Y Pwyllgor Cyfrifon Cyhoeddus a Gweinyddiaeth Gyhoeddus
Public Accounts and Public Administration Committee03/11/2021
Aelodau'r Pwyllgor a oedd yn bresennol
Committee Members in Attendance
|Cefin Campbell AS|
|Jenny Rathbone AS|
|Mark Isherwood AS||Cadeirydd y Pwyllgor|
|Mike Hedges AS|
|Natasha Asghar AS|
Y rhai eraill a oedd yn bresennol
Others in Attendance
|Adrian Crompton||Archwilydd Cyffredinol Cymru, Archwilio Cymru|
|Auditor General for Wales, Audit Wales|
|Andrew Slade||Cyfarwyddwr Cyffredinol, Grŵp Economi, Sgiliau ac Adnoddau Naturiol, Llywodraeth Cymru|
|Director General, Economy, Skills & Natural Resources Group, Welsh Government|
|David Walters||Prif Swyddog Cyllid, Maes Awyr Caerdydd|
|Chief Financial Officer, Cardiff Airport|
|John Howells||Cyfarwyddwr, Newid Hinsawdd, Ynni a Chynllunio – Grŵp yr Economi, Sgiliau a Chyfoeth Naturiol, Llywodraeth Cymru|
|Director, Climate Change, Energy & Planning, Economy, Skills & Natural Resources Group, Welsh Government|
|Jonathan Moody||Pennaeth y Tîm Hedfanaeth, Grŵp yr Economi, Sgiliau a Chyfoeth Naturiol, Llywodraeth Cymru|
|Head of Aviation, Economy, Skills & Natural Resources Group, Welsh Government|
|Matthew Mortlock||Archwilio Cymru|
|Spencer Birns||Prif Weithredwr, Maes Awyr Caerdydd|
|Chief Executive Officer, Cardiff Airport|
|Steve Vincent||Cyfarwyddwr Dros Dro, Seilwaith Economaidd – Grŵp yr Economi, Sgiliau a Chyfoeth Naturiol, Llywodraeth Cymru|
|Interim Director, Economic Infrastructure, Economy, Skills & Natural Resources Group, Welsh Government|
|Wayne Harvey||Cadeirydd, Maes Awyr Caerdydd|
|Chairman, Cardiff Airport|
Swyddogion y Senedd a oedd yn bresennol
Senedd Officials in Attendance
|Angharad Roche||Dirprwy Glerc|
|Claire Griffiths||Dirprwy Glerc|
Cofnodir y trafodion yn yr iaith y llefarwyd hwy ynddi yn y pwyllgor. Yn ogystal, cynhwysir trawsgrifiad o’r cyfieithu ar y pryd. Lle mae cyfranwyr wedi darparu cywiriadau i’w tystiolaeth, nodir y rheini yn y trawsgrifiad.
The proceedings are reported in the language in which they were spoken in the committee. In addition, a transcription of the simultaneous interpretation is included. Where contributors have supplied corrections to their evidence, these are noted in the transcript.
Cyfarfu’r pwyllgor yn y Senedd a thrwy gynhadledd fideo.
Dechreuodd y cyfarfod am 09:15.
The committee met in the Senedd and by video-conference.
The meeting began at 09:15.
Wel, bore da a chroeso. Good morning and welcome to this meeting of the Public Accounts and Public Administration Committee in the Senedd. Apologies have been received, I believe, for the meeting from one Member, and one Member is going to be joining us later. Can you just—?
Yes, we've received apologies from Rhianon Passmore, and we'll be joined by Jenny Rathbone shortly.
Thank you very much indeed. Do Members have any declaration of registerable interests? No. I remind anybody watching this that Members' interests are registered on the publicly accessible register of interests, if you wish to check up on any of us. Before we begin, does everyone understand how to indicate they wish to speak? Thank you.
For participants in the room in Tŷ Hywel today, please note that the headsets are available in the room for translation and sound amplification, with translation on channel 1 and amplification on channel 0. I remind Members to please ensure that any electronic devices are on silent, and please note that, in the event of an emergency an alarm will sound and ushers will direct everyone to the nearest safe exit and assembly point.
So, I'm pleased to welcome the witnesses to this meeting. I'd be grateful if they could state their names and roles for the record. Perhaps we could start with Mr Birns.
Morning, thank you, Chair. Spencer Birns, chief executive officer of Cardiff Airport.
Thank you. Mr Harvey.
Good morning, Chair, and good morning, Members. Wayne Harvey, chair of Cardiff Airport.
Thank you, and Mr Walters.
Bore da, pawb. Chief financial officer, Cardiff Airport.
Well, thanks again for attending this committee meeting. As you will expect, we have a number of questions, and I'd like to ask—well, I do ask the Members and yourselves to be succinct to enable us to cover the wide range of issues this topic has generated within the finite amount of time available to us. So, if I can begin the questioning by referring to concerns expressed by our predecessor, the Public Accounts Committee, last December, December 2020, about the
'large scale changes at Board level, within a short period of time, at the Airport',
particularly when the airport faced 'unprecedented change and challenge'. With that in mind, what impact has the change in the airport board had, and how has the relative experience of board members at a key time been managed?
Thank you, Chair. Perhaps if I respond initially to that question, I joined the board on 1 June last year as chair. I had been involved in the selection process at the back end of 2019, when, of course, the airport was functioning well, pre pandemic, which I'm sure we'll pick up on later.
My predecessor, Roger Lewis, had received a resignation from the then chief executive, Deb Bowen Rees, and Deb had indicated that she wished to leave the business after a normal notice period to retire and to do some part-time work. So, measures were put in place for a selection process to be set up, and that was duly put in place. Of course, the pandemic then ensued, causing a major shift in focus for us all at the airport. I joined part way through the first lockdown, and a process was in place to select a new CEO. We knew that Deb was going to be retiring in September 2020, and so, as an interim measure, Spencer, who had more than 10 years' service with the business in various roles, was put forward as interim CEO. That was a very satisfactory solution to what was a short-term concern. We needed to reassure those who worked at the airport and also our business partners that we had a comprehensive management team with the right experience.
Shortly after I joined, our CFO handed in his notice, because he had been approached by another business, south Wales based, which had an opportunity he could not turn down. And so we were then into a—fairly quickly on into my tenure, we were into the search and selection process for a new CFO. I'm pleased to say that Dave Walters joined us as a consequences of that process. And so we did move, as I believe the committee commented on last year, from one set of board members to, in part, a different set of board members—a new chair, a new interim CEO, albeit one who'd been with the business as a director for many years, and a new CFO. But, we did retain our existing non-exec directors, Fiona Gunn, Terry Morgan and Geraint Davies, who have a great deal of experience and, in Geraint Davies's case, he has been at the airport for nine years. I felt comfortable as chair that we had the right mix of skills and experience, particularly bearing in mind that the pandemic was starting to bite, our focus was very much on not only strategic matters but operational matters. So, we had to minimise cost, we had to make sure that we were responding to the changes in the market and the changes in the circumstances that travellers were facing. And our board performed particularly well. So, that is the background to the current board.
We have subsequently endeavoured to follow the corporate governance code that applies to listed companies. It doesn't actually apply to us, but it has some very good directional guidance. And we are regularly assessing board performance. We have a succession plan, and we're reviewing terms and tenure on an ongoing basis so that we will, going forward, be in a position, as non-exec directors, for example, come up to the end of their tenure, to be able to recruit appropriately experienced individuals. And also we have notice periods in place for Spencer, our new CEO, and Dave Walters that are appropriate for the business.
Okay, thank you. Do Members have any comments on that, or we'll move on? Mike Hedges, I think you have some questions.
I certainly have. Passenger numbers. You've been, like every airport, hurt by lockdowns, the Welsh Government telling people not to travel abroad, and the effect of it has been quite substantial for you, as it has been for every other airport, although you appear to have suffered worse than most airports. But, the question I've got is: when we come out of recession, in terms of airports, and when people start travelling again as what you think is going to be the new norm, are you going to go back to the same—which was quite good—progress in increasing passenger numbers year on year when people start travelling again?
Thank you. Yes, if I can respond initially to that question, and then Spencer will no doubt pick up on the detail. Clearly, passenger numbers dropped significantly from 20 March onwards last year to unprecedented levels. And, arguably, it put the airport in the most challenging situation it has faced in its history. We, obviously, as an airport coped with 9/11 and coped with the northern ash issues back eight or nine years ago, but this was a much bigger challenge. The pandemic has, however, caused us to reflect on how we build back. And I think just a quick overview and then Spencer can comment on the numbers and also the direction of travel in terms of the airlines we operate with.
One of the things we are clearly aware of is that we need to make sure that we maximise our non-passenger income. For the benefit of members of the committee, it's important to appreciate that airports across the UK, and indeed across Europe and the globe, do not really make any money out of flights landing and taking off. What they do is produce passengers who spend money at the airport. And the primary source of income for any airport is the retail outlets and the commission that is generated off the back of those outlets. And so, clearly, if you're able to have a mix of passenger-related income in terms of spend in the retail outlets together with non-passenger-related income—and in particular in Cardiff, we've got the British Airways maintenance centre, we also, as some of you may have seen, stored a large number of planes during the pandemic there, planes that were being decommissioned, all of which generated us revenue. We're part way through the creation of a solar farm, and we're also looking at our storage facilities, and the simple point I want to get across is it's very important for an airport to have a mix of passenger-related income and non-passenger-related income, and that's directionally where we're going. Spencer, do you want to add to that?
Thanks, Wayne. Chair and Mike, thanks for the question. I think looking back at where we were prior to the impact of the crisis is probably worth a little reflection on, if you don't mind. We were in an interesting position; prior to the crisis, we were a major contributor to the Welsh economy. There was a Government independent economic impact assessment done by Oxera in 2019 that demonstrated the airport was delivering £246 million in GVA annually to the Welsh economy. That's fundamentally because of the activities going on through the airport facilities. We had 2,400 aviation-related jobs being employed in the area because of it. As Wayne mentioned, British Airways is our single biggest employer, actually, with the maintenance centre, that relies on the airport being open for the maintenance of their Boeing fleet. And that is a significant asset; it's been here for over 25 years, 650 staff on site. But that said, we were growing at a rate—and Mike alluded to this before—we were growing at a rate of 60 per cent between the period of 2013 to 2019 since the change of ownership. There were 18 airlines making regular use of the facilities; we had 52 non-stop routes; we had connections most importantly to four major hub airports. Now, what does that mean? An airport like Amsterdam with a connection with KLM and partners connected Wales to key cities in Europe, North America, South America, Africa, the Middle East and Asia, and they had connections with Paris, with Air France and partners through our Flybe relationships and it was offering a similar programme to Amsterdam. We had Dublin connections with Aer Lingus and partners through Flybe and that offered connections to transatlantic networks, and then most significantly, we had the Qatar Airways services linking Cardiff to Doha, the major hub in the Middle East that was linking us as Wales up to the Middle East, Asia, Africa and most importantly, Australia and New Zealand for the first time in under 24 hours.
All of that resulted in one in three of our customers at the time being visitors to Wales and a significant part of our business is making sure that we're actually facilitating traffic and growth. We were returning positive earnings before interest, taxes, depreciation, and amortisation figures at that stage and we'd been publishing our master plan in terms of where we were going next.
So, the impact of the crisis has a massive impact, so in February 2020, just before the crisis hit us, we were trading at 1.6 million passengers and positive EBITDA. The crisis started to impact aviation in early March from a European perspective when businesses started to tell people not to travel. We saw Flybe go out of business as a result of that when their business pretty much dried up overnight, even though they were going through a restructuring that effectively put them out of business when business people were being told, 'Don't go anywhere'.
Then all our passenger routes were put onto pause when the lockdowns actually happened in the middle of March, 23 March. We did remain operational throughout. A critical fact here that Wayne was talking about is we also facilitated non-passenger-related activities to actually generate income. This included, for example, facilitating millions of items of PPE for NHS Wales that came in on dedicated cargo flights from Cambodia and China. We went through 18 months of restrictions, though; it was really acute between March and June 2020, and then again, particularly between October 2020 and May 2021. By the end of March 2021, we had actually looked at a reduction in passenger volumes from 1.6 million down to 48,000. That's a 98 per cent reduction in volume through the airport, and it's actually the lowest the airport's ever been since the 1950s.
In terms of survival, there's a critical point here: we, along with the rest of the aviation industry are predicting that it's going to take five years to recover. That's the global outlook on the recovery to pre-pandemic levels. We were asked to do everything possible to minimise the demand on the Welsh public purse, but remain open as a business. The UK Government were telling us, 'You need to go seek shareholder support before you come to us. We're not going to give any sector support.' The only thing that they were making available at the time was the job retention scheme, which was fantastic, because it really helped us keep staff employed.
But when we worked really closely with our shareholder, the Welsh Government, they agreed that it's important for Wales to have an airport and we agreed a rescue and recovery grant agreement with their Government for a five-year programme that was confirmed in March 2021. The UK Government subsequently have given an airport and ground operations support scheme— AGOSS—to English airports and that was actually recently extended; I don't know if any of you heard that—last week in the budget, the Chancellor extended that for another six months. So, they've been given access to up to £12 million in terms of costs for recovery through safety, security and rates relief. At Cardiff, just so you're aware, 75 per cent of our operating costs are actually related to safety and security obligations that we have. Scottish and Northern Irish devolved Governments also provided relief to the airports in their countries, and one of the really interesting points is that airlines, actually, when they put on routes at airports, they're actually working as foreign direct investors. They actually look at their investments and they say, 'Are our investments going to be safe and secure? Are we getting a return on our investment, and what's the viability?' They were growing extremely concerned that their investments wouldn't be safe in UK airports because of the uncertainty around viability. The fact that we're owned by the Welsh Government was a major factor in helping airlines stay and commit to Cardiff Airport and allow to them to believe in their investments going forward. It has become a critical factor in terms of our recovery plan. Chair, sorry—I'll be as quick as I can for you soon.
Could I stop you a moment? The question was specific to passenger numbers. Our further questions, and we have a number, will hope to tease out further information from you. And on the passenger number issue, I think Natasha has a quick question.
It wasn't relating to passengers. My apologies, Chair—it was a different question about something else.
Okay. Before I bring Mike in, can I just also ask: you referred to the 60 per cent increase in passenger numbers between 2013 and 2019, and the impact from March 2020 of the pandemic and the initial lockdown and those that followed. Why did passenger numbers start falling below the 2018 level five months before the first lockdown in October 2019?
That initial reduction in passengers was a result of Thomas Cook going out of business in the September, in 2019. I don't know if you recall—we had Thomas Cook operating at Cardiff Airport, and they went out of business in that period. From our perspective, that started to impact our business, but we were working on a replacement programme. There was also a change in the structure at Flybe—so, a restructuring of their business to stay in survival mode. So, from the November 2019 through to February 2020, Flybe had been restructuring their business, which resulted in a reduction in passenger numbers there. That was fundamentally where we were starting to see some of the numbers tail off, but, actually, we didn't actually—. As of February 2020, we weren't in reduction mode—we were actually flat, if not growing. It was only in the March, when we started to wipe out the business because of the lockdowns and Flybe going out of business, that we saw that jump from 1.65 million down to 1.58 million.
Okay. Because the figures we have—as happens annually, passenger numbers started falling after about August, but they fell below previous years from October. So, thank you for answering that question. Mike, if I can bring you back in.
One very short question and then, in fact, a slightly longer one. You're talking about passenger numbers, and you're talking about income from passenger numbers. Do you consider your concession income, which you talked about earlier, as part of passenger income?
Absolutely. So, for us, it is a critical part, as Wayne was explaining before. We've got to drive the footfall through the facilities to help generate the income from the concessions, and that's done through partnership arrangements with the airlines to put the flying on. It is much more acute at small regional airports. At a big facility like Heathrow that is not as acute, but it is still a major part of their business, and the same with a place like Gatwick and Manchester. But, in terms of Cardiff, along with most regional airports in the UK, it's a critical part of the business. Driving the footfall through the facilities drives the concession income, and it also drives things like car park income, taxi income, car hire income. It also drives things like the fuel uplift on the aircraft as well as corporate-related activity.
The more passengers you have, the better for the business—I think that's fairly self-evident. Can I talk about developments? A question in three parts. What's the current position with Qatar Airways? What's the current position with Wizz Air? And have you any indication of how many people from south Wales—I won't say all of Wales, because I wouldn't expect people like you, Chair, to travel down to Cardiff in order to fly when you've got Manchester and Liverpool very close—but how many people from south Wales are going to other airports to go to the same destinations as Cardiff is providing? And what do you see for the development of domestic flights within Britain, Britain and Ireland?
Okay. Thank you for that, Mike. Chair, if you're okay, I'll take those questions in one go. On the leakage of people moving—we call that surface leakage—to airports in England, basically, 2.5 million people in Wales, for them, Cardiff is their nearest airport for passenger services, but, from that perspective, if you look at the figures in 2019, which was the last calendar year of normality that we had, we were carrying 1.6 million passengers in that year. The flying market from south Wales was 4.2 million in that year. There were well over 1 million passengers that were going to Bristol, and well over 1 million passengers were still going to London airports to take their journeys. Now, predominantly, on the London journeys, it's mostly for long-haul flying, and on the Bristol side it's predominantly to destinations that were actually served out of Cardiff Airport as well. So, in terms of market share, when we have reasonable frequency to a destination—so, for example, if we look at Alicante, we have three airlines serving Alicante under normal market conditions—we capture around about 50 per cent of the market demand, and then the other 50 per cent generally goes to Bristol. That's normally related to price-driven activities that is driving the surface leakage, as well as awareness of what they can choose to fly on.
In terms of the future for domestic flying, this is an interesting topic, because there's a tremendous amount of pressure on the need to travel for business purposes at the moment, as well as—. What are the other reasons for domestic travel? It's predominantly visiting friends and relatives, it's predominantly actually seeing and catching up with people, and it's also business travel coming back to a certain extent. And a lot of that business-related travel is actually migrant labour; it's not necessarily people going to business meetings. So, from that perspective, for us it was really important to get Dublin, Belfast and Edinburgh back as connections, and we've succeeded in getting those routes back on sale. So, Dublin's just started again on Sunday with Ryanair, Belfast started earlier in the year with Eastern Airways, and Loganair picked up the Edinburgh route. They were all operated by Flybe prior to that.
And likewise, critical connectivity to major cities is a key factor for us, because it's not only UK domestics that are important here—it's also cities like Amsterdam, with their connections to the world; we had Paris start yesterday with Vueling. Those are also vitally important, because we do have a lot of foreign students that study in Wales, we do have a lot of people that live in Wales that have families overseas, and we also have people who do need to travel backwards and forwards to those countries. So, from that perspective, a major part of our recovery plan is reinstating the 52 routes that were paused. We're currently up at 18 of those restored so far, and we're aiming to see how we get back to 25 by this time next year.
In terms of Wizz Air, the airline was committed to opening a base earlier this year. That was paused, primarily because of the ongoing travel restrictions that were being imposed and the impact that those travel restrictions have on demand for purchasing tickets. Our discussions with Wizz are still firmly in place. They are on sale from 28 March next year currently, and they're fully expecting to open their base with their aircraft here and directly employed staff members and crew members in Wales, with an initial offering of nine routes.
In terms of Qatar Airways, as with all of our airline partners, we are in significant discussions with them about when they can restore services. Their services to Cardiff and Birmingham remain paused; I think the Gatwick service is still remaining paused. Their Heathrow was six a day originally; it's currently at two a day, going up to three soon. Their Manchester service was three a day; it's currently in a week. And their Edinburgh service was double daily; I think they're up to three a week at the moment. So, from a Qatar Airways perspective, we're in firm dialogue with them about when they can restart. The major part of the restart process comes around when does the connectivity at the other ends of the route also open up. So, if you look at a place like Hong Kong, Singapore, Thailand, they're all only just opening up. Australia is only just opening up. New Zealand's still closed, fundamentally. So, those kind of market places, when you try and get a service back on, all need to be open so you've got two-way flow. So, from that perspective, we do envisage that Qatar Airways is going to be a longer burn, but we're firmly in dialogue with them about when they can restore their entire network, and Cardiff's definitely on their agenda with that.
Can I just be very helpful on this? You've talked about cost. You've also got to talk about flight times. Especially with people flying with young children, the time that they're travelling makes a big difference, and you tend to have less good flight times to places like Málaga than either Bristol or Birmingham.
In terms of the time, I assume you're referring to the departure schedule and the arrival schedules. Is that correct, Mike?
Yes. Because the fly time is the same but, ultimately, it's the departure and the arrivals schedule. So, if we look at a route like Málaga, the route from here to Málaga in the summer, operated by Vueling, is departing here at about 9 o'clock in the morning. It gets into Málaga at about 12:30 local time. The reason for that departing so early in the morning is that the airline has to bring the aircraft up from Spain to here. But what we did notice is if the aircraft operated much later in the day—say, 5 o'clock in the afternoon—we would actually not get as many passengers on that flight. The Alicante service operates in the middle of the day—very, very popular. We see, for example, the route to Amsterdam is operating normally at three times a day. So, it depends on the route you're talking about and it depends on why the airline are choosing their particular times. We would ideally want everything to be flown at the most optimal time possible, but a lot of the time the airlines are relying on where they deploy their capacity at the other airports, and where they're going to make more money from operating their services. So, we're then, effectively, trying to squeeze into that network of programmes.
I won't pursue this, but 11 o'clock for somebody living in Swansea flying from Cardiff Airport is a lot better than 9 o'clock.
Okay. Sorry, we're running very tight on time. We're still only on our second lot of questions. We've got several more to come, so I would remind everybody, if I could please, or ask everybody, to be as succinct as possible. But I think Cefin has a short supplementary question.
Yes, a short question, Chair. It follows on from a question that Mike asked at the beginning. The aviation authority reports an 87 per cent decrease in passenger numbers for 2020. Now, that's the largest decline of all the UK airports. Could you possibly explain why Cardiff suffered more than any other of the UK airports during that year?
I'll call you, Natasha, if you've got a supplementary and we can—[Inaudible.]
Thanks for the question, Cefin. It's an interesting topic. We would have been more than that if it was measured on the financial year, April through March—it was actually 98 per cent. I think the key point there, the reason it was only 87 per cent, is because we had January and February traffic flowing as a normal flow and then the impact of COVID hit us in the middle of March. Why was it more acute than in any other part of the UK? I think in the recovery programme that operated last year in the UK, in the period from July through September, there was more traffic happening at other airports than there was at Cardiff, but then, don't forget, we've been in a position in Wales where, and quite rightly so, the Government have been so heavily focused on the health of the nation that actually encouraging people not to travel overseas has been a major factor in the Welsh Government's approach to how we contain the virus spread. And that is effective; it's bearing out in terms of the numbers. And it's not too dissimilar to what you're seeing on the rail figures, where recovery in England has been quicker than it has been in Wales.
Thank you, Chair. Morning, Spencer. Just a quick question. Last week, the Chancellor announced in the budget that air passenger duty would be cut for UK domestic flights. So, I'd like to know from yourself what assessment have you made at the airport regarding the impact of cutting or abolishing air passenger duty, specifically on passenger numbers, airline development, and, ultimately, the future of Cardiff Airport.
Thank you, Natasha. Good morning. Nice to see you again. It's an interesting question, because what a lot of people didn't pick up on was that's only coming into effect in 18 months' time. It was—. I personally believe it was a lot of spin, and actually no real substance, because there's no real benefit to the recovery in 18 months' time when it could be now. We firmly believe air passenger duty is a hindrance to economic activity, and we think it should be abolished. It's a punitive tax that is easily collected by the Treasury, and Wales has no control over it, even though there have been many, many recommendations that Wales could have control over this, but more importantly airlines tell us that they're not going to add extra capacity whilst this punitive tax applies; it hinders their deployment capabilities. From that perspective, we firmly believe that not enough is being done soon enough on this particular topic.
Okay, thank you. I'll move on and look at some questions about financial performance and initially, regarding 2019-20, when the airport wrote off the value of contract rights it had spent over £22 million to acquire. What are these contract rights, and how does the airport ensure it obtains value for money for such spend, given what appears to have occurred on this occasion?
Can I suggest—? Thank you for the question. Can I suggest, Spencer, that you pick that up initially and then Dave backs it up with the detail on the numbers?
Thanks, Wayne. Sorry, Chair, so that I understand the question again, is this referring to the intangible assets in the accounts?
Yes, it does, and the £22 million contract rights written off.
Okay. So, Dave, do you want to pick up where that sits in terms of our reporting on the accounts?
Yes, sure. I don't necessarily think it was £22 million of contract rights written off; there was depreciation and amortisation of circa £21 million in that year. Part of that was relating to intangible investments, which were relating to the airlines, and because we were uncertain about recovery and how long the recovery might take and the low activities of the airlines at the time, the prudent view was to write back investments to zero, given the uncertainty in the market at the time.
Okay. Our clear understanding is that this doesn't relate to amortisation or depreciation, so it's specifically the contract rights figure that we understand is showing as having been written off. So, does your answer cover that?
Yes, it's costs associated with the airlines that have built up over a number of years, but the write-down in that year relating to intangibles was £13 million, as stated in the accounts as an exceptional item.
Over a two-year period. Right, yes. Okay.
Welsh Government announced in October 2019 that it had approved an extension to the airport's loan of up to £21.2 million and that a further £6.8 million would be subject to further due diligence. How much of the loan extension was drawn down during 2019-20, all but a week or so of which was pre lockdown, and how did the airport use that money?
Do you want to take that, Spen?
Yes. I was going to say, in terms of the pre-COVID activity, we were working to the normal operating rhythm of the airport and we were focused heavily on how we were developing and investing in the airport for further growth. So, if you look at some of the investment activities we did in that time, we were working heavily on transformational activities in the terminal; we were working heavily on developing our concessions in terms of transforming the operation that they were catering to so that we could actually maximise commercial income; we'd been developing our car parks; we'd been developing investments in facilities; and in particular, starting to develop our environmental agenda process. So, from that perspective, we'd been going through a lot of process on there in terms of that loan draw-down, but then, when the COVID crisis hit us, it absolutely paused a load of things there and we went into survival mode rather than focusing on development mode.
So, from that perspective, we then spent a lot of time last year working with the Government on how we survive and how we keep the doors open, and in particular how we maintain our staffing levels to retain currency. Because one of the key factors we've got when we're staying open as an airport is that we're massively obligated by the Civil Aviation Authority, the Department for Transport and the Health and Safety Executive to retain regulatory compliance, particularly relating to safety and security. And remaining operational throughout, we've had to focus heavily on that and make sure that we've kept our staff trained and kept them employed through the job retention scheme as well as our training programmes, but, most importantly, meeting our obligations regarding safety and security compliance.
I think the question—. At the moment, we're talking about the 2019-20 financial year, all but a week or two of which was before lockdown and before restrictions came into place. I'm going to expand now on 2020-21. In terms of 2019-20 specifically, before we move on to the impact of lockdown, have you anything that you would like to add?
It's mostly related to the investments that we were doing at the time to keep the airport in a commercial state that was going to help us grow. And then, there were also other capital expenditure activities that we'd been doing in terms of replenishing activities and upgrading our equipment and things like that.
Okay. How important is freight to the airport's financial performance? Can you quantify its contribution to your turnover and profitability? I note, for example, that your freight levels in 2018-19 were over 1,800 tonnes, but by 2019-20 that had fallen to 317 tonnes, where comparable performance by other peer airports, like Bristol and Doncaster, showed continuing increases in freight over that period.
It's a great question, Chair. In terms of freight, it's never been a significant income for the airport. The main reason for that is we're not particularly well connected to the motorway networks. I would argue that freight at Bristol hasn't been a significant income stream for them either. At Doncaster, it is a massive income stream for them, as well as it is for East Midlands and Stansted and Birmingham and Manchester airports, for example.
In terms of our importance and where we go with the focus on it, we have been facilitating freight for many years. The demand for freight out of the airport has been lower than we would normally expect because the expediters and the shippers typically send their products to London to get on the aircraft out of London, or East Midlands in some cases. That's partly because of the way their programmes are set up and the way they sell their products to the actual shippers.
When we had Qatar Airways operating their services from 2018, we actually opened up the ability for 12 tonnes of freight overnight per day to be utilised, and that was starting to attract business. From our perspective, we would welcome freight expediters and shippers to use our facilities. We have perfectly good capability here, but, in terms of the actual demand for freight, we've seen that the shippers in Wales generally will ship at the lowest price possible and they're not really interested in having it to go from Cardiff. They're interested in where it is going from at the lowest price possible to get there as quickly as possible, to that destination at the lowest price.
So, when we've worked with airlines to get air capacity on for freight, it's not necessarily a viable option for airlines until there is that demand. So, the easiest way to get it on is actually through belly capacity, which is what was happening with the Qatar Airways service, which allowed us to start to increase our volumes. And if we look back at the history of freight at Cardiff Airport, the last time we had a dedicated freighter aircraft actually operating was just before 2010, when we had a dedicated service to Liège with TNT, and that was subsequently paused at the economic crisis then because it just wasn't viable for the operators and they consolidated all of that into East Midlands.
Thank you. Does that explain why freight tonnage appears to have fallen around 80 per cent between 2019 and 2020, presumably before the pandemic?
Yes. The freight fall, actually, is from last March, when Qatar Airways paused their service, because it was actually growing prior to that.
The figures we've got before us show that, in 2018-19, about 1,803 tonnage, but 2019-20 down to 317 tonnage.
2019 was definitely more than 2018 on the tonnage. I'll need to go back and check with the CAA figures, what they've published.
I'd be grateful if you could share that with us—that would be much appreciated. Thank you. I think we're going off the published accounts figures.
Moving on, then, to 2021, in June 2020, the airport told the Economy, Infrastructure and Skills Committee in the Senedd about the steps it was taking to reduce costs while its terminal was closed. Can you quantify the impact of these measures on total costs for the year?
Dave, I think it's probably best that you pick that up.
Yes. I'm not sure that we can actually quantify and outline those figures in a public session. Perhaps, Chair, we could take those into a private session. But, certainly, the key measure that we took through the pandemic was to maximise the return from furlough and to utilise that as much as we could. That reduced the burden on the Welsh public purse. And on top of that, we just looked at every cost line that we had in our profit and loss, and the board tried to minimise costs wherever we could, by reducing activity, looking at things like making sure that the lights were not on when there was no activity in the airport, and just simple things like that.
If I may come in as well, Chair, what we did is we focused really heavily on using the job retention scheme. The main part of that at the beginning phase was quite cumbersome because there was no flexibility in it, but when we started to hit the second part of the lockdowns, there was much more flexibility in the job retention scheme, which we were able to deploy more effectively. That allowed us to keep currency of the staff, it allowed us to keep their training going on. Also, what we did is we found secondments for our staff. We found ways to actually use their skills across the public sector in Wales. So, for example, at one stage last year, we'd seconded a whole team to Cardiff and Vale health board for the track, trace and protect programme. We'd seconded staff to the Vale of Glamorgan council for their IT department. We gave staff sabbaticals—one of them took a sabbatical to Aston Martin for example—and then we also worked with Welsh Government on giving staff secondments where they could use our skills in Welsh Government departments. And that programme is still running actually. So, from that perspective, we've looked at every opportunity to see what we can do to use our skills, to keep our staff employed, but also minimise the cost of running the business.
Thank you. I think, in the previous response, we heard that there were issues you would prefer to discuss in closed session. I wonder, just for the record, if you could explain why you believe that should be the case.
I don't think we'd want to actually list out the exact figures of savings for confidentiality reasons, especially the amount of furlough receipt, the job retention scheme receipt that we received over the period.
Okay. Thank you.
In April 2020, the Welsh Government announced a £4.8 million loan for COVID-19 emergency support as a short-term solution to keep the airport operating. What impact did this have on the airport, and to what extent, if any, did it help bridge any gap in the airport's revenue income for 2020-21?
Thank you, Chair. Perhaps I can pick that up, and, again, Spencer and Dave will add if there's anything needed. The simple facts are that to run the airport it costs about £17 million a year. And, obviously, the airport did remain open. The previous question alluded to the terminal being closed, and that was correct—the terminal was closed. But throughout the lockdowns, the airport remained open, as we've heard, for PPE purposes, for sports flights, because, of course, the sports bubbles were still operating, and also for some other essential flights.
Those monies were extremely helpful, as I'm sure committee members can appreciate, in keeping the airport open. We obviously were taking advantage of the furlough scheme, but that did not cover all our costs. And, as was explained earlier, there are significant fixed costs if you look at safety and security, and in particular air traffic control, where we have a substantial monthly outgoing, which has to be paid, so those monies were put to very good use, as Dave has explained, having cut our cost base as best we could.
I don't know, Dave, if there's anything you want to add to that.
No, I think I'd just concur that the loan that we had was vital lifeblood for us. When I joined in August 2020, we were definitely in survival mode, and we were able to draw down off that loan, in conjunction with the job retention scheme receipts, just to keep the airport going when the activity was almost at a standstill.
Okay. Thank you. A final question from me before we move on to others. The airport hasn't yet filed its accounts for the year to 31 March 2021 at Companies House. What will they show in terms of the airport's bottom line, cash flows and earnings before interest, taxes, depreciation and amortisation, and when do you expect that they will be filed?
I think, to answer the second question first, Chair, the accounts will be filed before the deadline, which is 31 March 2021—31 December 2021, I beg your pardon. As for outlining the figures again in a public session, I don't think we particularly would like to, if you don't mind. We'd be more than happy to have a private session to discuss the figures, but, as they're not in the public domain yet, we would rather not do so in a public session.
Thank you. Would you consider providing that information in writing? We'll discuss in private later ourselves whether we can find time for a further private session, but would you be able to put that in writing if we couldn't?
Yes, I'm sure we could. Yes.
Thank you very much, and if that could please also address the issue regarding earnings before interest, taxation, depreciation and amortisation.
Yes, of course, yes, with the other questions.
Thank you. Well, I'm glad to welcome Jenny Randerson, who joined us a while ago, and hand over to you, Jenny, for the next set of questions.
[Inaudible.]—but you're not the first person to make that mistake.
Anyway, thank you very much indeed. I just wanted to ask you what are the implications of the ending of the furlough scheme, in terms of staffing levels and other related costs.
Spen, can you pick that one up? Thank you.
Yes. Morning, Jenny, nice to see you again. Thank you for the question. It's been a really interesting period. We've been heavily committed to making sure that we maintain as many of our staff as we can. For us, keeping currency of staff is vital. When we've got staff who are trained in key roles—you know, we've got security staff, we've got fire section staff, we've got, even though they're not directly employed by us, air traffic controllers on contract to us. We have terminal duty staff who are very, very skilled at not only the operational activities, but also good customer service. For us, it's been really important that we retain those people, because when we're going back into recovery mode, which we are doing now—we're 10 per cent recovered already, and we're fully expecting next year to be a much more robust year in terms of volumes of people moving—we will need those people on our employ so that they can continue to provide that amazing service. And without the firemen, and without the security staff, and without the facilities maintenance technicians who keep our runways open, we're not open, so we have to find ways to keep them going. So, in terms of the job retention scheme, for us it was lifeblood for the airport, but coming off the scheme, we're just making do. We're getting on with it, we've got the staff being retrained all the time, we've got projects we're working on with them, and we're actually keeping the staff, as many employed as we can.
Okay. But obviously, there's a real risk that some of the skills that you've outlined will leave. If you're unable to give them employment, they're going to be finding work elsewhere, aren't they?
I think that's a good point. We took a conscious decision to retain the staff that we have remaining, because we will have recovery in 2022. And if we don't retain the core staff with the skills, we would have to train them again, we might not be able to find them, and actually the cost of training new staff is far higher than retaining staff through a winter period and enabling us to train or retrain the staff when we're quiet, which doesn't interrupt services when we're busy. Because staff are on a rolling training programme, so we're now trying to pull some of the training that might occur in the summer period into the winter period, earlier, so that when it rolls, it rolls in a quieter period year on year, going forward.
And in fairness, Jenny, as well, when we've had staff leave—because we can understand certain staff members have chosen not to stay; they've found other things in life that they wanted to do—when we've had staff leave who are in critical roles for the business, we've actually been re-recruiting. And we're currently recruiting now. The fire services manager chose to leave earlier in the year, to retire early, and we're re-recruiting to replace her. All of these things do actually go around in a circle for us.
I see. This is presumably something, a challenge, that faces all airports, and I just wondered if you think that there's a level playing field in terms of the amount of support you get from the UK Government, because obviously the furlough scheme is a UK Government scheme. I recall that Bristol got £16 million from the UK Government at a time when Cardiff received nothing, earlier this year. And I just wondered if you think that you are in a more vulnerable position just because of ideological considerations.
Thank you, Jenny, I'll pick that up if I may. It is clear that we didn't receive the same level of support as the English-based airports—that's a matter of fact, as Spen alluded to earlier on in this session. Clearly, we were all advised as airports to go and speak with our shareholders. There are some public sector owned and controlled airports other than Cardiff in the UK, but we went back to our shareholder, as we've discussed, and were supported, and we're very grateful for that support, but we have not benefited to the same extent that the English airports have.
And just in overview, we have obviously had to cope with the strong recommendation that people holiday in Wales during 2021, which we understand, but that's been a backdrop point that we've had to accommodate throughout not only the lockdowns, but more importantly throughout the periods when travel has been possible.
I think the other point to make just quickly is that, going forward, it is clear that we do not know what the safety and security measures will be. I would just flag this up for all committee members that it is possible that there'll be enhanced security measures and safety measures required, which will require funding, and that's an area where we would really hope to have a level playing field with other airports in the UK.
Okay. Well, we note that obviously, and we'll pursue that in the right channels. Can I just look at your financial and operational forecasts for the current financial year? I note that you don't expect to get back to a sustainable 1.3 million passengers for another four years. So, what is your survival plan in the meantime?
Can I take this, Spen and Wayne? Thank you, Jenny. The survival plan is all embedded into the rescue and restructure aid. So, we build forecasts into that, and that was all part of a five-year plan in line with a global outlook of recovery for airlines and airports to recover to a positive EBITDA over a five-year period. So, this was built into the grant aid that was given to us by Welsh Government earlier this year on a five-year recovery plan. So, we're not expecting to return a positive EBITDA until year five.
And because you've obviously taken advice from consultancy firms, who have done the number crunching, you think that this is a realistic. It is unrealistic to think that you're going to be able to pick up the business more quickly in the current context.
Yes. We don't know because we don't know where passenger flow will be, but to answer the initial question, we did the forecast ourselves and then Welsh Government engaged two separate sets of advisers to verify and check those figures, plus taking legal advice in arriving at the rescue and restructure aid. But, yes, it was independently verified by two separate consultants.
Can I just also interject to advise that the forecasting is all done on the ex-ante position at the time? So, that forecasting was done in February this year with a view that we would probably see recovery being quicker. This year has been definitely more curtailed in Wales than it has been in England, but that wasn't expected at the time in February. So, from that perspective, we're still working to the plan. We do believe that the plan is robust and it's solid, but we've just got to remind everyone that it was done at the ex-ante position in February this year.
If I can just add that, clearly, crystal-ball gazing is an impossible science to grasp. This time last year, as Spen has said, we were looking forward to a possible recovery period during 2021; that's only just started to kick-in. As we all know, the infection rate is going up. Thankfully, the hospitalisation rate is not. But we're not clear what impact that could have over the next 12 months. Because, of course, with travel, it's not only the country of departure—in our case, Wales—but it's also the country of arrival. So, there is huge uncertainty about consumer buying patterns. The informed opinion seems to be that long haul will suffer for a longer period and that short haul will not. But I would add something that Spencer alluded to earlier, very quickly: if you look at Europe, Europe's flying has recovered far more quickly than any area within the UK, and so, to answer your question in another way, Jenny, we could see that recovery pathway being shorter. We just do not know. We based our assumptions on some considered opinions and it's a very good estimate, but we do not know if it will turn out to be the correct one.
But clearly none of us know when the pandemic is going to be over, and we're still in the middle of it and hospitalisations are rising from COVID. But have you got an estimate of—obviously there's a lot of pent-up demand in the system; people aren't travelling because they're aware of the pandemic—your capacity to respond to an increased public appetite for travel, if and when the use of vaccines and other measures enable us to overcome this pandemic?
If you don't mind, Wayne, I'll answer that one. The capacity response is a really interesting point, Jenny, because this goes back to the companies' confidence in investing in Wales. So, the airline partners' confidence to invest in Wales needs to be borne out by transactions and where they see the revenue. So, if we look at what we’ve got on sale for next year—so, from spring next year—we’ve effectively got a pretty large flying programme that, if it all pans out, would probably see us getting quite close to 1 million passengers. The challenge we’ve got is we don’t know if we’re going to be past the COVID pandemic by then or not. We don’t know if people are going to be encouraged to travel or not. But what we are seeing is that those flights that are on sale for the leisure destinations next year, particularly the ones that TUI operates—they’ve got 23 destinations currently on sale for next year from Cardiff; Wizz have got nine destinations on sale; Vueling have got four, and Ryanair have currently got three destinations on sale for next summer. They are looking like promising opportunities. If the demand outstrips supply, the airlines will add more capacity. If the demand doesn’t, they simply won’t. So, from that perspective, we’ve got the capacity to handle up to 3 million passengers in this building at any given time, on an annual basis. So, we’ve absolutely got the capacity to handle it, it’s just making sure that the airlines have got the confidence to invest in it.
Okay. Thank you. That's very useful.
Thank you, Jenny Rathbone. Apologies for referring to you as Jenny Randerson, who of course is an esteemed former Member. So, it was my slip. Over to Natasha. I think you've got a supplementary, and then into your own question.
I do. I hope you don’t mind, but there might be two supplementaries, if that’s okay. Sorry to sound like the queen of doom when I ask this: what would be the impact of another lockdown on the airport itself? I’m sure you’ve all carried out a risk assessment on this. If the worst was to happen, what would the impact be on Cardiff international airport?
Thank you, Natasha. If I can give a quick response. Well, clearly we would keep the airport open because we're obliged to. Just so that Members are clear, we're obliged to not only by the Civil Aviation Authority, but also under the terms of our arrangement with British Airways Maintenance Cardiff. The airport would remain open. Obviously, we would hope that if there were a further lockdown, there would be a job retention scheme reinstated, because that, as Dave has explained, is of huge assistance to us.
The rescue and restructuring programme that we have in place—the package agreed with Welsh Government—does give us some support each year over the coming four and a bit years. So, that would help, but it is very, very clear that we would continue to be loss making, and the loss would be a much bigger figure if there were a further lockdown. Clearly, we would hope that there isn’t a further lockdown, and clearly we would hope that next year, the next calendar year, that travel is, not recommended, but is possible, and that the guidance will be that one can travel if one wishes to. But a further lockdown would be—. It wouldn’t be catastrophic, because, dare I say, it’s a little bit like having pneumonia—once you’ve had it once, if you have it again, you know how to deal with it—and I think that we as a board would be able to cope admirably, actually, with a further lockdown. But, it would have an economic impact not only on, clearly, the whole country, but it would have a huge impact on us as a business.
Thank you very much, Wayne. I want to just go back to a question that I asked previously in relation to the Chancellor’s announcement last week. I know that Spencer’s answer said that it’s going to be introduced in 18 months’ time, but I know that previously, in an answer, I think, to Mike earlier, he mentioned that the airport has five years to recover from the pandemic. So, let’s move ahead 18 months from now. I’ll repeat again my question: what implication will the cutting or abolishment of air passenger duty have on the recovery of Cardiff Airport, specifically in relation to passenger numbers, airline developments and the airport as a whole?
Thanks. I'll take that one, if you don't mind, Wayne. So, at the moment it’s too early to tell, Natasha, because 18 months is quite a long way ahead in terms of the airline planning process. When we’ve had discussions with the airlines last week after the announcement, they all told us to go away.
'We're not really interested in talking about domestic flights for summer 2023 yet' is the answer we got back from the airlines.
Just for my own personal knowledge, how far in advance do you do your forecasts? If 18 months is too far, do you normally do it 12 months at a time? Six months? How do you assess your plans for the future?
We do forecast 12 months out and we also do forecast 24 months out, but at this stage we're not forecasting 24 months out because of the impact of the COVID crisis. On a typical running year we'd be able to forecast up to five years out, but at this stage, when we're looking at the impact of the reduction in air passenger duty from £26 to £13, that's still a ridiculously high tax for a domestic flight. When we've spoken to the airlines about, 'Will you increase capacity on the Edinburgh and Belfast and will you add Glasgow?' the answer we got back was, 'We're not currently interested because it's still £26; when it becomes zero, come back to us and tell us'. 'When are you going to pay for it?' was the answer we got back from Ryanair. It's not surprising that they're taking that stance at this stage.
Thank you very much for that. What discussions did the airport have with Holdco or the Welsh Government ahead of the announcement of the financial support package in March 2021? Did the package include all resources the you had requested, and if not, what are the implications for the airport now moving forward?
Dave, is that one that you'd like to pick up, please?
Yes, sure. Thanks, Natasha. The discussions with Holdco are regular anyway; we have fortnightly meetings with them, we have quarterly board meetings. So, we're in constant dialogue with Holdco generally. Specifically relating to the aid, obviously we were updating them on where we were with the discussions with the Welsh Government regularly. The aid is a mixture of opex and capex support over—. As Wayne said earlier, it costs about £16 million to run the airport, so the £42 million over the five years is about half the opex costs, but the aid is also built in to support capex. As far as we were concerned, the aid was in line with what we wanted and what we were expecting.
Okay. Great. Thank you for that. The Welsh Government said that the grant funding of £42.6 million over five years would be used to—and I quote—
'restructure its operations, and secure its long term viability.'
Could the airport expand on this? What do the plans for the restructuring actually mean at the moment in current practice, please? If you could elaborate, that would be great.
Dave, can you just pick that up again, please?
Yes, sure. On the restructuring, we went through a small number of redundancies earlier in the year, and that was part of the restructure, where we looked at the senior management team and were able to reduce some cost there by reducing a small number of employees at that level. And then, generally, as part of the aid, we've just looked at how we can be more efficient with costs over the next five years. So, that's really what that relates to.
I think it's also fair—sorry, Natasha. It's also fair to say that we have increased the pace of our review of our non-passenger-related income that I alluded to earlier. And so we have a number of projects under review looking at the asset that we have, which, obviously, is a large piece of real estate in south Wales, and that includes not only a solar farm but some other thinking around some of the buildings that we have and some of the services and facilities that we offer. Because I come back to this point: prospectively, if we're able to get through these next four years, as we say, and get back to a positive position, we do need to up our non-passenger income. That's a key target for us.
Okay. The final question from me in this segment is: how will the grant funding of £16 million for 2021-22 be used specifically by the airport, and to what extent will it cover lost revenues of 2021-22 as well as other activity costs that you have moving forward?
Thanks, Natasha. I think to get into the detail of what we're spending the grant money on, again, we would probably have to take that into a private session, because we would want to outline exactly where that money is being spent, but needless to say, it's supporting both opex and capex costs during the current year. Any further detail you require then we'd be happy to answer, but either in writing or in a private session, if you don't mind.
Okay. Thank you. Thanks, Chair.
Thank you very much indeed. We move to our final set of questions. I know everyone will be succinct because we're running over. Cefin, could I hand over to you, please?
Thank you, Chair. Just again, on the financial support package, in the announcement made by the Welsh Government, there were, obviously, targets set. So, could you explain what the milestones and the performance indicators were for you to achieve over the five-year period up to 2026?
As Spencer said earlier, we took an ex-ante position back when the grant aid was given back in February 2021 to set passenger number forecasts out for the five years, and, off the back of that, a profit and a loss and an EBITDA. I can't exactly give those figures in this session—again, they would have to be in a more private session or in writing. But the forecasts were all built into the grant aid and embedded into that. So, we're working towards those in line with the grant terms, and we regularly meet, then, with Welsh Government to review the performance against budget.
I understand the sensitivity around sharing figures in this public arena, but I was just wondering whether you could explain any milestones or performance indicators that are not financially sensitive that you could perhaps share with us in terms of targets.
Yes. There were also some targets relating to the greener environment around the airport and the use of electric cars, electric vehicles, and targets around encouraging our airline partners to use more green aviation fuel and more efficient aeroplanes. So, there were a number of targets along those lines as well that are set out over the next five years. So, they weren't just financial, you're right.
Okay. If I could just follow on, your target to reach 1.3 million passengers, as outlined to a previous Public Accounts Committee, in order to achieve financial viability—later, it was said that it needs 1.6 million passengers for earnings, that doesn't include interest depreciation and so on, to turn into a positive, and 2 million passengers to report a profit. So, there's a little bit of inconsistency there, in terms of your passenger targets, to reach financial viability. What is it?
Perhaps I can pick that up, and thank you, that's a very good question. Of course, those passenger numbers of 2 million and 1.6 million that were given by previous witnesses who've appeared in front you or appeared in front of the committee were done with the previous environment in which the airport was operating. Self-praise is no praise, but we have, as we have said, over the last 18 months, streamlined the airport, we've restructured it, we've looked at our cost base very, very closely, and that has enabled us to get to a position where we believe that at an EBITDA level, as you alluded to, 1.3 million passengers will enable us to get to that effective break-even position, and then above that, we would start making profit. So, I think it's important that—it's an odd benefit from the circumstances of the pandemic that we've reviewed the operating model for the airport. Don't forget it isn't just passenger driven now, because our non-passenger-related income, as I've said a couple of times, does start to come through over that five years and starts to build. So, that is not necessarily passenger driven.
Okay. My final question is: what assumptions have you made in the rescue and recovery plan for funding regulatory changes, and what are the consequences of not meeting them?
Can I ask Spencer—
Shall I take that? I'll say, Cefin, that it's a great question, actually, because 75 per cent of our operating costs are actually regulatory compliance. So, there's a significant amount of that funding process that we've looked at as to how do we meet our obligations under that compliance, and that's meeting our obligations to pay for the air traffic control, meeting our obligations to pay for the security equipment, and there are going to be upgrades to security equipment mandated on us by the CAA and the Department for Transport in the coming years. We are expecting that, actually, within two years' time. That is built into the programme. There is significant confidentiality in the programme, and that's why David is suggesting that a private session is probably more appropriate, but there is a large proportion of the rescue and restructuring agreement funding put towards regulatory compliance, and if we don't meet them, we effectively become closed, so we have to meet them.
Okay. Thank you.
Thank you very much, Chair. It's now been over six months since the announcement of the financial support package, so I'd like to know to what extent are the assumptions for the rescue and recovery plan still valid, given the ongoing challenges faced by the airport and the aviation sector.
Dave, would you like to pick that up?
Yes, sure. Obviously, with the ongoing pandemic in the current year we will probably not meet the targets for 2021-22. But, having said that, the premise of the grant aid overall was to look at a five-year period. So, there is flexibility between the years, and our firm belief is that we will meet the targets over the five-year period. We won't necessarily meet the current year's target, but there was always flexibility between the years when this was set up in the first place and an acknowledgement from officials in Welsh Government that any ongoing restrictions would inevitably affect the current year, but we would hope then to bounce back in the following years.
Okay. Thank you very much for answering that one. I think you've answered the second question that I had lined up for you, but don't worry, there is a third. I just wanted to know what impact does the Welsh Government's decision to freeze road building have on the growth of Cardiff Airport, especially with regard to the airport's master plan for now. I noticed earlier—and I do apologise, I know one of you mentioned the road connections, specifically the motorway links not being as good as other airports. As I mentioned, given the Welsh Government has decided not to support the improved road links, specifically through Pendoylan, which I know is near the airport, what do you believe is going to be the impact now on the airport, moving forward?
In terms of the road link for freight, that is where some of the challenge is. Connectivity to the major motorways is what helps expedite freight, and that's what a lot of people are looking for if they are going to move freight around. In terms of the overall airport and road links, for us surface access is important. It's a key factor. But, actually, public transport is probably more critical, I would say, at this stage, than pure surface access. And you know, for us, we are working with the Welsh Government teams to see connectivity to Cardiff reinstated with a frequency basis, as well as connecting us to west Wales. But, for us, having connectivity through the bus services, ideally transitioning that onto a more modern, more environmentally friendly bus service that is either electric or potentially hydrogen powered, is a key priority for us, and we're actively encouraging the Welsh Government teams to do that with us. So, for us, public transport I think is a key factor.
Surface transport from a passenger perspective isn't a hindrance at the moment. We're not seeing people telling us they can't get to the airport. The link road that was paused between Barry and the M4 through the back of Pendoylan ultimately wasn't necessarily a road for Cardiff Airport. It may have been pigeonholed that way by some of the media, but actually that was more to do with how does Barry get connected to the motorway as a major town and the congestion around Culverhouse Cross. So, from our perspective, surface transport links are suitable. The roads are okay. For the volumes of business we've got, they're fine. We would definitely encourage more public transport capability, particularly with more modern and more efficient bus services. And the other thing then is, in terms of freight, we've just got to understand that if there is no significant motorway connectivity, we can't expect to get significant penetration on freight.
Thank you. The final point I'll raise before we all have a very brief break: in his evidence, Mr Walters stated that there was information that was too sensitive to be released in public session, including the furlough figures. But, we note that the UK Government has been publishing furlough figures from December 2020 to July this year in bandings that include Cardiff International Airport Ltd, suggesting claims were in the band between £250,000 and £500,000 each month in the first three months of that period, and then £100,000 to £0.25 million in the later months of that period. Would you like to comment on why this remains sensitive, given that the information appears to be in the public realm already?
Firstly, I can confirm that those figures that you've just listed are correct. I think the sensitivity is just listing our overall total claim for the whole period in a public session. We would prefer to combine that with other questions you've got around some of the figures and the results for 2021 in one set of questions—one session or one set of written questions.
Okay. Thank you. Again, if I can thank you all for attending and for answering questions. I thank Members for asking those questions. A transcript of today's meeting will be published in draft form and sent to you to check for accuracy before the publication of the final version. We will discuss how we wish then to pursue those sensitive matters with you and I look forward to receiving those after we respond to you accordingly. So, thanks once again, and we hope you have a good day, for what remains of it. Thank you very much indeed.
Thank you, Chair.
Thank you, Chair.
Diolch yn fawr. Thank you.
Is there time for a short break? Okay, we'll go into closed session then for a short break before we call in the witnesses for the next session.
Gohiriwyd y cyfarfod rhwng 10:30 a 10:42.
The meeting adjourned between 10:30 and 10:42.
To colleagues on the committee, good morning. I'm Andrew Slade, the director general for economy, skills and natural resources in the Welsh Government and I'll ask Steve, John H and Jon M, in that order, to introduce themselves.
Good morning. I'm Steve Vincent. I'm the interim director for economic infrastructure.
Bore da, Cadeirydd. John Howells, director of climate change, energy and land-use planning.
Good morning—bore da. Jonathan Moody, head of aviation, ports, logistics and freight.
Thank you all. As you expect, we have a number of questions for you, and I ask Members and yourselves to be as succinct as possible, to enable us to cover the wide range of issues this topic has generated. I'll move swiftly to the questions and start the questioning myself. So, in February this year, the Welsh Government committed to publish information on its website about its loans to Cardiff Airport. Has this been done, and, if not, why not?
Chair, there's a range of information on our websites, but I don't think we've followed up in quite those terms in the way that you describe, because we knew we were coming to talk to you today and colleagues in the committee from a fairly early stage at the start of this Senedd, so I asked the team to concentrate on preparing for today, including the evidence paper that you've got before you now, and our plan will be to publish—now we're having this session, to publish that evidence paper and that will give plenty of information about the state of play with the airport and with the loans.
And will this subsequently be published on the website?
Yes, indeed. Yes.
Thank you. In November 2020, it was agreed that the Welsh Government would provide six-monthly updates about its commercial loans to the airport to our predecessor committee, the Public Accounts Committee, and then subsequently to this committee. Has this been done, and again, if not, why is this the case?
I don't think—again, Chair, I don't think we've done anything separate here. What we did was, back in March, the then Deputy Minister for Economy and Transport came and gave evidence to a joint session of the then Economy, Infrastructure and Skills Committee and I think PAC, and I think Darren Millar MS was on that discussion on behalf of the PAC, and there was a subsequent letter at the sort of tail end of March—24 March, I think—setting out all of the detail that had been agreed in the rescue and restructuring plan, and what we were proposing to do with colleagues at the airport in terms of next steps for the airport's operations. And then, of course, we prepared for this discussion today, and my intention would be that we will then pick up from here on in with those regular updates, making sure that you and colleagues on the committee are sighted on developments, although probably, in reality, the amount of change in relation to the loan agreements from here on in will be relatively limited. But we can provide that information very straightforwardly.
Thank you, because I'm aware that our predecessor committee, and this committee, had expected that to be provided previous to this meeting. But can I take it that statement from yourselves is welcome as a commitment to ensure that this is done in future?
Thank you. Would you provide an update about the appointment of the new chair of Holdco, please?
Well, Jason Thomas, who's a member of my team—he's the director for culture, sport and tourism—is the interim chair of Holdco. So, that's addressed one of the points that we discussed with your predecessor committee around the nature of the roles on Holdco and making sure that there weren't conflicts of interest. Jason brings to that role a lot of experience from his own time at the airport some years ago, but stands aside from the sponsorship and governance arrangements for the day-to-day interactions between Welsh Government and the airport. But, as I think you will be aware—it was set out in our evidence paper—we're in the process of reviewing the Holdco arrangement and putting advice to Ministers, and we'll have a bit more to say about that, I would have thought, before the end of this calendar year. That will pick up a number of points that your predecessor committee made around the arrangements associated with the governance of the airport, and what's needed in the circumstances that we're in in respect of rescue and restructuring.
So, if I heard that correctly, you have an interim appointment of a person who's currently operating at a senior level within Welsh Government.
That's correct—outwith the line arrangements for the operation of the airport, so, a step away in that sense. But we've been conducting a wider review, a lot of work with legal colleagues and others on a proposed new set of arrangements, and we'll be putting advice to Ministers on that shortly.
When the former chair of Holdco resigned, the Public Accounts Committee, our predecessor committee, reported its hope that the new appointment, either interim or permanent, wasn't a Welsh Government employee, given the continued and inevitable potential conflict of interest. How does this interim appointment therefore address the concerns of the former Public Accounts Committee as expressed publicly at that time?
I think that was the point I was trying to make about the fact that Jason is not in the line arrangement for the oversight of the airport, the day-to-day operation or engagement between the sponsorship team within Welsh Government and the airport management. So, that helps in the first instance, and that was one of the issues that the previous Public Accounts Committee had discussed with us in the context of Simon Jones's role as chair of Holdco then. But Jason's appointment is very much an interim one, pending this wider review. We're in the middle of the pandemic and indeed we're still dealing with the impacts of the pandemic, and this was a sensible interim arrangement while we work to put something in place for the longer term.
And who will he be accountable to during this interim period?
He's accountable to me, from an accounting officer perspective, and obviously to Ministers, and then has a range of company roles, as you would expect, as chair of Holdco.
Thank you. Has the Welsh Government completed its formal review of the governance of the airport and current Holdco arrangements?
We've done the review. We're preparing advice for Ministers, and that was part of the set of discussions I was describing with, among other colleagues, those in the legal services department, to make sure that we've got the right kind of approach. Because of the relatively distinct nature of the airport operation—it's not like any of our other arm's-length bodies—we need to make sure that the arrangement is absolutely appropriate in company governance terms as well as in public service terms. We'll be putting advice to Ministers shortly and I would expect we'll be in a position for them to take a decision and for us to set that out publicly before the end of this calendar year. That's my expectation.
Are you able to tell us, notwithstanding your comment that you haven't yet presented this to Ministers, what the review showed and what changes you'll be recommending?
If I may, Chair, I'll just preserve Ministers' position a bit on this, because they need an opportunity to reflect on the options, but we are very alive, and the review was very alive, to the points that your predecessor committee made about the nature of appointments, and independence or distinctness from Welsh Government employees. I think that's one key area that the review looked at, and another was what was going to be needed for the airport in the context of rescue and restructure, and what kind of expertise does Holdco need to have in managing the relationship as the shareholder with the airport board. Those are two key features of the review.
And when you're able to, then, when Ministers have received this, will you share and commit to share the findings with this committee?
Very definitely. I will write to you setting out what we are proposing to do and what Ministers have decided to do, and the processes around that that will be followed if we're making additional new appointments.
Okay, thank you. Jenny—Jenny Rathbone, could I invite you to take over the questioning?
Thank you very much. Apart from being the regional airport for south and west Wales, the unique selling point of Cardiff Airport is its long runway. So, I wonder if you could tell us a bit more about the current arrangements with Qatar Airways. You say discussions are continuing. How does that affect the original £1 million a year that the Welsh Government was giving to Qatar to promote Wales as a destination in the middle and further east?
We've re-begun or re-initiated discussions with Qatar Airways, so those are getting under way again in terms of what happens post pandemic. The work that we had been doing, including that destination marketing agreement, was paused, basically because of the pandemic, and Qatar Airways have had to take a number of decisions around their routes, in common with so many other airlines around the world. So, they very substantially reduced their numbers initially through the most immediate phases of the pandemic; they're slowly building those numbers back up again. Cardiff is obviously affected, but so too are a number of other airports within the United Kingdom and, indeed, more widely around the world. We will be engaging in discussions I should imagine both at Government level, and, of course, the airport themselves, in the coming months, but I can't really give any timescales on that because the situation is just rather fluid at the moment. Qatar Airways say they'll want to come back to this and re-institute the route, which is great, but the precise timing of that is something to be determined.
Okay, I understand that. Just pre pandemic, what assessment was made of the value for money of that £1 million in that initial first year?
I think that the sense of the airport and the team that sponsors the airport was that that exercise was worth doing, but we haven't done any formal analysis of the money spent, because we hit the pandemic, and I think we just need to have a better sense of timings for reinstating the route and so on, before we look again at the VFM aspects of what worked best, what could be dispensed with, are there different tacks that we can take in what we hope will be a post-pandemic world, or in a world where we're dealing with the pandemic in a different way globally. And I think that'll be the opportunity to look back at the money spent so far and say what's worked well here, what didn't work so well and what can we do differently.
Okay. Obviously, we're having this inquiry in a rather strange week, in the middle of COP, but I just wondered if you could give us some sense of the role of the airport in relation to the current challenges. How do you see, for example, us promoting an airport when the Welsh Government is currently very concerned about the risks relating to foreign travel? So, how do you balance that sort of dichotomy?
Well, I think—. I think, as you say, it's about how do you balance a competing set of policy issues there, Ms Rathbone, as you say. So, I think, in relation to the pandemic, the absolute priority is public health. The First Minister has been very clear about that throughout all of the measures that we put in place as a Government and have instituted with partners throughout the public service, and indeed the private and voluntary and community sectors. It has all been around protecting public health and making sure that the people of Wales are kept as safe as possible through these most extraordinary circumstances. And that, of course, has a bearing on the guidance that we give to Welsh citizens, which is not to travel, particularly abroad, unless it is essential to do so, at a time when infection rates are high and there is a risk of giving the virus to other people and indeed bringing it back into Wales. That is the position. That has been the subject of careful consideration over these last 20 or so months. We've worked very closely with the airport on that. Part of the package around rescue and restructure has reflected the fact that we are taking a very measured and precautionary approach to the handling of the virus.
But, as you hinted, with COP going on in Glasgow, we've also got a range of issues around climate change, and there's a policy tension there for sure. We want Wales to have a gateway into the rest of the world and the world into Wales—a hugely important piece of our transport infrastructure. How can we do that in a sensible way, linked to our climate change objectives? That's a key issue that we continue to work through. I guess, in climate change terms, there are three dimensions here. One is the operation of the airport itself, where Spencer and the team there have done fantastic stuff to make the airport's operations more sustainable, and his predecessor, Deb, as well, with the help and the oversight of the board, but there is more to be done there. Then there's something about surface access, and we set out a bit about that in our evidence paper and decisions taken around vehicular access—what you do about roads versus other routes into the airport. And then there's the wider question about international aviation, where we have considerably fewer levers as a devolved Government, but we're working as best we can with the industry and with UK Government, including on the 'jet zero' initiative. From memory, global emissions associated with aviation amount to around 2.5 or 3 per cent. In Wales, we calculate that the emissions quotient is about 1 per cent. But anything we can do, for example our work with Airbus on the wing of the future to improve efficiency of airlines, and work on replacement fuels or fuel supplements, anything we can do on that front we are doing.
Okay. Just finally, on the level playing field with other regional airports, specifically Bristol, they got £60 million; Cardiff got nothing. How big a problem is that in relation to the lens with which the UK Government is looking at all this?
The interplay between different support packages and arrangements for different regional airports is something that is a regular feature of discussion, both with UK Government and with the airports management team. We put money in, and I dare say we'll come on to that, to talk you through the rescue and restructuring programme. The UK Government has put arrangements in place. Across the water, the Irish Government has not long ago put in place a fairly substantial package in support of its aviation sector and its airports. So, I think all Governments are wrestling with this to varying degrees. We would expect some form of consequential to come from additional money provided by the UK Exchequer to the Department for Transport in respect of regional airports, and I know that our Treasury colleagues in Welsh Government are talking to their UK Government counterparts about that at the moment.
Aviation has taken the most extraordinary hit, not surprisingly, as a result of the pandemic. Some of the figures are set out in the evidence paper. I think losses through into next year are going to amount to in excess of £200 billion across the international sector as a whole. I noticed the other day that Heathrow Airport said that they were posting losses of over £3 billion, and that's undoubtedly our biggest and, I dare say, our most profitable airport in the United Kingdom. So, the impacts of all this are absolutely immense. The other thing to mention is we have done what we can as a team, and Ministers as well, to engage sensibly with the UK Government's union connectivity review, but as yet, we haven't heard the fruits of that, the work being done by Sir Peter Hendy, and it will be interesting to see what that comes up with in terms of arrangements for regional airports.
Thank you. Thank you, Chair.
Thank you. I think Natasha had a supplementary question on the previous question.
Thank you. Good morning, everyone. Thanks for joining us. I have one question that, unfortunately, Google has been unable to provide me an answer to and quite a few people have as well, so I'm hoping, as my oracle of knowledge today when it comes to aviation, you'll be able to answer the question. Cardiff Airport was acquired quite some time ago, and I understand that financial aid has been provided, support packages, et cetera, et cetera, but, from your knowledge, are you aware that, at any given point from the point that it was purchased by the Welsh Government, any bonuses have been paid to the executives of the organisation, such as the chief executive officers past, present or at any given point—CEOs, chief financial officers, chief operating officers, et cetera. Are you aware of any such bonuses or benefits that have been paid to them at any given time?
I think we probably need to come back to you on that. I don't have that information directly to hand. The operation of the airport is on a commercial basis at arm's length from Government, and appropriate remuneration packages need to be put in place to have the right people running the airport to make it a success. But on that specific point, I can't answer that today. I'm happy to come back to the committee on that.
Thank you. I invite Mike Hedges to take up the questions.
The decision to have an airport or not is a political one—I won't ask you any questions on that. But assessing the options of support is something that you were given advice on. I see them as three options with the airport: to give the support they ask for in order to keep it going; to see about leasing it to somebody else with a dowry; or closing it and then, because it's got A1, A3, B8 and possibly other planning permissions, to actually sell the residual land. Are those the options you looked at?
Well, I think, Mr Hedges, that those are a number of options. There are a number of other ones as well, potentially. What we did when we got further into the difficulties associated with the pandemic was talk to the airport about approaches for keeping the airport open—what would a plan look like? And we then had a number of parties with independent expertise come and look at that and round up for us what was the best option to move forward. And that was this restructuring plan over an extended period, which would provide a return that was greater than allowing the thing to go into liquidation and end up in a situation where we were breaking up the airport, because that is effectively what would have happened in that situation. Other arrangements were not seen as providing the policy outcome desired, as you just mentioned there—Ministers wish to have an airport as an international gateway for Wales—but also protecting public money.
You said there were other options apart from leasing it with a dowry, closing it down and selling the land, and continuing to support. Can you tell me about one or two of the other options?
Well, I think we looked at a range of things, both internally and with the help of Oxera and Duff & Phelps, which included short-term support or further short-term support arrangements. I might bring Jon Moody in in a moment to see if there are other things that we can say. Obviously, we've got to be a little bit careful because the contents of those reports are commercially confidential. But a range of potential options were considered and the one that was recommended by our independent advisers was the one that we're now pursuing, basically. I don't know whether Jon wants to add anything in terms of other options or scenarios that were considered.
Sure. Thank you, Andrew, and good morning, Members. Bore da. I think the other live option was, as Andrew alluded to, a 12-month mothballing scenario in terms of looking to meet the airport's operational costs to see if it could recover within that period. We had some independent advice from Oxera and a second opinion from Duff & Phelps, who are experts within this field. In terms of that option, it didn't allow for the long-to-medium-term recovery of the airport directly. In effect, it would've been investing more money into the airport for it to find itself in a position of risk of liquidity 12 months down the line. In terms of the other live option, it was the 'do nothing' option, which, with acute liquidity needs, would've seen the airport close. And as the Member alluded to, that would've seen it sold potentially on a break-up basis. Given the volatility of the market at the moment, it would have been extremely difficult to even find a sale for that. In effect, the advisers advised us that you'd almost have to pay an interested party to take it off your hands, in that scenario. So, as you can appreciate, it was an extremely difficult position when the pandemic hit.
Can I say two things? The first one is that all you've done is talk around one of the options that I put out and haven't come up with any separate options; it's how you support it, and I did say 'support the airport'. So, I'll take —perhaps you can give us it in writing—any different options apart from supporting it, in whatever form: leasing out with a dowry or closing it down. Perhaps you could write to us and say what others, outside those—not the length of time you're going to support it or how you're going to support it, but what the other options were apart from those.
The second question is—. I was just amazed at the last answer. You've got land in possibly the most expensive part of Wales with planning permission and you think you'd have to pay somebody to take it off your hands. I know you've had the RIFW example. I was hoping you'd have learnt the lessons from that. From what you've just said to me, it appears you haven't.
I think, if we may, we'll come back to you both on the point about the sorts of scenarios that might have been in play and why sell-offs and the different interactions in relation to land values and potential for planning permission weren't considered as the favoured option for moving forward. I'm happy to do that.
I've got no problem with it not being the favoured option, but it has to be an option. On planning permission, you've got planning permissions. You've got A1, A3 and B8, and possibly others, on the site, haven't you?
Yes, but I suppose we're looking at the overall value for money to the taxpayer in the longer run, and also, as you pointed out a few minutes ago, the ambition to continue to have an airport and an international gateway to Wales.
I'm not speaking against having an airport. Actually, if we were coming to a vote, 'Do we wish to have an airport in Cardiff or not?', I'd vote 'yes'.
I understand the point you're making.
You do need to give, I would suggest, advice to us and to the Minister on what the other options were and what the residual value is. You've already got planning permission on the site. I mean, on the footprint itself, leaving aside the runways, you've got deemed planning permission and you've already got A1, A3 and B8 planning permission. I find it difficult to believe you'd have to pay somebody to take something in the most expensive part of Wales, or in one of the three most expensive parts of Wales, possibly the most expensive, to take it off your hands. I find that advice difficult to understand.
I think it depends what you're wanting to do, and if that's about moving forward in relation to an operation of an airport, that's a different matter, as you say, from not having an airport there at all. I take the point about the options available and the scenarios, and we will write to you and colleagues following up on that in respect of the sorts of scenarios and their merits and demerits.
Do you have anything else you wish to add, Mike? Could I just add to that, regarding the Government's arrangements around the financial support package as opposed to the specific options, which we look forward to receiving further details on? What were the roles of the airport, Holdco and the Welsh Government in the consideration of the options available, which you'll be sharing with us?
Well, I think it's fair to say the best way to think of this is airport to Holdco, Holdco to Welsh Government, and then Welsh Government makes a final decision. And in doing that, as Jon mentioned a few minutes ago, Chair, we took independent advice from the economic and financial consultancy Oxera. That work that they had led was then, in turn, double checked or sense checked or validated, whichever term you want to use, by the international finance house Duff & Phelps. That, in turn, then came through as a set of advice into Holdco. Holdco then made a set of recommendations which we tested with lawyers, including an expert QC, on the issues around state aid and the management of public money in the context of a commercial operation, and that led to the packages of advice to Ministers and the eventual decision on the rescue and restructuring package.
Okay, thank you. If I can hand the baton back to Jenny Rathbone. If you could please take up the next set of questions.
Sticking with state aid, previously the Welsh Government said it felt it was restrained in the amount of money it could give to the airport because of the UK Government's interpretation of European regulations. How has the UK-EU trade and co-operation agreement changed the landscape in terms of the financial support the Welsh Government can provide for the airport, whether it's the £42.6 million over five years, or any future money that it might provide?
I think that's a fair question. The fundamentals are that the TCA, the trade and co-operation agreement, basically further enshrines the principles that we have been previously operating within in the context of the EU legal framework. For a whole range of reasons, that was the most straightforward approach to be taken and was the one negotiated at the UK level with the European Union. At some point, elements of that will be picked up in the UK Government's new Subsidy Control Bill, which I think is due to become an Act sometime next year, if I remember rightly. But the fundamentals of operating any state aid regime are set out within World Trade Organization rules. Those then, in turn, were enshrined in the EU legislative requirements, and they are basically further enshrined in the TCA. That places a set of requirements on us in relation to market principles when we're operating a set of arrangements, as, in this case, in the context of the airport, and we are still effectively bound by those.
What we have had particular difficulties with in the past has been the UK Government's approach to interpretation of things like security and safety spend in airports. Because one of the problems there—and I know we've discussed this with the previous committee, and indeed, you on the previous committee—was that those costs can be quite substantial whatever size of operation you're running. So, a small airport has to have all of those facilities in place in just the same way that a big one does, and that can mean that you end up with a disproportionate amount of cost compared with the operation of the airport. I think it's of the order of about a third in the context of Cardiff Airport; I may have misremembered that, but significant sums of money. And the UK Government position previously—I don't know whether that's changed now—had been that those sorts of facilities and elements shouldn't be funded by the state in a way that was happening in other parts of the European Union, and that was a difficulty for, in this context, Cardiff Airport in particular. Managing our way through all that was quite tricky. I don't know whether either Steve or Jon M wants to say more about the subsidy control and the state aid regimen that I've missed.
I think it's important to tie down whether the current UK Government sees the security and safety spend differently in the light of how other European airports operate.
Yes, and that's part of our ongoing discussions with the UK Government on a range of aviation issues.
Who wants to go first? Steve.
I've got nothing to add to what Andrew has just said. We're certainly trying to work very closely with the UK Government on safety, and what is eligible expenditure and what is not. Some level of that detail may come out from the regional connectivity review, but we're still slightly in the dark, as we were, well, 12 or 18 months ago.
Jonathan, is there anything you want to add?
Just on the state aid changes, under the new trade and co-operation agreement, pretty much the same routes exist as they did under state-aid rules. So, the same rules, almost, are applied—in terms of types of support to continue to support airports as you would have done under state-aid rules, under European law—under the new TCA agreement with the European Commission. So, the same level of scrutiny is applied in terms of assessing potential support for airports. Thank you.
Given the failure of the UK Government to really come to the table and clarify all this, I wondered if you could then tell us how the Welsh Government determined the value of the nearly £43 million over five years. How did you come up with this figure, in the context of the restraints we've just been discussing?
Fundamentally, this was the figure that we settled on, following advice, that we felt was the minimum necessary for the airport to be able to meet its liabilities and its overheads, with a view to getting it back on its feet within a five-year period. And that was deemed to be the absolute level necessary for that to happen.
Okay. Lee Waters, the then Deputy Minister, said the rescue and recovery plan would enable the airport to achieve financial viability by March 2026. How do you define that, and what does that mean in practice?
I think what that means in practice is that's the point at which the airport is expected to become self-sustaining, can generate enough income, post pandemic, to meet its own liabilities. That determines the number of passengers you need coming through the airport, and a range of other factors, and that's built into the restructuring plan. I don't know whether Jon has anything more to add to that, but that would be my answer in response to that question and the points made by the then Deputy Minister.
True, but this is a moving piece, with (a) we don't know quite how the COVID story is going to pan out, and (b) we don't know what COP26 is going to agree.
All of that is very true. It is a moving target. One of the reasons why Oxera and Duff & Phelps were very clear about the option of a five-year plan, and the need for that, was to get us beyond some of the—I'm going to use the word 'turbulence', which may or may not be appropriate, but the position that we're in at the moment, and put things back on a more sustainable footing. Clearly, if COP comes up with a brand-new set of arrangements in respect of aviation, we'll have to factor that in, but it will be an international agreement, so everybody will be factoring it in, if I can put it like that.
Indeed. Jonathan, is there anything you wanted to add on that?
Just that, as Andrew alluded to, the figures that were compiled were sense-checked and benchmarked against estimated recovery rates, based on industry figures and industry bodies, and they were checked by Oxera, and then a second opinion was obtained by Duff & Phelps. As Andrew said, it was considered the minimum necessary and, basically, the point at which the airport breaks even and should become self-sustainable. But as you've alluded to, the market is still very volatile and a moving piece.
Okay. In correspondence with the Economy, Infrastructure and Skills Committee, the then Deputy Minister, Lee Waters, referred to both the rescue and recovery plan and a restructure plan. Are there two documents, or just a different way of describing the one document?
I think the fact that both Steve, I think, and Jon are shaking their heads suggests that those are one and the same thing; I'm certainly not aware of two plans. We've talked in terms of recovery, we've talked in terms of restructure; the technical title is 'rescue and restructuring plan', but I think they're one and the same thing. Let me look at my team; I think they are—yes, they're agreeing with that.
Fine. I won't pursue this hare any longer. I'll hand back to you, Chair.
Thank you very much. On that note, when the £42.6 million grant was announced by the Welsh Government nearly eight months ago, they stated it would be used to restructure its operations and secure its long-term viability. My understanding is that the definition of 'restructuring' is, 'significantly modifying the debt, operations or structure of a company to limit financial harm and improve the operation of the business'. However, when we questioned the airport about this earlier, and the specific restructuring referred to in the Welsh Government's comments, they, after some apparent thought, referred to a small reduction in employees earlier this year, and after further thought to a number of projects under review, such as real estate and services and facilities. That's not a plan—that's putting everything together and talking about a review or reviews yet to be undertaken. So, where is this plan? What plan is there, when the airport representatives didn't seem to have one?
Well, I'm sorry if that didn't come across, but I think in our dealings with the airport and the work we've been doing, there is a credible set of proposals—that's what we've had tested by Oxera and Duff & Phelps to get us from here to 2026. There are a number of components to that. Some element of restructuring is required in reconfiguring things—as you say, some new projects and some projects not to be carried forward. You'll be aware that the airport had a pretty clear master plan to take it out to 2040. That's effectively on hold because of the pandemic, but many of the principles of that—the strategic direction for the airport and then the underpinning implementation of that—were set out some time ago and the aim will be to get the airport back on its feet to recover the ground lost. Effectively, that's what we're talking about here. And then to get it back on its strategic path for the longer term, which includes its ambitions around low-carbon operations and working effectively with airlines on low-carbon measures. I don't know if there's anything more that either Steve or Jon M would like to say around the way that the plan has been set out, but that's it in a nutshell.
You've covered that, Andrew. Jon, have you got anything further to add?
Only that regional airports across the UK have minimum operational costs in terms of the regulatory items that they have to put in place, let's say, to be able to operate an airport from a safety and security perspective: runway, ensuring that it's safe and fully operational. So, it's difficult for any airport, whether UK or globally, to cut those costs because they simply have to incur them in order to continue to operate that airport, which is obviously critical for health and safety of aviation and running an airport.
Okay. When all these reviews have concluded, when do you anticipate there will actually be a restructure plan in place against which you can monitor performance?
That is the rescue and restructuring plan that is in place. There are a set of metrics that need to be met and measures for how we gauge progress, and we do that work through Holdco, through regular discussions with the airport around their key performance indicators, and also we've got the Development Bank of Wales monitoring the loan arrangements on our behalf. All of those progress reports are happening on a regular basis. There's a limit to what we can disclose, as we've discussed elsewhere, because of commercial confidentiality, protecting the position of taxpayers as well as the airport in its operations vis-à-vis competitors, but we'll happily report back to the committee, as we go forward and as the pandemic develops, to give you a sense of what's happening on the ground. I'm sure the airport will be happy to do the same.
So, you're telling us that a plan to significantly modify debt, operations or structure is in place despite all these ongoing reviews.
Yes. The plan was set out in the spring, which takes us from here to where we want to be in 2026. It's a long-term plan with money attached to it to make sure that the airport can keep going and build back up to a point where it's viable again and can wash its own face in operational terms, and then get it back on a track towards its master plan.
Okay. It's just that there appears to be dichotomy between the airport's understanding of the restructuring they were undertaking in the context of the Welsh Government's statements and your statement that there is already a restructuring plan in place despite the fact that these reviews are for the future on real estate services and facilities. But we'll watch this space.
The Welsh Government's reported list of expenditure over £25,000 includes a £10 million grant payment to the airport on 5 March this year, ahead of the start of the financial year, the first year it said that the rescue and restructure plan would be paid, and seemingly with a different profile. What explanation can you provide for the amount and timing of that payment?
I'm pretty sure, Chair, that that was about making sure that the—there was a cash flow issue, and making sure the airport could meet its liabilities. I don’t know whether Jon can confirm that.
Yes, it was indeed. It was ensuring that the airport had sufficient cash flow to continue to meet its liabilities for that certain period of time.
Okay. Are we right to understand that £16 million of the £42.6 million was to be paid in this financial year, and that grant funding would be drawn down with the first payment being made on a six-monthly basis, then moving to quarterly? Is that still the goal?
I think that's right, Jon, isn't it? We set out the figures in our evidence paper, Chair. I think they're there.
If I may, yes, that's correct. That's the profile for their payment to meet their liabilities.
What terms and conditions have the Welsh Government placed on the grant support, such as the purposes for which the grant funding can be used by the airport? And how will the Welsh Government obtain, or how has it obtained, the necessary assurance over the airport’s use of the grant within its parameters?
That’s an important question, Chair, and we were touching on it, weren’t we, a minute or two ago. The terms and conditions of the grant agreement are commercially sensitive, for the reasons I set our earlier, but I would want to assure you and the committee that the purpose of the funding is for the airport to meet its overheads and carry on, as Jon was just saying, to discharge its duties correctly as an airport operator, with everything that that implies in respect of security and safety and orderly operations.
There’s a mechanism in place within the agreement that makes sure that the monitoring of spend is done through the Development Bank of Wales, and those arrangements to my sight seem to be operating very effectively. It’s an early stage in the process, but the arrangements are operating well and as expected. There’s a limit, as I say, because of commercial confidentially, on what we can say there, but I can assure the committee that mechanisms are in place to do the monitoring and to hold the airport appropriately to account.
Can you just clarify a point in terms of the monitoring? Who will carry out the respective monitoring roles and how will the results be reported?
I might bring either Steve or Jon in on some of the detail, but we've got this suite of arrangements, as I was just touching on, in relation to the airport providing quarterly reports, the work of Holdco, and then the Development Bank of Wales's own individual responsibilities in respect of looking after the loan, and to make sure that we've got performance against the restructuring plan, as well as key metrics in the way that I described earlier, which would include things like passenger numbers and financial performance and so on, without going into too much detail there. I'm confident that we include the cash flow dimension as well. I don't know, as I say, whether Steve or Jon M would like to comment in a bit more detail about the arrangements put in place, but there are a number to follow up on on the restructuring plan.
Just to confirm, as Andrew rightly said, a quarterly performance report against the agreed recovery and restructure plan—we would expect that to be ratified by the airport’s board before coming to Holdco, who will undertake their own independent monitoring and assessment of progress and performance against that agreed plan and targets, independently monitored and verified by the development bank. And then, based upon that, on a quarterly basis, we will then undertake our own analysis and then provide advice to Ministers in terms of progress against those agreed actions. That’s a process that’s in place. I think I’m right in saying we’ve had the first quarterly report and we’ve actually gone through that process. I don’t think there’s anything more to add there, unless Jon's got something more to say.
I think that describes it quite accurately, thank you, Steve. There are triggers built in the monitoring of this that would alert us to underperformance or overperformance, and that's where the development bank play a key role with their financial expertise and independence.
Okay. Thank you. Will the Welsh Government be able to recover funds or withdraw part of its grant offer should the airport outperform its forecast growth in passenger numbers and achieve financial viability within the five years?
Yes. That's an important part of the agreement, Chair, as your question implies. We have got an arrangement that says that should the airport outperform what was set out, we can reduce our grant payments or recoup available cash to repay against the outstanding loan. So, the upside mechanism is there in the agreement as well.
Okay. Thank you. Over to Natasha.
Thank you, Chair. Good morning, gentlemen. Before I go into my questions, there's just one point I'd like to touch upon regarding the rescue and recovery plan. It was mentioned earlier by my lovely colleague that the airport would achieve financial viability by March 2026. When you make these plans, do you make them solely yourself and tell those in charge of the airport or running the airport, 'This is the plan that you have to follow', or do you do it together? Because when I asked them a question on another matter before, and I was asking them what their feasibility report was or, for example, what their foresight was or their forecasts were for the next 18 months, they couldn't give me that plan or that definitive answer. So, I just wanted to know how much involvement do they have, particularly when you make these plans for the future of the airport.
I'll need to check back with colleagues from the airport about what they've provided you in terms of advice, because I wasn't, unfortunately, able to watch the preceding session. But I suspect part of their evidence would have been about the commercial confidentiality—some of the points we were discussing earlier on. If you spend a lot of time talking about your forecasts and what's going to happen in terms of the financial performance of the airport, that inevitably has a bearing on the competition, including impacts on airlines' own negotiations with the airport. You've got to be a bit careful there.
Of course. I'll just clarify. I was actually asking them about, for example, the airport duty. That's what I was referring to. That was the question. It wasn't anything to do with the accounts side of things. So, I was asking them about, obviously, passenger footfall and the impact of that on the airport. I'll just give you a bit of background as well, just to hopefully highlight and get the answer that I'm looking for. But my main questions was: how much involvement do they have in the report or, I should say, the plans that you create and eventually provide them or work with them on? That's what my question was.
Okay. On that specific point, the restructuring plan—the rescue and recovery work—was a set of propositions initially from the airport, which were then tested, along with a range of scenarios, which we were discussing earlier, by Oxera and then by Duff & Phelps, and then came into our system to consider, including the legal ramifications and what that might mean for state aid—some of the points Ms Rathbone was making earlier. And then, what we've come up with is the plan that's gone through that process, and has been very robustly challenged as providing best value for money overall, and that's the arrangement that we're pursuing. But day to day, the airport has an executive and a board, it's run at arm's length from Welsh Government as the shareholder. Holdco, on behalf of Welsh Government, keeps an eye on all this. We talked a little bit about the governance review, on which we'll write to the committee later this year. But that's the basic governance arrangement. There's very close working between the teams on keeping each other informed on what's going on, but the day-to-day running of the airport and, indeed, it's key work around master planning and so on, is for the airport, and that is right and proper for a commercial operation running at arm's length from Government.
Thank you very much for that. I'll now go back to my actual question, which was: on the basis of what evidence did the Welsh Government decide to write £42.6 million off the airport's loan, and why will the airport not start to repay the outstanding balance until 2031-32, some five years after it is forecast to achieve—and I quote—'financial viability'? This did slightly throw me off guard, because when we did speak to Cardiff Airport earlier, they actually mentioned that they are contributing £246 million to the Welsh economy. So, if they're contributing so much, why such a delay in the payment?
I think that comment will have been about the wider economic benefit from the airport, and some of that's set out in our evidence paper. We have long held the view—and it's borne out by a number of studies and experience from elsewhere around the world, not just in the United Kingdom or Europe—that airports have quite a wide economic footprint in terms of supply chains, with a number of people employed either directly or indirectly. The economic benefit associated with airports is very significant and exceeds the cash components of running the organisation.
The amount of write-off is linked to the point we were discussing earlier, and Jon was talking a bit about, which is around how much do you need for the airport over a five-year period to get to a point where it can be viable and self-sustaining from a financial sense. But that is different, as your question quite understandably implies, from a point where the airport is in a position to be paying back against its loans, rather than simply servicing the loan arrangements, and that takes a bit longer. So that's why you've got a gap as you were just describing there, Ms Asghar, between 2026 and the early 2030s. I think probably that's the easiest way to set that out. Jon, have I missed any points there? We've got to be very careful to do all of this, again, within the terms of the TCA and the subsidy regime, and make sure that we're doing things at a market level, rather than doing something outside of that framework. I don't know whether Jon wants to add anything.
I think, to try and explain it as clearly as possible, it's the difference between breaking even and being able to meet your own liabilities, your overheads and costs, and then being at a point in the future whereby you're profitable as a business. After your cash flow needs and reserves needed to be operational, it's the point at which cash becomes available to pay down any debt or creditors, if that makes sense.
It does. A sub-question to that: Cardiff Airport, when we spoke to their heads today, said that they've got a five-year plan to hopefully recover and bounce back, almost. What if—and I hate to sound like the voice of doom now—the pandemic comes back again or another form comes back, things go really badly, and the debt isn't £42 million, but it goes up to £50 million, £60 million, £70 million or £80 million? What happens then?
I think that is a very fair question and a pertinent one, because we are in the middle of an extraordinary set of circumstances. But the whole reason behind the five-year plan was to get to a position where we could get the airport onto a more sustainable footing. So, for example, if there were to be further restrictions applied in the short term, the five-year plan has the potential to help us ride some of that out. This was one of the reasons why a shorter term option, or a tiding-over option, was discounted, because of the risk of just not putting the airport onto a sustainable footing and therefore sending a range of signals out into the market, which would have had a bearing on how airlines chose to operate with the airport and so on.
We don't know what's going to happen in respect of the pandemic in the longer run and what will happen to international aviation, but that will be, as we were discussing earlier in this session, a matter for airports and airlines absolutely everywhere. It has been, as I said earlier, an extraordinarily difficult period for the aviation sector. I talked about the sums of money involved; many, many airlines have gone bust over this period. We've had a number within the United Kingdom, but it's been an international problem, and airports everywhere, whether they're owned publicly or privately—. It's an interesting stat that colleagues supporting the committee will have heard me mention before, and Ms Rathbone, that 86 per cent of airports around the world—. There are just under 3,500 airports around the world that service scheduled flights, and 86 per cent of those are either wholly or partly in public ownership. Of the balance, around 40 per cent, pre pandemic anyway, of aviation footfall and passenger numbers went through those private airports. So, they are by far the biggest and most profitable airports.
So, ownership of airports and the challenges facing Governments and public bodies everywhere in the context of having the right infrastructure in place, connectivity for people, whether that's within a country, or a group of home nations in our own case, or internationally, is a major challenge, and public ownership and involvement in the vast majority of those airports is a huge factor in their operation.
Thank you for that. Chair, I'm going to make this my last question, if that's okay. You mentioned value, and I agree with you completely. The value of Cardiff Airport has been up and down constantly for the last few years, from press stories, to our research teams, to what we've heard in the group as well. So, I'd like to know, in relation to the equity investment in the airport and going forward: firstly, how much, at present—if you can share this with us—do you value Cardiff Airport at, or does your team value Cardiff Airport at? And also, based on the equity investment in the airport and going forward, how will you be able to assess if the reduction in value has been reversed, going forward now?
Well, that again is a good and fair challenge. The work that we did earlier in the year and that was supported and tested—in the jargon, the tyres were very, very substantially kicked by Oxera and then by Duff & Phelps—gave CIAL, the airport, a valuation of around about the £15 million mark at liquidation of the assets. So, when you're basically selling whatever's available off but you're not having any kind of ongoing business. As part of the Holdco annual accounts process and because of the rescue and recovery and restructuring process, we had Alder King, the Royal Institution of Chartered Surveyors-registered valuers, look independently again closely at the airport. That came up with a slightly bigger figure of about, I think, just under £18 million—£17.8 million. And that met the accounting requirements that were required, and that slightly changed the nature of the impairment value, and I think that's reflected in the evidence paper that we provided. Annual accounts are prepared every year, as they need to be, and the Holdco accounts then fit within the wider Welsh Government accounts. So, that process of evaluation and valuing goes on each year, and we will need to keep an eye on that in the context of our equity investment, for the reasons that you rightly set out a few minutes ago. That's it in a nutshell. Again, I don't know whether Steve or John want to add anything to that.
Nothing from me.
Just that that's applying recognised UK accounting practices in terms of following Companies House and audit compliance.
Okay, thank you. Cefin Campbell.
Question No. 8, yes?
Seven. I did both parts of six.
You've done both, have you? Okay. Sorry, originally—I understood we were going to split it, but okay, if you go to eight and I'll finish off.
Diolch yn fawr iawn. Cwestiwn yn Gymraeg os gaf i. O dan ba amgylchiadau y buasai Llywodraeth Cymru yn barod i gynnig cymorth ariannol i'r maes awyr ac ym mha ffurf y byddai hynny'n cael ei gymryd, gan fod y Llywodraeth eisoes wedi cyhoeddi na fyddai benthyciad arall ar gael?
Thank you very much. A question in Welsh, if I may. Under what circumstances would the Welsh Government consider offering further financial support to the airport and what form would this be likely to take, since it has been confirmed that a further loan facility is not available to the airport?
I think the answer to that, Mr Campbell, is that the airport in the course of the next few years needs to operate within the confines of the £42.6 million rescue and restructure package. We are constrained, as you rightly just set out, in terms of what we can do in respect of further public support because of the TCA arrangements. We don't quite know how those are going to develop over time as the TCA arrangement is, in itself, something that is a living arrangement. And then behind that, we've got UK Government looking at its own subsidy-control regimes, and we want to be part of those discussions because they have a very significant impact on us within the devolved Government context.
Fundamentally, these are matters that we would need to come back to in due course, in light of the prevailing regulatory environment, the position around the world in respect of airport operations, and the options that might be available to us. So, it's quite hard to answer that question, again because of the moving feast we find ourselves in. But, right now, the arrangement is the rescue and restructure plan, and we have set that out in a way—and have had it very carefully tested and benchmarked with everything that's happening around the rest of the world—based on the information available to us and what we understood to be the likely duration of the pandemic and its impacts and the time taken to recover from that. And I think the aviation sector generally says it's a three to five-year process as a requirement to get back to where we were pre pandemic. And then, as Ms Rathbone was saying earlier on, you've got climate change implications to factor in as well. Based on the information available to us and the need to give some surety over a five-year period, that's the figure that has been arrived at.
Thank you. A final couple of questions from me. Thanks for persevering. The rescue and restructure plan sets out targets, but in evidence earlier, the airport told us it was unlikely to meet its targets for 2020-21. What do you consider the implications of this are likely to be?
I don't know whether either Steve or Jon want to come in on that, Chair, but I certainly think given the turbulence of the last 20 months or so, the ability to predict with any confidence what will happen has been limited. I don't think any of the performance measures to date have ended up in such a place that they cause a significant worry or trigger particular concerns, but I don't know whether in respect of the evidence that was previously provided by colleagues from the airport if there's anything that either Steve or Jon want to add to that.
I'll come in just to confirm your point there, Andrew, that in terms of where we are today, there are no significant concerns. There is flexibility as we have a five-year plan in place. But as we said earlier, that quarterly performance monitoring is going to be absolutely crucial, so that we do keep an eye on performance. But no major alarm bells are ringing from our perspective at the moment. Jon, anything further from you?
No, just to add, the latest quarterly report from the development bank is not raising any alarm bells, like you say, so everything is okay.
Okay. And my final question, you'll be pleased to hear: as you will know, a registered charge is the security a person or a corporate body gives for a loan. In May this year, the Welsh Government registered a charge against the airport, having previously done so in both 2014 and 2015. What is this latest charge, what prompted it and what additional security does it provide for the Welsh Government?
As you say, Chair, we've done this in the past as a Government previously. It's a sensible thing to do in a set of circumstances where you've got a risk—in this context, potentially, of liquidation—to take a registered charge. We sought independent advice as we were going through the early stages of the pandemic on that, I think from Eversheds, the legal firm. Part of their review work recommended that we take the charge out, and that was duly done. It just gives you an extra tier of protection and seemed a prudent thing to do to protect public money.
Is it normal to take out a registered charge against something which is wholly owned by yourselves?
That's a very good question. The arrangement with the airport is not—. It's quite individual anyway, so I hesitate to say that anything is normal in that context, but it's not at all unusual for public bodies and interested parties, especially when you're protecting public money, to put in place measures of that sort, and we specifically sought advice on that, and that was the recommendation we were given, and we acted upon it.
Sorry; it's very normal to do that—I just find it strange to do it against something that you own, so you've got to claim against yourselves, effectively, because in liquidation, the airport company goes back to Holdco, which goes back to the Welsh Government. So, you're actually claiming against yourselves.
That was one of the things I think that we looked at in the context of the advice that was provided. I don't know if Jon remembers any more of the background to that, but as you say, it's an unusual set of circumstances, but it's an additional set of protections for the public purse.
I think, yes, the airport has other creditors as well, not just the Welsh Government, from its loan perspective, so it's about ranking and getting you higher up that recoupment schedule.
Okay. Thank you very much to all the witnesses for being with us and obviously for staying with us as we've run over the original scheduled time. A transcript of today's meeting will be published in draft form and will be shared with you so you can check it for accuracy before it's published. So, thanks once again, and we hope you have the remainder of a good day.
Thank you and likewise, Chair. Thank you to the committee for your questions. There are a number of actions there, and I'm sure colleagues in the secretariat will have picked those up for us. But we will write to you pursuing the various points that were raised today.
Well, Members, item 4 refers to a paper to note, scrutiny of accounts 2020-21 for the Senedd Commission, and a letter from the Chief Executive and Clerk dated 22 October this year. Following the scrutiny of the Senedd Commission's annual report and accounts 2020-21 on 6 October, the Chief Executive and Clerk has responded to the action points regarding the use of potable water and provided an update on the extensive system testing undertaken as part of the legislative workbench project. She's also requested that the in-year update on the progress on socioeconomic benchmarking with regards to Commission staff be provided in April next year. This will allow the Commission to provide the committee with a full 12-month data set to 31 March 2022, which appears to be a reasonable time frame. Can I invite Members to note the response?
I move we note it.
Thank you very much indeed.
bod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod yn unol â Rheol Sefydlog 17.42(ix).
that the committee resolves to exclude the public from the remainder of the meeting in accordance with Standing Order 17.42(ix).
Cynigiwyd y cynnig.
We'll move to the next item. I propose, in accordance with Standing Order 17.42(ix) that the committee resolves to meet in private for items 6, 7 and 8 of today's meeting. Are all Members content? I see that all Members are content, so I'd be grateful if the clerk can change the setting from public to private.
Derbyniwyd y cynnig.
Daeth rhan gyhoeddus y cyfarfod i ben am 11:51.
The public part of the meeting ended at 11:51.