15. The financing of the NATS Public Private Partnership is shown at Figure 2 above. The Government took some £758 million out of the Company, well in excess of the £500 million receipts that had been predicted in the Government's expenditure projections. The Department still considered that in accepting the Airline Group's bid it had taken a balanced view of all the evaluation criteria, not just the proceeds. The main objectives had been to provide a viable way forward for NATS and to ensure that safety, security and public accountability were adequately addressed.17
16. These higher than expected proceeds were nearly all financed by bank debt repayable by NATS itself. Such a highly geared financial structure was in line with what some utilities, notably in the water sector, were adopting at that time. Other bidders, notably Nimbus, also proposed increasing the indebtedness of the Company, though not to the extent arranged by the Airline Group. The deal was structured this way because the business was seen as having a strong income stream. But the size of the debt means that debt interest payments since the PPP are running at over £50 million a year, nearly 10% of its turnover, even before it has drawn on its loan facilities for new capital investment.18
17. From the outset the Airline Group put relatively little of its own money into the Company, in the form of £50 million of equity and £15 million of shareholders loans, the latter also repayable by NATS. In effect the Group has acquired a 46% share and operational control of the Company having paid only one sixteenth of the purchase price, though a business encumbered with this much debt will generate less in dividends for the shareholders.19
18. Since September 11th the members of the Group have been affected by the downturn in aviation and have refused to put more money into NATS, and the Department has accepted that it is now a question of what the Group can afford. The seven members of the Airline Group pay about 25% of NATS' charges to airlines, so to that extent they will also benefit from any financial solution which helps NATS at the expense of the Government or the banks, rather than through increases in charges.20
19. In the absence of a contribution from the Airline Group, the Government has said that it will match, as a responsible shareholder, contributions from another equity shareholder, but will not go further. The current proposal is that the Government and a new investor, BAA plc will each contribute £65 million of additional equity as part of a wider solution involving the Company's banks and the Economic Regulator. The details of the agreement were still being finalised.21
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18 Qq 10, 30, 32, 37, 55; C&AG's Report, para 1.38; Ev 31 (ref Q 218)
19 Qq 5, 10-11, 18, 20-23, 33-36, 139-143, 230, 231
21 Qq 153-154, 160-161