I have read and listened to the “spin” being generated by the Upper hunter Shire Council in their endeavour to justify their decisions to spend $26million at the Scone Airport. I am very concerned with the decision-making process including the so-called justifications and business rationale on which decisions have been made. I provide an alternative point of view to the Council and some scrutiny to their decisions.
Business Case Confounding
Council is required to fund $13.2 million of the cost from its own resources, $10.743 million by way of loan now, and a further $2.5 million after year 5, without any identified source of funding in 5 years that I can find.
The interest and principal on this loan, without considering additional operating costs, depreciation, or the additional $2.5 million, is $600,000 per year, according to Council’s current 2019/20 budget documents, or about 6% of your rates.
I attended a community consultation meeting at the Airport on September 20, when the public invitation specifically stated that there would be a “review of the business case”. There was no such review, nor did the presentation or any speaker deal with the business case, costs, fees, charges or revenues, other than stating grant funding. The meeting was just a sham to sign off on “communication” and show pretty pictures.
In response to my question re the Business Plan, or lack thereof, I was referred to a “Capital Expenditure Review” Report that was apparently adopted by Council at a recent (July) Council meeting. Councils in NSW are required to have Office of Local Government approval for such projects, through a “Capital Expenditure Review” Report, when such projects exceed the thresholds, or if applying for a Special Rate Variation (rate increase) whether funded by grant or Council. This Council failed to comply with the latter requirement, both for this project and the Saleyards project, when it unsuccessfully applied for a special rate increase for 2018/19.
At the conclusion of the meeting, I was given a copy of the consultant’s Capital Expenditure Review Report, which is required to be a “Review” of the project, to demonstrate prudent expenditure of community funds (grant or Council) on a whole of life basis, including justifying the need for the project, alternative use of those funds or alternate delivery of the project. A Capital Expenditure Report is not the business case, but an objective review of a business case, amongst other requirements such as whole of life assessment, risk, probity and governance.
I have a great many concerns with the so-called Capital Expenditure Report, foremost amongst those, by way of example, goes to the “justification” for the project. There is a photograph on page 13 of the Report under a banner which states the “project’s most basic justification..” is the state of the existing infrastructure…” such as the “pavement rutting” apparently demonstrated by the photograph.
The only problem for the consultant and the Council is that the photograph is not the existing runway but a photo of the runway 9 YEARS AGO, prior to the previous (2010) $2 million Runway Pavement Upgrade. Why is it that the Council and/or the consultant have resorted to misrepresenting the existing runway by use of an old photo to embellish their “justification” to Office of Local Government, or at best, been sloppy in their presentation. Either way, makes one wonder about the veracity and accuracy of the rest of the report, which in my view only gets worse.
Call for Scrutiny
Whilst I support the retention of the Airport and projects aimed at both supporting local jobs, providing economic diversity and tourism visitation, these projects must withstand scrutiny, particularly given the extraordinary costs and “projected” sources of revenues needed to pay back Council loans.
Comply or close?
The community meeting was told that the alternative to the upgrade was the loss of the airport for commercial use, because of infrastructure non-compliance when new regulations come into effect, however the meeting was not told of the “grandfathering” provisions of the new regulations where “the operator of a certified aerodrome is not required to modify an existing aerodrome facility (non-compliant facility) so that it complies with this MOS (CASA Manual of Standards-139) until the facility is replaced or upgraded”, nor was there any discussion about the flexibility in meeting such obligations. Why the lack of transparency?? Why the apparent exaggeration or misrepresentation??
The project includes a full-length taxiway, at the cost of millions, so aircraft don’t need to use the runway to get to one end or the other for take-off into the wind. There is no justification for this expenditure and the huge increase in ongoing maintenance and replacement costs. The number of aircraft using the airport is low, average less than 14 per day, which cannot justify the additional expense. No parallel taxiways at Mudgee, Gunnedah, Moree, Narrabri, or Temora. The existing short end taxiway has primarily failed because of black soil and oxidation from lack of use. Where is the scrutiny??
The business case presented within the above referenced report identifies that a major component of revenue to pay back the $10.7million loan comes from entry ticket sales for “Air Shows” to be conducted every second year. Ticket sales are stated to commence in year 1 at $403,750 to $906,872 at the 5th Air Show (2.25 times) while the corresponding expenses for the same shows will only increase by 12%, or 1.4% per annum, including indexation. That’s right, the business case to pay back such a large loan is based on profits being realised from Air Shows, such profits apparently to grow continuously for 5 consecutive air shows and yet expenses don’t increase! No inclement weather, no competitive event? Seem a little optimistic and unrealistic to you??
“By far the largest increases in revenues associated with the proposal though, comes from hanger lease fees”, the Report states at page 3. Lease fees will grow from $180,000 in the first year to $616,000pa (10 hangers) in year 10, capacity for 100 light aircraft. This assumes lease fees of fully occupied hangers at $35/sq.m, indexed at 3%. The additional $2.5 million Capital Input is required at year 3 for additional hangers, as best as I can decipher. The problem is, as I am advised by those closer to the action, the total equivalent lease fees from the existing 18 small hangers is $86,400 pa, with little demand for more. For large hangers, where multiple aircraft can be housed, figures both locally and Tamworth are less than $10/sq.m. The quantum, occupancy rate, lease fees and indexation are all disproportionate to reality. Seem a little optimistic and unrealistic to you??
1,000 Visitors Each Week
As for the Warbirds Visitor Attraction, which comprises $6.77 million of Council loan and will cost $13.035 million, the greatest revenue for loan repayments and operational costs are supposedly generated from general entry fees from visitors. The business case assumes a continuous increase in visitations each year, generating $147,300 in year 1, to $233,323 in year 4, jumping magically 50% to $358,320 in year 5, to $409,303 in year 10 (2.78 times). Yes, that’s 50,000 people per year, 1,000 per week. During the same period landing fees will increase from $10,526 in year 1 to $66,109 in year 10 (6.28 times). Did you see that aircraft owners? No details on staffing costs, operating costs, etc, these are hidden in another Report, however, repayments for this component of the loan are about $400,000 per annum, without running costs. Seem a little optimistic and unrealistic to you??
Realistic Business Plan?
The “Business Plan” for all three elements of the project are based on farcical predictions and unrealistic visitations, entry fees, hanger leases and user charges, in my view. The expenses are apparently cross subsidised between elements of the project, with unrealistic increases over time compared to revenue. The so-called Consolidated Projected Operating Result (for 8 years only), even based on the wildest of optimistic revenues and expenses demonstrate cumulative losses of another $1.5million over the first 3 years, no mention of how these losses are funded, so can only assume paid for by you, the ratepayer.
The Risk Management Plan, on pages 18 and 19, outline only 9 risks, where all the “positive” risks are “possible”, while all the “negative” risks are “unlikely”. There is no quantification of any risk, nor is there any sensitivity analysis as to any combination of risk that would affect the viability of the commercial undertakings or the repayment of loans. Seem a little simplistic and unbelievable to you??
Other Aviation Museums
The report identifies visitations at alternative Aviation Museums at page 15, including an almost identical set-up at Temora (NSW),but include Utah (USA), Point Cook (VIC), Hinkler and Queensland (QLD), Aviation Heritage (NT), but fails to mention the Fighter World facility at Williamtown, within our own Region and immediately adjacent to the largest population centres in the region, why doesn’t this major potential competitor for the facility rate a mention?? Seem a little biased to you??
How Many Employees?
Page 10 of the so-called Capital Expenditure Review report contains a spreadsheet of the number of direct employees currently at the airport, with a total of 80. Sources closer to the action advise that this number of employees, 33 pilots, 37 Aircraft Maintenance and 10 Administration appears grossly overstated. It wouldn’t be too difficult to undertake an audit. Page 11 is even more interesting, this page suggests there will be another 52 jobs directly at the airport, another 32 in the supply chain (whatever that is) and another 27 in consumption (whatever that is). The 52 jobs will include 10 more pilots, 18 more in Aircraft Maintenance, 4 apprentices, 10 more in Administration and another 10 direct jobs in “Building Maintenance”, with one of the previous pilots also in “Building Maintenance”. I wonder what Building Maintenance has to do with Airport Operations. I can understand connectivity with helicopter operations, 2 extra warbird pilots, etc but I fail to see any connectivity with growth predictions based on Building Maintenance, it’s bizarre! Where would this abstract idea for unrelated airport employment come, unless of course there already has been some type of deal done by the secret society. A further 18 in Aircraft Maintenance on top of the existing supposed 37. Seem credible to you?? Maybe there is another deal done for an international flying school, speculation?
I could go on, I have very many more concerns with both the Capital Expenditure Review Report and the Councils’ response to it, but most people will have guessed by now that I certainly do not share the apparent confidence of the Councillors or Staff of Upper Hunter Shire Council.
General Aviation Nose-Diving
Now let’s look at the bigger picture, the Australian Government’s Department of Infrastructure and Regional Development provide a regular Statistical Report on the General Aviation within Australia. Some pertinent facts from the latest edition. Did you know the average age of VH Registered Aircraft in general operations is 36.4 years, most require leaded fuel, for which production is planned to cease over the next 10 years. The number of Recreational Pilots is continually dropping, down 23% since 2011. Private Pilots down 10 ]% since 2010. VH Registered flying hours are down 40% since 2000. Flight training hours down 40% since 2009. Business flying hours down 33% since 1993.Aerial Agriculture flying hours down 43% since 1998. Total aviation gas sales down 44% since 2009. Small charter and RPT activity down 50% since 2000. If you were a prudent person would you invest in this business, particularly when it’s not your money??
Drought Stimulus and the Missing Rural Water Supply Scheme
One of the great ironies of this project is that a major component of the grant funding, $6.5million, comes from the NSW Drought Stimulus Package. I fail to see the connection, while the current Council seems to have abandoned the Rural Water Supply Scheme (developed by previous Councils) which was aimed at drought proofing the Upper Hunter and forming the basis for agricultural economic diversity in the future, by utilising water from Glenbawn Dam in the Upper Hunter, when no longer required for power generation or coal mines. What decision making process or consultation did Council undertake to determine to spend the special drought grant and a huge ratepayer contribution on an airport already costing the ratepayer, yet abandon the opportunity to drought proof a big chunk of the shire? How on earth was this project put forward and adopted without sufficient scrutiny.
The standard you walk past is the standard you are willing to accept, I could not walk past this one. Many things about this project are serious causes for concern, from the so-called justifications, to the extent of the upgrade and undesirable outcomes, to the incredible and unrealistic revenues predicted, the sketchy rubbery costings, to the unbelievable reality that the project has apparently escaped scrutiny to this point.
I can hear them now, the Mayor, the Chair of the Airport Committee, the Councillors, the General Manager and his staff all indignantly declaring that they have had all the expert advice and the project still stacks up. Well if that was the case, why have these reports not been made public or referenced in the Report to Council, which approved the Capital Expenditure Report and determined to progress the project? No scrutiny there.
I have no pecuniary interest in the airport, I have no political affiliations or aspirations, just a desire for proper process and prudent decision-making within our Local Government.
The whole project and alternate use of funds needs an independent and objective Review, exclusive of the current Councillors and Staff. The Local State MP, Michael Johnsen needs to activate such a review. Will that happen? Probably not, given that NSW Government Grants have been announced and tenders are being called, however, given the risks and nature of the so-called Business Plan, we will not have to wait for long to see who pays the bill. Maybe that will get some scrutiny.
Mr Dutton is a resident of Scone and a former general manager of Upper Hunter Shire Council.
*scone.com.au has inserted sub-headings into Mr Dutton’s letter for readability.
Some of the documents referenced in Mr Dutton’s letter are available for view on the Council website including:
- Scone Airport Development – An overview
- Airport: A Sure Thing Or A Gamble? – September 23, 2019.
- Conflict Questioned: Mayor “Personally Affronted!” – September 30, 2019.
- Letter: Airport – Can’t Walk Past This One – October 15, 2019.
- Conflict: Clearing the Air – October 16, 2019.
- Letter: Council Rebukes Dutton on Airport – October 16, 2019.