30% limit on foreign stake in air traffic sale

THE GOVERNMENT is set to limit foreign ownership of Britain's air traffic control system to under 30 per cent in a bid to soften criticism of the controversial part-privatisation.

Ministers also intend beefing up the Government's veto powers to ease fears that profit will be put before safety once private-sector partners are on board.

The Bill paving the way for National Air Traffic Services (NATS) to be turned into a public-private partnership is due to begin its second reading stage in the Commons today. A total of 50 Labour MPs have tabled an amendment to the Transport Bill warning that safety would be put at risk by the partial sell-off and that continued government ownership is necessary for reasons of national security.

The Government is keen to counter growing opposition to the sell-off by offering a concession to critics on its own back benches. This is likely to involve setting down detailed licence conditions under which NATS must operate and making explicit the powers that ministers will have over its strategic plans, dividend payments and investment programme.

Because a large number of bidders are likely to be foreign, and because of the national security aspects of air traffic control, ministers are looking at a foreign ownership ceiling similar to that operated by Baesystems and Rolls-Royce.

The limit on overseas shareholdings in the defence contractors is 29.5 per cent, having been raised from an initial ceiling of 15 per cent at the time of privatisation.

Among the likely bidders for a NATS stake are Lockheed Martin of the US and Thomson-CSF, the French defence electronics group. NM Rothschild, the investment bank, is also known to be putting together a foreign-led consortium.

UK bidders include an airline consortium led by British Airways; the operator of the electricity transmission system, National Grid; and a grouping formed around Serco, which already provides air traffic services at some smaller airports.

Sir Roy McNulty, chairman of NATS, said he expected about 30 bidders to register when the Government invites formal expressions of interest in the spring. The aim is to whittle these down to a shortlist of four to six by the time the Transport Bill receives Royal Assent in July, and to award a contract to the successful strategic partner by the beginning of 2001.

There will be at least two Government-appointed directors on the board of NATS, who will be able to exercise the power of veto through a golden share. The private sector partner will own a 46 per cent stake, while the Government will retain 49 per cent. The remaining 5 per cent shareholding will be owned by the staff of NATS.

Sir Roy dismissed reports that Robert Ayling, chief executive of BA, had questioned the sell-off, saying Mr Ayling's comments has been "grossly distorted". He also maintained that the privatisation of BA 13 years ago was an example of how profits and safety could go hand in hand successfully.

He insisted that even if NATS wanted to compromise safety standards in the pursuit of profits, it could not do so. "The safety locks are all in the hands of the regulator, the Civil Aviation Authority. Even if we wanted to change things - like the hours that controllers work - we couldn't because no instruction is valid unless the safety regulator has signed it off."

NATS estimates that it will need investment of pounds 1bn over the next decade to keep pace with airline demand and address congestion and delays. Among the key projects is a plan to build a smaller version at Prestwick, Scotland, of the much-delayed and over-budget Swanwick control centre in Hampshire.

Sir Roy said that as long as NATS remained in the public sector, it would have to fight for resources alongside priorities such as health and education. An infusion of private sector capital and management expertise would also allow NATS to expand internationally, offering air traffic services to other countries.

"There is no reason why the Greeks should run air traffic in Greece just because they are Greeks. Let's see how competition works, and let's see who is best at providing the service," said Sir Roy.