[A-List] UK infrastructure crisis: air traffic control

["Keaney Michael" <Michael.Keaney@xxxxxx>]

Air traffic system faces crisis over bar on price rises
By Barrie Clement, Transport Editor
The Independent 20 May 2002

Britain's air traffic system is facing financial meltdown because the
industry's regulator plans to refuse to allow the partly privatised
company that runs it to increase its charges to airlines.

Tomorrow, the Civil Aviation Authority (CAA) will register strong
opposition to higher prices to cope with the slump in air travel after
11 September and that will raise the prospect that the banks will, once
again, threaten to force the company, National Air Traffic Services
(Nats), into administration.

The Secretary of State for Transport, Stephen Byers, will be anxious to
avoid a "Railtrack of the skies", especially as the sale of 46 per cent
of shares to airlines has been the only major privatisation since Labour
came to power in 1997.

But Mr Byers was warned by the CAA that the financial structure of Nats
was insufficiently robust to withstand a major shock. The terror attacks
in the United States came within weeks of the sale.

The crisis facing Nats comes after last Friday's highly disruptive
computer crash at its new £623m complex at Swanwick, which caused
scores of flight cancellations and delays of up to seven hours.

Critics believe that Nats' fragility and inability to invest in the best
equipment helped to cause the electronic glitch - the third in two
months.

Industry sources said yesterday that the CAA's refusal to countenance
higher fees for using British airspace was based on its conviction that
the private sector should be expected to bear its fair share of risks
when it buys into a state-owned organisation.

Mr Byers has already agreed to a £30m emergency loan for Nats and
negotiations are under way on a deal under which the airports operator,
the British Airports Authority (BAA), buys into the air traffic control
system for £50m - a figure to be matched by the Government.

After the authority's announcement tomorrow, Mr Byers will try to
negotiate a compromise, but industry sources believe that could take
some time, during which the future of the air traffic system will remain
in doubt.

Instead of reducing charges under the regulatory regime agreed as part
of the Public Private Partnership, Nats wants to increase them. The fees
were supposed to reduce by the Retail Price Index (RPI) minus 4 per cent
next year and minus 5 per cent in both 2004 and 2005.

However, the company now wants the CAA to allow a rise equal to the RPI
plus 4 per cent in 2003, plus 3 per cent in 2004 and 2 per cent in 2005.
It is estimated that the increases would raise charges by £200m over
the next five years.

Senior managers at Nats say the events of 11 September could not have
been foreseen, although critics contend that the impact of the Gulf War
was similar and there should have been a financial cushion to deal with
such an eventuality.

In the immediate aftermath of 11 September, air travel slumped by up to
40 per cent on the transatlantic routes that make up 44 per cent of the
company's revenue. Income has fallen by about 10 per cent over the North
Atlantic.

The seven British airlines which bought part of Nats originally forecast
a £60m profit in the year to March, whereas the company actually
suffered a loss of £80m.

When The Independent revealed that the authority had misgivings about
the financial plan, Mr Byers said he could find no such statement from
the CAA. However, the Transport minister, David Jameson, and a senior
official at the Department of Transport recently told MPs that such
advice was given to the Government.