Report Warning On Sale Of Airport
24 February 2015, 07:36
Scottish Government plans to sell Prestwick Airport back to the private sector are viable, but it could take "some years'' for them to be achieved, public spending watchdogs have said.
Ministers bought the struggling airport for just £1 from owners Infratil in November 2013, fearing if they did not step in Glasgow Prestwick would close.
Audit Scotland said while the business case for the deal was based on "optimistic'' passenger numbers, the Scottish Government could still "reasonably expect a positive return'' on the cash being loaned.
But its report said it could take almost a decade after the purchase before the airport would be able to start repaying the money.
The Government has so far committed to provide £25.2 million in loan funding to Glasgow Prestwick Airport, with £9 million of the sum having already been handed over.
Ministers are seeking to return the airport - which had been running at a loss - to profitability before selling it back to the private sector.
Spending watchdog Audit Scotland, which has examined the deal, said: "The Scottish Government is still assessing a number of potential future opportunities for Glasgow Prestwick Airport.
"These will take time to put into effect and it may be some years before it can achieve its aim of selling the airport back to the private sector.''
Its report stated the airport was expected to "start generating positive operating cash flows'' in the financial year 2022-23, and would "then be in a position to start repaying Scottish Government loans and interest''.
The loan funding and associated interest charges could be paid back over the 30-year period, it added.
Audit Scotland said: "The Scottish Government's long-term aim is to sell Glasgow Prestwick Airport back to the private sector once the airport is viable.
"Owing to the uncertainties around the future development opportunities, the Scottish Government has not yet set a timetable for this.
"It is important that its plans for the airport include regular consideration of its ongoing financial viability and a well-defined exit strategy covering a variety of possible scenarios.
"The Scottish Government recognises that the long-term opportunities could take some years to take effect if they are realised.''
The airport, which was established in 1934, had been on the market for 18 months when ministers stepped in and bought it over.
Falling passenger numbers and a decline in freight business meant it had been operating at a loss for a number of years.
By 2012-13 passenger numbers had fallen to 1.1 million, down from a peak of 2.4 million in 2007-08, while the volume of freight business fell by two-thirds over the same period.
Audit Scotland found that the Scottish Government's business case for the purchase "generally'' followed Treasury guidance, but said it should have been clearer in some areas.
The report also said a wider range of options could have been looked at and that while the business case stated buying the airport was in line with the Government's economic strategy, it failed to "elaborate on how purchasing the airport will do this''.
It has recommended ministers "ensure that there is a clear vision and strategy for Glasgow Prestwick Airport, which takes into account the airport's future development potential''.
This should include "robust business and financial plans'', a full evaluation of all potential risks, including the airport's ability to repay its loan funding, and a well-defined and regularly reviewed exit strategy setting out the timescale for selling the airport to the private sector.
Caroline Gardner, Auditor General for Scotland, said: "Our report recognises that the purchase of Glasgow Prestwick Airport was carried out to a tight deadline and in uncommon circumstances.
"The Scottish Government and Glasgow Prestwick Airport should now ensure that a clear strategy is put in place which takes into account future development potential and includes robust business and financial plans, full evaluation of potential risks and a well-defined, regularly reviewed exit strategy.''
Infrastructure Secretary Keith Brown said: "Closure of Prestwick Airport would have been devastating for Ayrshire and the action taken by the Scottish Government has safeguarded 3,200 jobs and secured a vital infrastructure asset that contributes more than £61 million annually to the Scottish economy.
"Audit Scotland's report vindicates the action taken by the Scottish Government - it shows we made the right decision to step in and confirms that we followed the correct purchase process in a tight timescale, identifying and considering the risks before moving forward with the acquisition.
"We have been clear from the outset that our investment is on a commercial basis and will take the form of loan funding. This attracts a market rate of interest in line with state aid rules.
"The report confirms that the Scottish Government is highly likely to generate a return on this investment that is higher than the interest rate that we are currently charging the airport.''
He continued: "We have never shied away from the fact that this is a long-term investment.
"There is no quick fix to turn Prestwick Airport around, but there are real opportunities to improve in all areas of the business.''
Mr Brown said ministers believe Prestwick is in "an excellent position'' to win the "game-changing prize'' of becoming the UK's first spaceport.
He stated: "We are confident there is a place for Glasgow Prestwick Airport in the evolving and increasingly competitive Scottish aviation market, and are committed to making it the success we know it can be.''
Conservative transport spokesman Alex Johnstone called on the Scottish Government to prepare a "detailed plan'' setting out how and when it would return the airport to private ownership.
The Tory MSP said: "It's obvious to all that there is no long-term future in public ownership for Prestwick Airport.
"That's why we need to see a detailed plan from the Scottish Government on exactly how and when it plans to return it to private ownership.
"It's essential this is done at the earliest possible opportunity.
"The airport and all whose jobs depend on it will not benefit from a Scottish Government inflating the number of projected passengers.
"They need realism and a pragmatic approach which can hopefully lead to a bright and profitable future for the airport in private hands.''
Liberal Democrat South of Scotland MSP Jim Hume said the revised business plan showed the airport could require loans totalling almost £40 million.
He said: "The cost of investing in Prestwick Airport to the taxpayer more than doubled but the SNP Government kept that a secret. Meanwhile the forecast annual passenger growth rate has been nearly halved.
"Transparency from ministers over the business case is crucial to provide assurances about the airport's long-term future.
"People will want to know why this long-term cost to the taxpayer of £40 million was covered up.
"We already know SNP ministers took their eye off the ball during their referendum campaign but this important information should have been fully disclosed.
"The future success of Prestwick Airport is important to the local community, the workforce and to taxpayers, which is why the SNP's plan must be correct.
"SNP ministers should heed Audit Scotland's calls and commit to regularly update parliament on this matter to ensure the highest possible level of public accountability.''
A Transport Scotland spokesman said: "The loan funding to Glasgow Prestwick Airport has not doubled, as the Liberal Democrats are suggesting.
"The figures published by the Scottish Government represent confirmed loan facilities made available to Glasgow Prestwick Airport during the previous financial year and the budgetary provision for the current year and the year ahead. No budget has been set by the Scottish Government beyond 2015/16.
"In contrast, the Audit Scotland figures do not reflect the actual and budgetary provision for loan funding, but are a projection of potential loan facilities that may be required in the period to 2021/22 and is, of course, subject to revision as and when commercial activities become realised.
"It would therefore have been inappropriate for ministers to speculate on how much Glasgow Prestwick Airport may or may not need to borrow in future years, given any confirmed facility would need to be based on a robust business case and subject to the availability of the necessary budgetary provision.''