LIB CONS to sell NATS to private equity
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LIB CONS to sell NATS to private equity
this was written on BA - www.iii.co.uk
MAY 2010
NATS: Government could launch sale process shortlyStoryGovernment sale could provide catalyst for other shareholders to sell their stakes
Virgin and Easyjet will seek to retain shareholding and influence over NATS
Deal could reignite safety concerns as buyer would be profit-orientated
The UK government has been talking to advisors about a possible sale of the state’s shareholding in National Air Traffic Services (NATS), this news service has learned.
Two sources familiar with the talks said a sale of the government’s 48.9% stake could prompt other shareholders to offload their holdings in the multi-billion pound public-private partnership, which was formed in 2001. A consortium of seven airlines known as The Airline Group together hold a 41.9% stake with BAA (4.2%) and an employee trust owning 5%. TAG's members are: British Airways [BAY LN:BB-/B1], Easyjet [EZJ LN], Virgin Atlantic, bmi, Monarch, Thomas Cook Airlines and Thomsonfly.
Privatising NATS is high on the Department for Transport's agenda as each government department is getting ready to cut spending, in line with the newly installed coalition government’s intention to accelerate the deficit reduction plan, said the same sources. The DfT, which has responsibility for NATS, could announce a firm intention to sell by “Q3 or Q4” and could start talking to other shareholders before the summer, said the first source. Although the DfT has been discussing the matter with several financial institutions, advisors for the sale are yet to be appointed, the two sources added. The DfT declined to comment.
While it is too early to put a valuation on NATS it could be worth up to GBP 3bn, said the first source. At 31 March 2009 NATS' main subsidiary, NATS (en route) or NERL, had a net debt of GBP 611.9m and a regulated asset base of around GBP 1bn. The group reported a turnover of GBP 767m and an operating profit of GBP 185m for 2009.
The government would clearly be the ‘catalyst’ to any deal as it has a right of veto over any plans by other investors to sell their stakes, the sources said. Some of the airlines and BAA could now use the government’s sell down as an opportunity to exit NATS, the second source said. “Their shares could become more valuable in the context of a large transaction involving the state’s stake,” said the second source.
British Airways and charter airlines Monarch, Thomas Cook and Thomsonfly would likely be the keenest to raise equity through an asset disposal, four industry sources speculated.
A spokesperson for BA, which is expected to post a GBP 450m full year loss at is Q4 results on 21 May, said the airline "would continue to monitor the benefit of their part-ownership of TAG". BA’s investment in TAG is listed as “available-for-sale” (AFS) in its latest annual reports and accounts. Under IFRS accounting rules AFS refers to assets that are deemed non strategic and have a readily available market price.
Easyjet and Virgin Atlantic set stall out early in anticipation of deal
Spokespeople for Easyjet, which owns about 6% of NATS through TAG, and Virgin Atlantic, said they anticipated the government may look to sell down its stake. They added the airlines' would retain their “strategic” holdings in the PPP to ensure they continued to hold influence over NATS, which generates most of its income from airlines that use the UK's airspace. “Our role in the PPP is to make sure that charges remain competitive and are based on costs, not on profits. If a financial investor took control of the business it could result in an increase of air charges, which is not in airlines’ interest," the spokesperson for Easyjet added. TAG holds the majority of the voting rights in NATS and has strategic control of the business.
Should the government sell its stake, Easyjet and the other airlines would most likely ask for guarantees to make sure that the charges calculation remained unchanged, the spokesperson said. A review of the initial PPP by Labour and a trade union claimed that TAG’s investment in NATS was “a defensive measure – to prevent any other body gaining an interest in NATS and being in a position to push up air traffic control services – and they do not expect to get a commercial return on their investment. The review supported this argument by pointing out that Easyjet had in 2002 already written off its GBP 7m investment.
The two sources believed the Spanish consortium Ferrovial, which controls BAA, would likely take part in any sale as its main focus currently lies elsewhere. Ferrovial has sustained significant losses over the last few months relating to natural disasters such as the Chilean earthquake and the Icelandic volcano which has affected some of its divisions’ activities. As a result, the listed Spanish infrastructure group has conducted several disposals recently, including the sale of a 67%-stake in Tube Lines for GBP 206m. Prior to its acquisition by Ferrovial, BAA estimated its stake in NATS to be worth GBP 68m in 2006.
BAA, which had total debt of GBP 10.2bn as of 31 March, declined to comment. Ferrovial was not available to comment.
National security concerns and questions over safety could lead to political interference resurfacing
The two sources and a third, who is following the situation, said the sale of NATS would interest infrastructure funds such as JP Morgan Infrastructure fund, Citi infrastructure fund, 3i, Macquarie, Barclays’ private-equity division, Morgan Stanley, Canadian pension plans and Temasek of Singapore. The first source said the government had made it clear in the past that Middle-Eastern buyers would not be allowed to bid for NATS due to national security issues. NATS, which operates under licence from the Civil Aviation Authority, is responsible for ensuring the safe procession of flights through UK airspace and is seen as an important safeguard of the UK’s national security.
It is noted that TAG fought off several rival bidders to secure its investment in the PPP in 2001. These bidders included: Serco [SRP LN], Raytheon [RTN US], and a consortium of Lockheed Martin [LMT US], Apax Partners and Airways International.
News of the potential full privatisation of NATs could reignite the furore dating back to the run up to the initial PPP. The deal saw fierce opposition from a number of backbench Labour MPs who opposed the deal on grounds that it could raise safety concerns. Further opposition to a sale of the government's stake could come from the National Audit Office which has carried out two reviews of the NATS PPP. In 2003 the NAO recommended that government departments should retain a “long-term interest” in any joint venture companies or partial trade sales following its second review of the NATS PPP. The second source responded by saying the government reduce its shareholding but retain a "golden share" in the business.
As of 30 September 2009, NERL had bank borrowings of GBP 79.7m and GBP 600m 5.25% Guaranteed Secured Amortising Bond due 2026 outstanding. The amortisation of the company’s GBP 600m begins in March 2012. Under the agreed terms for the GBP 600m 5.25% 2026 bond, NERL covenanted to ensure that the balance of the Liquidity Reserve Account is not less than GBP 21,298,700.
bmi, Monarch Airlines, Thomas Cook and Thomsonfly either declined to comment or were not available to comment.
MAY 2010
NATS: Government could launch sale process shortlyStoryGovernment sale could provide catalyst for other shareholders to sell their stakes
Virgin and Easyjet will seek to retain shareholding and influence over NATS
Deal could reignite safety concerns as buyer would be profit-orientated
The UK government has been talking to advisors about a possible sale of the state’s shareholding in National Air Traffic Services (NATS), this news service has learned.
Two sources familiar with the talks said a sale of the government’s 48.9% stake could prompt other shareholders to offload their holdings in the multi-billion pound public-private partnership, which was formed in 2001. A consortium of seven airlines known as The Airline Group together hold a 41.9% stake with BAA (4.2%) and an employee trust owning 5%. TAG's members are: British Airways [BAY LN:BB-/B1], Easyjet [EZJ LN], Virgin Atlantic, bmi, Monarch, Thomas Cook Airlines and Thomsonfly.
Privatising NATS is high on the Department for Transport's agenda as each government department is getting ready to cut spending, in line with the newly installed coalition government’s intention to accelerate the deficit reduction plan, said the same sources. The DfT, which has responsibility for NATS, could announce a firm intention to sell by “Q3 or Q4” and could start talking to other shareholders before the summer, said the first source. Although the DfT has been discussing the matter with several financial institutions, advisors for the sale are yet to be appointed, the two sources added. The DfT declined to comment.
While it is too early to put a valuation on NATS it could be worth up to GBP 3bn, said the first source. At 31 March 2009 NATS' main subsidiary, NATS (en route) or NERL, had a net debt of GBP 611.9m and a regulated asset base of around GBP 1bn. The group reported a turnover of GBP 767m and an operating profit of GBP 185m for 2009.
The government would clearly be the ‘catalyst’ to any deal as it has a right of veto over any plans by other investors to sell their stakes, the sources said. Some of the airlines and BAA could now use the government’s sell down as an opportunity to exit NATS, the second source said. “Their shares could become more valuable in the context of a large transaction involving the state’s stake,” said the second source.
British Airways and charter airlines Monarch, Thomas Cook and Thomsonfly would likely be the keenest to raise equity through an asset disposal, four industry sources speculated.
A spokesperson for BA, which is expected to post a GBP 450m full year loss at is Q4 results on 21 May, said the airline "would continue to monitor the benefit of their part-ownership of TAG". BA’s investment in TAG is listed as “available-for-sale” (AFS) in its latest annual reports and accounts. Under IFRS accounting rules AFS refers to assets that are deemed non strategic and have a readily available market price.
Easyjet and Virgin Atlantic set stall out early in anticipation of deal
Spokespeople for Easyjet, which owns about 6% of NATS through TAG, and Virgin Atlantic, said they anticipated the government may look to sell down its stake. They added the airlines' would retain their “strategic” holdings in the PPP to ensure they continued to hold influence over NATS, which generates most of its income from airlines that use the UK's airspace. “Our role in the PPP is to make sure that charges remain competitive and are based on costs, not on profits. If a financial investor took control of the business it could result in an increase of air charges, which is not in airlines’ interest," the spokesperson for Easyjet added. TAG holds the majority of the voting rights in NATS and has strategic control of the business.
Should the government sell its stake, Easyjet and the other airlines would most likely ask for guarantees to make sure that the charges calculation remained unchanged, the spokesperson said. A review of the initial PPP by Labour and a trade union claimed that TAG’s investment in NATS was “a defensive measure – to prevent any other body gaining an interest in NATS and being in a position to push up air traffic control services – and they do not expect to get a commercial return on their investment. The review supported this argument by pointing out that Easyjet had in 2002 already written off its GBP 7m investment.
The two sources believed the Spanish consortium Ferrovial, which controls BAA, would likely take part in any sale as its main focus currently lies elsewhere. Ferrovial has sustained significant losses over the last few months relating to natural disasters such as the Chilean earthquake and the Icelandic volcano which has affected some of its divisions’ activities. As a result, the listed Spanish infrastructure group has conducted several disposals recently, including the sale of a 67%-stake in Tube Lines for GBP 206m. Prior to its acquisition by Ferrovial, BAA estimated its stake in NATS to be worth GBP 68m in 2006.
BAA, which had total debt of GBP 10.2bn as of 31 March, declined to comment. Ferrovial was not available to comment.
National security concerns and questions over safety could lead to political interference resurfacing
The two sources and a third, who is following the situation, said the sale of NATS would interest infrastructure funds such as JP Morgan Infrastructure fund, Citi infrastructure fund, 3i, Macquarie, Barclays’ private-equity division, Morgan Stanley, Canadian pension plans and Temasek of Singapore. The first source said the government had made it clear in the past that Middle-Eastern buyers would not be allowed to bid for NATS due to national security issues. NATS, which operates under licence from the Civil Aviation Authority, is responsible for ensuring the safe procession of flights through UK airspace and is seen as an important safeguard of the UK’s national security.
It is noted that TAG fought off several rival bidders to secure its investment in the PPP in 2001. These bidders included: Serco [SRP LN], Raytheon [RTN US], and a consortium of Lockheed Martin [LMT US], Apax Partners and Airways International.
News of the potential full privatisation of NATs could reignite the furore dating back to the run up to the initial PPP. The deal saw fierce opposition from a number of backbench Labour MPs who opposed the deal on grounds that it could raise safety concerns. Further opposition to a sale of the government's stake could come from the National Audit Office which has carried out two reviews of the NATS PPP. In 2003 the NAO recommended that government departments should retain a “long-term interest” in any joint venture companies or partial trade sales following its second review of the NATS PPP. The second source responded by saying the government reduce its shareholding but retain a "golden share" in the business.
As of 30 September 2009, NERL had bank borrowings of GBP 79.7m and GBP 600m 5.25% Guaranteed Secured Amortising Bond due 2026 outstanding. The amortisation of the company’s GBP 600m begins in March 2012. Under the agreed terms for the GBP 600m 5.25% 2026 bond, NERL covenanted to ensure that the balance of the Liquidity Reserve Account is not less than GBP 21,298,700.
bmi, Monarch Airlines, Thomas Cook and Thomsonfly either declined to comment or were not available to comment.
Join Date: Nov 2000
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Now a sale of NATS to Serco really would make an interesting proposition. It would certainly bring an immediate commercial reality to bear on NATS operations. I wonder if Serco has the funds to outbid private equity? I would imagine that this would be one of the new governments easier sales. We live in interesting times.
SERCo only bought IAL because of its pension scheme; nuff said?
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I would have thought that after the, to all intents and purposes, bankruptcy of NATS post 911 and the subsequent vulnerability of its finances to events such as the current volcanic ash episode that a) private investors might be wary, and b) the government might have questioned the wisdom of full privatisation of a national infrastructure provider who's finances aren't necessarily rock solid going into the future.
There again, probably not and it'll just be the staff that ultimately get shafted in the future
Is this the big one that the dry powder has been waiting for?
There again, probably not and it'll just be the staff that ultimately get shafted in the future
Is this the big one that the dry powder has been waiting for?
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Beady Eye
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