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Tuesday, 19 February, 2002, 17:40 GMT
State bail-out for air traffic control
Air traffic controllers
Nats is looking for a solution to its cash problems
The UK government has reportedly been forced into an emergency bail-out of the part-privatised air traffic control service.

The loan could be as large as 60m, half from the state and half from banks, but the government has so far refused to reveal details of ongoing talks with lenders and the National Air Traffic Service (Nats).

"There is no question of Nats being put into administration and the banks have not demanded compensation from the Department," the Department of Transport, Local Government and the Regions said in a statement.

The news follows press reports that Nats was on the brink of financial collapse, after four key banks threatened to foreclose on loans to the service.

During Tuesday, all sides denied that any crisis was brewing at Nats, which has been hit hard by the slump in air travel after 11 September.

But any bail-out would be a further embarrassment to Transport Secretary Stephen Byers, following so close after the decision to take Railtrack into administration.

Support continued

Contrary to earlier reports, the banks behind Nats did not seem willing to pull the plug immediately.

Transport Secretary Stephen Byers
Stephen Byers oversaw the part sell-off of Nats
Earlier in the day, a representative of one of Nats' bankers told BBC News Online: "It is not in our interests for Nats to go into administration... We would lose money."

"We will continue to be supportive and to find a solution whereby the business can continue to operate."

For its part, Nats has denied that it is on the brink of bankruptcy or that it has lost the support of its financial bankers.

Nats chairman Chris Gibson-Smith told BBC Radio 4's World At One programme: "The central story that the banks are about to pull the plug is not true."

Dr Gibson-Smith said the company was covering its losses by accelerating plans for 200m of cost cuts and by asking to be allowed to raise its fees by 5%.

Nats' bankers include Barclays Capital, Abbey National, Halifax and Bank of America.

Major needs

The company is said to need tens of millions of pounds to continue operating. It currently has a loan facility of 1.5bn and drew down half of it to buy its own equity during the privatisation.

Nats' board was attending a monthly meeting on Tuesday, where the finance director was expected to have updated the company's board members.

Dr Gibson-Smith said the meeting was "routine" and was not held to discuss financial difficulties.

The bank representative said no banks would be present at the meeting.

A sustainable business

The banks are also keen to help the company construct a sustainable business model and sort out its finances.

"Nats is certainly short of cash and we need to find out how we can help there," the bank representative said.

Nats has been in negotiations with its lenders for some time and talks will continue following the monthly board meeting.

Dr Gibson-Smith said the banks had been supporting the company and believed it had a "strong future".

Going forward

Nats is also attempting to increase the fees it charges airlines to use British air space.

It has applied to the Civil Aviation Authority (CAA) for an average increase of 5% per annum for three years, starting in January 2003.

A take-off from Heathrow
Nats is looking to charge more fees to airlines

Nats' chairman has already said "the dramatic decline in traffic following the September 11 attacks on the United States" made the application necessary.

The rise compares to 15% hikes in charges in other parts of Europe.

Pending approval from the CAA, it would be some months before the increases came into effect.

"It would be wrong to rely on just one move," the bank representative added.

"But it will be a long way before administration becomes an issue."

A group of seven airlines - including British Airways, Virgin Atlantic and Easyjet - has owned 46% of the company since July 2001.

Nats makes three-quarters of its revenue from "en route charges" based on aircraft size and distance flown.

 WATCH/LISTEN
 ON THIS STORY
The BBC's Simon Montague
"It looks like much more money will be needed"
Prospect trade union leader Iain Findlay
"It is one of the issues we warned the government about"
Shadow Transport Secretary Theresa May
"They pushed it through against the advice of the CAA"
The BBC's Nick Robinson
"The fear of another Railtrack is enough to focus minds"
See also:

19 Feb 02 | UK Politics
Oh dear, Mr Byers again!
19 Feb 02 | Business
Air traffic firm denies cash crisis
25 Jan 02 | Business
BA rules out airline deal
03 Nov 01 | Business
Air traffic controllers' cash plea
23 Oct 01 | Business
Air traffic group denies cash crisis
19 Feb 02 | UK Politics
Air traffic crisis 'caused by 11 Sept'
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