Official Report 573KB pdf
Under item 3, the committee will now take evidence on Glasgow Prestwick airport from Keith Brown, the Cabinet Secretary for Infrastructure, Investment and Cities, who remains with us from the previous item. With us from Transport Scotland we have Mike Baxter, director of finance and analytical services; and John Nicholls, director of aviation, maritime, freight and canals.
I invite the cabinet secretary to make a brief opening statement.
I welcome the opportunity to update the committee on recent progress at Glasgow Prestwick airport. The committee last received an update on 12 November 2014. Since then, a number of changes have been made to create the right structure to take the business forward so that it can be returned to the private sector.
Members might recall that in November 2014 we appointed Andrew Miller, formerly of Air New Zealand, as non-executive chairman of both the holding company for Prestwick and the operational company. More recently—in the past two or three weeks—we have appointed four non-executive directors to help take the business forward. Those non-executive directors were selected because each had particular skills and a track record in the key areas that were identified by ourselves and others to help take Prestwick forward, including communications, property, engineering and marketing.
On the passenger side of the business, members are aware that Ryanair has increased its overall presence in Scotland, operating out of three airports rather than two. However, although that is good for Scotland as a whole, it has meant a reduction in the number of Ryanair passengers travelling through Glasgow Prestwick. Projected passenger numbers for 2015-16 are 782,500, compared with 1,058,000 last year. The team at the airport is working hard to secure growth in passenger numbers with other airlines, both scheduled and charter.
On the cargo side, projected tonnage for 2015 is 11,678, which represents a 3.4 per cent increase on last year.
I know that the committee is interested in financial support; £6.3 million was loaned in 2014-15. That loan was less than we originally earmarked because the company achieved additional income from wind farm mitigation, the Bristow Helicopters lease and a slower development of some capital expenditure. Some £10 million of loan funding has been allocated in the current year, of which £2 million has been drawn down so far.
We have always been clear that Glasgow Prestwick is not a typical airport, and it will rely on the development of a wide range of business opportunities to make it successful. Since the last update, progress has been made in some of those areas. The Deputy First Minister has always said that this is a process that will take some time.
The Prestwick board decided to establish its own fixed-base operation to handle business jets, military aircraft and the like, a decision that is seen as being better commercially for Prestwick. That was a significant change, as the service was already being carried out by two companies and it was necessary to end their leases at Prestwick. Since the change, Prestwick has seen a significant improvement in both aircraft movements and revenues, which are up 74 per cent on last year.
The airport has also attracted other new business from Bristow Helicopters, which has constructed a new hangar for its search and rescue operations, and the Trump Organization, which has based aircraft at Prestwick.
Finally, members will be aware that Prestwick is on the short list to become the United Kingdom’s first spaceport. Indeed, John Scott secured a debate in the chamber in which he and others highlighted the potential that Prestwick has in that regard. The airport has put in place a bid team that is headed up Stuart McIntyre, whom I have met and discussed the issue with and who strikes me as being very impressive. That team is working closely with South Ayrshire Council, the aerospace business around the airport and the space industry worldwide to put the airport in a good position to develop a robust and compelling bid.
Members will be aware that the owners of Campbeltown airfield are considering a bid, too. While it remains the case that more than one Scottish side is in the running, the Scottish Government will be neutral. However, as I said in the debate, I think that Prestwick is in a strong position, particularly given the amount of effort, care and thought that it is putting into the process.
We remain of the view that it will take time to turn the business around, given the trajectory that it was on before we took it over, but we believe that that can be done and that Prestwick and the business around it can thrive.
Mary Fee will kick off the questions.
I want to explore the issue of loan funding. You mentioned that in your opening remarks, but could you give us a figure of projected loan requirements for the airport?
We have put in place facilities for a certain amount of loan, but how much is drawn down and when has been up to the discretion of the business.
We previously announced that £25 million in loan funding was available. Any loan must be repaid, and we require to make a return on the investment. Some £4.5 million was loaned in 2013-14, the first year of the Government’s ownership, and £6.3 million was loaned in 2014-15, which, as I said, was less than the £10 million that had been earmarked. That underlines my point that, although we can put in place the facilities and go through a process of diligence before we do that, how much of that is drawn down and when is up to the company.
As I said, last year, the airport drew in additional revenue through commercial activity, and the £3.7 million remaining has been carried forward, meaning that the 2015-16 provision will be £10 million plus that £3.7 million. As I said, around £2 million of that has been drawn down so far. We have made no commitments beyond this year, but we will be keeping the situation under review. I would be happy to update the committee as and when we reach conclusions about what further loan funding might be made available.
Is the £25 million that you mentioned the maximum amount of loan funding that the Government is prepared to commit to Prestwick airport?
No. We have based our judgment on what we think is necessary and what we have discussed with the airport. If we were to go any further than that, it would be on the basis that the money would be repaid, and that would involve a calculation that the airport had a future trajectory that would allow it to repay that money. That is the basis on which current loans have been made and it will be the basis on which any further loan funding would be made.
If you go to the airport, you will see the improvements that the loan funding that we have made available already has achieved. The rate of further improvement will depend on the airport’s decisions and any future funding will depend on discussion between the airport and the Government.
Audit Scotland recently estimated that loan funding of £39.6 million would need to be made available to Prestwick up to 2021-22. Do you disagree with that figure?
I am not sure that that is exactly what Audit Scotland said. Mike Baxter might want to comment.
I am happy to comment. Audit Scotland projected £39.6 million. The cabinet secretary is making the point that we will need to continue to monitor the position because the profile of that drawdown is up to 2021. As the situation develops in the intervening period, we will keep it under review.
It is also important to say that we are not simply reviewing a one-year position. We are continually reviewing the long-term business plan with the airport and we have a presence on the airport’s board.
Audit Scotland did its own calculation of what would be necessary, and it made a comment about passenger numbers, which we might come to. However, other things are at play here. For example, air passenger duty could change the revenue and passenger numbers. We are happy to work in the staged way that we are working just now.
I will ask about passenger numbers. The situation is very challenging for Prestwick airport. It is good news for Ryanair that it is expanding into other airports, but that has a significant impact on Prestwick. Passenger numbers have dropped by around 360,000. What discussions have you had or will you have with Ryanair to look to build passenger numbers at Prestwick?
Such discussions would have to be between the airport and Ryanair, and they have been taking place before, after and during the decisions that Ryanair has taken. Ryanair has said that it remains committed to Prestwick and the substantial operations, aside from passenger traffic, that it has at Prestwick. I am sure that you are aware that Ryanair is also changing its business model, so there will be new opportunities there. The airport’s management has been assiduous in looking for new passenger business and I hope that it will be able to make positive progress on that. It has to have commercially sensitive discussions with Ryanair and other potential users of their service.
The other point, which I know has been made previously, is that there are a number of facets to Prestwick. It is quite an unusual airport in the sense that it has fixed-based operations and maintenance and so on. It also moves freight that is of a different character from that going through other airports.
The answer to your question is that the discussions will be between Ryanair and the airport.
Freight at Prestwick decreased, but it has started to pick up slightly. Between 2003 and 2013, freight tonnage fell from 40,000 to 10,000 tonnes but I note that you said in your opening remarks that it has started to pick up. How significant to the future of Prestwick is freight?
You are, quite rightly, asking me and I have to give my impression of that, having discussed it with the board. It could be of substantial significance because Prestwick has a good and growing reputation in the industry for the efficient way in which it turns freight around. There are some other challenges because of some of the flights that have come in and the tendency these days to put freight into the bellies of aircraft that carry passengers. You are right to say that there has been an increase—a 3.4 per cent increase between 2014 and 2015—and it is getting towards 12,000 tonnes.
I have had a bit of a discussion with the board and one of the things that came up is that it wants to increase its intelligence about the opportunities for new freight. The information that the airport gets can be a bit ad hoc. For example, truck drivers in the area will tell it about freight that they are carrying. The airport will want to improve its intelligence on the opportunities. However, the reputation that it already has both domestically and, increasingly, with the military presents an opportunity for it. Perhaps we are seeing that in the 3.4 per cent increase that it has had.
10:45
The cabinet secretary will know that the committee recently finished an inquiry into freight transport, and air freight is one of the things that we looked at. It may be that Prestwick will benefit in some way from that work and the recommendations in our report.
I hope, although I do not know whether it is the case, that the airport’s board and senior officers have had a look at that. If not, we will certainly make sure that they get a copy of the committee’s recommendations.
Thank you. I add that the report is still in draft.
My final question is about the railway station. Last time we had an update on Prestwick, in November 2014, we were told that
“The railway station is an important part of the picture, as it is one of the big selling points for the airport”
but that
“It needs substantial capital investment.”—[Official Report, Infrastructure and Capital Investment Committee, 12 November 2014; c 51.]
Has any capital investment been earmarked for the railway station? If not, why not?
Again, that has to be a decision for the airport. You are right to say that the station needs investment. Anybody who goes past it can see that it needs at least refurbishment. It is unique in that the ownership falls to the airport.
I have made sure that the airport is well aware of the different funds that are available from the rail franchise. We have the £30 million stations improvement fund. However, it would have to make a case for that. It is right that the airport looks at what its capital investment priorities are. It might not be able to do everything that it wants to do at once. If it wants to apply to the stations fund, it can do so, but it has to take the decision based on its capital investment priorities. The airport might have seen the work that has been done on the reception areas and the retail opportunities as bigger priorities at that stage.
I have mentioned the loan funding that we have made available and there are other possible sources of finance, but the airport has to make the decision.
Thank you.
I have just one question, which is about the four non-executive directors who you mentioned have just been put in place. Are they the final senior appointments to be made? If so, are you satisfied that suitable governance arrangements are now in place to return the airport to profitability?
The answer is yes to each of those questions. That series of appointments completes the board structure for the airport. I spoke to each of the appointees before I agreed to their appointments and I think that they have a breadth of experience, particularly in relation to marketing, which is important for the airport, but also in relation to governance. I am very hopeful that that breadth of experience will help the airport to move on to the next stage of its development.
One of the directors has tremendous experience of ports in the south of England moving from being a public authority back into the private sector. Having spoken to each of the non-executive directors, I think that they have a breadth of experience. Obviously, vacancies can arise, but those appointments complete the board appointments at this stage.
We will watch with interest. Thank you.
I want to address some of the issues that were raised in the Audit Scotland report. It said that the purchase business plan identified average annual growth in passenger numbers of the order of 10 per cent in each of the first five years, but passenger numbers have fallen and they continue to fall. Have your officials assessed why the predictions at the beginning of the process were so inaccurate and how that might affect future plans?
I do not accept that they were inaccurate. They were certainly different from and in general much larger than the UK Government’s 1 to 3 per cent forecast, but they were consistent with other forecasts on a wider basis. The Audit Scotland report also said that, even at that lower level, the business case had been made for a positive decision to take ownership of the airport.
The figure that we provided was determined by our expert advisers at the time of the purchase, as noted in the report. It was growth of 10.2 per cent in each of the first five years. It was later revised. Of course, we did not pick and choose the timing of taking over the airport. That was presented to us by market conditions, and these things were done in less than ideal timescales. I think that that has been acknowledged.
The senior adviser whom we appointed reduced that figure to 6.5 per cent when he put together the stage 2 business plan. I know that the committee drew comparisons between those figures and the Department for Transport’s aviation forecast for the whole of the UK. However, as I mentioned, one factor that that did not take into account was the impact of APD. As you will know, the Government’s commitment is to reduce the impact of APD by 50 per cent in the next session of Parliament, with a view to eliminating it altogether when public finances allow. Ryanair and many others have pointed to the substantial growth that could be engendered if we are able to do that, because there is an inhibiting effect just now given that we have the highest level of APD in the world.
I do not accept that those figures were unrealistic. The forecasts were based on the information that was available at that time. It is worth making a comparison with the DFT passenger forecasts, which have as their primary purpose the need to inform long-term strategic aviation policy. The DFT’s guidance states that making any prediction about the future is inherently uncertain, which is especially true in aviation.
The report places more weight on the role of those forecasts in informing long-term strategic policy than in providing detailed forecasts. Specifically on Prestwick, the DFT reported potential growth to 1.8 million passengers in 2020 and 2.6 million passengers by 2050 from a 2011 baseline of 1.3 million.
You asked about our assessment. Our projection of passenger numbers was reasonable at the time, and was based on the best information available. Our forecasts of growth in passenger numbers were lower than those of many passenger aircraft manufacturers, including Boeing and Airbus, but higher—as I have said—than the DFT’s projections.
When Audit Scotland recalculated the financial return using that less optimistic prediction, the model still showed a positive return being achieved. We still consult on forecasts—we are talking to the airport management, and I have mentioned its efforts to increase passenger numbers. We have seen the effect of Ryanair’s decisions to disperse its business across three airports in Scotland rather than two. We continue to look at those matters.
The Audit Scotland recommended that the Scottish Government should develop an exit strategy that identified a timescale for privatising the airport. Has any action being taken to prepare such a strategy?
We said from the very start when we took ownership of the airport that our intention was to return it to the private sector at the most opportune and earliest time. However, we believe that there are too many variables—some of which I have just mentioned—for it to make sense for us to be specific about a date.
I mentioned APD. If the situation with APD were to change quite dramatically, an improvement in the fortunes of the airport could be achieved much more quickly. That is just one variable.
Others have mentioned the spaceport. If the spaceport bid proved to be successful, that could have a transformative effect on the airport. Given those variables, we do not think that it is sensible to put a specific date just now on returning the airport to the private sector.
You have mentioned—
Mike MacKenzie has a supplementary.
I wondered whether it might be worth while for the cabinet secretary to remind us what the consequences would have been if the Scottish Government had not taken Prestwick into public ownership.
It is worth saying, looking at the number of people who are directly employed and the number of those who are indirectly employed, that that would have had a massive effect on both the local Ayrshire economy and the Scottish economy. There was nobody dissenting from the point of view that we should take over the airport. It was not something that we wanted to do—we own a number of airports, but they are small airports that are vital to local communities. We did not want to be in the business of taking over an airport, but more than 3,000 direct and indirect jobs were put in jeopardy by the airport’s potential closure. That is a massive number, and trying to replace those jobs in a place such as Ayrshire would have been extremely difficult.
It is quite easy subsequently to look back and say, “Well, maybe you should just have let it go,” but in areas that have suffered massive job losses in the past it has been extremely difficult to get a critical mass of jobs back. I think that taking over Prestwick was the right decision. Had it not been taken over, those jobs would have gone, and those people, to the extent that they might not have been able find new employment, would have been paid substantial moneys from public funds in unemployment benefit, with all the other issues that that brings.
The minister has mentioned on more than one occasion the opportunities for the reduction or ultimate removal of air passenger duty. I have asked this question before, and I will ask it again. How can the reduction of APD be a positive for Prestwick when the airport is in competition with Glasgow and other airports? Is it not simply the case that a reduction in APD will boost air travel generally but have no specific benefit for Prestwick airport?
Ryanair has been very specific in its calculation—I cannot bring it to mind just now; perhaps one of the officials will know—of what a reduction in APD would mean for Prestwick specifically.
You are right that there is a general benefit—for example, the York Aviation study showed huge benefits. Aside from those calculations—I am sure that we can get the details to give to Alex Johnstone—we know anecdotally that countries such as Mexico are taking plane-loads of passengers to Paris, Milan or Rome rather than London, not to mention Glasgow and Edinburgh. That is 300 people each time coming on a plane to discover a new country, but they are going elsewhere because of additional costs not only for visas, as has been mentioned, but for APD, which puts us at a competitive disadvantage.
Some people are leaving Scotland to go to Dublin if they want to fly to Dubai so that they can avoid the long-haul passenger duty. There is no question but that a reduction in APD would benefit Prestwick, but you are right to say that there is also a general benefit.
We have some figures from Ryanair and others that mention the specific benefits for Prestwick. I will undertake to provide Alex Johnstone with any specific information that we have on that.
I welcome John Scott to the meeting. He has a constituency interest and wants to ask a quick supplementary question.
It is more a point of information, convener. I believe that Ryanair said that it would put 1 million new passengers through Prestwick if there was a reduction in APD. That was the figure as I recall it; the cabinet secretary’s officials will probably know the exact figure. I would fully support a reduction in APD.
The figure of 1 million relates to Scotland as a whole, but it would include a proportion of passengers at Prestwick. As the cabinet secretary said, we will double check exactly what Ryanair has said and will report back to the committee.
We will also do some work to help out Alex Johnstone on what the general uplift that we think we would see would mean for Prestwick specifically. There is no question but that a reduction in APD would be transformative for Prestwick.
David Stewart has a quick supplementary question.
I take the cabinet secretary’s point about the impact of reduced APD in stimulating passenger trade in Scotland. The other factor involves looking at route development funding. You kindly offered me a meeting on that issue, cabinet secretary, and I will take up that offer once I have received some European advice. You will recall that the Government withdrew that funding, which was brought in by the Labour-Liberal Democrat Administration in session 2 of the Parliament. I think that the problem was compliance with EU rules.
As you know, I have looked into the matter. At present, the de minimis level is less than 1 million passengers—in other words, the rule does not really apply to airports with passenger numbers lower than that. I note from the figures in our briefing that the Ryanair figure is currently 500,000 passengers.
I will pursue a meeting with you, cabinet secretary. I know that you cannot magic up a new policy overnight, but the air route development fund helped to develop more than 48 routes when it was brought in by Labour and the Lib Dems. It is clear that a reduction in APD—along with a better marketing strategy, which the Government could help with—would stimulate trade at Prestwick. Will you look at that in the longer term?
As you know, the UK Government brought in the connectivity fund, for which the de minimis level is 5 million passengers, which is 10 times as many as Prestwick currently has. I am not convinced that Europe is the problem. We need to look for other sources of funding that can help to stimulate smaller airports—I appreciate that we are not talking about the Glasgows and Edinburghs.
The advice that we got on the route development fund was clear: it would have fallen foul of European law. I think that that may have happened before 2007—I could be wrong, so I will check that fact. There is no reason why, if we had been allowed to continue to operate the fund, we would not have done so. That would have required a budget commitment, but there is no reason why we would not have done that.
We help our airports and—to return to an earlier question—we are doing that at Prestwick. Prestwick airport will have discussions with airlines that it wants to attract but, as happened at Glasgow, Aberdeen and Edinburgh airports, that often involves discussions about what support the Government can provide. That support is still available.
I will get back to you on your point about numbers and the de minimis level. There is a way to do this. We are keen to increase the range of long-haul direct flights because they prevent more environmentally damaging shorter flights and are better for customers. I am off on holiday soon, and I will have to go to Gatwick to fly to where I am going. If we can cut out those damaging journeys between airports, that will also be better for people.
We support the measure, and there has recently been tremendous growth at Edinburgh, Aberdeen and Glasgow airports. We have been involved in many of those things—support for the industry has not stopped.
11:00
The UK regional air connectivity fund operates for airports with up to 5 million passengers. I am no European lawyer, but how has the UK Government managed to get the scheme to operate for Scottish airports that have bigger turnovers than Prestwick? If it operates effectively for the UK, why is it not effective for the Scottish Government, which is operating under the same rules?
I am happy to consider that. I know that the scheme was announced completely out of the blue and that people at Inverness airport, for example, did not have a clue what it was going to do or how it would work. Its application has taken a bit of time to achieve—perhaps the officials want to comment on that.
The cabinet secretary is correct in saying that the application of the DFT scheme has not been clear. The Prestwick management team has been pursuing the matter with airlines and has told us that there is a lack of clarity about the terms of the scheme. We will help Prestwick to pursue that and see whether we can take advantage of those measures.
Perhaps the cabinet secretary could get back to us on that. I think that the UK scheme provides a good example, and I am not convinced by the de minimis argument. Let us wait for a letter from the cabinet secretary.
I do not think that it is necessarily a de minimis argument. We are saying that the scheme was announced overnight with no guidance behind it, and it then had to be worked through by airports and civil servants. I am happy to come back to you on that.
I would like to be involved in that as well, please, with particular reference to Prestwick.
I hate to burst the bubble, because the exchanges have been so optimistic, but the Audit Scotland report pointed out that the original business case for Prestwick suggested that it would not be viable without Ryanair. Is the minister still looking closely at what would have to be done if Ryanair withdrew completely?
I am sorry to have to repeat the point, but that calculation is for the airport management. We are obliged to be at one remove from the management of the airports, and they will look at different scenarios. Prestwick will be comforted by the fact that Ryanair has made a positive statement about its future at that airport, which is not just down to the passenger side of things. I know that Prestwick airport is not resting on its laurels but is working hard to get other business. Ryanair made a long-term commitment to each of the three airports that it currently serves, so there is no immediate threat. Do the officials wish to add anything to that?
I agree with what the cabinet secretary has said. Ryanair has reduced its operation at Prestwick, but there will still be 55 flights a week this summer, although that is a reduction on last year, and its substantial maintenance and repair operation employs several hundred people. The Prestwick management team is doing all that it can to enhance Ryanair’s experience at the airport and pursue its offer of increased services when market conditions permit.
In parallel with that, the airport team is pursuing a number of opportunities with other airlines, which are commercially sensitive; I am afraid that we cannot say much about those just now. The airport management team is conscious of the need to pursue all the business development opportunities that Prestwick has to offer.
It is worth adding that there is commercial aeroplane pilot training at Prestwick for Ryanair, Jet2, Thomas Cook, Loganair, Virgin Atlantic, easyJet and others. Prestwick has also had real success this year in its interaction with the military. The joint warrior defence exercise—a big NATO exercise—takes place twice a year, and there has been a huge improvement in both aircraft movements and revenues since Prestwick Aviation Services was brought in. The feedback from the military about the joint warrior exercise has been excellent, meaning that there are very good prospects for building that business, which is quite lucrative for Prestwick, in the future.
Prestwick has a broad base—it is probably broader than those of most other airports; the challenge is in trying to raise it. The management do not anticipate a withdrawal by Ryanair and are doing what they can to make Ryanair’s experience as good as possible—as John Nicholls said—with a view to expanding that business. They are also looking at other airlines.
There are commercially sensitive initiatives taking place that are aimed at increasing business in the airport, but has the Prestwick management team been able to attract any new freight or passenger services to the airport since our last update in November?
The freight figures that I presented earlier when I cited the 3.4 per cent increase were not available at the time of the November update, so that is new business. I have also mentioned some of the other new business—not so much freight, but military aircraft movements, the Bristow search and rescue service and one or two other things.
As John Nicholls said in relation to passenger services, for each of the airports that we work with these things are extremely sensitive and confidential. However, I know that the team is putting every effort into trying to attract new business.
I appreciate that. You touched on the training of pilots and engineers as well as the maintenance, repair and overhaul work. How is that being pursued and what success has there been in attracting new business in that area to the airport?
I have mentioned a number of areas. There is increased freight coming in from around the European continent and there is a substantial amount of oil-related freight as well, which the management are trying to expand. Perhaps John Nicholls or Mike Baxter will say more about those things.
There has been an uplift in freight, a substantial increase in fixed-base operations and an increase in use by the Trump Organization aircraft, which the cabinet secretary mentioned. In addition, the board is pursuing a number of potential maintenance, repair and overhaul business development opportunities. Those are extremely commercially sensitive at this stage, and I cannot give any further detail beyond saying that those opportunities are actively being looked at by the management team.
It is also worth saying that, in the area of aircraft movements and so on, revenues are up 74 per cent this year. Similar gains on last year were made in both February and March, so it is a promising area of activity for the airport. That relates to the military activities that have been taking place at Prestwick and to accommodating and servicing aircraft, which is a growth area. It is very convenient for the military to use Prestwick because of where the joint warrior exercise takes place.
In the overall financial position for the past year, the loss in revenue from the reduction in passenger numbers has been more than offset by the diversification into those other areas, so the overall turnover for the business remains pretty well on track to reach what is in the strategic plan.
That is encouraging.
Cabinet secretary, you mentioned capital investment priorities relating to the railway station. Will you update us on the progress on capital investment in Prestwick airport, please?
Certainly. Adam Ingram and the other members will be familiar with the airport’s condition, given that they recently had a tour of the airport and its associated facilities. There is a lot of opportunity for capital investment there, if I can put it that way.
The board is shortly to be asked to agree capex spend of around £1.2 million to resurface sections of the runway, the taxiways and the aprons and to replace sections of the glazing at the front of the terminal.
In April, a new body scanner became operational. It cost £500,000, and it builds on the cabin baggage X-ray replacement programme. When I last visited the airport, the security arrangements had improved substantially.
The board is also investing in a new information centre, which will consolidate car parking and car park management, lost baggage, ticketing and passenger information. Recladding work has been undertaken on the departure gates pier, which will be completed next week at a cost of around £285,000.
On radar, a wind farm mitigation solution procurement is in progress and should be concluded by the end of September. That is a new area of revenue, so it is important that the board gets that right.
As I mentioned, the airside tax-free retail area has been redeveloped and modernised, which brings the facility up to modern standards and provides a more attractive offering to passengers. The cost of that redevelopment was around £750,000.
A lot is being done.
You mentioned radar. As well as radar to mitigate the wind farm issue, the primary radar system needs to be replaced, which requires a fairly major investment. Has any scheduling of that work been done?
Perhaps the officials can answer that question.
I am afraid that I am not a radar expert, cabinet secretary. However, at the last board meeting that I attended, the budget was agreed. That would have included the capital plan and the various activities under it.
If it would be helpful to the committee, I could go back to the airport management team and ask it to confirm the position on the primary radar system’s renewal. I could then write to the committee.
It is not on our radar just now, but we will get back to you with the information.
Okay. I will let that pass.
Will you update us on progress towards reducing the airport’s operating costs, including any savings that have been made to date?
The due diligence that was undertaken at the time of the acquisition showed that Prestwick was being run efficiently and with little scope to cut operating costs. However, the management team has sought out best value and efficiency. The airport team is working with procurement officials in the Scottish Government on policy and the wider procurement approach. Post acquisition, the airport was able to enter into a larger utilities framework agreement, which is obviously beneficial.
Staff numbers are fluid because of the business’s seasonal nature, but the head count has reduced. There were 364 staff in May 2013, 361 in May 2014, and 342 in May 2015, which represents a 6 per cent reduction since the airport was purchased. There were 325 staff in winter 2013 and 297 in winter 2014, which represents an 8.6 per cent reduction since the airport was purchased.
As I said, our advice at the point of acquisition was that there was no huge scope for reductions in operating costs. The big push is to increase the revenue coming into the airport.
On workforce matters, is the airport a living wage employer?
As part of the pay negotiations between Prestwick airport and the unions, it was agreed that the implementation of the living wage would be discussed at future wage discussions. The two-year pay deal runs from 1 April to 31 March, and paying the living wage is on the airport’s agenda.
We heard earlier that Prestwick is one of the five bidders to host the permanent UK spaceport, which is all very exciting. I know that John Scott has had a high profile in championing Prestwick. I have always felt that it would be sensible to link Scotland to the moon, which would probably be quite a good advertising slogan. Can you—
We are linked to the moon already.
Thank you. Minister, can you give us an update on the airport’s bid in what is, in effect, a very interesting and novel UK championship to host a spaceport?
11:15
First, there are promising aspects here for not only Prestwick but any airport in Scotland that bids. I was recently in Canada and visited a company there called COM DEV International Ltd, which produces space satellites—it has been doing that for 45 years without one malfunctioning. That company has acquired a company in Newbridge in Edinburgh called MESL Microwave Ltd, which manufactures products that are important for the space industry. I think that there was an announcement just last week about an investment in Glasgow involving a space company, and there are the aeronautical-related businesses around Prestwick, which are obviously beneficial from the point of view of the spaceport bid. In addition, I know from the discussions that I had with COM DEV and MESL that they are looking at a massive expansion, because what are called constellations of satellites are being put into space now. That general background is very promising, and it is obviously why the UK Government felt it necessary to develop a spaceport.
As you said, the UK Government has shortlisted five bidders for the spaceport: Prestwick, Campbeltown, Stornoway, Newquay and—excuse the pronunciation—Llanbedr. We do not know how many of those five will chose to develop a bid, although we know that the operators of Stornoway have decided not to do so.
To speak about Prestwick specifically, it has in place a team that is charged with developing its bid, and we know that preparatory work is well advanced. It is working in conjunction with a range of local partners, including South Ayrshire Council, Ayrshire College and a range of aerospace businesses, to help develop a very strong bid; it is also carrying out significant work to build support among the international space community for its bid. I know that Prestwick’s team has been to the States—it went to the east coast, the north-east and down to Florida.
Crucially, at this point, we are waiting for further detail from the Westminster Government on the technical and other criteria that will be set for the bids, so the number on the shortlist might reduce further when the bidders see the technical requirements. However, the timing and the process are in the hands of Westminster.
I can say that the Prestwick bid is very well organised, and we are confident that it will be able to submit a very strong bid. However, as with any other aspect of the business, securing the spaceport has to be done on a commercial basis and there will have to be a return on any investment made.
Thank you. You will know that I have a regional interest in Campbeltown, which I should declare.
David, I want to bring in Adam Ingram and then John Scott on the spaceport.
Sure, but I am still on the issue.
Okay.
As I said, I have a regional interest in Campbeltown. Have there been any discussions about having a joint bid with Prestwick—in other words, a Scotland united bid, albeit on two sites?
There have been discussions about how Campbeltown and Prestwick could go forward jointly, but John Nicholls might have more up-to-date information on that.
I can confirm that there have been discussions. There was a meeting in the past couple of weeks between members of my team, Scottish Enterprise, Highlands and Islands Enterprise and representatives of Prestwick and Campbeltown. One of the outcomes of the meeting was that the two airport teams were going to have a further discussion about possible collaboration on a joint bid. Obviously, we will keep the committee updated as that progresses.
I am very grateful for that response. I suggested something along those lines in John Scott’s members’ business debate, so I am pleased that that is happening. Until now, the Scottish Government has basically said, “We’re neutral, because we have a number of bidders.” However, I suggest that being neutral does not mean being inactive, and it certainly appears to me to be a good idea for the Government to facilitate a Scottish bid, as it were, that would—I hope—incorporate the best elements of all the bids. Is that what you have in mind, minister?
That decision has to be reached by the two airports. There are two reasons why we are neutral. One is that we should be neutral on different interests in Scotland. Of course, with Prestwick airport, we are the owners, and we cannot push the airport that we own at the expense of other airports, albeit that we also have a relationship with Campbeltown airport. Therefore, we have taken a neutral approach.
However, you are right that we have not been inactive. The relevant Government agencies—Scottish Enterprise and Highlands and Islands Enterprise—have been put at the disposal of any bidders in Scotland to help them out as much as possible. We have been as active as we can be. Whether the airports come together has to be a decision of both of them. As John Nicholls mentioned, there are promising signs that they might do that.
You would come in behind such a bid; you would not need to be neutral any more.
If there was one Scottish bid, we would push as hard as possible—as we are doing now with the individual bids—with the UK Government to try to ensure that it succeeded.
I ask John Scott whether he wants to come in.
Thank you, convener. I pay tribute to my colleagues, who have, by and large, already asked all the questions that I might have asked.
Cabinet secretary, have you had any discussions with the new UK Government about the issue? If Campbeltown and Prestwick are in contention, perhaps you have discussed both of them being the preferred option for the UK, jointly or separately.
The discussions that have taken place have been about trying to understand the process. John Nicholls can confirm this, but I do not think that we would have a discussion about a potential joint or sole bid until we know what is going to happen on that. Everyone is waiting for the technical information to come from the UK Government, which will help in making that decision. John Nicholls can say whether there has been any further discussion.
I and a member of my team went to see DFT officials at the end of May to try to get some clarity on the processes that the cabinet secretary describes. We still await the Westminster Government providing further details of the specific criteria and the bid process. Until we get that, it will be difficult for any of the potential airfields to take a view on how best to frame their bid. Transport Scotland and the other agencies will continue to offer all the support that we can to any airfield in Scotland that wants to pursue the matter.
My next question is just for completeness. The cabinet secretary will know that I have a high regard for Highlands and Islands Airports Ltd and that I have visited most of the airports and have a good relationship with HIAL management. Stornoway airport, which is part of the HIAL group, is vital. You run HIAL. Were there any discussions with HIAL management or was any advice or guidance given to HIAL that Stornoway should be taken out of the bidding process, or was that done purely and simply by the management of HIAL?
No instruction was given. We do not run HIAL, although we own it, as you say. It is run by people whom you know at HIAL. I will confirm this with officials, but no instruction was given by me to HIAL not to proceed; HIAL took that decision.
That is absolutely right. The HIAL board has said publicly that it considered the issue and decided that it wanted to concentrate on the core business at Stornoway. There are practical issues around the use of airspace. The current scheduled services at Stornoway might have been disrupted by the use of the airport as a spaceport. In those circumstances, and having regard to the resources that might be required, the HIAL board decided not to pursue a bid for the spaceport.
It is useful to have that on the record.
I move on to wider issues about Prestwick. Are there any plans to realise the value of the airport’s land and property assets that are not required for aviation purposes?
You are right to ask that, because anyone who goes round the airport will realise how substantial it is. Some surplus land round the airport has already been sold and the business intends to keep the issue under review. When we bought the land, it came with some pockets of land that were not within the airport boundary, some of which were originally bought for car parking. The company will give careful consideration to ensuring that any sale of land does not adversely impact on long-term aspirations, such as the one that we have just been discussing on the spaceport.
As I have said, we have new non-executive directors, one of whom has broad experience in property. She offers a new source of advice and expertise to the board. It is worth keeping our eye on that area.
That is a sensible point. We do not want to sterilise future development—it would not be too clever to sell off land that might be needed for the spaceport.
What are the key priorities for the strategic and operating company boards for the current financial year?
Quickly, on the previous question, Bristow’s has taken a bit of land for the search and rescue operation, and that is providing a source of revenue, which is exactly the kind of thing that I want.
The priorities for the board are to continue to develop and implement the corporate business plan and to grow all the aspects of the business, including passengers, but also charters, the fixed-base operations and cargo. Other priorities include the completion of the Bristow search and rescue hangar and continuing to develop the bid for the spaceport.
The board will also proactively seek new business opportunities. It will consider all credible business propositions. Incidentally, I get a lot of those sent to me, which I pass straight on to the board, obviously. There is a great deal of interest out there in doing business at Prestwick.
I thank our witnesses, particularly the cabinet secretary for his evidence, in this session and the previous one.
I suspend the meeting to allow for a changeover of witnesses.
11:26 Meeting suspended.