More questions than answers?

Below is a link to the Luton Borough Council (LBC) website, which explains why the Council is considering borrowing an initial £60 million for its airport company, London Luton Airport Ltd (LLAL).  This loan is needed to stabilise LLAL against the loss of airport income due Covid-19: https://m.luton.gov.uk/Page/Show/news/Pages/London-Luton-Airport-Ltd-loan-proposal.aspx?redirectToMobile=True

We have read the reasoning of LBC many times, but as with other policy decisions on LLAL and its projects, this webpage raises more questions than answers.

If the loan is approved, how much money would LLAL provide for the council next year?

LBC: Including the interest it needs to pay, LLAL would be able to provide £32m back to the council to support vital frontline services.

SLAE: Surely it would be better for LBC finances – rather than settle for £32 million – to not take out the loan and absorb the whole £60 million plus interest that would actually need to be paid back on the loan?

Instead of lending money to LLAL, why can’t the council borrow money to help protect services?

LBC: Government rules state that councils cannot use borrowing to fund services.

SLAE: Isn’t that exactly what LBC are doing?

LBC: LLAL requires a loan to ensure it can in the short-term continue to provide vital funding to the town while the aviation sector recovers.

SLAE: So LBC are borrowing this money, to give to itself as LLAL, so that company can then give it back to LBC for funding?

Confused, as we are?

How can you be sure LLAL will be able to pay back the loan?

LBC: The fall in passenger numbers is an immediate but temporary response to the travel restrictions imposed through Covid-19. National forecasts indicate 3-4 years for passenger numbers to be restored. During this period LLAL will make interest payments on the loan and will pay back the full amount at the end of the loan period.

Is the loan secured?

LBC: Yes, it is the intention that once the loan has been arranged it will be secured through a charge that becomes a fixed charge on LLAL’s capital assets. LLAL owns London Luton Airport, land around the airport including the business park, Century Park, Stirling Place and the Luton DART. The value of these assets exceeds LLAL’s borrowing.

SLAE: So the loan will be secured against assets which LBC already own, as LLAL is a wholly owned company of LBC. All these assets are solely airport centred, and are all only viable on airport expansion. Another very expensive quest of LBC, which the reasoning behind all no longer exist

Heathrow and Gatwick are no longer full. Heathrow has no plans to build its third runway for many years. Public demand for flying is no longer on the stellar upwards curve and will not recover for, experts predict, three-five years, if at all.  An asset is only worth its market value at a specific point in time, and at this point in time are aviation-based assets worth the sum of all LLAL debts?

Why is such an important debate being held in private?

LBC: We are committed to being as open and transparent as possible about the issues that impact on the town and its residents. That is one of the reasons we are providing this question and answer document. 

While we understand many people may prefer that the whole discussion is held in public, there are a number of commercially-sensitive details which, if widely known, could seriously harm not only LLAL as a business but also the benefits it is able to provide for the people of the town. The London area airport industry is the most competitive in the world and Luton competes against both Stanstead and Gatwick for passengers. Despite this, Luton has the highest growth rate of any of the major London airports over the last six years and the returns that the council has received have grown from £7m in 2013 to £27m last year.

SLAE: LBC say that the loan is needed so that LLAL can meet its funding need for residents’ services. The above statement then clearly states that the money is to be used for commercially-sensitive purposes. This can only mean the lowering of operating costs of airlines so they stay at Luton.         

What is the loan exactly for then, to provide for services or to provide for airline discounts?       

Why is LLAL funding airline costs, when that is the job of its airport operating concessionaire.  It does deals not LLAL? 

We have previously mentioned that a throughput of 20 million passengers will be required to pay off just this base £60 million at the previous Concession Fee of £2.97/passenger. If this money is now being use to cut airline fees, that figure will obviously grow larger as more will be needed to return less income?

How logically can that be seen as a good business plan?

These questions are just the tip of what we have gleaned from LBC’s press release. Read the release (on the webpage) for yourself, and see what you think?

Stop Luton Airport Expansion

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