Michael Harrison's Outlook: The nuclear option: if the board can't hit the targets, change the targets not the board

The passenger levy that's plane daft; PPF forges another rescue deal
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Under the original plan, the long-term bonus scheme would have kicked in only if output this year rises by at least 8 per cent. Now it only has to increase by 4 per cent. On the basis that a target halved is a target eased, BE executives should be in the money provided they can avoid the calamities which befell the business last year when leaking valves resulted in "unplanned outages" at two of its stations, Heysham 1 and Hartlepool.

There is method in the madness of rewarding management for producing less, says BE's new chief executive Bill Coley, a gnarled veteran of the American nuclear industry. If the stations are run at maximum pelt to take advantage of sky high prices then, he says, it increases the risk of failure and compromises the long-term reliability of the plant. His predecessor, Bill Alexander, who was subject to an unplanned outage of his own in March when the board dumped him because of the Heysham/Hartlepool fiasco, knows all about that.

Despite the cock-ups and a decline in underlying profitability, the bonus scheme still paid out last year although how the remuneration committee was able to reach a decision when the company's accounts are indecipherable is anyone's guess. Depending on which figure you choose, the business either made a profit of £94m or £105m or a loss of £303m.

Still, the bondholders who inherited the company in January and now own 97.5 per cent of the equity, can hardly complain. Before the restructuring the shares were worth £87m. Today they are valued at £2.2bn. The original shareholders fought a valiant but futile campaign to prevent BE's chairman Adrian Montague from robbing them of their company and handing it to the creditors.

The new shareholders have to approve the modified bonus scheme at the annual meeting in September. The least they could do to show their gratitude is to wave it through.

The passenger levy that's plane daft

The demise of EUjet has predictably led to renewed calls for some kind of levy to protect passengers of failed low-cost airlines. The current proposal, which for some insane reason has the support of the Civil Aviation Authority and the Department for Transport, is for a levy of £1 on all passengers departing from UK airports. The rationale is that if holiday makers who book through tour operators have the protection of an Atol-bonded compensation scheme, then why shouldn't the same safeguard be afforded to the millions who book direct with a low-cost airline?

As it happens, passengers of EUjet would not have been covered by such a scheme anyway as the airline is registered in Ireland. But, leaving that aside, the idea is both silly and unnecessary and almost as bizarre as Jacques Chirac's suggestion that airline passengers be taxed to help relieve poverty in Africa.

Most passengers who book flights with a credit card will already be automatically protected against the failure of their airline. Even those who pay by debit card, cheque or cash can get cover through the simple means of a cheap travel insurance.

But the real objection is based on principle. Why should the passengers of Ryanair and easyJet, or British Airways for that matter, be expected to underwrite those who travel with airlines that fly by the seat of their financial pants? One look at EUjet and most of the other no-frills airlines that have crashed and burned in recent months, should have been sufficient health warning. EUjet might have been as safe as any other airline, but its life expectancy never looked good. It flew in a small fleet of unfashionable aircraft from an airport few had ever heard of in a region of the country with a tiny local market.

The Treasury's objection to the levy, and the reason that it is never likely to get airborne, is that it would be inflationary. But there are plenty of other reasons for not wanting this added layer of bureaucracy and cost imposed on airlines and their passengers. Most of the 5,000 or so travellers stranded abroad by the collapse of EUjet have been offered £25 fares home by easyJet and Monarch, as a good will gesture. An annual travel insurance policy would have cost less. But as a lesson in why not to trust an airline you have never heard of, £25 is cheap at half the price.

PPF forges another rescue deal

Not all levies are a bad idea. One that has a great deal more going for it is the Government's new pension protection fund which yesterday came to the rescue of Sheffield Forgemasters.

The company is best remembered for its supporting role in the Iraqi supergun affair, but it is also Sheffield's biggest private sector employer and today 600 jobs are a great deal more secure than they were 24 hours ago.

Forgemasters' predicament was one that is fast becoming familiar. Its US-based parent company, Atchison, went bust two years ago and, although Forgemasters is a profitable business, the administrators could not find a buyer because of the £60m hole in its pension fund and inter-company debts which it owed.

The PPF has offered to step into the breach by assuming the pension scheme's assets and its liabilities in return for a stake in Forgemasters, which is being bought out by its management.

The deal already has the support of the major creditors and if a total of three-quarters agree to the proposed company voluntary arrangement, then the PPF will have secured a value for the pension scheme similar to what it would have received if Forgemasters had stopped trading.

The added bonus is that a viable, profitable company continues trading, its 750 suppliers get paid in full and the staff get the certainty of a pension at the end of their working life.

They have a lot to thank Forgemasters' managing director, Graham Honeyman, for as he is the man who has kept the business going during two difficult years and been instrumental in the rescue plan agreed yesterday.

Tony Pedder, the former chief executive of Corus who was unceremoniously bundled out of the steel industry 18 months ago, also has good reason to thank Mr Honeyman as he is making his re-entry into corporate life as Forgemasters' new non-executive chairman.

This is only the second time since its creation in April that the PPF has taken a shareholding in a business with a pension black hole. But given the huge liabilities which exist in occupational pension schemes - the deficit is some £61bn for the top 100 alone - it is destined to become a familiar sight.

m.harrison@independent.co.uk

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