Protecting Aurigny may be more costly than its worth, by Nick Mann
Wednesday 16th October 2013, 5:00PM BST.
WHEN the States decided to purchase Aurigny to protect lifeline air links to Gatwick it did so with a hollow promise underlying the debate.
It was a touch over 10 years ago when members overwhelmingly voted to buy the airline with a long-forgotten expectation in some quarters that it would return a profit.
All talk now is of the wider strategic economic and social importance of the airline.
This is probably just as well because the financial argument is much more difficult to stack up.
It is expected to make a £3.5m. loss this year, following a £3m. loss in 2012. In 2011 it was down £725,000; in 2010 it was £2m.
But that is only part of the picture.
The States, so proudly averse to borrowing itself, is happy to let the group it owns do so – but the liability remains with the taxpayer as the Treasury and Resources acts as guarantor.
The group is now expected to borrow from the States reserves after near exhausting the loan facility that all taxpayers underwrite.
Cabernet Ltd [the holding company of Aurigny and Anglo-Normandy Engineering] has a facility of up to £10m. with the Royal Bank of Scotland International: as at 31 August, £9.1m. was drawn down – up £3m. from the year before.
Then there are the loans to buy aircraft.
There remains £14.1m. outstanding on a loan for the two ATRs – and earlier this year the States decided to sanction further borrowing for the jet. The exact cost of that is not clear, but the Budget states the total investment is £23m.
When you stack up all those liabilities it becomes clear why Treasury is rushing through an emergency move in the October States to all but give the airline a monopoly on the Gatwick route.
So entangled in Aurigny is the States, and especially given the decision to buy the jet, that it is hard to see it doing anything but take a protectionist stance with easyJet eyeing up competing on the route.
But it leaves the overwhelming impression this is being dealt with in a piecemeal, reactionary, and, at times, confusing fashion.
It is all crying out for clarity on what Treasury’s objectives now are for the airline, how success and value for money will be measured and crucially for the public how they will be guaranteed the best prices.
But it will not be until next year that the States debates T&R’s plans for pumping further millions of taxpayers’ money into recapitalising the airline.
Only then will it answer those questions fully, outlining the long-term financial, strategic and operating arrangements for the airline and the objectives for it.
So in some ways the October debate, on whether to amend the criteria that airlines applications to run on Gatwick are judged against, is being done in an information vacuum.
For many people competition is needed to guarantee the best prices and best choice for passengers.
EasyJet, if it indeed it is serious about a commitment to the island and not just using the route to keep the Gatwick slots active until something better comes along, does just that and with the convenience of linking up to its wider network.
When Flybe was competing on the Gatwick route it seemed to offer a balance that kept Aurigny on its toes and kept prices under control.
History shows that airlines come and go at will – doom mongers tend to concentrate on the go side – which creates uncertainty.
But no one is now seriously talking about selling Aurigny, certainly there’s no political will to do so, meaning that constant would remain, the question is of protection.
If the States was to protect Aurigny and Gatwick, what model is it proposing to put in place to stop the operation becoming bloated and the prices to passengers unreasonably inflated?
Are we to trust the T&R board to act as regulator here? Remember how we are always told that politicians are not experts and rely on the information provided to them.
Although there is some background in the airline industry now, that is not guaranteed into the future with each election.
Does the board retain a light touch approach and trust all in the Aurigny management?
Or does, whisper it carefully, the competition and regulatory authority get involved?
If it does, what is the price tag of that compared to allowing competition – indeed, does anyone know?
Somewhere in the near future there will be more millions needed to fund the replacement of the Trislander fleet too.
There is also a question of reputation here.
EasyJet’s original application, announced at the beginning of October but held up in ‘correspondence’ with one arm of the States, has now been delayed to such an extent it will be judged against the new rules – so what message is that sending out to airlines that may want to come to Guernsey? And what, if any, recourse will easyJet have against the States for changing the rules midway through the process?
Is there a clear, strategic direction?
Public Services is trying to maximise income at the airport, one element of this is landing fees which means as many operators on as many routes as possible.
Treasury’s move will make that task harder.
In October, members will have to make a judgement on how far are they willing to go along the protectionalist route and a guess at how much they are willing to spend.