Agenda item

Report of the Leader TO FOLLOW

The Cabinet Member Finance and Assets introduced the report and explained that this had been a long and complex process. He emphasised that as joint shareholder in the airport with Gloucester City, the council has made significant effort in supporting the company.

The proposal was for a further £15.5 m investment, split between the two councils, to ensure the company had a sustainable future. The current issue with the runway had been identified as a result of work undertaken to date. He explained that the main runway required full replacement as, whilst currently still operational, it had potential to cause a problem in the immediate future. The second runway was not currently in use, as it required repair but at a modest cost. The third runway, which ran north to south, required a temporary repair. If the investment was supported and the two runways were upgraded the third runway would be shut on a permanent basis to facilitate future development.

The Cabinet Member reported that detailed work on the runway had been undertaken by the consultant but the exact cost would be determined by the procurement process.

It was noted that Gloucester City Council would be considering the same proposals next week. The Cabinet Member wished to highlight that while most of the previously agreed loan of £14.5m had not yet been taken up, it was recognised that the councils could not continue to increase support for the company. To that end alternative options had been considered and the proposal before Members comprised a “swap”-for the shareholder councils to provide the money for the runway upgrade in exchange for Meteor Business Park which would provide £650k rental income to the councils.

When considering whether the company would remain viable after the swap the Cabinet Member stated that the councils did receive a commercial return from the company on the loans and councils had taken 5% of rental income from property rents. He confirmed that the Airport company were of the view that they would remain viable due partly to their original investment programme which would generate extra income.

He highlighted that the LEP had extended a grant of £1.88 m to facilitate that investment opportunity and this was clearly something the airport company wished to take advantage of urgently.

The potential financial risk to the shareholders if the option of permanently closing the airport was taken up was outlined in the report although this option would then free up the asset in the long term.  There was however an economic value of having an airport, particularly in light of the golden valley and cyber park developments.  The GVA was over £ 50 million per annum.

He also added that once the runway situation has been resolved then the ownership of the company would be reviewed.

He emphasised that the company had continued to operate and he wished to pay tribute to Peter Hibberd who had made a significant contribution to its work.

He then outlined the recommendations to Members.

The following responses to Member questions were given :

• an additional recommendation would be included stating that no loans would be granted at less than 2 %
• assurances had been given to CBC about the airport representing a going concern and any accounting issues had been resolved. Covid had impacted on workloads and additional work required in respect of material certainty, particularly in respect of investment property. Gloucestershire Airport accounts have been signed off by the auditors as a going concern.
• Departure of three Directors- the Managing Director had departed, one Non Executive Director had retired and a further Non Executive Director (Chair) had given notice that he would stand down after serving a 3 year term. It was emphasised that all the new independent non-executive directors appointed in 2017 remained in post, including Peter Hibberd as Chair.
• Assessment of alternative economic values – a helicopter only operation was considered in 2017 but deemed unviable as a stand-alone operation..
• Cost of runway improvement-this was now significantly higher than the £1.5m estimated in 2002 due to the risk of delamination requiring a full resurfacing rather than a more minor repair.
• Greenbelt-the debate has only just started with regard to Joint Core Strategy 2 and this was a long process. In any event Tewkesbury BC had not been supportive to date on removing the airport land from the greenbelt.
• GVA Assumptions based in report-the jobs that are dependent on an airport being there
• Business rates-it was confirmed that all businesses on the airfield pay business rates to Tewkesbury Borough Council as the local planning authority. CBC /Glos City do not receive the rates directly but do benefit from the Gloucestershire business rates pool.
• Climate change impact-the airport had adopted a green policy. The company had devised a methodology on calculating how much C02 it generated and concluded that ground and flight operations were estimated to be 4.5k tonnes of C02 per annum. Shareholders would work with them to reduce it but there was no specific date to achieve the aim of zero emissions. Technologies were however developing very rapidly including the development of electric engines over the next 2 years with the potential for this to be included in smaller scale planes very rapidly.
• Questioned consistency with the CBC policy on the climate emergency
• Rental income from Meteor Business Park Swap-the shareholders would be taking some guaranteed security (rental income from Meteor Business Park) for the investment as leverage for not taking on any more debt.
• The newly established GAL board believe that with the runway they can generate significant high aviation related income to the south of airport. The CGX development would facilitate the closure of the north-south runway and GAL intend to bring in a third party developer to mitigate risk and the airport would receive ground rent.
• Additional costs – to keep the runway safe now requires extra costs due to the previous temporary nature of repairs. Reference was made to PCN (measurement of runway strength)-heavier aircraft-BAE systems have had to relocate to Bristol temporarily as a result of issues with the runway.
• Compensation -£15.5m cost of runway to be split 50:50 with Gloucester for the completion of two runways.
• Airport infrastructure- some other capital investments were being looked at completely separately from the potential runway investment. GAL was exploring remote radar services and collaborating with other airports in this regard.
• GAL had never defaulted on loan repayments. All loans had been issued on a commercial basis-so some income to the councils had been generated.

The following points were made in the debate:

• The airport was a key part of the town’s economic infrastructure and it required considerable investment now to make it fit for purpose.  The airport could be a significant advantage for the cyber park development.
• It was recognised that investment now would provide longevity and would address the issue of the undulation in its surface. The investment should be made as efficiently as possible by employing lean principles to ensure its costs were maintained within the budget.
• Scepticism was expressed with some Members questioning how many more times CBC would be requested to invest and what the returns would be on that investment. Additionally, there would be an incremental increase in the number of flights in the short term once the investment had been made generating higher C02 emissions. Longer term, it was felt that with virtual conferencing used to a greater degree, small business flights may not increase.
• Investing heavily at this extremely difficult time was regarded by some as not a wise and long term view, yet by not supporting it, it may be perceived that an alternative use for the site was planned. A Member expressed his reluctance for the site to be an urban extension in the future and wished for it to be preserved as green space.
• Some Members wished to consider a more comprehensive and detailed exit strategy.
• It was recognised that there was active inward investment with a booming cyber industry and creation of new start-ups. By investing in the airport CBC could capitalise on this growth.
• Technology was advancing so fast and new green initiatives should be capitalised on.
• Concern was expressed that even with the investment the airport was still limited in terms of the type of aircraft it could cater for.
• Some Members felt that demand for aviation would continue and cyber central would encourage other tech firms to come in to the town.

In summing up, the Cabinet Member Finance and Assets made the following points :

·         there would be a 25 year usage on the upgraded runway as a minimum. Continuous discussions were held with the CAA who had a governing position regarding airport safety.

·         the council had not lost money from GAL but had made money on the commercial loans to GAL and there had been no defaults. The investment package agreed a year ago was perceived to be the game changer for the company’s future.

·         York Aviation had advised that just having one runway would not make the airport viable

·         The aspiration was to increase the proportion of slightly larger, quieter and less Co2 dependent as proportion of the overall. So a higher proportion of those aircraft that generate the income.

·         He did not believe it was hypocritical to own an airport-the industrial estate also forms part of the investment.

·         There was no aspiration to have traditional passenger jets-but increased capacity for executive size jets.

·         Maintaining the land purely as a green space  in the future would not be realistic as it would not generate a return

Finally, the Cabinet Member emphasised that this was a long and complex issue. As joint owner, the council had a duty to attempt to make it viable. He agreed that looking longer term, there should be an all-encompassing view taken. He believed that the proposals before Members represented the right way forward and would give Gloucester City and CBC both time and space to look more at the longer term. This did not just concern an airport but the investment in the industrial space which would create jobs and economic benefit went alongside.

RESOLVED THAT (21 for, 2 against, 4 abstentions)

1. Advance working capital of £15.5m (£7.75m per council) to GAL at 1% above base rate p.a. to fund the runway works, in accordance with an agreed mechanism for drawdown requests.
2. the exchange / transfer of Meteor Business Park to the Shareholders in settlement of the repayment of the working capital by GAL be approved, subject to a separate business case and independent valuation, up to an upper limit of £15.5m.
3. the potential future sale of Meteor Business Park to a third party to repay the advance of working capital in the event that the Shareholder councils consider this to be commercially advantageous to both councils be approved.
4. all other future loans be extended at the preferential rate of 2% above the Bank of England base rate, to include the remainder of the existing agreed funding of £14.5m.
5. the rate of the rolling credit facility be reduced to 2% above the Bank of England base rate.
6. the 5% Shareholder share of property rental income be waived for new developments.
7. the outline exit strategy for the shareholding in GAL as detailed in section 7 be approved.
8. the Executive Director Finance and Assets (in consultation with the relevant Cabinet Member for GAL and the Borough Solicitor) be authorised to take such actions and make such arrangements as are necessary for the implementation of the above recommendations including such legal processes and agreements as are necessary.
9. no loans be granted at less than 2 %.