Glasgow Prestwick Airport
The next item of business is a statement by Nicola Sturgeon on Glasgow Prestwick airport. The Deputy First Minister and Cabinet Secretary for Infrastructure, Investment and Cities will take questions at the end of her statement, so there should be no interventions or interruptions during it.
14:19
I am grateful for the opportunity to make a statement about the future of Glasgow Prestwick international airport.
As members will be aware, Prestwick airport was bought in 2001 by its current owners, the New Zealand-based company Infratil Ltd. It is operated through Infratil’s subsidiary company Prestwick Aviation Holdings Ltd. It is fair to say that the airport has faced many challenges in the past few years. Passenger numbers and freight tonnages have markedly reduced and the airport has been loss making. The airport, along with Manston airport in Kent, which is also owned by Infratil, has been up for sale since March 2012.
A number of private investors have shown interest in buying Prestwick airport, and the Scottish Government, in partnership with Scottish Enterprise, South Ayrshire Council and the other Ayrshire councils, has been working with potential investors and Infratil to help to facilitate a private sector sale. That has involved discussing the support that could be offered within state aid rules to assist a new owner in the early years of ownership. Our approach has necessarily been conducted in commercial confidence, but it has been constructive and, I believe, valued by both Infratil and prospective buyers.
Despite that considerable effort, I must report to the Parliament that we have reached a stage where it is clear that no private investor is able to commit to a successful purchase of Prestwick airport in a timescale that is acceptable to Infratil. In those circumstances, the Infratil board has been considering its options, one of which is to seek to enter commercial discussions with a view to public sector ownership, while the other is to close the airport.
Clearly, the closure of Prestwick airport would be a serious and unwelcome development for both the Ayrshire and the Scottish economies. Therefore, in parallel with our work to help to facilitate a private sector sale, we have been working with Scottish Enterprise, South Ayrshire Council and the other Ayrshire councils on contingency plans. We have been carefully examining the implications and consequences of both options—public ownership and closure—and I will now deal with each in turn.
Public ownership of airports is a familiar concept. The Scottish Government already has ownership responsibility for 11 airports, and others in Argyll and Bute, Orkney and Shetland are owned and operated by local authorities. They are mainly small airports that provide vital links to our remote communities. However, in England and Wales, some major airports are owned wholly or substantially by the public sector, including Manchester, Stansted, Newcastle and Cardiff airports. The last of those was recently bought by the Welsh Government.
However, members will appreciate that the investment of public funds in commercial environments is subject to European Union state aid regulations, which are designed to prevent the distortion of competition. The effect of the regulations is to require any public investment to yield an appropriate return over time comparable to that which might be expected by a private investor. That market economy investment principle has to be the guiding light in considering public ownership options.
To examine the practicalities of public ownership on that basis, we asked independent financial and aviation consultants to assess the prospect of the airport, with the appropriate financial investment and commercial management, being returned to profitability within a reasonable timescale. The consultants’ work indicates that that would be demanding but possible. It would require additional business to be secured in both passenger and freight-related activities, a wide-ranging efficiency programme and the disposal of surplus assets.
The other option is closure of the airport by Infratil. Members will appreciate that the impact of closure would be a devastating blow to the people who work at Prestwick airport, their families and Ayrshire as a whole. Unemployment in Ayrshire is already above the Scottish average and the loss of Prestwick airport would exacerbate that situation. About 300 people depend directly on the airport for employment and, in total, about 1,400 people’s jobs depend on or are associated with the airport. That includes approximately 460 people who work at maintenance, repair and overhaul facilities that depend on the airfield being operational.
In addition, if we take account of the important aerospace cluster at Prestwick, a total of 3,200 jobs are directly or indirectly associated with the airport. Although the aerospace jobs are not directly dependent on the airport, it is no coincidence that many of those businesses have located so close to an operational airport. In my view, it is undoubtedly the case that that important part of the Ayrshire economy would be less secure in the future without the continued operation of Prestwick airport.
In short, the airport is of significant strategic importance to the Ayrshire economy, the wider regional economy and the national economy of Scotland.
The total gross value added associated with the airport in 2012 was £47.6 million in an Ayrshire context and £61.6 million in a Scottish context. The airport also has a very important resilience role in respect of diversions for bad weather and aircraft emergencies, as was demonstrated by the recent EgyptAir incident.
In light of all of that and having carefully considered the options, I want to inform members of the Government’s intentions. We believe that Prestwick airport can have a positive future. It will require investment and take time, but we believe that it can be returned to profitability. We also estimate that the cost to the public purse of closure would be very significant, and that was an important factor in our decision. We are therefore determined that the airport’s economic contribution, including the direct and indirect employment opportunities that it and its related businesses offer, should be maintained and then enhanced. We want to secure the future of Prestwick airport and the businesses that depend on it, and we want to reassure staff that we will work with them to make the airport a success.
I therefore advise members that the Scottish Government has advised the current owners of the airport of our intention to commence a process towards the acquisition of Prestwick airport. Following the agreement of its board earlier today in Shanghai, we are entering negotiations with Infratil for the potential acquisition of Prestwick Aviation Holdings Ltd and its subsidiaries. The conclusion of that process will, of course, be subject to the Scottish Government carrying out confirmatory due diligence. The terms of sale will be on a commercial basis and in accordance with the market economy investment principle. Our intention is to seek to complete due diligence and detailed negotiations on the terms of sale within a six-week period and to do so on a commercial basis. A copy of our recent exchanges with Infratil will be placed in the Scottish Parliament information centre for members’ perusal.
I also advise members that Infratil has agreed that it will continue to ensure that its subsidiaries keep the airport fully open and operational while that process is on-going. I emphasise that point not just to members, but to airport staff, passengers who have already booked to fly, and those who are considering using Prestwick airport for their next holiday or business trip. Prestwick airport is and will continue to be fully open for business.
Key to public sector investment will be the development of a strong and credible business plan that will kick-start work to turn around the business and lay the foundations for its restructuring and repositioning. Such a plan will also set out a timescale for the airport’s return to profitability.
Once the final decision to proceed has been taken and the transaction has been completed, I will make a further statement to Parliament. I emphasise that our intention is that Prestwick airport will continue to operate on a fully commercial basis, and I expect that we will seek to engage a commercial partner to work with existing staff both to operate the airport and to develop its assets in a way that maximises the long-term return on public sector investment. We will also look to involve and work closely with the three Ayrshire councils, whose participation and support are necessary to make a success of the venture.
Prestwick airport is important to the Ayrshire and Scottish economies. We are ambitious for it and, indeed, for the Scottish aviation industry as a whole. Prestwick airport can have a positive future as part of that wider industry, without having any negative impact on Scotland’s other airports. It is our belief and intention that, with perseverance, patience and innovative thinking, the airport can and will be brought back into profit.
Over the next few weeks, we will focus on due diligence; legal and commercial issues to provide a firm foundation for Scottish Government ownership; detailed negotiations with Infratil; and the development of the business plan. Our strong desire is to reach a successful conclusion that will allow Prestwick airport to thrive again, help us to protect and sustain employment, and build and strengthen the engineering and aerospace cluster that surrounds the airport. Those will be our priorities, and I very much hope that colleagues across the chamber will support them.
The Deputy First Minister and Cabinet Secretary for Infrastructure, Investment and Cities will now take questions on the issues raised in her statement. I intend to allow around 20 minutes for questions, after which we will move on to the next item of business.
I thank the cabinet secretary for advance sight of her statement.
There is no doubt that the situation is serious for Prestwick airport. It comes as a result of reducing passenger numbers, which have consistently translated into expenditure exceeding income in profit and loss accounts.
There is also no doubt that, as the cabinet secretary outlined, the closure of Prestwick airport would have drastic implications for the local Ayrshire economy and the wider Scottish economy. From that point of view, I welcome the step that the Scottish Government has taken today to seek to take Prestwick airport into public ownership with a view to building a sustainable model in the future.
I have three questions. First, in terms of due diligence, can the cabinet secretary provide fuller information on the process? Specifically, what oversight will Parliament have of that process?
Secondly, it is clear that there will be implications for the Scottish budget. How will the Government be able to draw down funds from a fixed Scottish budget, given the additional financial commitments that there will be as a result of the initiative?
Thirdly, how confident is the Scottish Government of finding a future buyer, bearing in mind that finding a buyer has proved difficult up till now?
I thank James Kelly for his questions and for the welcome that he has given the Scottish Government’s action today to safeguard Prestwick airport and the jobs that depend on it. He asked three specific questions.
First, James Kelly will appreciate that the due diligence process for any such acquisition is complex. Given the circumstances, we intend, and have given an undertaking, to carry out such due diligence as quickly as possible. I mentioned the six-week timescale in my statement.
I commit to coming back to Parliament at the conclusion of that process to report on its outcome and to give more details at that stage on the Government’s proposals for the ownership model for Prestwick and the business plan that will underpin our proposals to turn the airport round and bring it back into profit. In the intervening period, I will keep members, particularly those who have a constituency or regional interest in the airport, as up to date as is possible given the commercial nature of the transaction.
I will say two things about the budget. First, John Swinney, the Cabinet Secretary for Finance, Employment and Sustainable Growth, will make such provision as is required within the Scottish Government’s budget to underpin the commitment that we are making to Prestwick airport. James Kelly will appreciate that, as I indicated in my statement, we will require to put in place a robust and credible business plan. He will also appreciate that the extent of Scottish Government investment in the airport during the period of public sector ownership will flow from the business plan that we put in place. To date, we have worked on initial estimates that are based on the initial work that we have done and the initial information that Infratil has given us. Our due diligence process will help us to develop the detail of that plan. That matter will be part of the further updates that I will give Parliament in due course.
In response to James Kelly’s third question about a potential future private sector buyer, it is of course our hope and intention to see Prestwick, as a thriving airport, return to private sector ownership at some point in the future. I am not able, nor would I choose, to put a timescale on that at this stage. It will take time to turn Prestwick airport round and bring it back into profit. It will take perseverance, patience and investment. In the Scottish Government, we are dedicating ourselves to that work so that, at some point in the future and working with our partners in Scottish Enterprise and the local authorities concerned, we are able restore the airport to private sector ownership.
Parliament will be updated on all those points as appropriate. I hope that members appreciate that much of what we have done around Prestwick over the past few months has had to be commercially confidential but I thought that, given the stage that we have arrived at, now would be the appropriate moment to update Parliament. I undertake before the Presiding Officer and Parliament to keep colleagues as up to date as possible in the time to come.
I thank the Deputy First Minister for the advance copy of her statement and for the courteous way in which she has handled the change of ownership of Prestwick airport. I welcome the fact that the statement ends the uncertainty that there has been since Infratil put Prestwick airport on the market. The statement lifts what I believe was an immediate threat of closure. It also notes the airport’s on-going strategic importance.
I also welcome Infratil’s continuing commitment to keeping the airport open until due diligence can be carried out and note and emphasise that Prestwick is and will remain open for business. Finally, I note the need to support the airport to remain open to protect and enhance the 3,000 to 4,000 maintenance, repair and overhaul jobs around the airport.
I, too, have three questions. First, although I understand the difficulties in making such a prediction, when does the Deputy First Minister hope to return the airport fully to the private sector?
Secondly, although I note the Scottish Government’s intention to buy the airport from Infratil, what further investment does it see itself being able to provide to bring the airport up to full international standard to support the private sector partner that it will seek?
Thirdly, without breaking commercial confidentiality, what alternative uses for and development of the airport does the Deputy First Minister envisage? Would she welcome proposals from entrepreneurs, even if they lack funding to bring them forward?
Finally, can the Deputy First Minister reassure us that the proposed business model of public ownership—albeit temporary—will be compliant with European and United Kingdom competition law?
I thank John Scott for his questions and recognise his constituency interest in Prestwick airport. I will run through his questions as quickly as I can.
I do not think that I can say much more to John Scott than I said to James Kelly about the timescale for a return to private ownership. Of course, our long-term ambition is for Prestwick airport to be returned to private sector ownership, but there is a lot of work to be done between now and then to ensure that that is a viable proposition. We are undoubtedly talking about years rather than a shorter period. Information on the timescale will become more detailed as the business plan for the airport develops.
The airport will require investment by the Scottish Government to put it into a position in which at some point in the future it can be returned to the private sector. The information that I give Parliament on the matter today comes with the caveat that we require to do our due diligence and to put in place a business plan. The estimates that we are dealing with are based on initial work and information provided by Infratil, which estimates its annual losses, including capital expenditure—which is an important addition—to be in the region of £7 million. The airport clearly requires a lot of work to turn it round. It is important that we do the correct preparation and the correct work to put ourselves in the best position to do that.
On John Scott’s third question, we welcome all entrepreneurs and business interests that want to do business with Prestwick, whether they are in the passenger or freight areas or have an interest in business that is associated with the airport. When the Scottish Government has ownership, we will be keen to have such discussions.
Finally, I mentioned state aid in my statement. Everything that we do requires to be compliant with not just UK law but European state aid regulations. That is why I talked about the market economy investor principle, which is and will be the guiding light for everything that we do as we take forward this venture.
I, too, have a constituency interest in Prestwick airport. On behalf of my constituents, I very much welcome the Deputy First Minister’s action, which secures the airport’s short-term future.
Will the Deputy First Minister say how confident we can be for the longer term and in relation to investment prospects? Will she give early consideration, perhaps in the development of the business plan, to rebranding the airport Robert Burns international and removing the less-than-appealing “pure dead brilliant” logos?
I thank Adam Ingram for his questions. I recognise his close constituency interest in the airport, and I acknowledge the interest that he and John Scott have shown in the issue over a period of time.
Adam Ingram asked about long-term prospects. The whole point of the Government’s acting as we are acting is to secure Prestwick airport and the jobs that depend on it not just for the short term but for the long term, to ensure that the airport, which is such an important part of the Ayrshire and Scottish economies, has a long-term future. If there is one message that I want to convey today, it is that the airport is open for business and that we intend it to remain open for business, not just in the short term but in the long term.
As for Adam Ingram’s interesting suggestion for renaming the airport, I should tell him that there are no immediate plans to do so; I am sure that he will appreciate that we have important matters to deal with along the way. However, rebranding the airport might be part of a wider strategy to remarket it and make it more attractive and, as an Ayrshire girl, I have to say that the Robert Burns reference is not lost on me.
Ten people want to ask the Deputy First Minister questions, so it would be helpful—because I very much want to get through everyone on the list—if members could cut out the preamble and ask one question. That way, everyone can be called and get an answer.
I welcome the action that has been taken and support the Government’s ambition to bring Prestwick airport back into profit. What will be the Government’s position if efforts to do so are unsuccessful? Is it willing to sustain the airport in the long term if it does not return to profit? Indeed, is it able to do so under EU rules?
I covered some of that in my statement. We have to operate in line with the market economy investment principle, which requires us to ensure that public investment yields an appropriate return over time, comparable with what might be achieved by a private investor. Our actions are therefore underpinned by the necessity to bring the airport back into profit and to secure a return on public investment over a period. I must emphasise to Parliament that all the actions and plans that we take forward will be based on that objective.
I am not being at all dramatic, but it is important that I make it clear—as I made clear in my statement—that the very real alternative to the Government’s action today was the closure of Prestwick airport, with all the economic and employment consequences that that would have had. I do not underestimate the challenge that lies ahead; indeed, I referred in my statement to the opinion of the independent finance and aviation experts whom we have already commissioned to work on the issue. Our objective is challenging but possible, and I hope that we have the support of all parties in the chamber as we take forward this venture. I certainly know that members support the aim of securing the airport’s future.
I thank the Deputy First Minister for a most acceptable statement.
Last week, I had the privilege of hosting, along with Scottish company Caledonian Aviation Partners, two major aircraft recycling companies from Arkansas in the United States, which are considering investing in Prestwick airport—
Can we just have a question, Mr Brodie?
I am coming to my question. There is the potential for 200-plus jobs in recycling aircraft and their parts. Does that kind of potential investment not confirm the huge potential of Prestwick airport—with its hinterland of great aerospace engineering skills and Ayrshire’s colleges—as the European maintenance, repair and overhaul airport, in addition to its passenger and cargo capabilities?
I thank Chic Brodie for his question and acknowledge the interest that he has shown in Prestwick airport’s future over a period of time. He is absolutely right. We are aware of the interest in recycling aircraft that has been shown by the company that he mentioned and are very keen to continue discussions in that direction. As I said to John Scott, we want to encourage any business that sees potential for doing business at Prestwick to come forward and we—and, in particular, Scottish Enterprise—will be very happy to have those discussions.
Chic Brodie is also right to highlight the potential for a cluster or centre of excellence. Prestwick is already home to MRO facilities, principally for Ryanair but on a smaller scale for British Airways, and the aerospace cluster around the airport is also hugely important. With the right attitude, mindset and support, there exists real potential to capitalise on that excellence and to put it very much at the centre of Prestwick’s plans for the future. I welcome Chic Brodie’s suggestions and will certainly take them forward.
Can the Deputy First Minister offer, even at this early stage, an indication that we will begin to develop not only Prestwick’s potential in a Scottish context for our tourism industry, but its international future?
As I have said, the Scottish Government and our partners will be very much focused on developing the business plan. I believe that Prestwick has a big role to play in the future not just in its own right, but as part of the wider aviation industry in Scotland. We are very blessed with fantastic airports in other parts of the country; Prestwick has a part to play.
However, as I said in my statement, that future will require us to increase passenger and freight transport and to think of other business opportunities around Prestwick; for example, surplus assets around the airport will also play a part in any overall business development plan. All that must be taken into account as we try to move the airport from where it is just now to profitability, which we believe is possible. That will involve domestic transport, but it will also involve international transport.
As the cabinet secretary mentioned, the commercial aerospace industry at Prestwick airport is important to the area. The airport is also used by many companies such as Ryanair, whose profits have increased to more than £0.5 billion. What discussions has she had with organisations including Ryanair about keeping Prestwick open?
Ryanair is a customer of Prestwick airport and will remain very important to the airport’s future. Obviously, as well as talking to Ryanair, we will want to talk to a range of private sector businesses that do business in one form or another with Prestwick.
As I said in my statement, in recent weeks and months we have been engaged in a number of discussions, principally to facilitate a sale to a private sector consortium. I make no bones about the fact that my preference for the future of Prestwick airport has been sale to the private sector, rather than bringing the airport into public ownership. However, if the question is whether public ownership is preferable to the closure of the airport, most definitely the answer is yes.
Ryanair remains important to the future of the airport, but the airport’s future will be best catered for if we are dealing with a number of different private sector businesses to ensure that we capitalise on the airport’s full potential.
Last year’s York Aviation report “The Impact of Air Passenger Duty in Scotland” pointed out that, in percentage terms, Prestwick airport is the one that is most affected by APD. Does the cabinet secretary believe that APD has contributed to the current situation, given that the entire aviation industry, including the airlines and the airport operators, are all desperate to see action on air passenger duty?
Yes, I believe that APD is a particular factor in the position in which Prestwick airport finds itself. Obviously, APD is a factor not just for Prestwick but, nevertheless, the scale of APD weighs on the decisions that air traffic companies take on, for example, whether to open up new routes. I will continue to lobby the UK Government to see sense on APD but, short of that, I look forward to the day when this Parliament can take decisions on APD that make more sense—and not just for Prestwick airport, but for all our airports, so that we can properly capitalise on their economic, tourism and business potential.
I, too, welcome the cabinet secretary’s statement, given the importance of Prestwick airport to the Ayrshire and Scottish economies. Given that the three Ayrshire local authorities have committed £2 million each, will they be partners in the Scottish Government’s bid? What role will they play if the bid is successful?
I will not speak on behalf of the Ayrshire councils in terms of what, if any, financial commitment they may be willing to make—I will leave that for direct discussions with the councils—but Margaret McDougall is right that the three Ayrshire councils have been working hard with us to try both to facilitate a private sector sale and to ensure that we had contingency plans in place for the scenario in which we now find ourselves. I put on record my thanks to South Ayrshire Council, North Ayrshire Council and East Ayrshire Council for the constructive way in which they have worked with us.
As I said in my statement, the councils’ continued support and participation in the venture is important. As well as financial support, their support in a range of ways will be very important as we try to turn Prestwick around. I can give the member an assurance that we will talk to the councils. I spoke to the leader of South Ayrshire Council shortly before I came into the debating chamber and we will speak to all the councils on an on-going basis.
When the airport is returned to profit, is it absolutely necessary that it is sold back into private ownership? Is it not possible that a profitable venture could stay in public ownership, with the profits returning to the public purse? If not, will the cabinet secretary ensure that all public investment in the interim is recouped with interest?
Maureen Watt is absolutely right. There are various models for the ownership of airports that could be feasible and viable. However, at this stage in our plans for Prestwick, it is probably premature to start talking about what happens at the end of a period of public ownership. As I have said repeatedly throughout the statement and in answer to questions, our intention is to earn a return on public investment. It is important that we do that. Obviously, there is a public interest for the people of Ayrshire and the people who work in and surround Prestwick airport in ensuring its future, but there is also a bigger public interest.
I will certainly take on board the points that Maureen Watt makes. I referred to a number of airports in England and Wales that are either partially or wholly owned by the public sector, which demonstrates her point that there are a range of possible ownership models for the future. However, our principal objective is to get into ownership and then to start the hard and serious work of turning Prestwick round and bringing it back into profit.
Through the waves of optimism, the cabinet secretary has demonstrated her clear understanding that the deal might have to pick its way through a minefield of state aid rules. Given Prestwick’s close proximity to Glasgow airport and the fact that it relies on a single commercial passenger operator as its largest major customer, is there a danger that the commercial relationship that might already exist between the airport and its biggest customer will, if the airport goes into public ownership, render that a breach of state aid rules?
I hope that I made it clear—indeed, Alex Johnstone alluded to this—that we are acutely aware of the state aid implications of any action to invest public money in a commercial venture. That is why I took time in my statement to talk through the market economy investment principle, which guides all our actions on the issue. I assure the member that we are mindful of the issue and, at every step of the way, we will be mindful of our requirements under state aid rules and regulations.
The member refers to Glasgow airport. As I said in my statement, I believe that Prestwick airport has a future as part of the wider aviation industry. I do not believe that a successful Prestwick has to be or will be at the expense of our other airports. I believe that all the airports can thrive if the proper business planning and support are in place and the proper approach is taken, and that is what we intend to do. I hope that that gives assurance to other airports, which are also operating in a very competitive environment. We will operate on a commercial basis, mindful of our obligations under state aid rules. We will do so with the intention of not only seeing Prestwick airport thrive, but seeing it thrive as part of the wider aviation sector in Scotland.
The cabinet secretary mentioned the need to secure additional passenger business. One way of doing that would be to use the rail network to connect Prestwick airport to the rest of Scotland by going ahead with the Glasgow crossrail project. Will the Scottish Government reassess the positive impact that crossrail could have in light of the need to generate more passenger business at Prestwick, as well as the other benefits that it could bring to Ayrshire, Renfrewshire and even Glasgow airport?
One advantage that Prestwick airport has is that it has a railway station right on its doorstep and a rail line that runs right to Glasgow Central station. I have used that rail line many times and I am sure that many other members have, too. Let us look at that as a positive and one of the advantages on which we can build. It is fair to say that the railway station at Prestwick requires investment, but nevertheless it is one of the things that we can use to the airport’s advantage.
Clearly, the Government wants to integrate various modes of transport and our various transport facilities and assets as much as possible. However, today is very much about taking decisive action to safeguard an airport that was under credible threat of closure. I am glad that Labour members have welcomed that and I look forward to suggestions from any quarter in the Parliament about how we ensure Prestwick for the long term and how we do that as part of the bigger picture. I would certainly be happy to hear such suggestions from wherever they come.
Does the Deputy First Minister agree that a publicly owned airport should achieve the same employment standards as the rest of the public sector? Will she give a clear guarantee that no one working at a publicly owned Prestwick will be paid less than the living wage or will be exploited by means of a zero-hours contract?
I am sure that we will return to those points of detail as we go further into the venture. I accept the sentiment behind Patrick Harvie’s question. I say to him that I am taking the action that I am taking and announcing it to the Parliament principally from a desire to safeguard vital employment in Prestwick and the wider Ayrshire economy. I hope that that gives a strong sense of the importance that we attach to those jobs. They are high-quality jobs in many respects and those are exactly the kinds of jobs that we want to retain in not only the Ayrshire economy, but the Scottish economy.
Having promoted the living wage in the Scottish Government and our own agencies, our commitment to it is not in any doubt, but I hope that Patrick Harvie will forgive me because we are at the start of a process. The staff at Prestwick airport were being advised of developments today by senior management at the airport in tandem with my statement. It is right that we work with them as we go forward to secure their employment and the future of the facility in which they work.
That ends the statement and questions with the cabinet secretary. I apologise to the one member who did not get called.