corporatization of ATS will have a compendium of the various models which have been launched – a smorgasbord, if you will – from which they may select those components which satisfy their own unique needs. No two nations are the same – economically, geographically, socially, or politically – and each likely will chose the model that satisfies its unique needs as they are perceived in a contemporary context.

II. International Requirements Under Article 28 of the Convention on International Civil Aviation43 (more commonly known as the Chicago Convention), each State undertakes, so far as it finds practicable, to provide air navigation services (i.e. to provide air navigation facilities within its territory) in accordance with the standards and recommended practices [SARPS] set forth in the Annexes to the Convention. Article 15 of the Chicago Convention requires:

uniform conditions shall apply to the use of air navigation facilities by aircraft of every contracting State;

air navigation charges shall not be higher for scheduled foreign

aircraft than national aircraft engaged in similar international operations;

no charge may be imposed solely for the right of transit over,

entry into, or exit from its territory;

charges imposed shall be published and communicated to the ICAO Council; and

if a contracting State so requests, the ICAO Council may review

such charges and report and make recommendations thereon to the concerned State(s).

The third of these requirements occasionally has been misinterpreted to prohibit a State from levying charges on aircraft that fly over or through 43 Convention on International Civil Aviation, 7 December 1944, 15 U.N.T.S. 295, ICAO Doc. 7300/6 [hereinafter Chicago Convention].


its territory; but that is not the intention of this prohibition. Indeed, States may recover their costs and providing air navigation services to such aircraft. However, a State may not impose charges merely for the privilege of flying through or into that State’s air space.44 Annex 11 requires that Contracting States shall determine those portions of the airspace over their territories where air traffic services will be provided. However, the entity providing ANS can be the State or a “suitable agency.”45 Although ICAO encourages governments to explore the possibility of establishing financially autonomous entities to provide ANS – where it would be in the best interests of the providers and the users (i.e. the airlines) – SARPS have not been promulgated within an Annex to govern how this should best be accomplished. Instead, ICAO has published various documents providing general guidance on these issues. Hence, there is enormous latitude in whether, and how, governments should establish such autonomous authorities. A. Organizational Structure The Chicago Convention and its Annexes in no way constrain how States should provide air navigation services. It is generally recognized that States are free to choose the organizational structure and legal form of their provision of air navigation services – the State shall designate the authority responsible for providing these services, the State itself or a suitable Agency.46 According to ICAO, “There is no ‘best option’ for global application; the best option will vary from case to case.”47 However, although the State may embrace a privatized or corporatized model in the provision of ANS, “arrangement through legislation or regulations should be made to ensure that the provisions of the Convention and other international obligations of the State are fully complied with by the operator of . . . air navigation services.”48 Irrespective of the organizational form of the entity providing ANS, the State retains ultimate responsibility for safety and security, and compliance with the Chicago and related aviation treaties and conventions.49 While operational functions may be delegated, the responsibility for complying with the Chicago Convention may not, and remain with the State exercising sovereignty over the airspace.50 44 Int’l Civil Aviation Org., Manual on Air Navigation Services Economics (ICAO Doc. 9161/3 3rd ed. 1997) § 1.5. Charges reported to ICAO are published in its Manual of Airport and Air Navigation Facility Tariffs (ICAO Doc. 7100), which is updated annually. 45 ICAO, Chicago Convention, supra note 43, Annex 11 n. 1. “[T]here is no institutional obstacle in the relevant international instruments which would prevent a State from delegating responsibility for ATS to a suitable corporatized agency, national or foreign.” Schubert, 1997, supra note 7 at 236. 46 ICAO Chicago Convention, supra note 43, Annex 11 § 2.1.3. Schubert, 1997, supra note 7 at 236. 47 Int’l Civil Aviation Org., Study on Privatization in the Provision of Airports and Air Navigation Services (ICAO Doc. ANSConf-WP/6 2000) at 12. 48 Ibid. at 6. 49 Ibid. at 12. See also ICAO Doc. ANSConf-WP/9 ¶ 3.7 (2000); Paul Dempsey, “Compliance & Enforcement in International Law: Achieving Global Uniformity in Aviation Safety” (2004) 30 North Carolina Journal of International Law and Commercial Regulation 1. 50 Schubert, 1997, supra note 7 at 236; Paul Dempsey, “Privatization of the Air: Government


ICAO recommended several of the following requirements for the ANS provider: (1) the organization should be subject to the State obligations under the Chicago Convention;51 (2) its Charter should provide for appointment of a Board of Directors; (3) the organization should be self-financing, obtain funds from commercial markets, and attempt to achieve a financial return on investment; (4) it should apply commercial accounting standards and practices; and (5) it should be subject to normal business taxes.52 A private sector organization providing ANS services also should be subject to safety and economic regulation by the relevant governmental regulatory institutions,53 and that the government would continue to monitor the quality of services provided, and impose data reporting requirements.54

At the national level, three basic organizational forms of ANS have been identified by ICAO:

a government department; an autonomous public sector organization; or a private sector organization.55

Traditionally, ANS providers have been governmental departments, with the department head reporting directly to the executive level of government, with the staff consisting of civil servants, and with costs funded by the government from general taxation, user charges or a combination of the two.56

However, ICAO believes that “where airports and air navigation facilities have been operated by autonomous entities their overall financial situation and managerial efficiency have generally tended to improve.”57 Thus, autonomous ANS providers should be established “where this is in the best interest of providers and users . . . .”58 An autonomous public sector organization can take many forms. Typically, the government owns the organization, appointing a Board of Directors to oversee its operations. Typically also, the organization is self-financing Liability for Privatized Air Traffic Services” (2003) XXVIII Ann. Air & Sp. L. 95. 51 “[W]here an autonomous body or entity is established . . . the State should stipulate as a condition for its approval of the new body or entity that it observe all relevant obligations of the state specified in the3 Convention on International Civil Aviation and its Annexes.” Int’l Civil Aviation Org., ICAO’s Policies on Charges for Airports and Air Navigation Services (ICAO Doc. 9082/7 7th ed. 2004) § 14. 52 Int’l Civil Aviation Org., Manual on Air Navigation Services Economics (ICAO Doc. 9161/3 3rd ed. 1997) § 2.17. 53 Ibid., § 2.18. 54 Int’l Civil Aviation Org., Study on Privatization in the Provision of Airports and Air Navigation Services (ICAO Doc. ANSConf-WP/6 2000) at 7-8. 55 Int’l Civil Aviation Org., Manual on Air Navigation Services Economics (ICAO Doc. 9161/3 3rd ed. 1997) § 2.11. 56 Ibid., § 2.12. 57 Int’l Civil Aviation Org., ICAO’s Policies on Charges for Airports and Air Navigation Services (ICAO Doc. 9082/7 7th ed. 2004) § 10. 58 Ibid., § 11.


and imposes user charges on users in order to provide sufficient capital to cover operating and capital expenditures. The staff is not likely to consist of civil servants.59

As of 1997, ICAO noted that there was no known example of a private sector organization, and that it might be a fully privatized, for-profit enterprise, operating like any capitalist entity. That was before the 2001 partial privatization of NATS in the United Kingdom, which is a for-profit ANS.60 Internationally, ICAO recognizes that a number of States have created regional international operating agencies to provide ANS within a defined geographic area (typically, route facilities and services), and that they have contributed to achieving greater economies of scale and improved efficiency at lower costs to providers and users.61 Examples include ASECNA in Africa, COCESNA in Central America, and EUROCONTROL in Europe.62 B. Regulatory Oversight In establishing “autonomous public sector organizations” or “private sector organizations”, States should bear in mind that the State is ultimately responsible for safety and security and, in light of the monopolistic nature of ANS, economic regulation of their operations.63 ICAO has emphasized:

[I]t is the State that in the final analysis is responsible for air navigation services and, therefore, in reality, autonomy cannot ever be complete. Any autonomous organization will ultimately be required to meet the objectives and obligations deferred by the government in its charter, including the requirement to comply with government established safety standards, have its service charges regulated, etc. Drawing up the Charter . . . is a task of critical importance because it will determine the framework within which the autonomous authority will operate. In this context, it must be remembered that autonomous air navigation service providers are in fact monopolies and therefore must be adequately regulated and must be required to provide appropriate information and data pertaining to their operations to the regulatory authorities. . . .

ICAO urges that States considering commercialization should ensure that the government retains a sufficient level of expertise to both regulate and oversee the performance of air navigation service providers, in terms of safety, economy and user satisfaction.64

59 Int’l Civil Aviation Org., Manual on Air Navigation Services Economics (ICAO Doc. 9161/3 3rd ed. 1997) §§ 2.14-2.15. 60 Lewis, 2004, supra note 1 at 379. 61 Corporatisation of Air Navigation Services, supra note 5 at 5. 62 Int’l Civil Aviation Org., Manual on Air Navigation Services Economics (ICAO Doc. 9161/3 3rd ed. 1997) §§ 2.24-2.26. 63 Int’l Civil Aviation Org., ICAO’s Policies on Charges for Airports and Air Navigation Services (ICAO Doc. 9082/7 7th ed. 2004) § 13. 64 Corporatisation of Air Navigation Services, supra note 5 at 5-6.


Hence, the regulatory oversight function remains with States. According to ICAO, “the overriding responsibility of the State is to afford protection against monopolistic abuses which negatively impact on aircraft operators, passengers and shippers alike and thereby may have a detrimental effect on the national economy as a whole.”65 Where regulatory bodies are established to regulate ANS, they must be provided with adequate authority to perform their mission:

With growing private participation and privatization in the provision of airports and air navigation services, the responsibility of the State to monitor and also to take corrective action as a regulator has increased considerably, in the fields of safety, security and economics alike. Accordingly, the existing regulatory body within the State will need to be refocused and may need to [be] suitably strengthened, not only quantitatively but also qualitatively. The regulatory body should be backed by appropriate legislative framework and preferably be independent to avoid conflict of interests.66

A regulatory system to ensure these obligations were met would need to balance the needs of the State, the users, and the ANS provider.67 Among the functions of the regulator would be to:

prevent overcharging and other monopolistic practices; ensure transparency as well as the availability and presentation

of all financial data required to determine [the] basis for charges; assess efficiency and efficacy in the operations of providers; review standards and quality of services providers; and monitor investments planned in relations to traffic forecast.68

In performing its role as economic regulator, the government should: (1) ensure nondiscrimination in the application of charges; (2) prohibit overcharging, anticompetitive practices, or abuse of a dominant position; (3) ensure transparency; (4) encourage efficiency; (5) establish and review standards, quality and level of ANS; (6) encourage investment necessary to satisfy future demand; and (7) ensure that the views of users are considered.69

65 ICAO Doc. ANSConf-WP/9 ¶ 3.7 (2000). 66 Int’l Civil Aviation Org., Study on Privatization in the Provision of Airports and Air Navigation Services (ICAO Doc. ANSConf-WP/6 2000) at 10.

Coupled with the monopolistic characteristics of airports and air navigation services, which insulate them to a certain extent from the corrective effects of market forces that govern where competition exists, more situations have emerged showing a need for a regulatory code and an independent overseeing body to ensure that the interests of users as well as the airport and/or air navigation service providers and of the national economy are promoted or at least protected and that international obligations are met. These are responsibilities which can only be assumed by the State itself.

ICAO Doc. ANSConf-WP/9 ¶ 3.1 (2000). 67 Ibid. at 7. 68 ICAO Doc. ANSConf-WP/9 ¶ 4.2 (2000). 69 Int’l Civil Aviation Org., ICAO’s Policies on Charges for Airports and Air Navigation Services (ICAO Doc. 9082/7 7th ed. 2004) § 15.


C. Fees and Charges Whatever type of organization is designated to provide ANS, ICAO has established recommended principles to govern charges imposed on users of such services. ANS charges should be cost based, and should not include costs that are not properly allocable to ANS.70 ICAO contemplates the establishment to an equitable cost recovery system under internationally accepted accounting standards comprised of:

accounting of all ANS costs incurred on behalf of aeronautical users; allocating these costs among categories of users; and developing a pricing policy system.71

Given the monopolistic characteristics of ANS, ICAO emphasizes that “a number of safeguards would need to be implemented to protect users against overcharging and to ensure that obligations are met such as freedom of access, non-discrimination between categories of users and conformity with international agreements and obligations.”72 According to ICAO:

Airports and air navigation services are in essence local monopolies on which the users – aircraft operators, passengers and shippers alike – are highly dependent. . . . If these services are privatized or private participation is permitted, it must be ensured that monopoly power is not misused. An unregulated private monopoly can be more harmful than a relatively inefficient public monopoly. Accordingly, regulations must provide for price controls or capping in regard to at least aeronautical charges.73

In establishing the cost basis of ANS charges, the full cost of providing ANS should be taken into account, including operational, management, administration, maintenance, and capital costs, including depreciation.74 It is conceded that ANS charges should be sufficient to cover all direct and indirect operating expenses, and provide a reasonable return on assets so as to contribute toward necessary capital improvements.75

ICAO recommends that the allocation of costs among aeronautical users be equitably imposed. Users should bear their full and fair costs.76 But no users should be burdened with paying for costs not properly allocable to them under sound accounting principles.77 In establishing an air navigation charges system, ICAO recommends that it contain several requirements, including that: 70 Ibid., § 36. 71 Ibid., § 37. 72 Int’l Civil Aviation Org., Manual on Air Navigation Services Economics (ICAO Doc. 9161/3 3rd ed. 1997) § 2.16. 73 Int’l Civil Aviation Org., Study on Privatization in the Provision of Airports and Air Navigation Services (ICAO Doc. ANSConf-WP/6 2000) at 7. 74 Int’l Civil Aviation Org., ICAO’s Policies on Charges for Airports and Air Navigation Services (ICAO Doc. 9082/7 7th ed. 2004) § 38. 75 Ibid., § 38(v). 76 Int’l Civil Aviation Org., Study on Privatization in the Provision of Airports and Air Navigation Services (ICAO Doc. ANSConf-WP/6 2000) at 7. 77 Int’l Civil Aviation Org., ICAO’s Policies on Charges for Airports and Air Navigation Services (ICAO Doc. 9082/7 7th ed. 2004) § 40.


(1) it be simple, equitable, and suitable for general application; (2) charges not discourage the use of facilities and services

necessary for safety; (3) charges be according to sound accounting principles; (4) charges be non-discriminatory; (5) any under-recovery of costs properly allocable to certain users

not be borne by other users; (6) charges take into account the cost of providing ANS and the

effectiveness of the services provided, and also take account of the economic condition of users and that of the provider;

(7) there be no double-charging for services; and (8) general aviation charges should be reasonable and related to

the cost of facilities used.78 Charges imposed for Route air navigation services consist of a single charge based on distance flown and aircraft weight.79 These factors are relatively easy to measure, bear a reasonable relationship to services provided, and usually eliminate discrimination against foreign aircraft.80 Charges should be payable in the local currency of the State in which they are imposed.81 Before changes in charges are made, ICAO emphasizes that it is important that the provider first consult with the user of ANS. Account should be taken of the financial condition of air carriers, providing a balance of interests of the ANS providers and users, particularly during periods of economic difficulty.82 If agreement between the provider and user cannot be obtained, the user should have the right to appeal the charge to an independent body.83 So as to ensure that new developments meet the needs of users and take into account their financial implications, consultations are also recommended before plans are finalized for providing new or expanded ANS.84 Disputes should be resolved by a neutral body at the local level, with an emphasis of conciliation and mediation, but possibly including arbitration, or the establishment of an independent regulatory body to provide oversight of the autonomous ANS provider.85 We now turn to a review of the domestic legal requirements and organizational structures governing ANS providers in Australia, Canada, France, Germany, Ireland the Netherlands, New Zealand, South Africa, Switzerland, and the United Kingdom. Table 1 provides an overview.

78 Ibid., § 41. 79 Ibid., §45. 80 Lewis, 2004, supra note 1 at 387. 81 Int’l Civil Aviation Org., ICAO’s Policies on Charges for Airports and Air Navigation Services (ICAO Doc. 9082/7 7th ed. 2004) § 43. 82 Ibid., § 20. 83 Ibid., § 49. 84 Ibid., § 50. 85 Ibid., § 51.


Table 1 – Characteristics of ANS Providers

Country ANS

Provider Ownership Economic

Regulation86 Safety Regulation

Debt Guarantee

Australia87 Air services Australia

Government Corporation

Commission Oversight

Separate agency

Yes – Fee to Government for guaranty

Canada88 NAV CANADA

Not-for-profit private corporation

Legislated principles with appeals

Separate MOT

No

France89 Direction des services de la navigation aerienne

State Department

Approved by Transport

Internal but separate

Yes

Germany90 Deutsche Flugsicherung GmbH



Internal but will be separate

No

Ireland91 Irish Aviation Authority


Regulatory Commission for Terminal Fees only

Internal but separate

No

Netherlands92 Luchtverkeersleiding Nederland

Not-for-profit government corporation


Separate MOT

Discretionary

New Zealand93

Airways Corporation of New Zealand


Self-regulation with appeal

Separate agency

No

South Africa

Air Traffic and Navigation Services, Ltd.

Limited Liability Public Company

MOT Regulatory committee

Separate agency

No

Switzerland94 Skyguide Not-for-profit government corporation


Separate agency

No

United Kingdom95

National Air Traffic Services, Ltd.

Public-private partnership

EC Regulator, price capping

Separate agency

No

86 Excluding antitrust and competition regulation applicable to all industries. 87 Corporatized in 1988. 88 Corporatized in 1996. 89 Consolidated in 2003. 90 Established in 1993, and to be privatized in 2003. 91 Corporatized in 1993-94. 92 Corporatized in 1993. 93 Corporatized in 1997. 94 Incorporated in 2001; predecessor established in 1921. 95 Public/private partnership established in 2001.


III. Australia A. Government Ownership and Control In 1995, the Airservices Australia Act96 was enacted to establish Airservices Australia (AA). AA provides a number services including the provision of air traffic services, an aeronautical information service, an aeronautical radio navigation service, an aeronautical telecommunications service and aerodrome rescue and fire fighting service.97 Prior to the establishment of AA, air navigation services were provided by the Civil Aviation Authority (CAA), established under the Civil Aviation Authority Act. The CAA was the ANS provider as well as the safety regulator. The desire to separate these two functions led to the establishment of AA as the ANS provider and the Civil Aviation Safety Authority (CASA) as the safety regulator. Under section 7 of the Airservices Australia Act, AA was established as a body corporate with its own corporate seal, capable of suing and being sued in its own name. AA is a “commonwealth authority” as defined under the Commonwealth Authorities and Companies Act, 199798 which regulates certain financial and reporting obligations. AA is run by a Board of Directors appointed by the Minister for Transport and Regional Services. The Board of Directors is accountable for the performance of AA to the Parliament through the Minister. The statutory functions of AA include the following: (1) provision of services and facilities for the purpose of Australia or any other country giving effect to the Chicago Convention or any other international agreement relating to safety, regularity or efficiency of air navigation whether in or outside Australia;99 (2) promoting and fostering civil aviation whether in or outside Australia;100 (3) any functions conferred on AA under the Air Navigation Act, 1920 or the Aviation Transport Security Act, 2004;101 (4) any other functions prescribed by regulations, being functions relating to any of the matters referred to in the Act;102 and (5) providing consultancy and management services in relation to any of the matters referred to in the Act.103 The Governor General of Australia is entrusted with power under section 77 of the Airservices Australia Act to make regulations, inter alia, specifying the functions of AA, and also specifying the powers that are exercisable by AA or its employees in relation to its services, including: (i) giving instructions and directions in relation to air traffic services; (ii) 96 Airservices Australia Act 1995 Act No. 81, 1995. 97 Ibid., long title and § 8. 98 Commonwealth Authorities and Companies Act 1997 Act No. 153, 1997. This Act deals with matters relating to Commonwealth authorities, including reporting and accountability, banking and investment, and conduct of officers. 99 Airservices Australia Act 1995 Act No. 81, 1995, § 8(1)(a). 100 Ibid., § 8(1)(b). 101 Ibid., § 8(1)(f). 102 Ibid., § 8(1)(g). 103 Ibid., § 8(1)(h).


coordinating rescue and fire fighting operations; (iii) requisitioning aircraft; and (iv) taking charge of rescue and fire fighting operations, and giving directions to persons participating in those operations.104 The portfolio minister may give written directions to AA relating to the performance of its functions and the exercise of its powers. AA is obliged to comply with such directions; however, if it suffers a financial detriment as a result of so complying, it is entitled to a reimbursement from the government of the amount of the financial detriment as may be determined by the portfolio minister.105 B. Board Independence, Qualifications, and Appointing Process Section 20 of the Act provides for the establishment of the Board whose functions are: to decide the objectives, strategies and policies to be followed by AA; and to ensure that it performs its functions in a proper, efficient and effective manner.106 The Board consists of a chairperson, a deputy chairperson, the chief executive officer and six other members some of whom may be employees of AA.107 Apart from the CEO, all other members of the Board are appointed by the portfolio Minister and hold office on such terms and conditions as the Minister may prescribe in writing in respect of matters not provided by the Act.108 The Minister also has power to terminate the appointment of members on grounds laid out in section 32 of the Act. Whereas the chairperson may be appointed on a full time or part time basis, all other members of the Board are appointed only on a part time basis.109 A person appointed as a member of the Board holds office for the period specified in the instrument of appointment, which cannot be longer than five years, and is eligible for re-appointment.110 A member’s remuneration is primarily determined by the Remuneration Tribunal established by the Remuneration Tribunal Act 1973. However, where no such determination is in operation, a member’s remuneration and allowances will be as prescribed in the regulations.111 A chairperson appointed on a full time basis is prohibited from engaging in paid employment outside the duties of his or her office except with the approval of the portfolio Minister.112 Part-time Board members are required not to engage in any paid employment that, in the minister’s opinion, conflicts with the proper performance of their duties.113 The members of the Board are obliged to discharge their obligations in accordance with the provisions of the Air Services Act

104 Ibid., § 77(2). 105 Ibid., § 16. 106 Ibid., § 21. 107 Ibid., § 22(1)(d) & 22(5). 108 Ibid., § 22(2). 109 Ibid., § 22(3) & (4). 110 Ibid., § 27. 111 Ibid., § 28. 112 Ibid., § 29(1) 113 Ibid., § 29(2).


1995, the Commonwealth Authorities and Companies Act 1997 and the general law. This requires members of the Board, among other things, to act independently with care and diligence and to make judgments in good faith which he or she believes to be in the best interests of AA.114 C. Accountability and Transparency Requirements As noted above, the provisions of the Commonwealth Authorities and Companies Act, 1997 are applicable to AA. Accordingly, within four months after the end of each financial year, the Board is required to prepare an annual report and submit same to the portfolio Minister, who in turn is required to table the report as soon as possible thereafter before Parliament.115 The annual report must contain a report of operations prepared by the board in accordance with directions issued by the Minister of Finance, financial statements and the Auditor General’s report on those financial statements.116 In addition, under sections 15 and 16 of the Act, the shareholder ministers are to be informed of any significant events relating to AA. Any board member who has a material personal interest in a matter being considered by the Board is obliged to disclose the nature of his interest as soon as the relevant facts have come to his notice, and this is to be recorded in the minutes.117 After disclosure, the Board member in question is prohibited from being present during any deliberations of the Board on the matter and also from taking part in any decision of the Board on the matter unless approved by the Board or otherwise determined by the portfolio Minister.118 AA is required to prepare and submit a corporate plan to the Minister at least once a year. The Minister is required to present a copy of the corporate plan to each House of Parliament within 15 sitting days.119 Although AA is not yet designated as a Government Business Enterprise (GBE),120 it is nonetheless subject to the Governance Arrangements for Airservices Australia, a document approved by the Government of Australia in 1997.121 The contents of the corporate plan are specifically laid out in the Commonwealth Authorities and Companies Act 1997.122 The shareholder ministers may respond to the corporate plan by way of proposed changes to reflect the Government’s policies and objectives for the business.

114 Commonwealth Authorities and Companies Act 1997 Act No. 153, 1997 §§ 22 and 23 115 Ibid., § 9. Contravention of this reporting requirement amounts to a violation of the law. 116 Ibid., schedule 1. 117 Ibid., § 27F and 27G. 118 Ibid., § 27J and 27K. 119 Airservices Australia Act 1995 Act No. 81, 1995, §§ 13 and 15, Commonwealth Authorities and Companies Act 1997 Act No. 153, 1997 § 17. 120 Comments by officials of Airservices Australia contained in ATC Commercialization Policy Project Performance Template administered by Glen McDougall (7 July 2005). 121 The Governance Arrangements for Commonwealth Government Business Enterprises is available online: Australian Government, Department of Finance and Administration <http:// www.finance.gov.au/gbpfau/governance_arrangements.html> (date accessed: 15 December 2005). 122 Commonwealth Authorities and Companies Act 1997 Act No. 153, 1997, § 17.


D. Restrictions on Revenue Sources The Board of AA has authority to set charges for the facilities and services provided by the company and penalties for their late payment.123 In accordance with international requirements, the law provides that service charges must be reasonably related to the expenses incurred or to be incurred by AA in relation to the matters to which the charges relate and, must not be such as to amount to taxation.124 A determination of service charges and penalties by the Board is subject to prior approval by the portfolio Minister125 and must be made public in a manner that the Board thinks appropriate. However, the foregoing requirements do not apply to services and facilities provided by AA under contract.126 This exception is particularly significant having regard to the fact that the bulk of AA’s services are provided under contracts with AA’s customers. With respect to those services provided by AA not under any contract, AA may recover any unpaid service charge or late payment penalty as a debt in any court of competent jurisdiction.127 In addition, AA may impose a statutory lien on an aircraft in respect of which service charges remain unpaid, and after 90 days, may proceed to seize and sell the aircraft in question to defray the cost of the outstanding charges.128 In addition, AA may raise revenue from providing consultancy and management services under contract. Any such contracts for consultancy and management services must fall within AA’s statutory functions as described in the Air Services Act 1995 and within the policy guidelines set by the Australian Government. AA also has power, among other things, to form or participate in the formation of companies, and also to enter into partnerships.129 E. Access to Capital Markets AA’s initial capital was the capital of its predecessor the CAA, less certain amounts transferred to Civil Aviation Safety Authority (CASA). Interest is not payable on the initial capital. However, the substantive amount is repayable to the government of Australia at such times and in such amounts as may be determined in writing by the portfolio minister.130 Apart from its initial capital, AA may borrow money from the Government of Australia, out of funds appropriated by the Australian parliament for the purpose, on such terms and conditions as may be specified in writing by the Minister of Finance.131 Further, the Act empowers AA to raise money by borrowing or otherwise132 and to give

123 Airservices Australia Act 1995 Act No. 81, 1995, § 53(1). 124 Ibid., § 53(3). 125 Ibid., § 54. 126 Ibid., § 53(6). 127 Ibid., § 57. 128 Ibid., §§ 59, 65 & 67. 129 Ibid., § 11(1)(b) & (c). 130 Ibid., § 44. 131 Ibid., § 48. 132 Ibid., § 11(2)(f).


security over the whole or part of its assets for: (a) the performance of any obligation incurred in connection with the raising of money by AA; or (b) the payment to the Government of Australia of amounts equal to amounts paid by the government under a guarantee relating to obligations incurred by AA.133 Also, subject to guidelines that may be issued by the portfolio minister, AA may enter into a deal with approved contracts for hedging purposes in relation to: (a) money raising; (b) investment of money; (c) commodity purchases; and (d) foreign currency transactions.134 An “approved contract” is defined in the Act to include an interest rate contract, and “hedging purposes” means reducing the risk of adverse variations in the costs of raising money or the revenue obtainable from investments of money made by AA.135 Thus, in effect, not only does AA have authority to borrow from, or invest in, capital markets; it also has statutory authority to engage in hedging to protect itself against adverse currency variations in these markets. F. Safety and Economic Regulation Authorities AA is statutorily required to regard the safety of air navigation as the most important consideration in the performance of its functions and exercise of its powers.136 Accordingly, as a service provider, AA is subject to certification and regulation by the Australian Civil Aviation Safety Authority (CASA) under and by virtue of the following Civil Aviation Safety Regulations (CASR):

CASR 172 – ATS Provider; CASR 143 – ATS Training Provider; CASR 171 – Aeronautical Telecommunications and Radio Navigation

Services Provider; CASR 173 – Instrument Flight Procedures Designer; and CASR 139H – Aerodrome Rescue and Fire Fighting

CASA’s role is that of safety regulation of civil air operations in Australian Territory and the operation of Australian aircraft outside of Australian territory. It sets safety standards and monitors compliance. CASA is also responsible for conducting reviews of the system of civil aviation safety in order to monitor the safety performance of the aviation industry, to identify safety-related trends and risk factors and to promote the development and improvement of the system. CASA operates under Civil Aviation Act, 1988.137 CASA secures AA’s compliance with the above safety legislation through stringent entry control procedures, a national surveillance program undertaken by audit, and enforcement measures to ensure that certification standards are maintained.138

133 Ibid., § 49. 134 Ibid., § 50. 135 Ibid., § 50. 136 Ibid., § 9. 137 Civil Aviation Act 1998 No. 63, 1998. 138 Comments by officials of Airservices Australia contained in ATC Commercialization


The operations of AA are also subject to review by the Australian Transport Safety Bureau (ATSB), an operationally independent body within the Commonwealth Department of Transport and Regional Services. ATSB is Australia’s prime agency for transportation safety investigations. The bureau is entirely separate from transport regulators and service providers. Its mission is to maintain and improve transport safety and public confidence through excellence in: independent transport accident and incident investigation; safety data analysis and research; and, safety communication and education.139 AA has been designated as a “declared person”, and its services, namely, those for terminal navigation, en-route navigation, aviation rescue and fire-fighting (ARFF), are “notified services” under and by virtue of Declaration No. 66 and Variation to Declaration No. 66.140 As such, the provisions of part VIIA of the Trade Practices Act 1974141 are applicable to it. The effect of this designation is that AA is required to notify the Australian Competition and Consumer Commission (ACCC) of any proposed increases in its service charges in respect of terminal navigation, en route and ARFF services before putting them into effect. The ACCC reviews and assesses the proposed increases and may or may not object to them. The ACCC is an independent statutory authority set up in 1995 by the Commonwealth Parliament with primary responsibility to ensure that individuals and businesses comply with Commonwealth competition, fair trading and consumer protection laws. G. Price and Service Controls As noted above, AA and the services it provides have been designated as a declared person and notified services respectively, and are thus subject to the Trade Practices Act. The power of the Board of AA to set prices for its services and penalty charges is further subject to the approval of the portfolio minister. Before making a determination of service charges and penalties for late payment (a statutory determination), the Board is required to give the Minister written notice to that effect specifying the basis for setting the penalty or service charge, the date on which the new charges are intended to become effective and the reason(s) for increasing existing charges if that is the case.142 The Minister may approve or disapprove the Board’s proposed determination within 30 days of receipt of the notice.143 The Board may not proceed with the determination in the event that the Minister should disapprove the proposed determination.144 The power of the Board to make statutory determinations has very limited application as it is only applied to a few (a dozen or so)

Policy Project Performance Template administered by Glen McDougall (7 July 2005). 139 Ibid. 140 Ibid. 141 Trade Practices Act 1974 No. 51, 1974. 142 Airservices Australia Act 1995, Act No. 81, 1995, § 54(1). 143 Ibid., § 54(2). 144 Ibid., § 54(3).


customers to whom services are provided by AA outside the framework of a contract. In practice, however, the bulk of AA’s customers obtain the services of AA under contract, outside the statutory determination process, and those contracted services subject to price regulation by the ACCC under and by virtue of the Trade Practices Act. H. Appeal Processes A person affected by a decision of AA may, within 28 days of the said decision coming to his notice, make a written application to AA to reconsider the decision.145 Upon receipt of the application, AA must reconsider the decision in question and affirm, revoke or vary it as it thinks fit within 28 days.146 If the decision is affirmed, revoked or varied, AA must give reasons for so doing in writing to the applicant. A further right of appeal lies to the Administrative Appeals Tribunal in respect of decisions that have been affirmed or varied by AA.147 I. Liability Protection by Government or Private Insurance AA and its employees and agents, acting in the course of their employment or agency, are protected from legal actions arising from (a) loss of, or damage to, an aircraft during seizure in accordance with section 65 of the Act; (b) loss of, or damage to, an aircraft seized while it is in the custody, possession or control of AA, its employees or agents; and (c) any economic loss suffered by a person as a result of such a seizure.148 Where it is established that the damage or loss was caused by the willful or negligent act or omission of the employee, protection from legal actions does not arise. It must be noted, however, that liability protection under section 65 only arises where AA has utilised the statutory determination process. As such, for the bulk of AA’s services which are provided under contract to its customers, AA does not have statutory protection from liability or legal actions. AA procures a wide range of insurance policies to cover identified risks. It sources the maximum amount of cover commercially available in respect of bodily injury and property damage arising from its operations. Other standard liability and asset protection policies are procured directly from the London or Australian insurance market. J. Liability to Taxes AA is subject to the full range of Commonwealth taxes including income tax, fringe benefits tax and goods and services tax. AA is currently exempt from all state and territory taxes with the exception of payroll tax. It is however, subject to the Commonwealth Competitive Neutrality Regime, which generally seeks to eliminate any advantage due to Government ownership.

145 Ibid., § 73(1). 146 Ibid., § 73(4). 147 Ibid., § 73(5). 148 Ibid., § 72.


IV. Canada A. Ownership and Control NAV CANADA was established as the world’s first non-share capital and private (federal) corporation to provide national air navigation services.149 It is a model of the conversion of Canada’s air traffic control system from direct control by a principal government department [i.e. Transport Canada] and other departments [such as Justice and Public Works]150 into a commercialized entity with fiscal and operational independence.151 Indeed, NAV CANADA became the world’s first air navigation service (ANS) provider without majority government ownership or control.152

NAV CANADA is a balance between a public and private entity as a non-share capital corporation – “a Canadian compromise between government ownership and pure privatization.”153 At the time of commercialization of Canada’s air navigation services, a choice was made among three different “types” of commercialization that have been attempted (1) a sell-off to a for-profit entity (e.g. United Kingdom), (2) a private entity wholly owned by the government (e.g. Australia, Germany, Ireland, New Zealand and South Africa), and (3) establishment of a special purpose, non-profit entity managed by a “stakeholders board” that operates more like a cooperative. Canada has instituted the latter model.154

149 See NAV CANADA, “About Us-Who We Are: History”, online: NAV CANADA <www.navcanada.ca> (date accessed: 15 December 2005). 150 Prior to the creation of NAV CANADA, the air navigation system was not operated by a separate entity but dispersed into a number of departments -- primarily Transport Canada. G. McDougall, “The Privatisation of the Canadian Air Navigation System,” in K. Button et al, eds., Defining Aerospace Policy (Ashgate, 2004) 13 at 13 [hereinafter McDougall, 2004]. 151 R. Poole & V. Butler, NAV CANADA - A Model for Commercializing Public Enterprise (Frontier Centre for Public Policy, Sept. 2002) 1-16 at 1, online: Frontier Centre for Public Policy <http://www.fcpp.org/pdf/series11.pdf> (date accessed: 23 December 2005) [hereinafter Poole & Butler]. This article states: “Nav Canada’s transformation began with a new policy of commercializing a significant portion of Transport Canada’s assets, first announced by Transport Minister Doug Young in the summer of 1994. His plan to privatize the air traffic control system took shape the following spring. It took its direction from the experience in New Zealand, which sold its counterpart in 1987 and subsequently enjoyed lower prices and more efficient service. The federal government also wanted to shed the burden of a $200 million annual subsidy to the enterprise and a computer purchase plagued with delays and cost overruns. The sale netted the treasury $1.4 billion. The new company’s ownership was shared by airlines, business aircraft owners, pilots and air traffic employees. Control of the new company was shared by a consortium of airlines, business aircraft owners, pilots and air traffic employees and took effect on November 1, 1996.” Poole & Butler, ibid. at 1. 152 G. Carr, “Public-Private Partnerships: The Canadian Experience” (Presentation to the Oxford School of Finance, Oxford, England, 9-11 July 1998) at 4, online: The Canadian Council for Public-Private Partnerships <http://www.pppcouncil.ca/pdf/oxford.pdf> (date accessed: 15 August 2005). 153 Ibid. 154 E. Sclar, “Pitfalls of Air Traffic Control Privatization” (National Air Traffic Controllers Association, February 2003) at 11, online: Columbia University, Urban Planning <www. urban.columbia.edu/sclar/pdf/aircontrol.pdf> (date accessed: 25 August 2005). For an interesting discussion of the various organizational options examined before NAV CANADA’s creation, see McDougall, 2004, supra note 150 at 19-21.


This Company was incorporated as a fully private, non-share capital corporation pursuant to Part II of the “Canada Corporations Act” on 26 May 1995 to acquire, own, manage, operate, maintain and develop the Canadian civil air navigation system (the “ANS”).155 On 8 December 1995, NAV CANADA and the Canadian Federal Government executed an Agreement-in-Principle setting out the major elements of the final Transfer Agreement. This Agreement-in-Principle settled such questions as sale price and the transfer of employees, and outlined a regime of transitional payments and initial fees intended to help NAV CANADA during the first two years of operating the ANS.156 To facilitate the commercialization of the ANS, the “Civil Air Navigation Services Commercialization Act” (the “ANS Act”) was enacted by the Parliament of Canada on 20 June 1996. This provided the legislative framework for not only the transfer of ownership and control from the Federal Government (i.e. Transport Canada) to NAV CANADA but also NAV CANADA’s subsequent obligations with respect to service delivery, user charges and changes in levels of service.157 Indeed, there were two key principles underpinning the mandate granted NAV CANADA: first, the company has the exclusive right to provide certain services (a monopoly so long as NAV CANADA meets its obligations under the Act); and, second, the company has the duty and powers to set and collect charges to recover all its costs from users of the air navigation services.158 On 1 November 1996, Transport Canada (part of the Canadian federal government),159 transferred ownership and control of Canada’s civil air navigation services network and facilities to NAV CANADA160 155 NAV CANADA, “Brief to Canada Transportation Act Review Panel” (March 2001) at 4, online: Canada Transportation Act Review <www.reviewcta-examenltc.gc.ca/Submissions -Soumissions/May30/NAV%20Canada.pdf> (date accessed: 25 August 2005). After 26 May 1995, much of the rest of the year was spent negotiating with the Canadian Federal Government for the transfer of the ANS from Transport Canada to NAV CANADA. Corporatisation of Air Navigation Services, supra note 5 at 74. 156 Corporatisation of Air Navigation Services, supra note 5 at 74. 157 NAV CANADA, “Brief to Canada Transportation Act Review Panel” (March 2001) at 4, online: Canada Transportation Act Review <www.reviewcta-examenltc.gc.ca/Submissions -Soumissions/May30/NAV%20Canada.pdf> (date accessed: 25 August 2005). 158 M. Priest, Report on Governance and Accountability: The New Transportation Organizations (Research conducted for the Canada Transportation Act Review, April 2001), online: Canada Transportation Act Review <www.reviewcta-examenltc.gc.ca/CTAReview/ CTAReview/english/reports/output/rcg> (date accessed: 25 August 2005). 159 “For about 60 years, the federal Department of Transport had operated Canada’s air navigation service (ANS). The ANS comprised air traffic control towers at airports across Canada, control centres in key locations, flight information, and service centers, aviation weather services and training centres. The Department itself had been created in 1936 to amalgamate the functions of the Department of Railways, the Marine Department and the Civil Aviation Branch of the Department of National Defence. The basic infrastructure then evolved over the years into a highly decentralized operation in six regions across Canada, providing a variety of transportation-related operational and regulatory functions including airport administration and the Coast Guard, in addition to the ANS itself.” Priest, supra note 158. 160 “With a staff of over 6,000, approximately 1,400 radio navigational aids, 7 area control centres, 44 air traffic control towers, 2 terminal control units, 83 flight service stations, a national training institute and a research and experimentation centre, NAV CANADA operates almost the entire civil air navigation system in Canada. However, there are other


for $1.5 billion (Cdn) cash on the basis of a syndicated bank credit facility of $3 billion (Cdn) arranged by the Royal Bank of Canada.161 Indeed, the actual total sale price was $1.8 billion -- this included the $1.5 billion cash just mentioned and the remainder consisted of certain financial obligations of the Canadian Government assumed by NAV CANADA. The final agreed sale price was the result of negotiations between Transport Canada [i.e. the Canadian Government] and the newly created entity of NAV CANADA.162 It should be noted that this was the first time that such a large financing was dedicated to a private start-up company without equity.163 The result was that NAV CANADA acquired all of the ANS assets and liabilities and took on all of the relevant designated employees (over 6000) from the Department of Transport. The actual transfer of ownership of Canada’s ANS to NAV CANADA from the Federal Government was achieved by means of an “Agreement to Transfer” between the federal government and NAV CANADA, as well as certain ancillary agreements with respect to operations. 164 This transaction was the largest commercialization of a federal government department function in Canadian history.

1. Corporate Structure: Goals/Objects of NAV CANADA NAV CANADA Letters Patent include provisions that state both the general and specific goals/objects of the Corporation including, inter alia:

(a) Generally, the primary goals/objects of NAV CANADA are “to acquire, own, manage, operate and develop the Canadian air navigation system and services (the “ANS”) in and over Canada and in international airspace delegated to Canada by international agreement, and to do so in a safe, secure, efficient and cost effective manner....;”165

civil air navigation service providers including Serco Aviation Services that operates a control tower at Southport, Manitoba, and approximately 200 private companies or individuals that operate radio navigation aids and other facilities. Transport Canada is responsible for ensuring that these operators deliver civil air navigation services which are safe and comply with applicable regulations and standards” [discussed infra]. Transport Canada, “Safety Oversight of the Civil Air Navigation System – A Framework”, online: Transport Canada <www.tc.gc.ca/civilaviation/ansanda/aarnf/frame.html> (date accessed: 28 July 2005). 161 Carr, supra note 152 at 4. 162 McDougall, 2004, supra note 150 at 24-25. 163 Ibid. at 13. This debt approach was applied for a number of reasons including that prior to commercialization the “ANS was supported by several hundred million dollars per year of government appropriations, making the [new] entity [of NAV CANADA] appear to be commercially non-viable, and unattractive to potential” investors. Ibid. 164 On December 8, 1995, an agreement in principle was reached which committed the government and NAV CANADA to a price for the ANS, and which formed the basis for the Agreement to Transfer. This latter document was formally signed on 1 April 1996, with the closing date ultimately being 31 October 1996. As of midnight on that date, NAV CANADA became the official provider of air navigation services in Canada. Transport Canada, “Commercialization of the Air Navigation System: Lessons Learned Study”, online: Transport Canada <www.tbs-sct.gc.ca/asd-dmps/sd/tc-cans/spc_e.asp> (date accessed: 28 July 2005). 165 NAV CANADA, “Brief to Canada Transportation Act Review Panel” (March 2001) at 8, online: Canada Transportation Act Review <www.reviewcta-examenltc.gc.ca/Submissions


(b) Specifically, secondary goals to be pursued by NAV CANADA -- without restricting the primary goal/objects -- can be summarized as follows:

• the determination to maintain safety; • to work for high standards and operational efficiency to the

benefit of the users of the ANS and the general public; • to offer services and facilities to both commercial and private or

recreational users; • to ensure that recreational or private users are not overcharged

for services they receive; • to manage the ANS as a good employer, “recognizing the value

and contribution of its employees;” • to meet “the reasonable needs” of remote communities; • to engage in technological innovation, development of systems

and facilities; • to undertake research and development; and • to extend training and provision of services in air navigation and

aeronautics outside Canada as well as inside.166 (c) It should be noted that reference is made to the fact that other goals can be added over time provided they too are consistent with the original objects.167

2. Corporate Structure -- Other Key Characteristics NAV CANADA Letters Patent not only establish the goals/objects of the corporation (as stated above) but also provide the skeleton of an organization that, inter alia:

(a) establish NAV CANADA as a Corporation that carries on its operations without pecuniary gain to its Members or Directors;168 (b) provide for the contingency of the dissolution or winding up of the Corporation only upon the consent of the Minister of Transport such that after all its liabilities and obligations are paid, all assets will revert to the Crown [i.e. Federal Government];169 (c) empower NAV CANADA to raise the money to pay the Government for assets acquired and to run the Corporation by creating debt.170

3. Corporate Structure -- Some Amendments Require Government

Approval It should be noted that the By-laws of the Corporation can be repealed or amended by the Board of Directors and Voting Members (defined below) except that the approval of the Minister of Transport is required for any amendment to the Letters Patent and for changes to certain provisions of the By-laws setting out definitions and core governance provisions, and any changes may not be acted upon until the Minister of Industry has given

-Soumissions/May30/NAV%20Canada.pdf> (date accessed: 28 July 2005) citing Industry Canada, “Canada Corporations Act, Nav Canada Letters Patent” (26 May 1995) Section III. 166 These goals are summarized in Priest, supra note 158. 167 Ibid. 168 NAV CANADA, “Brief to Canada Transportation Act Review Panel” (March 2001) at 8, online: Canada Transportation Act Review <www.reviewcta-examenltc.gc.ca/Submissions -Soumissions/May30/NAV%20Canada.pdf> (date accessed: 28 July 2005). 169 Ibid. 170 Priest, supra note 158.


approval to the final product.171 Furthermore, in respect of the ANS Act, not only is public appeal to the courts is permitted in the case of certain breaches of this Act but also fines may be imposed against NAV CANADA when such breaches are proven.172 4. Corporate Structure – Non-Share Capital Entity NAV CANADA was created as a non-share private corporation [i.e. it has “no shareholders”] on a cost recovery basis with all revenues staying within the ANS. Indeed, this means that there are no shareholders or equity -- only stakeholder members – such that there is no need or pressure to generate financial returns for shareholders.173 There are two important advantages of the NAV CANADA not-for-profit structure: first, it assures that NAV CANADA is consistent with international agreements that require that the air navigation system only recovers total costs;174 second, not only does NAV CANADA have a tax-exempt status but also the not-for-profit principle places pressure on NAV CANADA to invest its revenues in the activities of the organization if the tax-exempt status is to be maintained.175 Thus, NAV CANADA is a private company that operates like any other business corporation -- except there are no shareholders. Although NAV CANADA is often called a “non-profit” company, this phrase is misleading since NAV CANADA can and does earn excess revenues [i.e. effectively “profits”]. However, the lack of shareholders means that there is no mechanism to distribute any “profits” other than recycling them to pay debt, to finance capital expenditures, or to reduce service fees.176 The Canadian Federal Government does not fund NAV CANADA, guarantee its debt or function as a financial backstop. NAV CANADA is financially self-sufficient in all respects. Since NAV CANADA is a non-share capital corporation, this means that there is no equity and, accordingly, no need or pressure to generate financial returns for shareholders. NAV CANADA has voting and non-voting members (that are stakeholders and users of its services) rather than shareholders (that are seeking a profit and return on their investment).

171 Ibid. Article XVI, Consolidated By-Laws, lists the by-laws that, in effect, constitute a protected zone of core governance. 172 McDougall, supra note 150 at 31. 173 NAV CANADA, “Brief to Canada Transportation Act Review Panel” (March 2001) at 8, online: Canada Transportation Act Review <www.reviewcta-examenltc.gc.ca/Submissions -Soumissions/May30/NAV%20Canada.pdf> (date accessed: 28 July 2005). 174 McDougall, supra note 150 at 26. 175 Priest, supra note 158. 176 US Senate, “Presentation of NAV CANADA’s John Crichton, at the Budget Committee and the Subcommittee on Transportation of the Appropriations Committee” (Washington, DC, 3 February 2000), online: US Senate <www.senate.gov/~budget/republican/ about/ hearing2000/crichton.htm> (date accessed: 28 July 2005).


B. Qualifications and Appointing Process 1. Governance Structure NAV CANADA represents a unique consensus amongst the major stakeholders in the air navigation system -- the Government of Canada, the commercial air carriers (represented by the Air Transport Association of Canada), general and business aviation (represented by Canadian Business Aviation Association), and NAV CANADA’s employees (represented by the Bargaining Agents Association). The company’s governance structure reflects this consensus.177 Indeed, one of the most important innovations cited respecting the NAV CANADA model is that all four stakeholders are Members of the company and are represented on the Board and its committee structure.178 This approach ensures that the different interests of the major airlines, low-fare airlines, regional airlines, cargo carriers, corporate jets, air taxis, and light plane owners are all taken seriously by arm’s length appointees that are not users or employees in the corporation’s decision-making, without any of these interests being able to dictate to the others.179 ANS clients of NAV CANADA are at “arm’s length” from the decisions of the Board of Directors in two ways -- first, by the balance of stakeholder interests on the Board of Directors; and second, by the prohibition of clients being directly represented on the Board. 180 The Canadian model provides that the ANS is operated by a private non-profit entity that is largely set up as effectively a “stakeholder cooperative”. This is distinctive from the commercialization approach preferred by many countries that have established a government corporation to operate ANS. Thus, in Canada the corporation “members” and/or board “directors” are a broad-based constituency of users of the system including not only airline representatives (that are largely excluded in government-owned ANS corporations like those of Australia, Germany, Ireland, New Zealand and South Africa) but also airports, unions, general aviation and the Government (in its role as a user of the system).181

177 See NAV CANADA, “About Us-Who We Are: History”, online: NAV CANADA <www.navcanada.ca> (date accessed: 15 December 2005). 178 It should be noted that direct representation on the Board is forbidden in the by-laws without unanimous board approval. As stated below, certain categories of individuals are excluded from the Board including: elected officials, public servants, directors, officers and employees of suppliers, clients or users or the Voting Members (new amendment to By-Laws that has grand-fathered in existing association presidents on the Board that will no longer be permitted when term expires.) This is one of the by-laws that cannot be changed without the Minister of Transport’s approval. 179 Poole & Butler, supra note 151 at 2. 180 An example of the effects of user representation on the NAV CANADA Board is the recent appeal by Air Canada to the Canadian Transportation Agency (CTA) respecting a user fee increase imposed by NAV CANADA. 181 Poole & Butler, supra note 151 at 2-3. It should be reiterated that in Canada, the stakeholders have the right to appoint directors to Board who are not officers, directors, trustees or employees of a supplier, client, etc. unless there is unanimous approval from Board.


NAV CANADA’s By-laws, the most important features of which can only be amended upon the consent of the Minister of Transport, set out the corporate governance structure for the Corporation. The governance structure is composed of three bodies (only the first two are central to the purposes of the corporation):

Voting Members: The first central body consists of the four Members who hold full votes. These are the user groups (including the airlines, non-commercial aviation, unions and government) for whose distinct interests NAV CANADA was created.

Board of Directors: The second central body is the Board of Directors, whose composition flows from Members’ choices. The Board provides broad direction to the company, and has a mandate to build the quality of the company’s corporate governance practices.

Advisory Committee: NAV CANADA provides funding to this advisory body that provides some representation of small interests by organizing and channeling their feedback. The Advisory Committee is named by a large number of “Associate Members,” essentially volunteers from among individuals and groups involved in the broadest sector. 182

2. The Voting Members As stated above, because a non-share capital private corporation cannot, by definition, have shareholders who seek to share profits generated by corporate activity, it is necessary to conceive a different formula for the interests around which a not-for-profit corporation will be formed. Thus the major business of Article II of NAV CANADA’s Bylaws183 is to create four classes of “Members” of the corporation -- three classes are full Members; the fourth class is non-voting Associate Members.184 There are four full or voting Members -- the Federal Government, Unions, and Users (the latter is made up of the airlines, represented by the Air Transport Association of Canada, and general aviation, represented by the Canadian Business Aircraft Association). The Minister of Transport appoints one person to represent the Federal Government as a Member; the Union Association appoints another individual; and the two user associations each appoint a representative. Persons named as Associate Members under these provisions may vote only as provided by Article VII(c) -- that is, to appoint members of the Advisory Committee. There are no membership fees for Government, Union or User Member; however, fees could be established for Associate Members.185 182 Priest, supra note 158. 183 When the By-Laws that came into force with the Letters Patent in 1995 are referenced, they are called the 1995 by-laws. The Priest Report, referred to here, considers the latest version of the by-laws to have been last consolidated in 1997 (they are referenced as the consolidated by-laws). Priest, supra note 151. 184 Priest, supra note 151. Because Members are joining to pursue a shared purpose, Article II also provides that only persons interested in furthering the objects (purposes) of the Corporation can be Members. 185 Ibid.


Removal of an appointee: A founding interest must name a person as its voting Member more than 60 days before each annual meeting; but, s/he can be removed on 10 days notice. Associate Members are removable by a resolution of the majority of the Board of Directors, provided that they have been allowed an opportunity to be heard at that meeting.186 Associate Members can be anyone other than a person in one of the three primary classes, whose application is approved by the Board of Directors. Associate membership can be conferred on the various interests and stakeholders, including Canadian consumer interests and both recreational and professional pilot associations.187 Annual Meeting: The Members are obliged by Article IX of the by-laws to meet at least annually, anywhere in Canada, within 135 days of the end of the last financial year of the Corporation. The date of this meeting is to be decided by the Board of Directors. A quorum is three of the four voting Members. These annual meeting of the Members are open to the public. Certain business must be on the agenda for every annual meeting, along with business that has arisen in the past year: the report of the Board of Directors, the financial statements and the auditors’ reports on them, as well as the appointment of auditors for the coming year. Time is to be allowed for Associate Members and members of the public to ask questions of management. For this meeting, the Board has a duty to ensure that at least a majority of the Directors -- including the Chairperson and the President -- are there to present the annual report of the Corporation for the most recently competed financial year. Accordingly, the annual meeting of Members becomes an open company meeting. The contents of the annual report of the Corporation are fixed by Article IX (c). This annual report is a public document. The timing of the annual report is linked to the annual meeting of Members. It must be provided in both official languages to each Member and the Transport Minister of Canada before the annual meeting. It is available to members of the public, on request.188 Special meeting: The by-laws on the Meetings of Members also allow for a 75 percent majority of voting members of the Board of Directors to call a special meeting at any time, provided at least there is 90 days notice and announcements are made in the two biggest circulation newspapers in English and French.189 Expense reimbursement: Only voting Members are reimbursed for reasonable expenses incurred attending annual or special meetings.190

186 Ibid. 187 Ibid. 188 Ibid. 189 Ibid. 190 Ibid.


3. The Board of Directors – Appointment, Qualifications and Removal NAV CANADA is governed by a 15-member Board of Directors,191 all of whom must be Canadian citizens and a majority of whom must be Canadian residents as defined in the Canada Business Corporations Act.192 Process: The Stakeholder Members of the company are central to the appointment of the Directors. The selection of the Board is a 3-step process as outlined below.

First: the Stakeholder Members appoint ten individuals to NAV CANADA’s Board of Directors, as follows:

four Directors appointed by the airlines (i.e. the Air

Transport Association of Canada); one Director appointed by business and general aviation

(i.e. by the Canadian Business Aircraft Association); three Directors appointed by the Federal Government two Directors appointed by the Unions (i.e. Bargaining

Agents).193

Second: originally, these 10 directors then elected four “unaffiliated” Directors that are independent with no ties to stakeholders.194 Subsequent to the formation of the original board, all sitting Directors have a vote in choosing the Directors not appointed by the Voting members. Third: the Board appoints the President and Chief Executive Officer to form the Corporation’s Board of 15 Directors.195 Advantage of this Structure: This structure ensures that the Board knows the views of all of the key stakeholders. It also makes certain that the interests of individual stakeholders do not predominate, as no Member can elect a majority of Directors.196 Comparative Analysis of Board Member Appointment: The Canadian model is similar to that of Switzerland and other countries where ANS are partly – or entirely (Canada’s case) – private non-profit entities since

191 NAV CANADA, “Brief to Canada Transportation Act Review Panel” (March 2001) at 8, online: Canada Transportation Act Review <www.reviewcta-examenltc.gc.ca/Submissions -Soumissions/May30/NAV%20Canada.pdf> (date accessed: 28 July 2005). 192 Priest, supra note 151. 193 See NAV CANADA, “About Us-Who We Are: History”, online: NAV CANADA <www. navcanada.ca> (date accessed: 15 December 2005). Also: See Poole & Butler, supra note 151 at 4. 194 See NAV CANADA, “About Us-Who We Are: History”, online: NAV CANADA <www.navcanada.ca> (date accessed: 15 December 2005). In the consolidated by-laws of 1997, all the sitting Directors had a vote in choosing the Directors not appointed by the voting Members as explained by Priest, supra note 158. 195 See NAV CANADA, “About Us-Who We Are: History”, online: NAV CANADA <www.navcanada.ca> (date accessed: 15 December 2005). Also see NAV CANADA, “About Us - Investor Relations - Corporate Governance”, online: NAV CANADA <www. navcanada.ca> (date accessed: 15 December 2005). 196 See NAV CANADA, “About Us - Investor Relations - Corporate Governance”, online: NAV CANADA <www.navcanada.ca> (date accessed: 15 December 2005).


the Board of Directors are self-selecting according to the stakeholder provisions of the corporate charter. On the other hand, in those countries where ANS corporations are government-owned (such as Australia, Germany, Ireland, New Zealand and South Africa), the government appoints the Board members.197 Term: All appointees to the Board of Directors are named for three-year terms, effective when appointed at an Annual Meeting, and expiring at the start of the third annual meeting after appointment. No Director is allowed to serve for more than nine years -- other than the President of the Company (who holds a seat on the Board).198 Qualifications: The corporate By-laws of NAV CANADA set out the qualifications of all directors in order to ensure that appointees will be effective members and only serve the interests of NAV CANADA. The by-laws try to ensure Directors will be professionally qualified for their duties. Approved “disciplines” for the Members to keep in mind are named (Article III(e)), and include aviation, business, finance, administration, law, government, and persons representing the interests of employees or consumers.199 There are three exclusions of persons who may not be directors. Generally, Directors cannot be active employees, Directors or members of Government, the airlines, unions or Voting Members.200 More specifically, no one may be appointed to the Board who is an elected official or an employee of any level of public government in Canada (other than municipal).201 No one may be appointed who is an officer, director or employee of a significant ANS customer or supplier, and no one may be appointed who is a member of a NAV CANADA bargaining agent or of a Voting Member.202 Nevertheless, the just mentioned categories of excluded persons may still be appointed to the Board of Directors if the Board unanimously agrees that such an appointment will involve no conflict-of-interest.203 As a prerequisite to joining the Board, all directors must execute and abide by strict code of conduct and conflict of interest guidelines. 204 The Code is a self-contained document that sets out Directors’ and Officers’ duties of honesty, devotion to the best interests of the 197 Poole & Butler, supra note 151. 198 Priest, supra note 158. 199 Ibid. 200 Poole & Butler, supra note 151 at 4. 201 See NAV CANADA, “About Us - Investor Relations - Corporate Governance”, online: NAV CANADA <www.navcanada.ca> (date accessed: 15 December 2005). 202 NAV CANADA, “Brief to Canada Transportation Act Review Panel” (March 2001) at 8, online: Canada Transportation Act Review <www.reviewcta-examenltc.gc.ca/Submissions -Soumissions/May30/NAV%20Canada.pdf> (date accessed: 28 July 2005). 203 This is based on an amendment to NAV CANADA by-laws [Art. III (e) (iii)]. 204 See NAV CANADA, “About Us - Investor Relations - Corporate Governance”, online: NAV CANADA <www.navcanada.ca> (date accessed: 15 December 2005). NAV CANADA, “Brief to Canada Transportation Act Review Panel” (March 2001) at 9, online: Canada Transportation Act Review <www.reviewcta-examenltc.gc.ca/Submissions -Soumissions/May30/NAV%20Canada.pdf> (date accessed: 28 July 2005).


Corporation, participation, confidentiality, and the duty to avoid placing themselves in a situation where it could be either perceived or be a reality that their duty to the company conflicts with their personal interest or their other duties. The Code contains the forms on which future Directors, and in some cases, officers of the company, will provide details of their other offices and duties and disclose such conflicts of interest as they may perceive.205 Indemnity and insurance: Another important feature of the office of Director is contained in Article XII of the consolidated by-laws on indemnity and insurance. The Canada Corporations Act is here the highest authority. In general, Directors and their associates are covered for any reasonable expenses incurred while doing the company’s work in good faith. To discharge this obligation NAV CANADA is obliged to maintain in force the liability insurance thought appropriate to their duties by the Directors.206 Removal: Article III (g) of NAV CANADA’s bylaws restates the ease with which Members may in theory remove the Directors they name – it refers to the requirement of written notice to the Corporation. Article III (g) also mentions that a breach of the Code of Conduct is a “cause” for removal,207 particularly in case of conflict-of-interest. 4. The Board of Directors – Functions and Committees Functions: The Board oversees the conduct and operation of the company of its property and business. More specifically, the Board reviews and approves corporate strategies, plans and financial objectives. The Board not only appoints, monitors, advises and supervises the executives who manage the company but also assesses the performance and results of management and the company. It is also responsible for ensuring the integrity of internal controls and all management or financial information systems and preserving the company’s assets. The Board must maintain effective corporate communications with Members and the public.208 Meetings: The Board has six scheduled meetings each year and unscheduled meetings are held from time to time as required.209 Quorums: The Board discharges its responsibility directly and 205 Priest, supra note 158 citing Nav Canada, Code of Conduct and Conflict of Interest Guidelines for Directors and Officers, n.d. The preliminary remarks state that the Code is intended to complement requirements set out in the Canada Corporations Act. 206 Priest, supra note 158. 207 Ibid. citing consolidated bylaws. See NAV CANADA, “About Us-Who We Are: History”, online: NAV CANADA <www.navcanada.ca> (date accessed: 15 December 2005). 208 NAV CANADA, “Brief to Canada Transportation Act Review Panel” (March 2001) at 8, online: Canada Transportation Act Review <www.reviewcta-examenltc.gc.ca/Submissions -Soumissions/May30/NAV%20Canada.pdf> (date accessed: 28 July 2005) citing By-laws, Art. III (a). Other Board powers are found in Article V of the Bylaws. 209 NAV CANADA, “Brief to Canada Transportation Act Review Panel” (March 2001) at 8, online: Canada Transportation Act Review <www.reviewcta-examenltc.gc.ca/Submissions -Soumissions/May30/NAV%20Canada.pdf> (date accessed: 28 July 2005) citing By-laws, Art. III (a).


through committees pursuant to the provisions of the company’s by-laws and the Board of Directors’ Corporate Governance Policy Manual.210 Quorums for both the Board and its committees are always a majority, and Board decisions are taken on majority vote.211 Committees: The committee structure of the Board of Directors is outlined by the Bylaws to include an audit committee, a corporate governance committee and a standard of safety committee. 212 5. The Board of Directors -- Independent Functioning The structure and composition of the Board of Directors, and its committees, have been designed to ensure that the Board has the ability to function independently of management.213

(b) The by-laws of the company require that the positions of the Chairman of the Board and the President and Chief Executive Officer be filled by separate individuals. As stated above, the Board selects the President and CEO.214 (c) To further enhance the ability of the Board to function independently from management, a portion of certain board meetings is reserved for discussion among the non-management directors only.215 (d) Individual directors may engage outside advisors in appropriate circumstances with authorization of the Chairman of the Board. 216 (e) The effectiveness of the Board and the committees is assessed annually by each director. The Corporate Governance Committee of the Board reviews these assessments.217 (f) While the key stakeholders in Canada’s air navigation services appoint the Directors to the Board, and NAV CANADA receives input from these stakeholders, NAV CANADA must as a matter of law act in its own best interests, and not in the interests of any particular stakeholder group in all of its decisions.218 (g) The Board of Directors has sought to ensure that the company’s general approach to corporate governance is consistent with the guidelines for effective corporate governance adopted by The Toronto Stock Exchange in 1995.219

6. The Advisory Committee

210 Ibid. Other Board powers are found in Article V of the Bylaws, Art VII. 211 Priest, supra note 158. 212 Ibid., citing Bylaws, Art. VII. 213 NAV CANADA, “Brief to Canada Transportation Act Review Panel” (March 2001) at 11, online: Canada Transportation Act Review <www.reviewcta-examenltc.gc.ca/Sub missions-Soumissions/May30/NAV%20Canada.pdf> (date accessed: 28 July 2005). 214 Ibid. 215 Ibid. 216 Ibid. 217 Ibid. 218 See NAV CANADA, “About Us - Investor Relations - Corporate Governance”, online: NAV CANADA <www.navcanada.ca> (date accessed: 15 December 2005). 219 NAV CANADA, “Brief to Canada Transportation Act Review Panel” (March 2001) at 10, online: Canada Transportation Act Review <www.reviewcta-examenltc.gc.ca/Submissi ons-Soumissions/May30/NAV%20Canada.pdf> (date accessed: 28 July 2005).


One observer characterized the Advisory Committee as the provider of “micro-representation” -- that is, representation of users of the ANS other than significant commercial users.220 Election: This Committee is elected at NAV CANADA’s annual general meeting by all members, including the large number of Associate Members. 221 Membership in the Advisory Committee is established at 18 members, each member having a term of three years. Each member is to represent one of the nine constituencies set out in the by-laws (with the exception of one member at large) and includes aviation professionals, including professional pilots, air traffic controllers, flight service specialists, technicians, airport and air service operators, and officers of international, national and regional aviation organizations.222 Functions: The Committee is mandated to conduct such activities as determined by the Board of Directors including study, report and make recommendations to the Board of Directors on such matters relating to the ANS as may be determined by the Board of Directors.223 The Advisory Committee will work to the direction of the Board, within a budget established annually in advance by the Board of Directors. Members of the Advisory Committee are not paid any remuneration for serving in their position; however, they are reimbursed for “reasonable expenses” incurred by them in the performance of their duties.224 7. Officers of the Corporation The Officers include the Chairperson of the Board of Directors, the President and Chief Executive Officer, Vice-Presidents, a Secretary, a Treasurer and any other officer as shall be named from time to time. 225 As stated above, the President and CEO -- effectively the individual who is responsible for all operations -- must be a different person than the Chairman of the Board. This provision is one of several enabling the Board to function independently of management.226 C. Accountability and Transparency Requirements

1. Accountability / Disclosure Regime NAV CANADA operates according to a well-defined, well- 220 Priest, supra note 158. 221 See NAV CANADA, “About Us-Who We Are: History”, online: NAV CANADA <www.navcanada.ca> (date accessed: 15 December 2005). 222 Priest, supra note 158. 223 See NAV CANADA, “About Us - Investor Relations - Corporate Governance”, online: NAV CANADA <www.navcanada.ca> (date accessed: 15 December 2005). 224 Priest, supra note 158, citing Bylaws, Art. VII. 225 Ibid. 226 Ibid., citing 1999 NAV CANADA Annual Report at 28.


articulated governance structure and legal accountability / disclosure regime that is set out in:

enabling and related legislation such as the Civil Air Navigation Services Commercialization Act (CANSCA); the Aeronautics Act and Regulations including among others, the Canadian Aviation Regulations (CARS) Part VIII

corporate by-laws corporate governance manual corporate policies, and provincial securities laws and regulations227

2. Corporate Governance Committee The Board maintains a Corporate Governance Committee who job it is to ensure the proper mechanisms are in place for achieving full accountability by the Board and the Company’s management.228 3. Disclosure and Transparency – General Framework NAV CANADA must operate in an open and transparent manner with full and complete information disclosure to all stakeholders. The Company has formalized its disclosure procedures into a written policy. The objectives of this policy are to ensure that communications with the investing public are:

timely, accurate, consistent and informative, in compliance with all legal and regulatory requirements, and broadly disseminated.229

The policy is also intended to prevent important information about NAV CANADA from being inadvertently disclosed to anyone unless that information is publicly disclosed and broadly disseminated at the same time.230 Every Annual Meeting of the Corporation is open to the public. It is further provided that the agenda shall include a report of the Board of Directors, the financial statements and the report of the auditors, and the appointment of auditors for the next year.231 The Bylaws establish the table of contents of the Annual Report of the Corporation. This is to include the audited financial statements, the auditor’s report on these, and an account of what the corporation did in the past year.232

227 NAV CANADA, “Disclosure Policies and Safety Oversight: Summary of Submission (as prepared by Nav Canada)” (8 November 2001), online: Access to Information Review Task Force <www.atirtf-geai.gc.ca/ submissions/navcan2001-11-08-e.html> (date accessed: 30 July 2005). 228 See NAV CANADA, “About Us - Investor Relations - Corporate Governance”, online: NAV CANADA <www.navcanada.ca> (date accessed: 15 December 2005). 229 Ibid. 230 Ibid. 231 Priest, supra note 158, citing Bylaws, Art. IX. 232 Ibid., citing Bylaws, Art. IX.


4. Disclosure/Transparency --Securities Law Disclosure Regime and

Obligations As a private company that issues debt securities in the financial market, NAV CANADA is subject to various provincial securities laws and regulations. The disclosure requirements of securities laws are aimed at ensuring that investors receive all relevant information on a timely basis based on the principle that no single investor should gain advantage or profit from having information unavailable to others. Securities laws and corporate governance policies require that NAV CANADA proactively disclose all material information about itself, and that such information not be selectively disclosed. Accordingly, NAV CANADA must ensure that selective disclosure of material information does not occur.233 There is a legal obligation under securities law to maintain a public disclosure file containing all material facts relating to NAV CANADA. The legislation also requires that this file be continuously updated. 234 5. Disclosure/Transparency -- Information Broadly Disclosed by

NAV CANADA under Corporate By-laws and Securities Laws The following information is broadly disseminated by NAV CANADA, either on its internet site (www.navcanada.ca), to the media, or is available upon request when submitted to the corporation:235

An annual information form providing a detailed three-year corporate record containing all material facts relating to the business of NAV CANADA, its development and operations, its management and its financial position.

A summary of the company’s business plan for the up-coming fiscal year.

A prospectus describing the company’s business and financial structure. Quarterly financial statements immediately following approval

by the Board of Directors at the end of each quarter. A quarterly detailed management discussion and analysis of

NAV CANADA’s financial results. Full details of salary, all other compensation, and all benefits received

each year by NAV CANADA’s five most highly paid officers.

This account [of what the corporation did in the past year] is to include: a report on performance in relation to the business plan and objectives of the Corporation for the past financial year plus the most recently completed five financial years before that (six years in all); an outline of the business plan for the next financial year, including objectives to realize the purposes of the Corporation; a report on the remuneration of each of the Directors by name, and the salary ranges of each of the five most highly compensated employees of the Corporation; plus a report on compliance of Directors and Officers with the Code of Conduct and Conflict of Interest Guidelines for Directors and officers of the Corporation.

233 NAV CANADA, “Disclosure Policies and Safety Oversight: Summary of Submission (as prepared by Nav Canada)” (8 November 2001), online: Access to Information Review Task Force <www.atirtf-geai.gc.ca/ submissions/navcan2001-11-08-e.html> (date accessed: 30 July 2005). 234 Ibid. 235 Ibid.


Name, residential address and five-year employment history of each of NAV CANADA’s directors and officers.

Any material development affecting the company, immediately upon occurrence. In this instance the company can claim confidentiality but must re-request and justify the confidentiality claim every ten days, otherwise the information becomes public.

Annual report, providing an overview of the past year. Annual financial statements, notes to financial statements and

audit report. Management’s discussion and analysis of financial statements. Rate revision submissions.236

D. Restrictions on Revenue Sources Initial Financing: As stated above, NAV CANADA entered into a $3 Billion (Cdn) credit facility agreement with a syndicate of banks to provide initial funding for the Company.237 Half of the loan ($1.5 billion) was allocated to purchase the air navigation system from Transport Canada; and, the other half was to provide ongoing working capital and establish reserves.238 Thus, NAV CANADA’s capital requirements have been financed with debt (bonds and medium-term notes) that is less expensive than equity funding.239 This reliance on debt rather than on equity financing is the greatest contributor to the reduction in the cost of capital for NAV CANADA.240

NAV CANADA’s debt is neither guaranteed by the Canadian Government nor secured by the assets of the corporation. However, NAV CANADA’s unique financing structure secures the debt by its revenue stream (i.e. an assignment of corporate revenues).241

Due to the company’s legislated monopoly position in the provision of an essential service (i.e. air traffic services in Canadian-controlled airspace), the cost recovery methodology (i.e. subject to its Board of Directors, it can set use charge rates without regulatory approval and levy these charges against all civil aircraft), and the remedies available for the collection of debt (including the ability to seize aircraft in order to collect delinquent user fees), NAV CANADA’s notes are highly rated.242 A short time after the sale, NAV CANADA retired a significant part of the bank debt by issuing revenue bonds.243

236 Ibid. 237 Corporatisation of Air Navigation Services, supra note 5 at 72. 238 McDougall, 2004, supra note 150 at 25-26. 239 Carr, supra note 152 at 5. 240 Ibid. 241 Corporatisation of Air Navigation Services, supra note 5 at 77. Subsequently, the Company raised a significant amount through issuing revenue bonds in the Canadian debt market and thereby reduced the credit facility correspondingly. 242 Carr, supra note 152 at 5. NAV CANADA’s debt is highly rated by three different bond rating agencies, Moody’s, DBRS and Standard and Poor’s. Other reasons for the high bond rating of NAV CANADA debt are cited by McDougall, 2004, supra note 150 at 25. 243 Corporatisation of Air Navigation Services, supra note 5 at 77. Subsequently, the Company raised a significant amount through issuing revenue bonds in the Canadian debt market


Non-profit motive: Corporate decisions are not affected by any profit-motive since NAV CANADA does not distribute profits. All revenues stay within the ANS such that any excess earnings are reinvested in the company, kept as operating reserve, or used to reduce debt or user charges. Since no individual, company or other entity benefits or receives any financial return (for example: there are no dividends) in compensation from the operation of the ANS, its members have no financial incentive to charge fees beyond those needed for its operation.244 As shown earlier, the governance structure gives users substantial – but not majority – influence on the Board of Directors.245 E. Access to Capital Markets Repeating what is stated above in terms of “Initial Financing”, both NAV CANADA’s $1.5 billion expenditure to acquire the air navigation system from Transport Canada and its ongoing capital requirements, have been financed with debt (bonds and medium-term notes) that is less expensive than equity funding. This reliance on debt rather than on equity financing is the greatest contributor to the reduction in the cost of capital for NAV CANADA. NAV CANADA’s debt is neither guaranteed by the Canadian Government nor secured by the assets of the corporation.246 However, NAV CANADA’s unique financing structure secures the debt by its revenue stream (i.e. an assignment of corporate revenues).247 Due to the company’s legislated monopoly position in the provision of an essential service, the cost recovery methodology, and the remedies available for the collection of debt, NAV CANADA’s notes are highly rated.248 F. Economic and Safety Regulation

1. Government Oversight Prior to the commercialization of air navigation services in Canada, Transport Canada’s role was owner, operator and regulator of the system. Since 1 November 1996, NAV CANADA has become the owner and operator of the system [i.e. service provider] and Transport Canada’s role has been limited to be only the safety regulator.249

and thereby reduced the credit facility correspondingly. 244 Carr, supra note 152 at 5. 245 Ibid. 246 Corporatisation of Air Navigation Services, supra note 5 at at 77. Subsequently, the Company raised a significant amount through issuing revenue bonds in the Canadian debt market and thereby reduced the credit facility correspondingly.

248 Carr, supra note 152 at 5. NAV CANADA’s debt is highly rated by three different bond rating agencies, Moody’s, DBRS and Standard and Poor’s. 249 Transport Canada, “Safety Oversight of the Civil Air Navigation System – A Framework”, online: Transport Canada <www.tc.gc.ca/civilaviation/ansanda/aarnf/ frame.html> (date accessed: 28 July 2005), at Foreward.


Comparative Analysis: NAV CANADA is the most autonomous ANS supplier corporation since there is no government ownership. Whereas there are three Board members appointed by the Government, they do not present political or departmental positions. Thus, the ownership and operation of the ANS system (by NAV CANADA) is clearly separate and distinct from the regulatory role (primarily safety regulation as discharged by the Government and Transport Canada).250 This approach is to be contrasted to government-owned ANS corporations (such as Australia, Germany, Ireland, and South Africa) where the corporation is responsible to the relevant cabinet minister(s) – generally, at least to the Transport Minister.251 Accordingly, in these countries, the Minister has a dual role in respect of matters of policy respecting such corporations – both as the principal (or sole) shareholder/owner and as a regulator. Moreover, in most of these countries, the Finance Minister has a monitoring role.252 2. Economic Regulation

2.1. “Natural” Monopoly Reality

Air traffic control entities are generally set up as legal monopolies253 in recognition that they are a natural monopoly” (such as the services like local water supply) where the benefits of a competitive provision of the service are not possible. In such cases, the debate turns to the optimal model for making the monopoly perform well.254

2.2. “Natural” Monopoly Recognized The ANS Act recognizes that NAV CANADA exercises unique market power as a natural monopoly. The Act grants it a legislated mandate and monopoly to be the only party who may charge for such

250 Poole & Butler, supra note 151 at 5.

It appears that “peak” stakeholders had agreed from the beginning of the 1990s that ANS was under-funded and thereby likely to be unable to meet the requirements of its commercial users in the near future. There was also considerable agreement that a conflict inherent to the combination of operations and regulation within Transport Canada could only be addressed by separating the responsibility for operations from the regulatory activity. In other words, it was widely argued and widely accepted that distancing operations from regulatory activity would make for better governance-would be in the public interest-in addition to better serving efficiency concerns.

Cited in Priest, supra note 158. 251 It should be noted New Zealand is an exceptional case. New Zealand was careful to fully separate the roles of different ministries respecting its ANS corporation -- the Minister of Transport has strictly regulatory responsibilities respecting the ANS corporation while other Ministries (notably, the Minister of Finance and the Minister of State Owned Enterprises) are the shareholding owners of the ANS entity. 252 Poole & Butler, supra note 151 at 4. 253 Ibid. at 5. 254 Ibid. at 1.


services key civil air navigation services (e.g. air traffic control). Specifically, enabling legislation was passed by Parliament and received Royal Assent on March 20, 1996. The “Civil Air Navigation Services Commercialization” Act (the “ANS Act”), RSC 1996, Chapter 20, NAV CANADA provided the authority to transfer the air navigation services system to private hands. In respect of Canadian airspace or any other airspace in respect of which Canada has responsibility for the provision of air traffic control services. NAV CANADA received a monopoly to provide the following components of the civil air navigation services:

air traffic control services; aeronautical information services; and, specified flight information services. 255

2.3. Regulation of the Natural Monopoly

The Canadian approach of protecting consumers from possible pricing and other excessive market power abuses of a natural monopoly was to set up NAV CANADA as a non-profit user cooperative. In theory, the users of the cooperative’s services [i.e. stakeholders of the cooperative] have a shared interest in low prices and low costs, consistent with quality ANS service that should be a sufficient safeguard requiring little external regulation.256 In fact, the Canadian Government has gone one step further by legislating a “system of light economic regulation …whereby the corporation … [is] required to adhere to certain legislated [charging] principles when setting prices, and whereby users of the ATC services could appeal price changes that [do] not appear to follow these principles to the Canadian Transportation Agency.”257 Comparative Analysis: When a natural monopoly such as an ANS provider is incorporated as a government corporation (for example: Germany’s DFS), since it is presumed to be operating in the public interest, little external regulation is expected.258 Cooperatives are expected to largely be economically self-regulating, as just mentioned. However, there are two special elements to NAV CANADA’s economic regulation that go beyond what is expected in dealing with a cooperative: (a) Mandatory Consultation: NAV CANADA is required to notify and consult with users about proposed changes in user rates/fees/charges and services.259 For example: NAV CANADA must give 60 days notice of any proposed new or revised fees and charges; 255 Transport Canada, “Commercialization of the Air Navigation System: Lessons Learned”, online: Transport Canada <www.tbs-sct.gc.ca/asd-dmps/sd/tc-cans/spc_e. asp> (date accessed: 28 July 2005). 256 Poole & Butler, supra note 151 at 5. 257 McDougall, supra note 150 at 27. It should be noted that as a transitional measure, for the first two years of operation of NAV CANADA, there was a mechanism for Ministerial approval of charges without appeal rights. Ibid. at 27. 258 Poole & Butler, supra note 151 at 5. 259 Ibid. at 6.


reductions in facilities; or material changes in services.260 (b) Appeal to Government: The enabling legislation for NAV CANADA sets out a formal appeals procedure whereby users can protest rate changes to the Canadian Transportation Agency. The new rates may be appealed on the basis of non-compliance with either the charging principles established in the enabling act or notification and announcement requirements.261 3. Safety Regulation

3.1. Service Provider and Safety Regulator Are Distinct NAV CANADA, as the service provider, is responsible for the safety and efficiency of the air navigation system such that it has a duty to establish and regulate its own safety practices. However, general safety regulations and standards for the ANS are established and monitored by Transport Canada262 that functions as an independent, arm’s length safety regulator. Accordingly, Transport Canada licenses and monitors air traffic control services, operators of air traffic services, air traffic controllers, etc. Separating the service provider [NAV CANADA] from the safety regulator is seen as removing a significant potential conflict of interest.263

3.2. NAV CANADA’s Safety Performance Regulated by Transport Canada

Safety regulation is accomplished by Transport Canada through the Aeronautics Act and the Canadian Aviation Regulations. On the same day as Transport Canada transferred ownership and control of Canada’s civil air navigation system to NAV CANADA, the federal government simultaneously promulgated new additional regulations pertaining to the system, known as the Civil Aviation Regulations (CARS) Part VIII. These regulations [that outline federal standards for air navigation facilities, equipment and personnel, as well as the operating procedures considered most effective in maintaining the safety of the system],264

260 Ibid. at 5. 261 Ibid. at 7. 262 Corporatisation of Air Navigation Services, supra note 5 at 77. 263 Transport Canada, “Safety Oversight of the Civil Air Navigation System – A Framework”, online: Transport Canada <www.tc.gc.ca/civilaviation/ansanda/aarnf/ frame.html> (date accessed: 28 July 2005), at Foreword. 264 Part VIII addresses matters related to the provision of Air Navigation Services. The regulations contained in this Part were developed under the auspices of by the Canadian Aviation Regulation Advisory Council (CARAC) and became law on 10 October 1996. “The following principles were incorporated in the regulations:

• minimum regulatory intervention; • risk analysis approach; • cost-effectiveness; • compliance with ICAO requirements; and • incorporation of current departmental [Transport Canada] internal standards.

Specifically, Part VIII deals with: • air traffic services; • aeronautical telecommunications;


coupled with the Canadian Air Navigation System Commercialization Act (CANSCA), provide an enhanced level of safety oversight by Transport Canada as it monitors NAV CANADA’s operations.265

3.3. NAV CANADA’s Duties toward Transport Canada

Under the CARs, NAV CANADA must establish an extensive internal safety management program and an internal risk management program for each operating branch of the air navigation system. NAV CANADA is required to appoint a senior executive, reporting directly to the president and CEO, to monitor and co-ordinate its safety programs. In addition, the Board of Directors is required to convene a safety committee to review NAV CANADA’s risk management programs. NAV CANADA must report certain aviation occurrences to Transport Canada. Examples of reportable occurrences include navigation aid outages; power failures; aircraft damage; injury to crew or passengers; engine failure; operations outside the approved flight envelope; fuel shortages; the risk of collision with any other aircraft or vehicle, terrain or obstacle; gas leaks; hijacking threats; bird strikes; the impact of weather on airport operations; and a vast number of other events.

3.4. Transport Canada’s Monitoring Processes Transport Canada uses a performance-based approach to monitor NAV CANADA whereby as the regulator it establishes the requirements, in law and standards, and the service provider [NAV CANADA] demonstrates compliance by measuring and reporting on program results.266

• aeronautical information services; • aviation weather services; • safety management program; • levels of service; and • occurrence reporting.

These regulations require any person wishing to provide air traffic services to apply for and obtain an Air Traffic Services Operations Certificate, the issuance of which is dependent upon the applicant meeting specific criteria. This process is consistent with Civil Aviation program practices applied in respect of commercial air operators and airport operators. But unlike the rules used to govern commercial air operators, the Part VIII regulations are performance-based; meaning, the focus is on safety outputs and not on the process for achieving them. This approach serves to minimize the resources necessary to effect the safety oversight function while allowing the regulate flexibility in delivering air navigation services and responding to client needs. It necessitates the development of a methodology to permit the continued assessment and evaluation of service provider performance. In essence, the foregoing is the basis for a program of safety oversight.” Transport Canada, “Safety Oversight of the Civil Air Navigation System – A Framework”, online: Transport Canada <www.tc.gc.ca/civilaviation/ansanda/aarnf/frame.html> (date accessed: 28 July 2005), at 3-2. 265 NAV CANADA, “Disclosure Policies and Safety Oversight: Summary of Submission (as prepared by Nav Canada)” (8 November 2001), online: Access to Information Review Task Force <www.atirtf-geai.gc.ca/ submissions/navcan2001-11-08-e.html> (date accessed: 30 July 2005). 266 Transport Canada’s mission statement states that:


Federal regulation provides Transport Canada with the ability to conduct operational audits and evaluations, field inspections, request information related to the operations of the system, or, to require NAV CANADA to conduct aeronautical studies into safety issues. The aeronautical study process includes full consultation with users and stakeholders on safety and risk issues and proposed mitigation measures.267 Transport Canada’s “Office of Air Navigation Services and Airspace Safety Oversight is the custodian of the Air Navigation and Airspace Safety Oversight Policy and related programme components. It is the focal point for the exchange of significant safety-related information with the service provider [NAV CANADA]; facilitates the development of risk indicators and management tools; develops annual operational oversight plans, in consultation with other Air Navigation Services and Airspace Divisions and Regions; and prepares quarterly and annual reviews of system performance. Additionally, it performs the critical role of partnership maintenance and ensuring that a system-wide commitment to safety is first and foremost in the minds of all involved in the management of the national civil air navigation system.”268

3.5. Handling Contraventions, etc. Either Transport Canada or the Transportation Safety Board269 may

The regulator [Transport Canada] and the service provider [NAV CANADA], must reexamine their respective roles and responsibilities and, in doing so, place particular emphasis on relations management. Relations management means the promotion of a shared responsibility for the safety of the national civil air navigation system and is reflected in the following principles:

o establishing partnerships with service providers, when appropriate; o adopting a risk-based approach to the safe management of the system; o integrating safety oversight activities with those of other departments

and agencies that have a specific role to play; and o initiating a regulatory response only when the integrity of the system is

threatened. This represents a departure from a traditional, more prescriptive approach to the management of a regulatory-based safety program. It is a performance-based approach whereby the regulator establishes the requirements, in law and standards, and the service provider demonstrates compliance by measuring and reporting on program results.

Transport Canada, “Safety Oversight of the Civil Air Navigation System – A Framework”, online: Transport Canada <www.tc.gc.ca/civilaviation/ansanda/aarnf/frame.html> (date accessed: 28 July 2005), at 2-0. 267 NAV CANADA, “Disclosure Policies and Safety Oversight: Summary of Submission (as prepared by Nav Canada)” (8 November 2001), online: Access to Information Review Task Force <www.atirtf-geai.gc.ca/ submissions/navcan2001-11-08-e.html> (date accessed: 30 July 2005). 268 Transport Canada, “Safety Oversight of the Civil Air Navigation System – A Framework”, online: Transport Canada <www.tc.gc.ca/civilaviation/ansanda/aarnf/ frame.html> (date accessed: 28 July 2005), at 7-0. 269 Ibid.


choose to investigate the circumstances surrounding any incident or accident and may access NAV CANADA files for the purpose of such an investigation. NAV CANADA itself investigates any incident that implicates air traffic control and the company’s reports are available to Transport Canada.270 Should any contravention of the regulations be found, NAV CANADA is required to take immediate corrective measures or face enforcement action. At no time will Transport Canada allow operations to continue if the safety of passengers, aircraft or airports is compromised. Under the Canadian Transportation Accident Investigation and Safety Board Act, NAV CANADA must report certain events to the Transportation Safety Board (TSB) of Canada. The TSB will continue investigating accidents, incidents and other occurrences that may indicate the existence of a safety problem. Under the Civil Air Navigation Services Commercialization Act, the Minister of Transport also has the authority to direct NAV CANADA to maintain or increase service levels in the interest of safety.

3.6. Other Bodies and Consultative Mechanisms with an Effect on the Safety Oversight of NAV CANADA

In addition to the regulatory regime that exists for safety oversight, additional bodies and consultative forums provide a direct and indirect effect on the safety oversight of NAV CANADA since they deal with the review and resolution of air navigation service safety issues as they arise:

Environment Canada is the authority for all federal meteorological mat-ters in Canada. It provides: weather observer training; approves, inspects and calibrates equipment used in the provision of aviation weather ser-vices; continuously monitors the performance of the aviation surface

The Canadian Transportation Accident Investigation and Safety Board Act and associated Regulations give the Transportation Safety Board of Canada (TSB) exclusive jurisdiction for investigating the causes and contributing factors of aviation, rail, commodity pipeline and marine accidents, incidents and occurrences. However, nothing precludes other Departments from investigating occurrences for different purposes. Where the Transportation Safety Board of Canada decides not to investigate an occurrence, other federal departments may conduct their own investigations provided they are duly empowered by law. Moreover, subsection 23(2) of the Canadian Transportation Accident Investigation and Safety Board Act allows for the appointment of a Ministerial observer at an investigation in order to obtain timely information relevant to the responsibilities of the Minister of Transport. The TSB produces a draft report of its findings and recommendations and sends a copy to the Minister of Transport for vetting. When the report is eventually made public, the Canadian Transportation Accident Investigation and Safety Board Act requires the Minister to publicly advise the Transportation Safety Board of Canada of any action taken or proposed to be taken in response to the findings and recommendations or provide reasons for not taking action. Ibid. at 6-1.

270 NAV CANADA, “Disclosure Policies and Safety Oversight: Summary of Submission (as prepared by Nav Canada)” (8 November 2001), online: Access to Information Review Task Force <www.atirtf-geai.gc.ca/ submissions/navcan2001-11-08-e.html> (date accessed: 30 July 2005).


weather observing system; and, conducts both cyclical and ad hoc inspec-tions of weather observation sites across Canada. Environment Canada continuously provides the Air Navigation Services and Airspace Branch of Transport Canada with information related to its oversight activities.271

Industry Canada is responsible, in part, for administering the Radiocommunications Act that prohibits: the installation, operation or possession of radio apparatus without authorization; the manufacture, import, distribution, lease or sale of radio apparatus without a technical acceptance certificate when one is required; or the manufacture, import, distribution, lease or sale of radio apparatus without complying with applicable technical standards. Moreover, Industry Canada inspectors perform routine inspections of these facilities and investigate complaints. Industry Canada provides the Air Navigation Services and Airspace Branch of Transport Canada with data on all radio licence holders.272 A Transport Canada / NAV CANADA Safety Oversight Committee meets regularly [a minimum six times per year] to provide a focal point between both organizations for the exchange of information and the resolution of safety matters relating to the safety performance of NAV CANADA.273 271 Transport Canada, “Safety Oversight of the Civil Air Navigation System – A Framework”, online: Transport Canada <www.tc.gc.ca/civilaviation/ansanda/aarnf/ frame.html> (date accessed: 28 July 2005) at 6-2. 272 Ibid. at 6.3. 273 The purpose of the Transport Canada/NAV CANADA Safety Oversight Committee is

[…] to provide a focal point for both organizations to exchange information and resolve safety matters relating to NAV CANADA’s safety performance. Comprised of the Director, Air Navigation Services and Airspace (Transport Canada) and the Chief, Office of Air Navigation Services and Airspace Safety Oversight (Transport Canada), the Assistant to the President, Safety and Quality (NAV CANADA), and the Manager, Safety Policy (NAV CANADA), the Transport Canada/NAV CANADA Safety Oversight Committee meets frequently. Its activities are reflected in decision records and annual reports produced by both Transport Canada and NAV CANADA.

Transport Canada, “Safety Oversight of the Civil Air Navigation System – A Framework”, online: Transport Canada <www.tc.gc.ca/civilaviation/ansanda/aarnf/frame.html> (date accessed: 28 July 2005) at 5-3.

Prior to commencement of the provision of commercialized air navigation services, officials from Transport Canada and NAV CANADA met on several occasions to discuss the manner by which their responsibilities would be met in assuring the safe provision of Air Navigation Services (ANS). Because of the performance-based nature of the ANS regulations, it was agreed that a non-traditional approach to achieving regulatory safety goals would be required. Much of the safety-related information which Transport Canada would require could be obtained from NAV CANADA without performing detailed inspections. Where the more traditional forms of regulatory intervention would be required, it was agreed that field inspections, audits and evaluations could be most effectively and efficiently undertaken through a joint approach. Additionally, the need for a forum in which safety issues could be communicated and resolved was clearly recognized. It was therefore agreed to form a committee to be henceforth called the Transport Canada/NAV CANADA Safety Oversight Committee.

Transport Canada, “Safety Oversight of the Civil Air Navigation System – A Framework”, online: Transport Canada <www.tc.gc.ca/civilaviation/ansanda/aarnf/frame.html> (date accessed: 28 July 2005), at Annex B at 2 (Background).

The Transport Canada/NAV CANADA Safety Oversight Committee [has] the following objectives: I. to discuss safety goals and the means of measuring and communicating their attainment;


The Civil Air Navigation Services Commercialization Act mandated the creation of an independent Office of Safety and Quality Management in NAV CANADA reporting directly to the President and CEO.274 A NAV CANADA Board of Directors Safety Committee reviews the companies’ safety performance and programs on a regular basis (at least 4 times a year).275 The NAV CANADA Advisory Committee is an 18-member body reporting directly to the company’s Board of Directors. The Board may seek advice from the committee or the committee may conduct its own studies and make recommendations to the Board [this Committee is discussed above].276 The Air Navigation System National Advisory Committee is a forum for domestic carriers, aviation associations bargaining agents and groups representing airlines, business aircraft owners and general aviation. 277 The Air Transport Operations Consultative Committee, that represents the major airlines, the Airline Pilots Association and the International Federation of Pilots Associations.278

II. to examine the impact of proposed changes to Transport Canada regulatory policy and NAV CANADA safety policy; III. to share Transport Canada and NAV CANADA Safety Plans and Safety Reports; IV. to detail findings from safety-related projects conducted by Transport Canada or NAV CANADA; V. to confirm safety actions taken by NAV CANADA as recorded and tracked in the NAV CANADA Safety Information System and/or Transport Canada’s Air Navigation Services Occurrence Information System; VI. to review NAV CANADA’s safety performance trends using data collected from: • regulatory audits and compliance records;

• internal audits and evaluation records; • occurrence investigation records; • safety and occurrence reporting systems; • risk assessment and analysis as conducted by Transport Canada, NAV CANADA and the Transportation Safety Board of Canada; and • other sources of information which are considered to be appropriate and reliable indices of system performance.

VII. to exchange information on research, methods and techniques which contribute to the identification, assessment and mitigation of risk, and serve to improve the measurement of ANS safety performance;

VIII. to identify and assess organizational training requirements; and to coordinate future oversight activities.”

Transport Canada, “Safety Oversight of the Civil Air Navigation System – A Framework”, online: Transport Canada <www.tc.gc.ca/civilaviation/ansanda/aarnf/frame.html> (date accessed: 28 July 2005), at Annex B at 3 (Committee Objectives). 274 NAV CANADA, “Disclosure Policies and Safety Oversight: Summary of Submission (as prepared by Nav Canada)” (8 November 2001), online: Access to Information Review Task Force <www.atirtf-geai.gc.ca/ submissions/navcan2001-11-08-e.html> (date accessed: 30 July 2005). 275 Ibid. 276 Ibid. 277 Ibid. 278 Ibid.


4. Note on International Negotiations The Department of Transport and NAV CANADA agreed from NAV CANADA’s inception that the Federal Government [and not NAV CANADA] “has the right to enter into any international agreement, convention or arrangement relating to aeronautics with …. a foreign state or international organization.”279 However, NAV CANADA has the right to negotiate and enter into “administrative or operational arrangements with foreign government departments and foreign agencies relating to the provision of Civil Air Navigation Services…,” 280 subject to obtaining “the prior written approval of the Minister [of Transport]” respecting the arrangement.281 G. Price and Service Controls Inherent in ANS commercialization is the idea that users should pay the ANS corporation for particular ANS services received. Furthermore, it is generally expected that the system of charges developed should reflect the costs of providing air navigation services.282 Most developed countries charge for ANS services--irrespective of whether they have commercialized these services or not. The International Civil Aviation Organization (ICAO) has established standards for such charges. ICAO’s standards stipulate charges for three flight phases – terminal area (take-off and landings), en route and overflight. The ICAO clearly states that: “Only distance flown and aircraft weight are recommended … as parameters suitable for use in a charging system.”283 At the time of developing its charging system, NAV CANADA reviewed the ATC pricing systems in Australia, Germany, Ireland, New Zealand, South Africa, Switzerland, and the United Kingdom. NAV CANADA followed the experience of these countries that all charge for terminal area, en route and overflight ATC services as well as use some form of ICAO’s weight-distance system. NAV CANADA’s charging system has been in full operation since March 1, 1999.284 Thus, the charging methodology applied by NAV CANADA has been developed within the framework provided by the ANS Act and ICAO policies on Charges for Airports and Air Navigation Services (Doc 9082/6). The charging provisions in the ANS Act are legally binding on the Company. Moreover, the observation by NAV CANADA of ICAO policies constitutes a significant conformity with international practice. (Nevertheless, it should be noted that some of the ICAO policies have in

279 Department of Transport and NAV CANADA, Agreement to Transfer (1 April 1996), section 3.02.01(a) (c). 280 Ibid., section 3.02.01(d). 281 Ibid., section 3.02.01(f). 282 Poole & Butler, supra note 151 at 8. 283 Ibid. 284 Ibid. at 9.


fact been already incorporated in the ANS Act and thus constitute Canadian law).285

1. User Fees & Services -- General Framework The “ANS Act” (1996) contains a number of features “looking forward” from the date of transfer from Transport Canada to NAV CANADA and thereby provides for the regulation of the provision of services and the charging for such services including: In accordance with the Civil Air Navigation Services Commercialization Act, NAV CANADA is authorized to “impose charges on a user for the availability or provision of air navigation services provided by the Corporation or a person acting under the authority of the Minister of National Defence.” 286 NAV CANADA is authorized set air navigation service charges on airlines and aircraft operators [i.e. establish its revenues] sufficient to recover all the costs of providing its services [including debt service costs]. However, the ANS Act does not permit NAV CANADA to generate revenues in excess of its financial requirements. Section 35(1)(i) of the ANS Act provides that “charges must not be set at a level that, based on reasonable and prudent projections, would generate revenues exceeding the Corporation’s current and future financial requirements in relation to the provision of civil air navigation services.”287 Differences between actual revenues and costs-- and those used in the rate setting process -- are directly recovered in or serve to reduce future rates charged to customers. Consistent with this principle, in 1998, the Canadian Government rescinded the Air Transportation Tax that funded air navigation services previously provided by Transport Canada. In its place, NAV CANADA phased in a service fee-based system developed in consultation with customers and approved by the stakeholder Board that seeks to fully cover the cost of services provided. For commercial carriers, who provide the vast majority of fee revenue, NAV CANADA uses a weight and distance formula based on International Civil Aviation Organization (ICAO) principles to recover the cost of terminal, en route and oceanic services.288 The ANS Act requires that NAV CANADA set out a breakdown of costs with charges being differentiated between terminal and en route air navigation services. Section 35(1)(e) provides that “charges must

285 NAV CANADA, “Service Charges Discussion Paper (2005)”, online: NAV CANADA <navcanada.ca/ContentDefinitionFiles/Services/ChargesAndAdmin/review/ServiceChargesDisc_En.pdf> (date accessed: 23 July 2005) at 6. 286 ANS Act, S. C. 1996, s. 32(1) cited in NAV CANADA, “Service Charges Discussion Paper (2005)”, online: NAV CANADA <navcanada.ca/ContentDefinitionFiles/Services/ ChargesAndAdmin/review/ServiceChargesDisc_En.pdf> (date accessed: 23 July 2005) at 6. 287 ANS Act, S. C. 1996, s. 35(1)(i) cited in NAV CANADA, “Service Charges Discussion Paper (2005)”, online: NAV CANADA <navcanada.ca/ContentDefinitionFiles/Services/ ChargesAndAdmin/review/ServiceChargesDisc_En.pdf> (date accessed: 23 July 2005) at 32. 288 See NAV CANADA, “Service Charges Discussion Paper (2005)”, online: NAV CANADA <navcanada.ca/ContentDefinitionFiles/Services/ChargesAndAdmin/review/ ServiceChargesDisc_En.pdf> (date accessed: 23 July 2005).


differentiate between the provision of services in relation to the landing and take-off of aircraft and the provision of services in relation to aircraft in flight, and must reflect a reasonable allocation of the costs of providing the services in these circumstances.”289 Reserve covenants establish that NAV CANADA must maintain both a debt service reserve (i.e. one year’s debt service costs) and an operating and maintenance reserve (i.e. three month’s of these costs).290 Since the basic premise is that all costs must be recovered from customers,291 the full implementation of service charges means that NAV CANADA now operates independently of government funding.

2. User Fees & Services --Specific Rules The Civil Air Navigation Services Commercialization Act (the “ANS Act”) establishes the following rules respecting service delivery, user charges and changes in levels of service including:

allows NAV CANADA to charge for availability or provision of

services; allows NAV CANADA to set charges upon approval by its

Board of Directors, provided such charges are in accordance with the charging principles set out in the ANS Act (similar in nature to ICAO charging guidelines);

allows NAV CANADA to implement charges that cover all costs, fund reserves and ensure credit quality;

renders the owner and operator of an aircraft jointly and severally liable for payment of user charges;

allows NAV CANADA to seize an aircraft, upon application to court, for overdue user charges, prior to a judgment on the debt;

requires NAV CANADA to provide the same services at the same charges in both the densely populated southern and sparsely populated northern regions of the country.292

3. Additional Specific User Charge Rules The ANS Act in section 35(1) sets out charging principles that, based upon ICAO guidelines, must be met. The principles themselves are the following, insofar as user charges must:

“be in accordance with an established and published [i.e. transparent] methodology,” that may recognize both cost and value of the service;

“not be structured in such a way that a user would be encouraged

289 ANS Act, S. C. 1996, s. 35(1)(e), cited in NAV CANADA, “Service Charges Discussion Paper (2005)”, online: NAV CANADA <navcanada.ca/ContentDefinitionFiles/Services/Charges AndAdmin/review/ServiceChargesDisc_En.pdf> (date accessed: 23 July 2005) at 32. It should be noted that there is a more detailed discussion of pricing principles and notice requirements (for both price increases and service reductions) below under “Economic Regulation.” 290 Carr, supra note 152 at 5. 291 NAV CANADA, “Service Charges Discussion Paper (2005)”, online: NAV CANADA <navcanada.ca/ContentDefinitionFiles/Services/ChargesAndAdmin/review/ServiceChargesDisc_En.pdf> (date accessed: 23 July 2005) at 32. 292 See NAV CANADA Website at <www.navcanada.ca> (date accessed: 23 July 2005).


to engage in” unsafe practices “for the purpose of avoiding a charge;”

“not differentiate between domestic and international flights of air carriers;”

“not differentiate between Canadian air carriers or among foreign air carriers;”

differentiate between terminal services (i.e. landings/take-offs) and enroute (i.e. in flight, including overflights);

“reflect a reasonable allocation of the costs of providing” terminal and enroute services;

not be “unreasonable or undue” for recreational and private aircraft;

not be higher for services provided in Northern Canada as opposed to Southern Canada;

“be consistent with the international obligations of the Government of Canada”;

not be higher than what is required to meet NAV CANADA’s current and future financial requirements including an allowance for prudent reserves -- and maintenance of strong credit ratings.293

Under section 32(1) of the ANS Act, NAV CANADA may impose charges on a user for the availability or provision of services. However, under subsection 32(2) such charges may not be levied on Canadian military aircraft (reflecting utilization of certain military radar and tower facilities by users of the civil ANS) and foreign state aircraft. In order to charge foreign state aircraft, cabinet permission is required. This arrangement is reflective of commitments made by the Canadian government to foreign states and is linked to provisions of the transfer agreement which require NAV CANADA to uphold and abide by Canada’s international obligations.294

Pursuant to Part III of the ANS Act, NAV CANADA may establish new charges and amend existing charges for its services in accordance with the legislated charging principles contained in the ANS Act. Accordingly, NAV CANADA is required to provide 60 days notice of any proposal to increase295 these charges and to invite representations on the revisions. This notice is provided through advertisements in English and French national newspapers, and through letters to all interested stakeholders.296 The ANS Act requires an extensive consultative process prior to filing new charges with the Canadian Transportation Agency. 4. User Charge Appeal Procedure The ANS Act provides an appeal procedure to be followed by users respecting charges/ fees. If a user believes that a charge does not 293 ANS Act, S. C. 1996, s. 35(1) sets out charging principles. Cited in NAV CANADA, “Service Charges Discussion Paper (2005)”, online: NAV CANADA <navcanada.ca/ ContentDefinitionFiles/Services/ChargesAndAdmin/review/ServiceChargesDisc_ En.pdf> (date accessed: 23 July 2005) at 6. 294 NAV CANADA, “Disclosure Policies and Safety Oversight: Summary of Submission (as prepared by Nav Canada)” (8 November 2001), online: Access to Information Review Task Force <www.atirtf-geai.gc.ca/ submissions/navcan2001-11-08-e.html> (date accessed: 30 July 2005).

296 Ibid.


meet one or more of the established principles, the right exists to appeal to the Canadian Transportation Agency (“CTA”), within a 30 day window from the charge coming into effect. Specifically, appeals may be made on stipulated grounds including that: NAV CANADA failed to observe charging principles as stated in the legislation; NAV CANADA failed to comply with notice and announcement requirements; or the revenue to be generated from the charge may reasonably be found to be greater than the revenue as proposed in the notice. If a charge is found to be in conflict with one of the principles, the charge is to be withdrawn and redesigned to be brought into compliance.297 5. Service Controls NAV CANADA’s by-laws and certain provisions of the Civil Air Navigation Services Commercialization Act stipulate particular additional requirements for communication and consultation with the public and company stakeholders respecting the provision of services and modification of such services including the following:

Information related to the services provided by the company are required to be published in several different aeronautical publications, designed for use by licensed pilots but widely available, and updated every 56 days.298

The Civil Air Navigation Services Commercialization Act requires that NAV CANADA have a published level of service policy that describes the policy to be followed by NAV CANADA in the provision of air navigation services. This policy must contain assessment criteria for determining the specific need for services at each site. Moreover, this Act also requires that the company provide notice and consult extensively on the initial establishment of the policy and any subsequent revisions.299

Any changes to the level of service provided by NAV CANADA are subject to a Transport Canada safety review [discussed above]. Transport Canada has the ability to require an Aeronautical Study into any proposed material change. However, in practice, NAV CANADA has conducted and submitted such studies whenever either increases or decreases to the current level of service are proposed. The aeronautical study process involves publishing the terms of reference in advance of the study, a two-phase consultation process with all interested stakeholders, a rigorous CSAQ850 risk management approach to safety, a Transport Canada safety review of the study and the publishing of the study itself. Prior to the change in service actually occurring, a notice of the change must again be published 60 days in advance.300

297 Priest, supra note 158. 298 NAV CANADA, “Disclosure Policies and Safety Oversight: Summary of Submission (as prepared by Nav Canada)” (8 November 2001), online: Access to Information Review Task Force <www.atirtf-geai.gc.ca/ submissions/navcan2001-11-08-e.html> (date accessed: 30 July 2005). 299 Ibid. 300 Ibid.


Legislation stipulates that special service arrangements apply in the relationship of NAV CANADA and Canada’s National Defence such that:

The military can use NAV CANADA’s services at no charge; NAV CANADA can charge commercial air carriers its standard

rates when they fly into airspace controlled by National Defence.301 NAV CANADA is restricted from charging foreign state and military aircraft for the use of its services – unless the Canadian Government gives permission.302 Legislation exists that stipulates the powers of the Canadian Government to direct NAV CANADA to provide certain services, and whether it should be compensated for such services, including:

• Compensation shall be provided for services: o at Northern or Remote locations; o in the interest of national security as indicated by the

Minister of National Defence. • Compensation shall not be provided for services:

o required by international agreement; o required for safety purposes under the Canadian

Aviation Regulations.303 H. Liability Issues NAV CANADA is a federally incorporated company that thereby assumes all the rights and responsibilities of such an entity in terms of suing and being sued. NAV CANADA is legally obliged to indemnify the Canadian Federal Government for liability “arising out of… the management, operation, maintenance and development of the ANS Services by NAV CANADA on or after the Transfer Date” 304 The maximum “scope and amount” of indemnification that might be owed by NAV CANADA to the Federal Government is limited by the scope and amount of insurance that NAV CANADA is obliged to maintain in respect of the Federal Government as an additional insured.305 Furthermore, NAV CANADA is obliged to “purchase, provide and continuously maintain … from the Transfer Date … (commercially reasonable amounts of) insurance … including aviation operations liability insurance.”306 The aviation operations liability insurance shall 301 McDougall, supra note 150 at 28. 302 Ibid. 303 Ibid. at 28-29. 304 Department of Transport and NAV CANADA, Agreement to Transfer (1 April 1996), section 6.01.01(a). This document was formally signed on 1 April 1996, with the closing date ultimately being October 31, 1996. As of midnight on that date, NAV CANADA became the official provider of air navigation services in Canada. 305 Ibid., section 6.04.01. 306 Ibid., section 6.02.01.


“provide coverage of not less than one billion dollars per occurrence; provide that the [Federal Government is] … an additional insured; include a waiver of any subrogation rights that the insurers may have against [the Federal Government].”307 This insurance policy must include a clause that states that NAV CANADA “obtained this Policy and paid the premium…on his own behalf and as agent and/or trustee for the others insured [i.e. including the Federal Government]….” 308 V. France A. Government Ownership and Control The Director General of Civil Aviation (DGAC) is the central governmental organization for regulating civil aviation in France. The DGAC falls under the Ministry for Town Planning, Housing and Transport. In 2005, five decrees were passed by the French Council of State, reorganizing the framework of the DGAC.309 Decree number 2005-200 delegates control over air navigation services to the Air Navigational Services Directorate (DSNA). The DSNA is a national body that falls under the authority of the DGAC. Some support functions are provided to DSNA within DGAC by its General Secretariat (SG) while DSNA is mainly focused on operational and technical activities.310 These activities include:

air traffic control; communications; navigation and surveillance resources; and the production and distribution of aeronautical information.

The Department for Strategic and Technical Affairs (DAST) is responsible for regulations concerning air navigation services, and the Inspections and Safety Department (DCS) is responsible for compliance. Both the DAST and DCS, like the DSNA, fall directly under the authority of the DGAC. In line with EU Single Sky regulations, DSNA is functionally separated from the DCS which is designated as the NSA (National Supervisory Authority) by the French government. Furthermore, while being a part of DGAC, the DSNA has the regulatory obligation to establish and publish autonomous accounts supporting the air navigation charging scheme. B. Qualification and Appointment Process

307 Ibid., section 6.02.02(a) (b) (c). 308 Ibid., section 6.02.02(d). 309 Decree No. 2005-199, 2005-200, 2005-201, 2005-202 and 2005-203 can be found online: Les journaux officials <www.journal-officiel.gouv.fr> (date accessed: 23 July 2005). For a full review of DGAC’s framework, see Direction Générale de l’Aviation Civile (DGAC), “DGAC – The New Organization, Delivering Performance and Safety”, online: Direction Générale de l’Aviation Civile <http://www.aviation-civile.gouv.fr/> (date accessed: 23 July 2005) at 30.


The DSNA is comprised of three main departments: Headquarters, Operations Department and Technical Department. 1. DSNA Headquarters Departments Headquarters is responsible over DSNA’s major strategic issues. It is organized through three sub-departments (Planning and Strategy, Finance and Human Resources) and two key units (Safety, Quality and Security and Environment). The Planning and Strategy sub-department has a number of responsibilities, including:

managing resources and programs that support the scope of

services provided; studies and equipment programs in relation to search and rescue

activities; and co-ordination with other air navigation service providers in

transnational projects. The Finance sub-department manages the DSNA’s expenditures for its internal needs as well as for the other ANSPs to which some services are delegated (Météo-France, Jersey Airport, Skyguide), and ensures that the charges for air navigation services are justified. The Human Resources sub-department is responsible over the DSNA’s operational and technical staff. The Safety, Quality and Security Unit is responsible over the implementation of the safety management system, and the Environment Unit is responsible over environmental concerns. Both of these units report directly to the Director of DSNA. 2. DSNA Operations Department The Operations department is responsible over all air traffic services, including en-route control, approach and aerodrome control, aeronautical information and centralized computer systems. Air navigation services are managed through five en-route air traffic control centers (CRNAs) and eleven Air Navigation Services control centers (SNAs) in charge of approach and tower services. Additionally, air navigation services that were provided by Aeroports de Paris prior to its privatization, and services provided by the Central Air Navigation Systems Operations Center (CESNAC) and the Aeronautical Information Service (SIA) fall under the ambit of the DSNA Operations department. 3. DSNA Technical Department The Technical Department manages the DSNA’s equipment needs. Its role encompasses the delivery of all equipment and a framework for maintenance and support.


C. Accountability and Transparency Requirements Despite the functional separation of DSNA from DAST and DCS, DGAC continues to coordinate support functions across departments through its General Secretariat. The General Secretariat was set up in order to address cross-cutting issues of efficiency and effectiveness and the establish management controls laid down in French framework legislation on public (LOLF). Pursuant to this legislation, the General Secretariat establishes operational and financial indicators for each DGAC unit.311 Each year the parliament votes the French budget to which the Annex Budget for Civil Aviation (BAAC) is attached. Since l995, a yearly BAAC assessment report has been issued. The report reviews the balance of accounts, revenues and expenditures and contains an appraisal of the current situation. As is true of any French Civil service administration, the DSNA is subject to random and frequent oversight from the French court of accounts “Cour des Comptes”.312 For example, it issued a detailed report on Air Navigation Services in 2002 which strongly recommended the separation of regulatory and operational functions within DGAC and thus presaged the 2005 reform.313 D. Restrictions on Revenue Sources DSNA ATC activities are paid by user fees collected by EuroControl. The non-ANS activities of the DGAC and services provided to exempted flights are covered by a passenger tax. 314 E. Access to Capital Markets The ANS activity has had access to capital markets since 1985, with the best low rates attributed to the French State, although not to equity markets. Loans obtained from financial markets are part of the national debt.315 F. Safety and Economic Regulation Authorities 1. Safety Regulator The Inspections and Safety Department (DCS) is responsible for ensuring compliance with safety and security policies developed by the 311 See DGAC Annual Report (2004), online: Direction Générale de l’Aviation Civile <http://www.aviation-civile.gouv.fr/html/publicat/rapports/dgac/sommaire.htm> (date accessed: 23 July 2005) at 56. 312 See Cour de comptes website <http://www.ccomptes.fr/> (date accessed: 23 July 2005). 313 See Cour de comptes, ”Le contrôle de la navigation aérienne” (November 2002), online: Cour de comptes <http://www.ccomptes.fr/Cour-descomptes/publications/rapports/ controle-nav-aerienne/rapport.pdf> (date accessed: 23 July 2005). 314 Direction Générale de l’Aviation Civile (DGAC), “DGAC – Financial Affairs”, online: Direction Générale de l’Aviation Civile <http://www.aviation-civile.gouv.fr/> (date accessed: 23 July 2005). 315 See “Loi de organique relative aux lois de finances“ (2 aout 2001), online : Legifrance <http://www.legifrance.gouv.fr/> (date accessed: 23 July 2005) (Information relating to the commercialization of supplementary budgets).

http://www.legifrance.gouv.fr/


Department for Strategic and Technical Affairs (DAST). This includes the supervision of air navigation services. DAST is now the member of the Eurocontrol Provisional Council rather than DSNA, and is the representative to ICAO. All en-route centres and 20 of the largest French airports were audited in 2004 under the terms of Eurcontrol Safety Regulatory Requirements 3 (ESARR3).316 DSNA’s Operations Department has developed an “Airport Safety” action plan that entered into force in 2004 following a series of recommendations by a working group by Eurocontrol. As of 2004, ESARR4 has been taken into account by DNSA but not yet implemented as a matter of French law. A regulation implements ESARR5 came into force in April 2005. DSNA is pursuing ISO 9001 certification. Technical services provided by DSNA/DTI and aeronautical services were certified in 2002. By the beginning of 2005, two en-route control centres had been certified, and the certification of all operational centers is planned for year 2006. 2. Economic Regulator The two Ministers in charge of transport and finances retain authority over fees and charges. They both have to agree on unit rates for air navigation charges (route and terminal) as proposed by DSNA. G. Price and Services Control User fees are approved by the Minister who will veto charge proposals if there are too many complaints. French case law is extensive on user charges and has confirmed that user fees for DSNA are not a tax. H. Appeal Processes DSNA and DGAC are subject to the general provisions of French administrative law. I. Liability Protection by Government or Private Insurer

Insurance coverage is covered by the French state through its general budgetary allocations for DSNA and DGAC. J. Rationale for Restructuring of DGAC

The 2005 reform of the DGAC was motivated by a greater need to balance its regulatory functions with the need to adapt to new challenges in the market for civil aviation. Additionally, the reforms enable the DGAC to ensure more efficient delivery of services while strengthening the safety and security of air transport. The European Single Sky

316 See DGAC Annual Report (2004), online: Direction Générale de l’Aviation Civile <http://www.aviation-civile.gouv.fr/html/publicat/rapports/dgac/sommaire.htm> (date accessed: 23 July 2005) at 56.


regulations also played a large role in the restructuring of the DGAC. Member states are required to separate the role of operations from the role of supervision. Thus, air navigation operations are now provided by the DSNA while compliance is managed by the DCS.317 Furthermore, the French government has implemented a new model of public sector financing based on programming and performance budgeting. The DSNA is identified as a specific budgetary programme, an integral part of the supplementary budget of Civil Aviation. The result of the reforms is a linear organization that provides a major agency responsible for all aspects of civil aviation, including air navigation, with full support from departments separated by function rather than by sector.

K. Compliance with ICAO Recommendations

ICAO Recommendations Compliance Remarks Organizational Structure Public 100 % Government-

run Organization be subject to State obligation under the Chicago Convention

Yes

Board of Directors No Organization self-financing No Commercial accounting standards No Organization Liable to Business taxes No Government as Economic Regulator318 Yes Government as Safety Regulator Yes Dispute Resolution No

VI. Germany A. Government Ownership and Control Pursuant to the 10th Amendment to the German Aviation Act, in October 1992, the German Federal Government established – and on 1 January 1993 put into operation -- DFS Deutsche Flugsicherung GmbH (DFS) to assume responsibility for air navigation services.319 DFS is a private law company (i.e. organized under German private law) that is wholly State-owned – in other words, the German Federal Government is the only shareholder and for this purpose is represented by the Ministry of Transport, Building and Housing (hereinafter cited as the Ministry of Transport or MOT). DFS is the successor to the former Federal Agency for

317 Ibid. at 4. 318 Int’l Civil Aviation Org., ICAO’s Policies on Charges for Airports and Air Navigation Services (ICAO Doc. 9082/7 7th ed. 2004) § 15.

In performing its role as economic regulator, the government should: (1) ensure nondiscrimination in the application of charges; (2) prohibit overcharging, anticompetitive practices, or abuse of a dominant position; (3) ensure transparency; (4) encourage efficiency; (5) establish and review standards, quality and level of ANS; (6) encourage investment necessary to satisfy future demand; and (7) ensure that the views of users are considered.

319 Luftverkehrsgesetz, Bundesgesetzblatt [BGBL] 1992 I, 1370 (F.R.G.).


Air Traffic Control Services [Bundesanstalt für Flugsicherung] (BFS), a federal agency under public law that existed for 39 years, and had performed air navigation services under federal police authority.320 Air navigation services are considered to be a responsibility of the German Federal Government rather than the Länder (i.e. the individual regional states) and such services in principle can only be provided by federal civil servants. To the extent that such functions are delegated to private corporations, there are constitutional constraints to guarantee some control by the German state.321 Therefore, in order to delegate/transfer the air navigation services to a commercialized private corporation, the German Constitution first had to be amended. In July 1992, the process of amending the German Constitution and the German Aviation Act was completed, paving the way for the creation of DFS as a limited liability company (GmbH) under the conditions of Articles of Association and a Deed of Incorporation. This 100% state-owned company is entrusted with the provision of air navigation services and thereby allowed the State, as the sole shareholder of that company, to retain its legally prescribed directive and executive powers. At this point, it is worthwhile noting that the 10th Amendment re-sulted in three major changes related to the provision of air navigation services in Germany. First, the 10th Amendment permitted the creation of a private law entity – the DFS -- to be charged with public functions, so long as the private entity is owned by the German Government.322 Thus, the creation of the DFS is the result of the 10th Amendment broadening the scope of the former Article 87(d) (1) of the German Constitution (Ba-sic Law). While the previous article stipulated only that the “aviation administration is carried out as Federal-owned administration,” the new article added that “whether it [i.e. the aviation administration] will be carried out in a public law form or a private law form may be decided upon by Federal law.”323 The second important change resulting from the 10th Amendment relates to amendments to Articles 31(a)-(d) of the Aviation Act 92. Specifically, a key paragraph 31(b)(1) enabled the Ministry of Transport 320 W. Stoffel, “The Privatization of Air Traffic Control in Germany,” (1996) 31Annals Air & Sp. L. 279 at 279-280. At the time of the creation of DFS, there was some dispute as to whether German air navigation services could be restructured by creating a private law entity charged with public functions. 321 “The Liability of Air Navigation Services in the Single European Sky” (2003) 28 Annals Air & Sp. L. 57 [hereafter cited as Schubert, 2003] at 65. 322 Stoffel, supra note 320 at 290-291. 323 Luftverkehrsgesetz, Bundesgesetzblatt [BGBL] 1992 I, 1370 (F.R.G.), Art. 87(d)1. Article 73 No. 6 of the German Basic Law (Grundgesetz - GG) gives to the Federation (“Bund”) the exclusive authority to legislate in all matters pertaining to aviation. Pursuant to Article 71 GG, the Federation may delegate such authority to the Federal states of Germany (“Bundesländer”) but has never done so. Article 87d GG gives the Federal Government the authority to administer aviation matters. Para 31, 1 of the German Aviation Act (Luftverkehrsgesetz - LuftVG) stipulates that the Federal Ministry of Transport, Building and Housing or any other body under delegated authority is charged with the execution of rules and regulations on aviation. Pursuant to para 31, 2 LuftVG the Federal Ministry of Transport, Building and Housing has delegated specific administrative tasks to the Bundesländer (viz. Article 87d GG), while keeping the supervision of the execution. The supreme German Aviation Authority is the Federal Ministry of Transport, Building and Housing.

http://www.bmv.de/


to formally authorize DFS – a private company – to exercise the public function of providing air navigation services.324 The enabling paragraph states that “The Federal Minister of Transport shall be authorized to entrust …. a company with limited liability (GmbH) whose shares are exclusively held by the Federal Government with the performance of air navigation services functions….”325 A third significant result of the 10th Amendment relates to the definition of the tasks and responsibilities of the air navigation services (to be provided by DFS) as defined in the amended Articles 27(a)-(d) of the Aviation Act 92,326 this pursuant to Regulation of 11 November 1992327 that delegates these tasks/functions to the DFS. On a general level, the functions of DFS include, above all, air traffic control functions (not exercised by EUROCONTROL) as well as the acceptance, processing and forwarding of flight plans. DFS is also responsible for the planning, installation and maintenance of all technical systems required to fulfill these functions and of the radio navigation facilities for airspace users.328 More specifically, the DFS’ functions include: (1) the provision of operational and technical air navigation services; (2) planning and testing of air navigation procedures and facilities; (3) the collection and publication of aeronautical information; and (4) ab initio and qualification training of the personnel required for the operational and technical air navigation services, including the operation of the necessary training facilities.329 Other functions include: training of air traffic control 324 The authorization by the MOT of the DFS was executed by an agreement between the Federal Republic of Germany and the DFS on 23 December 1992. Article 2 of this agreement states that the agreement’s objective is primarily “to ensure the proper execution of air traffic control functions by DFS [and] regulate the close cooperation between the Ministry of Transport and its subordinated agencies and DFS.” Stoffel, supra note 320 at 291. 325 Luftverkehrsgesetz, Bundesgesetzblatt [BGBL] 1992 I, 1370 (F.R.G.) at Art. 31(b)1. Articles 31(b)-(d) contain regulations respecting air navigation services. The full Article 31b para. (1) of the German Aviation Act provides that:

(1) The Federal Minister of Transport shall be authorized to entrust, by ordinance and without the consent of the Bundesrat, a company with limited liability (GmbH) whose shares are exclusively held by the Federal Government with the performance of air navigation services functions stated in Art. 27c

326 Luftverkehrsgesetz, Bundesgesetzblatt [BGBL] 1992 I, 1370 (F.R.G.) at Art. 27(a)-(d). 327 Verordnung zur Beauftragung eines Flugsicherungsunternehmens – FSAuftragsV. A Regulation of 17 December 1992 (Verordnung über die Betriebsdienste der Flugsicherung - FSBetrV) finally determines how air navigation services are to be provided all over Germany. Cited online: DFS Website <http://www.luftrecht-online.de/english/dfs.htm> (date accessed: 1 December 2005). 328 Ibid. 329 Corporatisation of Air Navigation Services, supra note 5 at 1. More specifically, Article 27c of the German Aviation Act provides:

(1) The air navigation services shall ensure the safe, orderly and expeditious handling of air traffic. (2) This shall include the following tasks: 1. Provision of operational air navigation services, including: a) air traffic control for the surveillance and control of aircraft

movements in the air and on the maneuvering areas of aerodromes; b) air traffic flow management and management of airspace utilization; c) aeronautical information service, except for aeronautical

meteorological services; d) cooperation in the search and rescue service for aircraft; e) transmission of air navigation services information.


personnel; cooperation with international organizations – especially the International Civil Aviation Organization (ICAO) and advising the Ministry of Transport on all air traffic control matters.330 At the time the DFS was established, the German government and the DFS entered into a Rahmenvereinbarung (master/framework agreement). In Article 4 of this Agreement, the following principles were established:

DFS will enter into all contracts of the German state that were concluded with third parties by the prior BFS.

The parameters of the discharge of the delegated responsibilities by DFS include respecting:

o Articles of Association; o Directives issued by the MOT; o International Civil Aviation Organization Standards and

Recommended Practices (i.e. ICAO SARPS); o Objectives, policies and medium-term plans of regional

and international organizations that the Federal Repub-lic of Germany is a member – particularly EUROCONTROL;

o Conventions and agreements concluded with other states; and

o Agreements concluded between Germany’s MOT and Ministry of Defence.331

Furthermore, on 1 January 1995, the responsibility for the provision of regional military air traffic control was transferred from the Federal Armed Forces to DFS, part of which is operated by a DFS unit at EUROCONTROL’s Maastricht control center.332 This was a consequence of an agreement between the Federal Ministry of Defence and the Federal Ministry of Transport, and an amendment to the Aviation Act. Thus, regional air traffic control for military flights in peacetime is now provided solely by the civil organization DFS, thus terminating the need for parallel civil and military organizations. However, the Federal

2. Provision of technical air navigation services, including: a) procurement, installation and acceptance of technical air navigation

services facilities; b) operation, maintenance and monitoring of technical air navigation

services facilities; c) development and maintenance of application software used in

electronic data processing for the air navigation services. 3. Planning and testing of procedures and facilities for the air navigation services. 4. Collection and dissemination of aeronautical information, production and publication of aeronautical charts and promulgation of procedure for aviation.

330 Stoffel, supra note 320 at 292. 331 Rahmenvereinbarung, Art.4 (1)(2). 332 DFS Website <http://www.luftrecht-online.de/english/dfs.htm> (date accessed: 1 December 2005). Founded in 1960 with the aim of overseeing air traffic control in the Upper Airspace of Member States and ensuring co-operation on safety in the air, EUROCONTROL today has as its most important goal the development of a coherent and co-ordinated air traffic control system in Europe. The organization consists of two organs: the Permanent Commission for the Safety of Air Navigation, a policy making body; the Agency for the Safety of Air Navigation, the organization’s executive body, charged with the planning and implementation of air navigation services as well as the collection of route charges.


Ministry of Defence still retains full air defence authority and provides local air traffic control for military airfields.333 Since 2004, the German Ministry of Transport has been preparing for a partial privatization of DFS in the context of a Public-Private partnership.334 The changes are expected to come into effect in 2006-2007. The relevant government decision was published on 15 December 2004.335 The proposed change to a Public-Private partnership has been the result of three pressures: first, the basic policy shift of the German government to increasingly supply public services by private companies; second, lobbying by the airlines who believe a Public-Private partnership will be more efficient; and third, there is an expectation that this new structure will enable DFS to expand business beyond Germany and the MOT believes risk should be shared with the private sector and not borne only by government 336 The key elements in the restructuring are:

• The German government wants to sell 74.9 per cent of DFS. It should be noted that the German state will retain 25.1% ownership in conformity with German company law that requires at least 25% of the previous shareholders in a private company retain ownership so as to stop basic changes in the nature of the business. Accordingly, the German government will hold onto this proportion of shares to maintain DFS as an ATC company (and thus satisfy ICAO requirements under the Chicago Convention);337 • Air traffic services remain a State task (sovereignty issue); • Civil-military integration of ATC will be maintained; • A national supervisory authority will be established; • The costs for the supervision will be financed by user charges; • The privatization shall be completed by 2006; and • The MOT is tasked with the preparation work for the legal changes.338

B. Qualifications and Appointing Process The corporate governance structure of the DFS can be understood as operating on three levels. First, as stated above, the Federal Republic of Germany is the only shareholder, retaining 100% of the shares such that in law the task of providing air navigation services still remains with the 333 Corporatisation of Air Navigation Services, supra note 5 at 3. It should be noted that the German military have their own military ATC controllers who are seconded to DFS, paid by DFS and wear civilian clothing. They can be called back to military duty at any time. Moreover, the Military has a presence/representation at DFS. 334 Ibid. 335 Statement by Dieter Kaden, Chief Executive Officer and Chairman of the Board of Managing Directors DFS, “Hearing in the US House of Representatives Subcommittee on Aviation” (Washington D.C. 20 April 2005), online: US House of Representatives <http:// www.house.gov/transportation/aviation/04-20-05/kaden.pdf> (date accessed: 25 July 2005) at 17. 336 Notes of Glen McDougall, MBS Ottawa (11 July 2005). 337 Ibid. 338 Statement by Dieter Kaden, Chief Executive Officer and Chairman of the Board of Managing Directors DFS, “Hearing in the US House of Representatives Subcommittee on Aviation” (Washington D.C. 20 April 2005), online: US House of Representatives <http:// www.house.gov/transportation/aviation/04-20-05/kaden.pdf> (date accessed: 25 July 2005) at 4-5.


State. The Ministry of Transport represents the German State in shareholder meetings. Nevertheless, there is a Joint Ministerial Steering Committee incorporating both the federal MOT and federal Ministry of Defence that oversees the process. Second, there is a Supervisory Board consisting of 12 members: 6 elected employee/staff representatives and 6 representatives of the owner/employer.339 On the one hand, the employees are represented by the spokesman of the executive employees, by the chairman of the staff council, by three air traffic controllers and by a union representative. On the other hand, the owner/employer representatives consist of one who is the Chairman of the Supervisory Board (he/she is appointed by the Government and has a casting vote), two members belong to the Ministry of Transport, one to the Ministry of Finance and two to the Ministry of Defense.340 It should be noted that the main tasks of the Supervisory Board are the execution of regulatory and functional control and the safeguarding of civil and military interests at a common level. The Supervisory Board appoints the company’s Board of Managing Directors that is accountable to the Supervisory Board. The Supervisory Board must also consent to any major investments and approve the annual business plan.341 Third, since the structure of DFS is typical of any other private corporation in Germany, it has an Executive Board of Managing Directors that is headed by a Chief Executive Officer. The CEO and three other members of the Board are both appointed and regulated by the DFS Supervisory Board (as mentioned above).342 The Chief Executive Officer is supported by two Managing Directors, responsible respectively for Operations and Engineering. C. Accountability and Transparency Requirements We have just reviewed the accountability structure in terms of the corporate governance structure. One characteristic that should be added is that according to Article 4 (3) of the Rahmenvereinbarung (master/framework agreement) between the German Government and the DFS, the Minister of Transport is given the right to obtain any required information from the DFS. The Minister also has access to all facilities and units of DFS. Moreover, the MOT exercises functional supervision of the DFS’ operational services (including air traffic control services and flight information services). The MOT also has legal supervision of DFS respecting the execution of any future air navigation services. Article 14 of the Rahmenvereinbarung establishes that not only the DFS assumes obligations but also, in turn, the Federal MOT has reciprocal responsibilities toward the MOT including:

339 Ibid. 340 Ibid. DFS has a process structured organization with 6 business units, corporate developments centres and corporate service centres, following the key principle: “structure follows strategy.” Ibid. 341 Corporatisation of Air Navigation Services, supra note 5 at 3. 342 Stoffel, supra note 320 at 293.


1. The Ministry of Transport undertakes to inform DFS in due time

of all developments taking place in the political and parliamentary area as well as in international organizations when [such developments] might have effects on the functions and responsibilities of DFS. If the MOT participates in pertinent decision-making, it will include DFS in the preparation of these decisions in due time.

2. The MOT undertakes to discuss with DFS in advance all directives to be issued in writing within the scope of its legal and technical supervision power.

3. The MOT will discuss with DFS in advance all important

measures to be taken concerning the organization and the staffing of the Air Navigation Services Directorate of the Federal Office of Civil Aeronautics (LBA).343

On a broader level, close consultation with users is maintained through a series of meetings throughout the year. A bilateral consultation on cost and charges issues is held twice a year, and there is an annual customer forum on technical and investment issues. In addition, there are ad hoc customer forums on special issues.344 DFS has an Advisory Board of business, customers and the media. This board meets four times yearly and gives strategic advice to DFS.345 D. Restrictions on Revenue Sources DFS is a corporate enterprise operating on the basis of private sector principles. DFS was created on the basis of the transfer of all assets of the former BFS to the DFS partially as equity and partially as an interest-bearing loan owed to the Federal Republic of Germany.346 Today, DFS is a government-controlled corporation, financially autonomous347 and operationally financed entirely through user charges. Based on Regulation of 14 April 1984348 and the Multilateral Agreement relating to Route Charges,349 EUROCONTROL is responsible for billing and collection of en-route charges [paid mainly by airlines] on behalf of

343 Rahmenvereinbarung, Art. 14 (1)(2)(3). 344 Corporatisation of Air Navigation Services, supra note 5 at 4. 345 Notes of Glen McDougall, MBS Ottawa (11 July 2005). 346 Stoffel, supra note 320 at 292. 347 Statement by Dieter Kaden, Chief Executive Officer and Chairman of the Board of Managing Directors DFS, “Hearing in the US House of Representatives Subcommittee on Aviation” (Washington D.C. 20 April 2005), online: US House of Representatives <http:// www.house.gov/transportation/aviation/04-20-05/kaden.pdf> (date accessed: 25 July 2005) at 3. 348 DFS Website <http://www.luftrecht-online.de/english/dfs.htm> (date accessed: 1 December 2005). Verordnung über die Erhebung von Kosten für die Inanspruchnahme von Streckennaivigations-Diensten und die Streckennavigations-Einrichtungen der Flugsicherung - FS-Strecken-Kostenverordnung – FSStrKV. 349 Corporatisation of Air Navigation Services, supra note 5 at 5.


contracting States for both for domestic as well as international air traffic.350 All airspace users must be treated equally when it comes to providing services and calculating user charges in Germany. Classification of users is against German regulations. There are only two exceptions: the flat rate that applies to general aviation; and military operational air traffic. The military also reimburses DFS for military-related costs; however, this is based on a separate agreement between DFS and the Ministry of Defence.351 On the other hand, based on Regulation of 28 September 1989,352 DFS bills and collects terminal charges for arrivals and departures.353 Furthermore, DFS receives no government subsidies (the DFS has received no federal subsidies since the initial restructuring in 1993).354 On the contrary, DFS pays the German Federal government for all ANS-related costs, especially the costs of departments in the Ministry of Transport dealing with ANS, the pension costs of those civil servants who used to work for the air navigation services, as well as tax, dividends and amortization of an outstanding loan.355 To expand revenue sources outside of taxpayer monies and user charges, DFS has not only increased efficiency in its core business of air traffic control but also expanded its non-core activities. According to the DFS’ Articles of Association, to promote its corporate mission, DFS is authorized to establish branches, as well as engage in sideline businesses that serve the corporate mission. Accordingly, between 1993 and 2005, DFS explored and assumed business opportunities in the fields of consulting, data management, production of maps and charts (mainly for VFR flights), maintenance, simulations and training.356 One example of DFS expanding its activities outside its core business

350 DFS Website <http://www.luftrecht-online.de/english/dfs.htm> (date accessed: 1 December 2005). The en-route charges are calculated and billed by EUROCONTROL ac-cording to the “Principles for establishing the cost base for route facility charges.” State-ment by Dieter Kaden, Chief Executive Officer and Chairman of the Board of Managing Directors DFS at a Hearing in the US House of Representatives Subcommittee on Aviation, Washington D.C. 20 April 2005, online: US House of Representatives <http://www.house. gov/transportation/aviation/04-20-05/kaden.pdf> (date accessed: 25 July 2005). 351 Statement by Dieter Kaden, ibid. 352 DFS Website <http://www.luftrecht-online.de/english/dfs.htm> (date accessed: 1 December 2005). Verordnung über die Erhebung von Kosten für die Inanspruchnahme von Diensten und Einrichtungen der Flugsicherung beim An- und Abflug - FS-An- und Abflug-Kostenverordnung – FSAAKV. 353 Corporatisation of Air Navigation Services, supra note 5 at 5. This charge is immediately due. If payment is delayed by more than one month, a penalty charge may be added. The debt collection procedure comprises: dunning letters at various stages; and denial of air traffic services (e.g., start-up request denied) and/or en- forced recovery if repeated dunning is fruitless, based on public charges status. 354 Statement by Dieter Kaden, Chief Executive Officer and Chairman of the Board of Managing Directors DFS, “Hearing in the US House of Representatives Subcommittee on Aviation” (Washington D.C. 20 April 2005), online: US House of Representatives <http:// www.house.gov/transportation/aviation/04-20-05/kaden.pdf> (date accessed: 25 July 2005) at 7. 355 Ibid. 356 Ibid. at 14.


is that in 1995 DFS established a separate business unit called DFS Consulting in order to respond to market requirements. According to an agreement with the Supervisory Board, DFS Consulting is authorized to sell DFS expertise to interested customers. Products and services focus on air traffic control and the relevant interfaces to airports. The services performed by Consulting further include studies system implementation and technical support, organizational concepts, airspace planning and restructuring, procedures planning, training, safety analyses, cost-benefit analyses, tendering support and general consulting for all management levels. Another example of DFS expanding its revenue sources is the DFS business unit Aeronautical Data Management. In a business-oriented approach, DFS has used its expertise not only to develop and produce aeronautical charts for the national German airspace, but also to produce harmonized charts for the whole of Europe across national European borders.357 E. Access to Capital Markets Financing of infrastructure investment (based on a yearly budget and 3 – 5 year investment plans) is in general secured by using income from ANS charges, However, DFS also has a rated money and capital market programme allowing it to issue commercial papers and bonds in major currencies as needed. The German Federal Government does not guarantee company loans, but rather DFS relies on accredited financial ratings for securing loans in the open market.358 F. Economic and Safety Regulation The German Ministry of Transport (MOT) provides regulatory oversight of DFS.359 The relationship between the MOT and DFS is defined at several levels by supervisory regulations. The MOT is responsible not only for the legal and functional supervision of DFS in the field of the operational air navigation services (including licensing) but also legal supervision in the field of user charges360 and liability.361 357 Ibid. at 15. DFS has DFS joined forces with the Spanish and Polish ANSPs. 358 Ibid.at 4. “DFS finances itself mainly by drawing on a capital market programme. The total program amounts to € 1.0 billion (€ 0.5 billion for the commercial program, € 0.5 billion for the medium-term note program). The currently outstanding volume of the medium-term note program is € 310 million, the commercial paper only being issued for arbitrage purposes. The net financing volume after deduction of the financial investments is currently about € 90 million. In addition, DFS disposes of a back-up bank credit line of € 161 million.” Data is up to date until 20 April 2005 and is cited in Statement by Dieter Kaden, Chief Executive Officer and Chairman of the Board of Managing Directors DFS, “Hearing in the US House of Representatives Subcommittee on Aviation” (Washington DC 20 April 2005), online: US House of Representatives <http://www.house.gov/transportation/aviation/04-20-05/ kaden.pdf> (date accessed: 25 July 2005) at 6. 359 Statement by Dieter Kaden, Chief Executive Officer and Chairman of the Board of Managing Directors DFS, “Hearing in the US House of Representatives Subcommittee on Aviation” (Washington DC 20 April 2005), online: US House of Representatives <http:// www.house.gov/transportation/aviation/04-20-05/kaden.pdf> (date accessed: 25 July 2005) at 4. 360 Corporatisation of Air Navigation Services, supra note 5 at 4. 361 Statement by Dieter Kaden, Chief Executive Officer and Chairman of the Board of Managing Directors DFS, “Hearing in the US House of Representatives Subcommittee on


1. Economic Regulation In terms of economic regulation the MOT’s influence is limited to the approval of the DFS’s economic plan and major capital expenditures. Indeed, on the economic level, DFS – as a private-law company – is otherwise free to operate by following general commercial-law principles.362 Future changes are foreseen respecting the regime of economic regulation. The MOT has proposed a law for stronger economic regulation that follows the UK model such that public hearings are incorporated in the process. The MOT has hired a consultants firm to prepare the necessary rules. Initially and temporarily, the new economic regulatory regime will be handled by the MOT. However, the new National Supervisory Authority [NSA] required under EC regulations 549/2004 to 552/2004 will have its own personnel. The costs of the new NSA will be recovered through charges to the users and there will be no budget increase to government. At present DFS pays for the Federal Office of Civil Aviation Authority (i.e. LBA) ATC activities.363 2. Safety Regulation DFS faces both external safety regulation and internal monitoring. In the area of safety, external safety regulation comes from the Ministry of Transport and the Federal Office of Civil Aviation (LBA) 364 that act in a supervisory role. It should be noted that the MOT is advised on safety and other matters by an advisory council of business, customers and the media365 -- this board meets four times yearly and gives strategic advice to DFS.366 The LBA currently is responsible for ATC personnel licensing, approval of airspace changes, and approving training programmes. On the other hand, safety is managed internally in DFS that has a Safety Management System,367 it being understood that there are no plans to privatize the sovereign ATC function -- the core business of DFS.368 For the future, in conformity with ICAO and the Single European

Aviation” (Washington DC 20 April 2005), online: US House of Representatives <http:// www.house.gov/transportation/aviation/04-20-05/kaden.pdf> (date accessed: 25 July 2005) at 4. 362 Corporatisation of Air Navigation Services, supra note 5 at 4-5. 363 Notes of Glen McDougall, MBS Ottawa (11 July 2005). See European Commission, Air Transport, online: Europa-Transport <http://europa.eu.int/comm/transport/air/single_ sky/framework/legislation_en.htm> (date accessed: 12 December 2005). 364 The Federal Office of Civil Aeronautics (“Luftfahrt-Bundesamt - LBA”) was created as a Federal Agency by law, i.e. Gesetz über das Luftfahrt - Bundesamt of 30 November 1954 (German Law Gazette - BGBl. I, 354). The LBA is under the direct supervision of the Federal Ministry of Transport, Building and Housing as concerns both the management of and the tasks performed by the LBA. The LBA has the authority and thus the responsibility to execute federal tasks in aviation safety, operations and personnel licensing. DFS Website <http://www.luftrecht-online.de/english/dfs.htm> (date accessed: 1 December 2005) on Civil Aviation Authority, Luftfahrt-Bundesamt (LBA). 365 Corporatisation of Air Navigation Services, supra note 5 at 5. 366 Notes of Glen McDougall, MBS Ottawa (11 July 2005). 367 Ibid. 368 Corporatisation of Air Navigation Services, supra note 5 at 5.

http://www.luftrecht-online.de/english/bmv.htm


Sky [SES] initiative requirements, a separate safety regulator is being established to oversee DFS -- within the Civil Aviation Authority (LBA).369 In accordance with the Chicago Convention, the MOT is still the authority for international agreements, as well as for participation in supranational and international organizations (such as ICAO and EUROCONTROL). To do this, it draws on the technical and operational expertise of DFS.370 Due to the civil-military integration mentioned earlier, DFS is subordinate to the Ministry of Defense (MOD) in times of tension or defence.371 G. Price and Service Controls DFS is required to, and has made, an operating profit on which it paid taxes in most years since 1993. The main exception was the year 2001, during which DFS – as well as other ANS providers – suffered from the decrease in the volume of air traffic and made an operating loss in the financial year. The Ministry of Transport decides how much of any remaining profit is retained by the state or deposited into DFS capital reserves.372 Earnings according to statutory books depend on the exercise of options that are allowed by Germany’s national taxation law. However, this determination can be different from EUROCONTROL and ICAO principles (for example: the calculation of the depreciation of assets). Nevertheless, generally the EUROCONTROL principles for calculating and accounting air navigation charges, which allow for a return on equity, are applied. Adherence to these internationally agreed rules is supervised by the Ministry of Transport, Building and Housing.373 H. Liability Issues The separation of the discharge of regulatory and service provision functions between the MOT [and the Federal Office of Civil Aviation (LBA)] and DFS respectively has an impact on the responsibilities and liabilities that are attached to each of the functions and the discharging entities.374 In States – like the United States and France -- where the Government itself is the air navigation service provider, the national legislation requires that compensation claims must be brought against the state, under the liability law of that State. On the other hand, different models exist where the State has established an independent company to provide the service.375 369 Notes of Glen McDougall, MBS Ottawa (11 July 2005). 370 Statement by Dieter Kaden, Chief Executive Officer and Chairman of the Board of Managing Directors DFS, “Hearing in the US House of Representatives Subcommittee on Aviation” (Washington DC, 20 April 2005), online: US House of Representatives <http:// www.house.gov/transportation/aviation/04-20-05/kaden.pdf> (date accessed: 25 July 2005) at 4. 371 Ibid. 372 Corporatisation of Air Navigation Services, supra note 5 at 4. 373 Ibid. 374 Schubert, 2003, supra note 321 at 63. 375 Ibid. at 65.


In the case of Germany, the agreement of 23 December 1992 establishes a liability regime that is very favourable to DFS. To reiterate, since in Germany air navigation services are considered as a Federal Government (rather than Lander responsibility), the delegation of such functions to private corporations like DFS is subject to constitutional limits to guarantee some degree of State control. Thus, any liability claim for damages caused by the DFS or its agents must be instituted against the German State rather than against DFS or its employees.376 As mentioned above, at the time the DFS was established, the German government and the DFS entered into a Rahmenvereinbarung (master/framework agreement) that, inter alia, defines the division of liabilities between both entities. This contract confirms that the German State alone retains the ultimate responsibility for the proper operation of air navigation services and is liable to compensate third parties for damages resulting from the failure of ANS services and/or facilities. Nevertheless, the German State retains a right of recourse action against DFS or its agents in the case of intentional damage or gross negligence. 377 DFS is obliged to secure an insurance to cover costs that DFS may have to bear in the case of State liability.378 The effect of these principles is that the injured citizens of a State are not to suffer any losses because of the State’s decision to mandate a third party (i.e. DFS) to perform an activity that by law is a State responsibility.379 VII. Ireland A. Government Ownership and Control Air traffic control originated in Ireland in 1936 with the military; civilian services were established around 1945 by the Department of Industry and Commerce.380 Having already privatized its postal and telecommunications industries,381 in 1993, Ireland passed a law authorizing creation of a “private company” – the Irish Aviation Authority [IAA] – to perform a number of functions, including: (1) giving effect to the Annexes to the Chicago Convention; (2) ensuring that Irish airspace are used in a safe and efficient manner; (3) operating and managing air navigation services; (4) operating and managing airport terminal services, and regulating the provision, operation and management of

381 “Plight of Terminally Ill” Irish Times (9 July 1993) at 17.

376 German Constitution (Grundgesetz), Art 34. Cited in Schubert, 2003, supra note 321 at 65-66. 377 Article 15(1) of the mentioned agreement cited in Stoffel, supra note 320 at 292. Specifically, Article 15(1) provides:

Claims of third parties resulting from the activities of DFS will be settled by the Federal Government within the scope of State Liability. DFS indemnifies the Federal Republic of Germany in the relation inter se against incurring costs up to a maximum loss for each claim of up to DM 1 ,5 Billion. In case of claims exceeding this amount a recourse to the organs or the personnel of DFS is not possible, unless they have acted in willful or gross negligence.

Rahmenvereinbarung, Art. 15(1). 378 Article 15(2) of the mentioned agreement cited in Stoffel, supra note 320 at 292. See Rahmenvereinbarug, Art. 15(2). 379 Schubert, 2003, supra note 321 at 66-67. 380 Corporatisation of Air Navigation Services, supra note 5 at 55.


such services at public and private airports; (5) providing, operating and managing the aeronautical communications services at Ballygirreen near Shannon Airport; (6) imposing charges for the services it provides; (7) arranging for the performance of medical examinations of holders of certificates or licenses issued by it; (8) regulating the registration, airworthiness and operation of aircraft.382 At the time the bill was passed, it was argued that vesting these functions in a semi-state commercial company would enable it to “have the flexibility and autonomy in operational, staff and investment matters to meet the needs of its many users.”383 Other legislators objected to the absence of labor representation on the Board, or argued that the new company should be located in Shannon, or Dublin.384 The functions of the Department of Transportation and Energy’s Air Navigation Services Office were officially transferred to the IAA when it officially came into being on January 1, 1994.385 Today, the IAA is state-owned commercial company, with all equity owned by the Irish government. The government appoints its nine Board members.386 The Chief executive and all staff in the IAA are subject to “conflict of interest” declarations under the IAA act and the Standards in Public Office acts. All shares are held by the government,387 and the regulatory and performance functions of air navigation services [ANS] are combined in the IAA. Ireland also has established an “independent” Commission for Aviation Regulation [CAR] as a “body corporate” with the power to sue and be sued, and to hold and dispose of property.388 Its principal function is to regulate airport and aviation terminal service charges.389 It also licenses air carriers.390 B. Qualifications and Appointing Process The articles of association of the Irish Aviation Authority provide for nine directors,391 including the Chairman,392 appointed and removed from office by the Minister for Transport, Energy and Communications (now Department of Transport) with the consent of the Minister for

382 Irish Aviation Authority Act of 1993, §§ 11(1), 12(1) and 14. 383 “Debate on Aviation Bill” Irish Times (8 July 1993) at 7. 384 Corporatisation of Air Navigation Services, supra note 5. 385 “FG Presses for New Aviation Body to be Sited at Shannon” Irish Times (5 November 1993) at 7. 386 Corporatisation of Air Navigation Services, supra note 5 at 55. 387 Under its Articles of Incorporation, the IAA is prohibited from inviting the public to subscribe to any shares or debentures. Articles of Association of the Irish Aviation Authority § 3(c). The capitalization of the IAA originally was £17,858,000. Ibid., § 4. 388 Ireland Aviation Regulation Act of 2001, § 5(1)(2)(6). 389 Ibid., §§ 7, 31-36. 390 Ibid., § 8(3). 391 Articles of Association of the Irish Aviation Authority, § 38. 392 The Minister of Transport designates which Director shall be Chairman, with the consent of the Finance Minister. Articles of Association of the Irish Aviation Authority, § 65.


Finance.393 Each is appointed for a term of four years, and are eligible for reappointment.394 The directors, in turn, appoint a Chief Executive for the company, who may be appointed or removed from office after consultation with the Transport Minister.395 Commissioners of the Irish Commission for Aviation Regulation (of which there may be up to three) also are appointed by the Minister for Public Enterprise (now Department of Transport), who fixes their terms and conditions of appointment, including remuneration. If there is more than one Commissioner, the Minister shall appoint the Chairman.396 Upon being offered an appointment to the Commission, the individual shall make a declaration in writing of his interests in employment by or on behalf of an airline, airport, terminal service or groundhandling provider, travel agent, tour operator, organizer or coordinator, as well as his stocks and bonds in excess of £10,000, directorship in a shadow corporation,397 or gifts of travel, holidays, transport or money of more than £500.398 Changes in such status must be updated throughout the tenure of his appointment.399 They shall hold office for a term of not less than three, nor more than five, years, as designated by the Minister for Public Enterprise with the consent of the Minister of Finance.400 Commissioners are eligible for reappointment, but may not serve more than two terms, or a total of ten years, on the Commission.401 They may be removed for office if they are incapable because of ill-health, or for stated misbehavior that the Minister for Public Enterprise has laid before each House of the Oireachtas.402 While serving as Commissioners, they may not hold any other office or employment for compensation.403 For twelve months following his resignation, removal or retirement, a Commissioner shall not use or disclose information acquired in his position as Commissioner.404 C. Accountability and Transparency Requirements 393 Irish Aviation Authority Act of 1993, § 17(2). The Chairman and other Directors may be removed from office by the Minister for Transport, Energy and Communications, with the consent of the Minister for Finance. Articles of Association of the Irish Aviation Authority, § 39. Grounds for removal include bankruptcy, unsound mind, expiration of term of office, conviction of an indictable offense, or nomination or election to certain public offices. Ibid., § 46. Their compensation and expense allowances are also determined by the Transport Minister, with the consent of the Finance Minister. Ibid., § 43. 394 Irish Aviation Authority Act of 1993, § 17(2)(c). 395 Irish Aviation Authority Act of 1993, § 38. 396 Ireland Aviation Regulation Act of 2001, § 11(3). 397 Ireland Companies Act (1963-99). 398 Ireland Aviation Regulation Act of 2001, § 17. 399 Ibid., § 17(3). 400 Ibid., § 11(1). 401 Ibid., § 11(5). 402 Ibid., § 11(7)(b). 403 Ibid., § 11(11). 404 Ibid., § 11(12).


Though the statute requires that the Minister of Finance report annually to each House of the Oireachtas regarding each loan it guarantees on behalf of the Irish Aviation Authority405 the Minister of Finance no longer guarantees any loans on behalf of the IAA. Under direction of the Minister of Transportation, Energy and Communications, the IAA must keep all proper and usual accounts of monies received or expended by it, including a profit and loss statement, a cash flow statement, and a balance sheet.406 Such statement shall be audited annually; such audits shall be presented to the Minister who shall lay copies before each House of the Oireachtas.407 The IAA must also prepare an Annual Report (a five-year “Business Development Plan”)408 of its activities and those of its subsidiaries409 to the Minister, who shall lay copies thereof before each house of the Oireachtas.410 The IAA also must submit a report when required by the Minister specifying the technical and safety standards it imposes with regard to aircraft and air navigation that it applies and enforces.411 In additional to internal and external audits, the IAA regularly consults its customers through structured meetings.412 IAA directors and staff must disclose any information in which he is directly or indirectly interested involving any activities of the company or its subsidiaries. He must also refrain participating in any meeting in which such matter is discussed, take no part in its deliberations, nor vote on any decision relating to the matter.413 Such disclosure shall be recorded in the minutes of the concerned meeting.414 Where the Transport Minister believes any director has failed to follow these requirements, he may remove that director from office with the consent of the Minister for Finance.415 No director or staff member may disclose confidential information.416 After consultation with the Minister for Public Enterprise, the Commission for Aviation Regulation shall draw up a code of conduct and ethical behavior applicable to its staff.417 Where a Commissioner, staff member, or consultant or advisor to the Commission have a pecuniary or other beneficial interest in or material to any matter before the Commission, he must disclose to the Commission the nature of his interest, not influence any decision relating thereto, not take part in its consideration nor vote on the matter, and withdraw from the meeting so 405 Irish Aviation Authority Act of 1993, § 27(5). 406 Ibid., § 30(1); Irish Companies Act (1963-1990). 407 Irish Aviation Authority Act of 1993, § 30(2). 408 Articles of Association of the Irish Aviation Authority § 47(2). 409 With the approval of the Transport Minister, the IAA may establish subsidiaries or invest in other undertakings. Ibid., § 56. 410 Irish Aviation Authority Act of 1993, § 31(1). 411 Ibid., § 32(1). 412 Corporatisation of Air Navigation Services, supra note 5 at 55. 413 Irish Aviation Authority Act of 1993, §§ 33(1), 34. 414 Ibid., § 33(2). 415 Ibid., § 33(4). 416 Ibid., § 35(1). 417 Ireland Aviation Regulation Act of 2001, § 15(1).


long as the matter is being discussed.418 Where such disclosure is made, it must be recorded in the minutes of any meeting at which it was discussed.419 However, the IAA Directors and principal staff must keep strictly secret and confidential any confidential information relating to the activities of the Authority and its subsidiaries and associated companies.420 All proposed regulations drafted by the Commission must be laid before the each House of the Oireachtas. Within 21 days of its submittal, either House may pass a resolution annulling the regulation.421 The Minister for Public Enterprise may require the Commission to provide any information regarding its activities,422 and may examine its accounts.423 The Commission may publish reports summarizing its activities.424 Whenever requested, the Commission must account for its performance before a Joint Committee of the Oireachtas.425 Prior to setting maximum airport charges, the Commission shall give notice to concerned persons, publish notice in a daily newspaper, and specify when representations may be made by interested parties or the public.426 D. Restrictions on Revenue Sources The Irish Aviation Authority has authority to impose charges for the services it provides.427 Its Directors may borrow and raise money, and mortgage property, issue debentures, stock or other securities.428 However, the IAA may not invite the public to subscribe to any shares or debentures.429 E. Access to Capital Markets The authorized share capital of the Irish Aviation Authority is determined by the Minister for Finance, in consultation with the Transport Minister, divided into shares of one pound each (now €1.27).430 On the vesting day, shares in the company were transferred to the Minister for Finance in exchange for the value of public property transferred to the company.431 The value of the shares, minus the value 418 Ibid., § 18. 419 Ibid., § 18(5). 420 Articles of Association of the Irish Aviation Authority, § 96. 421 Ireland Aviation Regulation Act of 2001, § 23(6). 422 Ibid., § 27(1). 423 Ibid., § 28(2). 424 Ibid., § 27(2). 425 Ibid., § 27 (3). 426 Ibid., § 32(7) 427 Irish Aviation Authority Act of 1993, § 14(1)(f). 428 Articles of Association of the Irish Aviation Authority, § 59. 429 Ibid., § 3(c). 430 Irish Aviation Authority Act of 1993, §§ 12(2) and 19(1). 431 Ibid., § 19.


of the public property for which they were exchanged, became a debt due by the company to the Minister for Finance, which was paid in full in 1994.432 The Minister may also make loans to the IAA so long as the outstanding unpaid sums do not exceed £15 million, though no loans have been made to date.433 Amounts received by him as share dividends or payment of interest or debt shall be paid into the Exchequer.434 The remainder is reinvested in personnel, systems and support.435 The Irish Aviation Authority, and its subsidiaries, may borrow money for capital purposes (including working capital) in increments not to exceed £100 million at any one time.436 These loans may be guaranteed by the Minister for Finance up to £80 million, though this has not been done to date, for which the Minister may require that the company issue security (e.g. debentures) to him.437 The IAA may declare dividends.438 F. Safety and Economic Regulation Authorities The Irish Aviation Authority establishes its own charges for services, with the consent of the Minister for Transportation, Energy and Communications.439 In 1996, the IAA established the Air Navigation Services Regulator, whose focus is exclusively on aviation safety; it reports to the Safety and Regulation Directorate of the IAA.440 The IAA also licenses air traffic control services by issuing air traffic control approval certificates if it deems the applicant “competent, having regard to that applicant’s organization, staffing, equipment and systems and their maintenance and other arrangement to provide such a service which is safe for use by aircraft”.441 It also may license a person to operate an air traffic service system, including communications, navigational aid or other technologies to aircraft in flight or landing at an airport.442 The IAA licenses air traffic controllers.443 It also registers aircraft, and issues aircraft certificate of type approval, certifications of airworthiness,444 flight permits, noise certificates, transponder codes, aircraft maintenance and overhauls, and a variety of other aviation functions.445 The IAA must submit written reports on its technical and safety standards, and is subject to a technical audit every three years.446

432 Ibid., § 19(3). 433 Ibid., § 28(1). 434 Ibid., § 25. 435 Corporatisation of Air Navigation Services, supra note 5 at 55. 436 Irish Aviation Authority Act of 1993, § 26. 437 Ibid., § 27(2). 438 Articles of Association of the Irish Aviation Authority, § 81(1). 439 Irish Aviation Authority Act of 1993, § 43(3). 440 Corporatisation of Air Navigation Services, supra note 5 at 56. 441 Irish Aviation Authority (Air Traffic Control Standards) Order, 2004, S.I. No. 856 of 2004, § 4(2). 442 Irish Aviation Authority (Air Traffic Service Systems) Order, 2004, S.I. No. 855 of 2004, § 4(3)(4). 443 Irish Aviation Authority (Air Traffic Control Standards) Order, 2002, S.I. No. 220 of 2002. 444 EASA now perform this function for Europe, 445 See Irish Aviation Authority (Fees) Order, 2004, S.I. No. 854 of 2004. 446 Corporatisation of Air Navigation Services, supra note 5 at 56.


The principal function of the Irish Commission for Aviation Regulation is to regulate airport and aviation terminal service charges.447 It also licenses air carriers.448 G. Price and Service Controls The Irish Aviation Authority must ensure that its revenues are sufficient to cover its costs and charges, satisfy its capital needs, and its interest obligations.449 The IAA may promulgate regulations requiring payment to Eurocontrol or to the company of rates and charges for air navigation and aeronautical communications services.450 With respect to Eurocontrol charges, the rates may be specified in tariffs under international agreements.451 With respect to IAA charges, they shall be such as the company may determine with the consent of the Transport Minister.452 Different rates may be set for different classes of aircraft.453 The IAA also may charge such amounts “as it considers appropriate” for any other services provided by it.454 It determines what an “appropriate fee” is for its air traffic service licensing functions.455 The Irish Commission for Aviation Regulation shall issue a determination regulating maximum charges imposed by commercial airports having more than one million passengers annually.456 Such a determination may set an overall limit for airport charges, limits to particular categories of charges, or a combination of both.457 In regulating aviation terminal service charges, the CAR shall take into account: (1) the charging principles of ICAO and Eurocontrol: (2) the level of investment in aviation terminal services by the Authority in satisfying safety and commercial demands; (3) the effective and efficient use of resources by the Authority; (4) the level of income earned by the Authority from terminal services and other sources; (5) the costs incurred by the Authority in providing terminal services; (6) the level and quality of terminal services provided, as well as the “reasonable interests of the users” thereof; (7) the cost competitiveness of terminal services vis-à-vis international practice.458 H. Appeal Processes Decisions of the Commission for Aviation Regulation are subject to

447 Ireland Aviation Regulation Act of 2001, § 7. 448 Ibid., § 8(3). 449 Irish Aviation Authority Act of 1993, § 16. 450 Ibid., § 43(1)(a). 451 See Irish Aviation Authority (Eurocontrol Safety Regulatory Requirements) Order 2003, S.I. No. 387 of 2003. 452 Irish Aviation Authority Act of 1993, § 43(3). 453 Ibid., § 43(3). 454 Ibid., § 44. 455 Irish Aviation Authority (Air Traffic Service Systems) Order, 2004, S.I. No. 855 of 2004, §6. See Irish Aviation Authority (Fees) Order, 2004, S.I. No. 854 of 2004. 456 Ireland Aviation Regulation Act of 2001, § 31, 32. 457 Ibid., § 32(6). 458 Ibid., § 36.


judicial review.459 I. Liability Protection by Government or Private Insurance Except in the case of willful neglect or default, a member of the Irish Commission for Aviation Regulation shall not be subject to any action for a failure to perform or comply with any of the functions of his office. VIII. Netherlands A. Government Ownership and Control Luchtverkeersleiding Nederland (LVNL), or Air Traffic Control the Netherlands, is an independent administrative body (Zelfstandig Bestuursorgaan, or ZBO), accountable to the Minister of Transport, Public Works and Water Management (hereinafter MTPWWM) to whom it reports on matters of performance and policy. It is a legal person distinct from the government. LVNL serves as the link between the government and all other parties involved in air traffic control. Its staff members are civil servants in the sense of the Central and Local Government Personnel Act.460 LVNL has the following mandate:

Providing air traffic control services within the flight information region of Amsterdam, covering the Netherlands territory and a large part of the North Sea, and in particular approach/tower control at Amsterdam Schiphol Airport and the regional airfields of Rotterdam, Maastricht, and Groningen.461

Defining, acquiring, installing, managing and keeping up technical installations and systems for air traffic control.

Providing aeronautical information and issuing aeronautical publications and aeronautical maps.

Providing air traffic control training. Making proposals to the MTPWWM concerning the tariff of air

traffic services fees to be imposed on air traffic, due for coverage of the cost of air traffic control.

Advising the MTPWWM as well as the Minister of Defence on matters of air traffic control.

Performing other duties laid down by or pursuant to the Aviation Act.

Besides rules for route and runway operations LVNL is to comply with the Airport Traffic Decree, an order in council based on the Aviation Act. 459 Ibid., § 38. 460 The Netherlands Air Traffic Control (LVNL), Annual Report, 2004, online: The Netherlands Air Traffic Control,<http://www.lvnl.nl/html/en/news/publications/ publicaties/Annual%20report%202004.pdf > (date accessed: 23 July 2005) at 6 [hereinafter LVNL Annual Report, 2004]. 461 The Netherlands Air Traffic Control (LVNL), “Services”, online: The Netherlands Air Traffic Control, < http://www.lvnl.nl/html/en/services/general/index.html> (date accessed: 23 July 2005).


Military ANS are provided by the Ministry of Defence and are separate from civil ANS. A good working relationship exists between the two services at both an operational and technical level.462 LVNL operates on a cost recovery basis through its fees, modest State contributions and a small proportion of other income. It does not issue shares.463 LVNL adheres to the Netherlands Corporate Governance code [“Code goed bestuur uitvoeringsorganisaties”] developed specially for ZBOs.464 1. Brief History On February 1, 1927 the Aviation Act (of the Netherlands) came into effect, under which Aviation Supervision Regulation (RTL) dealt specifically with air traffic control. Air navigation services (ANS) over the Netherlands airspace were first offered in January 1940 by the Department of Air Traffic Control (LVB), which had three sub-departments:

message service air traffic control meteorological unit

On 10 May 1940, the German army invaded the Netherlands and captured LVB buildings and equipment.465 However, in 1945 the Air traffic control was formally re-established, and ANS were provided by the Civil Aviation Administration (CAA-NL), which was part of the MTPWWM.466 On 1 January 1993, LVNL was formed as a ZBO, independent of CAA-NL.

462 Corporatisation of Air Navigation Services, supra note 5 at 1. 463 Ibid. 464 LVNL Annual Report, 2004, supra note 460 at 6. 465 The Netherlands Air Traffic Control (LVNL), “About LVNL: 1923-Today”, online: The Netherlands Air Traffic Control,<http://www.lvnl.nl/html/en/news/publications/ publicaties/Annual%20report%202004.pdf > (date accessed: 23 July 2005). 466 The Netherlands Minister of Transport, Public Works and Water Management, “Aviation”, online: Minister of Transport, Public Works and Water Management < http:// www.verkeerenwaterstaat.nl/?lc=uk&page=4 > (date accessed: 23 July 2005).


B. Qualification and Appointment Process

Source: Annual Report 2004467

1. Supervisory Board The Supervisory Board, composed of 6 members, is chaired by a retired Commander in Chief of the Royal Netherlands Air Force, and further consists of representatives from Transavia Airlines, RNlAF, Schiphol Group and the MTPWWM. KLM were represented on the board until recently, when a change to Dutch law barred it from having a representative sitting directly on the board. However, it can propose a member of the board to the MTPWWM as long as the nominee is not a member of the KLM Board or a current employee of KLM. The Supervisory Board oversees the activities of the Executive Board, gives advice to it, establishes the remuneration of the Managing Board members, approves investment above 1 million €, and advises the MTPWWM on strategic plan, annual budget and user fees.468 Members of the Supervisory Board are appointed by the MTPWWM for a term of four years, and can be reappointed for one additional term only.469 2. Executive Board The two members of the Executive Board are the CEO/ Chairman of the Executive Board and the Vice Chairman, who is the head of ATM. The Executive Board is responsible for the day-to-day management of LVNL and represents it at law and otherwise. The Executive Board works according to the principles of joint management. They jointly

467 LVNL Annual Report, 2004, supra note 460 at 7. 468 The Netherlands Air Traffic Control (LVNL), “Response on Governance Structure” (1 March 2005), online: The Netherlands Air Traffic Control < http://www.lvnl.nl/html/en/ aboutlvnl/index.html> (date accessed: 23 July 2005). 469 LVNL Annual Report, 2004, supra note 460 at 8.


manage all operating processes, primary processes and support processes as well as the directorates and departments.470 The chairman of the Executive Board is the contact for all LVNL transactions in a broad sense and, more in particular, he is responsible for the set-up and upkeep of external relations, both nationally and internationally. The Vice-Chairman of the Executive Board is the contact for the set-up of the internal managing process and for the implementation of strategic projects within LVNL. The members of the Executive Board are appointed by the MTPWWM, on the recommendation of the Supervisory Board, for a maximum term of five years. They can be reappointed.471 3. Management Board The executive organization under the Executive Board is divided into directorates, within which process activities are performed in the associated departments. Each directorate is headed by a member of the Management Board, charged with the day-to-day affairs within the directorate. The directorates are: Human Resources Management, Regional Unit, Air Traffic Management, and Corporate Resources Management. 4. Safety Management The safety manager of LVNL is the head of Corporate Quality and Safety; he reports directly to the CEO. Risk assessment is performed in the department “Performance Analysis” of the Research & Development division, which falls under the directorate of ATM.

470 In 2004 three types of processes were distinguished: managing, primary and support processes, each of which has a process owner. The latter is responsible for the process organization, monitoring and correcting the processes. The process owners are accountable to the Executive Board. Managing processes: all activities required for management of the processes - and subsequently the organization -, by means of providing scopes and objectives. They steer the primary and support processes. LVNL knows the organization management process of “Besturen LVNL” (Managing LVNL) and the planning and control process of “Plannen en beschikbaar stellen van middelen” (Plan and allocate resources). Primary processes: all activities that directly contribute to the end product: air traffic services. LVNL distinguishes the primary processes of “Leveren ATM-diensten” (Provide ATM services), “Veranderen ATM-systeem” (Modification ATM system), “Instandhouden ATM-systeem” (Maintenance and upkeep ATM system), both for ATM Schiphol and for the Regional Unit. Support processes: these include all activities required to facilitate the primary and managing processes. The process of “Opleiden nieuw verkeersleidingspersoneel” (Training new ATC-staff) is one of the support processes. LVNL Annual Report, 2004, supra note 460 at 6. 471 LVNL Annual Report, 2004, supra note 460 at 8.


Directorates and Departments within LVNL472

C. Accountability and Transparency Requirements As a ZBO, LVNL must comply with the Netherlands Corporate Governance code and more recently the Code goed bestuur uitvoeringsorganisaties (Code of Good Governance for Implementing Organizations) developed specially for ZBOs. LVNL’s administrative guidelines and user fee policy is based on the rules of conduct for the member states affiliated to Eurocontrol. These are set out in the “Principles for establishing the cost-base for route facility charges and the calculation of the unit rates”. In addition, ICAO recommendations stipulated in the ‘Statements by the Council to Contracting States on Charges for Airports and Route Air Navigation Facilities’ are also taken

472 The Netherlands Air Traffic Control (LVNL), “Directorates and Departments within LVNL”, online: The Netherlands Air Traffic Control < http://www.lvnl.nl/html/en/ aboutlvnl/structure/index.html> (date accessed: 23 July 2005).


into consideration.473 Pursuant of the “Single European Sky” scheme, LVNL has to adopt “International Financial Reporting Standards” (IFRS) as far as possible for financial accounting. This would mean further standardization and improvement in the transparency of air traffic control organizations.474 D. Restrictions on Revenue Sources LVNL is subject to standard revenue principles for ZBOs.475 Its principal source of revenues (96%) is fees, which must be approved by MTPWWM. LVNL is not considered a corporate entity for the purposes of Value Added Tax (VAT) recovery. Thus, LVNL passes to its customers any VAT it pays for goods and services, which could be seen as a form of double taxation.476

E. Access to Capital Markets LVNL has full access to financial debt markets to borrow and deposit funds. It has the equivalent of AAA-rating as a governmental organization.477 However, as noted it does not issue shares. F. Safety and Economic Regulation Authorities 1. Safety Regulation Safety policymaking as well as safety regulation and oversight were until 2001 conducted by the Civil Aviation Authority in the Netherlands (CAA-NL), which was a branch of the MTPWWM. In 2001 It CAA-NL was split into the Aviation Division of the Inspectorate General of Transport, Public Works and Water Management (IVW) and the Directorate General of Civil Aviation (DGL). This allowed a clear separation of responsibilities for aviation policy making (DGL) and policy implementation (IVW).478 Roughly 30% of available resources are devoted to policy making and the remaining 70% for safety regulation and oversight. As the body responsible for implementing and enforcing aviation policy and regulations, IVW can be regarded as the aviation safety regulator within the Netherlands. It is divided into two civil aviation agencies: an executive agency and an enforcement agency.

473 LVNL Annual Report, 2004, supra note 460 at 40. 474 Ibid. at 20. 475 The Netherlands Air Traffic Control (LVNL), “Written Response on Governance Structure” (1 March 2005), online: The Netherlands Air Traffic Control < http://www. lvnl.nl/html/en/aboutlvnl/index.html> (date accessed: 23 July 2005). 476 Glen McDougall, “LVNL Netherlands Framework”. 477 The Netherlands Air Traffic Control (LVNL), “Written Response on Governance Structure” (1 March 2005), online: The Netherlands Air Traffic Control < http://www. lvnl.nl/html/en/aboutlvnl/index.html> (date accessed: 23 July 2005). 478 See National Aerospace Laboratory NLR, Aviation safety management in Switzerland Recovering from the myth of perfection (2003), online: skyguide <http://www.skyguide. ch/en/Dossiers/DossierUeberlingen/NLRStudie/> (date accessed: 23 July 2005) [hereinafter “REACH Report”] at 233-234.


The core tasks of the civil aviation executive agency are:

o Issuing permits and licenses on the basis of national and international rules;

o Inspections and audits in the area of aircraft, infrastructure and air traffic operations;

o Implementation of national aviation policy; and o Implementation of political and administrative

assignments. The civil aviation enforcement agency is responsible for:

o enforcement of civil aviation policy o enforcement of legislation regarding safety, noise, and

quality of the air in Dutch aviation. The LVNL quality and safety securing system has been ISO certified since October 2000, with a re-certification under the ISO 9001-2000 in 2003. LVNL has been certified under the Eurocontrol European Air Traffic Control Harmonisation and Integration Programme (EATCHIP) safety policy.479 It complies with “most of” the safety management regulations as laid down in the Eurocontrol Safety Regulatory Requirements (ESARR) 2, 3, 4 and 5.480 As of 2003, LVNL was without a non-punitive reporting system; indeed NLR reports that a controller involved in an incident was convicted.481 2. Economic Regulation The Supervisory Board of LVNL must approve all proposed tariffs for ANS, which are then placed before MTPWWM for final approval.482 The law prohibits the building up of reserves, and the government does make modest direct contributions to LVNL’s budget. For example, after 9/11 the Dutch government provided € 31 million. G. Price and Services Control The Supervisory Board of LVNL must approve all proposed tariffs for ANS, which are then placed before MTPWWM for final approval. LVNL’s Aviation Act mandate stipulates the services it must offer.483 H. Appeal Processes LVNL decisions are subject to standard appeal procedures available against government decisions. Specific grounds for appeal are

479 Corporatisation of Air Navigation Services, supra note 5. 480 LVNL Annual Report, 2004, supra note 460 at 24. 481 REACH Report, supra note 478. 482 Corporatisation of Air Navigation Services, supra note 5. 483 For more information, supra Part VIII.A.


set out in the governing legislation.484 However, there is no provision for appeal against LVNL of user fees, which are considered to be issued by the MTPWWM. 485 I. Liability Protection by Government or Private Insurance LVNL makes provision for insurance as part of its general costs.486 After 9/ll the Dutch government undertook to cover war risk insurance.487 J. Rationale for Corporatization The rationale for first round of “corporatization” of ANS in the Netherlands – the creation of LVNL as a ZBO – was to give LVNL more flexibility than a government department to hire and fire employees and to make quicker investment decisions. In addition, LVNL’s budget is not part of the government’s budget and is thus less politicized.488 An argument for further corporatization of the LVNL is that being a ZBO it is still the minister of MTPWWM who is responsible for its performance but is no more accountable for poor performance. K. Compliance with ICAO Recommendations

ICAO Recommendations Compliance

Organizational Structure Independent

Administrative Body Organizations/ state obligation Board of Directors No Organization Self financing Yes Commercial accounting standards Yes Organization Liable to Business taxes ?? Government as Economic Regulator489 Yes MTPWWM Government as Safety Regulator Yes MTPWWM Dispute Resolution Yes

484 The Netherlands Air Traffic Control (LVNL), “Written Response on Governance Structure” (1 March 2005), online: The Netherlands Air Traffic Control < http://www. lvnl.nl/html/en/aboutlvnl/index.html> (date accessed: 23 July 2005). 485 Glen McDougall, “LVNL Netherlands Framework”. 486 See LVNL Annual Report, 2004, supra note 460 at 51. 487 Ibid. 488 Glen McDougall, “LVNL Netherlands Framework”. 489 Int’l Civil Aviation Org., ICAO’s Policies on Charges for Airports and Air Navigation Services (ICAO Doc. 9082/7 7th ed. 2004), § 15.



IX. New Zealand A. Government Ownership and Control In the mid 1980s, a number of State-owned businesses in New Zealand were running at a loss while providing low quality services. In the case of air navigation services and rescue fire services, which were provided by the Civil Aviation Division of the Ministry of Transport (i.e. a government department), the physical infrastructure was rundown and needed replacement. User charges were increased by approximately 75% to cover the losses.490 In response to this and other problems, the Government of New Zealand developed the State-owned Enterprises (SOE) policy and enacted the State-owned Enterprises Act491 to give effect to the said policy. The SOE model was based on five basic principles:

1. SOEs would have a purely commercial objective; 2. Non-commercial functions would be separated off; 3. The SOE would have no government-generated competitive

advantages or disadvantages; 4. Directors/managers of SOEs would have autonomy subject to

commercial accountability to shareholders; 5. The Government would have to contract for any unprofitable

activity it wanted the SOE to undertake.492 The Airways Corporation of New Zealand (ACNZ) was established as a State-Owned Enterprise on April 1, 1987 upon the coming into force of the SOEs Act. It was incorporated as a company with shares under the Companies Act 1955493 and was made subject to all other laws just like any other private company. It was initially entrusted with the duty to provide air navigation services and rescue fire services (RFS) on a fully commercial basis. In 1988, however, regulatory responsibility for the provision of RFS was transferred to airport authorities who, through a process of tendering, have either assumed the ACNZ service by purchase or replaced them with contracted RFS providers. The SOEs Act entitled the Government of New Zealand to buy the shares of ACNZ. Thus, ACNZ has since its inception been 100%

490 Doug Andrew, “Corporatization of the New Zealand Air Traffic Control System” (Memorandum presented to the Select Committee on Environment, Transport and Regional Affairs, House of Commons, United Kingdom Parliament, January 1998), online: UK Parliament, online <http://www.parliament.the-stationeryoffice.co.uk/pa/cm199798/ cmselect/cmenvtra/360-e/36037.htm> (date accessed: July 27, 2005) [hereinafter Memorandum of Doug Andrew]. 491 State-owned Enterprises Act 1986 No. 124, text available online: Government of New Zealand < http://www.legislation.govt.nz/libraries/contents/om_isapi.dll?clientID= 2030609931&hitsperheading=on&infobase=pal_statutes.nfo&record={F2ED64DA}&softpage=DOC> (date accessed: 27 July 2005) [hereinafter State-owned Enterprises Act 1986 No. 124]. 492 See Memorandum of Doug Andrew, supra note 490. 493 In 1986, the applicable companies legislation in New Zealand was the Companies Act 1955, modelled on the UK Companies Act. It has since been repealed and replaced with a Companies Act of 1993 No 105 (entered into force 1 July 1994) [text available online: The World Law Guide < http://rangi.knowledgebasket.co.nz/gpacts/public/text/1993/ an/105.html> (date accessed: 27 July 2005).


government owned, with its shares being held by the Minister for SOEs and the Minister of Finance on behalf of the government (the Shareholding Ministers). Although ACNZ is fully owned by the Government of New Zealand, its status as a SOE ensures that it retains a considerable level of autonomy from the government. Specifically, the SOEs Act requires that, as a SOE, ACNZ should be run with the principal objective of operating as a successful business, being as profitable and efficient as comparable businesses which are privately owned.494 Finally, although the government is the ultimate owner of ACNZ, it is obliged to contract with ACNZ and pay for the provision of services and the performance of other activities which are not in the commercial interest of ACNZ.495 The purpose of these rules is to replicate private ownership in the public sector.496 B. Board Independence, Qualifications and Appointing Process The SOEs Act provides for the appointment of directors of ACNZ who shall be accountable to the Shareholding Ministers.497 However, the Act does not specify the number of directors who may be appointed. Under ACNZ’s Constitution, the number of directors is to be determined by, and may be varied at any time by, the shareholders subject to the condition that the directors shall not be fewer than two or more than nine at any time.498 Presently, six directors have been appointed to the Board of ACNZ. Persons qualified to be appointed as directors are those who, in the opinion of those appointing (i.e. the Shareholding Ministers), “will assist ACNZ to achieve its principal objective.”499 Once appointed, the board of directors has autonomy in the commercial running of ACNZ, in line with the mandatory Statement of Corporate Intent which must be prepared prior to the commencement of each financial year. The duration of each director’s appointment is specified by the shareholding ministers but it shall not exceed 3 years, unless it is considered necessary or desirable, in which case it shall not exceed 3 years and 3 months.500 A director who is interested in a transaction entered into by ACNZ may not vote on a matter relating to the transaction. He may, however, attend and be present at a meeting at which the matter is being discussed; sign a document relating to the transaction on behalf of the ACNZ; and, do anything else as a director in relation to the transaction.501 The shareholding ministers’ responsibility to appoint the directors of ACNZ is carried out in conjunction with the Crown Company Monitoring Advisory Unit (CCMAU), an agency whose primary

494 State-owned Enterprises Act 1986 No. 124, supra note 491, § 4. 495 Ibid., § 7. 496 See Memorandum of Doug Andrew, supra note 490. 497 State-owned Enterprises Act 1986 No. 124, supra note 491, § 5. 498 Constitution of Airways Corporation of New Zealand, § 16. 499 State-owned Enterprises Act 1986 No. 124, supra note 491, § 5. 500 Constitution of Airways Corporation of New Zealand, § 17.2. 501 Ibid., § 26.


responsibility is to monitor the government’s remaining interest in the commercial performance of ACNZ. The CCMAU recommends, screens, and interviews potential board members of ACNZ.502 C. Accountability and Transparency Requirements The board of directors of ACNZ is primarily accountable to the shareholding ministers. Accordingly, the SOEs Act requires that the board shall deliver to the shareholding ministers a draft Statement of Corporate Intent (SCI) not later than one month before the commencement of each financial year.503 The shareholding ministers may make comments on the draft SCI and the board is obliged to consider those comments before finalizing the SCI for submission to the shareholding ministers on or before the commencement of the financial year or at such time as the ministers may determine.504 Each SCI shall cover the immediately ensuing financial year as well as the next two following thereafter, and must specify ACNZ’s corporate plans for those three years. Matters to be specified in the SCI include:

The objectives of ACNZ; The nature and scope of activities to be undertaken by ACNZ; The ratio of consolidated shareholders’ funds to total assets of ACNZ; The accounting policies of ACNZ; The performance targets of ACNZ as well as other measures by

which its performance may be judged relative to its objectives; The procedures to be followed before ACNZ or any of its

subsidiaries may subscribe for, purchase or otherwise acquire shares in any other company;

Such other maters as may be agreed upon between the board and the shareholding ministers; and

The board’s estimate of the current value of the government’s investment in ACNZ.505

A SCI may be amended by the board at any time subject to prior written notice to, and approval by, the shareholding ministers.506 The requirement of SCIs from the board of ACNZ has been characterized as a compromise between the risk of pressure being put on ACNZ by the shareholder ministers to pursue non-commercial activities and the risk that directors may attempt to limit their accountability for commercial judgments by obtaining blanket ministerial support for their detailed decisions.507 Although SCIs are reviewed and commented upon by shareholding 502 See Notes compiled by Glen McDougall during interviews with staff of CAA New Zealand on April 18th 2005 [hereinafter, Notes of Glen McDougall, 2005]. 503 State-owned Enterprises Act 1986 No. 124, supra note 491, § 14(1). 504 Ibid., § 14(4). 505 See ibid., §§ 14(2) & (3) for a full catalogue of issues that must be specifically addressed in the SCI. 506 Ibid., § 14(5). 507 Memorandum of Doug Andrew, supra note 490.


ministers, they are not “approved” by them and they remain the directors’ plans.508 Apart from the requirement of SCIs, the board of ACNZ is also required, within three months after the end of each financial year, to deliver to the shareholding ministers: a report of the operations of ACNZ during that financial year (annual report); audited consolidated financial statements of ACNZ for the financial year; and the Auditor-General’s report on those financial statements.509 The board must also deliver half-yearly reports of the operations of ACNZ to the shareholding ministers.510 The annual report must contain such information as is necessary to enable an informed assessment of the operations of ACNZ vis-à-vis its SCI for the year under review. It must also state the dividend payable to the government.511 Since ACNZ was incorporated under the Companies Act, it is a reporting entity under the Financial Reporting Act 1993.512 Accordingly, ACNZ’s consolidated financial statements must be completed in accordance with the financial reporting standards established by the Accounting Standards Review Board. Failure to comply with the said standards or to deliver the financial statements within the specified period exposes the directors of ACNZ to fines of $100,000 upon summary conviction.513 In an effort to separate the ANS provider from the regulator, and also to avoid situations of conflict of interest, the Minister of Transport was excluded from holding any shares in, and participating in, the monitoring of ACNZ. Rather, the Minister of Transport sets the overall regulatory environment and specifies the outputs expected from the safety regulator. He is also the prime adviser on issues of airspace allocation and any statutory monopoly position of ACNZ.514 D. Restrictions on Revenue Sources Although ACNZ is a corporatized commercial entity, it is fully funded from the initial investment by the government in purchasing its shares as well as from the revenue generated from its operations. ACNZ has authority to impose charges for the services it provides and has a profit motive and expectation to return dividends to the government. There are no restrictions in the SOEs Act regarding the types of businesses or operations ACNZ may engage in, or the sources from which it may raise its revenue. As a SOE, ACNZ’s primary objective is to operate as a successful and profitable business. Subject to the requirements of the SCI regime and shareholder expectations, the board of ACNZ has freedom and autonomy to make commercial decisions, including decisions on revenue sources, in order to achieve this objective.

508 Ibid. 509 State-owned Enterprises Act 1986 No. 124, supra note 491, § 15(1). 510 Ibid., § 16. 511 Ibid., § 15(2). 512 Financial Reporting Act 1993 No. 106. 513 Ibid., § 36. 514 See Memorandum of Doug Andrew, supra note 490.


E. Access to Capital Markets Notwithstanding any enactment or rule of law, ACNZ may, upon authorization by a resolution of the New Zealand House of Representatives, issue state enterprise equity bonds to any persons at any time.515 For the purposes of the Companies Act [1955 and 1993], the Securities Act 1978 and the Income Tax Act 1994, state enterprise equity bonds issued by ACNZ shall be deemed to be ordinary shares, and the holders thereof, shareholders.516 The bonds are transferable and could possibly be traded in capital markets. However, they do not entitle the holders thereof to vote at meetings of shareholders of ACNZ.517 Apart from the foregoing, there are no further restrictions in the SOEs Act regarding the manner in which the bonds may be issued by ACNZ. Such flexibility could allow ACNZ to raise money from capital markets using the bonds as security. However, as indicated by officials of ACNZ, in practice, a bond issue is not a mechanism that has ever been, or would likely be used, to raise money although ACNZ is allowed to do so by law. F. Safety and Economic Regulation Authorities As an ATC service provider (presently the only one in New Zealand), the safety aspects of ACNZ’s operations are regulated by the Civil Aviation Authority (CAA) under and by virtue of the Civil Aviation Act 1990.518 Safety regulation of ACNZ is specifically carried out by the CAA through certification and periodic auditing under Part 172 of the Civil Aviation Rules. Both the Act and the subsidiary Rules do not make provision for the CAA as safety regulator to direct ACNZ to provide a particular service for safety reasons. If, however, a service is being provided by ACNZ, the CAA has power to specify operating and technical standards for the safety of the said service.519 ACNZ’s naturally monopolistic position in the provision of ANS has been acknowledged in New Zealand. The services provided by the Corporation are subject to the provisions of the Commerce Act 1986.520 Under the Commerce Act, the Commerce Commission of New Zealand has the power to impose price controls in respect of the services provided by ACNZ in the event that there is an abuse of monopoly power by ACNZ. The Commerce Commission has never had occasion to resort to this power as ACNZ’s prices have always been competitive. In an effort to assess what is a reasonable commercial return on capital, ACNZ has adopted “economic value added” (EVA) based accounting. Excess positive EVA over agreed thresholds is remitted to customers by way of a rebate in lieu of price adjustments.

515 State-owned Enterprises Act 1986 No. 124, supra note 491, § 12(1). ACNZ is entitled to issue such equity bonds by virtue of the fact that it is specifically mentioned in Schedule 2 to the Act. 516 Ibid., § 12(2). 517 Ibid., § 12(2). 518 Civil Aviation Act 1990 No. 98. 519 See Notes of Glen McDougall, 2005, supra note 502. 520 Commerce Act 1986 No. 5. This enactment has been referred to as New Zealand’s competition policy.


G. Price and Service Controls ACNZ has authority to set its own charges for the services it provides in line with its commercial goals. However, users of those services have a right to appeal to the New Zealand Commerce Commission established under the Commerce Act in the event of unjustifiable price hikes. Traditionally, ACNZ voluntarily sets its charges in consultation with users of its services.521 H. Appeal Processes Upon enactment of the SOEs Act, a select committee of the House of Representatives was tasked to review the effect of the Ombudsmen Act 1975522 and the Official Information Act 1982523 on the operation of State Enterprises, including ACNZ, and in particular, to state whether both Acts should continue to apply to them. Although the present author could not find a copy of the report of the select committee submitted in 1990, it would appear that the committee decided in favour of the continued application of both Acts to SOEs. This is evidenced by a recent decision of the New Zealand Ombudsman, made under the Official Information Act, requiring ACNZ to release to the media ATC tape recordings (intended solely for safety investigation) of communications with the pilot of an aircraft involved in an accident.524 Thus, any person affected by an administrative decision made by ACNZ may appeal to the New Zealand Ombudsman for an investigation of the said decision.525 Similarly, a person may appeal to the Ombudsman against a decision of ACNZ refusing access to official or personal information requested in accordance with the provisions of the Official Information Act.526 Any decisions or recommendations made by the Ombudsman after the investigation impose a public duty on ACNZ and its directors to act accordingly. I. Liability Protection by Government or Private Insurance After the incorporation of ACNZ, the ATC assets of the Ministry of Transport (Civil Aviation Division) were transferred to it by the Crown. In respect of those assets that were transferred to ACNZ (and any liabilities attached thereto), the Government of New Zealand remains primarily liable to third parties as if the assets (and liabilities) were never transferred, and ACNZ is obliged to indemnify the Government for any liability incurred from such third parties.527 Apart from the foregoing, the Government does not provide any other form of liability protection to ACNZ. As noted, ACNZ is a corporate entity, capable of entering into

521 See Notes of Glen McDougall, 2005, supra note 502. 522 Ombudsmen Act 1975 No. 9. 523 Official Information Act 1982 No. 156. 524 See Notes of Glen McDougall, 2005, supra note 502. 525 Ombudsmen Act 1975 No. 9, § 13. 526 Official Information Act 1982 No. 156, § 28. 527 State-owned Enterprises Act 1986 No. 124, supra note 491, § 23(5)(d).


contracts. It is also obliged under the SOEs Act to carry on a profitable business. In view of the nature of ACNZ’s business, it has every power to negotiate and enter into private insurance contracts for purposes of liability protection. J. Liability to Taxes The SOEs Act does not contain any provisions on the liability of SOEs, including ACNZ, to taxes. However, ACNZ is subject to taxation on its income, as it is a company incorporated in the normal way under New Zealand law. X. South Africa A. Government Ownership and Control In March 1993, the Government of South Africa enacted the Air Traffic and Navigation Services Company Act (ATNS Act)528 to make provision for the establishment of a public company and also for the transfer to the company of certain infrastructure and functions relating to air traffic and air navigation services. The Air Traffic and Navigation Services Company (ATNS) was subsequently incorporated in August 1993 as a limited liability company with shares under the Companies Act, 1973.529 Prior to its creation, air traffic and air navigation services were provided and fully funded by the South African Government through the Department of Transport. Primarily, all shares of ATNS are supposed to be fully held by the Minister of Transport on behalf of the State, although the ATNS Act makes room for the said shares to be disposed of subject to the approval, by resolution, of Parliament.530 Thus, at present, ATNS is fully owned by the Government of South Africa, acting through the Minister of Transport (the Shareholding Minister designated by the President of the Republic).531 Apart from being the Shareholding Minister, the Minister of Transport also doubles as the Executive Authority responsible for ATNS under and by virtue of the Public Finance Management Act (PFMA).532 As such, the Minister is responsible for ensuring that ATNS complies with the provisions of the PFMA as well as with the financial policies of the Government.533 The PFMA requires a shareholders compact between the Minister as Executive Authority and ATNS to be agreed upon; a matter which is still being deliberated upon within ATNS at the time of writing. Under the ATNS Act, the Minister of Transport as portfolio 528 Air Traffic and Navigation Services Company Act, 1993, Act No. 45 of 1993. 529 Companies Act, 1973, Act No. 61 of 1973. 530 Air Traffic and Navigation Services Company Act, 1993, Act No. 45 of 1993 § 3(1) & (2). 531 Ibid., § 3(4). 532 Public Finance Management Act, 1999, Act No. 1 of 1999 (as amended). The Minister of Transport is the Executive Authority responsible to Parliament for ATNS because under the ATNS Act, ATNS falls within the Minister’s portfolio. 533 Public Finance and Management Act, 1999, Act No. 1 of 1999 (as amended), § 63(2).


minister has power to issue orders requiring ATNS to do or not to do anything considered necessary or expedient in the interest of national security or for the purpose of discharging an international obligation of the State.534 Any such orders issued by the Minister of Transport shall not be inconsistent with the provisions of the Aviation Act, 1962535 or the Civil Aviation Offences Act, 1972536 unless such inconsistency is in the interest of national security.537 If, as a direct result of complying with the orders of the Minister, ATNS incurs any costs which it cannot readily recover from users of its services, there is provision under the ATNS Act for the Minister to compensate ATNS from moneys appropriated by Parliament to such extent as may be determined in consultation with the Minister of State Expenditure.538 As specified in the ATNS Act, the objects of ATNS are:

The acquisition, establishment, development, provision, maintenance, management, control or operation of air navigation infrastructures, air traffic services or air navigation services.539

ATNS’ functions are to achieve these objects with the means at its disposal.540 B. Board Independence, Qualifications and Appointing Process As any other limited liability company, ATNS is run by a management team overseen by the Board of Directors. The Board comprises executive and non-executive directors appointed by the Shareholding Minister.541 By law,542 the majority of the directors must be non-executive directors, and the majority of the non-executive directors must be persons who are not officers or employees as defined in section 1 of the Public Service Act, 1984 (Act No. 111 of 1984).543 The Shareholding Minister is required to consult with the appropriate interested parties in appointing non-executive directors who are not officers or employees within the meaning of the Public Service Act.544 Non-executive directors are appointed for specific terms and re-appointment is not automatic, whereas executive directors are appointed for indefinite periods. Presently, the Board of ATNS consists of eight members, seven

534 Air Traffic and Navigation Services Company Act, 1993, Act No. 45 of 1993 § 10(1). 535 Aviation Act, 1962, Act No. 74 of 1962. 536 Civil Aviation Offences Act, 1972, Act No. 10 of 1972 537 Air Traffic and Navigation Services Company Act, 1993, Act No. 45 of 1993 § 10(2). 538 Ibid., § 10(5). 539 Ibid., § 4. 540 Ibid., § 5(1). 541 Ibid., § 2(7)(a). 542 Ibid., § 2(7)(b) & (c). 543 Act No. 111 of 1984 has been repealed in its entirety and replaced by the Public Service Act, 1994, Proclamation No. 103 of 1994. Under the new Act, an employee or officer is defined as a person appointed either permanently or temporarily to a position in a fixed establishment contemplated in section 8 of the Act. 544 Air Traffic and Navigation Services Company Act, 1993, Act No. 45 of 1993 § 2(7)(d).


non-executive members, including the chairperson, and the Managing Director who is the only executive director on the Board.545 “All board members are suitably experienced, have a clear understanding of their role in governance and are not subject to undue influence from management or outside concerns. The non-executive directors are individuals of a high calibre and provide an objective and independent view to the decision-making process.”546 Aside from the foregoing, there are no further provisions in the ATNS Act dealing with the independence of the Board and situations of conflict of interest of directors. Also, the Act does not contain any express provisions regarding the appointment of the Managing Director of ATNS, although in practice, the Managing Director is appointed by the other members of the Board in consultation with the Minister of Transport. It would thus appear that, although ATNS was established as a limited liability company, it is by and large controlled by the Minister of Transport, who doubles as the sole shareholder and the Executive Authority of ATNS. C. Accountability and Transparency Requirements ATNS is required to submit a business plan to the Shareholding Minister not later than three months prior to the commencement of each financial year.547 Each business plan shall cover the immediately ensuing financial year as well as each of the four immediately following financial years, and shall contain prescribed information and such other information as the Shareholding Minister may require.548 Although, the ATNS Act requires that the procedures for approving business plans shall be as prescribed,549 there is no further provision regarding whose duty it is to specifically approve the business plan and also whether it is possible to make changes to the business plan once it is approved. Within three months after the end of each financial year, ATNS is obliged to submit an annual report, including it’s audited and approved financial statements, to the Shareholding Minister.550 The Shareholding Minister is, in turn, required to lay the said annual report before Parliament within 30 days after receipt thereof.551 The PFMA specifies the accounting rules and procedures applicable to ATNS as a public entity. The Board of ATNS, designated as the Accounting Authority for purposes of the PFMA, is required to:

1) keep full and proper records of the financial affairs of ATNS;

545 See Air traffic and Navigation Services (ATSN), “ATNS as Company”, online: Air traffic and Navigation Services <http://www.atns.co.za/1_1corp_profile.html> (date accessed: 4 August 2005) [hereinafter cited as ATNS Corporate Profile]. 546 Air Traffic and Navigation Services (ATNS), Annual Report (2004), online: Air Traffic and Navigation Services < http://www.atns.co.za/1_3a_reports.html > (date accessed: 4 August 2005) at 23 [hereinafter ATNS Annual Report 2004]. 547 Air Traffic and Navigation Services Company Act, 1993, Act No. 45 of 1993 § 7(1). 548 Ibid., § 7(2). 549 Ibid., § 7(3). 550 Ibid., § 8(1). 551 Ibid., § 8(2).


2) prepare financial statements for each financial year in

accordance with generally accepted accounting standards; 3) submit the said financial statements to the auditors of ATNS and

the National Treasury within two months after the end of the financial year; and

4) submit to the Executive Authority, the Auditor General and the National Treasury within five months of the end of the financial year, the annual report of ATNS, the audited financial statements and the report of the auditors on those financial statements.552

It is the duty of the Minister of Transport, as Executive Authority responsible for ATNS, to ensure that these financial requirements are complied with by ATNS. D. Restrictions on Revenue Sources As noted, ATNS is a limited liability company subject to the South African Companies Act. As such, there are no restrictions on its revenue sources, particularly its borrowing powers and foreign currency dealings, save those specified in the ATNS Act. Indeed, the ATNS Act provides that, in order for ATNS to perform its functions or to attain any of its objects, it may, from time to time, with the approval of the Shareholding Minister and the Minister of Finance, raise money by way of loans from any source.553 ATNS’ main source of revenue is the charges it levies on users for the services it provides. The charges cannot be increased unless ATNS has “a permission” to that effect. One other notable statutory restriction on ATNS sources of revenue is reflected in a provision of the ATNS Act which prohibits ATNS from having any financial interest, direct or indirect, in the provision of any air service as defined in section 1 of the Air Services Licensing Act, 1990,554 or in section 1 of the International Air Services Act, 1949.555 Essentially, “air service” is defined in the foregoing enactments, subject to a few exceptions, as “any service operated by means of an aircraft for reward”.556 Thus, ATNS is, by law, restrained from having any financial interest whatsoever in the commercial airline business. Apparently, this provision is intended to forestall any corporate cohesion between ATNS and any of its airline customers, and the possible discrimination against other users of its services that may be associated therewith. E. Access to Capital Markets ATNS’ access to capital markets is limited. Its shares are primarily held by the Shareholding Minister on behalf of the Government of South Africa, and can only be sold or otherwise disposed of with the approval of

552 Public Finance and Management Act, 1999, Act No. 1 of 1999 (as amended), § 55(1). 553 Air Traffic and Navigation Services Company Act, 1993, Act No. 45 of 1993 § 5(3). 554 Air Services Licensing Act, 1990, Act No. 115 of 1990. 555 International Air Services Act, 1949, Act No. 51 of 1949. This Act has since been repealed by, and replaced with, the International Air Services Act, 1993, Act No. 60 of 1993. 556 Air Services Licensing Act, 1990, Act No. 115 of 1990 § 1.


Parliament.557 Although the Government of South Africa has privatized a number of parastatal organizations established around the same time as ATNS, it still retains full ownership of all the shares of ATNS. As such, the shares cannot be publicly traded on capital markets unless and until a Parliamentary resolution to that effect has been passed. Further, although ATNS has unrestricted power to borrow money from any source in order to achieve its objects or to perform its functions, there are no provisions in the ATNS Act relating to the use of its assets as security or guarantee for the repayment of loans. There is also no indication from the ATNS Act as to whether the Government of South Africa, as shareholder, is required to guarantee loans contracted by ATNS, whether such loans are required to fund operations or infrastructure investment.558 Indeed, the Government does not provide Sovereign guarantees for the loans or other liabilities of ATNS. ATNS raises capital on the open market on a commercial basis based on its balance sheet and ability to service debt instruments. In terms of the PFMA, however, ATNS is required to notify the Minister and National Treasury of its borrowing program. F. Safety and Economic Regulation Authorities The responsibility of safety regulation of ATNS remains with the South African Civil Aviation Authority and is carried out under the South African Civil Aviation Authority Act.559 For purposes of economic regulation, ATNS has been brought under the jurisdiction of the Economic Regulating Committee established under the Airports Company Act, 1993.560 The Economic Regulating Committee is appointed solely by the Minister of Transport on the advice of his departmental staff. Persons with legal, financial or transport economics backgrounds have usually been appointed as members. ATNS is prohibited from levying or increasing an air traffic service charge unless it is in possession of a valid written permission issued by the Regulating Committee to that effect.561 To obtain a permission, ATNS must apply for it at the beginning of the third financial year of the period of validity of any previous permission.562 The application must be accompanied by ATNS’ Business Plan covering the financial year in which the application is made as well as any other information requested by the Regulating Committee.563 Upon receipt of the application, the Regulating Committee is required to issue the permission to ATNS within six months. A permission issued by the Regulating Committee is valid for a period of five financial years starting from the beginning of

557 Air Traffic and Navigation Services Company Act, 1993, Act No. 45 of 1993 § 3. 558 Corporatisation of Air Navigation Services, supra note 5 at 29-30. 559 South African Civil Aviation Authority Act, 1998, Act No. 40 of 1998. 560 Airports Company Act, 1993, Act No. 44 of 1993. 561 Air Traffic and Navigation Services Company Act, 1993, Act No. 45 of 1993 § 11(1). 562 Ibid., § 11(2). 563 Ibid., § 11(3) & (4).


the ensuing financial year.564 In the permission, the Regulating Committee is required to determine for each financial year for which the permission is valid: (i) a limit on the total amount that may be levied by ATNS by way of all air traffic service charges; (ii) a limit on the total amount of any particular air traffic service charge or any category of air traffic service charges; or (iii) a limit on the combination of the above.565 In the performance of its functions, the Regulating Committee may consult with such interested parties as it thinks fit,566 and any limits determined in the permission shall be calculated in such manner as the Regulating Committee deems best to:

a) restrain ATNS from abusing its monopoly power while not

placing undue restrictions on its commercial activities;567 b) promote reasonable interests and needs of users of any air

navigation infrastructure or air traffic services;568 c) promote the safe, efficient, economic and profitable operation of

air navigation infrastructure, air traffic services and air navigation services;569

d) encourage timely improvement of air navigation infrastructure so as to satisfy the anticipated demand by users of such infrastructure;570 and

e) ensure that ATNS, after taking into consideration any compensation paid by the State under the Act, is able to finance its obligations and have a reasonable prospect of earning a commercial return.571

ATNS is obliged, at all times, to comply with the terms of any permission issued by the Regulating Committee.572 The terms of a permission may be subsequently amended by the Regulating Committee, subject to the approval of the Minister for Transport.573 The latest permission was issued to ATNS by the Regulating Committee on 1st December 2003. It covers the financial years 2004-05 to 2008-09.574 In the said permission, the Regulating Committee approved tariff increases of 25.6% for the 2004-2005 financial year; however ATNS’ proposed increases have been pegged at only 22% instead.575

564 Ibid., § 11(5) & (6). 565 Ibid., § 11(7)(a). 566 Ibid., § 11(9). 567 Ibid., § 11(10)(a). 568 Ibid., § 11(10)(b). 569 Ibid., § 11(10)(c). 570 Ibid., § 11(10)(d). 571 Ibid., § 11(10)(e). 572 Ibid., § 11(12). 573 Ibid., § 11(11). 574 ATNS Annual Report 2004, supra note 546 at 22. 575 Ibid. at 22.


G. Price and Service Controls In issuing the permission to ATNS, the Regulating Committee has power to prescribe service standards in respect of any air navigation infrastructures, any air traffic services or any air navigation services provided by ATNS, which shall conform to internationally accepted and recommended practices.576 Further, ATNS is statutorily prohibited from changing the level or modifying the structure of any air traffic service charge more than twice within a financial year.577 If ATNS indicates in its Business Plan that it intends to close or sell any air navigation infrastructure, or to terminate or substantially curtail an air traffic service or air navigation service, it is required to submit a copy of the said business plan to the Regulating Committee at the same time as it submits it to the Shareholding Minister.578 Upon receipt of the Business Plan, the Regulating Committee is required to consider and evaluate the implications of the intended action of ATNS for the transport system, users of the infrastructure or service concerned, and the affected institutions or persons and to make recommendations to the Shareholding Minister.579 ATNS cannot carry out the intended action unless with the approval of the Shareholding Minister, or alternatively, unless it has indicated its intentions at least three financial years prior to taking such action.580 If, at the instance of the Minister of Transport, ATNS continues to operate an infrastructure or service that it intends to close or terminate, the Minister may, with the concurrence of the Minister for State Expenditure, compensate ATNS from moneys appropriated by Parliament.581 These provisions are designed to ensure that service in thin traffic yet important markets are not cut off by ATNS solely on the basis of commercial viability. H. Appeal Processes Any person who is aggrieved by the failure of ATNS to comply with the provisions of the ATNS Act, in particular, sections 5(2), 11(1) or 11(12), may lodge a complaint accompanied by proof of the said failure with the Regulating Committee.582 The Regulating Committee is required to investigate any such complaint upon receipt thereof. The Committee may also, by itself, initiate investigations if it has reasonable grounds to suspect that ATNS has failed to comply with the provisions of the Act.583 Following the investigation, if the Committee is satisfied that the alleged breach has indeed occurred, it may:

576 Air Traffic and Navigation Services Company Act, 1993, Act No. 45 of 1993 § 11(7)(b). 577 Ibid., § 5(2)(e). 578 Ibid., § 12(1). 579 Ibid., § 12(2). 580 Ibid., § 12(3). 581 Ibid., § 12(4). 582 Ibid., § 13(1). 583 Ibid., § 13(2).


a) direct ATNS in writing to comply with the provisions in

question within such period of time as it may determine;584 b) declare as unlawful by notice in the Gazette any action taken by

ATNS in relation to its non-compliance with the said provisions;585 c) direct ATNS in writing to compensate any person for loss

sustained or damage done as a result of such action;586 and d) withdraw or suspend any permission issued to ATNS by the

Committee.587 The Committee is, however, prohibited from taking the foregoing measures unless it has notified ATNS of its intention to do so and afforded ATNS the opportunity to address representations to it concerning the non-compliance in question.588 I. Liability Protection by Government or Private Insurance By a transfer agreement between the Minister of Transport and ATNS, ATNS inherited the assets, liabilities, rights and obligations of the State necessary for the effective maintenance of air navigation infrastructures and the provision of air navigation services. In relation to these transfers, the ATNS Act provides that any litigation resulting from any cause of action in relation to the maintenance of an air navigation infrastructure or the provision of an air traffic service or an air navigation service transferred to the company which arose: (a) before the date of transfer, shall be conducted by or against the State as the case may be; and (b) on or after the date of transfer, shall be conducted by or against the company.589 As such, ATNS cannot avail itself of any government protection from liability save where the cause of action dates before the transfer date. There are no express provisions of the Act requiring ATNS to contract for private insurance against liability. However, ATNS is required to conduct its business in such a manner that the national interest is not jeopardized.590 Accordingly, risk management features prominently on the agenda of the Board of Directors. One of the three permanent committees established by the Board is the Audit and Risk Committee, and its major functions include overseeing the management of the risk strategy and insurance portfolio of ATNS.591 J. Liability to Taxes There are provisions in the ATNS Act exempting ATNS from stamp duties, transfer duties and registration fees payable with respect

584 Ibid., § 13(3)(a). 585 Ibid., § 13(3)(b). 586 Ibid., § 13(3)(c). 587 Ibid., § 13(3)(d). 588 Ibid., § 13(4). 589 Ibid., § 6(11). 590 Ibid., § 5(2)(c). 591 ATNS Annual Report 2004, supra note 546 at 24.


to the assets that were transferred to it.592 Beyond these, there are no provisions in the ATNS Act dealing with the tax liability of ATNS. It appears from the financial statements of the company that, just like any other company, ATNS is subject to taxation.593 ATNS’ tax liability is assessed by the South African Revenue Services in the same manner as any other limited liability company in South Africa. XI. Switzerland A. Government Ownership and Control The Federal Constitution of the Swiss Confederation stipulates that legislation pertaining to aviation and space travel is a federal matter.594 The Federal Aviation Act595 and the Federal Ordinance on Air Navigation Services596 set forth the mandate of Skyguide (formerly Swisscontrol), which is responsible for providing civil and military air navigation services (ANS) for airspace over Switzerland and at and around Zurich, Geneva, Bern, and Lugano airports. Skyguide is a non-profit public limited company that is over 99.9% owned by the Swiss Federation. State ownership is exercised through the Federal Department of Environment, Transport, Energy and Communication (DETEC). DETEC must approve fees, strategic goals, and board appointments. Skyguide’s mandate requires it to ensure the safe, smooth and cost-effective management of Switzerland’s air traffic, and to provide:

civil and military air traffic control; telecommunications services; aeronautical information service; and technical service for installation, operation and maintenance of

air traffic control systems. 597

For military aviation, the Air Force Command approves the conduct of military missions, and then hands over ANS to Skyguide. The regional airfields at Grenchen, St. Gallen-Althenrhein and Les Eplatures provide their own local air traffic management (ATM) services on behalf of the Skyguide. Skyguide is also responsible for the provision of air navigation services in the air-space of certain adjoining regions in neighbouring countries (Austria, France, Germany, and Italy). 45% of the traffic volume (flight kilometer) controlled by Skyguide is situated abroad. 598

592 Air Traffic and Navigation Services Company Act, 1993, Act No. 45 of 1993 § 6(12). 593 ATNS Annual Report 2004, supra note 546, Financial Statements. 594 Federal Constitution of the Swiss Confederation, of 18 April 1999 (version of 18 September 2001), Art. 87, online: Swiss Embassy in Washington, DC <http://www.swissemb.org/ legal/const.pdf> (date accessed: 4 August 2005). 595 Federal Aviation Act, Art. 40. See “About skyguide”, online: Skyguide <http://www. skyguide.ch/en/AboutSkyguide> (date accessed: 4 August 2005). 596 Federal Ordinance of Air Navigation Services, Art. 2. See “About skyguide”, online: Skyguide <http://www.skyguide.ch/en/AboutSkyguide> (date accessed: 4 August 2005). 597 Ibid., Art. 40. 598 Skyguide, “Fact Sheet”, online: skyguide <http://www.skyguide.ch/en/Dossiers/ Dossier_LUPO/Factsheet_LUPO_2005_05_26_en.pdf> (date accessed: 5 August 2005).


1. Other Services In addition to the responsibilities mandated by the law, Skyguide pursuant to its articles of incorporation is allowed to undertake activities other than the provision of ATM services if they are related to its core business. Consequently, Skyguide offers a wide range of other products, which include:

i. ATC training; ii. Fast Time Simulation Services;

iii. PAN-OPS Calculations; and iv. Consulting.599

2. Brief History Since the inception of provision of air navigation services (ANS) over Switzerland’s airspace in 1922, ANS have been provided by corporate entities. In 1922, the Swiss telegraphy administration entered into an agreement with Marconi’s Wireless Telegraph, an English company, which led to the foundation of the Marconi Radio AG on 23rd February. On 10th May 1928, at the General Meeting of the Shareholders, Marconi Radio AG is renamed as Radio Schweiz AG (RSAG). RSAG provided air navigation services until the end of 1987 when it was dissolved, and responsibilities were handed over to a newly formed company, Swisscontrol. Established as the Swiss Air Navigation Services Ltd, on 1 December 1987 under the Swiss private law, Swisscontrol was a not-for-profit joint-stock company. Under the law, at least 70% of Swisscontrol’s shares must be held by the government. Until 1996, the Swiss government retained 71% of the shares and the company remained financially dependent on the government.600

599 Corporatisation of Air Navigation Services, supra note 5. 600 Skyguide, “About skyguide”, online: skyguide<http://www.skyguide.ch/en/About Skyguide/> (date accessed: 5 August 2005).


In 1996, the government increased the shareholders’ equity from 100,000 CHF to 20 million CHF, and increased its own share from 71% to 99.85%. The remaining 0.15% of shares was owned by Swiss airports, aircraft operators, aviation related organizations and staff organizations. At the same time, Swisscontrol became a financially independent organization with greater flexibility to adapt its charges and investment policy. The financial independence of the company required the amendments in:

i. the Swiss Federal Aviation Act of 21 December 1948;

ii. the Swiss Federal Council’s Ordinance on Air Navigation services of 18 December 1995; and

iii. the Swiss federal department of transport, communications and energy’s ordinance on the transfer of air navigation duties and the calculation of air navigation charges and fees of 19 December 1995.

This was formally approved by the Swiss government, and by parliament. Swisscontrol became financially autonomous at the same time as other enterprises providing services for the Swiss Confederation – a move aiming at broader financial independence across the public sector. On 11 January 2001, Swisscontrol’s name was changed to Skyguide, and its mandate was expanded, to include military air traffic control (ATC) in addition to civil ATC.601 3. Share Capital

On February 6, 2004, the share capital of Skyguide was increased to CHF 100 million. The majority underwriter of this increase (99.975 percent) is the Swiss Confederation. The capital was paid-in by conversion of loans from the Swiss Confederation (posted as “short-term debt” to liabilities on the balance sheet as at 31 December 2003) in the amount of CHF 49,987,500. The balance of the loan, i.e. CHF 12,500, was reimbursed to the Confederation on the same date. As of the end of December 2004, the Swiss Confederation held 99.91375 percent of the shares. The share capital is CHF 100,000,000 and is divided into 10,000,000 registered fully paid-up shares, with a par value of CHF 10 each. No preferred shares have been issued.602 4. Group Structure and Shareholding The Skyguide group includes Skyguide subsidiaries Skysoft-ATM SA, (an ATM software company founded on January 25, 2001 and 51 percent Skyguide-owned), Swisscontrol SA, (founded on April 20, 2001 and

601 Corporatisation of Air Navigation Services, supra note 5 at 9; see Skyguide, “About skyguide”, online: skyguide <http://<www.skyguide.ch/en/AboutSkyguide/Geschichte Skyguide> (date accessed: 5 August 2005). 602 Ibid.


100 percent-owned) and Skynav SA, Belgium (founded on January 3, 2001 and 100 percent-owned). All Skyguide’s subsidiaries are unlisted companies which are subject to civil law. B. Qualifications and Appointment Process The Board of Directors is comprised of a maximum of seven members, each of whom is elected by the General Assembly of Shareholders for a term of three-years. Board members may be re-elected for a maximum of four terms in office and must retire at the age of 65. The majority of Board members must be Swiss nationals, and must be resident in Switzerland. The Board of Directors is responsible for the management of the company and is empowered to take decisions on all business matters which are not within the sole responsibility of the General Assembly of Shareholders. Under the company’s bylaws, the Board of Directors may delegate certain business to committees within its ranks. The Board currently has four committees:

the Projects Committee, which is commissioned, inter alia, to assist and support the company’s technical and operations project teams and draw up corresponding recommendations for the consideration and decision of the full Board;

the Finance & Audit Committee, which is tasked with preparing Board business in these fields (business development plan, budget, annual financial statements, financing issues, external auditors and analyses of internal controlling systems);

the Compensation Committee, which is empowered to determine the compensation paid to all Board members and the CEO. The Compensation Committee also considers the compensations proposed for Executive Management members and submits these for decision to the full Board;603 and

the Public Affairs Committee, the role of which is to establish a discussion platform with opinion leaders and stakeholders.

As the majority shareholder, the Swiss Confederation has the power to control all the decisions taken at the company’s general meetings, including the election of the members of the Board of Directors.604 Previously, half of the board seats were reserved for the government, but recent legislative changes reserve no seats for the government – or indeed for airlines or airports – and only provide explicitly for a representative of the military and a representative of employees.605 In practice, the 5 other members of the Board are drawn from unrelated private and public sector entities.

603 Skyguide, Annual Report, 2004, online: skyguide <http://www.skyguide.ch/en/Med iaRelations/Publications/downloadables/skyguide_AR_04_E%20wo_ills.pdf> (date accessed: 23 July 2005) [hereinafter Skyguide, Annual Report, 2004]. 604 Ibid. at 56. 605 Notes of Glen McDougall (5 July 2005).


C. Accountability and Transparency Requirements Financial control is the responsibility of the Controlling unit.606 The unit monitors observance of the five-year finance plan (which is part of the overall business development plan), the annual budget and the executive information system (a quarterly budget reassessment) in collaboration with its partners within the various divisions. The annual budget is the prime foundation on which route and approach charge levels are set. Skyguide is also subject to regular TriNET audits of its air traffic management activities.607 TriNet is a trinational audit organization formed in 1999 among Swiss, Austrian and German air traffic control services to perform independent analyses of technical systems and operational procedures. The annual financial reports are drawn up in accordance with the Swiss law. In 2004, Skyguide adopted the International Financial Reporting Standards (IFRS). The only requirement that Skyguide is yet to meet in order to comply with all IFRS norms is IAS 19, which relates to employee benefits. Skyguide’s employee pension plan does not yet meet the full funding requirements of IAS 19.608 PricewaterhouseCoopers AG have been Skyguide’s statutory auditors since 1996 and its group auditors since 2001. There is also a service level agreement with the military, which conducts audits of its own accounts. D. Restrictions on Revenue Sources Skyguide is a not-for-profit corporation. Thus, no dividends are paid to shareholders.609 Skyguide is obliged to provide some services that cannot be performed on a cost recovery basis (e.g. air navigation services at smaller airfields), or for which they are not compensated at all (e.g. air navigation services within German airspace). However, Skyguide now has flexibility to buildup reserves during good years to compensate for losses in bad years. National law allows Skyguide to buildup reserves, but currently international law does not. Therefore, Skyguide cannot make use of this flexibility for the time being. E. Access to Capital Markets Skyguide has full access to capital markets subject to its bylaws and securities regulation. It can raise funds by issuing bonds or by increasing its share capital.610 606 The Controlling unit is part of the Finances, Controlling & Procurement division of Skyguide, the head of which is a member of the .Executive Management Committee. See Skyguide, Annual Report, 2004, supra note 603 at 31-37. 607 Skyguide, Annual Report, 2004, supra note 603. 608 Ibid. 609 See Skyguide, “About skyguide”, online: skyguide<http://<www.skyguide.ch/en/ AboutSkyguide/GeschichteSkyguide> (date accessed: 5 August 2005). 610 Skyguide, Annual Report, 2004, supra note 603 (In 2004, Skyguide issued and placed bonds in the market).


F. Safety and Economic Regulation Authorities 1. FOCA: Safety Regulator The Federal Office for Civil Aviation (FOCA), representing the Swiss government, regulates the safety management of Skyguide. FOCA is part of the Department of Environment, Transport, Energy and Communication. Skyguide has a mandate to establish its own internal safety management system (SMS) which works in accordance with principles established by EUROCONTROL and operates in conjunction with the SMS established by the FOCA. Safety performance is measured according to the guidelines issued by EUROCONTROL in its ESARR 2 (EUROCONTROL Safety Regulatory Requirements) document, issued in November 1999, ESARR 3 (July 2000) and ESARR 4 and 5 (December 2000).611 Safety oversight became a key issue after the 2002 Üeberlingen mid-air collision.612 The 2003 REACH Report that followed on that incident focused a number of its recommendations on the relationship between FOCA and Skyguide. In particular, it found that FOCA needed to implement a new surveillance regime for the oversight of Skyguide and to assess and target the staffing levels necessary to do so. At the same time, it was recommended that Skyguide increase the level and expertise of staffing within its own safety management department. Until 1996, Skyguide was essentially self supervised through its Board, in accordance with the Swiss legislation (Swiss Federal Ordinance on Air Navigation Services RS. 748.132.1, Art. 5). In 1996, when the company acquired financial autonomy accordance with Art. 3 of the Federal Law on Aviation, the competence for supervision was formally returned to the FOCA. FOCA representatives continued to sit at the Board, but only to represent the owner’s interest, until they withdrew altogether in June 2000, 2 years before the Ueberlingen accident. Furthermore, there were in principle limits upon self-regulation even before the financial autonomy of Skyguide in 1996. Swiss legislation prescribed that ICAO SARPS and EUROCONTROL provisions applied directly for the purpose of implementing Air Navigation Services and that the FOCA was responsible for producing complementary instructions if and as required (Art. 4). Since 1 January 2005, FOCA is working in its new form. There is now a strict separation between safety-related activities and those dealing with aviation development. FOCA has been removed from the Skyguide Board, but arguably it does not yet have the knowledge skills to fulfil its oversight mandate. This will take time but will be helped by budget increases for FOCA since Üeberlingen. 613

611 Corporatisation of Air Navigation Services, supra note 5 at 9. 612 See REACH Report, supra note 478. 613 Federal Office of Civil Aviation (FOCA), online < http://www.aviation.admin.ch/ index.html?lang=en > (date accessed: 5 August 2005).


Source: Federal Office of Civil Aviation (FOCA)’s website614 2. Economic Regulator In principle, DETEC is the economic regulator for air navigation service provider. However, since 1996, Swisscontrol and later Skyguide have full financial autonomy. It can set rates for its services, subject however to ICAO and Eurocontrol’s s rules related to route charges (route charges are approved by Eurocontrol).615 Given that the Swiss Confederation, represented through DETEC, is the majority shareholder of Skyguide, rates set by Skyguide has the approval of DETEC, which it does formally for terminal charges only. Before such rates are approved by DETEC, a price ombudsman is consulted during the approval process for terminal charges. G. Price and Services Control DETEC is empowered to regulate prices. However, in practice it does so only on an ad hoc basis. DETEC tends to look at variations in charges over time, but does not explore in depth underlying reasons for any changes. It does put pressure on Skyguide to lower fees, as it did for example following recent significant increase in terminal charges.

614 Federal Office of Civil Aviation (FOCA), online < http://www.aviation.admin.ch/ bazl/ebene3/00162/index.html?lang=en > (date accessed: 5 August 2005). 615 The annual budget is the prime foundation on which route and approach charge levels are set.


H. Appeal Processes

Any dispute between Skyguide and its customers may be resolved by courts or arbitration. I. Liability Protection by Government or Private Insurance Liability protection for Skyguide is provided by private insurance. J. Rationale for Corporatization The rationale for change in 1988 to Swisscontrol was that from 1948 the Swiss Confederation and the airports were responsible for paying air navigation services, whereas from 1988 this policy changed and the fees were charged to users. To facilitate this change, a new company was formed. Established as the Swiss Air Navigation Services Ltd, on 1 December 1987 under the Swiss private law, Swisscontrol was a not-for-profit joint-stock company. Under the law, at least 51% of Swisscontrol’s shares must be held by the government. 616 Despite being incorporated as the joint-stock company, the finances of Swisscontrol were subject to state approval, and user fees accrued to the state. The result was an unsatisfactory arrangement, where Swisscontrol could not decide itself on investment and was unable to establish cost control resulting in 100% increase in user charges.617 The situation prevailed until 1996, when the government decided to give full financial autonomy to the company while at the same time it increased shareholders’ equity from 100,000 CHF to 20 million CHF, and its own share from 71% to 99.85%. The change in name to Skyguide in 2001 was meant to signal an expanded mandate that now includes military as well as civilian ANS. The most recent changes to Board structure and FOCA supervision were a response to a perceived increase in accidents, notably after the 2002 Üeberlingen mid-air collision.618 It was concluded that airlines had effectively taken over the management of the Board through their representatives, leading to a short term time horizon for planning and an emphasis on cost-cutting rather than investment. The current Board structure places Skyguide at arm’s length from its revenue base and from safety oversight.

616 See Skyguide, “About skyguide”, online: skyguide<http://<www.skyguide.ch/en/ AboutSkyguide/GeschichteSkyguide> (date accessed: 5 August 2005). 617 Glen McDougall, “Skyguide Switzerland – Legal Framework” (5 July 2005). 618 See REACH Report, supra note 478.


K. Compliance with ICAO Recommendations

ICAO Recommendations Compliance Remarks Organizational Structure Private

Company 99% Government-owned

Organization be subject to State obligation under the Chicago Convention

Yes Federal Aviation Act and Ordinance mandate Skyguide to provide the ANS on behalf of Swiss government.

Board of Directors Yes Organization Self financing Yes Commercial accounting standards Yes Organization Liable to Business taxes

No except for VAT

Government as Economic Regulator619

Yes DETEC (Approval authority, is however, wielded sparingly.

Government as Safety Regulator Yes FOCA Dispute Resolution

XII. The United Kingdom A. Government Ownership and Control The United Kingdom’s National Air Traffic Services Limited (NATS) was the first national air traffic provider in Europe to be run by the private sector, albeit only partially. Its development into such an entity is worthwhile reviewing. Originally, under section 72 of the UK Civil Aviation Act 1982, the obligation of providing air navigation services (ANS) was given to the UK Civil Aviation Authority (CAA), a division of the UK Government.620 To provide air navigation services, the CAA established National Air Traffic Services Limited (NATS) as a full public sector entity that was part of the UK Government’s organization.621 NATS went through a two-step process of transformation by becoming first commercialized and then partially privatized. First, in 1996, NATS was changed into a corporation with 100 percent of the shares owned by the CAA. Second, with the adoption of the Transport Act of 2000, NATS became effectively partially privatized in 2001 with the adoption of the Public-Private Partnership (PPP) model. This model involved 51 percent of the company’s shares being sold to the private

619 Int’l Civil Aviation Org., ICAO’s Policies on Charges for Airports and Air Navigation Services (ICAO Doc. 9082/7 7th ed. 2004), § 15.


620 Schubert, 2003, supra note 321 at 68. 621 Ibid.


sector while the UK Government retained 49 percent ownership.622 NATS operates under a 30 year licence from the CAA.623 As a result of PPP, NATS has become subject to four key legal constraints: the Transport Act, the NATS Licence, the Strategic Partnership Agreement and by changes to the Air Navigation Order. Today, NATS Holdings is a Public-Private Partnership, operating separate from the UK CAA. NATS Holdings includes 4 partners: (1) the Airline Group holds a 41.9% stake (this is a consortium of seven UK airlines: British Airways, bmi British Midland, Virgin Atlantic, Britannia, Monarch, EasyJet and Airtours); (2) NATS staff holds 5%; (3) the UK airport operator, British Airports Authority (BAA plc) holds 4.2%; and (4) the UK Government holds 48.9% and a “golden share”. 624 In turn, NATS Holdings owns 100% of the Shares of NATS. NATS itself controls 100% each of two operating companies/subsidiaries: (1) NATS En Route plc [NERL] [for en-route, oceanic and military services] that is subject to economic regulation by the CAA; and (2) NATS Services Ltd [for terminal and commercial activities] that does not hold a CAA Licence and thus not only is unable to provide en route services but also is unregulated by the CAA.625 It should be noted that NERL was obliged to put into place procedures to ensure that transactions between each economically regulated business and every other activity are carried out on an arm’s length, commercial basis and without cross subsidy. Consequently, NATS must not allow its “monopoly” licensed activities [within its NERL subsidiary] to support other activities.626 NATS provides air traffic control services to aircraft flying in UK airspace, over the eastern part of the North Atlantic, en route and terminal manoeuvring traffic, and 14 major airports including Heathrow, Gatwick, Stansted, Birmingham, Manchester and Glasgow (each airport contract is won through competitive bidding).627

622 Ibid. 623 See UK Civil Aviation Authority (CAA), “Air Traffic Services Licence for NATS (en Route) PLC” (including all modifications at 1 July 2005), online: Civil Aviation Authority <http://www.caa.co.uk/docs/5/ergdocs/nerlicence_july05.pdf> (date accessed: 5 August 2005). 624 See the National Air Traffic Services (NATS) website at <http://www.nats.co.uk/> (date accessed: 24 July 2005). 625 Civil Aviation Authority (CAA), “In Focus, National Air Traffic Services: Price Review” (30 March 2004) at 1 on <http://<www.caa.co.uk/docs/5/ergdocs/ infocus_issue1.pdf> (date accessed: 15 August 2005). NERL holds the Licence and provides UK en route, Oceanic, North Sea helicopter and London terminal approach services together with services under the contract with the Ministry of Defence. NERL secured from the original NATS the key assets needed to provide services covered by the Licence. NATS (Services) Limited (“NSL”) provides airport terminal services and may undertake new business activities. 626 National Air Traffic Services (NATS), Update Issue 1/2001. 627 See the National Air Traffic Services (NATS) website at <http://www.nats.co.uk/> (date accessed: 24 July 2005).


The Transport Act prohibits any entity from providing air traffic services unless it holds a licence or has an exemption from this prohibition. In practice, notably en route services require a licence. Other services benefit from a general exemption.628 The Transport Act also imposes general duties on a licence holder to have a safe, efficient and co-ordinated system for providing services; and to take reasonable steps to ensure current and future demand for services is met.629 NATS was awarded a licence containing various constraints on how the holder can operate including, inter alia:

A requirement to provide UK en route, Oceanic, North Sea

Helicopter and London TMA approach services Separate controls on charges for each of those services Restrictions on the licensee carrying on significant business other

than those services Requirements on the licensee to have those assets needed for its

key activities, and controls on the way in which such assets are dealt with

Restraints on the licensee’s dealings with associated companies (effectively, all such transactions must be on an arms length basis and on normal commercial terms)

A requirement to prepare Regulatory Accounts to ensure the finances of each economically regulated activity are individually transparent

A prohibition on cross subsidies between any business which is the subject of an individual charge cap and any other business

Restrictions on the use of information derived from the en route businesses.630

The Transport Act also provides for the possibility of NATS being given Directions on environmental issues and national security matters.631 B. Qualifications and Appointing Process 1. Board Membership The NATS Board now comprises a non-executive Officer, Director International Affairs, Finance Director, and 9 non-executive Directors [independent of the company management] including 3 Partnership Directors [appointed by the UK Government shareholder] and 4 other non-executive directors, including the International Air Transport Association (IATA) representative appointed by the Airline Group, and 2 non-executive directors appointed by the British Airport Authority (BAA). The Airline Group can, in principle, name any number of board

628 National Air Traffic Services (NATS), Update Issue 1/2001. 629 Ibid. 630 Ibid. 631 Ibid.


directors to fill in gaps in expertise.632 The Airline Group chooses the chair of the board; however, the government can veto the choice.633

2. Board Functions Board functions include the approval of the company’s strategic and operating plans and long term investment plan, major items of capital expenditure, oversight of safety, operational and financial performance, and the regular review of the effectiveness of the group’s system of internal controls. The Board also makes an ongoing review of key commercial and financial risks and those relating to the regulatory environment. 3. Board Committee Structure There are 5 committees, operating within approved terms of reference. The committee structure comprises the following:

Chairman’s Committee Audit Committee Remuneration Committee Safety Review Committee Nomination Committee.

There is also a Group Executive that includes the members of the top management team. C. Accountability and Transparency Requirements Under the Transport Act 2000, the Government issued a licence to NATS (En Route) plc (NERL) to provide en route air traffic services in the UK. The Act gives the CAA the role of economic regulator of NERL, as will be further discussed below. The CAA discharges this function primarily through monitoring and enforcing the conditions in the licence and through modifications to the licence.634 Examples of accountability and transparency being assured are as follows:

NERL is required by Condition 16 of its licence to produce a code of practice setting out its methods and procedures for consulting users and for handling and responding to user complaints. The CAA has approved NATS’ code of practice insofar as it applies to NERL.635

The CAA has published procedures on how the direct users of NERL should make a complaint where a breach of a condition in NERL’s air traffic services licence may have occurred. 636

632 See G. McDougall, MBS Ottawa, “Notes on NATS UK-Legal Framework” (7 July 2005). 633 Ibid. 634 See Civil Aviation Authority (CAA), “Economic Regulation: NATS Licence”, online: Civil Aviation Authority (CAA) < http://www.caa.co.uk/default.aspx?categoryid=5& pagetype=90&pageid=585> (date accessed: 10 August 2005). 635 Ibid. 636 Ibid.


The CAA has published a consultation document setting out its proposed policies for monitoring and enforcing NERL’s licence. This follows a document published in January 2001 on the process and procedures the CAA adopts in relation to the licence and to the regulation of air traffic services more generally. After considering responses to its consultation the CAA published its statement of policies.637

NERL is required by Condition 10 of its licence to submit to the CAA each year a Service and Investment Plan (SIP). The CAA has approved the form, scope and level of detail of the SIP produced in March 2005, that covers the period to 2010/11.638

The CAA has published a notice regarding NERL’s compliance with Condition 6 of its licence (under section 22(11) of the Transport Act 2000) concerning regulatory accounting. The licence requires NERL to demonstrate the financial performance of those activities that are the subject of separate economic regulation by way of regulatory accounts. 639

The CAA has published a notice regarding NERL’s compliance with Conditions 2 and 5 of its licence (under section 22(11) of the Transport Act 2000) with respect to the Flight Information Service.640

The CAA must approve key personnel in NATS (as with airlines) such as the Director of Safety.641

The CAA has the right to second two experts from NATS as specified in the NATS licence (Condition 15). This solves some of the difficulties in obtaining expertise in the regulatory group.642

D. Restrictions on Revenue Sources NATS is authorized to set air navigation service charges on airlines and aircraft operators [i.e. establish its revenues] sufficient not only to recover all the costs of providing its services [including debt service costs] but also to make a profit. E. Access to Capital Markets An important rationale for creating the PPP related to NATS was to remove corporation debt from the public accounts, and for the UK Treasury to earn a one-time cash injection from the sale proceeds.643 Furthermore, the PPP was considered a good mechanism to put NATS on a more commercial footing and to provide it with the ability to secure private financing in order to enable it to handle growing air traffic

637 Ibid. 638 Ibid. 639 Ibid. 640 Ibid. 641 G. McDougall, MBS Ottawa, “Notes on NATS UK-Legal Framework” (7 July 2005). 642 Ibid. 643 The UK Department for Transport provides rationale for the creation of a PPP in its document “A Public Private Partnership for National Air Traffic Services Ltd.”, online: Department for Transport <http://www.dft.gov.uk/stellent/groups/dft_aviation/docum ents/page/dft_aviation_503481.hcsp> (date accessed: 23 July 2005).

http://www.caa.co.uk/docs/5/ergdocs/section22noticemarch03.pdf





control demand in the UK.644 NATS’ NERL division is unusually “high geared” – in other words, it has an unusually high level of debt with relatively little equity such that this places limits on the risks it can bear. This places restrictions on incentive-based regulation that the CAA might apply.645 F. Economic and Safety Regulation Following the separation of National Air Traffic Services from the UK Civil Aviation Authority (CAA) in 2001, the CAA is now the UK’s independent aviation regulator that as a single specialist body incorporates all civil aviation regulatory functions -- economic regulation, safety regulation, airspace policy, and consumer protection. It should be recalled that the CAA is a public corporation that was originally established by Parliament in 1972 as an independent specialist aviation regulator and provider of air traffic services.646 Today, it only retains its aviation regulator function [NATS is the service provider] being independent of both the Department for Transport647 and political interference.648 1. Economic Regulation As mentioned earlier, NATS has two operating companies/subsidiaries: (1) NATS En Route plc [NERL] [for en-route, oceanic and military services] that is subject to economic regulation by the CAA and is our focus here; and (2) NATS Services Ltd [for terminal and commercial activities] is a company in the NATS group that does not hold a licence (and thus will not be able to provide en route services) is unregulated by the CAA and not our concern here. The Transport Act 2000 authorized the Government to issue a licence to NATS (En Route) plc (NERL) to provide en route air traffic services in the UK. This Act gives the CAA the function of economic regulator of NERL – this function being exercised mainly through monitoring and enforcing the conditions in the

644 Civil Aviation Authority (CAA), “In Focus, National Air Traffic Services: Price Review” (30 March 2004) at 1 on <http://<www.caa.co.uk/docs/5/ergdocs/infocus_ issue1.pdf> (date accessed: 15 August 2005). 645 Ibid. 646 See Civil Aviation Authority (CAA), “Economic Regulation: NATS Licence”, online: Civil Aviation Authority (CAA) < http://www.caa.co.uk/default.aspx?categoryid =5&pagetype=90&pageid=585> (date accessed: 10 August 2005). The UK Government requires that the CAA’s costs are met entirely from its charges on those whom it regulates. Unlike many other countries, there is no direct Government funding of the CAA’s work. 647 The railway regulation in the UK had set a poor example of having 5 regulators who did not communicate well with each other. Consequently all aviation regulators were incorporated within a single Civil Aviation Authority. G. McDougall, MBS Ottawa, “Notes on NATS UK-Legal Framework” (7 July 2005). 648 G. McDougall, MBS Ottawa, “Notes on NATS UK-Legal Framework” (7 July 2005). It was also decided to separate the CAA from political influence – there is a separate board and a requirement to act independently. While political interference has significantly been reduced, there is always the possibility of interaction between Ministers and Board members. Moreover, the military has a seat on the CAA Board and can require a CAA decision to be referred to the UK Government if it disagrees with a Board decision. However, to date this has not happened, even though such a possibility acts as a safety net. Decisions can be judicially reviewed. Ibid.


Licence649 and through modifications to the licence.650 NERL is subject to active economic regulation and price-capping. Moreover, the licence specifies price controls for oceanic charges.651 Specifically, NERL is subject to regulation by the Economic Regulation Group (ERG) of the CAA that regulates airports, air traffic services and airlines and provides advice on aviation policy from an economic standpoint. 652 2. Safety Regulation Continued safety regulation by the CAA was an important issue addressed by the UK Government at the time of the creation of the PPP model since there was concern whether a private-controlled NATS [with a profit motive] was incompatible with safety. It became essential that safety regulation and service provision were separate functions carried out by separate entities. While service provision remains NATS responsibility, safety regulation continues to be carried out from within the public sector, by the CAA through its Safety Regulation Group (SRG).653 There are significant protections for safety in the Transport Act 2000654 itself including:

sections 1 and 2 enshrine the paramountcy of safety by placing it ahead of all other regulatory considerations for both the Government and the CAA;655

section 8 imposes an absolute duty on holders of air traffic services licences to provide a safe system;656

649 Civil Aviation Authority (CAA), “Economic Regulation: NATS Licence”, online: Civil Aviation Authority (CAA) < http://www.caa.co.uk/default.aspx?categoryid=5&page type=90&pageid=585> (date accessed: 10 August 2005). 650 Ibid. For details on the licence and the minor modifications to the NERL licence made in May 2005 by the CAA. UK Civil Aviation Authority (CAA), “Air Traffic Services Licence for NATS (en Route) PLC” (including all modifications at 1 July 2005), online: Civil Aviation Authority <http://www.caa.co.uk/docs/5/ergdocs/nerlicence_july05.pdf> (date accessed: 5 August 2005). 651 G. McDougall, MBS Ottawa, “Notes on NATS UK-Legal Framework” (7 July 2005). 652 Civil Aviation Authority (CAA), “Economic Regulation: Structure”, online: Civil Aviation Authority (CAA) < http://www.caa.co.uk/default.aspx?categoryid=5&page type=90&pageid=660> (date accessed: 10 August 2005). ERG’s main functions/tasks are to promote liberalization through the removal of Government-imposed restrictions to entry to the airline market and to facilitate the optimal supply and regulation of aviation infrastructure. ERG acts as expert adviser to the Government and collects, analyses and publishes statistical information on airlines and airports. 653 See Department for Transport, “A Public Private Partnership for National Air Traffic Services Ltd.”, online: Department for Transport <http://www.dft.gov.uk/stellent/groups/ dft_aviation/documents/page/dft_aviation_503481.hcsp> (date accessed: 23 July 2005). 654 Ibid. 655 Transport Act 2000, Art. 1. (1) provides: “The Secretary of State must exercise his functions under this Chapter so as to maintain a high standard of safety in the provision of air traffic services; and that duty is to have priority over the [other functions…and] the application of subsections (2) to (5)”. Transport Act 2000, Art 2. - (1) provides that: “ The CAA must exercise its functions under this Chapter so as to maintain a high standard of safety in the provision of air traffic services; and that duty is to have priority over the [other functions… and] application of subsections (2) to (5).” 656 Transport Act 2000, Art 8. (1) provides that: “While a licence is in force its holder (a)


sections 26 and 28 respecting the air traffic services licence

ensures that, in the event of a serious or sustained failure to meet statutory or licence requirements, the licensee can be subject to an Air Traffic Administration regime and the business transferred to another licensee;657

section 70 requires the CAA to discharge its airspace regulatory duties so as to secure the most efficient use of airspace consistent with the safe operation of aircraft and the expeditious flow of air traffic.658

The dominant role of the CAA in safety regulation is illustrated as follows:

no UK air traffic control services provider (including NATS) can operate until the CAA is satisfied that it can do so safely;

the CAA conducts regular inspections and audits of all air traffic control units to ensure that safety standards are being maintained;

air traffic controllers are licensed only when they have satisfied stringent CAA criteria and they cannot operate without supervision until they have passed CAA-conducted examinations;

the competence and medical fitness of air traffic controllers is tested and confirmed annually by CAA inspectors;

procedures and equipment - that can affect the safety of aircraft -- used by air traffic controllers must be approved by the CAA;

the maximum hours air traffic controllers can work on a particular day and over a number of days is specified by the CAA in the Scheme for the Regulation of Air Traffic Controllers Hours (SRATCOH); and

air traffic controllers and pilots are required by law to report all safety-related incidents to the CAA. All reports are investigated.659

Furthermore, the UK Government made amendments to the Air Navigation Order that ensure that the CAA maintains the same safety must secure that a safe system for the provision of authorized air traffic services in respect of a licensed area is provided, developed and maintained. (4) For the purposes of subsection (1)(a) a system for the provision of services is safe if (and only if) in providing the services the person who provides them complies with such requirements as are imposed by Air Navigation Orders with regard to their provision. (5) An Air Navigation Order is an Order in Council under section 60 of the Civil Aviation Act 1982.” 657 Transport Act 2000, see Art 26 - 28. 658 Transport Act 2000, Art 70. (1) provides that: “ The CAA must exercise its air navigation functions so as to maintain a high standard of safety in the provision of air traffic services; and that duty is to have priority over [the other functions… and] application of subsections (2) and (3).” “(2) The CAA must exercise its air navigation functions in the manner it thinks best calculated-

a) to secure the most efficient use of airspace consistent with the safe operation of aircraft and the expeditious flow of air traffic…”

659 See Department for Transport, “A Public Private Partnership for National Air Traffic Services Ltd.”, online: Department for Transport <http://www.dft.gov.uk/stellent/groups/ dft_aviation/documents/page/dft_aviation_503481.hcsp> (date accessed: 23 July 2005).


regulatory controls over the independent NATS as it exercised over NATS as its own subsidiary company. There are three main elements to the amendments:

The provision of air traffic services are subject to an approval granted by the CAA;

The CAA is able to direct the holder of an approval, in the interests of safety, to provide such services as it considers appropriate; and

Equipment used in the provision of air traffic services are also subject to approval by the CAA. Maintenance records must be kept in relation to that equipment. The CAA has a right of access to both the equipment and the records.660

G. Price and Service Controls In terms of Price Controls, the CAA sets caps on the increases in the prices that NERL charges for its en route business (in terms of both Eurocontrol/and London approach and Oceanic services), subject to review every 5 years. The current caps run until 31 December 2005 (respecting Eurocontrol/and London approach services) and 1 April 2006 (respecting Oceanic services). The CAA is currently working on setting the new price caps.661 The current price controls were initially established by the former Department for the Environment, Transport and the Regions and came into effect on 1 January 2001. However, air traffic volume suffered a dramatic and unexpected decline as a result of the 11 September 2001 World Trade Centre and Pentagon terrorist attacks. Thus, NATS applied for specific amendments to the original price control regime – notably a relaxation of the caps on maximum permitted revenue that was implanted on 1 January 2003. The complete package of changes became known as the “Composite Solution.”662 According to the current Price Control system, NATS either pays penalties or receives bonuses dependent upon the level of delay it causes to flights. NATS’ performance is measured by average delay per flight.663

660 Ibid. 661 See Civil Aviation Authority (CAA), “Economic Regulation: NATS Licence”, online: Civil Aviation Authority (CAA) < http://www.caa.co.uk/default.aspx?categoryid=5& pagetype=90&pageid=585> (date accessed: 10 August 2005). 662 Civil Aviation Authority (CAA), “In Focus, National Air Traffic Services: Price Review” (30 March 2004) at 1 online: Civil Aviation Authority (CAA) <http://www.caa.co.uk/ docs/5/ergdocs/infocus_issue1.pdf> (date accessed: 15 August 2005). 663 Civil Aviation Authority (CAA), “In Focus, NATS PriceControl Review – The CAA’s Firm Proposals” (May 2005) at 4 online: Civil Aviation Authority (CAA) <http://www. caa.co.uk/docs/5/ergdocs/infocus_issue3.pdf> (date accessed: 15 August 2005).


H. Liability Protection by Government or Private Insurance The separation of the regulatory and service provision functions between the CAA and NATS respectively has an impact on the responsibilities and liabilities that are attached to each of the functions and the discharging entities.664 In States – such as the USA and France -- where the State itself is the air navigation service provider, the national legislation requires that compensation claims must be brought against the State, under the applicable State’s liability law. However, different models exist where the State has mandated an independent company to provide the service.665 The UK is the latter case in that the ANS functions have been delegated to an independent corporation -- NATS. The UK approach is that the State only remains responsible and liable for damages caused by its own direct fault. In all other cases, the effective service provider (i.e. NATS) stands alone as responsible and liable;666 and therefore is expected to insure itself against such liabilities. Thus, any liability claim for ANS related damages are to be instituted in the courts against NATS, a corporation that is subject to the same common law rules as any other company.667 Comment: There are two conflicting effects of NATS’ liability as an independent company. On the one hand, in theory, the UK State has no legal obligation to step in and substitute for NATS in the case a successful claim would exceed the financial capacity of NATS -- in the absence of any wrongdoing by the State.668 On the other hand, political reality and the common law principle that the State is the ultimate safeguard for public safety and national security suggest that the State might substitute for NATS in the event of financial insolvency.669 XIII. Summary and Conclusions A. Government Ownership and Control The movement from State to “corporatized” and privatized ANS has been motivated by considerations of cost, efficiency, procurement, the growing needs of users for improved and updated infrastructure to address pressing capacity needs, and the desire of governments to move from tax-based to user-fee-based and private capital market-based finance. It is also part of a broader trend to substitute public/private partnership for government-provided services, so as to introduce market incentives and disciplines into the provision of traditional public services.

664 Schubert, 2003, supra note 321 at 63. 665 Ibid. at 65. 666 Ibid. at 68. 667 Ibid. 668 Ibid. 669 Ibid.


Most of the ANS providers reviewed in this study are governmentally owned. The French and Netherlands ANS providers are governmental institutions (the French670 ANS provider is directly under the supervision of a government Minister; the Netherlands671 ANS provider is an independent organization which is a separate legal person from the government). The shareholders of the “corporatized” Australian,672 German,673 Irish,674 New Zealand,675 and South African676 ANS providers are governmental institutions (though the German ANS provider is moving toward a public/private partnership). The Swiss677 ANS provider is nearly 100% governmentally owned. In the United

670 In France, the Director General of Civil Aviation (DGAC) is the central governmental organization for regulating civil aviation in France. The DGAC falls under the Ministry for Town Planning, Housing and Transport. The DSNA is a national body that falls under the authority of the DGAC. Some support functions are provided to DSNA within DGAC by its General Secretariat (SG) while DSNA is mainly focused on operational and technical activities. 671 Luchtverkeersleiding Nederland (LVNL), or Air Traffic Control the Netherlands, is an independent administrative body (Zelfstandig Bestuursorgaan, or ZBO), accountable to the Minister of Transport, Public Works and Water Management to whom it reports on matters of performance and policy. It is a legal person distinct from the government but is a public agency. 672 Airservices Australia [AA] was established in 1995 as a “Commonwealth Authority” to provide air traffic services, aeronautical information services, aeronautical radio navigation services, aeronautical telecommunications services and aerodrome rescue and fire fighting services. As a Commonwealth Authority, AA is fully owned by the Government of Australia. 673 In October 1992, the German Federal Government established – and on 1 January 1993 put into operation -- DFS Deutsche Flugsicherung GmbH (DFS) to assume responsibility for air navigation services by transferring all assets of the former Bundesanstalt für Flugsicherung (BFS) [a Federal agency under public law] to the DFS. DFS is a company organized under German private law that is a 100% state-owned company – i.e. the German Federal Government is the only shareholder and is represented by the Ministry of Transport, Building and Housing (MOT). Since 2004 – and to be implemented in 2006-2007 -- the German Ministry of Transport has been preparing for a partial privatization of DFS in the context of a Public-Private partnership. The functions of DFS include: air traffic control functions (not exercised by EUROCONTROL); the acceptance, processing and forwarding of flight plans; and, since 1 January 1995, the provision of regional military air traffic control. 674 The Irish Aviation Authority [IAA] was established as a “private company” in 1993 to perform a number of functions, including operating and managing air navigation services. Ireland also has established an “independent” Commission for Aviation Regulation [CAR] as a “body corporate” to regulate airport and aviation terminal service charges. 675 The Airways Corporation of New Zealand (ACNZ) was established on 1 April 1987 under the State-owned Enterprises Policy that was being carried out by the Government of the day. It was incorporated as a company with shares under the Companies Act, and all the shares have since been fully held by the Government, acting through the Ministers for State Owned Enterprises and Finance. Initially, ACNZ was responsible for providing air navigation services and rescue fire services on a commercial basis, but the latter has since been transferred to airport authorities. Although ACNZ is fully owned by the Government, the State-owned Enterprises Act requires that it should be run as if it was privately owned. 676 Air Traffic and Navigation Services Company Limited (ATNS) was established in 1993 as a limited liability company with shares under the South African Companies Act. Its shares are fully held by the Minister of Transport on behalf of the Government of South Africa, although they could be disposed of with the approval of Parliament. Apart from being the sole shareholder of ATNS, the Minister of Transport is also the Executive Authority of ATNS for purposes of ensuring compliance with public finance management laws. The Minister also has power to issue orders to ATNS regarding what it can do or not do. 677 Skyguide (formerly Swisscontrol) is responsible for providing civil and military air traffic management (ATM) services for airspace over Switzerland and at and around Zurich, Geneva, Bern, and Lugano airports. Skyguide is a non-profit public limited company that is over 99.9% owned by the Swiss Federation. State ownership is exercised through the Federal Department of Environment, Transport, Energy and Communication (DETEC).


Kingdom,678 the ANS provider is a public/private partnership, of which the government owns 48.9% (the remainder owned by ATC employees, airports and airlines). The Canadian ANS provider is a fully private non-share (and non-profit) capital corporation - a company without owners – in other words, a stakeholder cooperative.679 The Ministries that now own the shares of these corporatized entities might in future sell or transfer these shares to private interests, as has occurred in Canada and the United Kingdom.680 As they move toward private ownership, economic and safety regulatory oversight by government will likely become more critical. No two ANS providers are precisely alike. Each has substantive duties mandated by law that are unique to it. For example, the Irish ANS not only operates and manages air navigation services, but also performs medical examinations of holders of airmen certificates, and regulates the airworthiness of aircraft. Initially, the New Zealand ANS was responsible for providing rescue and fire services, though this was subsequently transferred to the airport authorities. The Netherlands ANS must provide air traffic control training and produce aeronautical maps and publications. Hence, governments define the functions to be performed by ANS providers, and these functions may go beyond core air navigation services. B. Qualifications and Appointment Process Consistent with ICAO’s recommendations, most ANS providers reviewed are governed by a Board some or all of whose members are appointed by a government Minister.681 The principal exception is

678 In the UK, NATS Holdings owns 100% of the Shares of NATS. NATS itself controls 100% each of two operating companies/subsidiaries: (1) NATS En Route plc [NERL] [for en-route, oceanic and military services] that is subject to economic regulation by the CAA and (2) NATS Services Ltd [for terminal and commercial activities] does not hold a licence (and thus will not be able to provide en route services) is unregulated by the CAA. 679 On November 1, 1996, Transport Canada , transferred ownership and control of Canada’s civil air navigation services (ANS) network and facilities from direct control by a principal federal government department [Transport Canada] and other departments [such as Justice and Public Works] to a commercialized entity, NAV CANADA. NAV CANADA was established as the world’s first fully private, non-share capital corporation on May 26, 1995 to acquire, own, manage, operate, maintain and develop the Canadian civil air navigation system. NAV CANADA became the world’s first air navigation service (ANS) provider without majority government ownership or control. 680 The United Kingdom’s National Air Traffic Services Limited (NATS) went through a two-step process of commercialization. First, in 1996, NATS was changed from a full public sector entity that was part of the UK Civil Aviation Authority (CAA) into a corporation with 100% of the shares owned by the CAA. Second, in 2001, NATS became effectively partially privatized with the adoption of the Public-Private Partnership (PPP) model that involved 51% of NATS Holdings shares being sold to the private sector [(1) the Airline Group holds a 41.9% stake (this is a consortium of seven UK airlines: British Airways, bmi British Midland, Virgin Atlantic, Britannia, Monarch, EasyJet and Airtours); (2) NATS staff holds 5%; (3) the UK airport operator, British Airports Authority (BAA plc) holds 4.2%] while the UK Government retained 49% ownership. NATS operates under a 30 year licence from the CAA. 681 AA is run by a Board of Directors appointed by the Minister for Transport and Regional Services. The Board consists of nine members: a chairperson who is appointed on a full time basis, a deputy chairperson, the chief executive officer (who is not appointed by the


France,682 which has no Board structure, but instead has a traditional government departmental structure. The appointment approach may be divided into several models: (1) in some ANSs, the government has discretion to appoint all Board members (e.g., Australia, Ireland, New Zealand, and South Africa); (2) in others, the government minister is required to reserve seats for certain constituencies, such as users or labor (e.g., Germany683 and Switzerland684); (3) in others, the government appoints most of the Board

Minister) and six other members some of whom may be employees of AA. Board members are required to act independently with care and diligence and to make judgments in good faith believing same to be in the best interests of AA. In Ireland, the IAA’s nine directors are appointed by the Minister of Transport; the directors appoint a Chief Executive for the company. Commissioners of the Irish Commission for Aviation Regulation (of which there may be up to three) also are appointed by the Minister of Transport. While serving as Commissioners, they may not hold any other office or employment for compensation. The Netherlands ANS Supervisory Board, composed of 6 members, is chaired by a retired Commander in Chief of the Royal Netherlands Air Force, and further consists of representatives from Transavia Airlines, RNlAF, Schiphol Group and the MTPWWM. KLM were represented on the board until recently, when a change to Dutch law barred it from having a representative sitting directly on the board. There is also a two person Executive Board (CEO and Vice-Chair) that controls a Management Board made up of heads of directorates. In New Zealand, any number of directors, not being less than two or more than nine, may be appointed by the two shareholding ministers in consultation with the New Zealand Crown Company Monitoring Advisory Unit (CCMAU). Persons qualified to be appointed as directors are those who, in the opinion of the shareholding ministers, will assist ACNZ to achieve its principal objective. Directors are appointed for a maximum duration of three years and there are provisions dealing with situations of conflict of interest. The Board of the South African ATNS comprises executive and non-executive directors appointed by the Minister of Transport. By law, the majority of the directors must be non-executive directors, and the majority of the non-executive directors must be people who are not employed in the Public Service. Presently, the Board comprises 8 members, including the Managing Director of ATNS the only executive director appointed by other members of the Board in consultation with the Minister. There are no provisions dealing with the independence of the Board or the resolution of situations of conflict of interest of directors. 682 In France, the DSNA is comprised of three main departments: Headquarters, Operations Department and Technical Department. The Head of each of these departments reports to the Director of DNSA, who in turn reports to the Director General of DGAC. 683 In Germany, the corporate governance structure of the DFS can be understood as operating on three levels.

• Shareholders: The Federal Republic of Germany is the only [100%] shareholder, such that in law the task of providing air navigation services still remains with the State. The Ministry of Transport represents the German State in shareholder meetings.

• A Supervisory Board consists of 12 members: 6 elected employee/staff representatives and 6 representatives of the owner/employer. The Board’s main functions are the execution of regulatory and functional control and the safeguarding of civil and military interests. The Supervisory Board must consent to any major investments and approve the annual business plan

• Executive Board of Managing Directors [including] the CEO and three other members of the Board are appointed and regulated by the DFS Supervisory Board and is accountable to it.

684 In Switzerland, Skyguide’s Board of Directors is comprised of a maximum of seven members, each of whom is elected by the General Assembly of Shareholders for a term of three years. Board members may be re-elected for a maximum of four terms in office and must retire at the age of 65. The majority of Board members must be Swiss nationals, and must be resident in Switzerland. Previously, half of the board seats were reserved for the government, but recent legislative changes reserve no seats for the government – or indeed for airlines or airports – and only provide explicitly for a representative of the military and


members, but certain seats are designated by constituent groups (e.g., the Netherlands); (4) in still others, the government appoints a minority of seats (Canada685 and the United Kingdom686). In none of the examined ANSs, is the government yet out of the picture. As ANS providers move toward increased privatization, the issue of government oversight will become more critical. Safety regulation has tended toward a direct separation of the regulatory and operational functions within governments. The ANS providers reviewed have identified three models of economic oversight: (1) traditional independent economic regulation (e.g., for terminal navigation services, Ireland, and for en route navigation, the UK); (2) specifying elaborate statutory criteria governing the ANS and providing for administrative or judicial appeals (e.g., Canada); or (3) establishing a “golden share” veto power in the government (e.g., UK). In some ANS providers, users and constituents appear on the Board, either because they may nominate a representative to the appointing Minister, or because seats have been reserved for them legislatively. In the Netherlands, users and constituents may nominate candidates to the supervisory Board (which chooses the executive Board which, in turn, appoints a managing Board) to the appointing Minister. In Switzerland, a Board position is reserved for employees, and another for the military. In Canada and the UK, certain seats on the Board are reserved for identified stakeholders, who appoint their representatives. Germany’s supervisory Board has half its seats reserved for employees; that Board appoints the executive Board.

a representative of employees. In practice, the 5 other members of the Board are drawn from unrelated private and public sector entities. 685 NAV CANADA operates as a private non-profit entity and a “stakeholder cooperative” governed by three key bodies:

• Voting Members are the user groups (including the airlines, non-commercial aviation, unions and government) for whose distinct interests NAV CANADA was created.

• Board of Directors has 15 members: 10 directors represent the major ANS stakeholders including the Government of Canada, the commercial air carriers, general and business aviation, and NAV CANADA’s employees with exclusions that prevent direct representation except by unanimous decision of the Board; 4 “unaffiliated” Directors with no ties to stakeholders; and the President and Chief Executive Officer appointed by the Board.

• The Advisory Committee -- named by a large number of “Associate Members” -- provides some representation of lesser and broader aviation interests.

Generally, Directors cannot be active employees, Directors or members of Government, the airlines, unions or Voting Members. More specifically, no one may be appointed to the Board who is an elected official or an employee of any level of public government in Canada (other than municipal). No one may be appointed who is an officer, director or employee of a significant ANS customer or supplier, and no one may be appointed who is a member of a NAV CANADA bargaining agent or of a Voting Member. Nevertheless, the just mentioned categories of excluded persons may still be appointed to the Board of Directors if the Board unanimously agrees that such an appointment will involve no conflict-of-interest. 686 The United Kingdom’s NATS 12-member Board consists of a non-executive Officer, Director International Affairs, Finance Director, and 9 non-executive Directors [including 3 Partnership Directors appointed by the UK Government shareholder; 4 directors including the IATA representative appointed by the Airline Group, and 2 directors appointed by the British Airport Authority (BAA)]. The Board’s functions include: the approval of the company’s strategic and operating plans and long term investment plan, major items of capital expenditure, oversight of safety, operational and financial performance, and the regular review of the effectiveness of the group’s system of internal controls.


Some ANS providers have included stakeholders on their governance Boards in order to enhance responsiveness to user needs. Others, with the experience of having stakeholders on their Boards (e.g., Switzerland and the Netherlands), have begun to reduce or eliminate stakeholder representation because they want an arms length relationship in determining long-term infrastructure needs vis-à-vis short-term user charges. These two ANS providers also have moved the regulators off their Boards to ensure the separation of regulatory and provider functions. Similarly, in New Zealand the Minister of Transport specifically was excluded from being a shareholding Minister for these reasons. Hence, there appears to be a modest trend toward removing stakeholders and regulators from the ANS governing Board. But in contrast, the stakeholders are dominant by indirect representation on the ANS Board in the Canadian model and directly in the UK model – Germany might well move in that direction in the future. On the one hand, though having stakeholders on the Board may make it more responsive to users, more efficient, and cost-effective, stakeholder representation on the ANS Board may accentuate its focus on the short-term and on fee reduction at the sacrifice of long-term infrastructure needs. On the other hand, in the absence of economic regulation, removing stakeholders from the Board may enhance the tendency of the ANS provider to engage in “gold plating”- spending money to upgrade facilities and employee wages and benefits in ways that are inconsistent with commercial realities. C. Accountability and Transparency Requirements Some ANS statutes explicitly prohibit conflicts-of-interest, requiring that a conflicted Board member respect disclosure and abstention from voting requirements.687 Some statutes also allow the 687 In Australia, the Board of AA is required to prepare a corporate plan and submit it to the Minister at least once each year. Within four months after the end of each financial year, the Board is also required to submit an annual report of the operations of AA, including financial statements for the year under review and the Auditor General’s report on those statements. AA is subject to the Governance Arrangements for Airservices Australia, although it has not been designated as a Government Business Enterprise. Board members with material personal interests in any matter being considered by the Board are obliged to disclose the nature of their interests and thereafter to refrain from any deliberations on the matter except with the approval of the Board or the Minister. NAV CANADA has formalized its disclosure procedures into a written policy stating it must operate in an open and transparent manner with full disclosure to all stakeholders. Every Annual Meeting of the Corporation is open to the public. The Annual Report of the Corporation must include the audited annual financial statements, the auditor’s report on these, and an account of what the corporation did in the past year. Moreover, the following information, inter alia, is broadly disseminated by NAV CANADA: an annual information form providing a detailed three-year corporate record respecting NAV CANADA’s business, operations, management and financial position; a summary of the company’s business plan for the up-coming fiscal year; a prospectus describing the company’s business and financial structure. In France, DGAC continues to coordinate support functions across departments through its General Secretariat. Each year the parliament votes the French budget to which the Annex Budget for Civil Aviation (BAAC) is attached. As is true of any French Civil service administration, the DSNA is subject to random and frequent oversight from the French court of accounts “Cour des Comptes”.


government to remove a Board member from office for acts of impropriety. Other States have general ethical and good governance requirements in their corporation statutes. Most ANS providers are required to conduct their business in the public, through annual reports, corporate plans, public meetings, informing users of their actions and giving them an opportunity to comment, and have their finances audited under generally acceptable commercial accounting standards.688 In some instances, they have adopted In Ireland, the IAA must keep all proper and usual accounts of monies received or expended by it, including a profit and loss statement, a cash flow statement, and a balance sheet, and such statements must be audited annually. The IAA must also prepare an Annual Report (a five-year “Business Development Plan”) of its activities and those of its subsidiaries. IAA directors and staff must disclose any information in which they directly or indirectly interested involving any activities of the company or its subsidiaries. They must also refrain from participating in any meeting in which such matter is discussed, take no part in its deliberations, nor vote on any decision relating to the matter. Similar requirements are imposed on the members and staff of the Commission for Aviation Regulation. Prior to setting maximum airport charges, the Commission shall give notice to concerned persons, publish notice in a daily newspaper, and specify when representations may be made by interested parties or the public. In the Netherlands, LVNL must comply with the Netherlands Corporate Governance code and the Code of Good Governance for Implementing Organizations developed specially for ZBOs. LVNL’s administrative guidelines and user fee policy is based on the rules of conduct for the member states affiliated to Eurocontrol. In New Zealand, one of ACNZ’s major accountability requirements is the Statement of Corporate Intent (SCI) which is supposed to be delivered by the Board to the shareholding ministers at the beginning of each financial year. The SCI sets out the Board’ corporate plans for ACNZ for the ensuing three years and, although it is reviewed by the shareholding ministers, it is not approved by them; thus remaining the directors own plan against which their performance is subsequently assessed. ACNZ is a reporting entity under the Financial Reporting Act. As such, it is obliged to prepare consolidated financial statements in accordance with standards established by the Accounting Standards Review Board. Due to the need to keep the regulator separate from ACNZ, the Minister for Transport has been deliberately excluded from being a shareholding minister.

In South Africa, the ATNS is required to submit a business plan covering five years at the beginning of each financial year to the shareholding minister. At the end of each financial year, ATNS is also obliged to submit an annual report including it’s audited and approved financial statements to the shareholding minister, who, in turn, is also required to lay it before Parliament. As a public entity, the Public Finance Management Act is applicable to ATNS. As such, the Board is required to: keep full and proper records of the financial affairs of ATNS; prepare financial statements in accordance with generally accepted standards; and to have those financial statements audited and submitted to the Executive Authority, the National Treasury and the Auditor General. 688 For example, Germany’s DFS is significantly accountable to the Minister of Transport who is given the right to obtain any required information from the DFS and has access to all facilities and units of DFS. Moreover, the MOT exercises functional supervision of the DFS’ operational services (including air traffic control services and flight information services). The MOT also has legal supervision of DFS respecting the execution of any future air navigation services. On a broader level, close consultation with users is maintained through a series of meetings throughout the year. [e.g., a bilateral consultation on cost and charges issues is held twice a year]. Moreover, DFS has an Advisory Board of business, customers and the media. In Switzerland, financial control is the responsibility of the Controlling unit, which monitors observance of the four-year finance plan, the annual budget and the executive information system (a quarterly budget reassessment). Skyguide is also subject to regular TriNET audits of its air traffic management activities. TriNet is a trinational audit organization formed in 1999 among Swiss, Austrian and German air traffic control services to perform independent analyses of technical systems and operational procedures. In 2004, Skyguide adopted the International Financial Reporting Standards (IFRS). PricewaterhouseCoopers AG have been Skyguide’s statutory auditors since 1996 and its group auditors since 2001. There is


international accounting standards, as is recommended by ICAO. Contemporary views of good government suggest that more transparency and user involvement is preferable to closed-door decisionmaking, except of course, where security issues mandate secrecy. To the extent ANS providers are free to enter into individualized contracts with users (as in Australia),689 if these contracts are not available for public review, transparency – and indeed nondiscrimination – (two of the principles insisted upon by ICAO) potentially are jeopardized.690 D. Restrictions on Revenue Sources To the extent that ANS services formerly were a burden on the national treasury, corporatization has allowed their financing to be user-fee based. It is expected that they will be financially self-sufficient.691 ICAO urges governments to ensure that ANS providers be self-financed, obtain funds from commercial markets, and obtain a financial return on assets so as to contribute to necessary capital improvements. Some (e.g., Australia and New Zealand)692 are allowed to make a profit, and to pay that profit to the shareholders (usually, the government). Others (e.g.,

also a service level agreement with the military, which conducts audits of its own accounts. Under the Transport Act 2000, the UK Government issued a licence to NERL to provide en route air traffic services in the UK. The Act gives the CAA the role of economic regulator of NERL through monitoring and enforcing the conditions in the licence and through modifications to the licence. Some aspects of the accountability and transparency required by NERL’s licence, and monitored by the CAA, include that NERL is required not only to produce [and the CAA has approved] a code of practice setting out its methods and procedures for consulting users and for handling and responding to user complaints but also to submit to the CAA each year a Service and Investment Plan (SIP) and also to demonstrate the financial performance of those activities that are the subject of separate economic regulation. Moreover, the CAA has published procedures on how the direct users of NERL should make a complaint where a breach of a condition in NERL’s air traffic services licence may have occurred. The CAA has also published a consultation document setting out its policies for monitoring and enforcing NERL’s Licence. The CAA must approve key personnel in NATS (as with airlines) such as the Director of Safety. 689 In Australia, AA has authority, subject to approval by the Minister, to set charges for the services and facilities it provides and penalties for their late payment. However, this power is not very significant since it does not apply to charges for services and facilities provided by AA under contract with its customers. AA contracts are nevertheless subject to review under the Trade Practices Act, which is Australia’s framework competition act. 690 However, it appears that prices in Australia, ANS fees are consistent across users following ICAO principles and are subject to discretionary review by the ACCC. 691 In France, DSNA ATC activities are paid by user fees collected by EUROCONTROL. The non-ANS activities of the DGAC are covered by a passenger tax which also covers exempted flights. The Irish Aviation Authority has authority to impose charges for the services it provides. Its Directors may borrow and raise money, and mortgage property, issue debentures, stock or other securities, though it may not invite the public to subscribe to any shares or debentures. 692 In New Zealand, ACNZ has authority to impose charges on its customers for the services it provides. It is required to make a profit from its operations in order to pay dividends to the Government. There are no statutory restrictions regarding the sources from which ACNZ may raise its revenue; neither are there any restrictions on the types of businesses it may engage in. In practice, ACNZ raises revenue through subsidiaries engaged in consultancy and management services and such other services that are not at the core of provision of air navigation services.


the Netherlands)693 require a governmental financial injection to cover exempt services not required to pay fees; the Netherlands ANS provider also is prohibited from building a reserve. The Canadian694 and Swiss695 ANS providers are explicitly prohibited from making a profit. Most have been allowed to establish for-profit subsidiaries to expand their sources of revenue.696 For example, in New Zealand and Germany,697 consulting services provide a revenue stream; the Swiss ANS provides computer software through a subsidiary. Over time, we anticipate that ANS providers may establish subsidiaries to provide services in geographic regions not contiguous to their own, or airport terminal services outside their service territory. Competition between ANS providers for contracts may resolve some of the regulatory issues presented, yet it may create contractual, statutory or regulatory challenges of its own for determining how user fees are set to prohibit monopolistic abuse. The issues may differ between ANS services provided at airport terminal vis-à-vis en route and oceanic services, as has been recognized in the UK.698 E. Access to Capital Markets Corporatization potentially allows the shares of the ANS to be sold to the public, though most governments have not yet taken the opportunity to do so. Corporatization also allows ANS providers to tap the private capital markets for their infrastructure needs, rather than

693 In the Netherlands, LVNL is subject to standard revenue principles for ZBOs. Its principal source of revenues (96%) is fees. LVNL is not considered a corporate entity for the purposes of Value Added Tax (VAT) recovery. Thus, LVNL passes to its customers any VAT it pays for goods and services, which could be seen as a form of double taxation. 694 NAV CANADA is authorized to establish its revenues by setting air navigation service charges [i.e. user fees] on airlines and aircraft operators sufficient to recover all the costs of providing its services. However, the ANS Act prohibits NAV CANADA from making a profit. All revenues stay within the ANS such that any excess earnings are reinvested in the company, kept as operating reserve, or used to reduce debt or user charges. 695 Switzerland’s Skyguide is a not-for-profit corporation. Thus, no dividends are paid to shareholders. Skyguide is obliged to provide some services that cannot be performed on a cost recovery basis (e.g. air navigation services at smaller airfields), or for which they are not compensated at all (e.g. air navigation services within German airspace). However, Skyguide now has flexibility to buildup reserves during good years to compensate for losses in bad years. 696 In Australia, AA is allowed to raise revenue from contracts for consultancy and management services provided they fall within its statutory functions. AA may also participate in the formation of companies (subsidiaries) and partnerships. 697 Today, Germany’s DFS is financially autonomous through collecting user charges (EUROCONTROL is responsible for billing and collecting en-route charges for domestic and international air traffic; DFS bills and collects terminal charges for arrivals and departures). The military reimburses DFS for military-related costs. Furthermore, DFS not only receives no government subsidies but also must pay the German Federal government for all ANS-related costs. To expand revenue sources, DFS has expanded its non-core activities in the fields of consulting, data management, production of maps and charts (mainly for VFR flights), maintenance, simulations and training. 698 In the UK, NATS is authorized to set air navigation service charges on airlines and aircraft operators (i.e. establish its revenues) sufficient not only to recover all the costs of providing its services (including debt service costs) but also to make a profit.


burdening the national treasury.699 In contrast, in Switzerland,700 the ANS provider has issued new shares to the government to raise equity; but returning to the government for capital is an aberration from the general trend. The issue of debt security is handled in a diverse fashion. Some ANS providers have the ability to issue government-guaranteed debt, or pledge their assets as security for debt; others explicitly do not. All appear to have the ability to secure debt with their revenue streams. For example, the Canadian701 ANS is not allowed to secure debt by its assets or government guarantees; its debt is instead secured by its revenue stream. In Germany702 and South Africa,703 the government does not guarantee loans; they are also secured by the revenue stream. In France,704 the government may issue treasury bonds guaranteed by the ANS assets. In Ireland,705 the Minister for Finance can guarantee loans 699 In Australia, AA’s initial capital was transferred to it from the capital of its predecessor, the CAA. It is a debt repayable to the Government of Australia. Apart from its initial capital, AA may borrow money from the Government of Australia out of funds appropriated by Parliament for the purpose. AA may also raise money by borrowing or otherwise from other sources, and it may give security over the whole or part of its assets for such loans. In addition, AA has power to enter into approved contracts for hedging purposes in order to protect itself against adverse currency variations in capital markets. In the Netherlands, LVNL has full access to financial debt markets to borrow and deposit funds. It has the equivalent of AAA-rating as a governmental organization. However it does not issue shares. In the United Kingdom, the PPP model incorporated in NATS removed corporation debt from the public accounts, earned the UK Treasury a one-time cash injection from the sale proceeds and provided NATS with the ability to secure private financing in order to enable it to handle growing air traffic control demand in the UK. NERL had in 2001 an unusually high level of debt relative to equity such that this placed limits on the risks it could bear. However, the debt level is now much lower than it was originally. 700 Switzerland’s Skyguide has full access to capital markets subject to its bylaws and securities regulation. It can raise funds by issuing bonds or by increasing its share capital. 701 Both NAV CANADA’s $1.5 billion expenditure to acquire the air navigation system from Transport Canada and its ongoing capital requirements, have been financed with debt, that is less expensive than equity funding. NAV CANADA’s debt is neither guaranteed by the Canadian Government nor secured by the assets of the corporation. However, NAV CANADA’s debt is secured by (assigning to creditors) its revenue stream. 702 Germany’s DFS was created on an equity and debt basis [the latter is an interest-bearing loan owed to the Federal Republic of Germany]. Financing of infrastructure investment (based on a yearly budget and 3 – 5 year investment plans) is generally secured by using income from ANS charges. However, DFS also has a money and capital market programme allowing it to issue commercial paper and bonds in major currencies as needed. The German Federal Government does not guarantee DFS loans. 703 The South African ATNS has limited access to capital markets. Its shares are primarily owned by the Government of South Africa and cannot be traded in any market unless with the approval of Parliament. However, ATNS has unrestricted power to borrow money from any source in order to achieve its objects or to perform its functions. There are no provisions regarding the use of ATNS’ assets as security for loans; the Government does not provide sovereign guarantees for loans contracted by ATNS. 704 In France, ANS activity has had access to capital markets since 1985, although not to equity markets. Loans obtained from financial markets are part of the national debt. 705 The Irish Minister for Finance holds all shares of the IAA, which paid its debt in full in 1994. Though the Minister may make loans to the IAA, no loans have been made to date. The IAA and its subsidiaries may borrow money from private sources for capital purposes (including working capital) in increments not to exceed £100 million at any one time. These loans may be guaranteed by the Minister for Finance up to £80 million, though this has not been done to date.


up to a certain level. In New Zealand,706 the ANS provider can issue state enterprise equity bonds, deemed to be non-voting equity shares in the company. F. Safety and Economic Regulation Authorities The natural monopoly characteristics of ANS services have led many governments to ensure that ANS fees and charges are regulated by a separate governmental institution providing economic regulation. In fact, ICAO strongly recommends that States do so. But not all States have. Certain ANS providers have autonomy to set fees; while others have the ability to set fees subject to veto or regulatory review either prior or subsequent to their implementation. At the end of the spectrum at which government provides prior control of ANS fees lie Ireland,707 the Netherlands,708 South Africa and (for en route, oceanic and military charges), the United Kingdom.709 In the Netherlands and Ireland, the ANS provider proposes the fee to a Minister, who may approve it. In South Africa, a separate economic regulatory body must provide permission before prices can be set. In the UK, en route, oceanic and military ANS services are regulated, while terminal and commercial activities are not. In several States, the fee becomes effective unless subsequently reversed. In New Zealand710 and Switzerland,711 the ANS provider sets

706 In New Zealand, ACNZ is allowed, subject to Parliamentary approval by resolution, to issue state enterprise equity bonds to any persons at any time. These bonds are deemed to be ordinary shares, and the holders thereof, non-voting shareholders. These bonds are transferable and there are no restrictions on their being traded in capital markets. 707 In Ireland, the IAA licenses air traffic control services and operators of air traffic service systems, including communications, navigational aid or other technologies to aircraft in flight or landing at an airport. The IAA licenses air traffic controllers. It also registers aircraft, and issues aircraft certificate of type approval, certifications of airworthiness, flight permits, noise certificates, transponder codes, aircraft maintenance and overhauls, and a variety of other aviation functions. The Irish Commission for Aviation Regulation regulates airport and aviation terminal service charges, and licenses air carriers. 708 In 2001, the Netherlands’ CAA-NL was split into the Aviation Division of the Inspectorate General of Transport, Public Works and Water Management (IVW) and the Directorate General of Civil Aviation (DGL). This allowed a clear separation of responsibilities for aviation policy making (DGL) and policy implementation (IVW). IVW can be regarded as the aviation safety regulator within the Netherlands. It is divided into two civil aviation agencies: an executive agency and an enforcement agency. The Supervisory Board of LVNL must approve all proposed tariffs for ANS, which are then placed before MTPWWM for final approval. 709 The United Kingdom’s CAA is a public corporation that was originally established by Parliament in 1972 as an independent specialist aviation regulator and provider of air traffic services. Today, it only retains its aviation regulator function [since NATS is the service provider] being independent of both the Department for Transport and political interference. Following the separation of NATS from the UK CAA in 2001, the CAA is now the UK’s independent aviation regulator that as a single specialist body incorporates all civil aviation regulatory functions -- economic regulation, safety regulation, airspace policy, and consumer protection. Only one of NATS’ two operating companies/subsidiaries -- NERL [for en-route, oceanic and military services] -- is subject to active economic regulation and price-capping by the CAA. Moreover, the licence specifies price controls for oceanic charges. 710 The safety aspects of New Zealand’s ACNZ’s operations as a service provider are regulated by the Civil Aviation Authority (CAA) under the Civil Aviation Act, 1990. This is carried out through certification and periodic auditing of ACNZ under Part 172 of the Civil Aviation Rules. For purposes of economic regulation, the Commerce Commission of New


the fee, though a government regulatory body can impose price controls. In France,712 the ANS provider can set the fee, though the Minister may veto it. In Canada,713 fees are governed by a comprehensive regime of statutory charging principles, and subject to subsequent appeal. In Germany,714 the ANS provider can set user fees at any level it feels is commercially viable, though its capital expenditures are monitored by the government. In Australia,715 many fees appear to be consensually negotiated with the users, though Australia follows ICAO principles and applies charges equally to all users in the same class. In the UK, airport terminal charges are set by contract with the airport, rather than by regulation. Depending upon geography, competition may serve as an adequate fee regulator. For example, if the Swiss ANS provider sets fees at too high a level, carriers may re-route aircraft around Swiss airspace, depending of course, upon the price of fuel, delay and other cost considerations. Each of the States reviewed appear to aspire to achieving a goal of an external autonomous safety regulatory regime.716 External Zealand has been given authority to impose price controls on the services provided by ACNZ in the event of an abuse of monopoly power. The effect of this power is mainly deterrent as it has never been exerted. 711 The Swiss Federal Office for Civil Aviation (FOCA) regulates the safety management of Skyguide. FOCA is part of the Department of Environment, Transport, Energy and Communication. There is now a strict separation between FOCA’s safety-related activities and those dealing with aviation development. FOCA has been removed from the Skyguide Board. In principle, DETEC is the economic regulator for air navigation service provider. However, since 1996, Swisscontrol and later Skyguide have full financial autonomy. Skyguide can set rates for its services, subject however to ICAO and EUROCONTROL’s rules related to route charges. 712 In France, the Inspections and Safety Department (DCS) is responsible for ensuring compliance with safety and security policies developed by the Department for Strategic and Technical Affairs (DAST). This includes the supervision of air navigation services. DAST is now the member of the Eurocontrol Provisional Council rather than DSNA, and is the representative to ICAO. The Minister retains authority over fees and charges. 713 The ANS Act grants NAV CANADA a mandate and (natural) monopoly to be the only party who may charge for key civil ANS. To protect consumers from market power abuses of a natural monopoly, a two-tiered approach was followed: first, in theory, NAV CANADA, as a non-profit user/stakeholder cooperative, has users of the cooperative’s services that have a shared interest in low prices/costs and quality ANS that reduces the need for external regulation; second, the Canadian Government went one step further by also legislating a comprehensive set of charging principles as further protection for the users/stakeholders. 714 In Germany, the MOT’s economic regulatory oversight of DFS is limited to the approval of DFS’s economic plan and major capital expenditures as well as legal supervision in the field of user charges. However, DFS – as a private-law company – is otherwise free to operate by following general commercial-law principles and charging whatever fees it wishes. 715 With respect to terminal navigation services, en-route navigation services and aviation rescue and fire fighting services provided by AA to customers outside the framework of a contract, AA is required to notify the Australian Competition and Consumer Commission (ACCC) of any increases in service charges before putting them into effect. As noted above, this requirement does not apply to the bulk of AA’s services, which are offered under contract. 716 As a service provider, AA is subject to certification and regulation by the Australian Civil Aviation Safety Authority (CASA) under a number of Civil Aviation Safety Regulations (CASRs). CASA sets safety standards and monitors compliance by AA. The operations of AA are also subject to review by the Australian Transport Safety Board, Australia’s independent agency for transportation safety investigations.


monitoring and regulation of safety is provided in most of the reviewed States by a separate external governmental institution, usually the Ministry of Transport or Civil Aviation Authority, and/or its equivalent. But in France, the provision and regulation of ANS is performed by separate directorates of the transport ministry, which share some common departmental resources. It is likely that more governments have not established economic regulatory agencies to provide oversight because of the high degree of government control over most “corporatized” ANS providers – government Ministers appoint the Board members, and often review fees and charges. Because of the natural monopoly characteristics of ANS, as these institutions move toward privatization, however, governments may find it necessary to establish formal economic regulation mechanisms, impose price caps (as in the UK), or allow formal appeals (as in Canada).717 Moreover, as they move toward greater privatization, a more elaborate process of consultation with users, transparency of decisionmaking, and the opportunity for appeals to an independent review agency may be required, as is recommended by ICAO. G. Price and Service Controls

Germany’s DFS faces external safety regulation by the MOT and the Federal Office of Civil Aviation (LBA). The MOT is responsible for the legal and functional supervision of DFS in the field of the operational air navigation services. The LBA currently is responsible for ATC personnel licensing, approval of airspace changes, and approving training programmes. On the other hand, safety is managed internally in DFS that has a Safety Management System. For the future, in conformity with ICAO and the Single European Sky [SES] initiative requirements, a separate safety regulator will be established to oversee DFS -- within the Civil Aviation Authority (LBA). Safety regulation of ATNS is carried out by the South African Civil Aviation Authority under the Civil Aviation Authority Act. For purposes of economic regulation, ATNS is subject to the Economic Regulating Committee established under the Airports Company Act. The Committee is appointed solely by the Minister of Transport. Before ATNS can increase any of its existing service charges, it has to apply for and obtain “a permission” from the Committee to that effect. The Committee may issue the permission upon such terms calculated to restrain ATNS from abusing its monopoly power. In the UK, while ANS provision is NATS responsibility, safety regulation is carried out from within the public sector by the CAA through its Safety Regulation Group (SRG). NERL is a holder of a CAA-issued licence to provide air traffic services and this licence is revocable if NATS breaches its absolute duty to provide a safe system. Furthermore, the CAA assures that air traffic controllers are only licensed when they have satisfied stringent CAA criteria and have passed CAA-conducted examinations; and, these personnel are subject to annual CAA administered competence and medical fitness tests. Procedures and equipment (affecting the safety of aircraft) used by air traffic controllers must be approved by the CAA. 717 Since the commercialization of air navigation services in Canada, NAV CANADA has become the owner and operator of the system [i.e. service provider] and Transport Canada [i.e. the Government] has largely been limited to being the independent, arm’s length safety regulator. Thus, general safety regulations and standards [e.g. for air navigation facilities, equipment and personnel; licensing and monitoring air traffic control services, air traffic controllers, etc] for ANS are established and monitored by Transport Canada. However, NAV CANADA, as the service provider, has a duty to establish and regulate its own safety practices.


ICAO encourages States to establish regulatory mechanisms to ensure non-discrimination in the application of charges, prohibition of over-charging, and achievement of efficiency; fees should be cost-based, and users should bear their full and fair costs; no user should be burdened with costs not fairly allocable to it; and the ANS provider should be subject to normal business taxes. Some statutes (e.g., Ireland)718 require the ANS provider to abide by the provisions of the Chicago Convention, which explicitly prohibits discrimination against foreign and between the same type of aircraft. The precision with which the statutes address the criteria governing fees and charges appears to vary with the discretion which the ANS provider has to set fees.719 States with an ex ante fee and charge approval mechanism tend not to have elaborate criteria, while those having an ex post approval or appeal mechanism tend to have them.720 For example, Ireland’s ANS fees and charges (which must be approved by a government Minister before they become effective) should cover its costs and charges, satisfy its capital needs, and its interest obligations. At the other extreme, Canada721 stands out as the one example of a nation that has promulgated elaborate statutory charging principles to govern fees and charges. Once imposed by the ANS provider, the fees may be challenged as failing to satisfy the statutory criteria. Other nuances exist.722 South Africa723 cannot change its fees more

718 The Irish Aviation Authority establishes its own charges for services, with the consent of the Transport Minister; it must ensure that its revenues are sufficient to cover its costs and charges, satisfy its capital needs, and its interest obligations. Different rates may be set for different classes of aircraft. The IAA also may charge such amounts “as it considers appropriate” for any other services provided by it. The Irish Commission for Aviation Regulation regulates maximum charges imposed by commercial airports having more than one million passengers annually. 719 Germany’s DFS uses a service fee-based system and is required to make an operating profit on which it pays taxes. The MOT decides how much of any remaining profit is retained by the state or deposited into DFS capital reserves. 720 New Zealand’s ACNZ has power to determine the prices/charges for the services it provides and users have a right of appeal to the Commerce Commission in situations of unjustifiable price hikes. In practice, although ACNZ is not statutorily required to do so, prices/charges for services have been set in cooperation with the users of the services. A right of appeal to the New Zealand Ombudsman lies against administrative decisions made by ACNZ. Both the Ombudsmen Act and the Official Information Act are applicable to ACNZ. Decisions or recommendations made by the Ombudsman after investigating an appeal impose a public duty on ACNZ to act accordingly. 721 NAV CANADA uses a service fee-based system developed in consultation with customers and approved by the stakeholder Board that seeks to fully cover the cost of services provided. As stated above, Canada has legislated an elaborate system of charging principles to govern fees. 722 In France, user fees are approved by the Minister who will veto charge proposals if there are too many complaints. French case law is extensive on user charges and has


than twice in a fiscal year. The Netherlands724 ANS cannot build a reserve. Therefore, during periods of economic downturn, it cannot cushion the financial burden upon airlines, though ICAO asks that governments take into account “the financial condition of the carriers . . . particularly during periods of economic difficulty.” Most Australian fees are set by contract with users.725 The UK ANS provider has been subjected to a “price cap” by the economic regulator, under which it may set rates and charges;726 however, it pays penalties or receives bonuses dependent upon the delay it causes flights – the bonus system rewards performance to reduce delays. Such an approach is consistent with the ICAO principle that the efficiency and efficacy of the provider should be taken into account in the price structure. In countries such as Switzerland727 and the Netherlands, exempt services are problematic in terms of fulfilling the ICAO requirement of non-discriminatory and cost-based user charges, unless the government is willing to subsidize the costs of those exempt services from its general fund. Moreover, the Netherlands ANS provider cannot seek rebates on VAT, with the possibility of double taxation for the users, inconsistent with the ICAO requirement that ANS providers be subject to normal business taxes. We note also that ICAO recommends that user fees be based solely on aircraft weight and distance flown. Undoubtedly, this simplified formula is designed to enhance transparency and reduce discrimination against foreign carriers. However, with increasing congestion of air space, peak period pricing would help flatten the demand curve to improve the utilization of scarce resources, and thereby improve safety and reduce infrastructure expense. Peak period pricing could be implemented in a transparent and revenue neutral manner, and should confirmed that user fees for DSNA are not a tax. 723 In issuing a permission to South African ATNS, the Committee has power to prescribe service standards in respect of any of the services provided by ATNS, and ATNS is obliged to abide by any such service standards. ATNS is statutorily prohibited from changing the level or modifying the structure of any of its charges more than twice within any financial year. ATNS is also restrained from closing off or substantially curtailing any of its services except with the approval of the Committee and the Shareholding Minister. 724 In the Netherlands, the law prohibits the building up of reserves, and the government does make modest direct contributions to LVNL’s budget. For example, after 9/11 the Dutch government provided € 31 million. LVNL’s Aviation Act mandate stipulates the services it must offer. 725 In Australia, apart form the requirement of notifying the ACCC of proposed increases in services charges before putting them into effect, AA is also required to give the Minister written notice before making a statutory determination of service charges and penalties for non-payment. The said notice must specify the basis for setting the service charge or penalty and the reasons for increasing the existing charges if that is the case. Again, these requirements do not apply to charges for services offered by AA under contract. 726 In terms of price controls, the UK’s CAA sets caps on the increases in the prices that NERL charges for its en route business (in terms of both Eurocontrol/and London approach and Oceanic services), subject to review every 5 years. According to the current Price Control system, NATS either pays penalties or receives bonuses dependent upon the level of delay it causes to flights. NATS’ performance is measured by average delay per flight. 727 In Switzerland, DETEC is empowered to regulate prices. However, in practice it does so only on an ad hoc basis. DETEC tends to look at variations in charges over time, but does not explore in depth underlying reasons for any changes.


be considered by ANS providers. H. Appeal Processes ICAO recommends that the users be consulted before user charges are set, and that they be given the right to appeal an adverse decision to an independent body. Though not all ANS providers meet this requirement, all of the ANS providers studied are subject to some form of political, administrative or judicial review.728 In most, appeals follow the traditional administrative law procedural process of governmental institutions.729 In some, major ANS decisions are subject to review by a government Minister or regulatory agency. In Canada,730 those dissatisfied with ANS decisions can appeal to an independent, quasi-judicial tribunal. Switzerland731 has a provision allowing arbitration of disputes. I. Liability Where the government itself is the ANS provider directly, national legislation defines the extent to which claims may be brought. In some instances (e.g., Germany),732 ANS provision is considered a federal responsibility, and therefore, liability actions must be instituted against the State. But to the extent that governments move ANS out of traditional governmental institutions into commercial models, these providers may lose the traditional “sovereign immunity” liability shield, and become subject to liability under the domestic legal regime governing torts/delicts, contacts and property.733 It does not appear that governments 728 Decisions of the Irish Commission for Aviation Regulation are subject to judicial review. 729 In Australia, AA’s administrative decisions are ultimately subject to appeal to the Administrative Appeals Tribunal. However, persons affected by the said decisions must have unsuccessfully applied to AA for a reconsideration of the decision. In France, DSNA and DGAC are subject to the general provisions of French administrative law. In the Netherlands, LVNL decisions are subject to standard appeal procedures available against government decisions. Specific grounds for appeal are set out in the governing legislation. However, there is no provision for appeal against LVNL of user fees, which are considered to be issued by the MTPWWM. Complaints based on South African ATNS’ failure to comply with the provisions of the ATNS Act may be lodged with the Committee for investigation. The Committee may also, by itself, initiate investigations against ATNS if it has reasonable grounds to suspect that ATNS has failed to comply with the provisions of the Act. 730 In Canada, if an ANS user believes that a charge does not meet one or more of the established legislated charging principles, the right exists to appeal to the Canadian Transportation Agency (“CTA”), within a 30 day window from the charge coming into effect. Moreover, any changes to the level of service provided by NAV CANADA are subject to a Transport Canada safety review. 731 In Switzerland, any dispute between Skyguide and its customers may be resolved by courts or arbitration. 732 At the time the DFS was established, the German government and the DFS entered into a Rahmenvereinbarung (master/framework agreement) that, inter alia, defines the division of liabilities between both entities. This contract confirms that the German State alone – rather than DFS -- retains the ultimate responsibility for the proper operation of air navigation services and is liable to compensate third parties for damages resulting from the failure of ANS services and/or facilities, even when damages are caused by the DFS or its employees. Nevertheless, the German State retains a right of recourse action against DFS or its agents in the case of intentional damage or gross negligence. DFS is obliged to secure an insurance to cover costs that DFS may have to bear in the case of State liability. 733 Paul Dempsey, “Privatization of the Air: Government Liability for Privatized Air Traffic Services” (2003) XXVIII Ann. Air & Sp. L. 95.


have promulgated legislation promising to indemnify corporatized ANS providers for their liability. As a consequence, most ANS providers procure liability insurance, and some are statutorily so required.734 Moreover, since the provision of ANS is a non-delegable function of governments under the Chicago Convention, governments may also find themselves liable for failure to provide adequate safety oversight to the extent they have waived their sovereign immunity. In Canada,735 the ANS provider is contractually obliged to indemnify the government, and to carry adequate insurance to cover its liability.

734 For example, insurance coverage is covered by the French state through its general budgetary allocations for DNSA and DGAC. In the Netherlands, LVNL makes provision for insurance as part of its general costs. After 9/11, the Dutch government undertook to cover war risk insurance. Switzerland’s Skyguide purchases private insurance. Since the ANS functions have been delegated to an independent corporation – NATS -- the UK State only remains responsible and liable for damages caused by its own direct fault. In all other cases, in legal theory, the effective service provider (i.e. NATS) stands alone as responsible and liable such that the UK State has no legal obligation to step in and substitute for NATS in the case a successful claim would exceed the financial capacity of NATS. NATS is expected to insure itself against such liabilities. On the other hand, political reality and the common law principle that the State is the ultimate safeguard for public safety and national security, suggest that the State might substitute for NATS in the event of financial insolvency. 735 NAV CANADA is a federally incorporated company that thereby assumes all the rights and responsibilities of such an entity in terms of suing and being sued. NAV CANADA is legally obliged to indemnify the Canadian Federal Government for liability “arising out of… the management, operation, maintenance and development of the ANS Services by NAV CANADA.” Furthermore, NAV CANADA is obliged to “purchase, provide and continuously maintain… (commercially reasonable amounts of) insurance, … including aviation operations liability insurance.” The aviation operations liability insurance shall provide coverage of not less than one billion dollars per occurrence and provide that the Federal Government is an additional insured.

THE McGILL REPORT on GOVERNANCE OF COMMERCIALIZED …

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