4.2 In devising a partnership structure which ceded operational control of NATS to the private sector, the Department had to consider carefully with their advisers, CSFB and Slaughter and May, the specific powers and protections they needed to retain. Their team drew up a Strategic Partnership Agreement to govern the relationship between the shareholders in the PPP. This was accepted without substantial amendment by the Airline Group, so the Department obtained the safeguards that they demanded.
4.3 The Strategic Partnership Agreement and the associated documentation governing the PPP are complex and extensive. But a summary of the main ways in which they protect against some of the key risks of a joint venture is set out at Figure 24 overleaf.
4.4 Drawing on Corporate Finance advice we have examined the Strategic Partnership Agreement and other PPP documentation and found that the powers and rights reserved for the government as the minority partner are consistent with normal commercial practice. Government has more rights to be consulted or to approve than is normal in a joint venture. In line with good practice, the agreement provides for heavier sanctions to be applied progressively, firstly by Partnership Directors, then by the Shareholder, and finally if vital by the application of Government powers.
4.5 The Crown Shareholder has various powers through legislation in the event of a failure by NATS to meet its responsibilities, some of which would be triggered by the serving of an "air traffic administration order". Application for such an order can be made to the courts by the Secretary of State or by the Civil Aviation Authority with his consent.
4.6 Ultimately, the Government retains a right to hold the strategic partner in default if there is a serious and sustained failure to perform at NATS. If the partner defaults it is obliged to transfer its shares in NATS to the Crown Shareholder at market value in the event of:
■ material or persistent breaches of the Strategic Partnership Agreement; or
■ a change of control or insolvency of the private sector shareholder or its parent company; or
■ any disposal of shares in breach of the Agreement.
Pending such a transfer, the strategic partner would have its shareholder voting and other rights suspended.