Air traffic control's £1bn future at risk

THE FUTURE of the National Air Traffic Services hangs in the balance today after the Civil Aviation Authority ruled that it cannot raise the fees it charges airlines. The move means the debt-laden air traffic controller now depends completely on its banks' goodwill for survival, raising further doubts about the Government's decision to privatise the service last year.

The CAA said it had rejected Nats' request to be allowed to raise its charges by about 25% over the next four years. The extra revenue - up to £200m - would have helped Nats reduce its £700m-plus debt mountain and let it begin a £1bn 10-year investment programme aimed at increasing the amount of traffic it can cope with.

But the CAA also said it would not stop Nats from raising its fees if the airlines agree on the grounds that it is in their own best interest to have a financially secure air traffic controller. However, the airline watchdog insists the Airline Group, which includes British Airways and owns 46% of Nats, must not be involved in this decision.

The ruling is the second blow for Nats this week. It learned on Monday that outsourcing group Serco had abandoned negotiations which would have seen it inject £50m into Nats. The Government, which has retained a 49% stake in the service, has promised to contribute a further £50m if such an investor could be found.

Nats, it is believed, hopes to conclude a deal with airports operator BAA over a possible £50m investment by the end of summer. A deal with a third party such as BAA is crucial to Nats' ability to cut its crippling debt burden and to ensure a goahead for its investment programme.

The CAA justified its decision by saying that the impact of 11 September on Nats' business was not exceptional enough to warrant an automatic increase in charges. But Nats chief executive Richard Everitt said traffic revenues had fallen 17% since then. 'I am astonished that the CAA has not accepted that a price increase is justified,' he said. 'Surely it is in the national interest and that of our customers that we invest to modernise the UK's air traffic control system.'

He said safety in the skies remained the organisation's 'absolute priority' despite the threat to its ongoing modernisation plans.

The sums Nats can charge airlines will fall in real terms between now and the end of 2005 as a result of today's decision. The company had wanted charges to go up in real terms from the beginning of next year until the end of 2005.