A recent CCO analysis questioned whether the airport lease was a good one. We concluded that the answer was “no’ based on currently available financial information.
By The Editor and Rob Steurmann
This conclusion was based on Council’s predicted net return of $550m over 99 years in 2021 dollar terms. However, there are a number of issues, other than financials based on opaque assumptions, that also need to be considered too.
The Enterprise Park – a threat to the CBD?
The proposed Enterprise Park is included in the airport lease/management agreement. We estimated current land-side net profit over 99 years to be approximately $396m.
Given council says they are getting $550m out of the lease over 99 years and given air-side net profits have averaged $4.5m for the four years prior to 2020 it would appear that Council is effectively taking an annual reduction land-side on the agreement they have for the Enterprise Park.
This is in spite of the Enterprise Park very recently being re-zoned to B5 for Palisade which allows the following businesses and organisations (screen shot from CHCC records);
Now that is a lot of potential businesses who, if council are to be believed, are going to return a good income via their agreement with Palisade. An agreement that is commercial in confidence in regards to this income issue, of course.
At the same time though it is also hard to see how this does not hold some potential to be a threat to the current CBD. Indeed it could be argued it means that the CBD would be geographically closer to City Hill.
Yes, that would be the same City Hill Council has claimed is unsuitable for a cultural and entertainment centre because it is not close enough to the CBD!
Additionally there is some talk of an airport hotel being constructed – see the picture at the top of the story – presumably it is represented as buildings to the right. Now there may well be a sound business case for this. But it is interesting to note airport hotels, or those based near airports, are almost universally built around what are known as hub airports.
Hub airports are those one flies into so as to catch connecting international and domestic flights to other destinations.
Coffs Harbour Regional airport is currently not a hub airport and is highly unlikely to be so in the near future. If there are medium to long term plans for it to become one there will be major flight path and flight timing issues.
If there is an alternative strategy relating to the hotel then it would need to be associated to plans in relation to tourism, events and/or possibly gaming/gambling related expansions. Time will tell what the plans are in that regard.
Can the lease be on-sold?
CCO understands that there are numerous clauses in the soon to be signed airport lease agreement covering the ability of Palisade to on-lease/sell the lease to a third party. We also understand the details of this may have been ‘so sensitive and detailed’ that an in-depth briefing for Councilors may not have occurred.
If this is correct then one needs to ask ‘why is it so sensitive’?’
Are Council’s assumptions too optimistic?
Council claims that the airport deal is worth $550m over 99 years.
We have measured that against what we broadly know in regard to net air-side and land-side profits in previous years. But we have no real idea what the assumptions are that Council has used to arrive at this figure other than to say we suspect it is not as good a deal as Council’s Executive claims it is.
And we are pretty sure Councilors don’t know what the assumptions behind that figure were either.
But then again that is no surprise.
Where Council Executive wants something to happen then one off optimistic scenarios often form the basis of an ‘analysis’ for Councilors. Medium-case and worst-case scenarios rarely get a look in.
And when council’s executive doesn’t want something to occur a worst-case scenario is wheeled out. In this instance best-case and medium-case scenario analysis often rarely get a look in either.
It appears as if though SWOT analysis often appears to be something completely unknown as an analysis tool by Council management when reports to Councilors are scrutinised.
This is something we will highlight next week when we look at the report Council Executive gave Councilors last year in regards to what interest rate costs for the CCS could be.
In the meantime we can only conclude in regards to the airport ‘privatisation’ that at a time when the aviation market is overwhelmingly a buyers one Council has decided they nevertheless needed to do a ‘dash for cash’.
Perhaps we will discover why this ‘dash’ is needed as the year progresses?