These long-awaited accounts were finally lodged with Companies House this month, June 2022.
These accounts cover the first full year of COVID-19 and the handbrake stop that it put on the world and on aviation in particular. We expected this document to not be an enjoyable read, because of the effects on jobs at the airport, and the income stream to the residents of Luton which is essential to Luton Borough Council (LBC). Sadly, we were not proven wrong, but astounded by the level of mess we did find.
These full accounts, and previous submissions, can be found here:-
https://find-and-update.company-information.service.gov.uk/company/02020381/filing-history
We would like to focus on three points within these accounts which we feel give conclusive evidence as to why the insane rush to airport expansion by LBC/LR should be stopped immediately.
First, we would like to focus on the valuation of the airport. This point has long been an issue of contention between LR and its auditors, PricewaterhouseCoopers (PwC).
In March 2019, the accounts gave a value for the airport site of £560 million (note 13 page 22). In the accounts for 2019/20, the value was given as £530.5 million (note 13 page 27).
In the 2020-21 accounts, (note 13 page 36), we find the valuation of the airport has been “restated” from 2019 onwards and is now worth a staggering £1,488 million!
Page 2 details this new valuation of the airport, undertaken on behalf of LR by Deloitte LLP (Real Estate) valuation advisors. This valuation was based on key financial and operational assumptions and inputs provided by LR.
We have trawled the financial records of LR (those that are publicly available, of course, and not buried in the dungeon marked “commercially sensitive”). This latter action naturally avoids public scrutiny and Freedom of Information requests. Like the auditors, we cannot find any valid reason for a 180% increase in value for the airport site. The size of the airport footprint and the capacity cap for passenger throughput has not increased. Therefore, it would be publicly helpful if LR/LBC could explain where has that added value come from?
If you factor in the spectre of the debts that LR has, and is still accruing, the penny drops.
The difference is the amount of debts that LR will have by the middle of this decade. LR/LBC is desperately trying to perpetuate the myth that LR is still a viable concern, using any means they can. This outlook has finally broken the resolve of PwC, as page 12 details how they will be resigning from their role. PwC have been the LLAL/LR auditors since the mid 1990s yet would appear to only have had problems in recent years regarding the airport’s value, as those debts have gone stratospheric. We suggest a visit to Mr Google to see why auditors might take this step, and you will not be surprised to see the main reasons why.
The second point we would like to draw attention to, are the Special Force Majeure (SFM) provisions mentioned on Page 2.
Force majeure payments are set into contracts for acts outside the control of the signatories.
Normally discussions would take place to see how the extra costs would be accommodated for the benefit of all concerned. As we have previously reported, in the case of LR and the airport operator, London Luton Airport Ltd (LLAOL), a legal battle ensued until November 2021 which LR lost. This brings up a point of contention which would appear to have been missed in this long expensive legal bunfest.
LLAOL claimed SFM costs as COVID-19 was an event outside their control, but it was also an event outside LR/LBC’s control too? LR has indeed made some spectacularly poor decisions in recent years, but a Global Pandemic can’t be laid at their door. So, what gave LLAOL the call on all the costs? Tossing a coin? Rock Paper Scissors? Or the simple fact that they were brighter than LR, so stitched them up like a kipper?
LLAOL will receive a £45 million settlement spread over three years from 2021/22. This equates, on the pre COVID Concession income, to a cumulative total of 15 million passengers’ loss of income to LR/LBC.
LLAOL have also entwined LR into something called a Passenger Access Mechanism (PAM), which will run until March 2026. This system runs on a target passenger number for each year, against the actual passenger throughput. If the target is not reached, LR pays LLAOL a set fee for each per passenger, with LLAOL paying LR the same fee if the target is exceeded. Sounds simple enough, until you ask the question, who sets the target?
Did/do LLAOL and LR, or more likely the very expensive consultants of LR, take the same raw data on schedules and seating capacity, and produce figures which they then work on jointly to achieve the “trigger” figure? Or do LLAOL keep all the data and LR just go along for the ride, and end up paying through the nose again, or being grateful for a few crumbs from the Masters’ Table?
Why does this arrangement run until 2026, when both operator and owner have regularly trumpeted in the media of a return to pre COVID figures by 2023-24? Recent correspondence between us and LBC on another issue brokered a reply from the Chief Executive, which states that LBC get more out of the relationship than the airport operator. Though once again, no data to prove this point was provided.
Really?? These accounts show that LLAOL have won every deal since 2020 hands down!
The third and final point we would like to raise, once again refers to our Old Friend, the DART.
As we have shown in previous articles, this is the gleaming answer to the huge carbon footprint of passenger surface access. It will be a “game changer” in getting those passengers out of cars. Which will of course only happen if it is cost effective and convenient for those passengers to use it.
During 2020/21, LR has undertaken an “impairment assessment” on the project. Mr Google describes this as: – “Impairment- if the carrying amount is more than the recoverable amount, the item becomes an “impaired asset”. The drop in value is sudden, unexpected and drastic. In plain English, an asset is impaired if it would sell for less than its recorded value.”
DART at its inception was costed at £225 million. Note 4 on page 30, details the costs of the project, in March 2021 of £261.7 million. The same note then reveals the astonishing revelation that the impairment figure is a jaw-dropping £184.7 million. The money to balance that figure will have to be found from somewhere, no doubt from Luton resident services and LBC staff conditions and jobs yet again.
Based on a useful economic life of the project of just 40 years, LR estimate that they will only recover £77 million, just 29% of the current quoted construction costs. The DART at inception had such a gilt-edged business case, that it was a no brainer not to build it. We have a copy of the Business Case, but cannot share with you those pearls of wisdom, as 90% of the document is redacted.
So that leaves us pondering those three points mentioned above, and asking the question, why has DART had a sudden/unexpected/drastic drop in value?
The answer for all three we feel is the same as before a shovel even broke first ground. LR believed the hype and bluster from those who first thought of DART, and then abandoned it as they knew it would never recover costs. Ego, hubris and plain old recklessness with other people’s money, something LLAL/LR have been exceptionally good at since 2015, have led to what will be the biggest White Elephant since……sorry, we can’t think of another one apart from the chap who invented a submarine with opening windows so you could get a better view!
We have just shared with you the three points we feel should once again stop all LR expansion plans stone dead now.
Once again however, we won’t be holding our breath.