Flying Schools

Debate between Tim Loughton and Henry Smith

Tuesday 12th September 2023 Westminster Hall

[Henry Smith (Crawley) (Con)]

One of my constituents is affected by this issue. He paid significant fees up front for flight training, and that money has seemingly been lost. It is an issue that the Department for Transport needs to address. More broadly, as my hon. Friend rightly points out, the aviation industry, which is central to this country’s trade and connectivity, will start to suffer if the problem is not properly fixed.

[Tim Loughton]

I am grateful to my hon. Friend and near neighbour from Crawley who represents Gatwick airport. I know he can with us today only briefly due to a sitting of the Foreign Affairs Committee. One of his constituents contacted me, along with many other people from other constituencies who had relatives or were themselves being trained at Shoreham airport, then found themselves out of pocket with very serious financial implications. I will come on to what we need to do about that. It certainly has implications for capacity in the airline industry in the UK. If anybody knows about that issue, it is my hon. Friend, who represents one of the largest airports in the country. There is an angle whereby some of the commercial airlines may be able to help.

I am going to read out correspondence from some of those affected by Shoreham who contacted me. I invited a number of them to come and meet me in my constituency; we had a roundtable to hear some of their experiences and plan a way forward. It is my fault if Members have been contacted, because I encouraged people to contact their MPs to tell them about their experiences. That way we could get as many hon. Members as possible to put pressure on the transport authorities and others to look at the immediate problem, as well as address the longer-term implications and the weaknesses in the system.

I have also been working with the British Airline Pilots’ Association, which has been lobbying the Government for changes in the regulation of flight training schools, particularly to protect students who have made a big financial commitment and are, for all intents and purposes, completely unprotected. That is unlike the situation if they were at a university paying fees, or had other financial investments or obligations, which would be covered under Financial Conduct Authority provisions. The point I am making is that if someone is on a pilot training course, it is little different from any other form of tertiary education, yet it is treated completely differently from training on other expensive courses, such training courses for medics and lawyers. Pilot training is one of the most expensive training courses.

One potential protection that has been suggested, not least by the Minister and the Civil Aviation Authority, is that someone paying their fee could do so by credit card. The trouble is, many of the flying schools do not take credit cards. If someone has to pay £90,000 up front, not many people have got a limit on their credit cards that would allow them to pay it in one sum. That is not a facility that is open or practical for many potential students.

I wrote to the noble Baroness Vere in the Lords, who is the Minister responsible for aviation. I am grateful to the Minister of State, Department for Transport, my right hon. Friend the Member for Hereford and South Herefordshire (Jesse Norman), for covering her position today. I am afraid that it took some months and a bit of chasing to secure a meeting, but I am glad to say we have now secured one for a few weeks’ time, and I will be taking a delegation along with representatives from BALPA to see Baroness Vere.

A statement from the BALPA interim general secretary, Miranda Rackley, rightly noted that there is no public funding for pilot training:

“Flight schools going bust is financially devastating to hard-working students who deserve to have their money better protected from flight school failures. Pilot training is amongst the most expensive training of all professions, and unlike other careers such as law and medicine, there is no student funding available…Many trainees resort to family support to fund their training, such as remortgaging family houses. Government needs to step up and protect students that are so vital to the future of the UK aviation industry.”

BALPA has given a number of examples, and I have some direct examples too. A couple from Worthing, in my constituency, had to raise £90,000 for their daughter to train as an airline pilot. The 19-year-old signed up with FTA at Shoreham, and had to make a downpayment of £10,000 and pay a further £4,500 each month. In late May the school went out of business, which left her parents with losses of £45,000. That is a lot of money.

I can give other examples. Somebody wrote to me to say that their son

“was extremely keen on training to work for an airline. Because of that I remortgaged my house to fund him and almost paid for entire lessons in advance. Now I have no money left to support him financially for his dream job, and I am stuck in a predicament in how to move forward with my son’s education”.

Somebody from East Sussex said:

“My son was a student pilot at FTA in Shoreham, which has gone into liquidation. We have lost over £80,000.”

Somebody from London said:

“I paid a deposit to start training with them”

—Flying Time Limited—

“due to Covid and the changing of the schools schedule they were not able to provide lessons. When I asked for a refund they said they will get back to me and a week later they sent an email informing me the school is closing. It’s extremely sad and I’m not sure what to do or where to start as I want to continue with lessons.”

A constituent said:

“I have now been offered a place at one of the big ATO’s to continue my flight training as the FTA Global syllabus has been approved by the CAA and my training records have been reviewed by the training team at the ATO. So I am now in a situation that I am out of pocket”

—but could be transferred elsewhere—

“and the only way to get back into training without significant time off (due to being recent on training) is by gaining some sort of financial assistance. There is also a time frame I would need to start the training hence why us students would really need assistance from the government.”

There is a particularly poignant one from a Newcastle resident, who said that

“we have lost £50,313 that we had paid into my son’s training. Since a very young age all my son wanted to do was to be a pilot. He is unable to go into the RAF as he has corrected vision…and so we focused on the commercial training route. I have worked for the NHS for the last 27 years and you can imagine we are not rich people. We are hardworking and will give anything we can to enable my son to become a pilot. My husband…used some of his pension money to help…pay the school fees…It is astounding to realise that someone can pay in so much money for their education only to lose it all and that there is no route for any recompense.”

Their son

“will no longer be able to become a pilot as we cannot financially afford to fund a full course again. The failure of FTA has devastated my son and he no longer knows how to move forward in any career path.”

Here is another one from Uxbridge:

“I am a pilot student who was learning an integrated course at Flying Time Aviation limited in Shoreham-by-Sea. The course cost around £78,140, excluding the accommodation and cost of living”

On top of the fees, students have to fund living away from home and their general living expenses as well, which are not taken into consideration. The letter continued:

“The payment was made in 12 monthly instalments after paying an initial deposit of £14,190. On May 22nd, I received an email from the director of FTA informing us about the closure of FTA. I had assumed that the company would have the decency to give back what they owed to the students... However, it was made clear that no refunds would be made at all at the meeting held the next day. This has not only left me but more than 170 students in debt…I received an email last week from the liquidation company, which shows that the company owes me £65,500…however, with the company being extremely in debt, the chances of me and the rest of the fellow students receiving their money back are slim to none…we were only informed about the severity of this situation on the day they ceased trading.”

Finally, somebody from Kent said:

“I am one of the many who have been affected by this closure and have lost considerable amount of money and time—roughly £16,000 and only up until June to finish my flight training”.

There is a time consideration as well. People have 18 months under CAA regulations from the start of their course to the end and the examinations to complete that course. If people have started the course and cannot find or fund an alternative, they are right back where they started and that money has gone completely to waste.

I have taken up the case with Baroness Vere and the CAA, and they have both written back to me. The problem is that the CAA has oversight only of safety considerations and the quality of pilot training for flying schools, and has nothing to do with the finances or their sustainability, but surely the two are linked. There is growing evidence that the cash-flow problems that flying schools have had were leading to corners being cut, which could lead to compromised levels of safety, so financial sustainability is an important consideration in ensuring that flying training schools offer the full, safe and regulated pilots course that those students pay for.

Why do flying schools find themselves in this parlous situation? There are a number of reasons. First, they were hit hard by the pandemic. There was some support for them from the Government, but clearly flying training was not a priority at that time; indeed, much of it stopped for quite a long period. Secondly, flying schools are very dependent on fuel prices, which have rocketed because of events in Ukraine. The third consideration is that, perhaps uniquely in Europe, flying training courses in this country are subject to VAT, which is a large premium on top of already large fees. That does not happen in most if not all other European countries, where flying training is quite rightly treated as being educational, so is not subject to VAT.

I would like the Minister to comment on that last point. Does he think that flying training is a form of education and training, which the Government quite rightly encourage? If so, can he say why it is being treated as just any other sort of consumer item on which people are liable to pay VAT? That does not seem right.

There is also a Brexit element, which I am sure will greatly encourage the hon. Member for Dundee West. That is because previously flying training schools would only pay regulation fees to the CAA, but now, in some cases, if students have European pilots’ licences they will also pay fees to the European Union Aviation Safety Agency, or EASA. However, there is a Brexit bonus for pilots, which you, Sir Robert, will be glad to hear. Now that the UK has left the European aviation system, pilots are able to hold both a UK licence and a European licence, which was not possible previously under European regulations.

As a result of all these factors, many flying schools have had cash-flow problems, leading to claims that they have been demanding money up-front from students in order to keep themselves afloat. In the case of the FTA at Shoreham, it is claimed that it now has debts in excess of £5.5 million, including a £1-million debt to His Majesty’s Revenue and Customs, much of which will be accounted for by VAT liability. However, the FTA’s planes are all mortgaged and it has precious few assets, so it is highly unlikely that there will be anything left for the students who paid up-front or who are partway through their course; they will have to find a new flying school to transfer to, if they can afford to raise the necessary funds to do so.

As I have said, there is the added complication that this issue is time-limited, which is where I think the CAA has a far greater role to play. There are concerns that the CAA has not been as proactive as it might have been in trying to find solutions for some of the students at FTA, including reconsidering the way that exams are held and considering whether there can be any flexibility in that regard, particularly for those people whose course was delayed because of the pandemic; earlier, I cited the case of one such student.

There are also serious questions to be asked of the owners of FTA, who apparently were in touch with the potential receivers back in January, and there was also a reorganisation of debt liabilities to a new company, even though FTA was still taking up-front fees from students virtually up to the day on which it went under. As I have said, those students are not covered by basic Financial Conduct Authority protections, and the advice from the CAA and Ministers has been that they should pay with a credit card which, as I have also said, is not very practical. Consequently, those students are not covered by the protections in section 75 of the Consumer Credit Act 1974 that other credit card purchases would attract. The FTA flying school in Shoreham was a key academy, offering a European flying licence, and it looked like one of the safer and more sustainable flying schools. Consequently, its closure has shocked the industry and clearly other flying schools remain vulnerable.

When I wrote to the Minister, Baroness Vere, her response, as I have said, was that

“the extent of the CAA’s regulatory oversight of flight training organisations is limited to ensuring each organisation complies with specified safety requirements, including suitable training to an agreed safety standard.

The CAA has no direct regulatory oversight of the financial health of a flight training organisation or of the individuals operating within that business, and any proposals to grant these powers to the CAA would first require the Department to consider amending existing legislation, through its rule-making programme, to introduce such powers. In this regard, any changes to the scope of the CAA’s role and functions would likely require a process of developing and consulting on new draft regulations, new regulatory guidance, training for CAA inspectors and the establishment of a framework for regulatory oversight and insurance of the initial and ongoing financial resilience of flight training organisations.”

Right—let’s do it, because, as I have said, all of that will be needed before long if we are still to have a flying school business left in this country in the future.

BALPA contends that the CAA has a statutory responsibility, under retained EU law, to operate an ongoing oversight programme for UK-approved flight schools, which includes requiring “evidence of sufficient funding”. BALPA does not believe that, to date, the CAA has discharged that responsibility diligently or at all, and I agree. There is a financial oversight aspect of the CAA’s regulatory role. Clearly, demanding fees up front to keep operations afloat does not smack of flying schools having sufficient funding. The CAA needs to step up and step in.

BALPA has been working with students to introduce protections to avoid some of the disastrous financial consequences that have befallen students at Bournemouth, Shoreham and Dundee. Specifically, it has brought in its finance fairness charter, under which it asks that, as dedicated approved training organisations, flight schools

“commit to a fundamental principle of not accepting advance payments or deposits from cadets that exceed”

a certain amount

“for training services. This financial limit aims to assure cadets while promoting fiscal responsibility.”

Additionally, it asks that ATOs

“pledge to furnish cadets with comprehensive information regarding payment alternatives if available, further underscoring transparency in line with these commitments”

and

“pledge to extend the convenience of payment by credit card without imposing any undue surcharge providing the cadet with additional consumer protection.”

The BALPA charter adds:

“Transparency is paramount. ATOs undertake the commitment to furnish cadets with accessible information pertaining to their training programs, associated costs, payment protocols, refund mechanisms, and all pertinent terms and conditions.”

That seems perfectly sensible to me, and I hope the Minister will consider taking it up with the CAA. One person who has been caught up in all this wrote to me, referring to the

“seemingly disinterested attitude the CAA has taken towards investigation of misuse of Student monies”,

with the CAA just rolling out the excuse that that does not come its remit, when many of us think that it does.

“For many pilot hopefuls,” BALPA says,

“the costs involved in attaining the necessary qualifications have meant going to extreme measures to secure the funding required, including re-mortgaging family homes”—

I have given examples of that—

“taking out multiple un-secured loans, maximising limits on credit cards and/or borrowing sums of money from family, far exceeding any normal student borrowing.”

It adds:

“In the UK, a trainee professional pilot is not viewed in the same way as a student in any other field or profession. In 99% of cases in the UK, a trainee professional pilot does not even qualify for student status.

For too long, trainee pilots have been viewed and treated as customers. They are students in education, investing in their futures and they are the future of the UK’s aviation industry.”

I wholly agree.

There is another issue, which I referred to briefly: VAT. Interestingly, this point was raised by the now Defence Secretary in a question to the Chancellor of the Exchequer in June 2018, when he was on the Back Benches. He asked the Chancellor,

“with reference to Strategic Review of General Aviation, published by the Civil Aviation Authority in July 2006, whether his Department has conducted a review of whether the current VAT treatment applied to flight training places UK flying schools at a competitive disadvantage to those based in other countries; and if he will make a statement.”

The Treasury replied:

“The government does not hold information on tax revenues that can be broken down to assess the impact of tax on flight training.”

This is not a new issue and many senior colleagues have raised it in the past. I cannot stress enough the financial impact that these closures have had on students who have saved or begged families hard to train as pilots to fulfil their dreams. Why do we not treat flying schools like any other places teaching students in tertiary education, rather than treating students as consumers of a product that happens to be a training course? Why is flight training subject to VAT in this country, unlike anywhere else in Europe?

Having said that, the consequences of the recent closures go far beyond the implications for individual students who find themselves severely out of pocket and need protections. BALPA says that we also need new protections to help secure the training pipeline of commercial pilots to aid forward planning for airlines. We need those new protections to prevent the loss of foreign investment from airlines investing in the UK’s highly experienced flight training industry. We used to be the pride of the world and many foreign pilots would come here for their training. We need new protections to support smaller airfields across the country that support thousands of skilled jobs, including flight instructors, engineers and air traffic controllers.

Today, I received a note from Airlines UK, which makes some interesting observations. Of the 15,295 holders of CAA-issued commercial pilot licences aged between 18 and 64, only 2,954 are under 30, while 3,500 are between 51 and 64. We have an ageing population of pilots who are already trained and working. In the last decade, the total number of UK commercial pilot licence holders fell by 10% and the number under the age of 30 fell by 4%. Airlines UK therefore supports many of the proposals made by BALPA, including that we should remove

“VAT from pilot and air traffic control officer training”;

that we should

“enable student and/or other self-funded options to be used for courses to qualify as a pilot”;

and that there should be an update of the apprenticeship levy

“to enable employers to overcome existing barriers to use apprenticeship funding for pilot and ATCO training.”

We should bring together people from the Department for Education, the Department for Transport and the Treasury, BALPA, and the rest of the airline industry, which plays a role because it is the beneficiary of pilot training—the bigger airlines do not tend to pay for some of this training, but I think they have a role too—to find an immediate solution for those prospective pilots left severely out of pocket, and to introduce financial protections to ensure that that is highly unlikely to happen again, and to ensure that there is oversight of financial sustainability and that the CAA, or an alternative body, can regulate the future of flight training schools.

Without that, we will have an awful lot of students who find themselves at a loose end, unable to fulfil their dreams of becoming the pilots that this country desperately needs. There will also a big confidence issue for pilot training in the United Kingdom. Other countries send their students to this country to train, but people from our own country who want to train as pilots will not be able to do so in the United Kingdom, either because of a lack of capacity or because it is too risky, so they will go abroad and decide to stay and work there, and we will lose them.

There is a severe risk to the UK airline industry unless this situation is sorted out urgently, and that is my ask of the Minister and his colleagues. This issue has big implications for the flying industry in the United Kingdom and a big implication for a lot of the students represented by hon. Members here today. It cannot be ignored any more. I hope that in our forthcoming meeting with the Minister she will be able to progress some urgently needed solutions to the problem.