Shareholder Executive

NATS

Purpose

NATS provides air traffic services in UK and Oceanic air space and at 15 major UK airports and Gibraltar, as well as related operational, consultancy and training services in Europe and beyond.

Legal Status and Ownership

NATS Holdings Ltd is the holding company for NATS Group. It owns NATS Ltd, which in turn owns two operating subsidiaries: NATS (En-Route) plc (NERL) and NATS (Services) Ltd (NSL). The Airline Group Ltd, a consortium of seven airlines, has the majority of voting rights and 41.9% of the shares of NATS Holdings Ltd. The Secretary of State for Transport owns 48.9%, BAA plc 4.2%; and NATS Employee Sharetrust Ltd 5%.

Description of Rights

The government retains a limited number of rights to protect its investment in NATS, including:

• appointment of three non-executive (or partnership) directors
• veto over the Airline Group's nomination for the chair
• reserved rights relating to material changes in the business activity, capital structure and ownership
• a Special Share to give voting control in relation to certain matters.

Shareholder objectives

Maintaining (and where appropriate enhancing), NATS' safety performance and culture, to provide over the longterm a risk-adjusted commercial return to NATS' shareholders through:

• efficiently and cost effectively providing air traffic services that meet the reasonable requirements of customers in terms of reliability, capacity and delay
• investing efficiently and cost effectively in appropriate air traffic control (ATC) infrastructure to be able to deliver those services
• pursuing strategic commercial growth opportunities in the UK and overseas ATC markets, including European.

Financial Performance

£m	2008	2007	2006
Turnover	743	701	687
Operating Profit	158	140	146
Profit/(Loss) for the year	49	69	57
Net Cash flow	(47)	19	(12)
Net Operating Assets	1,069	1,019	945
RONA	14.8%	13.8%	15.4%
Shareholders' Funds	666	475	367
Dividends	2	-	3

Commentary

NATS reported a successful year combining strong financial performance with the achievement of a key milestone in the transfer of the London Terminal Control operation to Swanwick. On the operational front, NATS handled 2.5m flights, a 3.1% increase on the previous year. While the number of flights experiencing no NATS-attributable delay held broadly constant at 97.5% (2006-07: 97.7%), the delay per flight attributable to NATS increased to 26.8 seconds (2006- 07: 22.6 seconds). NATS continues to maintain its safety performance against the backdrop of rising traffic. Last year there was one incident attributable to NATS where the safety of the aircraft was considered to be compromised.

On the financial side, NATS’ turnover increased by £41.3m (5.9%) to £742.5m. Pre-exceptional operating profi t increased by £17.6m (12.6%) to £157.8m. However, following net exceptional losses of £23.4m (principally relating to redundancy and staff relocation costs from the closure of the West Drayton centre) post-exceptional operating profit was £9.6m lower at £134.4m. Post exceptional profit after tax for the year was £49.2m (2006-07: £69.4m). NATS' growing financial strength was recognised by Standard & Poor's who upgraded its credit rating from A- to A. This coupled with strong cash flow provided the opportunity to repay through a mixture of cash and bank loans £167.3m of shareholder loans. As part of this refinancing, the Department for Transport received £106.2m from NATS. In addition an interim dividend of £2.4m was paid to shareholders.

During the year the transfer of the London Terminal Control operation from West Drayton to Swanwick was successfully executed. The transfer, on time and under budget, marked the halfway stage of the long term plan to consolidate operations from four air traffic control centres to two.

NATS also completed the reorganisation of its regulated and non-regulated businesses. As a result NSL (the unregulated business) appointed its own executive team headed by Lawrence Hoskins. One of the first successes for the team was signing a new five-year contract with BAA in March for air traffic services at its seven UK airports.