Summary

1  National Air Traffic Services Ltd (NATS) is the company which holds a monopoly of air traffic control for aircraft flying over the United Kingdom and, with its Irish counterpart, the North East Atlantic. It also provides air traffic control at most of the large airports around the country. The costs of its services are met by charges to users, mainly airlines. Until the Public Private Partnership (PPP) it was owned by the Civil Aviation Authority (CAA), which remains its regulator. Civil Aviation policy is the responsibility of the Department for Transport (the Department).

2  In 1997 NATS estimated that it required some £100 million of further capital investment every year for the next decade to increase air traffic control capacity to meet future traffic growth. But NATS could not be sure of getting this money: it competed with the rest of the public sector for finance and the Department had concerns over whether NATS could manage such a large investment programme efficiently. The Department and the Treasury concluded that the solution to this problem was to adopt a PPP for NATS which provided:

■  above all,  for standards of safety and national security to be at least maintained, in particular by separating service provision from safety regulation;

■  an injection of private sector money and improved project management skills:

■  for NATS to benefit from greater freedom to invest and to improve its services free of public sector constraints; and

■  that in achieving these prime objectives the interests of the taxpayer should be safeguarded.

3  Accordingly in July 2001 the Government concluded a PPP with the Airline Group, a consortium of seven UK-based airlines, which was given operational control and a 46 per cent share of NATS, for nearly £800 million. This report examines the choice of the Airline Group and the extent to which the PPP promotes the achievement of the Government's objectives for NATS.

4  The selection of the Airline Group was based on the issues listed in paragraph 2 above, in particular the risks to standards of safety and national security, the raising of immediate sale proceeds for the taxpayer and the maintenance of effective accountability to Government. But the key challenge of the PPP is to provide a framework that enables NATS to secure the necessary investment for its business, while at the same time putting downward pressure on the prices paid by its customers. And there are risks to NATS' ability to secure the £700 million of external finance it needs to deliver the new capacity it considers necessary to meet traffic growth over the next ten years.