Computer crash adds to UK's air traffic woes

NATS was already facing financial meltdown, now its system is creaking

Air safety

Flights in chaos as 'patched-up' air traffic computer crashes for the second time

Business analysis: Computer crash adds to UK's air traffic woes

Leading article: Ministers must understand that safety in the sky is not for sale

Britain's part-privatised air traffic control system was back in the news again yesterday after a computer crashed, causing up to three hours of delays for flights across southern Britain.

It was the second time in two weeks that the 30-year-old equipment at West Drayton went down amid accusations that the system – despite regulator initiatives to upgrade it – is in desperate need of replacement. In the words yesterday of Iain Findlay, a national official with the air traffic controllers' union Prospect, it is a "very creaky system that has been patched together over a number of years".

And thereby hangs the tale at National Air Traffic Services (NATS) under chief executive Richard Everitt, who has been there less than a year. The organisation itself is creaky and needs massive long and short-term investment to ensure its viability and efficiency.

It is unlikely the £30m emergency loan advanced by the Government – and matched by NATS' bankers – will do the trick. The financial institutions Abbey National, Barclays Capital, Halifax and Bank of America threatened the nuclear option, warning ministers they would apply for NATS to be placed into administration unless the Government came up with the cash. The Secretary of State for Transport Stephen Byers could not face the ignominy of a "Railtrack of the Skies"– and the demise of New Labour's only major privatisation – so a deal was done.

But the help was a short-term palliative rather than a strategic solution.

Central to the future of the company is its application to the Civil Aviation Authority (CAA) for an increase in the fees paid to it by airlines – seven of which bought the 46 per cent of NATS equity sold off by the Government last year.

Simply put, instead of reducing charges the company wants to increase them. Under its licence NATS must reduce fees by the retail price index minus four per cent next year and minus five per cent in 2004 and 2005. The company has asked the CAA to allow an increase of RPI plus four per cent in 2003, plus three in 2004 and plus two in 2005.

The company has pointed out its equivalent organisations in Europe have enjoyed an average 12 per cent rise.

It is unlikely however that Sir Roy McNulty, chairman of the CAA, will want to be seen as "soft" on NATS, given that he was chairman of the air traffic control service until September and will be keen to prove his independence. Sir Roy made it clear he was unhappy with Mr Byers' decision to grant NATS financial succour. But it is known that ministers are "leaning" on the regulator and that a compromise position may be thrashed out. An interim statement is expected next month.

Fresh evidence of NATS' financial predicament emerged on Tuesday when EasyJet, the "no-frills" airline and NATS shareholder, revealed it was preparing to write-off its £7m investment in the company

Clearly the main factor in NATS' financial difficulties has been the terrorist attacks of 11 September and their impact on air travel. In the immediate aftermath of the atrocities passenger numbers slumped up to 40 per cent, although the figure is now nearer 5 per cent.

While the "Airline Group" which bought into NATS initially forecast the organisation would make a £60m profit in the year to the end of March, in fact it made a loss of £80m. It had been budgeting for 10 per cent growth in transatlantic traffic, but revenue is 11 per cent down on 2001, according to NATS officials. The company receives 44 per cent of its income from north Atlantic flights.

Britain's air traffic control system was facing considerable problems before 11 September and there was some doubt about NATS' ability to post a £60m surplus. The demand for air travel had already been declining because of the worldwide recession and the impact on transatlantic flights to Britain was particularly severe because of the foot-and- mouth epidemic.

City sceptics declared the seven British airlines, including British Airways, Virgin and bmi, which paid £750m for their stake in NATS had paid over the odds.

Mr Byers pressed ahead with the sale despite concerns expressed by the CAA about the business plan and financial structure envisaged for the partly-privatised NATS. The authority argued, somewhat presciently, that the organisation would not be able to withstand a major trauma. Within weeks of the sell-off two hijacked aircraft crashed into New York's World Trade Centre, hundreds of airliners flew virtually empty for weeks on end, scores of intercontinental routes were axed and elsewhere smaller aircraft were pressed into service.

The burgeoning market for cut-price air travel to Europe is of limited help to NATS. Its flow of revenue is based on a formula involving tonnage and kilometres flown in British airspace. For instance an airline would have to pay the company £545 for each 747 flying from Heathrow to New York, whereas the fee is £115 for a 737 going from Stansted to Paris.

The whole part-privatisation project has come under criticism. The purpose of the sell-off, as adduced by Mr Byers, was to transfer financial risk to the private sector and facilitate a £10bn investment programme over the next decade.

The degree of risk borne by businesses has been called into question by the Government decision to use £30m of taxpayers' money as part of a rescue package. And the ability to tap into fresh funds is in doubt as NATS undertakes a review of its investment plans which has already resulted in the suspension of a project to build a new air traffic control centre at Prestwick, Strathclyde. The £623m complex at Swanwick, Hampshire was already nearing completion when the organisation was partly-privatised.

When the then Secretary of State for Transport John Prescott initially agreed to sell part of NATS to the airlines last year, it was on the basis the new organisation would not strive to make profits. All surpluses were to be ploughed back in to the service. All that now looks a touch optimistic.