British Business and General Aviation Association (BBGA) CEO Marc Bailey says business aviation is facing external pressures during potential growth in the UK.
It is interesting when you look at the industry recovery figures throughout Europe. There are pockets of potential improvement in one or two areas and others where the growth has still not returned to where we were in 2011. What is quite ironic is the way the UK government is complaining about the potential
European surcharge of £1.7Bn to fund other European economies who have not managed their finances in a prudent way. If you stop and look at what is being proposed by certain government agencies to impact the business aviation market, one has to wonder if it is actually just the same unfairness being applied to our sector.
The Italian fiasco
Before I show you what I am talking about, I would like to remind the reader of what happened in another member state over the last couple of years.
In Italy, a decision was made to increase the taxation on business aviation activities. In this case, it was very clear that no economic impact assessment was made to determine the market impact, nor was any analysis undertaken regarding the projected tax yield from the policy change. Even though the proposed changes were watered down within six months, the market dropped by 17% in terms of operations into the country – a share that was never recovered because confidence was lost.
Back in the UK…
In the case of the UK there are two proposals in the pipeline that could easily create the same critical reaction from our customers.
First, we have the choice by the UK Treasury to impose APD on our sector at a new rate starting April 2015. This rate is significantly higher than that for scheduled airlines and, because of the MTOW of our aircraft, more of them are drawn into a higher rate banding for routine operations from the UK. As a result, our customers will be faced with paying at least £100 more for the same flight.
To be really clear, the APD rate paid by ourselves or the scheduled airlines is unreasonable and nowhere else in Europe do we see the same penal charging rate for passenger duty. More importantly, no economic impact assessment has been undertaken and no consultation with industry has taken place.
Second, our community is being threatened with charging for its Border Force services. For years our operations have been supported as per the ICAO requirement – free at the point of delivery. The
Border Force team have, because of their budget pressures from Ministers, looked to charge our community at a premium rate in order to redeem 30% of their operational budget.
One of the big issues with this charge is that it has been partially implemented without proper consultation and, as a consequence, the market has been distorted already with some customers already having to pay for a service at some airports. In fact, at the same airport, some FBO’s are paying for a service while others are not. The market distortion that has already been introduced as a consequence of this inappropriate approach to change management by the Border Force senior team is simply unacceptable.
Looking at the impact on our sector, the cost per passenger for April 2015 could find UK operations in business aviation forced to pay just under £600 in charges that an end user would not be face with paying in Europe. Is this going to see the UK pushed to a similar tipping point as seen by Italy following its implementation of these charges, which have to be passed through to the customer?
Back to the other end of the spectrum we are seeing other agencies behaving in a very different way. The CAA is a great example of an executive team looking closely at its safety obligations and also giving significant weight to the customer service required from a modern, service-led organization. In particular, the focus on performance-based regulation and risk-based oversight means responsible organizations demonstrating strong management systems are able to benefit from appropriate regulatory oversight. In fact, the UK CAA is providing leadership throughout Europe as the lead authority in EASA for this concept.
It is early days yet, but our industry is seeing significant improvements in our regulator’s service delivery. It is fair to say that the CAA are undertaking a significant cultural change program, along with a substantial process reengineering program, all of which is being done with good industry consultation.
Finally, it has been very positive to see how focus by Ministers can provide substantial momentum to drive change. The recent ‘GA Red Tape’ challenge initiated by Grant Shapps has definitely impacted our community with the formation of a CAA GA unit for non-commercial and non-complex activities, and the very recent easing in the rate of return required from government by the NAA. Until recently, the rate of return required on capital employed was 6%, which has now been reduced to 3.5%. Even though this is positive, it is still worth pointing out that, relative to our European partners where there is no additional charge levied by their NAA’s, we are still paying more than we should be.
The bottom line is that we are suffering from a series of incremental charges that makes UK based activities far less competitive than they should be. At a time when we are trying hard to welcome inward investment and make access to the UK easier in terms of visas for those willing to invest, should we not be working hard to ensure that all our channels are as open and flexible as they can be?
Charges made at point of entry or departure, or as part of general sector transactions, offer very little revenue when compared to the value offered by an increase in jobs, personal taxation and the potential corporation tax provided by new corporate entrants to the UK.
What we need is a government where individual departments work together in their economic assessments of proposals and someone to steer them to understand the big picture, rather than short term departmental objectives