Yes, convener, and thank you for giving me the opportunity to come back to update the committee.
Progress continues to be made in the work to return Prestwick airport to profitability. I have always said that this would be a long-term project, but progress is under way. What I want to do today is give the committee an update on this work and an overview of what comes next.
As you have said, convener, I am accompanied today by Sharon Fairweather and John Nicholls, who, as you have indicated, are part of the senior management team at Transport Scotland. Perhaps more pertinently for today’s business, they are also board members of TS Prestwick HoldCo Ltd, which was the company that was established for the purposes of the Government’s acquisition of Prestwick airport.
Since I gave evidence to the committee in June, there have been a number of developments. Some are covered in my letter to the committee of 16 October, but I want to give further updates in addition to those issues.
First, I want to update the committee on the arrangements for corporate governance. As I have previously indicated, we have established a two-tier board structure, with a holding company board, which will be responsible for the long-term strategy for developing the airport and will give the Government important oversight of the airport’s strategic development. Secondly, we have established an operations company board, which will empower management to deliver the strategy. I will no doubt stress many times during the course of our discussions the point that responsibility for running the airport now lies with the airport’s management team. It will be run on a commercial basis at arm’s length from the Government.
Following an open recruitment process, I am able to advise the committee that I am appointing Andrew Miller as the non-executive chair of TS Prestwick HoldCo Ltd and the operating subsidiary. Andrew has, among his many other posts, a wealth of experience in business development across the aviation sector, and he is a former chief operating officer of the global aviation business at Air New Zealand. I will provide the committee with details of his CV, which will give an insight into why I think he is an excellent appointment as chair. His job now will be to work closely with the management team to take forward the proposals in the vision statement, which was published on 31 October.
I will now update the committee on our arrangements for local authority representation on the holdco board, which I know has been an issue of particular interest to John Scott. Further to the work that we are undertaking with South Ayrshire Council on the newly created stakeholder groups that will be chaired by the council leader and which will focus initially on supporting the airport spaceport submission, I can advise the committee that we have agreed that membership of the holdco board will include the council’s chief executive in an observer capacity. The council has also proposed—and I have agreed—that the holdco chair will become a member of the wider stakeholder group. That will enable close integration of the airport’s development and the wider economic strategy and development of South Ayrshire.
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The membership of the two boards will be completed by the recruitment, through an open procedure, of a number of non-executive directors to the board of the operating company. The non-executive chair and non-executive directors will oversee the airport’s operation, support the senior management team in repositioning the airport and provide appropriate and robust corporate governance of all its activities. As I have said, the airport will operate at arm’s length from the Government, and the new structure will help to reinforce that.
The airport’s strategic vision, which was published at the end of October, includes plans for investment and business development and the optimum operating structure that is deemed to be required to take the airport forward, and I think that it is worth briefly highlighting some of the key actions that are detailed in the vision document and which have been taken forward in recent months. They include investment in infrastructure; adjustments to the airport’s operating cost base, in particular to align it with changes to the winter schedule; and improvements to the passenger experience, which have been reflected in passenger surveys. The airport also recently hosted the re-established Scottish air show. It has delivered new offices for Ayrshire Chamber of Commerce and Industry within the terminal, and the long-term future of search and rescue has been secured at the airport.
I say this with a degree of caution because we have to take a long-term view of these things, but it is worth pointing out that freight tonnage is up by 38 per cent in this financial year compared with the previous financial year. In an environment that remains very challenging, there are signs of growth in certain aspects of the airport’s business.
The strategic vision builds upon the stage 2 business plan that was developed by the senior adviser and includes as much of his work as possible without impinging on commercial confidentiality and the airport’s ability to operate commercially. That is a point that I unapologetically stress today. If we expect the airport to operate commercially—which we do—we have to allow it the space to operate commercially. As a result, it requires a degree of commercial confidentiality to plan for a return to profitability. However, we recognise that the airport is right now in receipt of Government investment in the form of loan funding, and it is, in my view, appropriate that I or any of my successors report regularly to this committee on progress in turning the airport around.
As the strategic vision details, the overall aim is to operate the airport in a safe, cost-effective and efficient manner and to develop and enhance its variety of business interests in order to return it to profitability, with the long-term intention of returning it to the private sector. The senior management team at the airport has been tasked with delivering the vision statement, taking account of the winter 2014-15 and summer 2015 flight schedules. The team also has to take advantage of new opportunities. For reasons that we all understand, the spaceport is attracting a lot of attention, but a whole range of opportunities has been identified for growth at the airport and it is the responsibility of the team to advance them all.
After touching on route development and air passenger duty, I will give the committee a brief update on investment before I stop to take questions. On route development, when I last appeared before the committee, I said that we would commission work in two areas: the new European Union rules on support to airports, and air passenger duty. We have reviewed the new aviation guidelines, and we are aware of their constraints as well as the opportunities that they present. One of our key objectives is to increase the number of direct flights from Scotland to international destinations. Although over the past year we have had significant success working with all our airports to support our route development ambitions, there is still much work to be done to help airlines ensure that new routes are sustainable in the long term and to help us fill gaps in our international connectivity. As a Government, we will continue to help all our airports in that highly competitive market.
On air passenger duty, work that we published in October showed that cutting APD would lead to an increase in passenger numbers at Scottish airports, and Prestwick along with our other airports would benefit from that. One of the biggest things that can be done right now to help route development at all our airports and at Prestwick in particular is the devolution of APD. I know that Scotland’s airports—and, indeed, a number of airlines—support that, and I very much welcome the recent submission that was published by three of our airports. The aviation industry repeatedly cites APD as one of the major obstacles when it comes to securing new routes and maintaining existing routes. We must be absolutely firm that getting control of and being able to do something about APD would be very beneficial particularly but not just for Prestwick as we go forward.
The final area that I want to cover is investment. The picture here has not changed since my previous update to the committee. To date, we have advanced a total of £7.5 million in loan funding to Prestwick; £4.5 million of that was given in the financial year 2013-14, and £3 million has been given in 2014-15 so far. We expect to provide a further £7 million in 2014-15, but that will not change the totals that I outlined to the committee at my previous appearance. As members will be aware following our previous evidence session on budget scrutiny, we have included provision for £10 million of loan funding for Prestwick in next year’s draft budget. I repeat that all of our investment in Prestwick is in the form of loan funding and that we require to make a return on that investment for the taxpayer. That will continue to be our objective.
My final point about investment is that it is worth putting it into context. We should remember—and I think that the convener raised this point at our previous meeting—that Prestwick airport was estimated in the last year for which we have figures to have contributed nearly £50 million a year in gross value added to the Ayrshire economy. Just to remind everybody why we are where we are on this issue, I point out that if the Government had not acquired Prestwick airport, it would be closed right now—that is the stark reality. We acquired it because we think that it is important to the Ayrshire economy as well as to the wider Scottish economy. Having done so, we recognise the challenges that we face in turning it around, but we think that that can be done. However, everybody who agrees with us that Prestwick is important and that it was not the right thing to allow it to close now has to get behind us—and, more important, the airport—as we do the hard work that will be required to make it a success.