Mayday hospital has announced plans to become a foundation trust in 2009 after it balanced its books for the first time in two years.

Despite predicting 12 months ago it could end this financial year with debts up to £13million, the hospital has reported a £122,000 surplus.

The savings mean Mayday can now consider foundation trust status again after having to pull out last year because of financial problems.

But after getting back into the black, the hospital must now begin making repayments on an £11million loan from the Department of Health.

Ben Gowland, director of service improvement and quality, said: "We will be a foundation trust hospital by 2009, which will be a great benefit to us. It will bring us closer to the community as the hospital will be in their hands and they will even have the power to hire and fire the chief executive."

The new status would put a group of governors elected from the public in charge of the direction of the hospital, with the management team still in control of its day-to-day running.

It would also give hospital bosses more financial freedom as they would decide how their budget is spent, instead of the Department of Health, which makes the decisions at the moment.

The hospital considered applying for foundation status last year and received strong support from the public. But its poor finances saw it withdraw from the process and weeks after the decision Mayday's previous chief executive Vannessa Wood stood down.

Mayday said an increase in patients and a more efficient system had helped it save enough money to begin the process again.

Explaining how the hospital had managed to save so much, a spokesman said: "We issued a turnaround plan at the start of the year that was aimed at helping us break even and achieve financial recovery. Obviously, we wanted to do this without cutting services or sacking staff, so we went with the view of becoming more efficient and doing things better.

"For example, patients would spend four days in our hospital after an operation, whereas in others they were out in two after the same procedure. We improved this and that meant we could get rid of some beds and even closed two wards, saving us £2million, despite treating the same number of patients.

"Whatever excess of staff we then had we were able to redeploy into other vacant positions or have them take up from the high number of temporary staff we were employing from nursing agencies which in themselves cost a great deal."