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Ryanair appeal to OFT puts Nats bailout in danger

Clayton Hirst
Sunday 05 January 2003 01:00 GMT
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Ryanair will this week ask the Office of Fair Trading to block the Government's controversial bailout of National Air Traffic Services (Nats).

Europe's second-largest budget airline, run by Michael O'Leary, has branded the rescue a "fudge", claiming it is anti-consumer and anti-competitive. The referral will come just two weeks before the regulator, the Civil Aviation Authority (CAA), is expected to publish its final ruling on the bailout.

If the plans are unchanged and the OFT agrees to investigate, it would throw the financial future of Nats' public-private partnership into jeopardy. Nats has warned that there "is a very strong prospect" of the partnership being unravelled without the rescue.

In March 2001, a 46 per cent stake in Nats was sold to the Airline Group, whose shareholders include BA, Virgin Atlantic, easyJet and BMI. But the business was hit by the downturn in transatlantic air travel after the terrorist atrocities of 11 September 2001.

The rescue of Nats involves a £60m cash injection by airports operator BAA, to be matched pound-for-pound by the Government. Nats will also be allowed to increase the charges it levies on airlines. But Ryanair believes the rescue package is unfair because increased charges will prop up an investment made by rival airlines. It is demanding strict performance targets are built into Nats' rescue.

"Non-shareholding airlines and ultimately the consumer are being expected to bail out Nats," said a spokesman for Ryanair. "The CAA's failure to require Nats to improve levels of service as a condition of refinancing will result in the travelling public paying higher prices while suffering innumerable air traffic control delays. We want the OFT to look at the proposals and overrule them."

The spokesman said that if the OFT fails to act, Ryanair will launch legal action of its own, as it believes Nats' rescue package infringes EU rules on competition.

The CAA will also face flak on Friday over proposed increases in the fees airlines pay for using BAA's Heathrow airport. In a letter to the regulator, Virgin Atlantic will claim the ruling is based on false assumptions about BAA's future expenditure, which includes the development of Heathrow's Terminal 5.

The rise in fees is based on BAA's estimated cost of capital, set by the CAA at around 7.5 per cent. But Virgin will argue this is nearer 6 per cent.

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