Press Release - The Public Private Partnership for National Air
Traffic Services Ltd
24 July 2002
Sir John Bourn, head of the National Audit Office, reported
today that the public private partnership for NATS contains many
positive elements. But the financial position of the Company will
need strengthening to enable it to make further vital investment to
expand the capacity of Air Traffic Control.
In its study of the PPP for NATS, the NAO found that the
strengths of the PPP include provision for continuing high
standards of safety and for national security, and also for
accountability to Government and the public interest. There are
also safeguards to prevent NATS discriminating in favour of its
shareholders. And the taxpayer raised some £800 million from the
sale of a 46 per cent stake in NATS to the Airline Group, a
consortium of seven UK-based airlines.
But the high proceeds were partly achieved by increasing the
level of NATS’ bank debt. NATS’ new financial structure, with
increased indebtedness to banks and comparatively little equity
from investors, makes the organisation vulnerable to downturns in
traffic, such as that which followed September 11th
2001. The Department and their advisers had decided, mainly on the
basis of financial projections that assumed constant growth in
NATS’ traffic and income, that the financial structure of the PPP
would be sufficiently robust to cope with short-term reductions in
traffic levels. The down-turn following September 11th, however,
has been so severe that there is still a risk that NATS will not be
able to fund and deliver its investment plan. Investment is
essential to cope with future growth in air traffic, and thereby
prevent increasing delays to flights.
It would have been impossible for the Department to have
predicted the events of September 11th and the effects
on air traffic. Nevertheless, there have been other significant
downturns of traffic in the past 30 years, which were not modelled
by the Department or its advisers when testing the proposed
financial structure of NATS.
In its present form NATS is still vulnerable to further traffic
downturns. Its prices are capped by its independent economic
regulator, the Civil Aviation Authority. Because of the severe
downturn in air traffic, NATS has been inhibited from using its
long term loans by the terms of this borrowing, and its ability to
invest is therefore severely restricted. NATS is now trying to
bring an additional equity partner into the PPP, and if it is
successful, it will be much better placed to survive future shocks
and to drawdown on its long-term loans for investment. But
strengthening the position of the company will require positive and
complementary responses from many parties, including investors,
banks and the independent economic regulator.
Sir John said:
"The deal has been set up well to provide safety and
accountability. But the financial position of the company will need
strengthening by the parties involved to enable it to make further
investment in air traffic control, one of the Government’s main
objectives for the Partnership."
Notes for Editors
- National Air Traffic Services Ltd (NATS) is the company which
holds a monopoly over the management of controlled airspace over
the United Kingdom and, with its Irish counterpart, the North East
Atlantic. It also provides air traffic control at most of the large
airports around the country. The costs of its services are met by
charges to users, mainly airlines. Until the Public Private
Partnership (PPP) it was owned by the Civil Aviation Authority,
which remains its regulator. Civil Aviation policy is the
responsibility of the Department for Transport, formerly the
Department of Transport, Local Government and the Regions).
- The Public Private Partnership for NATS was signed in July 2001
between the Secretary of State for Transport, and the Airline
Group. The Airline Group comprises British Airways, Virgin
Atlantic, British Midland, Airtours, Monarch, Britannia and
Easyjet.
- There have been three occasions in the past 30 years when air
traffic has experienced significant downturns – 1973-1976,
1979-1983 and 1991. Only the last of these was used to evaluate the
financial risks to NATS.
- Press notices and reports are available from the date of
publication on the NAO website at http://www.nao.org.uk/. Hard
copies can be obtained from The Stationery Office on 0845 702
3474.<
- The Comptroller and Auditor General, Sir John Bourn, is the
head of the National Audit Office employing some 750 staff. He and
the NAO are totally independent of Government. He certifies the
accounts of all Government departments and a wide range of other
public sector bodies; and he has statutory authority to report to
Parliament on the economy, efficiency and effectiveness with which
departments and other bodies have used their resources.
Press Notice 51/02
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