Legal Consequences of Privatisation

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Legal Consequences of Privatisation

33RD ANNUAL CONFERENCE, Ottawa, Canada, 18-22 April 1994

WP No. 137

Legal Consequences of Privatisation


At the 1993 Conference SC7 presented a working paper titled “Legal Consequences of Privatization” (WP 126 Agenda Item C.5.3). This working paper was accepted as Study Material and included on SC7’s work program for further review. The need for a greater degree of commercialization in the operation of government organizations, such as a country’s air navigation system, is widely recognized. The full path to divestiture may take an activity from within a government department to a company wholly within the private sector. Privatization is the process of moving along the path. The main steps along the way are:

Commercialization : The introduction of user charges, commercial accounting and commercial performance objectives.

Corporatisation : The creation of a state-owned corporation, often by statute.

Restructuring : An important intermediate step which is often needed where a state-owned corporation has not been subjected to or has not responded effectively to a competitive commercial environment.

Divestiture : The transfer of ownership of the corporation from the public to the private sector.

Commercialization of the air traffic control system can be accomplished in many ways. The most common to date are the operation of the ATC system:

  • under a Crown Corporation;
  • a separate agency solely owned by the government;
  • contracting out of ATC services to municipal governments or airport authorities;
  • contracting out of ATC services to private companies.


There are many issues to be addressed when the operation of the air traffic control system is commercialized. Issues to be considered are as follows:

  • The commercial entity must be a “good employer”;
  • Security of Tenure (the right to hold a job in the new enterprise under the same terms and conditions of employment previously enjoyed);
  • Creating or maintaining an independent regulatory body to ensure levels of safety and service are maintained;
  • Licensing of air traffic controllers;
  • Representation of controllers at the Board of Directors level of the commercial entity;
  • Third party liability as a result of employees’ actions.

A “good employer” is an employer who operates a personnel policy containing provisions generally accepted as necessary for the fair and proper treatment of employees in all aspects of their employment, including provisions requiring:

(a) Good and safe working conditions; and

(b) An equal opportunities employment programme; and

(c) The impartial selection of suitably qualified persons for appointment; and

(d) Opportunities for the enhancement of the abilities of individual employees.

When an ATC system is commercialized, this issue has to be addressed either through legislation or included in the charter issued to the commercial entity in order to ensure that employee’s rights are protected. Security of tenure is a very important issue that has to be addressed when the operation of the ATC system is commercialized. In this regard, the key clause in any legislation appears to be the following:

The conditions in regard to tenure of office which are granted by the company in relation to a member of staff so transferred shall not, while he/she is in the service of the company, be less favourable than the prevailing conditions in the Civil Service at the time of such alteration, save in accordance with a collective agreement negotiated with any recognized Trade Union or Staff Association concerned.

When commercialization occurs, if this issue is addressed satisfactorily, it will greatly enhance a smooth transition which will ensure a safe air traffic control system. Statutory provisions should be in place prior to vesting day (day of transition to the commercial entity) which includes administrative machinery to ensure that, as a minimum, all terms and conditions of employment currently enjoyed by employees are transferred to the commercial entity. Prior to vesting day, statutory provisions should be in place which includes administrative machinery, to ensure that all current air traffic controllers are ensured employment in the commercial entity.

In accordance with the Chicago Convention, an autonomous ATC organization must not imply abrogation of the government’s safety and oversight responsibility in accordance with the Chicago Convention. The government must ensure, ideally through an independent regulatory body, that:

  • the government’s obligations regarding services and facilities are fulfilled and comply with relevant ICAO documents and user’s operational requirements;
  • ATC capacity is commensurate with traffic demand, meaning traffic should be handled without delays except under exceptional circumstances such as extreme peak periods, where contingency measures should be applied;
  • high levels of safety and service are maintained and monitored;
  • no excessive or discriminatory user charges are applied. In particular, the government should ensure that charges are based on actual and reasonable costs and are apportioned fairly between different categories of users;
  • users are systematically consulted and costs should be transparent;
  • the commercial entity regularly prepare, adopt and publish, in consultation with the users, a short, medium and long-term ongoing development plan.

The implementation of such a regulatory body, with the above stated mandate, would ensure that the commercial entity provide adequate staff, training and modern ATC equipment. In order to ensure a high standard all air traffic controllers employed by the commercial entity, providing ATC services, shall be licensed in accordance with ICAO requirements. The regulatory body shall ensure that the commercial entity meets this requirement (IFATCA Policy – Page 4323, Paragraphs 2.4.5, 2.4.6 and 2.4.7).

It is essential that controllers be aware of the implications of commercialization and having become aware be in a position to safeguard their common interests. This may be best achieved if air traffic controller representatives have a consultative role in countries where commercialization is either planned or already underway. Appointment to the Board of Directors would ensure controller’s concerns are addressed at the highest level of the commercial entity. Third party liability as a result of an employee’s actions must be addressed prior to vesting day. The legal liability of the air traffic controller should be addressed in accordance with IFATCA Policy.


Commercialization of the ATC system is a viable option provided safeguards are enacted in legislation and in the corporation charter on vesting day that ensures the protection of the employees and the safety of the flying public.


It is recommended that this paper be accepted as guidance material.

Last Update: September 20, 2020  

December 23, 2019   233   Jean-Francois Lepage    1994    

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