Report to Policy and Resources Committee

Brighton & Hove City Council

1. Purpose of the Report

1.1 This aim of this report is to update TMT and Members with the findings of the Shoreham Airport soft market testing exercise and to seek agreement to issue full marketing documents to secure a private sector partner to support the Owning Authorities in driving forward the Airport’s regeneration vision.

2. Recommendations

TMT and Members are asked to:

• 2.1 Note the key findings of the soft market testing exercise and the recommendations of the Joint Member Task Group as summarised in section 5 of this report.

• 2.2 Note the options for taking forward the delivery of the regeneration vision for the Airport.

• 2.3 To authorise the Deputy Chief Executive and Director of Corporate Services to issue full marketing documents to secure a private sector partner to further progress and deliver the regeneration vision for the Airport. The procurement exercise will state the Owning Authorities preferred option of granting a long ease with bidders being invited to comment on how they would approach the additional establishment of a Joint Venture Company.

• 2.4 Agree to establish an Owning Authorities Members Board to advise and lead the marketing and procurement exercise as set out in section 7 of this report.

• 2.5 Agree to commission Drivers Jonas to provide external support to the Owning Authorities for the full marketing and procurement exercise.

3. Background

3.1 Shoreham Airport is jointly owned by Brighton and Hove City Council and Worthing Borough Council. The Airport covers approximately 97 hectares (248 acres) in the strategic gap between Shoreham and Lancing. There are presently three runways at the Airport - two grass runways and one hard surface runway which is just over 1,000 metres in length.

3.2 Following approval by the City Council’s Policy & Resources Committee in March 2004, the Shoreham Airport Joint Authority Member Task Group commissioned Drivers Jonas to market test the Airport as a going concern and to seek a private sector partner to further progress the regeneration of the Airport.

3.3 The soft market testing process was designed to assess the level of private sector interest which would warrant full marketing and the possible procurement of the Airport. The cost of the exercise was met from the Shoreham Airport capital programme for 2004/05.

4. The soft market testing exercise

4.1 With the approval of the Joint Member Task Group, a marketing document was prepared to gauge the level of interest that would be shown by private sector operators in Shoreham Airport. A marketing document was prepared which set out brief details of the airport together with an agreed statement on planning jointly prepared by the planning authorities (Adur District Council and West Sussex County Council).

4.2 The marketing document (see copy at Annex A) stated the desire of the Owning Authorities to further promote the airport as the focus for regeneration in the area and to expand on the existing development whilst offering significant investment opportunities including:

• Potential to introduce commercial services
• Proximity to affluent population centres
• Existing general aviation business
• Existing standing property investments with potential to expand

In addition, the marketing document explicitly stated that any future procurement exercise would be undertaken to secure the long-term future of the airport. Therefore to ensure the continued success of the airport and the local area, the Owning Authorities sought expressions of interest that would deliver the agreed principles of the Airport’s regeneration vision, namely to:

• Expand and safeguard existing employment opportunities at the Airport
• Retain the operation of an airport at Shoreham whilst protecting and enhancing the existing "strategic gap" between Shoreham and Lancing with environmental protection
• Maximise the opportunities for the site to be a multi-modal transport hub (including park and ride and a parkway)
• Ensure all development conforms to the principles of sustainability.

4.4 The marketing document was issued to 31 airport, airline or regeneration specialist companies in May 2004 (see Annex B) along with a further two companies identified part way through the process. A deadline of four weeks was originally set for the return of submissions. This deadline was subsequently extended by a further three weeks to allow all interested parties sufficient time to submit appropriate information.

5. Results of the soft market testing exercise

5.1 Five of the 33 organisation issued with the marketing document submitted an expression of interest to the Owning Authorities. Of those who were approached but did not submit an expression of interest at this stage, their reasons could be categorised as follows:

1. Those who felt the Airport was too small for their kind of operation;
2. Those who were discouraged because of the likely planning difficulties in building a new 1,200m runway;
3. Those who were interested in the prospect but were not in a financial position to proceed; and
4. Those who were interested in the regeneration and development potential of the site but not interested in the airport as a whole.

Summary findings

5.2 Each of the five expressions of interest were evaluated by Drivers Jonas on behalf of the Owning Authorities to assess their proposals for the Airport and their organisation or consortium’s financial status.

5.3 A detailed report summarising each of the five expressions of interest was presented to the Joint Authority Member Task Group on 26th July 2004. A copy of this confidential report is available in each of the Member’s rooms and a summary is provided in the Part II confidential report to this Committee.

5.4 Drivers Jonas reported that they were impressed by the very considerable time, energy and, to maybe a lesser extent, cost that the parties have expended to submit their proposals. This in their view reflects a very real interest and in the main, a real desire to deliver within the regeneration vision in partnership with the owners.

5.5 Drivers Jonas reported that they were very encouraged by the amount of effort and the quality of the professional teams assembled by the Carlyle Group and Urban Catalyst.

5.6 The Dorot Group, New Monks Farm Development Ltd and Haddock & Co submissions seemed less well organised at this stage but even so should not be dismissed at this stage.

5.7 As a result of this evaluation process, Drivers Jonas reported to the Joint Member Task Group that the Owning Authorities should be encouraged that there is genuine private sector interest in meeting the agreed regeneration aims which would justify proceeding further down the procurement route.

5.8 To summarise, Drivers Jonas conclude that:

• There is market demand for the Airport
• Potentially other interested parties could come forward from a full market testing / procurement exercise
• The Owning Authorities and Partner Authorities regeneration aims can largely be met
• A partnership approach is attractive to the market
• No interest was expressed by the market for taking a short term lease, a management agreement from an operator or a PFI style deal.
• A capital receipt (pre-debt) can be expected for the airport together with further receipts as the regeneration vision is realised.

Joint Member Task Group decisions

5.9 Following the presentation of the soft market testing results, the Joint Member Task Group agreed:

To report the findings of the soft market testing exercise to the Owning Authorities and to recommend that a full marketing and procurement exercise is undertaken to secure a private sector partner for Shoreham Airport.

To recommend that restrictions on the sale of the Airport are placed to ensure the agreed regeneration aims are protected. This could be achieved by disposing of a long leasehold with restrictions contained in the lease to keep the airport open and / or restrict its use.

To bring to an end the work of the Joint Authority Member Task Group involving the observer Members from Adur District Council and West Sussex County Council.

To establish an Owning Authorities only Member’s Board to lead the full marketing and procurement of the Airport. The Board would make recommendations to the Owning Authorities appropriate decision making committees.

6. Shoreham Airport future options

6.1 It has been previously reported that the Owning Authorities have three broad procurement options to drive forward the future of the Airport and the agreed regeneration vision:

• For the Owning Authorities to provide the necessary financial investment and retain a 100% control of the Airport
• For the Owning Authorities to develop a joint venture company with the private sector or an airport operator to deliver the regeneration vision and development brief, and retain a stake in the Airport, (typically of 19%, as has recently been achieved at Norwich Airport)
• For the Owning Authorities to sell the Airport to an Airport Operator or the private sector as a going concern on the basis of the delivery of the regeneration vision and development brief.

6.2 The Owning Authorities have previously recognised that it is unlikely that internal budgets will be able to release the estimated £25 million to £30 million required to drive forward the Airport and the regeneration vision.

6.3 Equally, previous reports to this committee have outlined the ‘Do Nothing’ option which poses financial risks for the Airport. On the capital front, the Airport will not have sufficient financial resources to upgrade or shorten the existing runway if the Civil Aviation Authority were to insist on this course of action. There will also be a continual need to borrow more money to improve the buildings and infrastructure, which will result in additional financing costs. The airport's outstanding debt at 31st March 2004 was £3.824 million. This debt increases annually because new borrowing to fund capital schemes (say £250k) exceeds the loans repaid (say £153k), hence more net borrowing has to be financed from the revenue budget. In addition all of the net new borrowing each year to fund the Airport's capital programme will be affected by any future interest rate increases.

6.4 The airport's revenue budget is also strained by managing the property portfolio. Frequently, rents are reduced or waived whilst tenants construct or modify buildings at their expense, and this rent income shortfall impacts on the budget in that year. The estimated airport revenue surplus in 2004/05 is £25,000, but a spell of severe bad weather could reduce the flying activity and adversely affect the sales of aircraft fuel and income from landing fees. Also, charges made by the airport have to be vigorously collected and debts avoided lest bad debts write offs fall on Airport resources.

6.5 Finally the Do Nothing option provides none of the future regenerative benefits for the sub-region and this option would also retain the pressure on developing this area of the strategic gap.

6.6 Therefore securing a private sector partner or selling the freehold of the Airport are the key options to consider. Within these parameters, there are four broad options which can be considered by the Owning Authorities, the first three of which would effectively amount to a lock stock and barrel disposal, with attendant TUPE implications [see Legal Implications in the Committee Appendix attached to this report - Annex B]:

• 6.6 Table (Adobe PDF) 

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