New equity partner
32. NATS plans to find a new investor that is suitable "in
terms of safety impact; financial robustness of the equity investor;
and strategic alignment with NATS' goals".
Any new investment needs to be in place by the end of September,
when the short-term loan facility expires. Mr Gibson-Smith confirmed
that BAA was likely to be the new investor.
Heads of terms had been concluded, and the parties were moving
towards finalising a firm contract for the investment.
The Government intends to match the new investment at the same
time in order to ensure that it maintains its 49 per cent shareholding,
although no binding undertaking has been made.
The new investor has at least an expectation, if not a requirement,
for the Government to make a matching investment, and for a positive
settlement of application for a revision of the price cap.
33. NATS is convinced that without BAA's investment it would be
unable to make up the shortfall in its finances.
NATS confirms that the investment from BAA would be between £50
million to £65 million, some of which will be equity and
some debt. The debt
proportion would be subordinated debt, used to pay some of the
senior debt, and will not have a repayment profile.
The gearing ratio would remain slightly less than 100 per cent.
34. According to the CAA, financial restructuring is essential
if NATS is to have a sustainable financial structure in future.
In the absence of that restructuring, a cash injection alone would
not provide NATS with a financial solution.
The CAA also believes that it is in the interests of airlines
to increase the price cap if NATS' finances were restructured.
We have received no clear evidence about how the new investor
would be incorporated into the financial structure of the company.
The Government must provide greater detail about the implications
of BAA becoming an investor in NATS alongside the Airline Group.
None of our witnesses was able to offer an informative opinion
on those implications. It was not clear whether the additional
investment would significantly improve NATS' financial position.
35. The Committee was assured that no quid pro quo had been discussed
in relation to BAA's investment.
However, BAA has a central role in the aviation industry. The
Government is currently preparing a white paper on aviation. BAA
has a view on how that policy will develop and, particularly the
required increase in capacity in the south east of England.
The Government must ensure that BAA's involvement in NATS is,
and is seen to be, transparent, especially if charges of a quid
pro quo for BAA's capacity expansion plans in return for investing
in NATS are to be avoided.
36. At the time of the PPP, the Airline Group was acceptable
as a bidder for NATS ownership only because of its inherent aviation
interests. The Government should ensure that any further attempts
to secure capital do not dilute the aviation expertise and stake