26 July 2002
Inspectors from the National Audit Office diplomatically described as 'puzzling' the ministry's failure to anticipate a crisis in air traffic and test the financial robustness of the winning bid, made by a consortium of seven UK-based airlines, accordingly.
In total, 19 'adverse scenarios' were modelled, but all of these assumed consistent growth in air traffic. The public spending watchdog said this was 'an optimistic assumption compared with the experience of the past 30 years, which have seen three sudden and severe checks to growth in UK air traffic'.
The public-private partnership gave winning bidders the Airline Group a 46% stake and operational control of Nats. But the fierceness of the competition drove the price up to £793m and, consequently, Nats has seen its debts soar from £330m to £733m, and it has had to ask for a £30m emergency loan from Whitehall.
NAO inspectors questioned the government's decision to accept advice from consultancy Credit Suisse First Boston to rely on shareholders – the government and the consortium – to bail Nats out if it found itself with unexpected financial problems.
'This did not take into account that in the event of a severe downturn in traffic, such as that which followed the September 11 attacks, the airlines would themselves lose money,' they said.
David Luxton, aviation officer for air traffic controllers' union Prospect, said Nats' financial situation compromised 'safe, reliable air travel'. He claimed the NAO report vindicated his union's opposition to the partial sell-off.
Edward Leigh, Conservative chair of the Public Accounts Committee, was also critical. 'It shows a rather blithe naivety that when officials were testing the finances of the bids they did not properly consider the impact this kind of short-term fall in traffic might have on investors,' he said.
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