3.15 It became clear within a very few weeks after September 11th that the Airline Group were unwilling or unable to invest more money in NATS as might normally be expected of a responsible shareholder. We found no evidence that NATS or the Department had subjected this presumption to detailed debate or quantified analyses of Airlines' inability to pay. It was taken as self-evident against a background of the global aviation industry undertaking severe cuts in flights, staff and investment in a frantic effort to maintain solvency.
3.16 We met representatives of the Airline Group to better understand the reasons for their position. They stated that after September 11th, Group members were in dire financial straits and could not afford to subscribe additional capital. They put this in the context of the earlier difficulties experienced by the Group in putting together the funds for their initial investment in the PPP, in July 2001. Though the stated ethos of the Group was equal shares for equal members, not all partners had been able to commit the necessary funds and British Airways had had to fund an additional £15 million loan to help complete the transaction. This background understandably provided a difficult context for injecting further funds during the Composite Solution.
3.17 The motivation for all Airline Group members in investing in NATS was not to make a commercial return, but to ensure the future of a key service to airlines and to keep it out of the hands of a strictly profit-making operator. But investing for the common good also benefits non-investors. Airline Group members felt that it would be appropriate for overseas airlines, who use UK airspace a lot more than several of them, and stand to benefit substantially from the projected improvements in service levels to users, to subscribe to the refinancing. Unfortunately no practical way could be devised to bring them to the table. The Airline Group fully recognised that if sufficient new equity could not be found somewhere, administration would hold risks for them; notably the loss of majority control to a new investor, or the loss of PPP benefits to airlines generally and investments in NATS should the Company revert to Government ownership.
3.18 The Department and their advisers consider that they had pushed the Airline Group quite hard to raise their investment in NATS. They were aware that not all carriers were badly affected by the events of September 11th. The budget carriers saw an increase in market share and in passenger numbers. The Department's advisers considered this but noted that Easyjet had written off its stake in NATS and could not be expected to increase its investment. They also noted that Ryanair, another relatively prosperous carrier, had remained resolutely outside the Airline Group. Low cost airlines achieve their profitability in part by avoiding investments that do not show a solid commercial return. The advisers consider it most unlikely that Easyjet would have made a loan to NATS of the type made by British Airways when the PPP was established in 2001. Moreover, there was serious uncertainty and pessimism in the airline industry in the months following September 11th that added to Airlines' caution.
3.19 The Airline Group has retained operational control of NATS through a majority of the 15 directors. They still hold five director posts directly, nominate an international airline representative and select the chairman and the three executive directors (with some involvement of other shareholders in the selection, but with effective Airline Group control). Another two seats may be filled by Airline Group nominees at any time.
3.20 The main financial contribution made by the Airline Group to the Composite Solution has been by supporting the increase in NATS' charges to Airlines. Airline Group members represent some 27 per cent of NATS En Route's total income, and are expected to contribute at least £30 million of the increase in charges in the period 2003-2010, besides any contribution that may arise from the new volume flexibility. They have also accepted subordination of their equity stake in the business to the new investment by the Government and BAA plc.