The group of seven airlines charged with running Britain's air traffic control system has admitted that its business plan is unworkable following the terrorist attacks on New York and Washington.
The consortium, which was controversially chosen to take over the national air traffic service (Nats) in July, has until December to secure financing and deliver a business plan to the Government.
However, the companies involved in the bid have warned that further redundancies and cost cuts are now on the cards if the £800m privatisation is to be viable.
Ray Webster, chief executive of easyJet, one of the seven consortium members, said: "The bottom line is that Nats' revenue has got to be affected. We have to reassess our business priorities and review our expenditure plans."
Other members of the consortium, known as Airline Group, include British Airways, Virgin and British Midland.
In the past two weeks, however, the transatlantic airlines have announced huge cuts to their services in an attempt to survive.
Last week BA said it would slash capacity by 9 per cent and Virgin announced a 10 per cent reduction.
This represents a double blow for Airline Group. Not only are many of its members now under considerable financial strain, but all the figures and projections on which the consortium based its bid are now irrelevant.
It is understood that 44 per cent of Nats' income is from transatlantic flights, where most of the airlines' cuts are being made.
One source close to Nats predicted that Airline Group would have to make expenditure cuts of up to 40 per cent to make its sums add up.
The source said that Airline Group would now find it very difficult to raise bank finance for its business plan.
A spokesman for Airline Group said: "Clearly, what's happened will affect Nats. The precise details have not been fed through so it is not possible to draw conclusions. But we are seeking to control costs without compromising safety.
"Of course our business plan will have to take into account the possible slowdown in demand, but Nats' investment is over a 10-year time frame."
The spokesman said it was "too early" to say if Airline Group would be forced to make further redundancies.
Before the terrorist attacks, Airline Group was in talks with a trade union, the Institution of Professionals, Managers & Specialists (IPMS), about phased redundancies. It is understood that it was planning 120 job losses after April 2002.
Iain Findlay, national officer at the IPMS, said: "The cuts might be brought forward because of the loss of Nats' revenue. We would be very concerned if the cuts affected the long-term infrastructure of Nats."
Already, senior government sources are privately referring to the Nats deal as "air track", drawing parallels with the now-disastrous privatisation of Britain's rail network.
The sale of Nats has left the Government with a 49 per cent stake. Airline Group holds 46 per cent and Nats staff 5 per cent. The Government's "golden share" gives it the power to reject Airline Group's business plans.
However, ministers will be keen to ensure that Airline Group's plans are passed without contention to avoid fanning the flames over public-private partnerships.Reuse content