The UK's Civil Aviation Authority has turned down a request by the partly-privatised national air traffic control service to raise its charges to airlines.

The decision spells more trouble for National Air Traffic Services (Nats) which is already financially strained.

In March, the government provided �30m in emergency funding, as part of a �60m bailout.

The latest blow for Nats comes just a few days after computer problems brought many UK airports to a standstill.

Computer glitches have struck key control centres three times in the past two months, grounding flights and stranding thousands of passengers.

'Not justified'

Nats was hoping to increase the fees it charges airlines to use British air space.

But the airlines were opposed to the rise in fees as many of them are also under severe financial pressure as they cope with the post-11 September slump in travel.

Nats applied to the Civil Aviation Authority (CAA) for an average increase of 5% per annum for three years, starting in January 2003.

But the CAA said the rises were not justifiable, despite the cash-crunch at Nats.

The decision means the sum Nats can charge airlines is due to fall in real terms between now and the end of 2005.

Conflict of interests

The CAA admitted that Nats' revenue is likely to be substantially reduced over the next few years because of the events of 11 September and the economic slowdown.

But it also pointed out that, when the present charging regime was introduced, it was understood that Nats would face the financial risk if traffic volume fell below expected levels.

But the CAA said it may reconsider if the airlines were prepared to pay higher charges.

And it said it was particularly interested in the view of customers and airlines outside the Airline Group which has a 46% shareholding in Nats.

The privatisation has created a conflict of interest between Nats and its owners: while Nats urgently lobbied for a rise in fees, its owners are less than keen on a move which would push up their own costs.

Scared-off

The Airline Group - a consortium led by British Airways and Virgin Atlantic - bought its stake in Nats for �750m in July 2001.

The government has retained a 49% stake while staff hold the remaining 5%.

The government is now desperate to find more private sector investors to help prop up the air traffic control group.

But on Monday, Serco, the facilities management company, pulled out of talks that could have underpinned Nats' finances.