Nats crisis sparks talks with Serco

Serco, the company controversially rejected as the Government's partner in the part-privatisation of the national air traffic control system (Nats), is in talks over bailing out the beleaguered service.

The Independent on Sunday has learnt that senior Serco managers have held secret discussions with Nats' chief executive, Richard Everitt, over the last few weeks about injecting new equity into the company. At the same time the Government agreed to pump in £30m as part of a £60m rescue package for Nats.

The revelation will further embarrass the Transport Secretary, Stephen Byers, who is under fire over the botched £750m sell-off.

Serco's bid for Nats was rejected last year by ministers who preferred an offer from The Airline Group, which comprises British Airways, easyJet, Virgin Atlantic and British Midland. However, it is understood the decision went against the advice of department officials. Civil servants recommended the Serco bid as offering better value for money. Behind-the-scenes lobbying from unions and Nats executives is thought to have contributed to the change of heart.

The Civil Aviation Authority (CAA) also warned Mr Byers last summer against the part-privatisation of Nats, saying its business plan would be unable to sustain a major recession or an airport disaster. This advice proved to be fortuitous as the 11 September terrorist attacks on the US led to a sudden fall in transatlantic air travel.

Today's revelation will raise further questions about why ministers ignored both the CAA and its own officials.

Losing Nats was a heavy blow to Serco, which had invested tens of millions on its bid. Airline insiders say Serco has now offered to put up cash in return for contracts to part run the national air traffic service. Serco operates air traffic services in 87 locations mainly in the UK, the US and the Middle East. Its aviation division employs over 1,000 people.

Serco's offer has the support of Nats' bankers, which include Barclays Capital, Abbey National, HBOS and Bank of America. Last month they agreed to arrange an emergency £30m loan facility for Nats to be matched pound-for-pound by the Government.

While the terms of the £60m deal haven't yet been finally agreed, Serco's approach is thought to have helped to swing it. Nats' bankers have been especially hard hit by the events of 11 September.

Loss of confidence in Nats' business plan meant the banks were unable to syndicate their loans. One banking source said: "A new investor of the calibre of Serco is just what we need to get Nats flying again." Another source close to Nats said Serco may not be the only company interested in investing in Nats. US defence group Lockheed Martin and airport operator BAA have been linked with Nats.

Serco refused to comment, but the news will prompt questions about its intentions when it presents its year-end results to the City tomorrow.

A Nats spokesman said: "We are exploring with our shareholders options for strengthening the business to withstand future shocks."

Nats has applied to the CAA for a 5 per cent rise in air control charges. The CAA is expected to make a decision within three months, but some transport department sources have warned that the demand may not be met.