Letter: Plan Flawed New One Needed

Filed in editorletters, Just In by October 28, 2019

To the Editor,

I attended the Council’s Information Session a few weeks ago, generally supportive of the investment proposed for the Aerodrome itself, to maintain serviceability for at least current operations and the concept of an Aviation Museum based on warbirds. I was concerned at the high costs for the project ($26million) and was therefore interested to understand the Business Plan that was advertised as being presented to demonstrate how the Council intended to service the $12.7million in loans. NO such Business Plan was presented, but the sales pitch certainly was, including the justification statements that unless the project was done by 2020 (next year) CASA would close the airport for non-compliance with new regulations. On questioning the lack of any Business Plan, I was given a copy of the Council’s Consultants Capital Expenditure Review Report (CERR), which Councillors had recently adopted when determining to proceed with the project.

On reading the report it became obvious to me that the CERR was more akin to a sales prospectus than an objective Review of the largest single Capital Expenditure Project this Council has ever undertaken. My greatest concerns are with the arguable and misrepresented justifications for the project, the scant and biased risk assessment and a business plan that does not stack up, with highly questionable financial predictions and ratepayers likely left to pay the bill.

I wrote to the Editor and Council previously, comprehensively outlining my serious concerns with the Council decision making process that has allowed the project to get to this point, with expectations of imminent commencement, yet the basics of justification, risk and financial implications do not withstand scrutiny, including use of Drought Stimulus Grant funding of $6.5 million that may have been better utilised on projects other than a hangar for warbirds.

My criticisms are squarely directed at the decision making process and the information being presented to Councillors, certainly not at individual Councillors, the majority of whom, no doubt, work with the best intentions for the community. There are considerable vagaries and variabilities which complicate this project, the risks are high, it will continue to receive public attention, so the Council had better get its decision-making right, before it commits too far.

My call has been for an Independent Review by a major accounting firm, excluding Councillors and staff, not because any personal criticisms, but because they are already invested in the project, through the hype, embellishment and information that I and others have demonstrated, does not withstand scrutiny. Councillors are required to act honestly, with due care and diligence, transparently and for the best interest of the broad community.

In response to my letter, the General Manager replied immediately, sadly without responding to the  majority of my comprehensive concerns, but with criticisms of me being inaccurate and misleading.

I provided a comprehensive response to Steve McDonald in response to his letter.

To be clear, as I stated in my initial letter, I support the retention of the Aerodrome and projects aimed at supporting local jobs, at providing economic diversity and tourism, however, these projects must be able to withstand scrutiny. Mr. McDonald’s letter confirms my very strong view that a comprehensive, Independent Review must be undertaken before it is too late.

JUSTIFICATIONS

It is not a good start to a Report adopted by Council, justifying $26million in expenditure, based on the existing condition of the runway at the Airport, with a photo 9 years old, prior to a previous ($2million) rehabilitation project. The community meeting and Council’s media have suggested the justification is also based around new CASA regulations for certifying aerodromes to allow continued Instrument Flying approvals, which Scone currently holds. Mr McDonald suggested I was inaccurate in raising the grandfathering provisions of new regulations, as they impact facilities at Scone Airport.

We now know that CASA have not had recent communications with UHSC, there are no outstanding compliance issues that would cause CASA to withdraw IFR landings, with Council’s own CASA authorised consultant contradicting Mr. McDonald in regard to “grandfathering” arrangements for facilities at Scone Airport, given they were compliant “when the facility was commissioned”. There is now a serious question to be answered in the Council’s interpretation of the new certification process and the embellishment regarding emergency landings.

The real risk to the ongoing certification of the Airport appears to be the maintenance and repair of the runway surface and lighting so that CASA does not issue a safety or compliance notice in the future.

Klamen, Engineering consultants in 2017 identified basic maintenance such as runway resealing as necessary, together with rehabilitation of geotechnical issues in runway subsoil involving recurring “gilgi’s” that deflect into the runway surface causing undulations. Not a good thing for very fast aircraft. These are identified in Councils plans as Stage 1 works and are supported to keep the Airport operational to IFR standard. This is not the justification question, it is the millions of dollars to be spent on parallel taxiway, aircraft and helicopter hardstand and other facilities that do not affect certification that must be scrutinised, through an independent review process, before commitments are made.

RISK ANALYSIS

The Risk analysis of the Council’s CERR is unbelievable, simplistic and scant. There is no quantification of risk involving anything other than exponential growth of visitors to the museum, people paying to see Airshows or owners of aircraft wanting hangars to lease. There is no sensitivity analysis on any combination of risk. No consideration of reputational damage or impact on ratepayers, should the highly questionable projections of revenue be not achieved. This deficiency alone is a warrant for an independent review, prior to commitments being made.

BUSINESS CASE CONFOUNDING

The General Manager confirmed the cost of the project is $26million, not the $23.5million contained in media statements, given a further $2.5 million is required to complete hanger construction in the CERR business model, is unfunded. The Council loan liability therefore grows from $10.7 million to $13.2 in a few years, with initial accumulated losses for the first 3 years of operation, similarly unfunded. Were the Councillors made aware of the financial implication, because they do not exist in the document they endorsed? The initial loan equates to 6% of general rates.

The business plan has a Consolidated Projected Operating Result which is meant to put all elements of project together and analyse the total revenues and expenses. This part of the document reveals, that even when the highly questionable and optimistic revenue predictions are used, together with the unrealistically low predicted costs, there is an accumulated loss in the first three years as stated of $1.5 million, unfunded in the business plan. Mr. McDonald stated in his reply that I was being misleading, because the Council currently subsidises the airport by “$300,00 per year”.

Whilst I take exception to the personal accusation, Mr. McDonald has completely missed my point.

The point being that the unfunded losses for at least the first 3 years based on questionable revenue predictions, whatever the amount, is unfunded and not identified as an issue in determining project viability. Geoff pinfold, in his letter to the Editor, articulated clearly that the $300,000 figure quoted by the General Manager includes non-cash depreciation of $163,822 and contribution to corporate overheads of $58,791 which are required to be paid by Council even if the Airport did not exist. The real balance is $89,350, which is a long way less that the figure quoted by the GM. The accumulated losses from each of the elements of the project (Airshows, Hangars, Museum) are however, all cash, directly impacting the bottom line. Who is misleading whom?

A rudimentary sensitivity analysis of the over-all business plan, concludes that the losses on the first 3 years are significantly understated and exceedingly likely to be extended for significantly longer than the optimistic 3 years, with modest reductions in predictions of people wanting to see an airshow and/or people paying entry into the museum and/or people wanting a hangar, given the future reduction in general aviation. Flying hours down 40% since 2000.  Flight training hours 40% down since 2009. Aviation Gas sales down 44% since 2009. Leaded fuel for old planes not produced in 10 years. Average age of VH Aircraft 36.4years and climbing.

There are 4 revenue streams to pay for both operations and service the $12.7million loan, these being, Airport Landing Fees, Hangar Lease Fees, Entry Fees to the Aviation Museum, ticket sales to a bi-annual Airshow.

Airport Landing Fees, for aircraft are predicted by Council to increase from about $106,000 currently to more than double in 10 years. Landings from “new business” to increase landings from about 4500 per year (12 per day) to 10,000 per year.  Seems to be grossly optimistic in the face of general aviation decline and must be subject to closer scrutiny by independent review.

Hangar Lease Fees, for the 10 new hangars to house about 100 aircraft to be built at a cost of about $5.0 million 9 based on the missing $2.5million for the second lot of hangars)are proposed to create revenue is “predicted to grow from $180,000 in year 1 to $616,000 pa in year 10. Seems to be a grossly exaggerated growth rate and revenue base, given there are 18 hangars currently at the airport, with little demand for more according to current owners and questionable prospect for the future. The suggested growth from closure of other airports in the “Sydney Basin” appears to have been debunked by recent responses of surprise from the areas supposedly due for closure. Why the misrepresentation? Again, an independent review must scrutinise Council’s claims.

Aviation Museum entry fees, retail sales and “sponsorship” have been predicted in the financial model to increase continuously over a decade from about $409,000 in year 1 to $848,000 in year 10, with predicted visitor numbers of 24,000 paying customers in year 1 to 48,000 in year 10. The operating costs start at $450,000 in year 1, to $600,000 in year 10. Yes, that’s right, loses money and that is with the Drought Grant but without paying the loan identified as $6.778 million in the Council Report (P&I of about $400,000 per year), without depreciation, without corporate overheads. On this basis, on the Council’s extra-ordinary growth figure the losses are about $441k year 1, $422k year 2 etc, with unfunded accumulated losses of $2.5 million over 10 years. If the visitor numbers just stay at the initial 24k, the accumulated losses are $5.2 million without considering a reduction in interest over time. Seem unbelievable to you?

Bi-Annual Airshow ticket and merchandise sales are the predominant source of revenue for the entire project, with income predicted to start at $485,000 in year 1 and grow exponentially to $999,000 in year 10 (5th show). People paying to go through the gate to watch the shows predicted to grow from about 10,000 in year 1 to 20,000 in year 10 (5th show). These predictions appear wildly exaggerated from my own experience with Scone Cup crowds and prior airshows and differ from the “Stafford “report of 8,000 to 15,000. It costs $350,000 to run an airshow, which does not include the goodwill “in-kind “contribution of $100k from donors supplying aircraft, I assume. On these figures the break-even point is 7000 paying people, with $350,000 costs at risk of weather etc.

If this is as good as it gets, the negative impact on predictions is another $2.7million. Council’s should not stage risk events such as Air Shows where rate payer’s funds are at considerable risk and the reputational risk when things go wrong. There is high risk that Airshows will not be profitable and fundamentally should not be used as core funding to cover airport operations of pay down significant debt.

I have NO CONFIDENCE the Councillors have been properly briefed on the variabilities and vagaries of information being presented to them and are incapable to provide the scrutiny it needs. Which is why an external independent Review is essential

OPPORTUNITY TO SAVE COSTS

There is an opportunity to save considerable (millions) in Capital Expenditure that I have detailed in my submissions to Council, without response. These are based around deletion of an unnecessary and very expensive parallel runway, that actually creates a safety issue rather than solve one, as well as other extra’s such as helicopter hardstands etc, that service particular users, who should contribute capital. These extraneous, but expensive facilities do not impact on future certifications or serviceability of the Airport.

DROUGHT STIMULUS GRANT

 Council has abandoned the former Council’s Rural Water Supply Scheme, including inclusion of rural water supply to the Murrurundi pipeline, to drought proof and support agriculture. Instead, Council   allocated the $6.5million in drought stimulus funding to the Aviation Museum.

The Museum project may meet the grant criteria, but why did Council decide to spend it on the Airport instead of the Rural Water Supply Scheme. Where was the community engagement before applying for the grant?  The General Manager has not answered this question.

SECRET SOCIETY

The General Manager has urged me justify my comment in my previous letter about “deals being done by the secret society” in direct reference to Upper Hunter Shire Council. I am happy to explain myself.

Scone Library: The first example is the secret sale of the Scone Library. The Council sold the building, then leased it back for more than Council could achieve from investment of the sale price. It was done behind closed doors with no public scrutiny.

Closed Meetings: In recent years, I have advised Council management of my concern with the lack of public reporting of decisions from Closed (Confidential) Council or Closed Committee meetings. My most recent email to the Director of Corporate Services was on October 1 and I’ve yet to receive a response.

Overpass: My understanding is Council recently decided to purchase land near the saleyards to build an overpass, instead of Kelly Street to replace a level crossing, in a closed Council meeting and made NO PUBLIC RECORD of the decision in Council minutes. The only public record I can find in the minutes of the meeting, when I understand the decision was made, was “Procurement of Land – Scone” – the resolution, “RESOLVED that Council adopt the recommendation as per the confidential report”. This is NOT public disclosure of the action being taken by Council, it is hidden, there is no public knowledge and no scrutiny.

Golf Course: Another example, I understand at the last Council meeting it was decided Council staff would continue to maintain the Scone Golf Course for several more months, at the ongoing cost to the ratepayer. Again, the minutes merely state “RESOLVED that Council adopt the recommendation as per the confidential report”. Again, this is NOT a public disclosure, with the actual action to be taken deliberately excluded from public knowledge or scrutiny.

In my view, as I have expressed to Council on multiple occasions, this is a serious breach of both the intent and letter of Council’s adopted Code of Meeting Practice and the Local Government Act.

Who knows what has been decided by Council, given the actual action to be taken is hidden within recommendations in a staff report to the Council or from a committee of Council. What land has been purchased but not yet announced in media statements, what deals have been done behind closed doors, what benefits have been provided to individuals or groups? All these things could happen, if they have not already, given there has been no public knowledge or scrutiny under the current reporting of Council decisions regime. The current culture of secrecy must stop.

Council, must publicly record the adopted staff report recommendation as the resolution of Council, not just record the adoption of the report( s9.11 and s14.21 Code of Meeting Practice).

Council must, in my opinion, review all its previous minutes and rectify non-compliant records and have them resubmitted to Council for endorsement of the modifications, which are beyond staff delegation.

That is why I used the term “secret society” in my previous letter to you and To the Editor, relative to possible dealings regarding the Airport that have not yet come to light. I have been more than patient and attempted to resolve the matter in other ways.

CONCLUSION

The Council’s decision-making process and handling of this very expensive Airport and Aviation Museum project has been nothing less than a debacle. The highly questionable justifications and conflicting advises, the deliberately scant and biased risk analysis and a business plan, laced with unconstrained exaggeration and highly questionable financial predictions, gives me great concern that the ratepayer will be significantly worse off and left to pay the Bill.

I could not walk past the obvious spin and the sales pitch, to reveal the reality.

I and others in the community are calling for an independent, comprehensive REVIEW of this entire project and process, its justification, its risks and its financial implications. It is time for Council, if not the State Government to step in before commitments are made and it is too late.

Daryl Dutton

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