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6 Detailed Considerations within the PFMR
Policy and Governance Framework
6.1 Aviation is a fast evolving industry. Since 1995, there has been much change in National, European and International aviation policy, and in industry structure and practice, with substantial further evolution likely. These changes reflect the increasing accessibility and popularity of air travel.
6.2 HIAL too has experienced change as an organisation since 1995. At that time, the Company operated 9 airports catering for around 1m passengers a year. The Company now has 11 airports and passenger numbers of nearly 1.3m, which are forecast to increase further in the years ahead. As the Company's operations and safety and regulatory resposonsibilities have grown, so have its subsidy requirements. In 1994/95, the Scottish Office paid around £8m in revenue and capital grant. In 2006/07, subsidy from the then Scottish Executive totalled over £22m.
6.3 This review will consider the existing status of HIAL and how it fits with its current responsibilities and the requirements of Ministers. It will then consider what the future landscape for airports in the Highlands and Islands may look like before concluding whether the functions which the Company carries out can best be delivered by the existing, or some other, delivery mechanism.
Regulatory Framework
6.4 HIAL has achieved much in the nine years since devolution in a period of significant change in the aviation industry.
6.5 The Department for Transport and the Civil Aviation Authority are responsible for ensuring that airports are regulated in areas such as safety, security and economic regulation and HIAL's link with the statutory regulators is very important.
6.6 Against the backdrop of the policy, regulatory and governance frameworks under which the Company operates, the review will consider HIAL's performance since 1999 across the breadth of its responsibilities measured against objectives and targets set, but also in more general terms.
6.7 Safety in particular is of paramount importance to the Company and to Ministers. The review will look closely at the relationship with the regulators in this vital area, contributing to robust safety practices.
Financial and Operational Performance
6.8 The review will consider the Company's financial performance against objectives and targets. It will also consider the mechanisms and structures which underpin the Scottish Government's financial relationship with the Company and assess whether these are optimal for both parties, taking account of the Company's focus on best value and the Efficient Government Programme.
6.9 HIAL is pursuing ways of increasing its income and reducing its reliance on subsidy, seeking to maximise aviation and non-aviation revenues. The review will consider the financial partnership work undertaken by the Company with local authorities and other bodies and the scope for expanding on this. It will also consider what options may exist in terms of incentives and disciplines for the Company which could be introduced in the pursuit of further reducing reliance on subsidy.
6.10 A further aspect of this is maximising, and where appropriate releasing, the value of land assets. This is being pursued partly through the Inverness Airport Business Park development which is a commercial joint venture. HIAL is also pursuing alternative uses for airport land considered to be operationally obsolete. Around one third of the Company's income currently comes from such commercial revenue.
6.11 The review will consider the Company's performance as an employer, including aspects such as the Company's performance management and pay systems. Also, with reference to the Company's governance status, the review will consider whether or not the provision of specialist staff should remain a core function. It will also consider how the Company has dealt with the challenges of modern governance such as European working practice regulations and Freedom of Information legislation.
6.12 The review will also consider how the Company has maximised the opportunities provided by new technology from both an operational and administrative perspective.
Relationships with Stakeholders
6.13 HIAL has a large and varied number of stakeholders ranging from airlines to local communities. Ensuring that stakeholder views are fully taken into account is essential in making good policy and fostering good relations and productive partnerships.
6.14 The review will analyse HIAL's relationships with its stakeholders, and will cover areas such as consultation and communications.
Environmental Focus
6.15 The environmental focus on aviation continues to grow. The Department for Transport's Air Transport White Paper Progress Report published in December 2006 indicated that, under current circumstances, demand for air travel will continue to increase, with additional airport capacity required to meet this. As the main airport operator in the Region and with plans to expand its operations, HIAL's relationship with environmental interests is and will remain of significant importance. The review will consider the existing relationship and whether any improvements can be made.
6.16 The review will also consider the Company's environmental focus more generally in terms of its policy development, existing infrastructure and new build and staff travel habits including the potential for offsetting. A key consideration for this analysis will be an assessment of how aware the Company is of its overall environmental impact and what it is doing to mitigate that impact.
Socio-Economic Considerations
6.17 HIAL's base remit from the Scottish Ministers is to operate 10 airports in the Highlands and Islands and Dundee Airport. In fulfilling its remit, the Company has a major role in improving socio-economic conditions for residents of the Highlands and Islands and Dundee, given its central position in facilitating improved air services but also as an employer and supporter of employment. Following on from an economic impact evaluation of Inverness Airport in 2005, HIAL plans to engage in work with Highlands and Islands Enterprise ( HIE) to quantify the economic significance of all its airports.
6.18 In examining this very important ancillary role for the Company, the Review will consider whether there is a need for it to have more formal recognition in the Company's Corporate Plan and whether the Company requires to develop its policy focus in the area and improve still further its partnership working with other relevant agencies such as HIE and local authorities.
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