160. That is how I see it, I must say. Ms Lomax, if we are having this restructuring which is going to have a reduction of the percentage of debt and an increase in the percentage of capital, presumably that will mean the Government putting back in some of the money it got out from the sale?
(Ms Lomax) We have already made it clear, and it is in the NAO Report, that the Government, as a responsible shareholder, will match the contribution of another equity shareholder, yes.
161. That is a yes to the question I asked? (Ms Lomax) We will not go beyond that.
162. Can I turn to Mr Everitt then, as I understood it you said earlier on for the last 15 months capital investment had been funded by the cashflow of the business itself. In those circumstances I find if difficult to see where the gain has come from this partial privatisation since presumably if you are capable of financing your investment by your cashflow, because the bank are refusing to give you any more money, you could have done it without this creation of debt and all of the rest of it? If you did not have the interest on the debt you would have a greater cashflow free for investment. Does that seem a fair way of looking at it?
(Mr Everitt) That is a way of looking at it. The way I have looked at it is that we have needed to conserve cash in the business. As I set out earlier, my criteria were that safety was paramount, et cetera. What we will need is access to additional capital as we move into more significant projects.
163. As of now you are funding your capital investment from cashflow and therefore the whole process of privatisation has made not one jot to your ability up to now to reinvest because it does not seem to have made any difference. Indeed it has made your position worse since you had not had this high interest capital debt on your backs then you would have had more free cashflow in order to plough into your investment?
(Mr Everitt) I have had to deal with the situation that I have had, that was clearly that we do have the debt in the business. What privatisation has brought to it is a number of things we outlined, not least charges to the customer going down in very difficult circumstances.
164. I may come back to that if I have time in a moment. I take it that the cost of borrowing from Government would have been less than the cost of the borrowings that the Airline Group undertook. This is to Mr Everitt, can you give us an indication of by how much more the debt was costing and is costing in interest terms?
(Ms Lomax) In general terms Government can usually borrow significantly cheaper than anybody else. I do not know what the expected margin will be.
(Mr Glicksman) It varies.
165. In terms of looking at what the Government got back in terms of 750 odd million, 1% difference of that would have been in terms of interest payments, how much are we talking about as a saving?
(Mr Everitt) About half a million.
166. £50 million this year!
(Ms Lomax) Half a million.
167. Half a million.
(Mr Everitt) A bit more, £7 million.
168. It has been suggested to me in terms of the cost of management comparing like with like in terms of the position now and the position before the cost of the upper range of management has gone up by 70% since the PPP was introduced. Can you confirm that is correct?
(Mr Everitt) I do not have that number at my fingertips. I am looking at our Annual Report. There has certainly been some increase but I cannot confirm that number.
169. Round about 70%?
(Mr Everitt) I do not know, I would have to check that.6
170. I find it surprising that you do not have it at your fingertips, an indication of how much the management cost has gone up. If it is 70% that is a surprising figure, after all we are not talking firemen here. I would have thought that we had some explanation of that. Can I ask about the cost of advisers and whether or not Ms Lomax in the circumstances did you think that the cost of advisers was actually good value for money. I did come across a table in here on page 24 where the costs of advisers for this privatisation is greater than the cost of advisers for the privatisation of the rolling stock companies, Railfreight Distribution, Scottish Buses, HMSO, LT Bus Companies, Royal Ordnance and National Transcom put together. In these circumstances do you not think you were taken for a bit of a ride by the way in which you struck the deal with your advisers, whereby they were being paid irrespective of whether they did any work.
(Ms Lomax) That is the way these people are customarily remunerated. I think a large, highly complex, highly controversial deal like this is not one to buy advice on price. You want the best advice you possibly can when you are dealing with such a large, sensitive and important business.
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6 Ev 29-30.