Published on October 16th, 2016 | by Jim Lee0
Budget provides little hope for the future of Waterford Regional Airport while the UK Government’s throws a lifeline to Derry
This year’s budget, announced on 11th October, provided an overall allocation of €1.8 billion next year for the Department of Transport, Tourism and Sport, representing a €72 million, or over 4% increase on 2016. The main change in the funding of the aviation programme is only €1 million representing a 4% increase in the capital programme, bringing the overall envelope to over €27 million. Coincidentally €1 million is being provided in grant aid to repair the Shannon Estuary Embankments, protecting Shannon Airport, which were damaged in the 2014 winter storms. This investment is subject to securing State aid approval from the EU Commission.
Therefore there is little evidence of Waterford Independent TD and Minister of State for Training and Skills, John Halligan’s, ‘deal’ in the ‘Programme for Partnership Government 2016’, which committed the new Government to providing €10 million in additional funding for Regional Airports. Minister Halligan had claimed that this could be used to extend the runway at his local airport.
While the budget includes over €12 million to continue supporting the four regional airports – Donegal, Knock, Kerry and Waterford – this can be used only for safety and security related projects and activities under the Regional Airports Programme 2015-2019, as well as supporting the two PSO air services to Donegal and Kerry.
On 14th September, the Minister for Transport, Tourism and Sport, Shane Ross, announced an allocation of €2.73 million in funding, which was in addition to a preliminary round of grant allocations totalling €1.2 million for regional airports, announced in April. This brought the total Exchequer allocation for capital projects under the Programme for 2016 to €3.9 million.
In that announcement, Minister Ross confirmed that the extra €10 million in capital funding, that is provided in the Programme for Government, would only begin to “come into play from next year” (2017) and would bring to €38 million the amount provided in the Capital Plan 2016-2022 for supporting the airports, in the areas of safety and security, compared to the original €28 million originally provided.
Of the €2.73 million announced, €870,000 was allocated to Waterford, but was contingent on the resumption of scheduled passenger services and on the airport authorities in Waterford securing a replacement carrier for VLM Airlines. Readers will recall that VLM filed for bankruptcy protection in Belgium earlier this year, and subsequently suspended services, with the loss of the scheduled services from Waterford to Birmingham and Luton. In addition, the grant allocation for Waterford will only be confirmed, when the resumption of scheduled passenger services has been secured by airport authorities, ensuring that the airport has a sustainable future. However, the €157,500 in grant aid approved in April of this year, for a number of security related projects, including new X-ray equipment at the airport is not affected. During the past five years, Waterford Airport has received €9.6 million in operational investment support from the Department.
None of the funding earmarked for Waterford can be used to extend the runway at that airport. Funding supports for capital expenditure under the Regional Airports Programme are confined to assisting the four airports concerned with implementing necessary safety and security related projects, and the Minister has said that the authorities in Waterford Airport are fully aware of this, and that funding is contingent on them securing replacement scheduled services.
Funding in respect of safety and security projects at the airports is provided under the CAPEX Scheme as part of the Department’s Regional Airports Programme.
The maximum level of grant aid that is permitted under the 2014 EU Guidelines on State aid to airports and airlines for projects that fall within this Scheme is 75% of the ‘funding gap’, i.e. the net present value of the difference between the positive and negative cash flows (including investment costs) over the lifetime of the project. The projects that were the subject of the Minister’s announcement were all approved at this maximum 75% aid rate.
The EU Guidelines provide that, in certain limited circumstances, an aid rate exceeding 75% may be justified, in exceptional circumstances, for airports with traffic volume below 1 million passengers per annum. In such a scenario, the EU Commission have indicated that a business case, justifying the proposed higher aid rate, would have to be approved by them.
Clearly, the EU Commission view any support above the 75% level as an exception, rather than the norm and it is the Ministers view that “having the public purse pick up the tab for three-quarters of the cost of airport investments removes a considerable financial burden from our regional airports and it is not unreasonable that these airport companies should fund the balance from their own resources”.
Development projects which are designed to expand capacity, such as the proposed runway extension at Waterford, are a commercial matter for the airports themselves and are outside the scope of the Programme. We understand that the airport authorities are pursuing local interests for funding in relation to that project.
Securing routes and negotiating deals with airlines, Minister Ross has made clear, are commercial matters for the airports themselves. While we understand that the airport authorities in Waterford are currently endeavouring to source an alternative carrier, without some form of incentive, it is going to prove very difficult to provide a viable service, with the present infrastructure.
While the National Aviation Policy, which was published last August, acknowledges the role played by the regional airports in promoting a level of international connectivity to support the tourism and business sectors in their regions, it only confirms that these airports be given the opportunity to grow to a viable, self-sustaining position. Clearly Waterford needs more, and the best option would seem to be Government support for a Public Obligation Service (PSO) route to one or more UK airports as appropriate. Given the level of support to the three State Airports over the years, a capital grant, even on a loan basis, should be considered for the runway extension.
VLM plan to relaunch but will Waterford be back on its radar?
VLM Airlines filed for bankruptcy protection at a court in Antwerp on 13th May, after accumulating €6 million of debt. Bankruptcy protection was then granted for six months on 25th May. At that stage, VLM had planned to continue its operations with a turnaround plan that envisaged a return to break even in mid-2017 with the main focus being on improving cash flow, stabilising the economic situation and its operations.
Unfortunately, once the filing for bankruptcy protection was announced, several pilots left the airline, in part because of the restructuring plan, which focused on cost reductions, but also over the uncertainty created. Subsequently, VLM Airlines said in a statement that this period of creditor protection would prove insufficient, for it to both restructure its operations, and to raise extra capital going forward. It then announced the termination of its flights from Waterford by 13th June. On 22nd June, People’s Viennaline announced the cancellation of its ACMI contract with VLM, without further notice, stating a lack of quality in the provided services, citing several delays and cancellations. Later on the same day, VLM Airlines declared bankruptcy. All flights were cancelled with immediate effect and its fleet of Fokker 50 aircraft, were grounded. The airline’s official website was shut down a few hours later.
Receivers were appointed and a tender process to sell the airline commenced. Various bidders expressed interest in acquiring the airline, with the tendering process closing on Tuesday, 6th September. It subsequently emerged that the airline had been acquired by SHS Antwerp Aviation (Antwerp), which is backed by Chinese investors. Initially a number of former VLM employees are being recruited to allow the company to take the necessary steps to obtain an Air Operator Certificate (AOC), after which SHS Antwerp Aviation will take over some, or all, of the company’s former fleet of eleven Fokker 50s. The new owners intend for the carrier to operate services from Ostend to a number of regional points in Europe. Prior to its demise, it operated passenger charter and scheduled passenger flights between Belgium, Switzerland, Germany, the United Kingdom and the Netherlands. It is expected that the new operation will retain about 60 of the airline’s staff for at least a year, while it develops a business and technical plan for the AOC and submit this to the Directorate General of Civil Aviation. So in the short term at least there is little likelihood of the airline being interested in returning to Waterford Airport.
It is also reported that the new owners plan to begin services, to secondary Chinese cities, with wide-body equipment, even though another new start-up, Air Belgium, also plans to launch scheduled charter services between Belgium and Asia. Air Belgium’s flights are expected to begin during the second quarter of 2017, even though the airline has yet to select an operating base.
Contrasting Waterford’s plight to that of City of Derry Airport
Meanwhile north of the border, at City of Derry Airport, which in spite of having an annual subsidy and scheduled services, things were not looking too good at the beginning of September, but unlike Waterford, the politicians stepped in with an impressive rescue package. In less than a week, the airport came from the impending disaster of its largest route operated by its major airline being dropped, to the promise of an immediate £7 million (around €8.17 million) support package from the Northern Ireland Executive, plus a PSO and all in addition to its existing annual subsidy of almost £3.5 million. That’s over £10.5 million (around €12.25 million) or almost £40 (around €46.67) per passenger per year.
The £7 million announced on 19th September, by Northern Ireland’s First Minister, Rt Hon Arlene Foster MLA and deputy First Minister, Martin McGuinness MLA, consists of up to of up to £2.5 million (around €2.92 million) in route development support, which should help transform the future of the airport, and a further £4.5 million (around €5.25 million) capital investment. The airport has 75 full time or full-time equivalent staff, 33 flexible staff and seven on-site concessions employing another 70 people.
Clive Coleman, Contracts Director with Regional & City Airports, which operates the airport, told the Derry Journal that a tender for a new PSO route to London is expected to be issued within weeks, and that it was currently with the European Commission for approval.
“That application was made late September we are hoping that will get clearance in the next week or so,” Mr Coleman said. “As soon as that is approved the procurement of the PSO is a public competition and it’s a two month tender period. Hopefully the tender will be out by the end of the month.”
Until the tenders are in, it is not yet known who will be involved, although it is expected to a regional UK or Irish carrier. “We know we will get a carrier because airlines like PSO routes because their risk is so much more limited. We want a smooth transition. So Ryanair’s service stops on 26th March and the aim is to have something up and running on the 27th” Mr Coleman added.
A second route to Manchester is also viewed as a priority, as Mr. Coleman confirmed. “Apart from London, Manchester is the most requested route from this airport and we see that as being key for us in terms of connectivity to the rest of UK, Europe and the world. We are also looking at other places like Birmingham and other routes like Edinburgh or Newcastle or Bristol”.
Asked about a possible service to Dublin, Mr Coleman said; “We really do want connectivity with Dublin. We haven’t given up on it. We are definitely looking at other options now. There are some talks going on with the Irish Government to help support it.”
Mr, Coleman also confirmed that the £4.5 million was earmarked for the development of a new hangar which would be used to service aeroplanes belonging to a new airline carrier operating from Derry, and will lead to the creation of new jobs. He added, that the £4.5 million “is not the full cost of the hangar, but its providing a significant proportion of the funds to enable the hangar to be built”. “The investment won’t be made until we have got guaranteed sustainable jobs behind it. We’d build it effectively for a tenant. It would be based somewhere in the airport” he added.
Rejecting suggestion that the airport should be closed due to the high level of its annual subvention Mr Coleman said: “As part of the PSO study we had it valued independently and the airports’ value to the local economy £15.7 million (around €17.45 million) through jobs, direct and indirect, inbound investment, tourism, business.”
The airport is also looking forward to its new summer 2017 Thompson/First Choice route to Palma Mallorca, while efforts are also being made to try to replace the popular Faro route, also dropped by Ryanair. In addition, corporate income from private aircraft, meanwhile, has trebled at the airport following a promotional campaign. Things are definitely looking up for the airport.
So Waterford it would appear that the ball is in your court, fight for similar resources or fade away.