Adding value – Luton Borough Council style

On the 27th January 2022, Luton Borough Council (LBC) held meetings for Finance Review Group and the Audit and Governance Committee :

The Finance meeting started with a report from LBC’s external auditors, Ernst & Young, on the 2018/19 LBC accounts. Their main points of concern are still on critical judgements and fundamental assumptions in those accounts on the level of borrowing made to Luton Rising, for its DART, Development Consent Order and Century Park projects.  After the Auditors’ Reports and questions from the Committee, the LBC Chief Executive Mr Porter, 26 minutes in, asks to make a point of clarity on the valuation of the airport referenced by the auditors.  He made the point for the benefit of Committee members but also for the public watching the meeting.  He wished to report that the valuation of the airport was in fact a substantial increase, rather than a gloomier outlook.

Let us look at just what has happened since March 2019 in airport terms, to see how that substantial increase has come about. 

  • Passenger throughput for calendar year 2019 was 18.2 million, for 2020 5.5 million and 2021 4.6 million.
  • Luton Rising (LR) has been hit by Force Majeure costs by the company operating the concession agreement (LLAOL), to such an extent that it has stopped dividend payments to LBC, until 2027/28 based on current forecasts.  Also it needs to withhold what income it does have, to cover its debt repayments to LBC, and stay solvent as a going concern.
  • LR will also pay LLAOL £45 million over a 3-year period, to pay towards keeping staff employed at the airport.
  • LR has spent more money reinventing itself from its previous name, London Luton Airport Ltd, to showcase its new credentials as a considerate Airport Developer, and to demonstrate how it is all about community and the environment being safeguarded – as it doubles the size of the airport, and as it chases its Development Consent Order.
  • LR has borrowed millions of pounds to buy farmland and industrial units, all crucial to airport expansion and supposedly delivering well paid jobs in Luton.
  • LR has continued to spend to deliver the DART rail link, which is now a year overdue for entry into service.

Our heads are well and truly scratched as to how these events have added substantial value to the airport in the current financial climates?

Passenger numbers are LR’s main source of income, and these have plummeted – yet value has been added?

  • LR has been giving away money to the vastly wealthier airport operator, yet value has been added?
  • LR has merrily spent money reinventing itself, and its expansion plans, yet value has been added?
  • LR has continued to spend on DART, which will bring no extra passengers through the airport terminal, and therefore no income to itself, yet value has been added? 

We went over and over these facts again and again, and then a shaft of light broke through the pollution fog.

The added value is of course those very debts. By adding these projects to the balance sheet, they give the impression of a thriving airport, and Council airport company.

We are sure in financial terms this makes complete sense, but in the real world they crumble as they always have on one unavoidable point.

What happens when, in 2032, LBC/LR cannot find a new concessionaire barmy enough to take on and pay these debts, guarantee a fixed yearly passenger concession fee regardless of passenger numbers, and fund the airport expansion to 32 million passengers per annum?

We have been told by LR officers that there was a queue in 2019 to take on their terms, but we are no longer on 2019 terms.  The 2019 “full house” situation at Luton Airport was built on financial inducements to airlines. Aviation fuel was cheap and low-cost airlines, which Luton operations are solely based on, could charge ridiculously low fares for a seat.

This was in a world where eyes had not been truly open to the carnage that climate change and global warming was unleashing on our planet.   

This was in a world where in Europe, warfare and economic hardships were not a clear and present danger.

So has REAL value been added to the airport when there is nothing that has been added which will do that?

Or has supposed value been added to the books of Luton Rising, to try and hide the debt-laden figures, which reveal just what a busted flush LR actually is, and how in the modern age, Luton Airport is not the gilt-edged investment opportunity they think it is? 

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