Air traffic system faces bankruptcy

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Four banks will threaten to force the newly privatised air traffic control system into administration today, a move that would plunge the Government's transport policy into fresh crisis.

The four financial institutions, Abbey National, Barclays Capital, Halifax and Bank of America, will deliver the dire warning at a board meeting of National Air Traffic Services (Nats) in which Whitehall representatives will be told that the only way of avoiding a "Railtrack of the skies" is to invest tens of millions of pounds of taxpayers' money.

Stephen Byers, the Secretary of State for Transport, sold 46 per cent of Nats to British airlines last year – despite advice from the Civil Aviation Authority that the business plan and financial structure was too fragile to withstand a traumatic event. Within weeks of the installation of the new regime at Nats, the terrorist attacks of 11 September dealt a severe blow to the industry, leading to a steep decline in the demand for air travel and a damaging drop in Nats income.

Attending the meeting today will be directors of airlines including British Airways and Virgin, which took a 46 per cent stake in Nats, representatives of Nats employees, who were awarded 5 per cent of the shares, and officials representing the Government, which retained a 49 per cent stake. News that Nats could follow Railtrack into administration will provoke fresh doubts about Mr Byers and provide potent ammunition for critics of the public-private partnership plans for London Underground.

Bob Crow, the general secretary of RMT, the rail industry's biggest union, revealed yesterday he would take legal action against the Tube scheme because it could be unsafe.

Senior managers at Nats have already submitted a new business plan to ministers in an attempt to cope with the aftermath of 11 September but the banks have told the Government they cannot wait for a prolonged analysis of the arguments; they require funding as a matter of urgency.

Mr Byers is understood to be less resistant to the idea of immediate financial relief than Gordon Brown, the Chancellor. Such a state subsidy would call into question the degree to which the Government's approach to selling-off state assets involves any genuine transfer of risk to the private sector. A failure to help could lead to the ignominious collapse of the only big privatisation completed by New Labour.

The serious financial situation at Nats was made clear by Christopher Gibson-Smith, the organisation's chairman, who spoke of the "dramatic decline" in air traffic. Mr Gibson-Smith demanded an annual increase in landing fees for three years starting next January – in contrast to the fall that was predicted when Nats was sold.

Don Foster, the transport spokesman for the Liberal Democrats, said the sell-off was "deeply flawed". He said: "The part-privatisation of air traffic control was always going to be more insecure than an organisation fully backed by the Government. The latest moves by the banks show the vulnerability of the idea. For the sake of the travelling public, it is vital a solution is found." Mr Foster said the Government should have created a not-for-profit company that could have borrowed the £1bn needed for investment over 10 years through government-backed bonds.

Mr Byers was also faced with the prospect of fresh industrial unrest on the railway system yesterday when the clerical union TSSA threatened its first strike for 30 years. Members of the union at Arriva Train Northern backed action by 87 per cent to 13 per cent and could join more militant rail workers in staging walkouts.