Is the airport lease deal really “great news for the community”?

The controversial Coffs Harbour Regional Airport lease with Palisade investments is soon due to formalised as a contract by the parties and Palisade is due to start managing the operation of the airport thereafter.

By the Editor and Rob Sturmann

This issue has been given renewed life this week with a question on notice to Council Executive from Councillor Paul Amos. The following question on notice was received from Cr Amos (pictured below).

Question

“The recent awarding of the long term lease over the Coffs Harbour Regional Airport was supported publicly by a forward cumulative ‘forecast’ based on projections provided by the bidder over 99 years.

Due to significant variations in the continuity of when income is expected to be received, what is the actual net present value of the income stream, as presented to counsellors and applying the diligence of consultants KPMG for the Coffs Harbour councillor’s ultimate consideration?

That is, what is value to the community expressed in today’s dollars, of the proposed 99-year lease term?”

Council Response

The net present value of the negotiated 50 year airport lease and 49 year option is calculated to provide a benchmark to compare to valuations and to other offers received as part of the evaluation process. The net present value is between $127.5 million and $132.3 million and is significantly higher than two independent valuations, the net asset value recorded in the Coffs Harbour Airport’s balance sheet, and also higher than the binding bids received in October 2019 before the COVID-19 pandemic.

The airport lease has not been structured for Council to receive a single upfront lease premium (such as the net present value) but as a combination of an upfront payment, deferred payments and a share of revenue each year.  The cumulative value of these payments are estimated to be in the order of $500 million, in nominal dollar terms, over the lease and option periods.”

CCO Analysis

Let’s first consider the answer given to Cr Amos.  Council’s executive states that the cumulative value is estimated to ‘be in the order of $500 million”.

Interestingly Council doesn’t state how that figure is arrived at.  But judging by Council’s own press release last December reported on here by Triple M and Coffs Coast Outlook the figures are based on a 99 year ease overall.

Council’s press release states; “The agreement includes $81.5 million in fixed payments over an initial period including for the development of the Airport Enterprise Park, a 23-hectare greenfield employment precinct adjacent to the airport.

Council will also receive a share of revenue earned from both the Airport and Enterprise Park, forecast to be in excess of $400 million over the term of the lease and option. Palisade will be able to take up the 49-year lease extension option subject to a range of legal and commercial requirements being met.”

An artist’s impression of the Coffs Harbour Airport Enterprise Park.

There is one small problem with an assumption based on 99 years and that is the agreement is for 50 years and then Palisade have an option as to whether they want another 49 years.   So basing assumptions and figures on 99 years presumes everything will ‘sail on smoothly’ well past anyone reading this article’s lifetime.

But what the heck let’s use 99 years as an assumption for figures on the basis that is what Council used in their press release presumably on the basis they considered most residents and ratepayers were not sophisticated enough to understand figures minus the uptake of the 49 year option.

Is the ‘deal’ as good as Council says it is?

Remember the airport was paying $4.5m in net profit from air side operations only on average over the four years before 2020 when Covid19 hit. Land side revenue and profit from assets such as car parks and leases are estimated by some to be between $3.5m and $4.5m p.a. on top.

Let’s split the difference and say current land-side net profit averages at $4m p.a.  So airside and land side net profits could be $8.5m over the past four years on average.  Over 99 years that is $841.5m.  That is $341.5m above what Council says the deal is worth over 99 years.

OK, aviation has been battered from pillar to post due to Covid 19.  Let’s make some allowance for that then. 

Let’s remove the $41.5m to cover the years 2019 to 2024 inclusive.  That still leaves $800m over the 99 years which, of course, is still $300m above what council claims the lease deal is approximately worth.

But wait there is also this;

Item BS/21-05 of this week’s Council agenda states;

“In November 2017, Council resolved to advance the initial stages of the Airport Enterprise Park (AEP) development and seek ministerial approval for internal loan funding from the Water and/or Sewer Funds of $10.5 million.  The funding has been subsequently approved by the minister from the Sewer Fund and included in Council’s budgets.

At its meeting of 14 November 2019, Council received an update report on preliminary works, cost breakdown and funding for the full AEP development of approximately $25 million.  At that time, to enable the construction of the full project to proceed, Council resolved to adopt a funding model of $10 million Federal Government Grant, $10.5 million internal loan from the Sewer Fund and $4.5 million through an interim internal loan from the Plant and Vehicle Replacement Reserve, noting that the final funding model would be determined following the outcome of Council’s grant application to the State Government.

With a final State Government grant outcome now confirmed the final funding for the AEP development is as follows:

· $10 million Federal Government Grant (Regional Growth Fund)

· $10 million State Government Grant (Restart NSW Fund)

· $5 million Council Internal Loan (Sewer Fund)”

So $25m of taxpayer and ratepayer monies has been used to subsidise this long-term lease and the final agreement that is to be signed off on soon? 

In regards to the $5m (or is it $15.5m?) ‘loan’ from the ‘sewer fund’ ask yourself “how can the council justify this action when there are areas to the west of the highway without proper water and sewerage”? 

Ask ratepayers in the Orara Valley, or parts of Boambee for example,  if they have “proper” sewerage.  Some parts of the CHCC LGA may have running water provided. But not all places.  During the bushfires people in many parts of the LGA had to truck in water.

Also people in areas such as the western side of the highway near the northern beaches and elsewhere do not have water and sewerage running past their doors. 

Does this resetting of priorities to the advantage of a large investment company show how little council cares about local residents?

So on that admittedly very simple basis ask yourself “Is the deal as good as Council says it is?”

We would argue the answer, based on current information, is “No”. 

We would argue this looks very much like a ‘dash for cash’ in the sort term but when the medium to long term is appraised, albeit in reasonably simple terms, the figures remain problematic.

CHCC GM Steve McGrath has stated; “this deal is great news for the community as this revenue stream will allow the Council to fund strategic community projects into the future. This will also allow us to invest in improved services for current and future generations.”

We presume this relates to the “$81.5 million in fixed payments over an initial period including for the development of the Airport Enterprise Park.”

Mayor Denise Knight and GM Steve McGrath

It might be an idea for the Mayor and the GM (pictured above) to tell residents and ratepayers what these future strategic community projects in the future are. 

We are presuming the money won’t go to the proposed CCS in Gordon Street because it was reported that this was promised in order to obtain the vote of Cr Rhoades and possibly others?

But can that be guaranteed is a key question of course.

___________

Next week: The unknowns about the airport lease.

4 thoughts on “Is the airport lease deal really “great news for the community”?

  1. As the national public grew increasingly concerned over the direction Federal politics was going, and the characterisation of Australia as perceived internationally, some really interesting Town Hall meetings were arranged. Andrew Wilkie, as one to mention, spoke interestingly and at length, a length not afforded even then by a media rush to replenish news. Town Hall meetings, of course, formed a bedrock in our nation’s growing electoral development from our very early days. The idea was to bring them back.

    Wouldn’t it be something if our councillors, the General Manager, and the executive were to put their case for continuation through meetings such as these, instead of sending out edited, unquestioned, PR-dressed backslaps. Candidates standing also have a terrific opportunity to express their reasons and inspiration, which could be alongside those in office or in separate meetings.

    A public can choose any format, with the general structure of the meeting being that each person speaks on topics of their choice, or on a set agenda for all, taking questions from the public afterwards. It’ high energy stuff: lots can be revealed and lots can happen.

    It would be interesting, wouldn’t it, if an electorate took the step towards the more sophisticated understanding of who runs their local government by establishing these meetings to the extent that the executives are involved. A step, incredibly, towards a much more informed vote.

    We have a member of senior staff, for instance, who I feel would be interesting to listen to and get to know more from: Andrew Beswick. Mr Beswick was appointed by Steve McGrath (through that process of: You choose the councillor>>Your councillor chooses the GM>>that GM chooses the executive), in 2013.

    One of the publicly-provided background briefs for Mr Beswick is:

    He has extensive council experience in financial planning, IT, business improvement and strategy development and implementation, through various roles at Burnie City Council.

    He was a key participant in a number of Burnie City’s enterprise innovations, including a fibre optic network and associated IT services business, a public-private partnership for the operation of the local airport and the establishment of a tourism and community cultural centre.

    There’s that mention of Burnie, the little Tassie town that could! (If that’s the same one, that became a major mountain bike destination.) And you’ll see there the mention of the local airport.

    One of our current councillors in a critical meeting expressed concerns that the governing body hadn’t been given sufficient information on options other than private leasing, with, if I recall correctly, “public-private partnership” the one that the councillor wanted to know more about, saying not enough info on it was supplied.

    As mentioned previously, traditional regional media is incredibly beneficent, having to sell its news to buyers of its advertising space, but also because Australia really does have a well-behaved electorate and treats its politics with tremendous decency in comparison to other, prominent democracies. (One of the reasons some of our councillors are not getting the strength of community feeling when they walk down the street, misleading them into the belief that they are largely supported.)

    So there’s no way we’ll know more about these interesting things of Mr Andrew Beswick, his experiences and what goes into his decisions and advice – advice that gets put into action by the governing body – without something like the old Town Hall meeting.

    More particularly on the point of the airport, I had the impression it was inked, but it appears not so? In that case, there may be a blow up imminent from Councillor Amos being a proper councillor, and the deal could be stopped? How about, then, a Town Hall meeting to air what’s going on?

    There’d be protestors, of course. But it’s an age-old tradition. Whaddya reckon? Bring it on?

  2. A quick P.S. folks, sorry. That process of choosing the GM using those >> thingies above, as many of us understand it, didn’t follow the usual procedure in Steve McGrath becoming our GM. I should have emended the comment above to better express that.

    Perhaps that’s a Town Hall question we could ask of Mr McGrath? And Councillor Rhoades?

    1. The story concerning how Mr McGrath came to be appointed as General Manager must be told, especially as we near end of term for some of our untrustworthy councillors in my opinion. Many know the details and many suspect that quid pro quo agreements may have been made between these gentlemen over not so gentlemanly handshakes.

      Truth always prevails and as the old story goes chickens eventually come home to roost.

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