THE Welsh Government’s decision to invest a further £21.2 million of taxpayer money into Cardiff has been criticised by Monmouth AM Nick Ramsay, who said the move effectively amounted to a “blank cheque” for the business.
Transport minister Ken Skates said the funding – in the form of a loan the airport will pay back – would support “ambitious plans for the future” including a target of two million passengers a year.
But Conservative AM Mr Ramsay, who serves as chairman of the Welsh Assembly’s Public Accounts Committee, questioned the fairness of the loan.
“Businesses in my constituency do not receive this level of support from the Welsh Government and will understandably be questioning the fairness of these funding priorities,” he said. “We need far more clarity on what this money is being provided for and when we will see an end to what effectively amounts to a “blank cheque” for Cardiff Airport.”
Mr Ramsay also called for more clarity on how the funding would be used.
“The Welsh Government has committed to this new loan without providing any detail on what the money is for or when it will be paid back,” he said. “This comes on top of a previous loan of £38 million in 2015 which has also yet to be paid back.
“This all amounts to a considerable sum of taxpayers’ money and the public have the right to expect a coherent and rigid timetable for this to be recovered.”
The Welsh Government bought the airport in 2013. Since then, Mr Skates said, passenger numbers had increased by nearly two-thirds. There are currently around 1.7 million passengers using Cardiff Airport each year.
Announcing the loan on Monday, Mr Skates said the money would be made available in conjunction with a six-year plan for investment in Cardiff Airport.
He said the target of two million passengers annually was being “hampered” by the disproportionate costs faced by smaller UK airports.
But following the transport minister’s announcement, the Welsh Conservatives said Cardiff Airport would do better if it were re-privatised.
“The airport needs to be sold back to the private sector, where proper investment can be made which doesn’t rely on the people of Wales shouldering the financial burden,” shadow transport minister Russell George said.
Cardiff airport had 1,581,131 passengers in 2018 and 1,465,227 passengers in 2017 (an increase of 7.9%). CAA airport data
The reasons why the Welsh Government has made an £6m equity investment into Cardiff Airport
The airport is looking to invest in new revenue creating projects
By Sion Barry (Wales online)
22 MAR 2018
We will use your email address only for the purpose of sending you newsletters. Please see ourPrivacy Noticefor details of your data protection rights
The Welsh Government had made a £6m equity investment into Cardiff Airport to support the financing of new value enhancing projects.
As equity is not interest bearing — and at this stage the loss-making airport is not in a position to make dividend payments — it is far better for cashflow than interest bearing debt.
The Welsh Government already owns 100% of the equity in the airport after acquiring it in 2013 from Spanish firm Abertis for £52m, minus professional advisory fees.
The airport is though run by an at arm’s length commercial company.
There are currently just over 51 million issued shares making up the entire share capital of the Rhoose-based airport. However, like the fundraising model used by firms on the London Stock Exchange, it will effectively issue a new tranche of shares worth £6m to the Welsh Government.
The airport, which last year saw passengers rise nearly 10% to 1.46 million, also currently has a separate loan facility of £38m from the Welsh Government, with interest charged at a commercial rate. At the end of its last financial year some £25.6m had been drawn down. The facility is repayable over 20 years.
As the airport is owned by the Welsh Government if it had gone to a commercial lender the amount could have been scored by the Treasury as part of the Welsh Government’s annual budget.
The airport is exploring projects to drive additional revenues beyond its current core flight related income. This could see new a logistics hub being established as it looks to increase freight traffic, which will be boosted with the first direct route to the Middle East with the new Qatar Airways service from May 1.
The equity investment was made after the Welsh Government took professional advice that it would not breach state aid rules. Although at an early stage the airport is also looking to establish new hotels, including a possible four star and economy offer.
Economy Secretary Ken Skates said: “This is clearly an investment not just into the airport, but into Wales. Our £6m equity injection in exchange of common shares is expected to increase the equity value of the airport by around £12m.
“We would not be investing this heavily if we had not had sound evidence that the airport is succeeding in its plan to move towards profitability.
“A range of capital works in and around the terminal building have been identified that will allow the business to capitalise on recent successes, maximise revenue and generate further business growth.
“These improvements will also help to achieve the desired customer satisfaction levels which should in turn drive new and repeat business.”
However, shadow economy secretary, Russell George, said: “If the outlook for the airport is as positive as the Welsh Government claims, you have to ask why they’ve been unable to secure private investment.
“Frankly, a cash injection of this kind is usually taken as a sign of a company in financial distress – not a company on the up and up.
“We all want to see the airport succeed, but we have been repeatedly told that the route to success is through private equity. Now we see another cash injection of taxpayer cash.
“It’s not the long term master plan we were sold by the Cabinet Secretary in January.
“Welsh Conservatives will continue to support the chief executive in his efforts to make the airport a success, but Welsh taxpayers will understandably roll their eyes at news of another bailout by the Welsh Government.”
Roger Lewis, chairman at Cardiff Airport, said of the equity injection: “This is a ringing endorsement of confidence in the airport business and will enable us to continue to grow, develop and serve our customers, our people and Wales.”
In its last financial to the year ending March 31, 2017, the airport reported pre-tax losses of just over £5m, compared to just over £4m in 2015-16.
Revenues were also down by around £400,000 from just over £17m to £16.6m.
However, on the financial measure of Ebitda, earnings before interest, taxes, depreciation and amortisation, it reported losses of £896,000 compared to £980,000 a year earlier.
Airport valuations are based on multiples of Ebitda. Typically this is 10 times for small airports and 20 for larger ones – although the Ontario Teachers’ Pension Fund, which owns Cardiff’s nearest rival Bristol, along with Kuwaiti investors, acquired London City Airport for more than 40 times Ebitda in an eye-watering £2bn deal in 2016.
Although ultimately the value of Cardiff Airport, if put up for sale, would be a matter of negotiation on what an investor would be willing to pay and the amount the Welsh Government, would be willing to accept.
If a future deal was struck the Welsh Government, at its stands, would want to keep some equity interest in the airport on behalf of the Welsh taxpayer.
For its current 2017-18 financial the airport is forecasting to break even on Ebitda and go in profit next year.
Mr Lewis said: “And on pre-tax profit I am absolutely confident that we achieve that [profit] sooner rather than later. And this year we are forecasting double digit passenger growth.”
With more capacity and routes from existing scheduled and chartered airlines, who include Vueling and Flybe, by 2020 the airport is aiming to reach 2 million passengers and by 2025 three million – at which point it would new terminal capacity.
A new terminal could cost at least £100m; an investment would be the trigger for the Welsh Government selling a stake in the airport.
The highest passenger level achieved was under the ownership of airports group TBI with 2.3 million in 2007.
Welsh Assembly members say Cardiff airport lacks a long-term enough plan for expansion
The Welsh Public Accounts Committee has said Cardiff Airport is missing its passenger targets and lacks a long-term plan to expand. The airport was bought by the Welsh Government for £52 million in 2013. The decision to buy and the price paid caused controversy, but the Public Accounts Committee said ministers had had “a clear rationale” for going ahead with the deal. The transport minister said swift action saved the airport from closure. After the airport was taken into public ownership, passenger numbers rose from 995,000 to 1.079m in 2013-14, but in 2014-15 the numbers declined to 1.005m. The airport now expects numbers to rise to 1.4m by 2017-18, although the business plan produced at the time it was bought projected passenger figures of around 2 million by that date. Some consider the airport was only worth £20 – £30 million and the Welsh government paid too much. Flybe announced it would operate flights between Cardiff and London City Airport during the six week closure of the Severn rail tunnel from 12 September to 21 October. “Aviation Wales” hopes Air Passenger Duty will be devolved, so they can cut it. Bristol airport is very anxious about this, and launched a “A Fair Flight for the South West” campaign, fearing a loss of passengers to Cardiff.
Conservatives demand more routes for Cardiff Airport after £3.5m government loan
Tory party members have called for the value of Cardiff Airport to be made public – two years after it was sold to the Welsh Government for £52 million. Conservative politicians have criticised the airport’s failure to attract new flights, but the Labour Welsh Government said securing routes was a long term process and that a route development loan had yet to come into play. In November 2014 ministers announced that Cardiff Airport was to get a £3.5m loan to help develop new routes, as part of the Welsh Government budget for 2015/16. That happened after Lufthansa-owned Germanwings said it would close its service to Dusseldorf in 2015. The Tories want the airport improved and then sold back to the private sector, and so far there is evidence that the money from hard-pressed taxpayers has achieved much. A LibDem councillor commented: “The big question remains… where is the plan?” Labour said: “The Conservatives need to show some patience, especially when demanding to see the results of a £3m loan that will not be available until the next financial year.”