New blow for air traffic control

CRISIS-hit National Air Traffic Services faces a new financial blow - just as Alistair Darling takes over as Transport Secretary with responsibility for the flight control system. Insurance for the part-privatised organisation runs out at the end of this month, and it faces either a huge increase in premiums or being forced to cut its insurance cover.

The threat of a big hike in insurance costs comes while NATS is already under intense financial pressure. The company is heading for a £230m shortfall by 2006 and has £700m of debt.

But a decision instead to cut the level of cover it buys - insuring against pay-outs if NATS were responsible for a mid-air collision - would further undermine faith in the organisation.

The service has been hit by a deluge of recent bad news. It has been claimed that the type on computer screens at its new £623m air traffic control centre in Swanwick, Hampshire, is too small, resulting in aircraft-routing errors. NATS also suffered humiliation last month when the Swanwick control system broke down, bringing chaos to London's airports and disrupting hundreds of flights.

NATS, whose insurance is underwritten by the Bermuda-based ACE insurance group, is believed to have £1.8bn cover for each incident. Experts say it will be lucky to buy half that this time round. A spokesman confirmed that NATS was negotiating with insurers and said: 'Our information suggests we will get the insurance we need.'

He refused to say whether NATS would accept a lower level of cover, but said there had been no air traffic-related insurance claims since the organisation was set up in 1972. The last mid-air collision in British airspace was in the Forties, when two planes collided in fog over the Channel before commercial radar was widely in use.

After 11 September, the global aviation insurance market tightened dramatically, and premiums doubled for many airlines. NATS faces similar increases, according to the trade newspaper, Insurance Day.

The spokesman would not say whether NATS would ask the Government, which has a 49% stake, for aid with insurance payments.

Facilities management company Serco recently pulled out of talks to take a stake in NATS and inject cash. Now, in another attempt to boost its finances, NATS has been in talks with airports operator BAA seeking £60m. If successful, the Government will match this. Meanwhile, it will lend NATS £30m. Another blow is the Civil Aviation Authority's refusal to allow a 5% price increase in charges to airlines.