Risks And Rewards

April and May 2020 has seen the release by Luton Borough Council (LBC) of two videos which show the contrasting thought processes behind many of the decisions they take.

In April London Luton Airport Ltd released the latest video of construction of the Direct Air-Rail Transit link (DART) from Luton Airport Parkway Station to the central terminal area at the airport.     Whilst it is an impressive project, it is a very expensive one. At time of inception the building costs were £225 million. Only the first £100 million had been secured at start, and as far as we know the second £125 is still outstanding? The whole project is being funded by London Luton Airport Ltd with loans from LBC who themselves had to borrow the money.

LBC base their decisions on a document called Strategy for the Effective Management of Risks and Opportunities, compiled by their Corporate Finance Department.

There are eight steps in the thought processes in that document:-

  1. What are the objectives?
  2. What could get in the way of the path to success?
  3. What assets and resources are key to delivery?
  4. How likely and what impact would this have?
  5. Can I live with this risk?
  6. If not, what needs to be done?
  7. How will I know that the risk has been reduced?
  8. Is there anything else that could happen?              

Looking at those eight steps, can any logical path be drawn that would show LBC that the DART was the sort of project to be undertaken with the council as sole financier, and not risk-shared with as many other investors as possible, (or at the very least with the airport operator and the main train service providers), or admitting that without any risk-sharing not undertaken at all?                            

In May we’ve had webinar video posts from the Leader, CEO and Portfolio Holder for Finance of LBC detailing the severe financial circumstances they find themselves in due to Coronavirus decimating passenger throughput at our airport. They need to find £22 million in cuts for financial year 2020/21 across all budgets and another £28 million for the financial year 2021/22.      

We find the posting of the first video extremely inappropriate when taken into context with the second. One trumpeting a project that will have little or no direct benefit for those who are paying for it, when looking at its end use and that will in all probability now over run on costs. The other telling hardworking residents that service will have to be hard pruned to fund the shortfall in predicted airport income.

It’s against this background that LBC are pursuing a Direct Consent Order from Central Government to build a second terminal building and parking stands, and increase passengers to 32 million.     

If the current sized airport cannot provide the financial reserves it’s meant to, (because the money is  being spent on its own expansion projects and interest payments), what faith do we have in LBC that whatever size the airport is in the future, the revenues from it will actually find their way into the town’s services and not just be wasted away again into the airport?

The risks are all felt by the residents of Luton, the owners of the airport, but the rewards are all for the airport operator and the travelling public.

Stop town service revenue being wasted – Stop Luton Airport Expansion                                  

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