The problem would have arisen whatever Nats' status

Transport Department

The government's statement comes amid growing calls for National Air Traffic Services (Nats), which was only part-privatised last year, to be renationalised.

Now it is reported the government is lending Nats the �30m, with that short-term loan matched by the banks which underwrote the company last year.

The PA News agency quoted an unnamed banking source saying: "This is something of a bridging loan which will tide over Nats while it tries to get a rise in the fees airlines pay for its service."

The banks are confirming their joint loan but Nats and the government are refusing to confirm the reports, say such commercial talks must remain confidential.

In a statement, the transport department said: "The events of 11 September had a serious impact on Nats' revenues.

Safety first

"To blame this on the PPP (public private partnership) is nonsense - the problem would have arisen whatever Nats' status."

The losses are caused especially by the 10% slump in transatlantic flights, which make up 44% of Nats' income.

The government says the company is addressing the problems responsibly, with continuing air passenger safety the priority.

A group of seven airlines - including British Airways, Virgin Atlantic and Easyjet - has owned 46% of the company since July 2001.

Mr Byers is under pressure to act on Nats

The government holds 49%, and employees own the remaining 5%.

The government says all those groups, as well as the banks and the Civil Aviation Authority (CAA) are playing their part in resolving the financial difficulties.

The statement continued: "These discussions have been going on for several weeks. We are confident that a resolution can be achieved."

Earlier, newspapers suggested four banks - Abbey National, Barclays Capital, Halifax and Bank of America - were threatening to force the service into administration.

Banks' support

But Nats chairman Chris Gibson-Smith told BBC Radio 4's World At One programme: "The central story that the banks are about to pull the plug is not true."

The Nats board met on Tuesday but Dr Gibson-Smith said the meeting was only routine and the banks were supporting the company.

Dr Gibson-Smith said Nats was asking the Civil Aviation Authority to allow the company to raise its fees by 5% next year - compared to 15% rises in other parts of Europe.

That move, as well as measures to cut out �200m in costs quicker than planned, would cover the company's losses.

Safety fears

If more money was needed, Nats would talk to the government and its other shareholders, added Dr Gibson-Smith.

The cost-cutting plans worried Labour MP Martin Salter, a former union official at Heathrow Airport, who said it meant safety could be compromised.

Instead, Mr Salter argued the government should admit "this is a privatisation that should not have happened and look at restructuring the entire company.

A consortium of airlines owns a 46% take in the firm

"If that means a larger public sector stake, then so be it."

Shadow transport secretary Theresa May said it seemed the problems critics forecast when part-privatisation went through were now happening.

"They pushed it through against the advice from air traffic controllers, from the Civil Aviation Authority and indeed from some of their own Labour backbenchers," she told BBC News.

The government denies receiving such advice from the CAA but its reputation is tied to the company's success.

Tom Brake, Lib Dem transport spokesman, said the government had to help because Nats was "hanging by a thread".

After reports of the �30m government loan, Mr Brake said the government might still have to dig deeper.