Ireland. PRB assessment of the revised performance targets for RP1. Prepared by the Performance Review Body (PRB) of the Single European Sky

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1 Performance Review Body PRB assessment of the revised performance targets for RP1 Prepared by the Performance Review Body (PRB) of the Single European Sky 27/04/2012

2 COPYRIGHT NOTICE AND DISCLAIMER This document is published by the Performance Review Commission (PRC) in its role as Performance Review Body (PRB) to assist the European Commission in the implementation of the Performance Scheme. It may be copied in whole or in part providing that the copyright notice and disclaimer are included. The information contained in this document may not be modified without prior written permission from the Performance Review Commission. The views expressed herein do not necessarily reflect the official views or policy of EUROCONTROL or of the European Commission, which make no warranty, either implied or express, for the information contained in this document, neither do they assume any legal liability or responsibility for the accuracy, completeness or usefulness of this information. Printed by EUROCONTROL, 96, rue de la Fusée, B-1130 Brussels, Belgium. The PRC s website address is The PRU s address is pru@eurocontrol.int.

3 TABLE OF CONTENTS 1 INTRODUCTION CAPACITY COST-EFFICIENCY OTHER INFORMATION SAFETY INTERRELATIONS BETWEEN PERFORMANCE TARGETS COMPLIANCE CHECKS MONITORING PERFORMANCE PLAN STAKEHOLDER CONSULTATION PROCESS AGGREGATED PERFORMANCE TARGETS AT FAB LEVEL ASSESSMENT OF THE REVISED PERFORMANCE PLAN CONCLUSIONS CONCLUSIONS ON CAPACITY CONCLUSIONS ON COST-EFFICIENCY...9 ANNEX 1: REVISED PERFORMANCE PLAN CHECKLIST...10 ANNEX 2: LIST OF INVESTMENTS FROM PERFORMANCE PLAN...12 ANNEX 3: LIST OF UNCONTROLLABLE COSTS...14

4 1 Introduction s Performance Plan was received on 28th June in English. It was signed by the Deputy Director General for Civil Aviation at the Department of Transport, and the Director and Assistant Director of the Safety Regulation Division of the IAA, the NSA for. PRB assessed s performance plan and transmitted its report to the European Commission on 20 th September The Commission presented a draft Commission Recommendation to the ad-hoc Single Sky Committee of 24 October 2011 asking States/FABs to revise, as appropriate, the targets contained in their performance plans. Based on the positive opinion of the Single Sky Committee, the Recommendation was adopted by the Commission on 23 November 2 and published in the Official Journal of the European Union on 29 November It requested to: Adopt revised cost efficiency targets at national level to be consistent with, and adequately contribute to, the European Union-wide performance targets adopted with Commission Decision (2011/121/EU) of 21 February 2011 for the years 2012 to Take every opportunity for further improving cost-efficiency targets in national or functional airspace block performance plans during the reference period, in particular with regard to the evolution of the general context, the reduction of the cost of capital and support costs (costs other than those for air traffic controllers in operation), the increase in productivity and the rationalisation of investments in the context of the establishment of functional airspace blocks; Review the assumptions underlying the risk premium and consequently the return on equity, and provide justifications for the significant increases in the cost of capital; Provide the assumptions and rationale for establishing costs which may be deemed out of control in accordance with Article 11a(8) of Commission Regulation (EC) No 1794/2006, with a view to facilitating the necessary adjustments at the end of the reference period. Communicate for information to the Commission aggregated performance targets highlighting the consistency at functional airspace block level with the European Unionwide performance targets as specified in article 5.3 of Commission Regulation (EC) No 691/2010. delivered the Addendum to s National Performance Plan on The documents transmission was signed by James Lavelle, Aviation Services & Security Division, Department of Transport Tourism and included: Signed letter of transmission Addendum to s NPP in pdf format (signed) Addendum to s NPP in Word format (unsigned) Revised targets spread-sheet En-route Forecasts at December The present report provides evidences on the PRB assessment of the revised NPP delivered by in responses to the recommendations adopted by the EC and complements the 1 2 PRB s final report on the assessment of National/FAB Performance Plans with Performance Targets for the period : Commission Recommendation (2011/C 348/01) of 23/11/2011 on the revision of targets contained in performance plans under Commission Regulation (EU) N 691/2010. Page 1

5 initial assessment report. The PRB especially examined whether all EC recommendations were considered by and if the amendments made to the initial NPP bring about genuine performance improvements. PRB key conclusions are also included, where necessary. The EC recommendations are highlighted in yellow boxes within the report. Additional relevant PRB conclusions from the first assessment report of 20 September 2011 are highlighted in blue boxes. The tables in the following sections include: the applicable recommendations or requests for clarification on the relevant KPA/KPI made by the EC and the related requests for clarifications made by the PRB on the initial Performance Plan; the amendments submitted via the Addendum on revised targets for RP1; The analysis of the PRB on the revised targets or clarifications. 2 Capacity Although s capacity targets were considered to be providing an adequate contribution to the EU wide capacity target, the PRB assessment suggested that would be able to adopt more stringent targets for 2012 and 2013 than were proposed. IMPROVEMENT: has revisited the intermediate targets for 2012 and 2013 and has adopted more stringent targets of 0.07 minutes for 2012 and 0.12 minutes for 2013 instead of 0.14 minutes for each year. 3 Cost-efficiency ECO EC 2c/3c Adopt revised cost-efficiency targets at national level to be consistent with, and adequately contribute to, the European Union-wide performance targets adopted with Commission Decision (2011/121/EU) of 21 February 2011 for the years 2012 to Take every opportunity for further improving cost-efficiency targets in national or functional airspace block performance plans during the reference period, in particular with regard to the evolution of the general context, the reduction of the cost of capital and support costs (costs other than those for air traffic controllers in operation), the increase in productivity and the rationalisation of investments in the context of the establishment of functional airspace blocks 4 ; ECO EC 2c/3c The revised cost-efficiency targets show an improvement compared to the information submitted in the initial Performance Plan. IMPROVEMENT The en-route DURs are lower by some -0.5% on average for RP1 compared to the initial Performance Plan (by respectively -1.0% in 2012, -0.3% in 2013 and 2014). As 3 4 Commission Recommendation (2011/C 348/01) of 23/11/2011, item 2 (c). Commission Recommendation (2011/C 348/01) of 23/11/2011, item 3 (c). Page 2

6 a result, the annual average trend over is now -0.2% p.a., compared to -0.1% in the initial Plan; In its Addendum to the national Performance Plan has revised downwards the traffic growth assumptions (by -1.5% over RP1) on the grounds that the current economic downturn appears to be substantially more serious than at the time of the preparation of the Performance Plan. has also revised the inflation assumptions slightly downwards by a cumulative -0.8 percentage point by These two revisions lead, all else equal, to a deterioration of the en-route DUR trend over The downwards revision of the DURs was therefore made possible through a significant downwards revision of the total en-route determined costs (-2.0% over RP1, or M). Significant reductions from the initial June 2011 Plan took place in the areas of staff costs and cost of capital. The PRB notes that these reductions arise as a result of genuine cost-efficiency improvement from the Irish ATSP (IAA). Although the traffic for RP1 has been revised downwards (-1.5%), the PRB calculates that the combination of both the cost and traffic effects contribute to reducing the EUwide gap by 1.9 M over RP1. Details are provided in the table below. Performance Plan: Currency: EUR Initial Performance Plan (June 2011) 2009A 2010A AAGR AAGR Total determined costs in nominal terms (in national currency) % 1.5% Inflation % -1.6% 1.0% 1.5% 1.7% 1.9% Inflation index (100 in 2009) % 1.7% Determined costs in real terms (in national currency at 2009 prices) % -0.2% Total en-route Service Units % 4.1% Real en-route DUR in national currency (at 2009 prices) % -4.2% Revised Performance Targets (December 2011) 2009A 2010A AAGR AAGR Total determined costs in nominal terms (in national currency) % 0.3% Inflation % -1.6% 1.3% 1.0% 1.4% 1.6% Inflation index (100 in 2009) % 1.3% Determined costs in real terms (in national currency at 2009 prices) % -1.0% Total en-route Service Units % 1.8% Real en-route DUR in national currency (at 2009 prices) % -2.8% Difference between revised and initial en-route DUR (in %) -1.0% -0.3% -0.3% Improvement (-) or deterioration (+) towards reducing the gap identified at EU-level from the June 2011 Performance Plans 's contribution (in national currency in real terms at 2009 prices) Exchange rate 's contribution (in 2009EUR) Total RP The 2012 annual price cap implies a reduction of about 25 % on the 2011 price cap. Thereafter, it is expected to fall a further 6 % per annum. Details of the decision are available at: Page 3

7 Index (2009=100) Revised cost-efficiency target for RP % -0.3% -0.3% DUR (EUR2009) En-route DUR (NPP June 2011) Determined en-route costs (NPP June 2011) En-route TSU (NPP June 2011) En-route DUR (Revised Target) Determined en-route costs (Revised Target) En-route TSU (Revised Target) Additional analysis relevant to recommendations ECO EC 2c/3c: Traffic assumption: was assessed as not passing the traffic forecast check in the assessment of its Performance Plan of June The reasons were that the forecast used for was based on a 2011 baseline which was totally different from the situation observed at the time (and -4.4 percentage points below the STATFOR 2011 May base) and, although the figure used in the Performance Plan for 2014 was close to the STATFOR 2011 May base, the forecasts for 2012 and 2013 had been plotted from this artificially low 2011 baseline and were therefore significantly lower than the STATFOR figures. In its Addendum to the national Performance Plan has now further revised downwards its traffic forecast for every year of RP1 (respectively by -0.5% in 2012, -1.5% in 2013 and -2.4% in 2014) on the grounds that the current economic downturn appears to be substantially more serious than at the time of preparing the Performance Plan. The PRB notes that the strong traffic growth observed between January-August 2011 in the Irish airspace (+7.7%) indeed quite sharply contrasts with the decline in traffic over the September-December 2011 period (by -2.1% on average over the same 4 months of 2010). This downwards revision of traffic leads, all else equal, to a deterioration of the DUR trend over DETERIORATION Inflation/Economic assumption: was assessed as not passing the inflation assumption check in the assessment of its Performance Plan of June 2011, as the submitted inflation forecast was significantly higher than the IMF April 2011 average inflation forecast (by a cumulative difference in the price base of +2.2 percentage points by 2014). In its Addendum to the national Performance Plan has revised the inflation assumptions slightly downwards by a cumulative -0.8 percentage point by The PRB notes that the revised assumptions are based on the September 2011 forecast of the ESRI (Economic and Social Institute of ) for 2011 and 2012 and on the IMF September 2011 forecast for 2013 and The PRB notes that this downwards revision of the inflation assumptions, albeit being closer to the IMF figures than those used in the June 2011 Plan, leads all else equal to a deterioration of the DUR trend over Page 4

8 DETERIORATION En-route DUR trend ( ): The DUR trend was assessed as not sufficient in the initial Plan, as the trend was significantly lower than the EU-wide target trend (-0.1% p.a. compared to the EU-wide target of -3.2%) and the trend was biased by the provision of outdated data for 2011 which artificially increased the 2011 baseline. has revised downwards its en-route determined costs by -2.0% over RP1 compared to the initial Performance Plan (or M at 2009 prices). This is the result of a number of revisions, as follows: - a reduction in staff costs arising from a pay freeze and a lower average level of seniority of staff following an unforeseen increase in retirements; - an increase in other operating costs reflecting more up-to-date information relating to maintenance costs for ATM systems and increased requirements for training for the replacement of retired staff; - a reduction of depreciation costs which, although not clearly described in the Addendum, seems to be induced by the rescheduling of some capex; - a reduction of the cost of capital, mainly due to a revision of the return on equity (see below), as well as to a change in the NBV of fixed assets following the probable rescheduling of some capex (see depreciation above). Differences vs June 2011 Plan (2009 prices) RP1 % RP1 Staff % Other operating costs % Depreciation % Cost of capital % Total % The overall net reduction of 7.1 M in determined costs over RP1 is a genuine cost-efficiency improvement from the Irish ATSP (IAA). The PRB also notes that intends to modify the values for terminal costs as presented in the June 2011 Performance Plan (page 23 of its Addendum), although it is not made clear in which respect these will change and whether this implies a re-allocation of costs between the en-route and terminal activities. The PRB understands that the revision of terminal costs is linked to the October 2011 decision by the Commission for Aviation Regulation to significantly reduce terminal air traffic control charges 5 between January 2012 and December Overall, the downwards revision of determined costs (-2.0% over RP1) exceeds the downwards revision of traffic (-1.5% over RP1), therefore leading to an improvement of the DUR (by -0.5%). The average trend over has now marginally improved from -0.1% p.a. in the initial Performance Plan to -0.2% p.a. IMPROVEMENT En-route DUR level: s DUR level for RP1 presented in the initial Performance Plan was assessed as passing the check. The revised targets are now lower than those presented in the initial Performance Plan. IMPROVEMENT Page 5

9 Return on equity (RoE): see ECO EC 3d below IMPROVEMENT ECO EC 3d should review the assumptions underlying the risk premium and consequently the return on equity, and should provide justifications for the significant increases in the cost of capital 6 ; ECO EC 3d was assessed as not passing the RoE check in the initial June 2011 Performance Plan, as the RoE applicable to the ANSP over RP1 (i.e. 9.01%) was based on a risk premium of 5%, which is significantly higher than the EU-wide average for ATSPs. The revised cost-efficiency targets reflect a reduction of the RoE of -1.3 percentage point at 7.71%. The changes in the underlying assumptions are a downwards revision of the risk free rate from 4.01% to 2.71%, while the risk premium remains at 5%. This decrease in RoE contributes to lower costs of capital (some M over RP1). IMPROVEMENT ECO EC 4a Specify in the national performance plan the contribution of investments over the reference period to, and impact on, the performance targets by providing references to business cases and/or cost-benefit analyses and describing their relevance in relation to the European ATM Master Plan, in particular as far as the deployment of the first implementation package (IP1) is concerned. This information should be consistent with the information contained in business plans of air navigation service providers as specified in paragraph (b) of Section 2.2 of Annex I to Commission Regulation (EC) No 2096/ ECO EC 4a The PRB notes that some additional information relating to IP1 related investment projects is provided in the Addendum on revised targets. The PRB did neither assess the consistency and adequacy of the data provided, nor validates ANSPs individual investments, which is a State/NSA responsibility. The list of investments of the ANSP as included in the Plan is provided at Annex 2 SOME ADDITIONAL INFORMATION PROVIDED ECO EC 4b Provide the assumptions and rationale for establishing costs which may be deemed out of control in accordance with Article 11a(8) of Commission Regulation (EC) No 1794/2006, with a view to facilitating the necessary adjustments at the end of the reference period. 8 ECO EC 4b In its Addendum to the national Performance Plan for RP1 did not provide additional assumptions and rationale for establishing uncontrollable costs. The information from the Plan relating to uncontrollable costs is reproduced at Annex Commission Recommendation (2011/C 348/01) of 23/11/2011, item 3 (d). Commission Recommendation (2011/C 348/01) of 23/11/2011, item 4 (a) Commission Recommendation (2011/C 348/01) of 23/11/2011, item 4 (b) Page 6

10 NO CHANGE NO ADDITIONAL INFORMATION PROVIDED s Performance Plan does not specifically indicate that EUROCONTROL costs are considered as uncontrollable. For information, the table below shows the EUROCONTROL costs taken into account by in the revised targets for cost-efficiency. These correspond to the forecast provided by EUROCONTROL in May 2011 and differ from the figures presented by EUROCONTROL at PC/36 in December EUROCONTROL costs assumptions for RP EUROCONTROL costs in nominal terms in EUR Source: Addendum on revised targets for RP1 4 Other information 4.1 Safety The table below includes the applicable recommendations on Safety made by the PRB on the Performance Plan as published in the PRB assessment report of Performance Plans for RP1 9. The CAA/NSA intention with regard to safety targets / ALoS should be clarified. The PRB appreciates to get insight whether any safety targets at national level do already exist It should be clarified that the performance monitoring and annual reporting during RP1 should include the performance of the State and its NSA with regard to Effectiveness of Safety Management and Just Culture. Clarifications provided: The statements highlighted as contradictory in the assessment report (1.4.3 to 1.4.5) reflect the fact that the NSA has been actively evolving its approach to the development and measurement of safety performance indicators. The quoted documents are not fully aligned, as they reflected current plans at the time of writing the NPP. Within SRD the Aeronautical Services Division (ASD) has responsibility for establishing an ALoS to be achieved in the provision of air traffic services. This ALoS has been established at National level and is documented in Division Policy. The policy identifies a number of safety indicators together with associated safety targets and the rationale employed in their selection. The ALoS as has been promulgated to service providers by means of a Notice to Air Navigation Service Providers (S Notice S.17, Issue 2, 19 th March 2010) 'Acceptable Level of Safety in the Provision of Air Traffic Services in ' (available on the IAA website). The NSA will ensure that performance monitoring and annual reporting during RP1 will include the performance of the State and its NSA with regard to the effectiveness of safety management and just culture KPIs. Assessment of the clarifications provided: The PRB thanks for the further explanations which are fully satisfactory. has established national safety targets in the context of the State Safety Programme (SSP). The safety indicators monitored in the National Performance Plan are a sub-set of safety indicators used in the SSP. As a result the NPP and the SSP are fully aligned. 9 PRB assessment report of Performance Plans for RP1 Page 7

11 Conclusions on SAFETY provided exhaustive explanations with regard to the key safety points published in September Interrelations between performance targets Based on the information provided in the Irish Performance Plan and in the Addendum, there are no significant issues regarding interrelations between the established performance targets. 4.3 Compliance checks The s Performance Plan initially delivered in June 2011 was found to contain the majority of the information required by the legislation. However, some information was not provided or was incomplete. provided updated information in the Addendum. Full details are provided in Annex 1: Revised Performance Plan checklist to this report. 4.4 Monitoring Performance Plan In its assessment of the June 2011 s Performance Plan, the PRB noted that s Performance Plan does not state what metrics will be monitored as part of this formal monitoring process, or what actions may be taken if performance is not consistent with the targets. Additional information was provided in the Addendum, but there is still no explicit reference to the metric used. Contingency principles are also addressed in section 4 but with no clear procedure described. 4.5 Stakeholder consultation process In its assessment of the June 2011 s Performance Plan, the PRB noted that, although s Performance Plan was subject to public consultation held jointly on a FAB basis by the UK and, the comments received do not appear to have resulted in concrete changes. Additional information on the consultation meeting held on 19 th April in London have been provided in the Addendum (page 12), addressing those changes in capacity and cost effective matters requested by the users and incorporated in the plan. 4.6 Aggregated performance targets at FAB level FAB EC 4c Communicate for information to the Commission aggregated performance targets highlighting the consistency at functional airspace block level with the European Union-wide performance targets as specified in article 5.3 of Commission Regulation (EC) No 691/ PRB notes that the UK and have agreed that the UK NSA will assume responsibility for the aggregation of the performance targets at FAB level. The UK- FAB submitted a document containing an aggregation of the targets contained in the UK and s national performance plans on 30 June Following the Commission Recommendation in relation to Regulation 691/2010 on the 23 November 2011, the UK and amended some of the targets contained in their national plans. An Addendum to the aggregated targets document to reflect the latest targets has been 10 Commission Recommendation (2011/C 348/01) of 23/11/2011, item 4 (c). Page 8

12 transmitted to the EC via mail on by Matt CLAYDON, European ATM Policy Coordinator, Directorate of Airspace Policy, UK Civil Aviation Authority. 5 Conclusions 5.1 Conclusions on capacity has improved its performance plan in regards to capacity and, if the targets are met, will provide an adequate contribution to the EU wide capacity target. 5.2 Conclusions on cost-efficiency A. The revised cost-efficiency targets show an improvement compared to the information submitted in the initial Performance Plan. The en-route DURs are lower by some - 0.5% on average for RP1 compared to the initial Performance Plan (by respectively - 1.0% in 2012, -0.3% in 2013 and 2014). As a result, the annual average trend over is now -0.2% p.a., compared to -0.1% in the initial Plan. B. In its Addendum to the national Performance Plan has revised downwards, the traffic growth assumptions (by -1.5% over RP1) on the grounds that the current economic downturn appears to be substantially more serious than at the time of the preparation of the Performance Plan. has also revised the inflation assumptions slightly downwards. These two effects lead, all else equal, to a deterioration of the DUR trend over C. The downwards revision of the DURs was therefore made possible through a significant downwards revision of the total en-route determined costs (-2.0% over RP1, or M). Significant reductions from the initial June 2011 Plan took place in the areas of staff costs and cost of capital. The PRB notes that these reductions arise as a result of genuine cost-efficiency improvement from the Irish ATSP (IAA). D. Although the traffic for RP1 has been revised downwards (-1.5%), the PRB calculates that the combination of both the cost and traffic effects contribute to reducing the EUwide gap by 1.9 M over RP1. Page 9

13 Annex 1: Revised Performance Plan checklist The table below includes those elements which received a No or Incomplete check in the PRB report on the Performance Plan initially submitted in June The fifth column (Amendment) refers to the new information received in the Addendum / Revised Performance Plan. Ref Requirement Check in the initial Performance Plan (Yes / No / Incomplete) Notes / reference in the initial Performance Plan Amendments 1.1 Description of situation For National Performance Plans, NSA or body responsible for providing the aggregation of performance targets for the FAB No Not included Page 12: the UK and have agreed that the UK NSA will assume responsibility for the aggregation of the performance targets at FAB level. 1.3 Stakeholder consultation List of stakeholders consulted Incomplete Section 1.3, Annex D however only lists those participating in the informal feedback, not attendees at formal consultation meeting. Provided in Appendix 2 2.1a Effectiveness of safety management Application of severity classification Just culture targets for each year No No No Section No safety targets for RP1 Details on each of these to come once European Approach has been determined. Page 11: The NSA will ensure that performance monitoring and annual reporting during RP1 will include the performance of the State and its NSA with regard to the effectiveness of safety management and just culture KPIs. 2.1d Description of investment needed to achieve targets Capex for each year Breakdown of projects Description of relevance and coherence No No No ANSP: Section but provides major capex only, no yearly breakdown, and only projects significant during 2009 Part of the projects can be found in Appendix 1. No breakdown of the investment is provided Page 10

14 Ref Requirement Check in the initial Performance Plan (Yes / No / Incomplete) Notes / reference in the initial Performance Plan Amendments 2.2 Explanation of consistency with EU-wide targets Cost efficiency No Asserts that it is consistent, on basis of trend, but does not acknowledge longer term trend Improved cost efficiency targets 5 Analysis of sensitivity to external assumptions Incomplete Section 5.1 Very brief discussion of traffic only. No quantitative analysis Brief reference to Inflation 6 Implementation of the Plan Measures to be put in place to achieve the targets Safety No Not included Additional information provided in section 4.8 Environment No Not included No change Cost-efficiency Incomplete Some discussion in section No change Contingency plans if targets are not met during reference period No Not included Brief reference at page 12 Annex D: Public consultation material Incomplete Annex D However, main comments provided only. Additional information provided at page 12. No material submitted Page 11

15 Annex 2: List of investments from Performance Plan The list of investments provided in the Irish Performance Plan (and mapping with the ATM Master Plan where appropriate) is reproduced in the table below for the purpose of transparency of information only. The PRB did neither assess the consistency and adequacy of the data provided, nor validates ANSPs individual investments, which is a State/NSA responsibility. Project Number IP1-OIs Project Pre C003 L005 Ao-0102 Ao-0201 ASMGCS ASMGCS Enhancements G006 A SMR Replacement C002 F001 AOM 0703 AOM-0202 AOM 0205 DCB 0207 COOPANS Project Number IP1-OIs Project Pre AOM-0401 AOU-0301 AOM 0504 H001 AOM-0802 AUO -804 CM-0101 CM-0202 COOPANS Build 2 H004 IS 0203 AFTN Replacement DCB-0102 DCB-0203 Additional Projects CM-0801 IS-0101 COOPANS Build 3 TS-0102 TS-0305 SDM-0101 SDM-0103 AOM 0601 TMA 2012 Page 12

16 AOM 0602 AOM-0602 Page 13

17 Annex 3: List of uncontrollable costs No additional information is available in the Addendum. Page 14