Stephen Byers, the transport secretary, was plunged into a new political crisis last night after it emerged the taxpayer is to throw a £30m lifeline to the part-privatised national air traffic control system.
 
Under an emergency package being thrashed out with the City banks that financed the controversial £750m sell-off last summer, the government, a 49% stakeholder in Nats, is being forced to offer the loan as the price for their continuing support.
 
The banks - Barclays Capital, Abbey National, HBOS and Bank of America - will stump up a matching £30m sum and are demanding a new business plan from Nats.
 
Following a day of denials and retractions, the proposals were presented to the Nats board yesterday, but have yet to be formally submitted to ministers. The government admitted negotiations have been continuing for weeks, but said it was still studying the impact of different air traffic forecasts on Nats' finances.
 
In a statement the transport department insisted: "September 11 had a serious impact on Nats' revenues. To blame this on the public-private partnership is nonsense - the problem would have arisen whatever Nats' status".
 
Mr Byers, who is already wracked by accusations of incompetence over the railways and struggling to retain control of his warring department, badly needed to avoid troubles on a new front. But leftwing MPs demanded the renationalisation of Nats and claimed the crisis proved the incompetence of the private sector management.
 
It is understood that Nats believes its needs the £60m to keep Britain's skies open until the end of the year and avoid a cashflow crisis. Some staff were not paid at Christmas due to the crisis.
 
The new money is likely to take the form of a short term loan to Nats, which already has a £1.46bn credit facility from the four banks. Some £750m of that facility was drawn down in the summer to buy a 46% stake in the air traffic control system from the government.
 
The remaining half of the facility was earmarked for long-term capital investment and was supposed to be untouched for short-term financial needs.
 
Nats' urgent need for cash stems from the events of September 11 and the dramatic fall in transatlantic air traffic.
 
Nats, in common with the airlines, was forced to redraw its business plan following the terrorist attacks, with its revenues estimated to be £230m lower over five years than originally projected. It has already taken action to reduce its cost base by £200m over five years. It is cutting 20% of its staff.
 
Last week, Nats applied to the civil aviation authority for permission to increase charges on airlines using UK airspace and part of the Atlantic. The original business plan proposed Nats cut its charges in real terms by 4% in 2003 and by 5% in both 2004 and 2005.
 
One banking source said: "What we're looking for from Nats is an increase in fee incomes and some financial support from the government."
 
A CAA spokesman made it clear there would be no quick answer. The government retains a 49% stake in Nats while the 46% bought with the bank loan is controlled by seven British airlines. Another 5% is owned by staff.
 
Following the disclosures in the Guardian yesterday, the Nats chairman Chris Gibson-Smith, tried to play down the scale of the problem and insisted Nats was not seeking government compensation, or facing the threat of bankruptcy. He said Nats' bankers felt it had a strong future. "The story that the banks are about to pull the plug is not true. If we need more money then we'll talk to our shareholders".
 
Industry sources said it was inconceivable that the air traffic system could be allowed to go bust because of international undertakings signed by the government. "The government will not be able to let Nats go bankrupt," a banking source said. "There is no way it can be allowed to fall."
 
Leftwing MPs urged the government to renationalise Nats while the Liberal Democrats insisted Nats should have been turned into a not-for-profit company, along the lines of the proposed replacement for Railtrack. John McDonnell, Labour MP for Hayes, said: "The amazing skills of the private sector, lauded so highly by the government, have brought air traffic control to near bankruptcy. Nats under public ownership produced a massive surplus for the Treasury in every year."

May 10, 2002.

[Source: The Guardian, February 20, 2002 www.guardian.co.uk]