20 February 2002

Byers forced into £30m bail-out to stop air traffic service collapsing

By Barrie Clement Transport Editor

The air traffic control service will be given an emergency hand-out by the Government, it was agreed yesterday. Four banks had threatened the part-privatised organisation with bankruptcy.

Ministers agreed £30m worth of state aid for National Air Traffic Services(Nats) after a report in The Independent revealed the financial institutions were prepared to apply for administration unless there was urgent government help.

The new "loan" came after an intriguing day in which the Secretary of State for Transport, Stephen Byers, and the chairman of Nats, Chris Gibson-Smith, sought to deny that any such gesture was imminent.

As part of the deal, Abbey National, Barclays Capital, Halifax and Bank of America, will match the contribution from the Government, making a total of £60m. Some sources at Nats said the extra funding would be insufficient to cope with the aftermath of 11 September and ministers would be asked for more.

Early yesterday, Mr Gibson-Smith insisted the Nats board meeting was "routine" but it later transpired the rescue package was agreed at that session. When asked about the deal last night, Nats said it was not adding to its earlier statement from Dr Gibson-Smith.

The news will further undermine Mr Byers, who is still reeling from the sudden departure last week of his special adviser Jo Moore and his ministry's head of information, Martin Sixsmith.

Government critics said the financial intervention from the state called into question the whole process of part-privatisation, in which airlines took 46 per cent of shares in Nats, employees 5 per cent and the Government retained 49 per cent.

The crisis at Nats follows the worldwide economic downturn as well as the effect of the foot-and-mouth crisis but mainly the impact of 11 September.

Iain Findlay, a national official at the air traffic controllers' union Prospect, said the package was insufficient. He said: "This a short-term, stop-gap measure to address the immediate cashflow problems. The banks will almost certainly have to come back for more because it does not deal with the problem of long-term investment."

Lawrence King, an air traffic controller and chairman of Prospect, said Nats had been affected by airlines using smaller planes and flying shorter distances.

Handling fees paid to Nats depended on a formula based on aircraft tonnage and kilometres flown.

Mr Byers had issued a carefully worded "denial" of yesterday's report in The Independent. The statement from the Department of Transport Local Government and the Regions read: "The Nats board meeting being held today is purely routine ... There is no question of Nats being put into administration and the banks have not demanded compensation from the department. The long-term impact of the events of 11 September on the airline industry is still uncertain.

"All parties with a stake in Nats ... are playing their part in resolving the financial difficulties arising from the events.

"Any discussions between the banks, Nats, the Airline Group ... and the Government are commercially confidential. The Government did not receive advice from the Civil Aviation Authority opposing the partial sale of Nats. Any other statement is untrue."

However, the statement was misleading in a number of ways. It was immaterial whether or not yesterday's board meeting was one of a regular series and therefore "routine". Additionally, there was "no question" of Nats going into administration when the statement was issued because, by then, a hurried deal had been stitched together. It was true the financial institutions involved had not demanded "compensation" from the Government; the banks had been looking for more "investment".

While it is also true that the CAA did not oppose the partial sale of Nats, the authority did advise the Government the business plan and financial structure envisaged was too fragile to withstand a major trauma.

Theresa May, the shadow Transport Secretary, said: "This is yet another Stephen Byers blunder. Following on from problems on the railways, it appears he is facing severe problems in aviation. He has to find a plan to ensure Nats stays afloat and fast."

The Liberal Democrat transport spokesman, Tom Brake, said part-privatisation of air traffic control was always going to be "more insecure" than an organisation fully backed by the Government. A senior airline source said Mr Byers "appears to have lost the plot". The same source said the whole affair could have been presented as a triumph because the Government was only forced to stump up £30m. If the organisation was still in state hands it would have been forced to provide far more in the way of investment.

The source said he believed there was little likelihood the banks would have forced Nats into administration but confirmed they had threatened to.