31. You are in a worse position than you were before you had a PPP and you are saddled with paying for someone else to buy it. Permanent Secretary, when this was up for grabs, did the bidders know that they would be able to offload the loan-I assume they must have done because it was part of the discussion-onto NATS?
(Ms Lomax) Yes.
32. One of the puzzling things is that the Treasury, who are usually pretty good at working out what they might get from a sell-off, were expecting 500 million. They got 800 million and they could not believe what was in their greedy little hands. Does it not in a way explain the situation because if the bidders knew that they could bid and it did not matter what they bid; NATS would pay, they could keep up bidding knowing NATS would pick up the bill. What the Treasury got was an actual receipt from a most deceptive and non-competitive way of selling a business on.
(Ms Lomax) There is a limit to the amount of debt that people would have saddled NATS with and that is the amount of debt which NATS was thought to be able to service out of its income. That is why the deals were structured in this way, because it was thought to have a very strong income flow.
33. Who represented the purchasers? as well, does it?
(Ms Lomax) The Airline Group.
34. Yes.
(Ms Lomax) They are not here.
35. That is another witness we could have done with. We are not doing very well at all today.
(Ms Lomax) The Airline Group put the bid in on the basis that they would not be taking dividends out. They are not looking to make a profit out of this.
36. You do not get 46% of a business when you have only paid one-sixteenth on purchase price. When you take into account that it is then a further twelfth it is also the interest element which brings us up to 14 million. It is one pound every £20-worth of purchase.
(Ms Lomax) There is an issue about how much a business carrying this much debt is going to be worth. The equity shareholders are the last in line. If the business is very encumbered with debt, there is going to be less for them even if they were going to take dividends out.
37. Treasury, since you only expected 500 million, why did you take the 800 million? Why did you not leave the other 300 million in to reduce the debt and therefore give NATS more flexibility?
(Mr Glicksman) 800 million was the amount that was offered by the best bid. It would be quite difficult to go back to them and say, "This is too much. We do not want so much money for this sale." What we were looking for was best value for money and there is no reason why this should not have been the best value for money.
38. It is the most flawed project I think I can ever remember coming before this Committee.
(Ms Lomax) Two valuations were done of NATS by PricewaterhouseCoopers as well as by CFSB, our advisers. They put the value on NATS at somewhere between 800 million and a billion. I would be in a very uncomfortable position indeed if I had come before this Committee and said that we deliberately decided to take 500 million when that was the valuation set on the deal by our advisers and independent valuers, supposing September 11 had not occurred. It is very difficult to justify to the Public Accounts Committee accepting a bid so far off the valuation that the market is putting on it.
Mr Rendel
39. Ms Lomax, is NATS going to survive in its
present ownership pattern?
(Ms Lomax) I think so, yes. There is a refinancing going on at the moment as part of putting a composite solution in place, but by and large the PPP has emerged pretty well over the last year.
40. You are confident that we are not going to see another railway situation in which, in effect, the government has to take the thing back into public ownership?
(Ms Lomax) That looks unlikely at the moment, yes.