3.8 There is a natural tendency in all multi-party negotiations for each participant not to want to be the first to commit to making a contribution. The Department avoided committing public money until the scale of NATS' cash shortfall was clearer, and until the outcome of the CAA's interim regulatory review process was known. They and their advisers identified that, due mainly to recent receipts of fees from airlines, NATS should have had sufficient cash to meet its short term needs until at least the first quarter of 2002. The Department and the banks put in place a temporary loan facility of £60 million. In the event, NATS did not need to draw on this facility at all, because
■ its worst case forecasts in the immediate aftermath of September 11th proved to have been over-cautious,
■ of its vigorous cash management, including cost reductions, the deferral of non-essential operating and capital spending, and
■ intra-company loans from more cash-rich parts of the Group to the regulated business.
NATS so tightly conserved its cashflow that up until the Composite Solution was complete it had not needed to draw on the short-term facility provided by its Banks and the Government. It had accumulated £100 million in reserves of which some £32 million was available within the regulated business.
3.9 Deferring the injection of Government finance had other advantages:
■ Negotiating the temporary loan provided a useful lever to use in negotiations with other parties. The Department and the Treasury gave their agreement to providing NATS with a loan only on condition that the Airline Group agreed in writing to be supportive in the longer term restructuring of NATS' finances, particularly by not obstructing the insertion of a new investor or the application to the CAA for increases in NATS' charges to airlines.
■ It gave sufficient time for the long term effects of the traffic downturn to become clearer, to inform the longer term restructuring. Within a few months it became evident that this would not be as severe as NATS' initial worst case estimates.