Regulator blocks rise in air traffic control fees

The future of Britain's beleaguered air traffic control system was in fresh doubt last night because the industry's regulator will oppose its demands for more money.

Senior Whitehall officials declared that the Civil Aviation Authority (CAA) will reject a plea by the partly privatised National Air Traffic Services (Nats) for higher payments from airlines for operating in British airspace. Influential figures at the authority are also understood to be arguing against a rescue package being negotiated by Stephen Byers, the Transport Secretary, under which Nats would be granted an emergency state loan of £30m.

Without the extra funds, banks have warned privately that they would force the company into administration, turning the organisation into a "Railtrack of the skies".

Senior managers at the CAA are understood to believe any decision to allow air traffic control more funding would undermine the whole idea of transferring risk to the private sector, which was supposed to be a central element of the part-privatisation. The managers also argue it would undermine the authority of the CAA.

Officials at Nats contend that the events of 11 September constitute an overwhelming factor in the financial problems suffered by the organisation, which acknowledges that it is facing a loss of £80m in the year to the end of March, compared with a £60m profit it had been forecasting a year ago. It had been budgeting for a 5 to 6 per cent growth in traffic in January, but revenue-earning flights slumped by 9.6 per cent.

The company was facing serious difficulties even before the atrocities in America because of the effect of the foot-and-mouth epidemic on transatlantic flights and the impact of world recession.

Mr Byers sold 46 per cent of Nats to British airlines last year despite warnings from the CAA. The authority expressed deep concern at the organisation's ability to withstand a severe trauma, such as an economic slump or an airport disaster.

If the authority refuses to drop its opposition to Nats' demands it could be overruled by the Government. Perhaps more likely is a compromise in which the air traffic company is given approval for higher charges, although not the 5 per cent extra it has demanded. Nats points out that other European air traffic control organisations have brought in far higher increases. When the shares were sold to the "airline group", the company was promising a reduction in the fees paid by airlines.

Department of Transport sources believe Sir Roy McNulty, chairman of the CAA, is particularly keen to prove his independence as a regulator because he was chairman of Nats until September. He is understood to be emphasising the problems of air traffic control pre-dated 11 September.

Serco, the facilities management company that failed in its bid to buy 46 per cent of Nats last year, is in talks over another rescue package for the company. Serco is considering injecting new equity.

A spokeswoman for the CAA insisted it was still considering the application for higher charges but that it had no opinion to offer on the application for a government loan, which the banks backing Nats have promised to match.

Meanwhile, the Government is expected to announce the end of a deal whereby it has acted as insurer of last resort to airlines. Gordon Brown, the Chancellor, will withdraw the facility, announced after 11 September, from 20 March.