Financial fog beginning to lift at Prestwick, chairman Miller insists

Andrew Miller, the seasoned aviation executive who has chaired Prestwick for nearly a year, knows the weather alone will not revive the fortunes of an airport which has been in public hands since 2013.

But the “infrastructure argument”, which also includes Prestwick’s long runway, is one of several assets he believes the Ayrshire hub has in its favour as he plots its course back to private ownership.

“Today, for instance, Prestwick is receiving diverted aircraft because of the fog,” Mr Miller said.

“Where could they go? They couldn’t got to Glasgow or Edinburgh.

“Now we couldn’t make the profit gap disappear because of the fog, but it is one prime example. It is a good infrastructure argument [for Prestwick].”

Mr Miller, who embarked on a long career in aviation and retail after joining British Airways as a graduate in 1977, believes Prestwick of crucial importance to the health of the Scottish economy.

He points to the job supported by the allied industries on its doorstep, with major employers such as GE Aviation supplying the global aerospace sector in the immediate vicinity.

He highlights Prestwick’s freight handling prowess, in particular for Scottish oil and gas companies getting parts from Aberdeen to industry centres in the US and Africa.

And he underscores its potential to attract more airlines to operate from the airport (currently only Ryanair flies from Prestwick) and serve as a hub to improve connections to the Highlands and Islands.

But in the here and now the most pressing task facing Mr Miller and his personally assembled board is to stem the operating losses which led previous owner, New Zealand-based Infratil, to sell Prestwick to the Scottish Government for a nominal £1 in November 2013.

According to its most recent accounts, Prestwick made a loss of £6 million in the year ended March 31, marginally worse than the £5.9m booked the year before, with turnover steady at £9.2m.

Loans from the Scottish Government to the business, via Transport Scotland, increased to £10.8m from £4.5m the year before.

It was not only the balance sheet that was under stress when Mr Miller joined.

The executive has made restoring trust among the airport’s 300 directly-employed staff one of his biggest priorities, conceding that morale had been “battered” by the time he had come on board.

Alongside a decline in worker confidence was a skills shortage, which had opened up as some of the airport’s best talent had decided to move on.

“It wasn’t good,” Mr Miller said. “Any business that has shrunk, that has been losing money, that fails to find a new owner… I think it is more than likely you are going to find some very unhappy, sad and lonely people.

“And it’s about giving them confidence both from a shareholder’s perspective and a market perspective that you can actually turn the business around. That’s what we are going to do.”

Asked what he and his board have done to alleviate the short-term facing the business, Mr Miller underlined the importance of communicating plans to staff and seeking their input.

Recent dialogue with frontline staff led to a solution whereby a local farmer has agreed to cut the grass around the airport in return for keeping the clippings. The airport’s own fire-fighting staff are now also carrying out safety checks on its fire extinguishers and alarms, work that was previously carried out – at greater expense – by a third-party provider.

“It’s a business where people are really important, and it’s about talking to people, explaining why you think the business is in the state it is on, and then seeking their views, understanding and ideas of where we are going,” Mr Miller said.

The bid to revive Prestwick is dependent not just about bringing costs under control.

It comes as secondary and tertiary airports the world over grapple with structural changes in the global airline sector.

In that respect, they could scarcely have a more experienced aviation figure piloting their course.

Those in charge of his recruitment will have been impressed by Mr Miller’s spell at Air New Zealand, where he played a key role in developing the country’s comprehensive domestic flight schedule.

Mr Miller, who grew up in Larkhall, South Lanarkshire, and attended Aberdeen University, believes the Scottish domestic market to be grossly “under-served and over-priced”.

But by reforming Air Passenger Duty (APD) – currently applied at the same rate for a 15-minute flight or a 2000-mile journey – he is convinced Scotland can emulate New Zealand’s success.

In his view, APD should be scrapped for airports which attract less than three million passenger units, and “nil on growth”, meaning that the tax would not be payable if passenger numbers grow at an airport from ten million to 11m, for example.

He cites the example of Blenheim in the north-east of New Zealand’s South Island, from where 16 flights are run each day to the capital Wellington in the North Island.

And he believes Oban can perform a similar role for connecting the Highlands and Islands of Scotland, with Prestwick serving as the hub connecting the west coast town with the likes of London.

According to Mr Miller, that would open the more remote parts of Scotland to tourists from countries such as China and Japan, who often have limited time when they visit the UK.

“If I want to go to Oban from Glasgow its three hours [and] 15 minutes [by train],” he explained.

“There is a lovely airport there, [it is] a new facility, big runway [but] nobody uses it. Well, it’s general aviation. If that was in New Zealand, that airport would have four minimum 19-seat aircrafts flying to Glasgow, Edinburgh and Prestwick.

“Oban is a tourist place… but it is very difficult to get to if you are flying our out of London to get to Glasgow to get to Oban.”

Perhaps more pressingly, Prestwick is actively seeking to attract other airlines to operate from the Ayrshire airport beyond Ryanair, which has been a fixture there since 1994.

But Mr Miller admits the process is not as “easy as picking up the phone”.

He outlines the situation Prestwick finds itself in by offering a brief history of the budget airline sector. When the low-cost model burst on to the scene, Prestwick attracted the likes of Wizz Air and Buzz, as well as Ryanair, thanks in part to its lower landing charges.

But as the market developed, Mr Miller explained, it underwent a structural change which saw the “big ones grew and became bigger, and the small guys disappeared.”

In retrospect, Mr Miller believes Prestwick should have been more alert to the changes taking place and moved to restructure the business, noting that even as the airport peaked with 2.3m passengers in 2006, “other secondary airports around the world” were already suffering.

“So the business just shrunk, looking after fewer and fewer low-cost airline seats,” Mir Miller said. “That’s when the strategic redevelopment and focus should have taken place.

“However, we are in the position that we are in and you know, we will fix the business.”

Ryanair, which employs 300 staff at its MRO (maintenance, repair and overhaul base) at Prestwick, is currently the only airline to fly in and out of the airport.

However, as the Irish carrier continues to grow and seeks to build relationships with bigger carriers and bigger airports, there is an opportunity for Prestwick, Mr Miller notes.

“The future for Prestwick is diversifying more in terms of the passenger side of the business,” he said. “By that I mean looking at a broader range of airlines, smaller routes, longer thinner routes where we can have a competitive advantage, and dealing with more freight opportunities beyond what we have today.

“We are very big in the highly specialised freight like Antonovs flying in very big bits of equipment that have to be disassembled and put on an aircraft.”

Talking to Mr Miller, it is clear the passion for the industry he first developed as a young pilot in the 1970s has never left him. It is also an education for anyone with a passing interest in how the airline sector has arrived at the point it is today.

One trend he highlights is the lack of capital there has generally been for airline start-ups since the global financial crisis. This means there is not the same number of start-ups now as there were backed by venture capitalists in the 1990s, “because the markets are not supporting that.”

Mr Miller draws parallels between the industry with the UK grocery sector, with the middle-sized operators being squeezed by flag carriers such as BA and Lufthansa at the top, and budget operators at the bottom. Those conditions have led to mergers such as the one between BMI Regional and Logan Air, which he said have brought those companies “critical mass, more market access and a scale and size” that allows them to compete.

Others, such as Flybe, have worked “under the umbrella of code share” with larger partners such as Finnair.

“But if you look at the middle-tier airlines in Europe they are all suffering tremendously in terms of profitability and also in balance street strength,” Mr Miller said.

“Some of them are opportunities in terms of their market mission with Prestwick, but they are not in a state of financial robustness to be able to expand their businesses.”

Yet despite such challenges Mr Miller insists there is still scope for Prestwick to expand, highlighting shorter haul domestic flights to cities such as London and Aberdeen as “viable” targets.

Mr Miller said: “There is a list if routes that we have scored that we know are viable and what frequency and aircraft type would actually work, and we are going round the market trying to find partnership these airlines to discuss strategy – not in competition with Ryanair, but complementary to their business.”

So far, Mr Miller has found the Scottish Government to be a positive partner. He explains that the day to day running of Prestwick is handled by an operating board, while the government is represented on a holding board. Mr Miller, who chairs both, said the structure has been set up to ensure ministers are kept at “arm’s length” from the day to day decision making.

“They are not there to make decisions on behalf of the business,” he explained. “But they are keen to see the business survive, to see the business make a profit and to see it returned to private equity, because Prestwick is really important.”

So when would he hope the airport will be a position to do that?

“I’d like to make the business break even in the next five years,” he said. “But to make sure it breaks even in a long-term sustainable way. That would make me very, very happy.”