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Refinancing the Public Private Partnership for National Air Traffic Services

Sir John Bourn, head of the National Audit Office, reported today that the refinancing of the public private partnership for NATS, completed late last year, has put the Company on a much more robust financial footing, enabling it to make further vital investment to expand the capacity of Air Traffic Control to meet future growth and limit delays to flights.

An NAO report in July 2002 concluded that the PPP contained many positive elements, but that the financial position of the Company needed strengthening to enable it to make further investment. Since then there has been a major refinancing exercise involving NATS, its banks, the Department for Transport, The Airline Group (which remains the Government’s Strategic Partner in NATS), a new investor (BAA plc), and the Civil Aviation Authority.

Following the refinancing, NATS’ indebtedness to banks has been reduced, replaced in part by a £130 million injection of funds, half from the Government and half from BAA plc, and in part by the proceeds of a bond issue. The bond and restructured bank loans and facilities come with fewer ‘strings’ attached than the financing arrangements put in place at the time of the PPP. NATS now has a much stronger buffer of cash reserves to cope with possible future traffic shocks. The robustness of the new financial structure has been tested by modelling a wider range of scenarios than those that were used when setting up the PPP, particularly for severe downturns in traffic. More parties participated in the testing than was the case for the initial PPP, notably NATS itself and the Civil Aviation Authority.

This was a major and complex programme that took almost two years to complete. It involved a £170 million cost reduction programme within NATS, a £60 million temporary working capital facility, finding a new shareholder, extensive revisions to NATS’ major bank facilities and the Civil Aviation Authority’s relaxation of the limits on NATS’ charges to airlines. For much of this time NATS was exposed to disruptive uncertainty and its investment programme was delayed. During this period, NATS maintained its strong safety record.

Sir John said,

“In 2002 we expressed reservations about the original financial structure of the PPP. But other Departments can learn useful lessons from the way the Department for Transport has played its proper part in the reconstruction, acting as a responsible shareholder, strengthening the company but ensuring that any additional public funds were matched by a new private investor.”

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.

 

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, MyTravel, Monarch, Britannia and Easyjet.

 

In the refinancing The Airline Group did not inject new equity into the business to match Government’s, but remains the Government's strategic partner in NATS.

 

Press notices and reports are available from the date of publication on the NAO website at https://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 which employs some 800 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.

 

PN: 01/04