Our air was not for sale: it has been given away

Before the 1997 General Election, Andrew Smith, who is now Gordon Brown’s right hand man in the Treasury, famously laid down the party line at a Labour conference with the slogan: “Our air is not for sale”. He was of course pledging that the Labour Party would resist Conservative plans to privatise the National Air Traffic Service (NATS).

In the run up to the election the pledge was dropped and the part-privatisation of NATS became Labour policy. It was one of those issues chosen to demonstrate to middle England that Labour was New Labour. But we should be grateful that only half our air was for sale.

A threat to safety?

If ever there was a business that should not be run for profit it is NATS – because running it for profit is a threat to safety standards.

When the Bill to partially privatise NATS was going through the House of Commons, time and time again John Prescott cited the good safety record of British Airways since privatisation as a supposed counter-argument to this. The analogy does not hold water. British Airways is operating in competition with other airlines whereas by its nature NATS is, and always will be, a monopoly provider of air traffic control services to airlines. British Airways is under commercial pressure to maintain a good safety record since failure to do so will cause air travellers to desert it for its commercial rivals.

With a privatised NATS, the commercial pressure is in the opposite direction: providing a safer service (by installing new systems or employing extra people to operate them) costs money and therefore lowers profit. And since NATS is a monopoly provider of air traffic control services, airlines have nowhere else to go for safer services.

Airlines as partner

Despite resistance from a solid body of Labour backbenchers and from the House of Lords, the Bill went through Parliament in November 2000, and on 27 March 2001 the Government announced that it had chosen the “Airline Group” as its partner for NATS.

As its name implies, the Airline Group is a consortium of seven airlines: British Airways, British Midland, Virgin, Britannia, Monarch, EasyJet and Airtours. Under the arrangement, the Airline Group acquired 46% of the shares of NATS (but with rights giving it voting control), the Government retained 49% and 5% was put into an employee trust.

It was no accident that the Government chose a group of airlines to take control of NATS – since they are consumers of NATS services, they have an interest in seeing that the services are safe. With that choice, the argument about threats to safety arising from part-privatisation died away. The Government had successfully put the issue to bed in advance of the General Election.

Little was said at the time about the stark conflict of interest between NATS and the airlines who now control it but are also its customers, NATS having an interest in pushing charges up and the airlines having an interest in keeping them down.

Deal done and dusted?

The impression was given last March that the deal was done and dusted, that the state was to receive about £800m from the Airline Group for their 46% stake. But this wasn’t so. Months later the Airline Group was still haggling about the price. On 9 July, the Guardian reported the Airline Group was arguing that the price was too high, that a 25% reduction to £600m was nearer the mark. The reason given for this request was the reduction in air traffic in the early part of last year (mainly because of foot and mouth disease in Britain but also because of the slowdown in the US economy).

NATS’ troubles did not begin on 11 September (nor did the airlines’ troubles). However, like British Airways, which relies heavily on transatlantic traffic, NATS has been badly hit by the fallout from 11 September, because it gets around 40% of its revenues from transatlantic traffic.

£750m millstone

The Government seems to have received £800m from the sell off. But the Airline Group paid only £50m of it and, by an extraordinary arrangement, the remaining £750m was paid by NATS itself out of a of £1.46bn loan taken out by NATS from 4 banks (Abbey National, Barclays, HBOS & Bank of America). In other words, the Airline Group got a controlling interest in NATS for a mere £50m and NATS was saddled with an extra debt of £750m, which NATS – not the Airline Group – is responsible for servicing and repaying. And if NATS defaults, the banks could acquire the controlling interest in it

Had the controlling interest in NATS been sold off for £800m cash paid by the Airline Group, or some other buyer, out of its own resources, the Government would have got its money and NATS would not have a £750m millstone around its neck. Nor would it have this millstone if it had been left in the public sector.

Why did the Government allow such an extraordinary arrangement, which has a direct bearing on NATS’ present troubles? It’s impossible to say whether this arrangement was part of the original deal with the Airline Group announced on 27 March last year by John Prescott, or whether it was worked up in the following months in response to the airlines’ demand for a better deal and was a product of the new Byers’ era.

What can be said for certain is that there were buyers around who were prepared to pay money up front out of their own resources for a controlling interest in NATS and, had one of them been chosen by the Government, NATS would now have £750m less borrowings to service and repay.

The inescapable conclusion from this is that the Government was desperate to have the airlines involved in NATS in order to put the issue of safety to bed, so desperate that the airlines were given a controlling interest for a pittance and NATS was turned into a basket case by saddling it with an extra £750m of debt.

Stephen Byers has another little problem on his hands – and it’s not a minor personnel problem.

Labour & Trade Union Review

March 2002