City Council seeks fair airport deal

Press, 2 August 1983, Page 9

City Council seeks fair airport deal

Applying the “user pays principle” to airports was supported by the Christchurch City Council as long as it was a fair application, the council said yesterday in submissions to the Government on its recent airport financing discussion paper. A 17-page report on aspects of that paper was supported by the public utilities committee yesterday.

There were questions about demarcation of costs in the user pays principle, said the report. For example, the Ministry of Transport had declined to support the council — the Christchurch Airport Authority — in an attempt to recover from airlines the cost of maintaining an international arrivals building and a quarantine rubbish incineration plant. City Council submissions covered grievances the council has felt since a different formula for distributing airport landing income was started several years ago. The council said that all international airports “should be placed on the same footing and be treated alike in the apportionment of funds and grant-in-aid privileges,” said submissions from the General Manager and Town Clerk, Mr J. H. Gray.

His report said the council would welcome “prompt attention to the inequities of the existing system of financing airport facilities.”

Operating surpluses shared by the airport’s joint partners, the council and the Government, were used for future development. Because the surpluses were shared, the spending of any funds required by the managing City Council for other than maintenance and operations required approval by the Ministry of Transport. That created “long and seemingly unnecessary delays in gaining Government approval for important capital works projects,” said the submissions.

Complete control of the

management of existing joint venture airport assets should be given to local authorities.

The only exception to placing airports on the same funds footing should be to assist “smaller or undeveloped airports where a significant social need may be paramount,” said the submissions.

When an airport's fiveyear capital works programme had been approved and reviewed annually, additional specific approval for each project should not be required. “The existing system for obtaining Ministry approval increases administrative effort, involves costly delays and restricts the local authority in its management responsibilities,” said the City Council.

The council was “strenuously opposed to the arbitrary Government philosophy of limiting an airport’s operating surplus to a 10 per cent return on investment based on historical cost,” said the submissions. Such a rule disregarded an airport’s need for capital development, was unrealistic in a commercial enterprise “and favours those airports which have had the most recent and costly capital improvements.” That policy was “grossly discriminatory,” the submissions added, and “the result is likely to be in inverse proportion to the actual need.”

Auckland Airport continued to enjoy a huge working surplus that had been enhanced by capital to which it had not contributed. “Government contributions to finance Christchurch Airport have been minimal — and have been nil in recent years — while the other international airports have continually received substantial financial assistance which has greatly boosted their historical values, and their resultant favourable share of airport dues,” said the submissions.

In the last 23 years, capital developments costing almost $lB million at Christchurch Airport had been

financed entirely from running surpluses generated by the airport. « The Civil Aviation Division’s application of the rate of return policy “requirees the transfer of revenue from an airport which is better able to earn a return on invested capital in order to give the appearance of a greater return from the less efficient and less profitable airports,” said the submissions.

At the end of the 1981-82 financial year, Auckland Airport had $25 million in total reserves invested, “while Christchurch was criticised for its $6,836,295 in various depreciation reserves,” said the report. Christchurch Airport was expected to fall further behind.

There had been no local pressure for further investment in Christchurch, as suggested by the discussion paper, only a determination to lengthen the main runway “to enable large commercial jets to make fuel efficient landings further afield,” said the submissions.

Even if the limit on airport investment returns were conceded, that calculation should be applied to the present or replacement value of the investment, which was $5O million in the case of Christchurch Airport. On that basis, earning by the airport fell far short of a 10 per cent per year return.

Within reason, each airport should be allowed to generate funds it decided were needed to cover present costs and future development. The City Council said that airport surpluses should remain with the airport to provide necessary money for development of facilities, not distributed to joint venture partners as a dividend in proportion to their capital contributions. An airport authority should have the power to levy a passenger charge for airport purposes. Such a fee could be set at a level required to fund capital development or other activities.