lable at ScienceDirect

Journal of Air Transport Management 57 (2016) 155e167

Contents lists avai

Journal of Air Transport Management

journal homepage: www.elsevier .com/locate/ ja ir t raman

An assessment of delivery changes for UK terminal air navigationservices

Ian Thompson a, *, Richard Pech b, Kok Boon Oh a, Timothy Marjoribanks a

a School of Business, College of Arts, Social Science and Commerce, La Trobe University, Victoria, 3086, Australiab ICAM, Pekan, Malaysia

a r t i c l e i n f o

Article history:Received 14 October 2015Received in revised form19 July 2016Accepted 24 July 2016

Keywords:Air traffic controlAirportsBirmingham airportCompetitionFive forcesGatwick airportHeathrow airportNATSPorterStrategyTANSTerminal air navigation services

* Corresponding author.E-mail address: ithompson@thompsongcs.com (I.

http://dx.doi.org/10.1016/j.jairtraman.2016.07.0160969-6997/© 2016 Elsevier Ltd. All rights reserved.

a b s t r a c t

In order to meet government contestability policy ambitions, the United Kingdom Civil Aviation Au-thority (CAA) has undertaken a range of initiatives to create a competitive market for terminal airnavigation services (TANS). This paper examines the critical dynamics underlying recent TANS servicedelivery changes at the nine United Kingdom airports that fall within the Single European Sky perfor-mance scheme (SES) using industry data and Porter's five forces model. Interviews with CAA, NATS andairport operators, along with publically available material, are used to explore the various elementsimpacting competition for TANS at these airports. Competition is intense among a very small number ofcompanies. In addition to optimizing service cost, airport operators require greater value for moneyincluding alignment to strategic-operational goals, closer integration with other airside functions andpayment structures that are performance based. Gatwick and Birmingham airports changed serviceprovisions due to concerns about the value for money proposition offered by NATS Services Ltd (NSL).This paper also illustrates how competition has changed the customer orientation of NSL. It has beenforced to evolve quickly from an expensive, perceived as somewhat arrogant, organisation to one thatmust be capable of aligning to the cost and service requirements of its customers. Importantly for theATM industry this paper provides evidence that competition drives lower service costs and providesgreater value for money for airlines and airport operators.

© 2016 Elsevier Ltd. All rights reserved.

1. Introduction

The air traffic management (ATM) industry globally is undergovernment and airline pressure to improve its operational effec-tiveness while at the same time reducing service delivery costs.Within Europe, the European Commission (EC) has established theSingle European Sky (SES) performance scheme to provide a leg-islative framework to address these issues. The SES performancescheme requires that each member state achieves service perfor-mance and cost efficiency targets.

The United Kingdom Civil Aviation Authority (CAA), as thedesignated National Supervisory Authority (NSA) for the UnitedKingdom, is required to establish national targets and plans tomeetEC goals for the delivery of air traffic services (ATS). These UK ob-ligations under the SES are addressed in two ways. First, formonopolistic en-route services, it involves having the ATM service

Thompson).

provider achieve performance improvements plus a 3.3% perannum real cost reduction during the period 2015 to 2019. Thiscomprises a cost reduction of 2.1% per annum, with a correspond-ing increase in traffic of 1.2% per annum.

The second initiative is to achieve contestability in the domesticmarket for terminal air navigation services (TANS). UK airports withmore than 70,000 instrument flight rules (IFR) movements annu-ally fall within the SES performance scheme. In the absence of acompetitive market CAA is required to establish cost efficiencytargets for TANS at these airports. A report conducted by CAA intothe competitive environment for UK TANS concluded that marketconditions did not exist (CAA, 2013). As a consequence, CAA set acost efficiency target of 2.3% per annum in TANS service deliverybetween 2015 and 2019 (CAA 2015a, 2015b, 2015c). There is noobligation to impose market contestability in order to achieve thiscost efficiency target. (CAA 2015a, 2015b, 2015c), in a subsequentreport, found that market conditions now exist for TANS. Thismeans that the cost efficiency target is no longer required.

In the past, NATS Services Limited (NSL) was the sole provider of

I. Thompson et al. / Journal of Air Transport Management 57 (2016) 155e167156

TANS at the nine UK airports that fall under the SES performancescheme. Recently Gatwick Airport Ltd (GAL) awarded its aerodromecontrol service to Air Navigation Solutions Ltd (ANS), the UnitedKingdom subsidiary company of Deutsche Flugsicherung Gmbh(DFS), the German ANSP. Birmingham Airport Limited (BAL) alsodecided to self-supply its TANS service. BAL commenced its self-supply service on 1 April 2015, while the ANS service at Gatwickcommenced on 1March 2016. (CAA 2015a, 2015b, 2015c) concludesthat these changes in service delivery provide evidence that marketconditions for TANS have been created.

This paper provides insights into the underlying structure of theTANS market in the United Kingdom at the nine airports which fallwithin the SES performance scheme. In particular it examines thecompetitive pressures that are impacting NSL, the long term sup-plier of these services. It also critically examines the existingcompetitive market for TANS and whether this will foster compe-tition, the desired service delivery, and cost reductions. Porter's fiveforces model is used to provide an effective framework for thisanalysis. Outcomes from the creation of a competitive market forTANS in the United Kingdom will be monitored closely withinEurope and elsewhere, thereby providing an important justificationfor this paper.

Porter's Five Forcesmodel has been chosen for this paper since itis the most widely used framework for analyzing competition(Grant, 2016 p68). It provides a structured framework to analysethe various competitive elements that influence TANS service de-livery. Although the five forces model presents a somewhat staticpicture of the competitive market, it enables analysis of the TANSindustry at these nine UK airports as service delivery alternatives toNSL are adopted for the first time.

This is the first academic paper exploring the competitivemarket conditions for TANS at the nine largest United Kingdomairports. The analysis contained in this paper, based on Porter's FiveForces model, provides the foundation for other researchers toexplore the efficacy of CAA initiatives to create competition. It alsoprovides a foundation for determining how the forces impactingthe competitive environment have changed over time.

Data for this paper has been obtained from:

1) Publicly available publications, particularly studies undertakenby CAA for the Department of Transport about the marketconditions for TANS; and

2) Interviews undertaken with senior representatives from CAA(3), NATS (3), Gatwick Airport Ltd (1), Birmingham Airport Ltd(1) and Heathrow Airport Ltd (1). These interviews took placebetween March and May 2016.

Interviewees were selected purposively due to their directinvolvement in the TANS service changes. Interviews were semi-structured and were recorded and transcribed. The data was thenanalysed thematically. Fieldwork was approved through the rele-vant ethics process, with the main consideration being the confi-dentiality of participants.

The paper begins by presenting the operational context of TANSwithin the United Kingdom air traffic management industry. Anoverview of the operational and commercial context of NATS isthen provided. We then explore the competitive structure of theUnited Kingdom TANS market analyzing each of Porter's FiveForces. The paper concludes by providing strategic implicationsfrom this analysis.

2. Operational context

Air traffic control operations can be categorised into three areas,namely, aerodrome, approach and en-route control (CAA 2015a,

2015b, 2015c). Aerodrome control provides services to aircraftlanding and taking-off at an airport and manoeuvring on theground. It generally extends for 10 nm around an airport and up to4,000 ft above the ground.

Approach control sequences aircraft for arrival at an airport, andassumes responsibility from aerodrome control for departingaircraft. The approach service for a number of airports can becombined and undertaken from a centralised facility. An approachcontrol service could extend for up to 40 nm from an airport.

The third operational area is en-route control. It provides airtraffic control services to aircraft during the cruise phase of flightbefore and after approach control functions. These en-route ser-vices are provided from centralised air traffic control centres.

A single air navigation service provider (ANSP) normally pro-vides en-route control within civil airspace of each country. Incountries where the commercialised delivery of ATM takes place,en-route control is legislated as a statutory monopoly. Commonlyeach country imposes regulatory controls to ensure that this mo-nopoly position is not abused by the ANSP in the setting of usercharges.

Most countries extend the monopoly provision of air trafficcontrol to approach and aerodrome control service areas. Australia,for example, includes the approach and aerodrome control underthe statutory service monopoly performed by Airservices. Air-services is an Australian government owned ANSP. Charges arenegotiated between Airservices and its airline users. Airports arenot involved in charging airlines for aerodrome and approach ser-vices. There is no contract for service between the airport operatorand Airservices for the provision of TANS services.

Some countries, however, have created a regulatory environ-ment that enables competition to take place in the delivery of theseservices. Spain has deregulated its aerodrome control services inorder to lower air traffic controller costs, which until recently wereconsidered to be the highest in Europe (CAPA, 2011b). In this casethe TANS supplier contracts with the airport operator for theseservices. The airport operator, in turn, charges airlines for the TANSservice.

Unlike many countries, United Kingdom approach and aero-drome control services have never been subject to a statutorymonopoly (CAA 2015a, 2015b, 2015c). The term terminal air navi-gation services (TANS) is used to describe these services. Of the 128licensed aerodromes in the United Kingdom, only approach controlservices provided for the five London airports are part of the stat-utory monopoly encompassing en-route services. The charge tomeet the cost of London approach control service is negotiatedbetween NATS En-route Ltd (NERL) and airline users.

Airport operators negotiate the cost of aerodrome and/orapproach control service provision with the TANS supplier. Theairport operator then passes these charges, or a portion there-of, toairline users as part of the overall airport charge. This means thatsome airport operators might subsidise the cost of TANS provision,should they choose.

In 2013 there were 62 organisations certified to provide TANS inthe United Kingdom (CAA, 2013). NSL provides services at 14 lo-cations (NATS Holdings, 2015).

TANS at airports that exceed 70,000 IFR movements annuallyfall within the SES performance scheme. This is based on aircraftmovement statistics for the previous three years. (CAA 2015a,2015b, 2015c) determined that nine airports exceeded this move-ment threshold and fall within the SES performance scheme.

Table 1 below presents a summary of each of the nine airports indescending order of IFR traffic movements. It also notes whetherthe airport is subject to economic regulation and the incumbentTANS supplier.

European Union (EU) Common Charging Regulation (391/

Table 1Summary information of nine largest UK airports.

Airport IFR movements (2015) Airport economic regulation TANS Supplier

London Heathrow 472,131 Yes NSLLondon Gatwick 262,639 Yes ANSManchester 164,963 No NSLLondon Stansted 155,913 No NSLEdinburgh 109,554 No NSLLondon Luton 92,005 No NSLBirmingham 90,069 No Self-SupplyLondon City 83,650 No NSLGlasgow 83,398 No NSL

Sources:� Review of Advice on SES Market Conditions for Terminal Air Navigation Services in the UK (CAA 2015a, 2015b, 2015c). Total IFR movements were derived from the sum ofscheduled and charter air transport movements for each airport. It is assumed that all of these movements are IFR.;� Summary of Activity at Reporting Airports 2015 from UK Airports Annual Statements of Movements, Passengers and Cargo (CAA, 2016).Note:While all nine airports fall within the SES performance scheme, only Heathrow and Gatwick airports are subject to UK economic regulation. The remaining seven airportsare subject to economic license.

I. Thompson et al. / Journal of Air Transport Management 57 (2016) 155e167 157

20213) Annex 1 outlines market assessment conditions for TANS.Table 2 below summarises these six criteria and the CAA assess-ment about whether their conditions are being met (CAA 2015a,2015b, 2015c). Should market conditions not exist, CAA couldelect to use its competition law powers, or other powers, to achievethis outcome (CAA 2015a, 2015b, 2015c). An earlier report (CAA,2013) into TANS reported that market conditions did not exist inthe UK. By 2015, however, (CAA 2015a, 2015b, 2015c) concludedthat initiatives to create market conditions for TANS have beensuccessful.

3. Overview of NATS operational and commercial context

NATS is the most significant ANSP in the UK. It is a privatisedcompany with shareholding that includes the government, a con-sortium of airlines, pension funds, staff and Heathrow AirportLimited (HAL). There is light-handed government influence over itsactivities. Although the Department of Transport provides somepolicy input into NATS activities, commercial shareholders are ableto appoint the majority of board members, have greatest controlover the appointment of senior management and approve thebusiness plan (CAPA, 2011a).

To match the organisation to the competitive operational envi-ronment, the NATS parent company is split into two subsidiarycompanies namely NATS En-route Ltd (NERL) and NATS Services Ltd(NSL). NERL is the sole provider of en-route ATS in UK airspace andover the part of the North Atlantic, plus London approach services.These services are provided from two air traffic control centres.Each aircraft is charged for these services. During financial year2014/15 it generated 75% of total group income and contributed86% of its net profits (NATS Holdings, 2015).

NSL in essence provides non-monopoly TANS and related en-gineering services at 14 airports in the United Kingdom plus twomilitary bases. It has formed a joint venture with Ferrovial

Table 2CAA criterion for assessing market conditions.

Criterion

Criterion 1 The extent to which service providers can freely offer to provide or withdCriterion 2 The extent to which there is a free choice in respect to service provider, incluCriterion 3 The extent to which it can be chosen from a range of service providers.Criterion 4 For TANS, the extent to which are subject to commercial cost pressure orCriterion 5 Where the provider of TANS […] also provides en-route air navigation s

accounting and reportingCriterion 6 For TANS, the assessment in Annex 1 of EC Regulation 391/2013 shall be c

Source: Review of Advice on SES Market Conditions for Terminal Air Navigation Service

(FerroNATS) to provide TANS at nine airports in Spain. As part of thecontract for service, FerroNATS charges the airport owner for thecost TANS provision. It is the responsibility of the airport owner tonegotiate with airlines to recover the cost of TANS. NSL contributes25% of total group income and 14% of net profits. This proportionatedrop in profit relative to revenue reflects the lower margins earnedthrough a competitive tender process to win service contracts.

In 2013, although providing TANS at only 15 of the 128 licencedairports in the United Kingdom, NSL was responsible for 60% oftotal airport aircraft movements. The loss of services at Birming-ham and Gatwick are forecast to result in the NSL share of total UKairport aircraft movements falling to approximately 45% by 2017(CAA 2015a, 2015b, 2015c).

4. Competitive structure of UK TANS market

Porter's five forces model (Porter, 2008) has been used toexamine the various industry forces and their impact on thefunctions of strategic planning and competitor analyses. This modelprovides a strategic framework to analyse the underlyingcompetitive structure of TANS service provision at the nine largestUK airports. In brief, (Porter, 2008, p3) considers that in any in-dustry the mix, interaction and impact of five forces defines anindustry structure and shapes the competitive interaction withinthat industry. The model provides an analytical framework to un-derstand the underlying structure of an industry and the impact oncompetition and profitability.

Fig. 1 below presents a diagrammatic representation of Porter'sfive forces model, which will be explained further in the discussion.

According to Porter, five forces shape industry competition,namely, Threat of New Entrants; Power of Suppliers; Power ofBuyers; Threat of Substitutes; and Rivalry among Existing Com-petitors. Implicitly the five forces reveal the competitive foundationfor the industry.

CAA assessment

raw the provision of these services. Metding, in the case of airport, the option to self-supply. Met

Metincentive based regulation. Metervices these activities shall be subject to separate Met

arried out at each individual airport as appropriate. Not relevant to UKcircumstances

s in the UK (CAA, 2015).

Fig. 1. Diagrammatic representation of Porter's five forces model.Source: The Five Forces That Shape Industry Competitiveness (Porter, 2008)

I. Thompson et al. / Journal of Air Transport Management 57 (2016) 155e167158

Grant (2016) highlights some shortcomings in the Porter fiveforces model. He believes that the five forces model relegates in-dustry environment into a minor role in determining a firm'sprofitability. For the purposes of this study, wherewe are looking ata specific area of the ATM industry within one country, there issufficient focus to apply the five forces model to understand theunderlying competitive structure.

Grant (2016) also claims that when the pace of structural changein an industry is rapid the five forces model does not offer a stableframework to predict competitive behaviour. ATM, however, can becharacterised as a conservative risk averse industry with a veryslow pace of structural change. These industry characteristics arewell suited to analysis utilising Porter's framework.

Porter's five forces model was chosen to describe and analysethe various competitive forces that are impacting the TANS market.Pressure from airport owners, airlines and CAA has seen airportstender their TANS in order to seek reductions in service costs.Structural change that is taking place within the TANS market,evidenced by service changes at Gatwick and Birmingham airports,warrants understanding of the various elements affectingcompetitive behaviour. Although this analysis, based on the fiveforces model, provides a somewhat static snapshot at a point intime, it establishes a baseline from which subsequent strategicanalysis and further research can take place.

Applying Porter's five forces model, we can examine the po-tential competitive impact of the proposed changes as well asanalysing the strategic landscape at the nine airports in the UnitedKingdom where TANS services are economically regulated underthe SES performance scheme. These are the nine largest airports inthe United Kingdom, each with more than 70,000 annual move-ments by aircraft operating under instrument flight rules (IFR).

4.1. Threat of New Entrants

The UK government has policy ambitions to create a competitivemarket for TANS. (CAA 2015a, 2015b, 2015c) has identified anumber of factors that are influential in creating market conditionsfor TANS. These factors include the tender processes and contractlength, access to suitably qualified staff and service transition, the

interface between TANS and NERL and alternative providers. Thissection explores these issues in more detail.

4.1.1. Tender processes and lengthThe Civil Aviation Act 2012 (Regulation of Operators of Domi-

nant Airports) means that economic regulation by CAA is applied toan airport only when it passes the market power test, set out inSection 6 of the Act. In the case of the nine airports with more than70,000 IFR movements, only Heathrow and Gatwick airports aredeemed to have passed the market power test and thereby aresubject to economic regulation (see Table 1 above). The remainingseven airports are only subject to economic license meaning thatCAA has limited regulatory influence over their competitiveactivities.

By the end of 2014, however, three of the nine had tenderedtheir TANS namely Luton, Birmingham and Gatwick airports.Following a tender process Birmingham and Gatwick decided toend their arrangements with NSL for TANS service provision. Lutonextended their relationship with NSL. Interviews with seniorairport, NATS and CAA representatives indicate that the imperativeto tender TANS comes from pressure from airport owners and air-lines to reduce service costs and achieve greater value for moneyfrom the expenditure. The influence of commercial airportownership and airline pressure on reducing service cost will bediscussed later in this paper.

NSL made a legal challenge to the decision of Gatwick AirportLtd (GAL) to award the TANS contract to ANS. The basis of the NSLchallenge was that GAL applied incorrect scoring to some DFStender responses, particularly in relation to service transition. NSLalso claimed that DFS submitted a tender price that was abnormallylow (NATS (Services) Ltd v Gatwick Airport Ltd, 2014). Although NSLwas successful in obtaining an injunction to prevent GAL fromentering into a contract for service with DFS until a hearing washeld, both parties settled the matter before trial without anyacceptance or admission of liability. (CAA 2015a, 2015b, 2015c)noted that the risk of litigation from an incumbent who may havelost the service could be a significant barrier for smaller ANSPs whomay seek TANS contracts at the large airports.

Manchester Airport Group (MAG) decided not to tender their

I. Thompson et al. / Journal of Air Transport Management 57 (2016) 155e167 159

TANS at Manchester and Stansted airports after considering self-supply and alternative supplier options. They used the threat of atender to negotiate preferred terms with NSL (CAA 2015a, 2015b,2015c). (CAA 2015a, 2015b, 2015c) expressed concern that MAGextended the arrangement with NSL for a 10 year period. Theyconsidered that a 10 year extension for an incumbent, withoutgoing to open tender was unnecessary and did not promotecompetition.

By the end of 2016 CAA would like half of the nine airports tohave tendered their TANS services. They also imply a contractlength in the range of 5e10 years to ensure that the cost of TANS issubject to regular market tests. A term at the upper end of thisrange is considered appropriate when a new entrant commences aservice and needs to recoup establishment costs (CAA, 2015).

4.1.2. Access to assetsTo foster competition, CAA has directed initiatives to remove

many of the competitive advantages that NSL holds. CAAwants theassets needed to provide TANS e.g., control towers and technologysystems to be owned by airports. This enables a new supplier tohave immediate access to these assets at the time of transition.Without this access to assets the costs and time to establish analternative service may be insurmountable (CAA 2015a, 2015b,2015c).

Table 3 presents a summary of the asset ownership arrange-ments for the control tower building and equipment at each of thenine airports. It illustrates that the control tower building is ownedeither by the airport or NATS. Third party ownership of equipmentmeans that, typically, a finance company owns the assets and leasesit back to the ANSP. This information was correct as at 28 February2013.

Table 3 highlights that BAL (Birmingham) already had owner-ship of the control tower building and equipment prior to its de-cision to self-supply its TANS. Of the other airports, most own thecontrol tower building while almost all equipment is providedunder a lease from a third party. Since 2013, GAL purchased thecontrol tower building and all assets owned by NATS as part of thetransition to the new service arrangements provided by ANS.

Responses from interviews with senior representatives, how-ever, indicate that asset ownership is not a significant factor inpreventing an airport from pursuing alternative service arrange-ments. A pragmatic approach between the parties occurs to nego-tiate the transfer of these assets to the airport operator.

4.1.3. Access to suitably qualified staff and service transitionThe availability of skilled staff is arguably the most important

input for operating an ATC service. (CAA 2015a, 2015b, 2015c)presume that ATC staff will transfer to an alternative suppliershould the contract for service provision change hands. This en-ables an alternative supplier to access the existing pool of skilledstaff without incurring major transition costs associated with the

Table 3Structure of asset ownership at nine largest airports (2013).

Airport Control tower building

London Heathrow AirportLondon Gatwick NATSManchester AirportLondon Stansted NATSEdinburgh AirportLondon Luton AirportBirmingham AirportLondon City AirportGlasgow NATS

Source: CAP 1004 - SES Market Conditions for Terminal Air Navigation Se

recruitment and training of replacements.(CAA 2015a, 2015b, 2015c) considers that The Trust of a Promise

(ToaP) agreement, negotiated with staff at the time NATS was pri-vatised, inhibits this movement of staff. Staff who are covered bythe agreement can choose to remainwith NATS rather than transferto the new employer should equivalent pension arrangements notbe provided. An alternative supplier, therefore, faces the prospect ofhigher set up costs before being able to commence a service.

In effect the ToaP provides staff covered by this arrangementpreferable superannuation arrangements. While potentiallyrestricting the movement of staff to an alternative supplier, it alsomeans that NSL can be at a significant cost disadvantage if signifi-cant numbers of staff are covered by this agreement. The ToaPpresents a challenge for NSL to shape its cost base to successfullycompete for TANS tenders.

According to participant interviews, at Gatwick approximatelyone third of the operational air traffic staff elected to remain withNATS, rather than transfer to ANS. NATS has entered into anagreement with ANS to provide operational staff under second-ment for 24months until replacements can be sourced and trained.A number of new management personnel have joined the organi-sation. The transition at Birmingham saw 75% of air traffic controlstaff transfer to Birmingham Air Traffic Limited (BAATL), the orga-nisation established by BAL to provide TANS.

It seems from this evidence that the ToaP, in itself, does notrestrict competition. Rather, the need to replace staff covered bythis agreement, who may choose to seek a position elsewhere inNATS, adds to the time, cost and complexity of transition. There isevidence to suggest that the costs and risks of transition to a newservice provider are a consideration for an airport operator whenconsidering ending an incumbent relationship with NSL. Man-chester Airports Group (MAG) negotiated preferred contract termswith NSL using the prospect of self-supply and commercial tenderduring negotiations to drive down costs. They considered that thisprocess provided the advantage of achieving better contractualterms without incurring the costs of tendering and risks associatedwith switching suppliers. Heathrow Airport Limited (HAL)expressed caution in exploring alternative TANS supplier optionsdue to concerns about whether a seamless transition could beachieved in a cost effective manner (CAA 2015a, 2015b, 2015c). Inpractice the outcomes from implementing service changes at Gat-wick and Birmingham indicate that any transition risks can becontrolled and mitigated. Whether the high traffic volume,complexity and closer inter-relationship with NERL of Heathrowmight be an exception is open for debate. Transition risks in almostall cases, therefore, are unlikely to be a significant reason for anairport operator to avoid a change in their TANS service deliveryarrangements.

According to participants in this research, BAL found that theissue of managing the ToaP obligations was a challenge since no-body had previously exercised it. NSL and BAL had to develop a

Equipment

Mainly 3rd party with some NATS ownedMainly 3rd party with some NATS ownedAirportMainly 3rd party with some NATS ownedMainly 3rd party with some NATS ownedMainly 3rd party with some NATS ownedAirportAirportMainly 3rd party with some NATS owned

rvices in the UK (CAA, 2013).

I. Thompson et al. / Journal of Air Transport Management 57 (2016) 155e167160

transition plan afresh with little experience upon which to baseplanning assumptions. The major challenges were staff related,particularly managing the recruitment and training of air trafficcontrollers needed to replace those who may seek a transfer underthe ToaP agreement. BAL also had to gain the support of other airtraffic controllers so that they would transfer to BAATL.

It was anticipated that 18 months or longer might be needed tocomplete the transition from NSL to BAATL. Arrangements wereagreed between the two organisations to extend the NSL contractto cover this period. Addressing the ToaP issue presented differentissues for both organisations. NSL had to find these people anotherrole within NATS, inevitably involving relocation and retrainingcosts, along with retaining expensive pension provisions. WhileNSL wanted to relocate these people as quickly as possible, they didnot want to transfer people to Birmingham as their replacements.BAL had to obtain sufficient staff numbers to provide the TANS. Asecondment agreement was reached whereby BAL paid the staffcosts to augment the air controller establishment throughout thetransition period. NSL arranged and conducted the training underthe NATS unit training plan. As people were trained and qualified,they replaced thosewhowished to leave Birmingham.Without thisarrangement BAL believe that would not have been able to trainsufficient staff during the transition period.

During the transition period licensing and certification of theATM safety management system and engineering services wererequired. These certification and licensing activities were accom-plished relatively easily at Birmingham.

4.1.4. Interface between TANS supplier and NERLNERL provides monopoly approach control services that inter-

face with the five London airports and en-route control to supportTANS at the other four airports. To optimize the efficiency of TANS,air traffic control functions undertaken at the airport and by NERLmust operate harmoniously with each other. Historically NSL andNERL have provided these services under one corporate umbrella.

CAA (2013) highlighted concerns of airport operators about thepossible consequence of losing this close relationship between NSLand NERL should TANS service delivery change hands. There wereconcerns that the efficiency of airport operations might becompromised if the close relationship between management ofboth organisations ended. Organisations involved in transitioningservices to new TANS suppliers, however, largely discounted thisconcern. Service level agreements between NERL, the TANS sup-plier and airport operator have become more sophisticated anddetailed in the past two years. Furthermore, terms are containedwithin the NERL ATS license that require compliance with reason-able requests, prevent discrimination and not give preferentialtreatment (CAA, 2013). Nevertheless personal relationships thathave developed over many years between managers in the sameorganisation are likely to make the resolution of operationalproblems somewhat easier, in particular because of the trust di-mensions that develop over time.

The ATM industry in Europe, through the SESAR (Single Euro-pean Sky ATM Research) program, is in the midst of undergoinggenerational technological change. NATS is at the forefront ofimplementing many new ATM technologies. CAA (2013) raised theprospect that an end to the organisational interface between NSLand NERL might restrict the linkages for the airport operator to thewider UK and European ATM developments and the ability to shareexpertise and learning.

The interview with a senior GAL representative offered adifferent perspective. According to this interviewee, GAL believedthat the operation of London terminal area was configured andoperated principally to serve Heathrow. While in many ways un-derstandable, GAL wondered whether the focus of NATS on

Heathrow went too far, at the expense of Gatwick operations.Furthermore there is a perspective within GAL that their interestshave not been represented as well as they might on the SESARProject or with the Network Manager. GAL expect that ANS,through their DFS parent, will second people to provide expertiseso that they Gatwick can contribute to these major developmentprograms.

CAA (2013) raised the prospect of additional costs of achievingsystem interoperability and interfaces in the event of NSL beingreplaced by an alternative service provider. In this report, GALacknowledged that while interoperability was important they didnot believe the issue was insurmountable. The introduction of newtechnology thatmay be used for TANS and NERL functions places anincreased onus on NATS to engage airport operators in systemdevelopment and implementation activities. Airport operators willneed to align their activities to meet their obligations to bring thesenew technologies and procedures into operation.

4.1.5. Alternative providersFrom operational and technical perspectives, NSL is a sophisti-

cated organisation. It faces competition from three sources, namelyanother UK TANS supplier, another international ANSP or selfsupply by an airport. Other UK-based TANS suppliers have beenshaped to meet the needs of airports with comparatively low levelsof traffic movements and complexity. They have become low costproviders through reducing non-operational overheads and oper-ational costs. VantageANS, for example, provides TANS at threeairports. It claims they pay little more than half that of NSL for anaerodrome only qualified air traffic controller (CAA, 2014).

Low cost providers have also adopted lean structures formanagerial and administrative roles. The limited availability ofnon-operational staff presents practical difficulties for thesesmaller TANs suppliers to deploy the resources needed to suc-cessfully tender for TANS at the nine large airports. They are alsovery wary of assuming the greater operational risk associated withTANS at these airports. VantageANS noted that the requirement tomeet runway resilience performance metrics at Gatwick presenteda significant operational risk in tendering for the aerodrome ser-vices contract (CAA 2015a, 2015b, 2015c).

Regulatory price controls on monopoly services restrict theability of ANSPs to grow revenue in their home country. A relativelysmall number of sophisticated ANSPs are endeavoring to generateadditional revenue by undertaking international work. Arguably,ANSPs who have deregulated aerodrome and/or approach services,developed organisational structures to respond to competition andhave ownership, particularly the government shareholder, thatsupports international expansion are most likely to seek interna-tional opportunities.

The removal of asset ownership and staff barriers enables pricecompetition to take place between sophisticated ANSPs. At the ninelargest United Kingdom airports, organisations with a comparativelevel of sophistication to NSL are needed to establish a competitivemarket. In the case of Gatwick it is almost certain that ANS offered acomparable level of service sophistication to NSL. With comparablelevels of sophistication, the significantly lower cost of their tenderwas a key element in the decision by GAL to award the contract toANS.

Providing services at a number of locations enables NSL toachieve supply-side economies of scale. To provide an air trafficcontrol (ATC) service a supplier must produce operational docu-ments and undergo regulatory certification. It also needs to havemanagerial, training and audit/standards functions to supportoperational activities. These costs can be shared over a number oflocations.

EU regulations, in principle, enable alternate TANS suppliers

I. Thompson et al. / Journal of Air Transport Management 57 (2016) 155e167 161

originating from Europe to substantially reduce these establish-ment costs. New regulations have enabled a common approach toair traffic controller licensing, training standards, medical assess-ments, certification of training organisations, and the assignment ofa competent organisation to manage activities to certify andmanage operations (European Union, 2015). The Common Re-quirements regulations mean that any certified EU ANSP canoperate in any other EU state without needing to be re-certified.Interviews with CAA indicate that they are unaware of any ANSPto date who has imported its certification to operate in anotherstate.

An alternative supplier looking to enter the market at only onelocationwould normally be at a significant cost disadvantage to NSLuntil it is able to secure additional service contracts. To compete at asingle location, an alternate supplier might need to adopt somelevel of cost subsidisation until further TANS services can be wonand economies of scale realised. This cost subsidisation mightinclude accepting a lower rate of return or having some of thefunctions, noted above, absorbed by the parent organisation. Costsubsidisation would not be needed if the incumbent had beenmaking an excessive rate of return. An alternative supplier couldlower its service delivery costs by strategies such as reducingmanagement overheads, increasing its span of operation into otherairside activities or changing the mix of operational staff.

The small number of compliant bids for TANS tenders at Luton(2), Gatwick (3) and Birmingham (1) highlights the difficultysmaller suppliers have in meeting the service capability thresholdsrequired by larger more complex airports (CAA, 2015). CAA (2013)identified seven European ANSPs that could potentially tender forUK TANS services. The number of compliant bids also highlightsthat there are only a very small number of international ANSPs whohave the operational sophistication, cost structure and commercialaspirations to compete with NSL.

Self-supply, involving the airport owner providing the TANSservice, is the third source of competition. On 1 April 2015 BALcommenced self-supply, replacing NSL. Self-supply provides threepossible advantages to an airport owner. It enables an airport toexert greater control over activities that take place at their airport.Significant cost savings are possible if the airport operator choosesnot to place a profit margin on its TANS service, apply significantrisk provisions or add substantial management overheads. Somesmaller cost savingsmight be realised by increasing the job scope ofair traffic management and staff to support airside functions.Airport owners also avoid the costs and effort needed to periodi-cally re-tender their TANS service, along with the transition risks.The airport, on the other hand, needs to be able to substantiallyincrease their operational ATM capability and assume greater ser-vice risks.

4.1.6. Impact of aircraft movements on form of TANS deliveryInterviews with senior managers suggest that the form of

alternative TANS service delivery depends on the number of IFRtraffic movements. Self-supply involves the airport ownerassuming increased operational risk. Of the nine airports, thosewith lower numbers of aircraft are likely to consider this servicedelivery option. These airports could also consider outsourcedprovision of the service.

Airports from mid range traffic movements up to and includingGatwick are more likely to consider outsourced provision of TANS.This option means that operational risk remains managed by aspecialist service supplier. These airports are likely to be unwillingto assume the increased operational risk associated with self-supply.

Heathrow has almost double the number of IFR movements tothat of second placed Gatwick. This very high volume of traffic,

including the integration of sophisticated technologies andairspace procedures, probably requires the most sophisticatedTANS supplier. It necessitates a very close inter-relationship withNERL, arguably closer than the relationship needed between NERLand Gatwick. Very high service sophistication, along with someuncertainty about the service capabilities of an alternative supplier,possibly means that HAL might seek to retain its existing servicearrangements with NSL. On the other hand, Gatwick handles 55movements per hour on a single runway, compared to the tworunways at Heathrow each with around 44 movements per hour.The complexity of the single runway operation did not prevent GALfrom changing TANS suppliers.

Table 4 Below presents the IFR traffic numbers for each airportand provides an approximation of the possible form of TANS servicedelivery. It also provides an assessment of the likelihood of a servicechange occurring at each airport in the near future, based onanalysis of interviews with senior management.

Edinburgh is assessed as having a high likelihood of TANS ser-vice change since it has the same ownership as GAL i.e., GlobalInfrastructure Partners. London City until recently was also ownedby Global Infrastructure Partners. It is possible that managementmay still actively look to explore new service alternatives. ThereforeLondon City is assessed as having a medium likelihood of servicechange. The appetite of Glasgow Airport to seriously pursue a ser-vice change is not known. It will likely review the outcomes ofservice changes at Gatwick and Birmingham before making a de-cision. Therefore a general categorization of low-medium isassigned to Glasgow. A service change at these three airports will,of course, depend on the capability of NSL to provide a servicesolution that meets airport strategic and operational requirementsat a competitive price.

Manchester, Stansted and Luton airports have recently signedservice delivery contracts with NSL. Heathrow has embarked on anew strategic relationship with NSL. No short term changes to TANSservice delivery arrangements are foreseen.

4.2. Bargaining Power of Buyers

In this context buyers are airport operators who either self-supply TANS or enter into a contractual relationship with a suit-ably qualified organisation to provide these services. Althoughairlines are not the direct buyers of this service they exert consid-erable pressure on airports to achieve cost reductions, whilemaintaining or improving operational efficiency. This section pro-vides some background context about airport profitability, the in-fluence of airlines in lowering costs and airport motivations totender TANS. Matters impacting airlines, which purchasemonopolyservices directly from the NERL, are generally outside the scope ofthis discussion.

4.2.1. Airport profitability-contextual backgroundTo guard against monopolistic practices, restrictions have been

placed on the ownership of airports and charges are regulated. In2009 the United Kingdom Competition Commission ordered BAA tosell Gatwick, Stansted and one of either Edinburgh or Glasgowairports thereby breaking up their ownership monopoly. TheUnited Kingdom adopts a somewhat heavy-handed approach to theregulation of airport charges at only Heathrow and Gatwick air-ports. Heavy-handed price regulation is considered less importantwhen greater competitive pressure is created, such as at theremaining seven airports (Graham, 2012). The United Kingdom issoftening its regulations by imposing greater consultation re-quirements rather than price control (Arblaster, 2012). Airlines,however, still favour a formal system of price regulation (Graham,2012).

Table 4Possible form of TANS relative to IFR aircraft movements.

Airport IFR traffic movements Possible form of TANS delivery Likelihood of service change

London Heathrow 472,131 Remain NSL/possible outsource Low: New strategic arrangement recently agreed with NSLLondon Gatwick 262,639 Outsource Changed to ANSManchester 164,963 Outsource LowLondon Stansted 155,913 Outsource LowEdinburgh 109,554 Outsource HighLondon Luton 92,005 Self-supply/outsource LowBirmingham 90,069 Self-supply/outsource Changed to self-supplyLondon City 83,650 Self-supply/outsource MediumGlasgow 83,398 Self-supply/outsource Low-medium

Source: Summary of Activity at Reporting Airports 2015 from UK Airports Annual Statements of Movements, Passengers and Cargo (CAA, 2016).

I. Thompson et al. / Journal of Air Transport Management 57 (2016) 155e167162

The financial performance of airports is highly dependent on thenumber of passengers handled. The ACI Europe Economics Report(2013) concluded that 58% of European airports in 2012 with fewerthan 5m passengers per annum operated at a loss. When passengernumbers fall below 1 m, ACI-World Bank (2015) report that 80% ofthese airports lose money. During 2014 only nine United Kingdomairports handled more than 5 m passengers (CAA, 2015b). Thissuggests that the vast majority of the 128 licensed airports in theUnited Kingdom are likely not to be profitable.

Airports with low passenger numbers face financial pressure ona number of fronts. Airlines are able to exert commercial powerover airport operators. These airports are sometimes faced with theneed to reduce charges to airlines in order to retain or attract ser-vices. Furthermore, airports located in areas that have slow eco-nomic growth typically have higher debt levels. Slow revenuegrowth invariably results in the financing of capital infrastructurebeing problematic. The need to finance infrastructure in an envi-ronment of slow revenue growth commonly leads to difficulty inthe relationship between airlines and airports over funding (ACIEurope, 2013).

The financial pressures on these low passenger volume airportsinevitably will mean that lower cost solutions are introduced forTANS. Lower levels of sophistication and aircraft movements enableTANS to be provided with fewer air traffic control staff. Air trafficcontrollers at these lower volume airports are paid substantiallyless than those at busier more complex locations (CAA, 2014).

Eight of the nine airports that fall within the SES performancescheme exceed 7.9 m passengers annually, London City being theexception with 3.6 m passengers (CAA, 2015b). ACI data illustratesthat airports handling 15e25 m passengers are most profitable. Forairports in the 25e40 m passenger range, such as Gatwick, the netprofit drops due to greater infrastructure investment needs (ACIEurope, 2013). Gatwick manages the largest number of air trans-port aircraft movements on a single runway globally (CAA 2015a,2015b, 2015c). To meet its future aircraft movement projections alarge investment in airport infrastructure is required, such as asecond runway. Profits reboundwhen an airport handlesmore than40 m passengers annually.

For large, sophisticated and commercially astute airports themethod of delivering TANS can be a mechanism for increasing itsinfluence over operational activities and/or cost control. Philo-sophically, as a consequence of privatisation, airports no longerconsider themselves as being mere infrastructure providers. Largeairports are increasingly becoming integrated diversified busi-nesses (ACI-WBG, 2015). This philosophy might, depending onoperational complexity, involve airports looking to assume greaterresponsibility for a wider range of services, which are currentlyundertaken by other organisations e.g., TANS.

4.2.2. Influence of airlinesAirports are accountable to airlines for the cost of their services,

including TANS, irrespective of whether they are provided in-houseor outsourced. Tendering TANS enables airport operators todemonstrate to airline users that it is seeking the best value formoney solution. Airport operators, however, are faced with thecosts associated with running a complex tender process and thetransition to an alternative supplier if the incumbent is replaced. Onthe other hand, airlines may be risk averse when faced with achange in supplier at the busiest airports, particularly Heathrow. Atthe busiest of airports it might mean that achieving the lowest costis less important for airlines than the sustained quality of the TANSservice.

The sharp decline in passenger numbers in the aftermath of theglobal financial crisis (GFC) in 2008 has heightened airline scrutinyof airport charges, including the cost of TANS. A greater predomi-nance of low cost airlines post GFC has intensified the pressure toreduce service charges. BAL said that following the GFC passengerdemand collapsed. Almost immediately, for airport operators, itbecame a very competitive market to attract and airline customers.Prior to the GFC, 80% of their airport revenue was generated fromaeronautical sources. According to the interview with a seniormanagement representative of BAL, since the GFC, non-aeronautical revenue e.g., car parking, property, retail leases nowcontributes 55% of total airport revenue. He also noted that Bir-mingham competes with a number of airports located in andaround the midlands. They need to provide a service and cost of-fering to compete with these other airports.

Interviews with senior managers at GAL, BAL, Heathrow andNATS highlight the cost focus on TANS. In the negotiations toestablish airport charges airlines have placed a high priority on costreduction, while still requiring airports to meet performanceagreements with airlines. NSL is perceived by all interviewees to bea very high cost service provider. Their TANS service costs were anobvious target so that airport charges could be lowered for airlines.While scrutinising NSL costs, the airport operators also wanted toensure that investment would be made in new and emergingtechnologies to enhance capacity.

Eurocontrol (2016) presented benchmark data, gathered in2014, comparing costs per flights among European ANSPs. Despitebeing perceived as a high cost service provider in the UK, this datashows that NATS has the lowest cost per flight hour compared toANSPs from Germany, France, Italy and Spain. DFS, the GermanANSP and parent company of ANS, has the highest cost(Eurocontrol, 2016).

In parallel with airline negotiations with airports, ReferencePeriod (RP) 2 negotiations took place with NERL about air naviga-tion service charges for monopoly en-route and approach servicesat the five London airports. The outcome of these negotiations hasseen NERL adopt initiatives to lower its cost base. An agreed per-formance metric for ATM related service delay is also included inthe agreement between NERL and airline users. As a result NATShave reduced their air traffic controller workforce. There is now

I. Thompson et al. / Journal of Air Transport Management 57 (2016) 155e167 163

concern that as air traffic movements rebound to above pre-GFClevels, these staff cuts will increase pressure on ATM services.

Conflicting performance outcomes occur from this process.Delay metrics, agreed by airlines with NERL, can mean that aircraftare required to spend more time on the parking gate or groundholding at an airport. The increased aircraft ‘time on the ground’means a decline in airport performance outcomes agreedwith theirairline users. Airport operators, however, have no input into thedelay metrics agreed between airlines and NERL. It seems thatwhile airlines are accepting of a level of delay in services deliveredby NERL they demand high levels of performance efficiency fromairport operators i.e., zero delay. System performance assumptionsneed to be collectively agreed between airlines, airports and NERL.

4.2.3. Airport motivations to tender TANSThe advent of privatised ownership has focused airport man-

agement attention on undertaking measures to increase revenueand reduce costs in order to achieve a commercial rate of return oninvestment. New approaches have been introduced to improveoperational efficiency. For example, GAL engaged processimprovement expertise from GE Capital, part of the ownershipstructure, to apply six sigma principles to increase airport capacity.There are conflicting views among interviewees about who wasmost instrumental in achieving an increase in the capacity at Gat-wick Airport's single runway from a maximum of 50 to achieve 55aircraft movements per hour. Furthermore, a senior representativefrom GAL doubted that NSL was being as proactive as it might toassist their organisation in optimising the use of the asset. They hada sense that NATS was focused on operations at Heathrow andimprovements for Gatwick were of much lower importance.

At the time BAL and GAL began to explore tendering their TANSaround 2011, NSL had been an entrenched generational supplier ofthese services. The upcoming end of the contract period with NSLfor TANS seemed to provide motivation for the airport operators toquestionwhether the current service arrangements were providingvalue for money. They had concerns whether NSLwere investing anappropriate proportion of their TANS revenue into service im-provements. For example GAL seems to have wanted investment toimprove the operation of its instrument landing system (ILS) whileBAL were looking at surface movement surveillance systems andelectronic flight strips.

While NSL provided operational air traffic control and engi-neering service to a very high level service, these airports foundthey were complacent, bordering on arrogant, in dealing with theirconcerns. All interviewees held a common view that an attitude of‘we know best’ prevailed. According to interviewees, there was abelief held by airport owners that NSL were charging a high pre-mium for their services based on a perception of high servicequality and that airport operators had no realistic alternative ser-vice options. NSL would not provide transparency of their costs toairport operators.

The airports held a view, acknowledged in interviews with NATSsenior management, that NSL had a lack of customer focus andwere not listening attentively to understand the issues and needs orairport operators. Demands on airport operators of privatisedownership and airlines plus the cost pressures presented by theGFC were not being seriously addressed by NSL. In particular NSLwere not willing to provide a service cost that was somewhatcomparable to other alternatives.

BAL considered that the contract price offered by NSL included apremium compared to those supplied to other airport operators.They also became concerned that NSL may be prepared to lose theTANS contract solely to demonstrate there was a contestable mar-ket. BAL, however, had no other outsource alternatives to providethe service. Concerns about price and the commitment of NSL to

provide TANS at Birmingham continued throughout the tenderprocess. They intensified BAL's resolve to explore fully alternativeservice options.

An early acquisition of some ATM expertise within the airportmanagement team at both Birmingham and Gatwick appears tohave been important in making a change to service provision afeasible option. They sought to become intelligent customers inorder to fully understand their TANS and explore service options indetail. For example, two managers at the most senior levels of BALhad air traffic control backgrounds. Additional expertise was ac-quired through the appointment of former CAA aerodrome in-spectors. GAL also acquired ATM expertise. ATM expertise wasessential in creating cost models to compare the tender offer pre-sented by NSL and developing alternative safetymanagement plansfor a new service environment.

When the likelihood of a supplier change away from NSLbecame a realistic option, concerns of the board of directors andairlines needed to be addressed. For example board approval for theservice change at BAL took place over five months. While cost re-ductions were wanted, assurance was needed that the servicechange could be performed without impacting the service qualityof the airport and increasing the operational risk to an unman-ageable level. Within this period management needed to prepareservice plans, risk analyses and cost evaluations. They were alsorequired to brief the full ownership group about the implications ofthe service change.

GAL noted that airlines were quite apprehensive about theprospect of a service change. While none opposed the proposedservice change, airlines questioned whether the airport had confi-dence that the new supplier could deliver the same level of serviceas under NSL. Although the largest airlines in the UK, through theAirline Group, are part owners of NATS it is probably unlikely thatcommercial considerations played a significant role in questioningthe decision to change service provider. Other interviews indicatethat airlines place a greater priority on achieving lower servicecharges over the financial returns of NATS.

4.3. Summary

The power of airports, as buyers of TANS, is dependent on thenumber of credible alternative service providers. The emergence ofANS at Gatwick has increased the bargaining power of airport op-erators. Following service changes at Gatwick and Birminghamairports NSL has substantially changed their engagement withairport operators and service/cost proposition. These changes willbe discussed later in this paper.

The success or otherwise of the service options being under-taken by BAL and GAL will impact on power of other airport ownersas buyers of TANS. Should these services performwell the power ofairport operators will increase. On the other hand, should theseservice providers struggle, as airline traffic movements continue torebound following the end of the GFC, then the power of airportoperators will lessen. In particular if ANS encounter service prob-lems delivering its aerodrome service at Gatwick the bargainingpower of NSL will increase.

4.4. Bargaining Power of Suppliers

Access to suitably qualified air traffic control staff and ATMtechnology systems are essential for providing TANS at the ninelargest United Kingdom airports. These issues are explored in moredetail in this section.

4.4.1. Air traffic control staffThe availability of skilled staff is arguably the most important

I. Thompson et al. / Journal of Air Transport Management 57 (2016) 155e167164

input for operating an ATC service. Ab-initio ATC staff are recruitedand selected from a limited pool of suitable applicants. A lead-timeof up to 24months can be required before ab-initio trainees achievetheir first air traffic control qualification at complex locations.Problems with high staff attrition and inadequate planning canresult in shortages of operational personnel. In additional to servicecontinuity issues, staff shortages provide greater leverage to unionsin their negotiation of improved salaries and conditions.

An airport choosing to self-supply TANS has potentially greatervulnerability to staff shortages than a national supplier. The airportwill be unable to justify the cost of establishing a facility for ab-initio training, probably needing to purchase places on commer-cial courses provided by NATS or another organisation. Higher thanexpected attrition may need qualified staff to be attracted fromother suppliers or internationally.

BAL has made a commitment to train and develop its air trafficcontroller workforce, and balance this with the recruitment ofexperienced people. It has retained a strong linkage to the NATS ab-initio air traffic controller training program and places its traineesinto their air traffic control school. In the case of trainees beingunable to successfully reach required standards, BAL has no capa-bility to transfer the person to an air traffic control role at anotherlocation. The person may be offered another role at the airport, ifone is available, or have their employment terminated.

Strong and politically connected unions support the air trafficcontrol workforce. Air traffic controllers often closely follow di-rection and perspectives of influential union officials, over those ofANSP management. Many countries have an established history ofair traffic controllers successfully resisting organisational change. Alongitudinal study about a failed change initiative undertaken bythe Norwegian ANSP Avinor highlighted this issue (Lofquist, 2011).The study highlighted the need for management to undertake ahighly participative approach to successfully achieve organisationalchange. Consensus building, participation and maintaining theongoing support of air traffic control operational staff are essential.Without a compelling imperative that is accepted by air trafficcontrol staff, a major change initiative is likely doomed to fail. Apurely top-down implementation approach, in the air traffic con-trol setting, can cause extreme resistance inevitably resulting in thecollapse of the change initiative. This Norwegian study also high-lighted the ability of the air traffic control employees and theirunion to influence political leaders to overturn change initiatives.

Breitenmoser et al. (2013) also emphasise the power of air trafficcontroller workforce over innovation in the industry. Operatingprocedures are formalised and embedded in the air trafficcontroller workforce. They consider that air traffic controller em-ployees and unions have a strong interest in maintaining the statusquo, thereby providing their members with safe jobs and protectingemployment conditions.

BAL invested considerable time and attention in allaying con-cerns of both the union and staff following their decision to self-supply TANS. A great deal of uncertainty surrounded the servicechange. Prospect, the name of the air traffic controllers union, onlyhad experience in dealing with NATS. Many of the issues facedwerenew, such as how to address ToaP issues and service transition. Inthe first instance BAL needed to end concerns that they would be a‘cheap and cheerful’ operation that would drive cost savings bydismantling terms and conditions. They also needed to provideassurance that they would invest and maintain a high commitmentto operating a safe service.

Continually engaging with the union and staff was essential toelicit their support of the service change and willingly transfer tothe BAATL. During the course of transition NSL restricted BAL'saccess to the staff who intended to transfer to the new organisationand those who had protection under ToaP until agreements were in

place with BAATL. BAL considers that during this period ambiguityand uncertainty occurred and they began to lose staff support. Fearsabout how BAATL would treat their terms and conditions emerged,without being able to be allayed by the new organisation.

BAL developed an effective working relationship with the airtraffic controllers union. Pension rights were a key issue thatneeded to be addressed for the Birmingham staff. BAL agreed to amore generous pension scheme than they had previously antici-pated. Although the defined benefit pension scheme was notcontinued, BAL agreed to match the defined contribution schemethat is operated by NATS. It provides air traffic controllers withsuperannuation benefits that are greater than those received byBAL management.

Air traffic controllers wield considerable influence over the ac-tivities and initiatives performed by ANSPs, particularly withinlarge air traffic control sectors as noted in the Norwegian study.Smaller organisational groups such as a TANS operational unit maynot be influenced to the same degree by a negative sub-culture.These smaller entities may result in the air traffic control staffhaving a greater alignment to the goals of the organisation. Thestaff may also perceive they have more influence over the efficacyof the service provided and the smooth running of the organisation.

Since it commenced self-supply BAL believes that its air trafficcontroller workforce have developed an improved sense of prideand ownership with working at Birmingham Airport. The seniormanager from BAL also claims increased air traffic controller effi-ciency and improved morale. The smaller operation at Birminghamrequires a number of support functions to be undertaken bymanagement and supervisory staff, not performed centrally. Thesefunctions can include airspace design, incident investigation andsafety/standards. This requirement enhances job scope and pro-vides the opportunity for growth beyond the narrow air trafficcontroller role. Improved job satisfaction has resulted.

4.4.2. ATM technologyA global pool of five highly specialised systems suppliers dom-

inates the market for large-scale civil ATM projects. These softwareprocessing and display systems are used primarily by en-routecontrol centres and approach functions. Aerodrome control oper-ations at the nine largest airports are integrated with these ATMsystems to receive/provide surveillance and flight data informationto the network. The niche market for ATM systems promotesoligopolistic competition (Breitenmoser et al., 2013). This marketrequires a great deal of industry knowledge, proven productcapability that meets international standards and for systems tointerface with those other ANSPs.

The aerodrome environment at large airports is adopting agreater use of technology to enhance safety and improve the effi-ciency of ground operations. Airport systems comprise groundsurveillance and data displays, and route guidance systems. Airporttechnologies are used between the runway and parking gate. Theyare integrated with the ATM system and potentially with gatemanagement systems (Thompson, 2014b).

Airport systems at sophisticated airports are becoming acongruence of a number of technologies. The market for airportsystems is more competitive than for large ATM systems with newentrants emerging. These systems are a small proportion of the costof large ATM systems (Thompson, 2015c).

An important change is the increased sophistication of airfieldlighting suppliers who have developed software capability to pro-vide a computer generated route for aircraft between the runwayand gate at large sophisticated airports. This route activationcapability is achieved through addressable lamp control. Lightingsuppliers are expanding their software capability further to includethe fusion surveillance data from various sensors to generate

I. Thompson et al. / Journal of Air Transport Management 57 (2016) 155e167 165

position information about an aircraft and alerting capability. Allinformation can be presented to air traffic controllers through theroute guidance display. This encroaches on the domain of surfacemovement guidance and control system suppliers. From theperspective of the airport owner, the opportunity to reduce thenumber of organisations involved in providing different systemssignificantly minimizes the integration risks (Thompson, 2014b).

NERL is currently embarking on a major undertaking to intro-duce new technologies into its monopoly service areas, aligned tothe SESAR program, to increase traffic handling capability. Thesenew technologies will provide a platform for future cost reductionsthrough increased air traffic controller productivity. Realising thefull potential of this technological change will require integrationwith busy airports like Gatwick and the approach and tower serviceprovided by BAL. The UK Future Airspace Strategy looks at theimplementation of SESAR and provides for cross industry coordi-nation. This is intended to provide the framework for GAL and BALto be engaged in SESAR initiatives that are being led by NERL.

4.5. Threat of Substitutes

There are few, if any, threats from substitute products or servicesto replace an air traffic control service at large sophisticated air-ports. As part of the SESAR and NextGen programs new technolo-gies and procedures are being developed to increase airspace andairport capacity. One such initiative involves transferring someseparation responsibilities to the cockpit. While aircraft may in thefuture be able to assume some limited responsibilities, air trafficcontrollers will remain responsible for ensuring separation ismaintained. The range of these future ATM initiatives is outside thescope of this discussion.

Emerging remote tower technology provides an alternative toproviding an aerodrome control service from the traditional airportcontrol tower. This technology uses cameras to capture aircraftmovements in the air and on the ground. These images are thentaken back to a central location where an air traffic controllerprovides the aerodrome control service.

Remote tower technology provides the opportunity for anaerodrome control service for more than one airport to be under-taken from the central location. It also helps airport owners avoidsubstantial expenditure to construct and maintain control towerfacilities. Most of the discussion about the application of thistechnology has focused on it’s use at small remote locations(Thompson, 2014a). For these small airports in the United Kingdom,the realisation of potential benefits would rely on two or moreowners joining together to provide services from a central location,thereby optimising staff resources (Thompson, 2014a).

Interviewswith senior employees at BAL and NATS indicate that,in their view, this technology also has applicability for large air-ports. In the short term, it provides a contingency solution for largeairports should the main control tower become inoperative. Overthe longer term capital expenditure and staff efficiency benefits arepossible.

4.6. Industry competition

As mentioned earlier, competition for NSL to supply TANS at thenine airports could come from three sources i.e., another UnitedKingdom TANS supplier, an international ANSP or an airportchoosing to self-supply these services. To date there has beenlimited competition to NSL for TANS. The competitive market forTANS at these airports, however, is in the early stages of its evo-lution. Once the outcomes from GAL's choice of ANS over NSL andBAL's decision to self-supply are evaluated then new competitorsmay emerge.

There seems to be little prospect of alternative suppliers origi-nating from the organisations that are currently providing TANS atsmaller airports in the United Kingdom. These suppliers seeminglydo not have the organisational capacity and willingness to assumethe greater operational risk that is needed to contend for TANS atthe nine regulatory controlled airports.

ANS is the only sophisticated TANS supplier, backed by DFS, toemerge in the United Kingdom market. It has a strong incentive tocompete vigorously with NSL for other service contracts in order toachieve economies of scale in its United Kingdom operation. Threeof the airports with more than 70,000 IFR movements remain to betendered. NSL is likely to face intense competition at two of theseairports. As noted earlier, the common ownership of EdinburghAirport and GAL points to a potential service change from NSL toANS. Quite possibly London City was preparing for a potentialchange in TANS supplier before its recent change in ownership. Theperspectives of Glasgow Airport are not known.

It is likely that ANS will seek to acquire TANS supply contracts atthe next tier of airports below the nine largest airports. NSL willalmost certainly compete vigorously to retain market share at theseairports.

NSL has demonstrated a capability to compete successfully bywinning various ATM related contracts in 36 countries (Thompson,2015a,b). In a joint venture with Thales, NSL provides air trafficcontrol and management services for the British military at homeand abroad under Project Marshall. The loss of service contracts atGatwick and Birmingham airports is somewhat offset by winningthis 22 year contract.

Interviews with NATS managers at all organisational levelshighlighted the great disappointment at the loss of Gatwick. NATSwere proud to be responsible for the busiest single runway oper-ation in the world. The loss of Gatwick and Birmingham, along withthe harsh feedback received from airports and consultant reports,has caused NSL to reshape its engagement with airport operatorsand its service/cost offering. NSL have adopted commercial modelswhere they share the performance risk and provide greater trans-parency over costs of service delivery. From a cost perspective, NSLface a significant challenge in overcoming historic terms and con-ditions and work practices. It has reduced overhead costs and profitmargins. NSL is also working with unions to change legacy workpractices to gain productivity improvements. There are, however,indications that NSL is having success in turning around theproblems it had with BAL and GAL. Belfast City Airport has chosento end its self-supply and has contracted with NSL to provide itsTANS. Belfast International and Cardiff airports both extended theiragreements with NSL (CAA 2015a, 2015b, 2015c).

The most notable example of a more customer centric focus byNSL is its strategic partnershipwith HAL. If NSL had not entered intoa substantively restructured relationship, HAL retained the optionto tender its aerodrome control service. This strategic partnershipsees the NSL general manager at Heathrow become responsible forairside operations alongside the provision of air traffic control. He isnow part of the HAL senior leadership team. Air traffic controlfunctions are merging with those of other airside activities such asairside safety and standards, ground handling (fuel and baggage)and rescue fire services under a common organisational umbrella.Foundations of the strategic relationship include: greater choiceand control for HAL over the services provided by NSL; alignment ofNSL activities with the strategic goals and programs adopted byHAL; lowering of operational costs for HAL; and continuousimprovement targets aligned to HAL's goals and targets. Accordingto interviewees HAL required that NSL enter into a risk/rewardrelationship with payment bonuses earned and penalties accruedbased on the attainment or otherwise of performance targets.

Arguably, self-supply stops market competition for TANS at an

I. Thompson et al. / Journal of Air Transport Management 57 (2016) 155e167166

airport. It is potentially possible, but also less likely, that once theTANS is brought in-house, an airport will choose to periodically putthis service to a market test through an open tender process. WhileBelfast City Airport has ended its self-supply arrangements, BALshows no interest in reverting to outsourced arrangements.

Although taking responsibility for the self-supply of its TANS,BAL does not perceive itself to be an ANSP aggressively seeking tocompete for other opportunities. It will, however, considercompeting for TANS at smaller regional airports located close-by,such as Coventry. Economies of scale and service efficienciesmight be attainable through operating two locations in closeproximity. Improved staff utilisation may be gained through theefficient use of a greater pool of air traffic controllers andmanagers.The use of new technologies, such as remote tower technology, mayoffer opportunities for increased staff utilisation.

Fig. 2 below is a diagrammatic representation of Porter's fiveforces model summarising the strategic landscape of the UnitedKingdom TANS market at the nine largest airports. It highlights thepressure of airlines on airport owners to improve the cost effec-tiveness of their TANS. Airport owners have three sources of po-tential entrants to provide an alternative services to achieve theseefficiencies. Air traffic controller labour is an essential resource thatneeds to be acquired and maintained to deliver TANS. Finally, thediagram highlights the potential for intense competition amongsophisticated ANSPs based on price. It also notes that the self-supply by an airport owner may eliminate competition.

5. Strategic implications

This review of the strategic factors and competitive forcesimpacting TANS service delivery in the United Kingdom has im-plications both for within and outside the aviation sector. Legisla-tive changes on their own appear insufficient to create acompetitive marketplace in a sector that features a high qualitysupplier in an industry with significant levels of specialisation and

Fig. 2. Industry analysis of United Kingdom TANS at largest nine airports.Source: (Porter, 2008) model adapted to reflect the five forces impacting the market for TA

service risk. Considerable pressure is required from airline usersand airport owners to lower service costs. It also requires a strongresolve from management who are well versed in the industry tonavigate the vast number of issues in undertaking a major servicechange.

In reality there are a very small number of credible competitorsto NSL to undertake TANS at the nine largest United Kingdom air-ports. Nevertheless the competition between NSL and ANS is likelyto be intense as the new entrant seeks to win service contracts atother locations. The TANS contract price offered by ANS to GAL hasbeen questioned as being exceedingly low and its performance isbeing closely monitored by the industry. Should it experienceperformance problems ANS may have difficulty in beating NSL forTANS contracts at other airports. Providing services at only one, or avery small number of locations, seems to raise doubt aboutwhetherthe ANS parent company would continue to support the UnitedKingdom operation or choose to divest. Should ANS performwell atGatwick and continue to capture TANS opportunities it will likelybecome a strong long term competitor for NSL.

There is a prospect that self-supply, however, may end compe-tition for TANS service delivery at an airport. The loss of competitiveforces may be irrelevant if the costs of self-supply are significantlybelow other service alternatives. An airport operator can choose toeliminate profit margins, risk provisions and management over-heads when arriving at their TANS service cost. These reductionscan be offset if the airport operator is able to attract or retain airlineusers through its lower cost structures.

The advent of competition in the UK TANS market has resultedin significant changes to the manner in which NSL engages withairport operators. A complacent, somewhat arrogant, approach hasbeen replaced by a greater customer centric focus. NSL has adoptedgreater innovation in its service offering to airport operators. Ser-vices are better aligned to the goals and activities of the airport withsome income reliant on attaining performance metrics. The recentdecision of Belfast City Airport (NATS Holdings, 2016) to select NSL

NS at the nine largest airports in the United Kingdom.

I. Thompson et al. / Journal of Air Transport Management 57 (2016) 155e167 167

and contract extensions at Belfast International and Cardiff airportsprovides some evidence of its ability to develop effective service/cost offerings for smaller airports, not just Heathrow, an airport ofvery high strategic importance to NATS.

The ATM industry is often criticised for its high cost structuresand lack of customer orientation. Competition for TANS at the nineUK airports with more than 70,000 IFR movements illustrates tothe global ATM industry that the advent of competition can realisesignificant cost and service benefits to airport operators andairlines.

6. Conclusion

This paper has used Porter's five forces model as an analyticaltool to explore the industry forces at play in this complex TANSlandscape at airports with more than 70,000 IFR movementsannually. The market can be characterised as having intensecompetition between a long standing sophisticated supplier andthe subsidiary of another international ANSP. There is alsocompetition for NSL from airport operators that might elect to self-supply. Existing UK TANS suppliers originating from small airportsappear not to have the operational sophistication to meet perfor-mance thresholds of these large sophisticated airports.

The opportunity to undertake a competitive tender processmade airport operators evaluate their requirements from a TANSservice and explore whether existing arrangements were providingvalue for money. In order to meet strategic and commercial con-siderations, these airport operators are looking for their TANSsupplier to support the aspirations of the organisation, integrateinto their activities but at an optimal cost.

The evidence suggests that TANS costs have significantlyreduced at Birmingham and Gatwick with the advent of new ser-vice arrangements. BAL report that their self-supply TANS hascreated a highly effective working environment for its air trafficcontrol workforce. It is probably too soon to assess the efficacy ofnew arrangements at Gatwick. The performance of both operationswill be closely scrutinised by industry. Successful performance maylead to other airport operators intensively explore new TANS ser-vice arrangements.

Intense competition for the supply of TANS has resulted in asignificant change in the manner NSL engages with airport opera-tors. It has become more customer centric and willing to enter intonew strategic-operational relationships with airports. They haveadopted initiatives to reduce overheads and address cost elementsthat restrict their competitiveness. There has been a willingness toaccept payment arrangements that are performance linked.

Acknowledgements

The authors gratefully acknowledge the support of the peoplefrom BAL, CAA, GAL and NATS for their availability for this research.Opinions expressed in this paper are those of the authors.

Ian Thompson is an aviation consultant specialising in air trafficmanagement strategy and operations. He also writes about thesetopics for Air Traffic Management and Australian Aviation maga-zines. Ian is a PhD candidate in the La Trobe Business School at LaTrobe University, Melbourne, Australia. Contact details:ithompson@thompsongcs.com.

Professor Richard Pech is Dean of the Graduate School at DRB-HICOM University of Malaysia. He has a PhD from the MasseyUniversity School of Aviation in New Zealand and specialises in

change management, innovation, and entrepreneurship. Contactdetails: richard@dhu.edu.au.

Timothy Marjoribanks is Professor of Management (Organisa-tion Studies), and Associate Head, La Trobe Business School, LaTrobe University, Melbourne Australia. His research and teachingengage with debates in organisational behaviour and trans-formation, and management and leadership practice, both inAustralia and internationally. Contact details: t.marjoribanks@latrobe.edu.au.

Dr KB Oh is Senior Lecturer, specialising in finance, at the LaTrobe Business School, La Trobe University, Melbourne Australia. Hehas considerable research, teaching and work experience in theAsia Pacific region. His research interests include aviation devel-opment in this region. Contact details: k.oh@latrobe.edu.au.

References

ACI Europe, 2013. ACI Europe Economics Report, 2014. ACI Europe.ACI-World Bank Aviation Symposium, 2015. In: Airport Development and Public

Private Partnerships, Conference Report from 1st Annual ACI World BankAviation Symposium and 7th Annual Airport Economics and Finance Confer-ence, London (February).

Arblaster, M., 2012. Comparing consultation on investment and technology de-cisions in air traffic management in Australia and UK. J. Air Transp. Manag. 22,36e44.

Breitenmoser, P., Abraham, R., Eurich, M., Mettler, T., 2013. Why is Innovation in AirNavigation Services so Difficult in Europe? - a Study Identifying Current Ob-stacles and Potential ICT Enablers. In: Proceedings of the 21st European Con-ference on Information Systems, Feb.

Civil Aviation Authority (UK), 2013. CAP 1004-SES Market Conditions for TerminalAir Navigation Services in the UK.

Civil Aviation Authority (UK), 2014. Open Tenders Discussion with VantageANS, 22October, Downloaded from Internet 5 May 2015.

Civil Aviation Authority (UK), 2015a. Review of Advice on SES Market Conditions forTerminal Air Navigation Services in the UK, February.

Civil Aviation Authority (UK), 2015b. United Kingdom Airport Passenger Numbers2014, Download from Internet 8 May 2015.

Civil Aviation Authority (UK), 2015c. United Kingdom Air Transport Movements byType and Nationality of Operator 2014, Downloaded from Internet 8 May 2015.

Civil Aviation Authority (UK), 2016. Annual Statement of Movements, Passenger andCargo: Summary of Activity at Reporting Airports 2015, Downloaded from CAAWebsite 11 May 2016.

CAPA Centre for Aviation, 2011a. Further Privatisation of UK NATS. CAPA Centre forAviation, 25 January, Downloaded from internet 5 October 2015.

CAPA Centre for Aviation, 2011b. ANSPs Team up with Spanish Production Com-panies to Bid for Spanish ATC. CAPA. Centre for Aviation, 11 February, Down-loaded from internet 3 September 2015.

Eurocontrol, 2016. ATM Cost-effectiveness (ACE) 2014 Benchmarking Report with2015-2019 Outlook, Eurocontrol.

European Union, 2015. Commission regulation (EU) 2015/340 of 20 february 2015.Official J. Eur. Union 58, 6 March.

Graham, A., 2012. In: O'Connell, J., Williams, G. (Eds.), Key Issues Facing the AirportIndustry, from Air Transport in the 21st Century. Ashgate, Surrey UK,pp. 253e268.

Grant, R.M., 2016. Contemporary Strategy Analysis. John Wiley and Sons Ltd, WestSussex, United Kingdom.

Lofquist, E.A., 2011. Doomed to fail: a case study of change implementation collapsein the norwegian civil aviation industry. J. Change Manag. 11 (2), 223e243.

NATS (Services) Limited v Gatwick Airport Ltd [2014] EWHC 3133 (TCC).NATS Holdings Ltd, 2015. Annual Report and Accounts. NATS.NATS Holdings Ltd, 2016. Belfast City Airport Awards NATS Air Traffic Control

Contract, NATS, Downloaded from NATS Website on 20 July 2016.Porter, M.E., 2008. On Competition. Harvard Business School Publishing Corpora-

tion, USA.Thompson, I.W., 2014a. Advance Party: Norway's Avinor Is at the Vanguard of

Remote Technology, Air Traffic Management, p. 42. Issue 3.Thompson, I.W., 2014b. Guidance Control: Singapore Pioneers AGLCMS, Australian

Aviation, May, pp. 64e67.Thompson, I.W., 2015a. Delivering the Vision, Air Traffic Management, pp. 34e35.

Issue 1.Thompson, I.W., 2015b. Doubling Up-Brisbane’s New $1.3bn Parallel Runway Project

Takes Shape, Australian Aviation, January-february, pp. 82e85.Thompson, I.W., 2015c. Advanced Works: $600m OneSky Program Moves Forward

after Avalon Airshow Signature, Australian Aviation, April, pp. 52e55.