A FUTURE UP IN THE AIR

Eighteen months after New Zealand owner Infratil put the loss-making Ayrshire airport up for sale, the Deputy First Minister told Holyrood there were just two options: nationalisation or imminent closure. Ed Miliband might recently have been pilloried for "taking Britain back to the 1970s" with his proposal to freeze energy prices, but not a single politician got up to oppose Sturgeon last week.

Amid hints that the name could be changed to Robert Burns International, she told Holyrood that the Scottish Government would take just six weeks to complete the due diligence over the airport, a timeframe that will sound worryingly short to some observers but is presumably not open to negotiation.

You only need to spend a few minutes looking at the Prestwick accounts to see why. The airport business lost almost £7 million before tax in the year to March 31, 2012, the fourth loss-making year in a row. Add together the 12 annual performances since Infratil bought into the airport in 2001, and the losses widen to £22m.

And all that is before you consider the £11m of losses over that period from the separate property company that owns the physical asset (albeit that charges moving between the two companies make it impossible to see the exact combined position). Then there is the fact that the assets have been written down by at least £45m over the decade, plus the purchase price, which was never made clear and happened in two phases, but certainly ran to tens of millions of pounds. In sum, Infratil could well have lost more than £100m overall.

One hundred also happens to the number of years in existence that Prestwick was celebrating in the summer. It was in July 1913 that an aircraft landed at the site was the first time, several decades before RAF Prestwick came about, which was deemed sufficient excuse for a Typhoon fighter jet to soar overhead to mark the occasion.

There followed the Prestwick World Festival of Flight at the start of September, which offered everything from 20-minute trips around Ayrshire in an eight-seater plane to viewings of A Dash Through The Clouds, the first-ever film about flying, from 1912.

But it is now clear that increasingly fraught negotiations were taking place behind all this "magnificent men in their flying machines" nostalgia. None of the big players was interested in the airport, seeing it as too small to justify the risk, but it appears that at least three smaller parties took a serious look, including, it is understood, business people local to Scotland. Given that the Scottish Government will reportedly buy the airport for a token amount, it seems Infratil failed even to give it away to any of them in the end.

Having operated transatlantic flights and supported an American air base during different phases over the years, the airport's modern era can be traced back to the announcement in 1994 that a little-known Irish operator called Ryanair was to start flights to Dublin.

While that airline started its surge towards the £7.5 billion behemoth it is today, Prestwick switched hands from Canadian entrepreneur Matthew Hudson to Stagecoach before ending up with Infratil in 2001. The airport became a serious player in budget flights, specialising in connections to secondary airports all over Europe which were usually no closer to the well-known city at the start of their name than Prestwick was to Glasgow.

By the mid-noughties, 2.4 million of us were happy to glide down the escalator each year to take advantage of the uber-cheap tickets on offer. And this was only part of the business. Prestwick was frequently the biggest player in Scotland in air freight, taking delivery of everything from world-class works of art to high-end electronics components.

Being relatively quiet and boasting famously fog-free conditions also meant that it became one of the leading fuel-stop points for long-haul flights crossing the Atlantic; quick, easy money without much staff costs. Similar services were being provided to US military planes - including rendition flights carrying CIA prisoners.

Prestwick had also become the centre of an aerospace cluster that included big blue-chip companies such as GE, Goodrich and BAE, employing thousands of people.

It provided hangar space for the likes of Ryanair and British Airways, plus other useful money-spinners such as flight training; and currently provides a base for Royal Navy search-and-rescue site HMS Gannet.

The financial figures were a mixed bag, with the airport business making or losing a few hundred thousand pounds most years, but the go-go climate lent credibility to promises that passenger numbers would hit six million by 2018 and 12 million by 2033. Then came the reality check that was the Lehman debacle, which sent things heading in the opposite direction as people held back on holidays and the freight business fell off a cliff.

Much of the fuel-stop business was by then falling away, through a combination of poaches from rivals such as Leipzig and Hahn in Germany, and the fact that technological improvements have meant that fewer aircraft now need this service. Flight training income dropped badly too (though the military, aerospace and maintenance business stayed intact).

Ryanair developed a rival relationship with Edinburgh Airport and began switching flights east - reputedly with scant love lost between Ryanair chief executive Michael O'Leary and the Prestwick management. It might have seemed that the obvious answer was to develop relationships with other airlines, but this carried the risk of displeasing the Irish carrier and losing more business. Aside from a few charter flights, Hungary-based Wizz was the only other partner, offering numerous popular routes to Poland.

In the midst of this was ever-increasing air passenger duty (APD) as the Treasury sought to claw in revenues where possible. This was particularly damaging to domestic flights, since passengers were hit in both directions. Airlines such as Ryanair were particularly threatened, so it was almost inevitable that they would expect their airports to bear some costs.

Meanwhile, the number of Prestwick destinations tumbled from 41 to 29 between 2007 and 2012, with perhaps the grimmest being the closure of the London Stansted link in late 2011, leaving Derry as the only UK destination.

Flight numbers were cut too, while the airport's strategy of repositioning itself as a gateway to sunshine destinations failed to offset the damage. Sunshine moved from roughly 20% to 65% of passenger business but overall passenger numbers dropped to 1.1 million last year.

Tourism into Ayrshire was hit by the loss of links to Germany and Scandinavia, while in March, Wizz relocated to Glasgow, shaving about another 100,000 passengers off Prestwick's numbers (albeit this year's figures have been rising overall).

This is what the Scottish Government has to contend with. Sturgeon told Holyrood the Government intended to take over the airport for "a matter of years". She did not say how much this would cost, except that combined losses and capital expenditure currently run to about £7m a year.

Sturgeon sought to justify the move on the basis that other airports are in public hands - not least Cardiff, rescued by the Welsh Assembly Government earlier this year. She said: "We believe it can be returned to profitability. We also estimate the cost of closure to the public purse would be very significant and this is an important factor in our decision."

The move will save the 300 or so jobs of people who work for the airport. They will be included in the 1400 whose jobs were "dependent on or associated with the airport", alongside 460 in the maintenance hangar and 270 jobs in local tourism.

There is no suggestion that the move is necessary to safeguard the 3200 jobs in the aerospace cluster, in line with the fact that a report last year by the York Aviation consultancy said their dependence on the airport was "limited".

Well-informed sources played down suggestions there could be national security motives behind the move, despite the longstanding military links and the fact that the second runway allows emergency landings away from the terminal.

Whatever the exact motivation - and some inevitably point to the independence referendum - the crucial issue is the bottom line. And this is not just a matter of minimising expense to the public purse.

Graeme Young, a state-aid specialist at Dundas & Wilson, said: "If it continues to operate at a loss for a period of time and that loss is subsidised by the state, that might be considered a form of state aid. There's no hard and fast timeframe within which it would have to be made profitable. The state would have to satisfy itself that it was operating it in a similar way to a private investor."

The state-aid issue is particularly pertinent when there are private competitors on the doorstep - Edinburgh and Glasgow - so the clock will be ticking to avoid breaching European Union rules. The government has not yet given much detail of its plans, except to mention growing freight and passenger numbers, "disposal of surplus assets" and a "wide-ranging efficiency programme". Efficiencies could be tough, given that management has already cut nearly 200 jobs in five years and is thought to feel there is little left to pare. Unite organiser Paul Neilson said: "If the costs they want to save are required to come from staff, I don't think there's anything to give."

Another source said there was "no silver bullet" in improving the airport's fortunes, but believed the improving economy would boost passenger and freight numbers. There are suggestions that Ryanair's business can't fall much further because of its big (publicly match-funded) investment in hangar maintenance, but its Paris Beauvais link recently got the chop and flights to Faro in Portugal became summer only.

The York report said Prestwick management was forecasting passenger numbers would be up to 2.1 million in 2017 and freight would be 15,700 tonnes - still well down on the 30,000+ tonnes of the mid-2000s. But air industry forecasts are notoriously unreliable and BAA's sale of Edinburgh means the Central Belt is more competitive than for many years.

In short, whichever operator the Scottish Government hires will have its hands full. Sturgeon also hinted last week that the "pure dead brilliant" moniker could finally be heading for the exit, but if anyone manages to make a success of the airport, it will certainly apply to them.