Air traffic cash plea rejected by CAA

The future of Britain's privatised air traffic control service was thrown further into doubt yesterday when the industry regulator refused to allow it to raise charges to airlines in the wake of 11 September.

The Civil Aviation Authority said the downturn in air travel after the terrorist attacks did not justify the £190m increase in charges sought by National Air Traffic Services (Nats).

The ruling leaves the fate of Nats in the hands of its bankers. They now need to take part in a £200m financial rescue of the business to keep it solvent. BAA, the owner of Heathrow, Gatwick and Stansted, is also being lined up to inject fresh funding into Nats, which is 46 per cent owned by the Airline Group, a non-profit making consortium of UK carriers led by British Airways, Virgin Atlantic and bmi british midland.

Nats, which is struggling under £780m of debt, had asked the CAA for a 25 per cent increase in charges between now and 2005. It estimates that the events of 11 September have reduced its income by 10 per cent compared with projected levels.

But the CAA said it was not convinced by the argument. "If Nats had had higher than expected traffic volumes it would have benefited from higher revenue. But the quid pro quo is that it accepts the losses when downturns occur," said the CAA. A spokesman added that, based on its own calculations, Nats could cover most of the £190m in lost revenue through cost savings, leaving it with just £27m to find.

Nats responded by warning that its £1bn investment programme could be in jeopardy.

The CAA said a "financial strengthening" of Nats was desirable but it said the money should only come from its airline customers if they agreed to pay more voluntarily. The members of the Airline Group account for about 27 per cent of Nats' total revenues.

With carriers outside the Airline Group unlikely to offer more money, this leaves Nats' four banks – Barclays, Halifax, Abbey National and Bank of America – and BAA as the most likely providers of capital. The Government has indicated it will put up £50m if BAA agrees to provide a similar amount in return for a 10 per cent stake in Nats. That would leave the banks to raise £100m.