8 Following September 11th it quickly became clear that the Airline Group were unwilling or unable to invest more money in NATS. Given the difficult and uncertain conditions facing the Aviation Industry, the Group's inability or unwillingness to pay was taken as read and not subject to detailed examination. The Airline Group's preference was for a proposal where they retained their controlling majority on the NATS Board and supported the overall solution. The Department, backed by the Treasury, resisted proposals from other participants that the Government should provide the entire investment that was required, as this would have resulted in an effective end to the PPP and a loss of the benefits associated with it. Therefore a new investor was sought. The selection process that followed identified BAA plc, the largest operator of airports in the UK and a customer for NATS' services, as the most suitable investor. Steps were taken to identify and address any perceived conflicts of interest from having this customer as a shareholder. Many participants in the refinancing expressed their approval to us that BAA plc has become a shareholder in NATS. Its business has natural synergies with NATS'.
9 After internal savings and an expected relaxation of the price caps by the regulator, NATS submitted a formal business case for a total new investment of £130 million, £65 million each on equal terms from the Department and BAA plc, thus satisfying the Government's condition that it would commit new shareholder funds only on the basis that the funds were matched by private sector shareholder capital. The Department concluded, on advice from its advisers Credit Suisse First Boston, that this investment in NATS would be commercially justifiable.
10 The Department obtained equal terms to BAA plc. This was important because:
■ Matching private sector investment, pound for pound, broadly reflected the existing split between public and private sector share capital;
■ Most of the new investment is ranked earlier for interest and capital repayment than is the Airline Group's investment and in some circumstances, it is as well protected as Bank debt;
■ Equal terms gives added assurance that the terms are robust and strictly commercial; and
■ Demonstration of the investment being on commercial terms protects the deal against challenges on grounds of state aid.