Revenue drop and debt burden prevent NATS investing to expand services

The UK government and its airtraffic services partner The Airline Group were "naive" in failing to prepare for a fall in earnings that a drop in traffic could bring when the state-owned National Air Traffic Services (NATS) became a public-private partnership (PPP), says UK parliamentary Public Accounts Committee chairman Edward Leigh.

He was reacting to a National Audit Office study of the government's performance in planning and negotiating the sale of 46% of NATS to The Airline Group.

The UK's NATS is the world's only air traffic service provider set up under a PPP. There are no completely privatised national providers yet, but several countries - such as Canada, New Zealand and Switzerland - have corporatised or trust structures.

The study describes NATS' financial state after 11 September as "precarious" and "complex". It says The Airline Group had assumed an average 6% annual traffic growth when the government accepted its bid for a 46% share in the NATS PPP.

But figures presented by the Audit Office show that traffic drops comparable with the present 14% decline in en-route revenues had occurred in 1978 and 1991, and there was a greater fall in 1981.

The study criticises the government for loading The Airline Group with £800 million ($1.3 billion) in bank-financed debt - the cost of acquiring its NATS equity - and not accounting for the effects of an income shortfall on the company's ability to invest in new equipment needed to expand air traffic services capacity - the purpose of the PPP.

But the study says the contracts negotiated by the government have ensured that NATS' PPP structure, and oversight provision through the UK Civil Aviation Authority, protect the public interest in terms of safety, public accountability and national security.

Source: Flight International