1.13 Marketing NATS to potential partners was not straightforward. No air traffic control provider had been offered to equity investors before and there were relatively few potential partners with both sufficient specialist expertise and financial standing. Formal expressions of interest came from nine parties including all the likely credible bidders (Figure 9 on page 21). Two expressions of interest came from parties who did not want to bid in their own right, and these two did not join up with any of the other seven parties. Only four of these seven put in initial bids, following the withdrawal of Airsafe, Boeing and BAE Systems/AMS. Airsafe withdrew following its inadvertent receipt of unauthorised information. Boeing subsequently joined the Airline Group as an adviser. BAE Systems/AMS withdrew because the calculated forecast return on investment was not commensurate with their business objectives. The price cap proposed by the Civil Aviation Authority was of particular concern to them.
1.14 The four consortia who submitted bids were: the Airline Group, Nimbus, Novares and Raytheon. All faced potential conflicts of interest - the Airline Group, if it won, from possible preferential treatment to its own members; Novares and Raytheon, as equipment providers, from possible long-term non-competitive contracts; Nimbus, as the UK's largest private air traffic control provider, raised competition issues. The Department had expected this since the companies most likely to be interested in NATS were likely to be in complementary businesses. They decided not to reduce the choice of bidders by barring types of company from the competition. Instead they made bidders' arrangements to deal with conflicts of interests a key criterion in the evaluation of bids.
1.15 The Department's evaluation concluded that each of the four bidders met the minimum mandatory requirements for national security and probity, safety management, financial capacity and management credibility, and solutions to conflicts of interest. At this stage, Novares and Nimbus scored best, with the Airline Group in third place, and Raytheon in fourth. Raytheon's traffic, revenue and cashflow forecasts were more conservative than other bidders, resulting in a significantly lower offer. Raytheon also had issues with the transaction documents, and scored less well on their Strategic Plan. So the Department decided to invite Novares, Nimbus and the Airline Group to submit full binding bids.
1.16 When these bids were received at the end of January 2001 the Airline Group had significantly improved the terms of their offer, moving ahead of Nimbus in terms of sales proceeds, with Novares in third place. As Novares also had lower scores on other criteria, the Department placed this bidder in reserve. They then invited the Airline Group and Nimbus to improve their offers, and to remove conditions that the Department considered unacceptable.
1.17 Both remaining bidders had compelling strategic reasons for wanting to acquire a controlling stake in NATS. Nimbus was led by the facilities management group Serco, which already provided air traffic services in a number of countries, including the UK. Serco saw benefits in merging their existing business with NATS. The Airline Group was reluctant to see NATS controlled by any organisation which they felt might have a greater interest in maximising shareholder value, rather than in investing in expanded capacity for air traffic control. As the major users, the Airline Group considered they had most to lose if NATS was not run efficiently and safely.
1.18 After evaluating final offers, the Department decided that, while both were acceptable, the Airline Group's offer was preferable because it offered the potential for higher sale proceeds and conformed better to the terms of the agreement they had proposed. Nimbus wanted significant changes to warranties and indemnities. Their bid required shareholder approval but provided a greater chance of timely completion because the Airline Group had not obtained committed debt financing from banks. A fresh unsolicited offer from Nimbus improved the value of their bid, and withdrew some of the contractual stipulations. Completion with Nimbus could have taken place by the end of April, whereas completion with the Airline Group would not take place before the end of May. But the Department concluded that the Airline Group's bid still offered the potential for £95 million more initial proceeds, and largely conformed to the Government's preferred transaction documentation, whereas Nimbus' bid still contained some unattractive terms.