At the last meeting of the Coffs Harbour City Council on 27 August Councillors were presented with proposals to do with the future of the airport with Council’s executive recommending Councillors accept a bid for a 99 year lease, which is effectively a form of privatisation but retaining ownership of the land.
By Rob Steurmann
This issue, as is so often the case with this council, was held ‘in camera’, or heard as being ‘confidential.
Yet, it is clear, there was division among the councillors as the vote ended 4-4 and the Mayor used her casting vote yet again this time to vote for the lease proposal.
As a result a rescission motion is up for debate at the next meeting of council this coming Thursday.
Most people will know the global economy is under extreme pressure with one of the biggest industries adversely affected being aviation at freight, passenger and tourism levels.
With no firm dates or plans to restart the economy a question in need of an answer arises. What compels Council to consider privatising the airport at this point in time?
I raise this question because it would seem this is not the right time to do be ‘going to market’.
In no way can Coffs Harbour Regional Harbour Airport be currently regarded as a hub for international freight traffic in Australia. Our tourism component, be it international or domestic, is not up there among the main airports in the country and any improvement in the tourism offering will require a large, and broad, capital investment into related infrastructure.
It follows then that the path to recovery for our airport will lag behind other airports and may in fact be some time away from returning to whatever the new normal will be after Covid 19 is hopefully eradicated or suppressed annually via a vaccine.
It is against this backdrop a review of the three major airport options needs to take place.
These options are;
- Sell off,
- Lease, and
- Do nothing.
The figures and terms of condition are not in the public domain so this review is not made having a full and true disclosure in place.
Coffs Coast Outlook understands the proposal in front of Councillors may amount to a figure somewhere between $74m and $80m per year for the airport for 50 years at least.
Residents own the asset but once it is sold residents relinquish any claim on the airport. It therefore follows the sale must be for a fair value and this, given the current economic position, would be hard to achieve. In short it means there will essentially be a ‘fire sale’ and residents will bear the cost in the future for a long time to come.
The real question is; ‘what is the urgency to secure cash now from a sale in a suppressed market’?
Council continually maintains this is an income producing asset with profits of between $3m to $5m in normal to good years. So the decision to sacrifice income, and to save on some costs, has to be weighed against current results.
Until the economic position recovers the operating loss, incurred this year, is likely to continue.
Residents maintain the ownership of the asset and also incur certain costs under a lease arrangement. On the surface the ongoing expense is $3.2M. For a lease to be viable for a private concern the rental cost and their operating expenses have to be recovered.
The asset has a council assessed value of $85.5M. A 10% return on investment means council will have trouble in attracting tender bids. The successful bidder would need to increase the income level to a minimum of $10.5M per annum. This is a tall order given the current position and the uncertainty of when the trend will show any sign of turning the position around.
It is noted council has not achieved this level of income in the past.
But council could offer a lower rental rate with or without additional incentives. At a 5% return on investment council would receive a gross $4.25M but incur costs close to $3.2M. This gives a net yield of $1M per year and given the prospect of what increasingly appears to be a 50 year term would appear to be a very poor outcome.
It raises the question of whether $1M is enough to satisfy the so far undisclosed need for cash. There must also be other options available to secure an extra $1M.
Council’s Executive employees seem to favour a rezoning option as part of the lease which raises the issue of potential conflict of interest wherein the owner of the airport is also in a position potentially to rezone it too. This is clearly in relation to the proposed ‘Enterprise Park’ Council wants any new airport operator to manage and operate.
This will be some sort of carrot for a “would be” renter. But it might also generate legal issues. It is customary for “improvements” made to a property to become an asset for the landlord. This is a matter any potential renter might wish to clarify before signing any agreement. The impact on the residents, after any concessions, is unknown.
To keep the airport without selling it off leaves the asset in the hands of the residents. In the short term losses could arise as the full cost of all expenses is also with the residents.
Pause and wait
The final option is to put in place a pause. This will allow the economic position to become clearer, proper community consultation can occur, more bidders may eventuate and a more detailed appraisal of tourist and freight traffic can be undertaken.
It is a broad generalisation to suggest the airport has a significant impact on the local economy. True, tourism has a big input into the local economy but precisely how much of this is attributable to tourists arriving by air? It is probably fair to say the bulk of spending comes from domestic “land” tourists visiting friends and relatives in the main.
This is not a vital consideration on the viability of the airport, at least not in the short to medium term and in a world affected by the socio-economic uncertanties of a pandemic.
Council, by discussing the issues in camera, deny the residents the opportunity to know the real facts.
But the most important question remains as to what is the haste and why now?
Is council going broke? Is council about to accept a “fire-sale” option?
Perhaps, like some other issues, the best option for the time being, is to step back and wait for the dust to settle.
It is curious but the old adage “be it ever so humble there is no place like home” might have some application to the airport.
Who knows in the next 50 years the use of the land might change, Star Trek might give us the answer with science cracking tele-transportation for all we know.
Business meetings, events and business travel will probably never be the same after Covid 19 and the ease of using Zoom or similar.
Or it might even become a wild life reserve.
Whatever it is “odds on” our council does not know the answer. One thing that is certain is that the lease plan for the airport is not in Council’s Community Strategic Plan.
So why the haste?
Rob Steurmann is a retired forensic auditor who regularly writes for CCO on economic and financial matters relating to our local government area and our council.
Tomorrow: What Council makes out of the airport, why a ‘guarantee’ not to spend the money on the CCS in Gordon Street is not binding or enforceable, why getting a manager to run the airport for ratepayers is not a major hurdle, and why a ‘privatised’ airport might not get government funding support and this Thursday’s rescission motion.
An interview with Cr Tegan Swan on this issue by Moffee on Triple M Coffs Coast this morning can be heard here; https://omny.fm/shows/triple-m-coffs-breakfast/cr-tegan-swan-about-the-airport-lease-election-of?fbclid=IwAR3jvH2u197Ca3ksds4GDlts503_3rPFzC9bUEXjpghsn0ZO4idrGjfuyuI