4. Of the nineteen scenarios modelled by the Department's advisers and by the Airline Group, only one catered for the risk of a (brief) downturn in NATS' income from traffic. The Department ignored historical evidence of downturns in air traffic. Scenario testing should be designed to reflect the main exposures to risk of the entity concerned.
5. In limiting their testing, the Department and their advisers drew comfort from the optimism of the Airline Group and its four funding banks. Departments should recognise that private sector entities investing in essential public services will have divergent objectives, and may well assume that the government and the consumer will bear the brunt of adverse events.
6. The arrangements for obtaining a price increase are inherently slow to implement and uncertain as to outcome. In practice the Regulator has required a more comprehensive solution which shares the pain between NATS, its investors, and its customers. Until such a solution is negotiated, NATS is unable to access the commercial funds it requires to invest in new capacity. Nor can it be assumed that the Regulator would be able and willing promptly to bail out NATS in the event of a severe downturn in traffic.
7. A proper appreciation of the regulatory risk facing NATS might have led the Department to leave more cash in NATS and thus avoid the current financial difficulties that NATS faces. When departments analyse risk, they should take care that their analysis is comprehensive and not based on unwarranted optimism.