PINSTRIPE
The first article I wrote for The Herald was about Prestwick Airport. My conclusion then was the Scottish Government’s purchase of the airport was unwise and its faith in the airport’s future misplaced. I’ve been keeping an eye on Prestwick since then to see how things have been going. The answer is, unfortunately, rather badly.
The business plan which the Scottish Government backed when it bought the airport was based on increasing passenger numbers quite aggressively each year. The reality as we know is that Ryanair, the only passenger carrying customer, subsequently moved the majority of their West of Scotland operation to Glasgow - where enough people actually live to make a airport viable.
Undeterred the airport comes up with new plans which show that the period of cash losses extends ever further into the future but then miraculously the corner is turned and the cash comes rolling back in. Every business plan I have ever read says that. People running a business naturally hope that they can improve things - that is human nature.
The airport’s accounts for the year to March 2016 show that loans from the Government and its agencies had exceeded £20 million and are on course to hit £40 million by March 2018 - enough to pay perhaps 1,000 nurses for a year, build a few schools, massively improve our crumbling roads - all things with real purpose and benefit.
The first problem I have with Prestwick Airport is that it is never going to be viable. The absurd clutching at the straw of a Spaceport is embarrassing. From the trumpeting of the recent deal with Houston Spaceport you would think that the Starship Enterprise will soon be putting in regular appearances - in fact Houston Spaceport is just an airport which is not far from a NASA base - there have been no launches into space from there. The Scottish Government should have the courage to say that Prestwick Airport is not viable, is costing too much money, risks undermining the success of Glasgow Airport and should close.
The second problem I have regarding Prestwick Airport is with the way in which the Scottish Government brazenly distorts the facts. The recent rotten trading figures were accompanied by quotes from an unnamed Scottish Government spokesman claiming first, that the loans from the Government attract “a market rate of interest” and second, that “A report from Audit Scotland confirmed that we are highly likely to generate a return on our investment which is higher than the current rate of interest we are charging”.
Both of these statements are distortions of the truth. If the rate of interest being charged was truly an appropriate market rate the airport could go the Royal Bank and get a loan - it patently cannot. The warped terms of EU state aid rules allows the Government to assess (far too positively) the credit status of Prestwick and then lend at a rate of interest based on that flawed assessment. To pretend to taxpayers that the interest rates on the loans to Prestwick Airport are at a commercial rate for the risk being taken is just insulting.
I have read the Audit Scotland report. The report does not say what the Scottish Government spokesman claims it does. The report is couched in careful language but it makes it very clear that viability and a return on our money depends on the underlying commercial assumptions being correct - and they are not by a country mile.
The Scottish Government’s continued support for Prestwick Airport and the somersaults it goes through to justify doing so are a scandal. Time for another Audit Scotland report I think.
Pinstripe is a senior member of Scotland's financial services community.
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