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Tuesday, 21 May, 2002, 17:28 GMT 18:28 UK
The landmark deal which refuses to fly
Brace yourself for long queues, weekend closing, and perhaps a complex monopoly over business travel.
Bank staff are poised to take control of UK conning towers and air traffic control radar screens.
The financial crisis at National Air Traffic Services (Nats) could tip the firm into the hands of lenders including Abbey National and Bank of Scotland, Britain's aviation watchdog has warned
A company which last year formed a centrepiece of government part-privatisation plans has dived into very public "financial distress", a Civil Aviation Authority (CAA) report showed.
It was only last July that a group of seven airlines bought a 46% stake in Nats.
The deal heralded the injection of £1bn into the company over the next decade, Transport Minister Lord Macdonald said.
"The airlines... will provide the management capability and investment to ensure that Nats can continue safely to meet the growing demand of air travellers in the future," Lord Macdonald said.
In the word of Nats' then chairman, Sir Roy McNulty: "Today's announcement... opens a new and exciting era of opportunity."
It has heralded instead a period of disappointment over air traffic control upgrades needed to handle long-term growth in aviation.
In October, Nats revealed it was delaying by up to two years the start of construction work on a new control centre in Ayrshire.
On Tuesday, Nats warned that its whole £1bn investment plan was in jeopardy.
Who is to blame?
Nats has cited two culprits for its dipping fortunes - terrorists and watchdogs.
It was the 11 September attacks on the US which, by prompting a downturn in aviation, left the firm facing a £190m revenue slide.
And it was the CAA which, by proposing on Tuesday to prevent Nats from raising charges, has denied the firm the obvious means of regaining financial stability.
"I am astonished that the CAA has not accepted that a price increase is justified," Nats chief executive Richard Everitt said.
The CAA, meanwhile, appeared equally surprised that Nats should expect a bailout which would "not hold benefits" for the firm's customers - the airlines whose planes Nats guides through airspace.
"Users would be compensating Nats' investors for risks that [shareholders] must have understood they faced."
Instead it is Nats' backers which should bear the burden of the firm's distress, the CAA said in a report which made mention of "administration" and "receivership".
Shareholders, the carriers joined as the Airline Group, should realise that the value of their investment has dived.
Indeed, Nats' projections show that the company will fail to meet financial targets needed to ensure additional bank lending.
A "financial strengthening" by Nats or "a waiver of this condition by the financiers" was needed to guarantee the cash, the CAA said.
Worse to come
Not that the banks themselves should draw too much comfort from their ever-strengthening hand, or of even "becoming de facto owners" of Nats, the CAA added.
They may face never recovering the full value of their loans to Nats, the watchdog said.
And the firm faces even greater financial problems towards the end of the decade.
"The prospect of deteriorating cash flow performance lies in the 2005-10 period, not the next few years," the CAA said.
While the authority refused, for confidentiality reasons, to detail its concerns to BBC News Online, Tuesday's report mentioned that bank loans are due for repayment towards the end of the decade.
So with the present bleak, the future bleaker, where will the cash come from to avoid a Nats crisis?
The CAA sees aviation firms as the most likely source of funds, gaining a "strategic" position at the price of a poorly performing investment.
Airports operator BAA is among companies believed to have considered buying into Nats.
And such investors could, by picking up a bargain, emerge as among the few beneficiaries of the Nats fiasco.
Certainly airlines - and therefore passengers - stand to win should the CAA confirm that Nats will not be permitted to raise charges.
Yet carriers would also lose out if the decision prompted Nats to delay its £1bn investment programme.
The many opponents to Nats' part-privatisation may feel their fears have been vindicated.
Yet opposition to the deal centred on safety rather than financial grounds.
Indeed, the off-loading of costs onto the Airline Group could be seen as a coup for a government attempting to focus public spending on healthcare.
Yet Nats' plight is hardly a good advertisement for the public private partnership (PPP) process.
And it appears ministers ignored, or certainly do not recall seeing, a warning from Sir Roy McNulty that Nats was being lumbered with too much debt.
Strangely, Sir Roy, as a major architect of the Nats deal, emerges with credentials surprisingly intact.
Not only did he help pull-off a hugely difficult part-privatisation, he identified and warned over its Achilles heel.
He was also in September appointed chairman of the CAA, the watchdog behind Tuesday's report, and the organisation which will take the lead role in writing the history of why prosperity disappeared from Nats' radar screen.
21 May 02 | Business
20 May 02 | Business
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