Examination of Witnesses (Questions 164
- 179)
TUESDAY 30 NOVEMBER 2004
MR JOHN
DEVINE AND
CLLR JOHN
KERR
Q164 Chairman: Gentlemen, first of
all can I thank you for your hospitality. We feel a little bit
rude in as much as we have taken over your boardroom and asked
you to sit outside. We feel a little bit guilty, but we are very
grateful for your hospitality that is allowing us to meet in this
room. You will have heard the last two sets of witnesses. You
will have a good indication of the questions that we are going
to ask you, but I wonder if I could start, as I have done previously,
with a general question to try to open out our discussion. Previous
witnesses have told us in relation to Belfast City and Belfast
International Airport that there are two different views as to
whether or not they are in competition with each other or are
they complementary to each other. We have also had discussions
about the leakage of passengers from Northern Ireland to the airport
in Dublin. We are very interested in your views on where this
airport fits within both the Northern Ireland context but also
the island of Ireland context. In your opening remarks, could
you say where do you see yourselves as an airport within both
a local regional and island of Ireland context?
Mr Devine: I believe the two Belfast
airports do complement each other in that Belfast City is very
business oriented and its location makes it very convenient for
business traffic. Belfast International, on the other hand, serves
the greater northern part of the island from a catchment point
of view but, more specifically, serves the freight operation,
being a 24 hour operation, and serves the charter market which
could not operate from Belfast City. Where do we see ourselves?
We see ourselves as sitting in the North West serving the North
West region, including Donegal and the Irish Republic. We see
ourselves as slightly different. We do not propose to go to a
24 hour operation, we plan to serve both the domestic and European
holiday charter markets. We have no great aspirations, we have
not painted a picture that says we are going to take over the
world and we do not intend to take over the world. It is a small
catchment area, we intend to serve that catchment area for the
greater economic benefit of this North West region and for the
social development of the North West region.
Cllr Kerr: One of the problems
about this region, and about where we are at the moment, is the
lack of transport. We are hard to get to. We are hard to get away
from as well. We are on the periphery of Europe and we are on
the periphery of everywhere else. We need transport infrastructure.
This airport is the jewel in the crown of Derry City Council and
has been for the last 20 years. We feel that it does make a contribution
and will make a big contribution to the whole economic regeneration
of the area, which you have heard about this morning. From where
we are, we have tremendous civic pride and the people of the area
have tremendous civic pride in the airport. Despite what they
just said a couple of minutes ago, there is this overwhelming
view that we do need the airport, both for our own sake in terms
of our position as the second city in the North of Ireland but
also we want to grow and we want to expand and we want to service
our people. We are hopeful that the airport will continue and
will grow.
Q165 Chairman: On the question of
the air services for the island of Ireland, how important is the
Dublin link to this airport? How many passengers are using this
airport from the North West as a link to the Dublin hub to use
that as an international airport?
Mr Devine: The total route size
over the last three years is about 30,000 passengers a year. That
is a split of 50/50, 50% being point-to-point for Dublin business
and 50% onward through Dublin into Europe and North America.
Cllr Kerr: If you think, if I
had to go to a meeting in Dublin it takes five hours to get there
now, four to five hours, and four to five hours back again, so
the business people are looking to the airport to service them.
Q166 Mark Tami: Is the expansion
of the airport necessary because of the poor road routes or would
you also say that if the airport does expand then something has
to be done about the road system as well in order to cope with
the increased traffic?
Cllr Kerr: Which comes first,
the chicken or the egg?
Q167 Mark Tami: That is right.
Cllr Kerr: Do we need a new rail
service, a new road infrastructure or do we need the airport?
I think we need all three of them. The question was put to me
by the Northern Ireland Office a couple of years back and they
said "We have got £300 million to spend, where should
we spend it, the roads or the railway?" and my answer was,
"I think we need money for all of them". You cannot
just say we should spend it only on the roads. If we improve the
roads, yes, but would you cut the time down from an appreciable
four or five hours to half an hour in an aeroplane?
Q168 Mark Tami: I suppose what I
am saying is if you improve the roads, would you need the airport?
Mr Devine: As has been seen in
the greater UK, where you build roads they are simply filled up
by traffic and the overall traffic speed does not improve, you
are just providing more space for road traffic. Yes, we do need
improved roads and an east-west link to Belfast has been an issue
for many, many years. The city here is the second largest city
in Northern Ireland, the fourth largest city in the island, and
the road network in the North West has been under-invested for
many, many years, as has been the general infrastructure. Locally,
the road network has improved significantly. The bypass at Strabane/Newton
Stewart makes it much easier now for passengers to access the
airport from the South West. There are improvements in Donegal,
the link down to Donegal Town, the link to Letterkenny, those
kinds of roads have made it much easier to get to the airport.
The bypass at Limavady makes Coleraine much more accessible for
passengers. From an airport perspective, the improvements that
we have seen in the local road network have made the airport much
more accessible. The other issue is the Belfast east-west link.
Cllr Kerr: The other thing about
the airport here and the development of links with Manchester,
Birmingham and Glasgow is it affords the opportunity for us to
make contact with the greater world, to make contact with the
outside world, to make contact with Europe. For the numbers of
Irish people, Derry people, Donegal people, abroad who come back
frequently and use the airport at the weekend, it is a service
to them as well.
Q169 Chairman: The Committee habitually
moan about the need for more infrastructure works to be done within
Northern Ireland. I do not think we can mention it often enough.
We mentioned it yesterday and we are mentioning it again. The
rail services within Northern Ireland are probably some of the
worst in Western Europe and we only hope that John Spellar reads
our transcript and some of the gain from the peace process can
be that money spent previously on security can now be spent on
infrastructure works to enable some of that improvement. Your
points are well made and well rehearsed.
Cllr Kerr: Not only are we arguing
for roads but all of the infrastructure as regards sewerage and
water and what have you, lots of things.
Q170 Chairman: Just for the record,
can you tell us about Carrickfin Airport in terms of whether or
not that plays any role? It is a mystery to us. I have never flown
into Carrickfin, I do not know how many air traffic movements
there are, I do not know if there is a service from here to there
or if it is part of your plan or part of your local family?
Mr Devine: Carrickfin is a small
airport right on the West Coast, it is just beyond the beach.
There are boundary fences along the beach on the West Coast of
Ireland. It has been in existence for about 10 years and serves
a tourist market, a seasonal tourist market. In the summer time
there are three flights a week to Glasgow Prestwick and on a daily
basis they have a PSO service to Dublin. That is about the extent
of their traffic. They play an expanded role in that they serve
as a search and rescue airport for the North Atlantic.
Q171 Chairman: That is helpful. Operating
deficit: we heard a lot in previous evidence about the operating
deficit which you have indicated to us is around £1.3 million
a year funded by the local ratepayer. We heard earlier from the
Chamber of Commerce on their view as to whether or not that gives
good value for money and what role it plays in terms of future
investment. From your own perspective, tell us whether or not
you consider that to be good value for money and talk us through
some of the wider economic benefits that you see from that public
investment.
Cllr Kerr: It is true to say that
the operating deficit is a source of concern to the council and
to the ratepayer and the fact that the ratepayer has borne the
brunt of the airport over the last 10-15 years or more. There
is an operating deficit of around £1.3 million, a bit less,
£250,000 less this year because of other savings. It is something
that we have to address but also it includes approximately a £600,000
repayment of capital and loan charges. We are making the point
that in the Scottish experience, they do not have to do that.
In the Scottish experience they funded the capital and revenue
costs of the small regional publicly owned airports. We are looking
for something like that as well. I do not think that Derry City
Council can continue to shoulder that type of expenditure. The
fact is that we are now approaching being one of the highest rated
councils in the North of Ireland. That £1.3 million is a
source of concern to us. We are hopeful that this will show a
diminishing trend and it is showing it by £250,000 this year.
There are high costs to running an airport and we continue to
look at that. If we are fortunate enough to have a different carrier
within the airport, and that is a matter of negotiation at the
moment, it may be that we can change that around. I am talking
about the sorts of monies that we get from people like Ryanair.[1]
If there is another carrier that could make a better deal with
us—I do not know if I can say this here but there are negotiations
ongoing with another carrier—maybe that could change within
the foreseeable future. I am very, very conscious of the fact
that it is a business arrangement and I am conscious of the fact
that the press are here and I would not want to say anything that
could jeopardise any future negotiations with another airline.
Chairman: We understand and respect the
confidentiality of that and the reasons why you would not want
to go into detail.
Q172 Mr Pound: Just a quick point
of clarification. You have talked about the repayment of the capital
and loan components of the support given by the City Council.
How long does that run for? Is there an end date?
Mr Devine: Most government loans
are 20-25 years depending on the piece of equipment that you have
purchased.
Q173 Mr Pound: What is the case in
this one?
Mr Devine: On the loan repayments,
the loans that have been taken out will all have different end
dates because they all started at different dates.
Cllr Kerr: Some of our loans have
been taken out at very high percentage rates, 14 or 15%, and now
the loan rates are at 3½ or 4%. We are trying to encourage
the Government to let us settle those loans at 14% and buy in
at 3 or 4%. This is a big problem with a government loan, some
of them tie you into the loan at the rate of interest at that
particular time and some of the rates, if you think back five
or 10 years ago, were very high indeed at 12 or 14%.
Q174 Mr Pound: For the foreseeable
future there will still be that element of the City of Derry support?
Cllr Kerr: Yes.
Mr Devine: The majority of those
loans are for about the next 15 years and would have a repayment
of about £600,000 a year regardless.
Cllr Kerr: That is part of the
burden.
Mr Pound: We are just trying to get a
grip on that.
Q175 Chairman: We now have a very
clear picture painted where there is obvious concern within the
City Council at the size of the operating deficit and there is
a determination to reduce it. You have said that you cannot continue
along that path. Obviously you still carry some of that burden
and, irrespective of whether or not you close Derry Airport tomorrow,
you would still carry a lot of that debt. Talk us through the
options you have looked at in terms of alternatives for ownership
of the airport, involvement of the business community and how,
other than simply reducing costs and bringing in money from airlines,
you can turn things around for the better.
Cllr Kerr: We have repeatedly
asked the Government here to—
Mr Devine: The previous government
introduced the Airports Act 1986 which required all local authority
airports throughout the UK with a turnover of more than £1
million for two consecutive years to be sold or set up as a public
airport company. That piece of legislation has never been enacted
here in Northern Ireland and prevents the airport from being moved
into a company structure. Very successful airports across the
UK that are either currently owned or were formerly owned by local
authorities have proved that to be the best method for developing
the commercial aspect of the airport. The one piece of legislation
that we are attempting to have put in place is the enactment of
the 1986 Airports Act here in Northern Ireland.
Cllr Kerr: In the meantime we
have been operating a sort of shadow—
Mr Devine: So that the company
could be set up and run along those lines we have already taken
the first step to try to move towards that by setting up a company,
instead of having just the airport committee run as a committee
of the council, to run in shadow mode until the legislation catches
up with us.
Q176 Chairman: I think that is a
very important piece of evidence that you have just given us.
What you are saying is that the legislation needs to be enacted
within Northern Ireland.
Cllr Kerr: We cannot move without
the Government moving first.
Mr Devine: That is not to say
that there have not been explorations of other methods of doing
it. Councils have to be enabled to do things, they have to be
enabled to set up a company, and at the moment there are issues
with councils across Northern Ireland setting up visitor and convention
companies, etcetera. There has to be a specific piece of legislation
that allows a council or local authority to do something and that
is not there at the moment.
Q177 Chairman: Has there ever been
any interest from outside potential buyers for the airport?
Mr Devine: There has been interest
but the interest relates to the land associated with the airport.
I do not think any of the operators when they came in carried
out a due diligence exercise. There are two elements to the airport's
operating costs and those are the high fixed overhead costs which
are largely dictated by the Civil Aviation Authority or the Department
for Transport in security and the Department for Transport in
the way in which we operate, but more by the Civil Aviation Authority
in terms of air traffic control, fire and the general operation
of the airport. They fix our overhead costs. For an airport of
this size, we are truly low cost. We meet the regulations but
we meet them in such a way that if you compare us, you compare
us to a low cost airline. We are truly a low cost airport. If
you look at our costs in terms of the costs per passenger then
truly we are a low cost airport. You will see in the evidence
I gave to the Committee in appendix three, where we do some comparisons
with other airports, that on a per passenger basis we are amongst
the lowest. If you look at the operating costs at other airports,
that is the costs disregarding any income, we are significantly
lower and are really truly low cost. When an airport operator
looks at that, they say "There are obviously no savings for
us to make there". The whole success of the airport ill depend
on the future commercial activity of the airport, both passengers
and related businesses established on the airport site, that is
commercial activities from hangars, maintenance organisations,
etcetera.
Q178 Chairman: So what you are saying,
and you will correct me if I am wrong, is that the expansion of
service at the airport is critical to turning the corner financially.
Mr Devine: Given the overhead
costs, airports of this size find it extremely difficult to cover
their operating costs. Depending on whether the model has changed
slightly because of the introduction of the low cost passenger
and low cost airline, you need somewhere around about one million
passengers to cover the operating costs.
Q179 Mr Bailey: Can we look at future
growth. From your evidence it would seem that the safety improvements
in 1999 helped the airport to secure an agreement with Ryanair.
Also, it has been suggested that current expansion plans are based
on projections which in turn are heavily reliant on securing further
commitments from Ryanair. Can you elaborate on how these latest
proposals came about? Did you have to attempt to attract Ryanair
or did Ryanair approach you? Is the extended runway essential
to Ryanair's future plans?
Mr Devine: In terms of any operator,
be it low cost or otherwise, that operator will only want to operate
from a region if they can make money. The bottom line for the
airlines is that they want to make money and will identify routes
or regions throughout the UK where they can serve and make money.
The name on the aircraft is almost irrelevant in terms of how
the aircraft is operated. A 737 or a 757 is operated against the
performance manual set out by the aircraft manufacturer, be it
Boeing or Airbus, and the airlines simply apply the performance
of that aircraft to the runways that are available. In terms of
the development programme, the Government White Paper on the future
development of air transport challenged this airport and all airports
to look at their current capacity and look at future capacity
and that was the start of us looking ahead to see what growth
could be forecast in aviation over the next number of years and
trying to align the infrastructure and the development of that
infrastructure with those forecasts. Yes, within the plan there
are a number of routes that are projected and those routes are
projected by the airlines, not the airports. The airlines were
spoken to by the consultants and they said, "These are the
types of routes we would seek to develop given the marketplace".
1 Commercial arrangements between the Airport Authority
and any airline, including Ryanair, are commercially confidential.
The details of which cannot be disclosed without the agreement
of both parties. However, in relation to Ryanair, the Airport
earns significant revenue from the airline and from the passengers
which it brings to the airport. Back
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