2. TANS at the nine UK airports that fall under the SES performance
scheme. Recently Gatwick Airport Ltd (GAL) awarded its aerodrome
control service to Air Navigation Solutions Ltd (ANS), the United
Kingdom subsidiary company of Deutsche Flugsicherung Gmbh
(DFS), the German ANSP. Birmingham Airport Limited (BAL) also
decided to self-supply its TANS service. BAL commenced its self-
supply service on 1 April 2015, while the ANS service at Gatwick
commenced on 1 March 2016. (CAA 2015a, 2015b, 2015c) concludes
that these changes in service delivery provide evidence that market
conditions for TANS have been created.
This paper provides insights into the underlying structure of the
TANS market in the United Kingdom at the nine airports which fall
within the SES performance scheme. In particular it examines the
competitive pressures that are impacting NSL, the long term sup-
plier of these services. It also critically examines the existing
competitive market for TANS and whether this will foster compe-
tition, the desired service delivery, and cost reductions. Porter's five
forces model is used to provide an effective framework for this
analysis. Outcomes from the creation of a competitive market for
TANS in the United Kingdom will be monitored closely within
Europe and elsewhere, thereby providing an important justification
for this paper.
Porter's Five Forces model has been chosen for this paper since it
is the most widely used framework for analyzing competition
(Grant, 2016 p68). It provides a structured framework to analyse
the various competitive elements that influence TANS service de-
livery. Although the five forces model presents a somewhat static
picture of the competitive market, it enables analysis of the TANS
industry at these nine UK airports as service delivery alternatives to
NSL are adopted for the first time.
This is the first academic paper exploring the competitive
market conditions for TANS at the nine largest United Kingdom
airports. The analysis contained in this paper, based on Porter's Five
Forces model, provides the foundation for other researchers to
explore the efficacy of CAA initiatives to create competition. It also
provides a foundation for determining how the forces impacting
the competitive environment have changed over time.
Data for this paper has been obtained from:
1) Publicly available publications, particularly studies undertaken
by CAA for the Department of Transport about the market
conditions 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 place
between March and May 2016.
Interviewees were selected purposively due to their direct
involvement in the TANS service changes. Interviews were semi-
structured and were recorded and transcribed. The data was then
analysed 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 TANS
within the United Kingdom air traffic management industry. An
overview of the operational and commercial context of NATS is
then provided. We then explore the competitive structure of the
United Kingdom TANS market analyzing each of Porter's Five
Forces. The paper concludes by providing strategic implications
from 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 aircraft
landing and taking-off at an airport and manoeuvring on the
ground. It generally extends for 10 nm around an airport and up to
4,000 ft above the ground.
Approach control sequences aircraft for arrival at an airport, and
assumes responsibility from aerodrome control for departing
aircraft. The approach service for a number of airports can be
combined and undertaken from a centralised facility. An approach
control service could extend for up to 40 nm from an airport.
The third operational area is en-route control. It provides air
traffic control services to aircraft during the cruise phase of flight
before 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. In
countries where the commercialised delivery of ATM takes place,
en-route control is legislated as a statutory monopoly. Commonly
each country imposes regulatory controls to ensure that this mo-
nopoly position is not abused by the ANSP in the setting of user
charges.
Most countries extend the monopoly provision of air traffic
control to approach and aerodrome control service areas. Australia,
for example, includes the approach and aerodrome control under
the statutory service monopoly performed by Airservices. Air-
services is an Australian government owned ANSP. Charges are
negotiated between Airservices and its airline users. Airports are
not involved in charging airlines for aerodrome and approach ser-
vices. There is no contract for service between the airport operator
and 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 these
services. Spain has deregulated its aerodrome control services in
order to lower air traffic controller costs, which until recently were
considered to be the highest in Europe (CAPA, 2011b). In this case
the TANS supplier contracts with the airport operator for these
services. The airport operator, in turn, charges airlines for the TANS
service.
Unlike many countries, United Kingdom approach and aero-
drome control services have never been subject to a statutory
monopoly (CAA 2015a, 2015b, 2015c). The term terminal air navi-
gation services (TANS) is used to describe these services. Of the 128
licensed aerodromes in the United Kingdom, only approach control
services provided for the five London airports are part of the stat-
utory monopoly encompassing en-route services. The charge to
meet the cost of London approach control service is negotiated
between NATS En-route Ltd (NERL) and airline users.
Airport operators negotiate the cost of aerodrome and/or
approach control service provision with the TANS supplier. The
airport operator then passes these charges, or a portion there-of, to
airline users as part of the overall airport charge. This means that
some airport operators might subsidise the cost of TANS provision,
should they choose.
In 2013 there were 62 organisations certified to provide TANS in
the United Kingdom (CAA, 2013). NSL provides services at 14 lo-
cations (NATS Holdings, 2015).
TANS at airports that exceed 70,000 IFR movements annually
fall within the SES performance scheme. This is based on aircraft
movement 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 in
descending order of IFR traffic movements. It also notes whether
the airport is subject to economic regulation and the incumbent
TANS supplier.
European Union (EU) Common Charging Regulation (391/
I. Thompson et al. / Journal of Air Transport Management 57 (2016) 155e167156
3. 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 could
elect to use its competition law powers, or other powers, to achieve
this outcome (CAA 2015a, 2015b, 2015c). An earlier report (CAA,
2013) into TANS reported that market conditions did not exist in
the UK. By 2015, however, (CAA 2015a, 2015b, 2015c) concluded
that initiatives to create market conditions for TANS have been
successful.
3. Overview of NATS operational and commercial context
NATS is the most significant ANSP in the UK. It is a privatised
company with shareholding that includes the government, a con-
sortium of airlines, pension funds, staff and Heathrow Airport
Limited (HAL). There is light-handed government influence over its
activities. Although the Department of Transport provides some
policy input into NATS activities, commercial shareholders are able
to appoint the majority of board members, have greatest control
over the appointment of senior management and approve the
business plan (CAPA, 2011a).
To match the organisation to the competitive operational envi-
ronment, the NATS parent company is split into two subsidiary
companies namely NATS En-route Ltd (NERL) and NATS Services Ltd
(NSL). NERL is the sole provider of en-route ATS in UK airspace and
over 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 year
2014/15 it generated 75% of total group income and contributed
86% 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 two
military bases. It has formed a joint venture with Ferrovial
(FerroNATS) to provide TANS at nine airports in Spain. As part of the
contract for service, FerroNATS charges the airport owner for the
cost TANS provision. It is the responsibility of the airport owner to
negotiate with airlines to recover the cost of TANS. NSL contributes
25% of total group income and 14% of net profits. This proportionate
drop in profit relative to revenue reflects the lower margins earned
through a competitive tender process to win service contracts.
In 2013, although providing TANS at only 15 of the 128 licenced
airports in the United Kingdom, NSL was responsible for 60% of
total airport aircraft movements. The loss of services at Birming-
ham and Gatwick are forecast to result in the NSL share of total UK
airport 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 to
examine the various industry forces and their impact on the
functions of strategic planning and competitor analyses. This model
provides a strategic framework to analyse the underlying
competitive structure of TANS service provision at the nine largest
UK airports. In brief, (Porter, 2008, p3) considers that in any in-
dustry the mix, interaction and impact of five forces defines an
industry structure and shapes the competitive interaction within
that industry. The model provides an analytical framework to un-
derstand the underlying structure of an industry and the impact on
competition and profitability.
Fig. 1 below presents a diagrammatic representation of Porter's
five 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 of
Buyers; Threat of Substitutes; and Rivalry among Existing Com-
petitors. Implicitly the five forces reveal the competitive foundation
for the industry.
Table 1
Summary information of nine largest UK airports.
Airport IFR movements (2015) Airport economic regulation TANS Supplier
London Heathrow 472,131 Yes NSL
London Gatwick 262,639 Yes ANS
Manchester 164,963 No NSL
London Stansted 155,913 No NSL
Edinburgh 109,554 No NSL
London Luton 92,005 No NSL
Birmingham 90,069 No Self-Supply
London City 83,650 No NSL
Glasgow 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 of
scheduled 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 airports
are subject to economic license.
Table 2
CAA criterion for assessing market conditions.
Criterion CAA assessment
Criterion 1 The extent to which service providers can freely offer to provide or withdraw the provision of these services. Met
Criterion 2 The extent to which there is a free choice in respect to service provider, including, in the case of airport, the option to self-supply. Met
Criterion 3 The extent to which it can be chosen from a range of service providers. Met
Criterion 4 For TANS, the extent to which are subject to commercial cost pressure or incentive based regulation. Met
Criterion 5 Where the provider of TANS […] also provides en-route air navigation services these activities shall be subject to separate
accounting and reporting
Met
Criterion 6 For TANS, the assessment in Annex 1 of EC Regulation 391/2013 shall be carried out at each individual airport as appropriate. Not relevant to UK
circumstances
Source: Review of Advice on SES Market Conditions for Terminal Air Navigation Services in the UK (CAA, 2015).
I. Thompson et al. / Journal of Air Transport Management 57 (2016) 155e167 157
4. Grant (2016) highlights some shortcomings in the Porter five
forces model. He believes that the five forces model relegates in-
dustry environment into a minor role in determining a firm's
profitability. For the purposes of this study, where we are looking at
a specific area of the ATM industry within one country, there is
sufficient focus to apply the five forces model to understand the
underlying competitive structure.
Grant (2016) also claims that when the pace of structural change
in an industry is rapid the five forces model does not offer a stable
framework to predict competitive behaviour. ATM, however, can be
characterised as a conservative risk averse industry with a very
slow pace of structural change. These industry characteristics are
well suited to analysis utilising Porter's framework.
Porter's five forces model was chosen to describe and analyse
the various competitive forces that are impacting the TANS market.
Pressure from airport owners, airlines and CAA has seen airports
tender 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 affecting
competitive behaviour. Although this analysis, based on the five
forces model, provides a somewhat static snapshot at a point in
time, it establishes a baseline from which subsequent strategic
analysis 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 as
analysing the strategic landscape at the nine airports in the United
Kingdom where TANS services are economically regulated under
the SES performance scheme. These are the nine largest airports in
the 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 competitive
market for TANS. (CAA 2015a, 2015b, 2015c) has identified a
number of factors that are influential in creating market conditions
for TANS. These factors include the tender processes and contract
length, access to suitably qualified staff and service transition, the
interface between TANS and NERL and alternative providers. This
section explores these issues in more detail.
4.1.1. Tender processes and length
The Civil Aviation Act 2012 (Regulation of Operators of Domi-
nant Airports) means that economic regulation by CAA is applied to
an airport only when it passes the market power test, set out in
Section 6 of the Act. In the case of the nine airports with more than
70,000 IFR movements, only Heathrow and Gatwick airports are
deemed to have passed the market power test and thereby are
subject to economic regulation (see Table 1 above). The remaining
seven airports are only subject to economic license meaning that
CAA has limited regulatory influence over their competitive
activities.
By the end of 2014, however, three of the nine had tendered
their TANS namely Luton, Birmingham and Gatwick airports.
Following a tender process Birmingham and Gatwick decided to
end their arrangements with NSL for TANS service provision. Luton
extended their relationship with NSL. Interviews with senior
airport, NATS and CAA representatives indicate that the imperative
to tender TANS comes from pressure from airport owners and air-
lines to reduce service costs and achieve greater value for money
from the expenditure. The influence of commercial airport
ownership and airline pressure on reducing service cost will be
discussed later in this paper.
NSL made a legal challenge to the decision of Gatwick Airport
Ltd (GAL) to award the TANS contract to ANS. The basis of the NSL
challenge was that GAL applied incorrect scoring to some DFS
tender responses, particularly in relation to service transition. NSL
also claimed that DFS submitted a tender price that was abnormally
low (NATS (Services) Ltd v Gatwick Airport Ltd, 2014). Although NSL
was successful in obtaining an injunction to prevent GAL from
entering into a contract for service with DFS until a hearing was
held, both parties settled the matter before trial without any
acceptance or admission of liability. (CAA 2015a, 2015b, 2015c)
noted that the risk of litigation from an incumbent who may have
lost the service could be a significant barrier for smaller ANSPs who
may seek TANS contracts at the large airports.
Manchester Airport Group (MAG) decided not to tender their
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
5. TANS at Manchester and Stansted airports after considering self-
supply and alternative supplier options. They used the threat of a
tender to negotiate preferred terms with NSL (CAA 2015a, 2015b,
2015c). (CAA 2015a, 2015b, 2015c) expressed concern that MAG
extended the arrangement with NSL for a 10 year period. They
considered that a 10 year extension for an incumbent, without
going to open tender was unnecessary and did not promote
competition.
By the end of 2016 CAA would like half of the nine airports to
have tendered their TANS services. They also imply a contract
length in the range of 5e10 years to ensure that the cost of TANS is
subject to regular market tests. A term at the upper end of this
range is considered appropriate when a new entrant commences a
service and needs to recoup establishment costs (CAA, 2015).
4.1.2. Access to assets
To foster competition, CAA has directed initiatives to remove
many of the competitive advantages that NSL holds. CAA wants the
assets needed to provide TANS e.g., control towers and technology
systems to be owned by airports. This enables a new supplier to
have immediate access to these assets at the time of transition.
Without this access to assets the costs and time to establish an
alternative 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 the
nine airports. It illustrates that the control tower building is owned
either by the airport or NATS. Third party ownership of equipment
means that, typically, a finance company owns the assets and leases
it back to the ANSP. This information was correct as at 28 February
2013.
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 the
control tower building while almost all equipment is provided
under a lease from a third party. Since 2013, GAL purchased the
control tower building and all assets owned by NATS as part of the
transition 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 in
preventing 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 transition
The 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 supplier
should the contract for service provision change hands. This en-
ables an alternative supplier to access the existing pool of skilled
staff without incurring major transition costs associated with the
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 by
the agreement can choose to remain with NATS rather than transfer
to the new employer should equivalent pension arrangements not
be provided. An alternative supplier, therefore, faces the prospect of
higher set up costs before being able to commence a service.
In effect the ToaP provides staff covered by this arrangement
preferable superannuation arrangements. While potentially
restricting the movement of staff to an alternative supplier, it also
means that NSL can be at a significant cost disadvantage if signifi-
cant numbers of staff are covered by this agreement. The ToaP
presents a challenge for NSL to shape its cost base to successfully
compete for TANS tenders.
According to participant interviews, at Gatwick approximately
one third of the operational air traffic staff elected to remain with
NATS, rather than transfer to ANS. NATS has entered into an
agreement with ANS to provide operational staff under second-
ment for 24 months 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 control
staff 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 not
restrict competition. Rather, the need to replace staff covered by
this agreement, who may choose to seek a position elsewhere in
NATS, adds to the time, cost and complexity of transition. There is
evidence to suggest that the costs and risks of transition to a new
service provider are a consideration for an airport operator when
considering ending an incumbent relationship with NSL. Man-
chester Airports Group (MAG) negotiated preferred contract terms
with NSL using the prospect of self-supply and commercial tender
during negotiations to drive down costs. They considered that this
process provided the advantage of achieving better contractual
terms without incurring the costs of tendering and risks associated
with switching suppliers. Heathrow Airport Limited (HAL)
expressed caution in exploring alternative TANS supplier options
due to concerns about whether a seamless transition could be
achieved in a cost effective manner (CAA 2015a, 2015b, 2015c). In
practice the outcomes from implementing service changes at Gat-
wick and Birmingham indicate that any transition risks can be
controlled and mitigated. Whether the high traffic volume,
complexity and closer inter-relationship with NERL of Heathrow
might be an exception is open for debate. Transition risks in almost
all cases, therefore, are unlikely to be a significant reason for an
airport operator to avoid a change in their TANS service delivery
arrangements.
According to participants in this research, BAL found that the
issue of managing the ToaP obligations was a challenge since no-
body had previously exercised it. NSL and BAL had to develop a
Table 3
Structure of asset ownership at nine largest airports (2013).
Airport Control tower building Equipment
London Heathrow Airport Mainly 3rd party with some NATS owned
London Gatwick NATS Mainly 3rd party with some NATS owned
Manchester Airport Airport
London Stansted NATS Mainly 3rd party with some NATS owned
Edinburgh Airport Mainly 3rd party with some NATS owned
London Luton Airport Mainly 3rd party with some NATS owned
Birmingham Airport Airport
London City Airport Airport
Glasgow NATS Mainly 3rd party with some NATS owned
Source: CAP 1004 - SES Market Conditions for Terminal Air Navigation Services in the UK (CAA, 2013).
I. Thompson et al. / Journal of Air Transport Management 57 (2016) 155e167 159
6. transition plan afresh with little experience upon which to base
planning assumptions. The major challenges were staff related,
particularly managing the recruitment and training of air traffic
controllers needed to replace those who may seek a transfer under
the ToaP agreement. BAL also had to gain the support of other air
traffic controllers so that they would transfer to BAATL.
It was anticipated that 18 months or longer might be needed to
complete the transition from NSL to BAATL. Arrangements were
agreed between the two organisations to extend the NSL contract
to cover this period. Addressing the ToaP issue presented different
issues for both organisations. NSL had to find these people another
role within NATS, inevitably involving relocation and retraining
costs, along with retaining expensive pension provisions. While
NSL wanted to relocate these people as quickly as possible, they did
not want to transfer people to Birmingham as their replacements.
BAL had to obtain sufficient staff numbers to provide the TANS. A
secondment agreement was reached whereby BAL paid the staff
costs to augment the air controller establishment throughout the
transition period. NSL arranged and conducted the training under
the NATS unit training plan. As people were trained and qualified,
they replaced those who wished to leave Birmingham. Without this
arrangement BAL believe that would not have been able to train
sufficient staff during the transition period.
During the transition period licensing and certification of the
ATM safety management system and engineering services were
required. These certification and licensing activities were accom-
plished relatively easily at Birmingham.
4.1.4. Interface between TANS supplier and NERL
NERL provides monopoly approach control services that inter-
face with the five London airports and en-route control to support
TANS at the other four airports. To optimize the efficiency of TANS,
air traffic control functions undertaken at the airport and by NERL
must operate harmoniously with each other. Historically NSL and
NERL have provided these services under one corporate umbrella.
CAA (2013) highlighted concerns of airport operators about the
possible consequence of losing this close relationship between NSL
and NERL should TANS service delivery change hands. There were
concerns that the efficiency of airport operations might be
compromised if the close relationship between management of
both organisations ended. Organisations involved in transitioning
services to new TANS suppliers, however, largely discounted this
concern. Service level agreements between NERL, the TANS sup-
plier and airport operator have become more sophisticated and
detailed in the past two years. Furthermore, terms are contained
within the NERL ATS license that require compliance with reason-
able requests, prevent discrimination and not give preferential
treatment (CAA, 2013). Nevertheless personal relationships that
have developed over many years between managers in the same
organisation are likely to make the resolution of operational
problems 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 undergoing
generational technological change. NATS is at the forefront of
implementing many new ATM technologies. CAA (2013) raised the
prospect that an end to the organisational interface between NSL
and NERL might restrict the linkages for the airport operator to the
wider UK and European ATM developments and the ability to share
expertise and learning.
The interview with a senior GAL representative offered a
different perspective. According to this interviewee, GAL believed
that the operation of London terminal area was configured and
operated 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 interests
have not been represented as well as they might on the SESAR
Project or with the Network Manager. GAL expect that ANS,
through their DFS parent, will second people to provide expertise
so that they Gatwick can contribute to these major development
programs.
CAA (2013) raised the prospect of additional costs of achieving
system interoperability and interfaces in the event of NSL being
replaced by an alternative service provider. In this report, GAL
acknowledged that while interoperability was important they did
not believe the issue was insurmountable. The introduction of new
technology that may be used for TANS and NERL functions places an
increased onus on NATS to engage airport operators in system
development and implementation activities. Airport operators will
need to align their activities to meet their obligations to bring these
new technologies and procedures into operation.
4.1.5. Alternative providers
From operational and technical perspectives, NSL is a sophisti-
cated organisation. It faces competition from three sources, namely
another UK TANS supplier, another international ANSP or self
supply by an airport. Other UK-based TANS suppliers have been
shaped to meet the needs of airports with comparatively low levels
of traffic movements and complexity. They have become low cost
providers through reducing non-operational overheads and oper-
ational costs. VantageANS, for example, provides TANS at three
airports. It claims they pay little more than half that of NSL for an
aerodrome only qualified air traffic controller (CAA, 2014).
Low cost providers have also adopted lean structures for
managerial and administrative roles. The limited availability of
non-operational staff presents practical difficulties for these
smaller TANs suppliers to deploy the resources needed to suc-
cessfully tender for TANS at the nine large airports. They are also
very wary of assuming the greater operational risk associated with
TANS at these airports. VantageANS noted that the requirement to
meet runway resilience performance metrics at Gatwick presented
a significant operational risk in tendering for the aerodrome ser-
vices contract (CAA 2015a, 2015b, 2015c).
Regulatory price controls on monopoly services restrict the
ability of ANSPs to grow revenue in their home country. A relatively
small number of sophisticated ANSPs are endeavoring to generate
additional revenue by undertaking international work. Arguably,
ANSPs who have deregulated aerodrome and/or approach services,
developed organisational structures to respond to competition and
have ownership, particularly the government shareholder, that
supports international expansion are most likely to seek interna-
tional opportunities.
The removal of asset ownership and staff barriers enables price
competition to take place between sophisticated ANSPs. At the nine
largest United Kingdom airports, organisations with a comparative
level of sophistication to NSL are needed to establish a competitive
market. In the case of Gatwick it is almost certain that ANS offered a
comparable level of service sophistication to NSL. With comparable
levels of sophistication, the significantly lower cost of their tender
was a key element in the decision by GAL to award the contract to
ANS.
Providing services at a number of locations enables NSL to
achieve supply-side economies of scale. To provide an air traffic
control (ATC) service a supplier must produce operational docu-
ments and undergo regulatory certification. It also needs to have
managerial, training and audit/standards functions to support
operational activities. These costs can be shared over a number of
locations.
EU regulations, in principle, enable alternate TANS suppliers
I. Thompson et al. / Journal of Air Transport Management 57 (2016) 155e167160
7. originating from Europe to substantially reduce these establish-
ment costs. New regulations have enabled a common approach to
air traffic controller licensing, training standards, medical assess-
ments, certification of training organisations, and the assignment of
a competent organisation to manage activities to certify and
manage operations (European Union, 2015). The Common Re-
quirements regulations mean that any certified EU ANSP can
operate in any other EU state without needing to be re-certified.
Interviews with CAA indicate that they are unaware of any ANSP
to date who has imported its certification to operate in another
state.
An alternative supplier looking to enter the market at only one
location would normally be at a significant cost disadvantage to NSL
until it is able to secure additional service contracts. To compete at a
single location, an alternate supplier might need to adopt some
level of cost subsidisation until further TANS services can be won
and economies of scale realised. This cost subsidisation might
include accepting a lower rate of return or having some of the
functions, noted above, absorbed by the parent organisation. Cost
subsidisation would not be needed if the incumbent had been
making an excessive rate of return. An alternative supplier could
lower its service delivery costs by strategies such as reducing
management overheads, increasing its span of operation into other
airside 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 difficulty
smaller suppliers have in meeting the service capability thresholds
required by larger more complex airports (CAA, 2015). CAA (2013)
identified seven European ANSPs that could potentially tender for
UK TANS services. The number of compliant bids also highlights
that there are only a very small number of international ANSPs who
have the operational sophistication, cost structure and commercial
aspirations to compete with NSL.
Self-supply, involving the airport owner providing the TANS
service, is the third source of competition. On 1 April 2015 BAL
commenced self-supply, replacing NSL. Self-supply provides three
possible advantages to an airport owner. It enables an airport to
exert greater control over activities that take place at their airport.
Significant cost savings are possible if the airport operator chooses
not to place a profit margin on its TANS service, apply significant
risk provisions or add substantial management overheads. Some
smaller cost savings might be realised by increasing the job scope of
air 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 substantially
increase their operational ATM capability and assume greater ser-
vice risks.
4.1.6. Impact of aircraft movements on form of TANS delivery
Interviews with senior managers suggest that the form of
alternative TANS service delivery depends on the number of IFR
traffic movements. Self-supply involves the airport owner
assuming increased operational risk. Of the nine airports, those
with lower numbers of aircraft are likely to consider this service
delivery option. These airports could also consider outsourced
provision of the service.
Airports from mid range traffic movements up to and including
Gatwick are more likely to consider outsourced provision of TANS.
This option means that operational risk remains managed by a
specialist service supplier. These airports are likely to be unwilling
to assume the increased operational risk associated with self-
supply.
Heathrow has almost double the number of IFR movements to
that of second placed Gatwick. This very high volume of traffic,
including the integration of sophisticated technologies and
airspace procedures, probably requires the most sophisticated
TANS supplier. It necessitates a very close inter-relationship with
NERL, arguably closer than the relationship needed between NERL
and Gatwick. Very high service sophistication, along with some
uncertainty about the service capabilities of an alternative supplier,
possibly means that HAL might seek to retain its existing service
arrangements with NSL. On the other hand, Gatwick handles 55
movements per hour on a single runway, compared to the two
runways at Heathrow each with around 44 movements per hour.
The complexity of the single runway operation did not prevent GAL
from changing TANS suppliers.
Table 4 Below presents the IFR traffic numbers for each airport
and provides an approximation of the possible form of TANS service
delivery. It also provides an assessment of the likelihood of a service
change occurring at each airport in the near future, based on
analysis 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., Global
Infrastructure Partners. London City until recently was also owned
by Global Infrastructure Partners. It is possible that management
may still actively look to explore new service alternatives. Therefore
London City is assessed as having a medium likelihood of service
change. The appetite of Glasgow Airport to seriously pursue a ser-
vice change is not known. It will likely review the outcomes of
service changes at Gatwick and Birmingham before making a de-
cision. Therefore a general categorization of low-medium is
assigned to Glasgow. A service change at these three airports will,
of course, depend on the capability of NSL to provide a service
solution that meets airport strategic and operational requirements
at a competitive price.
Manchester, Stansted and Luton airports have recently signed
service delivery contracts with NSL. Heathrow has embarked on a
new strategic relationship with NSL. No short term changes to TANS
service 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. Although
airlines are not the direct buyers of this service they exert consid-
erable pressure on airports to achieve cost reductions, while
maintaining 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 to
tender TANS. Matters impacting airlines, which purchase monopoly
services directly from the NERL, are generally outside the scope of
this discussion.
4.2.1. Airport profitability-contextual background
To guard against monopolistic practices, restrictions have been
placed on the ownership of airports and charges are regulated. In
2009 the United Kingdom Competition Commission ordered BAA to
sell Gatwick, Stansted and one of either Edinburgh or Glasgow
airports thereby breaking up their ownership monopoly. The
United Kingdom adopts a somewhat heavy-handed approach to the
regulation of airport charges at only Heathrow and Gatwick air-
ports. Heavy-handed price regulation is considered less important
when greater competitive pressure is created, such as at the
remaining seven airports (Graham, 2012). The United Kingdom is
softening 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).
I. Thompson et al. / Journal of Air Transport Management 57 (2016) 155e167 161
8. The financial performance of airports is highly dependent on the
number of passengers handled. The ACI Europe Economics Report
(2013) concluded that 58% of European airports in 2012 with fewer
than 5 m passengers per annum operated at a loss. When passenger
numbers fall below 1 m, ACI-World Bank (2015) report that 80% of
these airports lose money. During 2014 only nine United Kingdom
airports handled more than 5 m passengers (CAA, 2015b). This
suggests that the vast majority of the 128 licensed airports in the
United Kingdom are likely not to be profitable.
Airports with low passenger numbers face financial pressure on
a number of fronts. Airlines are able to exert commercial power
over airport operators. These airports are sometimes faced with the
need 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 revenue
growth invariably results in the financing of capital infrastructure
being problematic. The need to finance infrastructure in an envi-
ronment of slow revenue growth commonly leads to difficulty in
the relationship between airlines and airports over funding (ACI
Europe, 2013).
The financial pressures on these low passenger volume airports
inevitably will mean that lower cost solutions are introduced for
TANS. Lower levels of sophistication and aircraft movements enable
TANS to be provided with fewer air traffic control staff. Air traffic
controllers at these lower volume airports are paid substantially
less than those at busier more complex locations (CAA, 2014).
Eight of the nine airports that fall within the SES performance
scheme exceed 7.9 m passengers annually, London City being the
exception with 3.6 m passengers (CAA, 2015b). ACI data illustrates
that airports handling 15e25 m passengers are most profitable. For
airports in the 25e40 m passenger range, such as Gatwick, the net
profit drops due to greater infrastructure investment needs (ACI
Europe, 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 a
large investment in airport infrastructure is required, such as a
second runway. Profits rebound when an airport handles more than
40 m passengers annually.
For large, sophisticated and commercially astute airports the
method of delivering TANS can be a mechanism for increasing its
influence over operational activities and/or cost control. Philo-
sophically, as a consequence of privatisation, airports no longer
consider themselves as being mere infrastructure providers. Large
airports are increasingly becoming integrated diversified busi-
nesses (ACI-WBG, 2015). This philosophy might, depending on
operational complexity, involve airports looking to assume greater
responsibility for a wider range of services, which are currently
undertaken by other organisations e.g., TANS.
4.2.2. Influence of airlines
Airports are accountable to airlines for the cost of their services,
including TANS, irrespective of whether they are provided in-house
or outsourced. Tendering TANS enables airport operators to
demonstrate to airline users that it is seeking the best value for
money solution. Airport operators, however, are faced with the
costs associated with running a complex tender process and the
transition to an alternative supplier if the incumbent is replaced. On
the other hand, airlines may be risk averse when faced with a
change in supplier at the busiest airports, particularly Heathrow. At
the busiest of airports it might mean that achieving the lowest cost
is less important for airlines than the sustained quality of the TANS
service.
The sharp decline in passenger numbers in the aftermath of the
global financial crisis (GFC) in 2008 has heightened airline scrutiny
of airport charges, including the cost of TANS. A greater predomi-
nance of low cost airlines post GFC has intensified the pressure to
reduce service charges. BAL said that following the GFC passenger
demand collapsed. Almost immediately, for airport operators, it
became a very competitive market to attract and airline customers.
Prior to the GFC, 80% of their airport revenue was generated from
aeronautical sources. According to the interview with a senior
management representative of BAL, since the GFC, non-
aeronautical revenue e.g., car parking, property, retail leases now
contributes 55% of total airport revenue. He also noted that Bir-
mingham competes with a number of airports located in and
around 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 and
NATS highlight the cost focus on TANS. In the negotiations to
establish airport charges airlines have placed a high priority on cost
reduction, while still requiring airports to meet performance
agreements with airlines. NSL is perceived by all interviewees to be
a very high cost service provider. Their TANS service costs were an
obvious target so that airport charges could be lowered for airlines.
While scrutinising NSL costs, the airport operators also wanted to
ensure that investment would be made in new and emerging
technologies to enhance capacity.
Eurocontrol (2016) presented benchmark data, gathered in
2014, comparing costs per flights among European ANSPs. Despite
being perceived as a high cost service provider in the UK, this data
shows that NATS has the lowest cost per flight hour compared to
ANSPs from Germany, France, Italy and Spain. DFS, the German
ANSP and parent company of ANS, has the highest cost
(Eurocontrol, 2016).
In parallel with airline negotiations with airports, Reference
Period (RP) 2 negotiations took place with NERL about air naviga-
tion service charges for monopoly en-route and approach services
at the five London airports. The outcome of these negotiations has
seen NERL adopt initiatives to lower its cost base. An agreed per-
formance metric for ATM related service delay is also included in
the agreement between NERL and airline users. As a result NATS
have reduced their air traffic controller workforce. There is now
Table 4
Possible 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 NSL
London Gatwick 262,639 Outsource Changed to ANS
Manchester 164,963 Outsource Low
London Stansted 155,913 Outsource Low
Edinburgh 109,554 Outsource High
London Luton 92,005 Self-supply/outsource Low
Birmingham 90,069 Self-supply/outsource Changed to self-supply
London City 83,650 Self-supply/outsource Medium
Glasgow 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
9. concern that as air traffic movements rebound to above pre-GFC
levels, 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 aircraft
are required to spend more time on the parking gate or ground
holding at an airport. The increased aircraft ‘time on the ground’
means a decline in airport performance outcomes agreed with their
airline users. Airport operators, however, have no input into the
delay metrics agreed between airlines and NERL. It seems that
while airlines are accepting of a level of delay in services delivered
by NERL they demand high levels of performance efficiency from
airport operators i.e., zero delay. System performance assumptions
need to be collectively agreed between airlines, airports and NERL.
4.2.3. Airport motivations to tender TANS
The advent of privatised ownership has focused airport man-
agement attention on undertaking measures to increase revenue
and reduce costs in order to achieve a commercial rate of return on
investment. New approaches have been introduced to improve
operational efficiency. For example, GAL engaged process
improvement expertise from GE Capital, part of the ownership
structure, to apply six sigma principles to increase airport capacity.
There are conflicting views among interviewees about who was
most instrumental in achieving an increase in the capacity at Gat-
wick Airport's single runway from a maximum of 50 to achieve 55
aircraft movements per hour. Furthermore, a senior representative
from GAL doubted that NSL was being as proactive as it might to
assist their organisation in optimising the use of the asset. They had
a sense that NATS was focused on operations at Heathrow and
improvements for Gatwick were of much lower importance.
At the time BAL and GAL began to explore tendering their TANS
around 2011, NSL had been an entrenched generational supplier of
these services. The upcoming end of the contract period with NSL
for TANS seemed to provide motivation for the airport operators to
question whether the current service arrangements were providing
value for money. They had concerns whether NSL were investing an
appropriate proportion of their TANS revenue into service im-
provements. For example GAL seems to have wanted investment to
improve the operation of its instrument landing system (ILS) while
BAL were looking at surface movement surveillance systems and
electronic flight strips.
While NSL provided operational air traffic control and engi-
neering service to a very high level service, these airports found
they were complacent, bordering on arrogant, in dealing with their
concerns. All interviewees held a common view that an attitude of
‘we know best’ prevailed. According to interviewees, there was a
belief held by airport owners that NSL were charging a high pre-
mium for their services based on a perception of high service
quality and that airport operators had no realistic alternative ser-
vice options. NSL would not provide transparency of their costs to
airport operators.
The airports held a view, acknowledged in interviews with NATS
senior management, that NSL had a lack of customer focus and
were not listening attentively to understand the issues and needs or
airport operators. Demands on airport operators of privatised
ownership and airlines plus the cost pressures presented by the
GFC were not being seriously addressed by NSL. In particular NSL
were not willing to provide a service cost that was somewhat
comparable to other alternatives.
BAL considered that the contract price offered by NSL included a
premium compared to those supplied to other airport operators.
They also became concerned that NSL may be prepared to lose the
TANS contract solely to demonstrate there was a contestable mar-
ket. BAL, however, had no other outsource alternatives to provide
the service. Concerns about price and the commitment of NSL to
provide TANS at Birmingham continued throughout the tender
process. They intensified BAL's resolve to explore fully alternative
service options.
An early acquisition of some ATM expertise within the airport
management team at both Birmingham and Gatwick appears to
have been important in making a change to service provision a
feasible option. They sought to become intelligent customers in
order to fully understand their TANS and explore service options in
detail. For example, two managers at the most senior levels of BAL
had 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 was
essential in creating cost models to compare the tender offer pre-
sented by NSL and developing alternative safety management plans
for a new service environment.
When the likelihood of a supplier change away from NSL
became a realistic option, concerns of the board of directors and
airlines needed to be addressed. For example board approval for the
service change at BAL took place over five months. While cost re-
ductions were wanted, assurance was needed that the service
change could be performed without impacting the service quality
of the airport and increasing the operational risk to an unman-
ageable level. Within this period management needed to prepare
service plans, risk analyses and cost evaluations. They were also
required to brief the full ownership group about the implications of
the service change.
GAL noted that airlines were quite apprehensive about the
prospect of a service change. While none opposed the proposed
service change, airlines questioned whether the airport had confi-
dence that the new supplier could deliver the same level of service
as under NSL. Although the largest airlines in the UK, through the
Airline Group, are part owners of NATS it is probably unlikely that
commercial considerations played a significant role in questioning
the decision to change service provider. Other interviews indicate
that airlines place a greater priority on achieving lower service
charges over the financial returns of NATS.
4.3. Summary
The power of airports, as buyers of TANS, is dependent on the
number of credible alternative service providers. The emergence of
ANS at Gatwick has increased the bargaining power of airport op-
erators. Following service changes at Gatwick and Birmingham
airports NSL has substantially changed their engagement with
airport operators and service/cost proposition. These changes will
be 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 owners
as buyers of TANS. Should these services perform well the power of
airport operators will increase. On the other hand, should these
service providers struggle, as airline traffic movements continue to
rebound following the end of the GFC, then the power of airport
operators will lessen. In particular if ANS encounter service prob-
lems delivering its aerodrome service at Gatwick the bargaining
power of NSL will increase.
4.4. Bargaining Power of Suppliers
Access to suitably qualified air traffic control staff and ATM
technology systems are essential for providing TANS at the nine
largest United Kingdom airports. These issues are explored in more
detail in this section.
4.4.1. Air traffic control staff
The availability of skilled staff is arguably the most important
I. Thompson et al. / Journal of Air Transport Management 57 (2016) 155e167 163
10. input for operating an ATC service. Ab-initio ATC staff are recruited
and selected from a limited pool of suitable applicants. A lead-time
of up to 24 months can be required before ab-initio trainees achieve
their first air traffic control qualification at complex locations.
Problems with high staff attrition and inadequate planning can
result in shortages of operational personnel. In additional to service
continuity issues, staff shortages provide greater leverage to unions
in their negotiation of improved salaries and conditions.
An airport choosing to self-supply TANS has potentially greater
vulnerability to staff shortages than a national supplier. The airport
will 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 than
expected attrition may need qualified staff to be attracted from
other suppliers or internationally.
BAL has made a commitment to train and develop its air traffic
controller workforce, and balance this with the recruitment of
experienced people. It has retained a strong linkage to the NATS ab-
initio air traffic controller training program and places its trainees
into their air traffic control school. In the case of trainees being
unable to successfully reach required standards, BAL has no capa-
bility to transfer the person to an air traffic control role at another
location. The person may be offered another role at the airport, if
one is available, or have their employment terminated.
Strong and politically connected unions support the air traffic
control workforce. Air traffic controllers often closely follow di-
rection and perspectives of influential union officials, over those of
ANSP management. Many countries have an established history of
air traffic controllers successfully resisting organisational change. A
longitudinal study about a failed change initiative undertaken by
the Norwegian ANSP Avinor highlighted this issue (Lofquist, 2011).
The study highlighted the need for management to undertake a
highly participative approach to successfully achieve organisational
change. Consensus building, participation and maintaining the
ongoing support of air traffic control operational staff are essential.
Without a compelling imperative that is accepted by air traffic
control staff, a major change initiative is likely doomed to fail. A
purely top-down implementation approach, in the air traffic con-
trol setting, can cause extreme resistance inevitably resulting in the
collapse of the change initiative. This Norwegian study also high-
lighted the ability of the air traffic control employees and their
union to influence political leaders to overturn change initiatives.
Breitenmoser et al. (2013) also emphasise the power of air traffic
controller workforce over innovation in the industry. Operating
procedures are formalised and embedded in the air traffic
controller workforce. They consider that air traffic controller em-
ployees and unions have a strong interest in maintaining the status
quo, thereby providing their members with safe jobs and protecting
employment 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 service
change. Prospect, the name of the air traffic controllers union, only
had experience in dealing with NATS. Many of the issues faced were
new, such as how to address ToaP issues and service transition. In
the first instance BAL needed to end concerns that they would be a
‘cheap and cheerful’ operation that would drive cost savings by
dismantling terms and conditions. They also needed to provide
assurance that they would invest and maintain a high commitment
to operating a safe service.
Continually engaging with the union and staff was essential to
elicit their support of the service change and willingly transfer to
the BAATL. During the course of transition NSL restricted BAL's
access to the staff who intended to transfer to the new organisation
and those who had protection under ToaP until agreements were in
place with BAATL. BAL considers that during this period ambiguity
and uncertainty occurred and they began to lose staff support. Fears
about 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 air
traffic controllers union. Pension rights were a key issue that
needed to be addressed for the Birmingham staff. BAL agreed to a
more generous pension scheme than they had previously antici-
pated. Although the defined benefit pension scheme was not
continued, BAL agreed to match the defined contribution scheme
that is operated by NATS. It provides air traffic controllers with
superannuation benefits that are greater than those received by
BAL management.
Air traffic controllers wield considerable influence over the ac-
tivities and initiatives performed by ANSPs, particularly within
large air traffic control sectors as noted in the Norwegian study.
Smaller organisational groups such as a TANS operational unit may
not be influenced to the same degree by a negative sub-culture.
These smaller entities may result in the air traffic control staff
having a greater alignment to the goals of the organisation. The
staff may also perceive they have more influence over the efficacy
of the service provided and the smooth running of the organisation.
Since it commenced self-supply BAL believes that its air traffic
controller workforce have developed an improved sense of pride
and ownership with working at Birmingham Airport. The senior
manager from BAL also claims increased air traffic controller effi-
ciency and improved morale. The smaller operation at Birmingham
requires a number of support functions to be undertaken by
management and supervisory staff, not performed centrally. These
functions can include airspace design, incident investigation and
safety/standards. This requirement enhances job scope and pro-
vides the opportunity for growth beyond the narrow air traffic
controller role. Improved job satisfaction has resulted.
4.4.2. ATM technology
A global pool of five highly specialised systems suppliers dom-
inates the market for large-scale civil ATM projects. These software
processing and display systems are used primarily by en-route
control centres and approach functions. Aerodrome control oper-
ations at the nine largest airports are integrated with these ATM
systems to receive/provide surveillance and flight data information
to the network. The niche market for ATM systems promotes
oligopolistic competition (Breitenmoser et al., 2013). This market
requires a great deal of industry knowledge, proven product
capability that meets international standards and for systems to
interface with those other ANSPs.
The aerodrome environment at large airports is adopting a
greater use of technology to enhance safety and improve the effi-
ciency of ground operations. Airport systems comprise ground
surveillance and data displays, and route guidance systems. Airport
technologies are used between the runway and parking gate. They
are integrated with the ATM system and potentially with gate
management systems (Thompson, 2014b).
Airport systems at sophisticated airports are becoming a
congruence of a number of technologies. The market for airport
systems is more competitive than for large ATM systems with new
entrants emerging. These systems are a small proportion of the cost
of large ATM systems (Thompson, 2015c).
An important change is the increased sophistication of airfield
lighting suppliers who have developed software capability to pro-
vide a computer generated route for aircraft between the runway
and gate at large sophisticated airports. This route activation
capability is achieved through addressable lamp control. Lighting
suppliers are expanding their software capability further to include
the fusion surveillance data from various sensors to generate
I. Thompson et al. / Journal of Air Transport Management 57 (2016) 155e167164
11. position information about an aircraft and alerting capability. All
information can be presented to air traffic controllers through the
route guidance display. This encroaches on the domain of surface
movement guidance and control system suppliers. From the
perspective of the airport owner, the opportunity to reduce the
number of organisations involved in providing different systems
significantly 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 to
the SESAR program, to increase traffic handling capability. These
new technologies will provide a platform for future cost reductions
through increased air traffic controller productivity. Realising the
full potential of this technological change will require integration
with busy airports like Gatwick and the approach and tower service
provided by BAL. The UK Future Airspace Strategy looks at the
implementation of SESAR and provides for cross industry coordi-
nation. This is intended to provide the framework for GAL and BAL
to 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 services
to 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 and
airport capacity. One such initiative involves transferring some
separation responsibilities to the cockpit. While aircraft may in the
future be able to assume some limited responsibilities, air traffic
controllers will remain responsible for ensuring separation is
maintained. The range of these future ATM initiatives is outside the
scope of this discussion.
Emerging remote tower technology provides an alternative to
providing an aerodrome control service from the traditional airport
control tower. This technology uses cameras to capture aircraft
movements in the air and on the ground. These images are then
taken back to a central location where an air traffic controller
provides the aerodrome control service.
Remote tower technology provides the opportunity for an
aerodrome control service for more than one airport to be under-
taken from the central location. It also helps airport owners avoid
substantial expenditure to construct and maintain control tower
facilities. Most of the discussion about the application of this
technology 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 more
owners joining together to provide services from a central location,
thereby optimising staff resources (Thompson, 2014a).
Interviews with 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 large
airports should the main control tower become inoperative. Over
the longer term capital expenditure and staff efficiency benefits are
possible.
4.6. Industry competition
As mentioned earlier, competition for NSL to supply TANS at the
nine airports could come from three sources i.e., another United
Kingdom TANS supplier, an international ANSP or an airport
choosing to self-supply these services. To date there has been
limited competition to NSL for TANS. The competitive market for
TANS at these airports, however, is in the early stages of its evo-
lution. Once the outcomes from GAL's choice of ANS over NSL and
BAL's decision to self-supply are evaluated then new competitors
may emerge.
There seems to be little prospect of alternative suppliers origi-
nating from the organisations that are currently providing TANS at
smaller airports in the United Kingdom. These suppliers seemingly
do not have the organisational capacity and willingness to assume
the greater operational risk that is needed to contend for TANS at
the nine regulatory controlled airports.
ANS is the only sophisticated TANS supplier, backed by DFS, to
emerge in the United Kingdom market. It has a strong incentive to
compete vigorously with NSL for other service contracts in order to
achieve economies of scale in its United Kingdom operation. Three
of the airports with more than 70,000 IFR movements remain to be
tendered. NSL is likely to face intense competition at two of these
airports. As noted earlier, the common ownership of Edinburgh
Airport and GAL points to a potential service change from NSL to
ANS. Quite possibly London City was preparing for a potential
change in TANS supplier before its recent change in ownership. The
perspectives of Glasgow Airport are not known.
It is likely that ANS will seek to acquire TANS supply contracts at
the next tier of airports below the nine largest airports. NSL will
almost certainly compete vigorously to retain market share at these
airports.
NSL has demonstrated a capability to compete successfully by
winning various ATM related contracts in 36 countries (Thompson,
2015a,b). In a joint venture with Thales, NSL provides air traffic
control and management services for the British military at home
and abroad under Project Marshall. The loss of service contracts at
Gatwick and Birmingham airports is somewhat offset by winning
this 22 year contract.
Interviews with NATS managers at all organisational levels
highlighted the great disappointment at the loss of Gatwick. NATS
were proud to be responsible for the busiest single runway oper-
ation in the world. The loss of Gatwick and Birmingham, along with
the harsh feedback received from airports and consultant reports,
has caused NSL to reshape its engagement with airport operators
and its service/cost offering. NSL have adopted commercial models
where they share the performance risk and provide greater trans-
parency over costs of service delivery. From a cost perspective, NSL
face a significant challenge in overcoming historic terms and con-
ditions and work practices. It has reduced overhead costs and profit
margins. NSL is also working with unions to change legacy work
practices to gain productivity improvements. There are, however,
indications that NSL is having success in turning around the
problems it had with BAL and GAL. Belfast City Airport has chosen
to end its self-supply and has contracted with NSL to provide its
TANS. Belfast International and Cardiff airports both extended their
agreements with NSL (CAA 2015a, 2015b, 2015c).
The most notable example of a more customer centric focus by
NSL is its strategic partnership with HAL. If NSL had not entered into
a substantively restructured relationship, HAL retained the option
to tender its aerodrome control service. This strategic partnership
sees the NSL general manager at Heathrow become responsible for
airside operations alongside the provision of air traffic control. He is
now part of the HAL senior leadership team. Air traffic control
functions are merging with those of other airside activities such as
airside safety and standards, ground handling (fuel and baggage)
and rescue fire services under a common organisational umbrella.
Foundations of the strategic relationship include: greater choice
and control for HAL over the services provided by NSL; alignment of
NSL activities with the strategic goals and programs adopted by
HAL; lowering of operational costs for HAL; and continuous
improvement targets aligned to HAL's goals and targets. According
to interviewees HAL required that NSL enter into a risk/reward
relationship with payment bonuses earned and penalties accrued
based 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) 155e167 165
12. airport. It is potentially possible, but also less likely, that once the
TANS is brought in-house, an airport will choose to periodically put
this service to a market test through an open tender process. While
Belfast City Airport has ended its self-supply arrangements, BAL
shows 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 to
compete for other opportunities. It will, however, consider
competing for TANS at smaller regional airports located close-by,
such as Coventry. Economies of scale and service efficiencies
might be attainable through operating two locations in close
proximity. Improved staff utilisation may be gained through the
efficient use of a greater pool of air traffic controllers and managers.
The use of new technologies, such as remote tower technology, may
offer opportunities for increased staff utilisation.
Fig. 2 below is a diagrammatic representation of Porter's five
forces model summarising the strategic landscape of the United
Kingdom TANS market at the nine largest airports. It highlights the
pressure 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 these
efficiencies. Air traffic controller labour is an essential resource that
needs to be acquired and maintained to deliver TANS. Finally, the
diagram highlights the potential for intense competition among
sophisticated 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 forces
impacting 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 a
competitive marketplace in a sector that features a high quality
supplier in an industry with significant levels of specialisation and
service risk. Considerable pressure is required from airline users
and airport owners to lower service costs. It also requires a strong
resolve from management who are well versed in the industry to
navigate the vast number of issues in undertaking a major service
change.
In reality there are a very small number of credible competitors
to NSL to undertake TANS at the nine largest United Kingdom air-
ports. Nevertheless the competition between NSL and ANS is likely
to be intense as the new entrant seeks to win service contracts at
other locations. The TANS contract price offered by ANS to GAL has
been questioned as being exceedingly low and its performance is
being closely monitored by the industry. Should it experience
performance problems ANS may have difficulty in beating NSL for
TANS contracts at other airports. Providing services at only one, or a
very small number of locations, seems to raise doubt about whether
the ANS parent company would continue to support the United
Kingdom operation or choose to divest. Should ANS perform well at
Gatwick and continue to capture TANS opportunities it will likely
become 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 competitive
forces may be irrelevant if the costs of self-supply are significantly
below other service alternatives. An airport operator can choose to
eliminate profit margins, risk provisions and management over-
heads when arriving at their TANS service cost. These reductions
can be offset if the airport operator is able to attract or retain airline
users through its lower cost structures.
The advent of competition in the UK TANS market has resulted
in significant changes to the manner in which NSL engages with
airport operators. A complacent, somewhat arrogant, approach has
been replaced by a greater customer centric focus. NSL has adopted
greater innovation in its service offering to airport operators. Ser-
vices are better aligned to the goals and activities of the airport with
some income reliant on attaining performance metrics. The recent
decision of Belfast City Airport (NATS Holdings, 2016) to select NSL
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 TANS at the nine largest airports in the United Kingdom.
I. Thompson et al. / Journal of Air Transport Management 57 (2016) 155e167166
13. and contract extensions at Belfast International and Cardiff airports
provides some evidence of its ability to develop effective service/
cost offerings for smaller airports, not just Heathrow, an airport of
very high strategic importance to NATS.
The ATM industry is often criticised for its high cost structures
and lack of customer orientation. Competition for TANS at the nine
UK airports with more than 70,000 IFR movements illustrates to
the global ATM industry that the advent of competition can realise
significant cost and service benefits to airport operators and
airlines.
6. Conclusion
This paper has used Porter's five forces model as an analytical
tool to explore the industry forces at play in this complex TANS
landscape at airports with more than 70,000 IFR movements
annually. The market can be characterised as having intense
competition between a long standing sophisticated supplier and
the subsidiary of another international ANSP. There is also
competition for NSL from airport operators that might elect to self-
supply. Existing UK TANS suppliers originating from small airports
appear not to have the operational sophistication to meet perfor-
mance thresholds of these large sophisticated airports.
The opportunity to undertake a competitive tender process
made airport operators evaluate their requirements from a TANS
service and explore whether existing arrangements were providing
value for money. In order to meet strategic and commercial con-
siderations, these airport operators are looking for their TANS
supplier to support the aspirations of the organisation, integrate
into their activities but at an optimal cost.
The evidence suggests that TANS costs have significantly
reduced at Birmingham and Gatwick with the advent of new ser-
vice arrangements. BAL report that their self-supply TANS has
created a highly effective working environment for its air traffic
control workforce. It is probably too soon to assess the efficacy of
new arrangements at Gatwick. The performance of both operations
will be closely scrutinised by industry. Successful performance may
lead to other airport operators intensively explore new TANS ser-
vice arrangements.
Intense competition for the supply of TANS has resulted in a
significant change in the manner NSL engages with airport opera-
tors. It has become more customer centric and willing to enter into
new strategic-operational relationships with airports. They have
adopted initiatives to reduce overheads and address cost elements
that restrict their competitiveness. There has been a willingness to
accept payment arrangements that are performance linked.
Acknowledgements
The authors gratefully acknowledge the support of the people
from 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 traffic
management strategy and operations. He also writes about these
topics for Air Traffic Management and Australian Aviation maga-
zines. Ian is a PhD candidate in the La Trobe Business School at La
Trobe 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 Massey
University School of Aviation in New Zealand and specialises in
change management, innovation, and entrepreneurship. Contact
details: richard@dhu.edu.au.
Timothy Marjoribanks is Professor of Management (Organisa-
tion Studies), and Associate Head, La Trobe Business School, La
Trobe University, Melbourne Australia. His research and teaching
engage with debates in organisational behaviour and trans-
formation, and management and leadership practice, both in
Australia and internationally. Contact details: t.marjoribanks@
latrobe.edu.au.
Dr KB Oh is Senior Lecturer, specialising in finance, at the La
Trobe Business School, La Trobe University, Melbourne Australia. He
has considerable research, teaching and work experience in the
Asia Pacific region. His research interests include aviation devel-
opment in this region. Contact details: k.oh@latrobe.edu.au.
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