1.1 This Report is a follow-up to our previous report on the Public Private Partnership for National Air Traffic Services Ltd, the UK's main air traffic control provider. We reported in July 2002 that the PPP contained many positive elements but that the financial position of the Company needed strengthening to enable it to make further vital investment to expand the capacity of Air Traffic Control. The taxpayer raised some £800 million from the sale of a 46 per cent stake in NATS to the Airline Group, a consortium of seven UK-based airlines. But the high proceeds were partly achieved by increasing the level of NATS' bank debt. NATS' finances, with increased indebtedness to banks and comparatively little equity from investors, made the organisation vulnerable to severe downturns in traffic, such as that which followed September 11th. That severe down-turn had risked NATS' ability to fund and deliver its investment plan, which is essential to cope with the future growth in air traffic and prevent increasing delays to flights. A summary of the findings in our original report is in Appendix 1.
1.2 Since September 11th there has been a major refinancing exercise involving NATS, its banks, the Department for Transport, the Airline Group, a new investor (BAA plc) and the Civil Aviation Authority. Reflecting contributions from each of these participants, the outcome has been described as "The Composite Solution". This part of the report examines whether, as a result of this exercise, the NATS PPP now has more robust finances to meet the challenges of the future. The approach used in our examination is described in Appendix 2.