Y Pwyllgor Cyfrifon Cyhoeddus
Public Accounts Committee23/09/2019
Aelodau'r Pwyllgor a oedd yn bresennol
Committee Members in Attendance
|Mohammad Asghar AC|
|Nick Ramsay AC||Cadeirydd y Pwyllgor|
|Rhianon Passmore AC|
|Vikki Howells AC|
Y rhai eraill a oedd yn bresennol
Others in Attendance
|Adrian Crompton||Archwilydd Cyffredinol Cymru|
|Auditor General for Wales|
|Andrew Slade||Cyfarwyddwr Cyffredinol, Grŵp yr Economi, Sgiliau a Chyfoeth Naturiol, Llywodraeth Cymru|
|Director General, Economy, Skills and Natural Resources Group, Welsh Government|
|Matthew Mortlock||Swyddfa Archwilio Cymru|
|Wales Audit Office|
|Simon Jones||Cyfarwyddwr, Seilwaith Economaidd, Llywodraeth Cymru|
|Director, Economic Infrastructure, Welsh Government|
Swyddogion y Senedd a oedd yn bresennol
Senedd Officials in Attendance
|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.
Dechreuodd y cyfarfod am 13:18.
The meeting began at 13:18.
I welcome Members and our witnesses to this afternoon's meeting of the Public Accounts Committee. Usual housekeeping rules apply: headsets are available for translation and sound amplification. In the event of a fire, follow the ushers, and please ensure phones are on silent. Do Members have any declarations of interest they'd like to make? No. Okay. We have received three apologies today, from Gareth Bennett, Adam Price and Jenny Rathbone, and there are no substitutions. Rhianon Passmore will be joining us during the course of the meeting.
Item 2 on today's agenda is the evidence session with the Welsh Government on Cardiff Airport. Can I welcome our witnesses? Thank you for being with us this afternoon. Would you like to give your name and position for the record?
Good afternoon, committee. I'm Andrew Slade, director general for economy, skills and natural resources.
Good afternoon. I'm Simon Jones. I'm the director of economic infrastructure.
Great. As I said, thank you for being with us today. We've a number of questions for you; I'll kick off with the first couple. Clearly, in the light of the news yesterday, and the transpiring news overnight relating to Thomas Cook, that's top of the agenda. I'm sure that Welsh Government are looking at this and the possible effect on Wales and the economy. Would you like to brief the committee on where you are with the situation with Thomas Cook at the moment?
Yes. Simon and I will give you, Chair, the best of our understanding on what is a very developing situation, so probably by the time we've finished speaking, things will have moved on a bit further. Of course, overnight, we heard the very said news that Thomas Cook had gone into administration, a company with nearly a 180-year history and the first of the big travel operators to get going in the nineteenth century—difficult, extremely so, for staff, and for the many people who are customers of Thomas Cook. And remember, this is a company that serves about 19 million customers, across 16 countries, on an annual basis. We are very closely involved with the UK Government and Civil Aviation Authority work to look at the situation as it develops, and in provision of support to people who are affected. For the UK, as you will be aware from news reports, we are looking at between 150,000 to 160,000 people abroad on holiday, or about to come back from holiday, over the course of the next couple of weeks—two to three weeks. And that will be led by the Civil Aviation Authority—the biggest civil repatriation exercise ever undertaken. As you will be aware, in wartime, similar sorts of numbers have been looked at, but this is the first time we've done it quite so big in a peacetime situation.
In terms of employees, Thomas Cook has about 20,000 employees around the world—9,000 are employed in the UK. Here in Wales, we have a number of employees at Cardiff Airport—and we'll be coming on to talk about the airport shortly, obviously—of the order of, I think, about 45 people. Simon may know a bit more on that front. And we think we've got between 25 to 30 outlets of Thomas Cook in the high street, up and down Wales, each of them employing six or seven people.
So, the work at the moment is focused on bringing back people who are either at the point of the end of their holiday, or getting to the point of the end of their holiday, making sure that people are signposted to all the relevant information. Those people who are ATOL protected, which is the bulk of business through Thomas Cook, have all the protections necessary, and those who have made bookings of air flights over their credit cards also have a high degree of protection. Consular services are working closely with the Civil Aviation Authority, including out in airport destinations around the main, if not all, Thomas Cook destination sites. And, as I say, we are working very closely with the UK Government and the CAA, both at ministerial and at official level. Simon was involved in one of those discussions over the weekend.
Yes, there were calls over the weekend with UK Government. The airport itself has been in frequent contact with the CAA; I know the chief executive of the CAA has been in regular contact with the chief exec at the airport about this developing situation. Clearly, it was trailed in the press a few days before, so contingency plans were put in place. So, certainly, Cardiff Airport was heavily involved in that. There are a significant number of passengers that fly out from Cardiff Airport with Thomas Cook, so there's a local impact there, in terms of people who are expecting to fly today, and expecting to fly over the next week or so, that Cardiff airport will be working with.
The committee understands that, between now and November, you're looking in the region of 20,000 to 24,000 people who could be affected—in relation to Cardiff Airport specifically.
I don't have an exact number of that, but we're on the downward tail of the tourist season, so those numbers—. If this had happened in June time, the numbers affected would have been significantly more. But I can't tell you the exact numbers.
Sorry, that's up until November—that's not between now and then, but up until then. These are quite big figures, so given the—and we're going to ask you about the airport in more detail in a bit, and I appreciate this is an unfolding situation—. But given the delicacy of the situation that's been with the airport over recent times, is the Welsh Government concerned about the potential impact that this could have?
Well, our first thoughts are for the people affected, obviously, by loss of jobs, and those who are caught up in being stranded overseas. And the thrust of our efforts over the next few weeks will be in working with colleagues at UK level to address both the impacts on staff potentially to be made redundant, deploying in Wales our ReAct programme, and working very closely with partners like the Department for Work and Pensions. We're used to these sorts of situations. We have regional approaches to dealing with job losses, so we're working with all the relevant agencies in respect of that, and then making sure that we're working most effectively with UK Government on passengers.
In relation to the airport, it is a proportion of the airport's business, and therefore it will have an impact. We don't, of course, know quite what's going to happen in the aftermath of Thomas Cook, and what will come next. I think the fact that Thomas Cook had 19 million customers on an annual basis means that there's a market for holidays, clearly. Quite what form, and what comes after Thomas Cook looks like—we're still in the very, very early days of all that, and it would be unwise to speculate. But I don't think we would regard the direct impact on the airport as being so significant that it would in any way, shape or form cause the airport operation to fall over. It is, nevertheless, a significant proportion of the airport's business.
I can't really add much more to that. I think the revenues from Thomas Cook would largely have been driven through the business this year, because we’re at the end of the season, so it's next year that the impacts will take place. So, mercifully, the airport will have some time to begin to plan for that. So, the current business plan that the airport are working against will be largely unaffected by this, but they are in the process of now pulling together their business plan for next year and it’s as they work through that that we’ll begin to see what the impacts of this will be.
Thanks. Mohammad Asghar.
Thanks, Chair. The thing is, Simon, it's not that we're talking about Thomas Cook because it's a brand word—you know, it's a very famous British name and it's sad to see this go. The fact is it's servicing 24,000 passengers from Cardiff Airport—roughly around about that figure—and it is going to have a little impact—not little, massive impact—on Cardiff's small airport. What lessons are you going to—? I think it's a bit early to ask you this question, but the lessons learned with this type of carrier going down under—. What about the place of those small carriers from Cardiff Airport?
So, I think there is a valuable lesson that has been learnt here. So, you'll remember that in 2008 the airport was carrying many more passengers than it is now, and then when Bmibaby keeled over, that was 50 per cent of the volumes of the airport, and the lesson, I think—well, I know—that the team down there have learnt from that is you can't put all your eggs in one basket when it comes to an airline. So, as important as Thomas Cook are, they are not 50 per cent of the passenger numbers. So, we're not facing a kind of Bmibaby-type situation here. The airport has managed to achieve passenger number growth this year despite the well-publicised problems that Flybe have had over the course of this year. So, they've maintained volumes to a certain extent. They've lost some volumes, but they've still maintained passenger growth. And the other important thing to say about the Thomas Cook route network out of Cardiff is I think they serve something like 10 destinations—but we can give you the absolute numbers on that—but all of those destinations are served by other airlines from Cardiff Airport. So, nobody is going to lose out in terms of not being able to get to a particular destination from Cardiff as a result of Thomas Cook going.
So, I think we have learnt lessons from the past. It's too early to say what additional lessons we could learn because there are always opportunities to learn, but this is a pretty dynamic situation and I think the situation with Flybe earlier in the year has sharpened the airport's mind for how we deal with these kinds of things. And the conversations that I know you talked to the airport about when they came and gave evidence to you a few months ago about talking to other airlines are very much ongoing, and they will no doubt be going on even as we speak with other airlines about trying to fill some of the void that's been left behind by Thomas Cook.
And that point that you both made in asking the question and in answering it about the toughness of the operating environment is not one that's lost on us, or, for that matter, the airport. In recent years, we've had the impact of the referendum decision. That's undoubtedly put uncertainty into the minds of holidaymakers, it's had an impact in relation to currency—that, in turn, has had an impact on tourists' ability to spend money abroad—the cost of fuel, and a range of those sorts of things. We've seen a lot of consolidation in the airline sectors, and, as you say, now a very, very well-established one—the ultimate one, if you think about brands and longevity—going over just in the last 24 hours. So, it is a volatile operating environment for running an airport at the moment.
Simon Jones, you said that it's not comparable to Bmibaby, which was 50 per cent of the flights in and out of Cardiff Airport. Could you clarify for us what proportion of the flights were Thomas Cook?
So, I think it's—. I don't know absolutely, but it's around the 10 per cent mark.
Okay, thank you.
I had a figure of 120,000 passengers or something annually—something of that sort.
Yes, that was our understanding. Okay, thanks for that. If we move now into our more general questions that we're going to ask you. The Welsh Government has invested over £90 million of public money in the airport. How satisfied are you with the investment?
We are satisfied. This was the acquisition of a major strategic asset for Wales, a critical part of our national infrastructure. Since the airport came into our ownership, passenger numbers have gone up by over a half. We talked a few moments ago—Simon mentioned 2 million at the high-water mark in 2008, give or take. We’re now back at just shy of 1.7 million. We have an enhanced offer for customers using the airport. We’ve got a lot of new routes. We’ve got a major strategic player in the shape of Qatar Airways also in the mix now. We had, I think, 40-odd staff working at the airport as such when we took the airport on in 2013. That number is now at 330.
If we look at the wider situation, the gross value added generated by the airport, directly and indirectly, taken as a package, is somewhere between £240 million and £250 million, servicing around 5,500 jobs, of which 2,000 are on the airport site. If you take the wider benefit of that out and think about the catalytic benefits of having a regional airport, we usually reckon on a multiplier effect of around 10. So, work done on regional airports elsewhere around the world suggests a factor of 10. So, if the airport wasn’t there, there would be a number of other jobs in the wider economy not able to be supported or not able to proceed as they do. So, these are sizeable numbers. Staff at the airport are all paid the real living wage, at least. There’s a strong social contract with the place and with the people that the airport serves. They’re doing a lot around the environmental performance of the airport. So, we are pleased with the acquisition of the airport back in 2013.
That’s not to say, as I’ve set out, that there aren’t challenges and that the operating environment is not a difficult one. And we’ll get, I've now doubt, in the course of this session, into the nature of the relationship between the Government and the airport and reliance on public support, but it is a critical part of our national infrastructure. Simon and I were talking about this the other day, and I’m probably going to get the figures wrong, so probably I’ll ask you to do it. But if you look around the world at the number of airports that are servicing scheduled flights, the proportion that are in public ownership in one form or another is very high. Can you remember what they are?
Eighty-six per cent of the 4,300 airports around the world that receive scheduled flights are in public ownership of one form or other.
Really? Not a statistic that you—. Oscar's nodding; he's obviously aware of that. You've landed at them, Oscar. That’s an interesting statistic.
Can you provide some information about the commercial loan agreement for £38 million? Have the amounts been agreed for specific purposes, such as capital expenditure and route development?
So, the original loans would have been agreed for specific purposes, and I think you'll be aware from earlier evidence sessions that the loan arrangement is looked after for us by the Development Bank of Wales. So, they monitor the performance of the original £38 million loan. The first draw-down of that loan was back in the spring of 2017, and I think they've now drawn dawn the final element of that this year. The repayment terms are 20 to 25 years, as consistent with the money that we borrow or take on from the UK Treasury in the form of financial transaction money. I don't know if there’s any other detail that’s worth adding at this point.
The money is used for a variety of different purposes, so route development is clearly a big part of that, and you’ve seen the fruits of some of that over the recent years with Flybe and Qatar and other things. And there’s been capital works at the airport as well.
What sort of checks do you have in place so that before amounts of money are drawn down there's an assessment of the effectiveness that that money's going to have?
So, there was an initial assessment that was made when the loan was agreed, which looked at the draw-down profile. So, the due diligence was done at that point. And then, as Andrew says, our colleagues in the development bank are then monitoring the airport’s performance as the money is drawn down.
Great. Thanks. Vikki Howells.
Thank you, Chair. In March of this year, the Minister for Economy and Transport said that the additional £6 million equity investment in the airport was 'financially responsible' and offers 'good value for money'. Could you explain to us what he meant by both of those terms?
Well, I think that's part of the wider work that I was describing earlier on in terms of the value of the airport to us and to Wales. I don't know what was particularly in there.
So, that equity was used for two specific purposes. So, the passenger experience enhancements, which you might have seen if you've been to the airport recently—so, the lounge areas, the parking facilities, a refresh of the terminal building—and that was all about incentivising greater passenger growth at the airport by making it more attractive, and, actually, the airport has had quite a lot of good publicity on the back of that to make the airport more attractive. Essentially, the more passengers that use the airport, the better the financial performance of the airport. So, a chunk of it was used for that enhancement, and another element of it was used for essential safety and security matters. So, these were upgrades mandated by the licences from the CAA—the Civil Aviation Authority—that the airport had to put in place.
I have used the airport this summer, like many people from Wales and from further afield, and I've noted those improvements myself. One of the other things I experienced this summer was the e-gates there at the airport as well. Now, the UK Government said that once inbound passenger numbers reach 2 million, they would fund the installation of those e-gates. So, why did the Welsh Government decide to give a grant of £1 million to install them at that time?
This all relates to the engagement with Border Force, as I understand it, but I will ask, if that's okay, Simon just to set out some of the detail. It's about the efficiency and effectiveness of their operations and the staff power needed to undertake the various border inspections that they do. That has a bearing on the cut-off point for support. Do you want to—?
So, the figure that you've quoted there is inbound passengers. So, although we talk about 1.6 million or 1.7 million passengers a year using the airport, that's split between inbound and outbound. So, actually, our number of inbound passengers is significantly short of that total, and, therefore, the airport would have not benefited from e-gates. So, it was in a situation where it was, if you like, the UK's pathfinder airport for e-gates because it had the pilot for these things when they first came in, and we faced the potential for us to have those e-gates completely withdrawn—and they were withdrawn for a period of time. So, we would have had no e-gates. So, we would have gone from having them to having nothing. As Andrew says, the business case that was made by UK Government to put these things in was based essentially on staff time savings rather than anything else.
Are you confident that the e-gates are saving staff time? Because my experience as a passenger is that at the moment they are most definitely not.
Well, this was about saving Border Force staff time rather than airport staff time, which is why Border Force paid for them to be installed in the biggest airports and not in the smaller airports.
I think we just didn't want a situation where passengers were coming through Cardiff and had to revert to the old system. That's not to say that there aren't teething problems and issues around delays, but I think, overall, having that e-gates offer is an important part of our offer through the airport.
And it's worth pointing out—and I think Minister Skates has pointed this out in the past—that those e-gates are part of our Brexit 'no deal' contingency planning in particular, because when we leave the EU, EU nationals will have to present their passports for inspection in a different way to the way that they present them at the moment. So, if there's any chance of filtering off UK nationals to go through an e-gates system, which relieves the burden on the queue, so much the better.
Okay. Thank you for clarifying that. On a similar theme about modernisation, the 3D baggage screening equipment, it was announced by the Prime Minister back last month that all major UK airports must introduce these by December 2022 and he noted the role that airports play in securing the UK's position as a global hub for trade, tourism and investment. So, are there any plans to introduce this 3D baggage screening at Cardiff Airport, and, if so, has thought been given as to whether the Welsh Government would provide additional funding for that?
I think there are two elements to this. One is the wider operating constraints on the airport and what you can and can't do with public money associated with works that need doing at the airport site, which include security and safety. So, some things are in scope to be covered by public money and other things are not and it's the UK Government's position—because they set the rules on these things—that we don't, as a rule, fund major security infrastructure of that sort. I think that's fair, isn't it, Simon. So, a number of other countries in the EU do do that with their publicly funded airport arrangements. We don't do that here. That then brings you on to the second question, which is, as you say, Ms Howells, this point about the impact on the airport and the associated costs. You need to have these things if you're running an airport with scheduled flights, whether you're a big airport or a small one. That, then, makes the sort of fixed costs for a small airport harder to bear. I've no doubt during the course of the rest of this session we'll come on to talk a bit more about public money versus the potential for private money, and what we can and can't do with state aid. Is there anything else worth saying about the forthcoming changes?
Well, I think you've hit it on the head. It's not an option; the airport is going to have to have those scanners if it's going to maintain its licence to operate. But as Andrew says, the burden for these kinds of initiatives falls disproportionately to the smaller airports in the UK because those costs are a disproportionate part of its overall—compared with its revenue. So, it's not just Cardiff Airport that struggles with this; the smaller airports around the UK all struggle with the regulatory burden that's imposed by the constant ratcheting up—for good reason—of the safety and security measures. But, as Andrew says, it's quite difficult for us to intervene in that space because of the way the UK Government has interpreted the state aid rules around aviation.
Okay. Thank you. In your written evidence to us, you say it's clear that further investment will be required to fulfil the Welsh Government's and the airport's long-term ambitions of growth and expansion. What's the current assessment of how much additional investment is required and for what purposes?
I don't think we've got a specific figure on that. We haven't got some 'We've run the numbers and the answer is X and we think it's this much'. But this does bring us to the airport's master plan and the work that the airport's undertaking with partners out on the ground, and more widely, about the development of the site and its ambitions around passenger numbers, and also around the services that can be provided through the airport, some of which will help it when it comes to attracting additional private sector money. I think I'm right in saying, roughly speaking, its revenues at the moment come a third from car parking, a third from fees and a third from passengers. Is that right?
From commercial-ish—yes. And that's a kind of rule of thumb; I think that applies to most small airports.
So, what can you do to grow that pot, what can you do to offer different services, what can you do to have ancillary offers alongside the main airport function, is all part of the master planning work, along with what do we need by way of transport links and the dovetailing in with the wider work of Transport for Wales. In terms of future investment—.
I think, as Andrew says, the key to this is the master plan, which set out what the airport's vision is for the future, and a chunk of that is about creating revenue-generating opportunities to allow the airport to be financially sustainable in the long term. I think they've talked about things like hotels and an enhanced parking offer and all those kinds of things, where they can generate additional revenue to be able to offset some of those costs that we've just talked about. The work that the airport team are undertaking at the moment is thinking about what are priorities, what would a delivery plan look like for that, and then how much is that going to cost, how affordable can that be, especially given the constraints that the airport is under to do with our ownership and our balance-sheet treatment of the airport. So, all of those conversations are interlinked.
Thank you. Also in your written evidence you note there's a limit to how much investment can be achieved through the public purse. I wonder if you could expand for us on that point. Has the Welsh Government quantified how much more public money it will invest in the airport? And if not all investment is being achieved through the public purse, how will it be funded, and how will that impact on Welsh Government borrowing as well?
Any money that we grant-aid the airport obviously has to fall within state aid rules, and so that in practice means, as interpreted at UK level, we can only really fund through what's called the de minimis provisions of state aid—relatively small sums of money that are deemed comparable with anything that might be paid out to any competitors elsewhere in the system. You know, as we talked about a few minutes ago, we have worked with the airport on an existing loan facility that they've drawn down. We were also in discussions with them, and Ministers as well, around what might be needed for the next phase of the airport's development in terms of further loan arrangements. Effectively, we have an arm of Government through the airport, a wholly owned subsidiary of Welsh Government, and therefore that means that their ability to go out into the marketplace and attract money from the private sector is restricted and there is a restriction on what we can grant fund them.
Can I just be a bit boring, about what lies behind that? So, because the airport's wholly owned by us, any borrowings it takes on effectively come back to Welsh Government and would be offset against our own borrowing powers, and then, potentially, against the block grant that we might receive or against our tax-raising powers or any of those other revenue-generation opportunities. So, what we've said to the airport is that they're not to go out to the markets to borrow. So, their only source of income, their only source of loans, is from us. So, they are restricted in that sense that we are their only lender.
Thank you. So, who would initiate any discussions for additional funding for the airport and how are those discussions progressed, and then who approves the decision to make any additional investment in the airport or increase its loan facility?
So, loan facilities would be in terms of who initiates for the airport to come to us and determine how we wish to proceed, and anything that we do in loan terms has to be at a market rate because that's also bound up in the state aid operating framework. So, we can't give a beneficial loan. As Simon's just described, we are the place that the airport needs to come under its current ownership model for support. That would be considered by the airport, then by Holdco, then by us in Welsh Government more generally with advice to Ministers where we're talking about, effectively, drawing on further Welsh Government funds, even if in the form of a loan. I think Simon wants to add to that.
No, but apologies, Chair, I should have declared an interest at the start here. Apologies for not doing so. I'm also the chairman of the holding company of the airport. So, as well as being the director of economic infrastructure, I'm the chair of the holding company as well.
Okay, that's recorded. I should have asked witnesses as well as the Assembly Members.
In practice, that doesn't impinge on Simon's ability to give evidence today, but it's an important point for the record.
And one final question from me: this is a matter that the previous First Minister has been drawn on and also the former chair of Cardiff Airport, regarding the Welsh Government's plans, or whether they have plans, for attracting alternative investment into the airport. What sort of triggers or milestones do you think will need to be met before Welsh Government can viably seek an equity partner?
That's partly bound up in what I was saying about the way that we're operating the airport at the moment and the restrictions placed upon it, both the opportunities as being part of the Government set-up and also the restrictions there, but also linked to the master plan on where we take that next, on which the airport's doing a lot of work at the moment. But I don't think we've got to a point where we're seeing there are particular triggers at which stage certain things will or won't happen in the context of additional money coming in.
So, I think you heard evidence from the airport board, who talked about their financial performance, their EBITDA, I think, was the phrase they used—earnings before interest, tax, depreciation and amortization. Generally speaking, airports are valued as a multiple of the EBITDA, and I think the chair will have talked to you about the EBITDA performance being negative until this year, where it's turned positive for the first time. It's only modestly positive at the moment. So, actually, a third-party investor coming along would look at those figures and say, 'Actually, this airport, for my investment, is probably not worth very much at the moment'. So, we might not be able to lever much money in from the private sector in that way. That's not the only way, though, that we might be able to talk to the private—
You mentioned the master plan, but where's the—? So, that's going to need considerable investment to support that master plan, isn't it? Where's that money going to come from?
Well, that's what we're working through at the moment because there may be other means of getting that money in. So, there might be Government money, depending on the resolution of these kinds of issues that we talked about, but there might be other sources of income for that that don't involve an equity stake in the airport. So, there might be some kind of partnership deal that could be done. So, if you think about some of the things that we've been doing in other parts of Government lately, where we've been working with private sector partners to deliver public good—so, if you think about the bus station in the centre of Cardiff, if you think about the work that we're doing at Cardiff parkway at St Mellons—that's about working with private sector partners to lever in their investment in different ways. So, there are multiple options for us to do this, and all of those are being explored.
Very interesting, thank you.
Thank you very much. I would like to ask a couple of questions regarding governance and financial performance—that's the area I would like to cover. You mentioned this—you're chair of Holdco, or WGC limited, or whatever it is. So, my question to you is: is the Welsh Government satisfied with the governance agreement for the airport and why?
We've learned along the way, in the last few years. Indeed, this committee gave us a number of recommendations before, which we've looked at and acted upon, which, I think it's fair to say, have strengthened the governance arrangements. So, we welcome those observations and recommendations from previous consideration of the airport.
I'll let Simon set it all out for you in a moment, because, as he's now pointed out to you, he's the chair of Holdco, so he's intimately bound up in all of this. But I'm satisfied we have the arrangements internally, and then through Simon and Holdco out to the airport, to manage this effectively. There's a strong executive team there and a strong board looking after the airport itself through Holdco and then into wider Welsh Government, in a nutshell.
So, the airport has its own board, with four non-executive directors, one of whom is the chair, and then three executive directors. One of the recommendations that this committee made previously was to strengthen the board of the company by bringing in some aviation expertise. As a result of that, Terry Morgan was brought onto the board, and Terry's got experience of running big airports. The likes of Heathrow and Gatwick—he's been heavily involved in those airports in the past. The airport have also recently brought on Fiona Gunn, who's got a consumer background, in terms of enhancing the customer experience. So, the board of the company itself has been strengthened as a result of lessons learnt from sessions here.
The role that Holdco plays is threefold. We annually approve the business plan. So, the airport board have started that process now. They had a strategy day a few weeks ago, and I attended in part. Over the course of the next few months they will be drafting their business plan for next year, with a view to presenting that to the Holdco at the start of March of next year. The Holdco then has a month to agree that business plan, and then that's what they use for the following year. So, it's actually a two-year business plan. We also, then, monitor performance against that business plan at regular intervals during the year. The final thing we do is that we are responsible for agreement of what are called consent matters—so, things that sit outwith the business plan. If something happens outside the business plan, there's a list of items that are identified that we have to give consent for.
The Holdco board itself comprises two civil servants—that's me and a colleague—and, as a result of recommendations from the PAC, an external non-executive director, who was appointed following a public appointments process, Stuart Castledine. Stuart has really helped sharpen what we're trying to do as Holdco, and has brought a different way of working to us, and has brought that rigour to bear with the board at the airport. He's been a very welcome addition for both us and the airport team as well.
Thank you very much. You mentioned there, apart from my question, planning and the strategy. Who is responsible for what? Is it Welsh Government or—? Then, you—[Inaudible.]—at the same time.
Okay, so, the company is run at arm's length from Government, because we don't have the expertise to be able to run an airport, and so the company does that. They're responsible for their plan and their strategy. Our job is solely to agree that business plan once a year, to make sure that that business plan is sensible and reasonable from the perspective of the shareholder.
Okay. What difference has the appointment of non-executive directors to the board made to Holdco's oversight of the Welsh Government's investment in the airport and its governance agreement?
As I said, Stuart Castledine has joined the team, and Stuart's been really useful. He brings a level of financial rigour. He's got a background in the private sector as an accountant in the private sector—a long and illustrious career in the private sector. I'm sure, if you were to ask the airport team, they would say that he's very challenging, as far as making sure that their numbers stack up. We're holding their feet to the fire as a shareholder would do, and that's what we'd expect of a shareholding organisation.
Okay. Who sets the key performance indicators for the airport and how does the Welsh Government feel that the airport is performing against them? What actions are available to the Welsh Government and Holdco in the event that the airport's performance does not meet the targets or if it fails to deliver against its business plans?
So, the KPIs—I can't share them with you because they're commercially confidential—are presented on a quarterly basis, with a series of measures in there that are around passenger numbers, revenue, operating expense per passenger, customer satisfaction, health and safety, and market share. They are all—
I can see the blue, green and yellow.
There are no red ones on there at the moment. There are red lines, but no red blocks.
I can see three.
Those are against the numbers rather than the end metric. This is what we use to monitor the performance of the airport. Again, this was a recommendation from the Public Accounts Committee last time around, so it's proved to be very useful. This is what we use when we're scrutinising the performance of the airport when we meet with them. The airport team will go through these line by line and explain what the underlying factors are. They are, essentially, a view of performance against the business plan, which is the thing they're entrusted to deliver for us. It's about making sure that they deliver to the business plan.
Ultimately, there are sanctions that are available to Holdco in the event of the airport company failing to deliver—some pretty swingeing sanctions—but I think we're nowhere near needing to use any of those things. This is about conversations and about trying to get to the root of the problems, and helping the airport, where we can, by providing advice and feedback on issues that they face.
Do you mind me asking, Chair, have you been out, as a committee, to the airport? I know you've spoken to the airport and others.
Not in this Assembly—no, we haven't been in this Assembly.
I just wonder whether it's worth—. Apart from anything else, the airport, I'm sure, might be able to take you through some of this detail, which is commercially confidential—which you understand, I know that—and for good reason. But it might also help you to see some of the things that they've been working on recently. It needn't take very long, but I found my last visit there profoundly helpful, in terms of—
I agree with you about what you mentioned—that it's confidential— and I understand that. But, the fact is that, in the committee, we need to know whether he's satisfied with the performance. I need to know that—that's all.
We have had discussions about possibly going to the airport, so that would be something we would like to do.
I was just going to say—. I'm making that offer on behalf of—. How does the chair of Holdco feel about that?
I'm sure the airport would be delighted to receive you. [Laughter.]
I'm sure you're pleased you made that declaration of interest now. [Laughter.]
What is the timetable for the preparation and approval of the airport's business plan? Will you share this with us?
We're in that cycle now.
Yes, so, as I say, the airport team have started work on that now. They will present a version that their board is content with to us at the end of February or the beginning of March, for approval by Holdco by the end of March.
Thank you. On the delivery side, how is the airport responding to the Welsh Government's declaration of a climate emergency, and how is this reflected in its future strategy?
That's a big topic. The airport's doing an awful lot around its operations—so, the management of the airport. I think, over the course of the last six or seven years, they've reduced their carbon emissions by about 50 per cent. It was about 15 per cent this year on last year. They've reduced their energy usage, I think Deb, the chief executive, told me, by 7 per cent or 8 per cent over the previous year. So, there's a lot going on there. They launched—from memory—last week their aspirations to become a carbon-neutral airport. That's around the operations, as distinct from flights.
We're always going to find ourselves in a policy tension and bind, I think, around air travel. The climate emergency forces us to pay even more attention to our carbon budgets for Wales as a whole, set out under the Environment (Wales) Act 2016. Simon and colleagues who work with me on my climate change portfolio board are looking hard now, not only at the delivery of this period's carbon budget, but what we do in the next period, for the next five years.
The UK Committee on Climate Change does not assume, in its figures for Wales, that there will be any unilateral action taken either by the UK or by Wales in respect of air travel. It assumes, I think, from memory, looking at the summary of the data, that while passenger numbers may increase in respect of air travel, so too will efforts to make aircraft more drag efficient—the wing of tomorrow, which we're are working with Airbus on in north Wales. So, there will be improvements in the design of aircraft. Whether we get to the electric aircraft that everyone's talking about at the moment, in short order, remains to be seen. There's a huge amount of research work going on at the moment, but to get a plane up that can take large numbers of passengers over a significant distance is still a major challenge in respect of electric flights.
I see a huge issue about charging points on the horizon—it's hard enough to get a charging point for a car, isn't it? [Laughter.]
Huge sockets in airports et cetera. So, these sorts of things are all very relevant, but the airport, in terms of its operations, is absolutely responding to the climate emergency declared by the Assembly in relation to how it runs its site, and in thinking about how we get people onto the site, the use of electric vehicles and so on, and also how we can work with public transport providers, Transport for Wales and others, to make the journey into the airport easier so people don't have to take unnecessary car journeys.
It might be just be worth adding that I think the airport issued a press release last week talking about what it's doing in terms of the decarbonisation—
That may be the same thing as I was thinking. Yes.
So, it might be worth, if the committee's interested—
Yes. Chair, there is a system of air-to-air fuelling. There may be a future plan for air-to-air charging also. The fact is—. I am coming to your performance now—
I don't think they're going to plug in—[Inaudible.]—carrying an extra battery—[Inaudible.].
[Inaudible.]—some of the governance now. I've asked about performance. Basically, when you look at the graph here that is in front of us—2007 to 2018: passenger numbers have not increased up to that level that was there in 2007. Any reason for that?
As I said, the performance in 2007 was driven by Bmibaby. That was carrying a huge amount of traffic—50 per cent of the traffic. And I think it's true to say that, at that time, Bristol Airport was not anything like as successful as it is now. So, the competitive environment was different; Bristol wasn't anything like as strong and it wasn't providing such a good service offering as it is now. So, it's harder for Cardiff Airport to compete, because whilst Cardiff Airport, arguably, took its eye off the ball in that period between 2007 and the time that we acquired it, Bristol Airport forged ahead and grew rapidly and successfully, and it's created a network of routes that people want to use.
We could have done the same thing like Bristol—doing it ourselves to improve ourselves.
Right. If only we'd bought it earlier on, but it wasn't for sale, so—.
Okay, fair enough. The thing is, there's another financial report from Deloitte on Cardiff Airport from 2014-15 to 2017-18, which is in front of me—financial performance. So, basically, when you look at that, in 2014-15 the worth of airport was £45 million plus, and now it's gone down to £34 million. Any reason for that? What can we deduce from this?
We might need—
This is exactly in front of me—
So, we brought Deloitte in to have a look at the long-term viability of the airport, didn't we? We've had a number of further studies since. So, is that the asset base or the capital value of the—?
It's the Cardiff Airport financial performance I said, and the net worth is showing at the bottom—net worth. Cash forecasting activities—£45 million plus in 2014–15. And in 2017-18, it's £34 million.
I think we might need to—. If it would be possible to write, Chair, we'll reconcile those figures. If colleagues could let us have the—
Okay. It's not confidential.
My question to you now, the next one is—
Oscar, just for clarification, you're referring to the net assets on that balance sheet.
Just so we know we're singing from the same balance sheet.
[Inaudible.]—I've got the airport's accounts here somewhere.
Yes, but, specifically, I think it's the net assets that you've got—. So, that's what—
I guess they will have depreciated over time.
Yes. Just for clarification, we need to find out. My question is: What were the conclusions of Deloitte’s financial review of the airport, and how have these influenced Welsh Government policy?
Well, to the central point, which is, 'Is this a viable airport with a future and so on?', Deloitte said, 'Yes, it is', and that has been a part of our policy making since, and that's been borne out in further studies. Beyond that, on the detail, back to your quoting of the figures, I think we might need to write to you on the reconciliation of what Deloitte said with where we are now—unless Simon can remember.
No. It was one of a series of reports and I think that when I gave evidence to this committee previously, that report was being prepared, and subsequently there were other reports that were prepared in advance of the loan being issued.
Okay. The Welsh Government’s update in November 2017 reported that the advice developed by Deloitte was reflected in the terms of the loan agreed with the airport. Can you share details with us? Did the terms of the extended loan finance of £15 million, agreed in March 2017, differ from the original loan, and if so, how?
Okay. So, I think what happened—. The Deloitte report was one of a number of reports that we used. We employed another company as well, called Oxera, to help us advise on the loan, and those reports did shape the conditions of the loan. The specifics of what we put in there I'm afraid I can't recall. I don't know whether you can, Andrew?
No. My understanding was that it was a refinancing built around the same set of issues. But I think we'll need to come back to you on that and provide some detail, both on the reconciliation of the figures and how what's happened since stacks up to what was said by Deloitte originally.
Okay, thank you. And you told the committee in November 2016 that the airport’s performance in terms of increasing passenger numbers was approximately two years behind the acquisition business plan. What is your assessment of the current position now?
Well, they are growing, whether it's quite as quickly as we envisaged back in 2013—but, then, back to what Simon and I were saying earlier, Mr Asghar, in terms of the operating environment—Brexit, consolidation in the industry, everything we've seen over the last 48 hours with Thomas Cook's position—makes the operating environment a tricky one for passenger numbers. But in terms of the performance against the original expectation—
So, I think, yes, we are probably at least two years behind that, maybe a shade more, but I suppose it's to the credit of the airport that we're still in touching distance of the acquisition business plan, which, as Andrew said, was written at a time before the currency change. The pound has dropped 20 per cent, so it's harder for people to spend money overseas. The cost of fuel has gone up, as Andrew said earlier on, which makes it more difficult for airlines, and, as a result, there has been consolidation in the airline industry. So, we weren't affected by Monarch going bust a little while ago, but that has affected Monarch, and now Thomas Cook, and we've talked about the problems with Flybe. We've seen some changes in the airline industry over the last few years that were not foreseeable at the time that the acquisition business plan was put together.
Okay. While passenger numbers are increasing, the airport has reported an operating loss each year, and told us that it expects to report a loss again for 2018-19. What do you think about this? The loss is still there, but you were just saying that the numbers of passengers has increased.
Well, things get better on projections around the 2 million mark, don't they, in terms of costs and outlay for the size of the airport and the various things that they need to meet on a day-to-day basis?
It's perhaps just worth underlining that point that airports, particularly small airports, have to carry significant fixed costs. So, we've talked about the security measures earlier on, and there's a level of staffing that's required, air traffic control, whole—you know, the running of the building, the business rates and all those kinds of things. There are substantial fixed costs that the airport has to deal with, and, as Andrew says, there comes a point in passenger number terms where the revenues generated by the passengers begin to significantly offset those fixed costs. We're just short of that at the moment, so we'll come to that point when we break through, which is why getting through this 2 million passenger barrier is so important for the airport, because then the revenues and the costs begin to balance out. So, the loss that you describe is not unexpected, given the significant fixed costs that the airport's got to carry.
Is this airport ever going to be sustainable without some degree of financial support from the Welsh Government? You said earlier it's not an unknown thing—it's common for airports to be publicly owned anyway. So, is there a point at which you could say, 'Yes, it is going to be able to stand on its own two feet', or will it always need some sort of support?
It's going to be challenging, because there are things in terms of policy that the airport is discharging for Ministers that are above and beyond what a commercial airport might do. So, Andrew talked about the real living wage, which has been introduced since the airport came into our ownership, and I know Ministers are proud of that. So, no-one is paid less than the real living wage. There is nobody on the books of the airport that's on a zero-hours contract, and, again, there's a cost associated with that. One of the first things that happened at the airport when we took it into our ownership was that a number of functions that were outsourced were brought in-house. So, the airport, when we bought it, had 40—four zero—employees, now it has well over 300 employees. There are costs associated with that.
One of the points of detail that were brought in, again, immediately after acquisition was that the charges were scrapped for the drop-off and pick-up, and the charges were dropped for the trolleys. So, there's a whole load of things that have come at the airport from a policy position that have added cost to the airport, but I know Ministers are proud of those things that they've achieved there. If the airport was run purely as a commercial proposition, then some of those costs could be eliminated, but they would come at a different set of costs. So, that financial sustainability thing is quite a complex thing to get into, because it's actually discharging a range of other policy things for us.
The point, Chair, you made, referring back to the—it's not uncommon for airports to be in public ownership. I think I'm right in saying that the 14 per cent that are, effectively, in private hands are dealing with over 40 per cent of international traffic. So, there is something here about scale and just the sheer numbers of people going through them that make them a commercially viable proposition in their own right, which is more tricky for a smaller airport.
So, we're talking that 14 per cent being the big airports.
The big airports around the world, yes.
A couple of supplementaries, and we need to make some progress then—Oscar, then Rhianon. Oscar.
Just quickly, the same question the Chair just put in, very quickly, a question to you both, gentlemen: do you think this airport is sustainable without the help of Welsh Government, and, secondly, when is the Welsh Government going to receive the dividend?
A second bite of the cherry. [Laughter.] I stole your thunder, Oscar.
Simon may well have his own view on that, and can come in after me. What are we looking for in terms of dividend from the airport? So, the fact that the gross value added, so the contribution to the economy, of the airport is now just around about the £250 million mark and there are 5,500, give or take, jobs directly or indirectly associated with the airport feels like quite a big dividend to me. It isn't a cheque in my hand on behalf of Welsh Government, but it's a major benefit arising from the airport and our ownership of it.
Do I think we're going to get to a position to answer your first one where we're not involved with the airport? If we want the airport to do the things we want it to do, and we want it to be the international gateway for Wales and that strategic part of our infrastructure, I don't think, as it's currently set up, unless and until somebody shows me a different economic model, that you could walk away from it in terms of public support of one form or another, or investment. Because I think in order for it to revert to being a wholly commercial endeavour, its business model would need to be very different and it would need to be subject, perhaps, to fewer of the policy interventions that we make in respect of the airport that we think are very important for Welsh Government's ownership of an asset of this sort.
Well, I just want to know about Welsh Government issuing ordinary shares last year for £6 million. What is the worth of each share? And the dividend they will receive or not for—.
I understand the point.
When you ask Deloitte, please ask all these things for me to make sure. Thank you.
Okay. Rhianon Passmore.
We will be coming to this a little bit later on, but it is relevant in the context of the international gateway and the business model that you're talking about. So, in regard to, in the round, the importance of public service obligations on those routes and the denial, effectively, of the UK Government around airport departure tax, how would those two items affect that question that you've just been posed in terms of sustainability?
I think they do have a bearing, so it's a good question. Whether we can quantify it—
If those were different—
As I said earlier, this is all about passenger numbers. So, the more passengers that the airport carries, the easier it is to amortise the costs. So those two measures would drive additional passengers through the airport, so the public service obligations may have brought in a few hundred thousand additional passengers, each of whom would have parked their car, or would have likely parked their car at the airport, would have bought a cup of tea or a cup of coffee in the Costa, would have bought some magazine, and all that kind of stuff. So there would have been revenue generated for the airport and those revenues could have been used to offset some of the costs.
Similarly, with the air passenger duty, that might have attracted other airlines, and I think the airport gave some evidence to say that they'd had expressions of interest from airlines that said they would have come to the airport. Again, that would have brought passengers who would have used all of the services—
So, bearing in mind those are the two levers that could affect the whole holistic round in terms of that question—and apologies if you've done this already, but very briefly—what are the reasons for the airport departure tax not being devolved, as in Northern Ireland and Scotland?
I was going to say in some senses you probably need to ask colleagues from the UK Treasury and the Department for Transport. But in a nutshell, I think they regard Cardiff as being in competition and fishing in the same pool for customers as a number of other airports, but principally Bristol.
But how can that be if Northern Ireland and Scotland—?
That's almost a constitutional matter, but I think, to be fair, it is a point that we regularly make to the UK Government.
To be fair, I don't think it's the Welsh Government who are saying, 'Please don't give us this.'
Even the Welsh Affairs Committee of the UK Parliament has said that Wales ought to have APD devolved to it, and we presented what I think is some pretty compelling evidence to suggest that we don't think the overlap with the Bristol catchment in particular is anything like what's been presented to us coming back the other way.
You mentioned the Welsh Affairs Committee; that was quite big news in the last couple of weeks, that my counterpart, actually, in my constituency, who chairs it, had called for that unanimously to be devolved. Were you disappointed again with the knock-back from the UK Government?
It was disappointing. But that's part of an ongoing set of discussions that we're having with the UK Government on these issues. But for now they're holding firm on that position.
I think, as Rhianon pointed out, it has become increasingly bizarre to people looking at it from outside just exactly why we can't have that parity with Scotland.
It has been called for through a number of reports that have been independent from the Welsh Government, as well as ourselves and this Assembly. So it is a matter that we do need to get sorted.
And what sort of impact are we talking about? Is it easy to quantify the sort of impact that, if that APD was devolved, it would potentially have on the airport?
It's not completely straightforward because we would then have—. If the power came to us, there would then be a set of policy decisions about how we use that taxation power and what we targeted with it, what conditionality we put around the use of taxation, and so on. So it's a bit hard to say, 'It would give you this much money, or this much money per passenger', but it would make a substantial difference.
And I know that Ministers would wrestle with the whole decarbonisation piece as well, so it's those policies, our intention, the ambition of the Government and the National Assembly to have that tax devolved versus 'What do we do about the climate emergency?' That would be a challenging piece of policy for Ministers to pull together.
Sometimes just having a tool like that can give an economic confidence boost, can't it?
I think that's very fair, Chair, and I think our starting position on all this is really back to Ms Passmore's question: why can't we have that flexibility here in Wales when colleagues in Edinburgh and Belfast at least partially, in the case of Northern Ireland, have that? And then, once we've got that, it is for a policy discussion in Cardiff, for Wales, about how that taxation power is used.
I've probably grilled you enough on that. I should probably be asking some other people closer to home about the reasons for it. Anyway, Rhianon Passmore, do you have some questions?
Thank you. Moving to St Athan, can you extrapolate the terms of the agreement between the Welsh Government and the airport for the operation and management of the airfield?
We had to take the airport—. We had to take Bro Tathan on from the military, didn't we?
From colleagues in the armed forces, and that had to happen by the spring of this year. So we're under an enduring obligation in respect of that and we have put in place a new agreement with Cardiff Airport as the expert provider for the facilities and the services that we need, covering fire, security, the management of the airfield and all of that. And that got under way in the spring of this year. So we're only a few months into that new arrangement.
So, with regard to the estimated savings, and bearing in mind the embryonic part of the journey that we're on, how are those savings being realised or set to be realised?
Cardiff Airport are being paid to provide that service, but through the provision of that service under Civil Aviation Authority rules, rather than military rules, we've got much more flexibility in terms of how we are able to operate St Athan as an airfield. So we were extremely restricted in what we could do there before in terms of attracting tenants to St Athan. The new regime allows us to be much more flexible in terms of the offer that can be made to prospective tenants. So the opportunity for us there is largely around growing the site at St Athan in terms of the tenants that will be attracted by having an airfield under civil operation. So that's where the financial impact of this is going to be most keenly felt, by driving rental income at St Athan.
In regard to the focus on what needs to be done, that sounds to me very much more like investment rather than savings. Is there any comment on that?
Fair comment. Both things are related, aren't they? So, if we can get the investment in the site with the added flexibility of operating under CAA rather than Military Aviation Authority rules, that will allow us as part of this wider management arrangement, we hope, to break even and get to a cost-neutral position within five or six years, something of that sort.
So in regard to that timescale, it's obviously not just plucked out of the air, is it? Do you have a—?
No, that's what we're intending to do. So we need to continue to invest at St Athan to make that site attractive to prospective users in order to be able to generate that rental income.
Okay. So, touching on that investment, can you give us a brief overview of what your planned improvements would be?
The site down there is a military base at the moment, where the infrastructure needs to be enhanced in order to be able to accommodate the kinds of tenants who might be attracted to it. So, that will be utilities works and access roads and all that kind of thing. We have been working on the eastern access road, which has been covered as part of the work that we've done with Aston Martin. But that opens up that whole end of that site for development purposes in a way that it has never historically been.
So how do you react to any criticism that there's a lack of joined-up strategy around transport?
In relation to Bro Tathan, or—
St Athan. Well, I think this takes us into a wider conversation around the next transport strategy and where we work with Transport for Wales. We are in the process of working with TfW on the provision of new services and, in due course, new rolling stock coming on that line. We're talking to—well, we're more than talking to, we're working with the local authority in relation to road access to the area. There's a whole suite of things that we're doing.
Yes. Five Mile Lane is due to come into service very shortly, if it hasn't done so already. That's the culmination of a long investment. I've just mentioned the eastern access to St Athan as well. So, actually, that highway linkage to St Athan is significant. The rail service stuff that Andrew is talking about: Llantwit Major, which is the nearby railway station for St Athan, is going to benefit from two trains an hour from the current one train an hour.
So, in that regard, then, to assure the committee that Transport for Wales is working very closely with you in this regard—. Or is it adjunct to the process at the moment, bearing in mind the newness of the whole situation?
So, we work very closely with Transport for Wales on all sorts of different things. The airport, in particular, was one of the key points for discussion during the procurement of the Wales and borders franchise in terms of how services could be enhanced to the airport.
Okay. So, you would say it was intrinsically linked and co-constructed.
Yes, and as you would hope and expect, that will increasingly be the case. The whole emphasis of our transport strategy and the policy work that underpins it is coming up with an integrated transport model for Wales. That's in relation to our road networks, it's in relation to our public transport of various sorts and, linked to that then, access in through the airport.
Okay, thank you.
What role has Holdco had in the appointment of the new chair, if you've had any involvement?
Yes. So, I was asked by the—. The chair is an employee of Cardiff Airport, so it's not a public appointment, it's an employee of the company, but the board of the company asked me as the chair of Holdco to play a role in the selection panel. In fact, they asked me to chair the selection panel. So, I was on the panel with two of the non-executive board members from the airport, and then we brought in an independent member for the panel and, very kindly, Scott Waddington, who is the chair of Transport for Wales—to go back to the point earlier on about the closeness of TfW and the airport—was also on the selection panel. So, we had a selection panel of four people, and we went through the interview process over the summer.
And what sort of criteria were employed in the interview? Was a knowledge of aviation a key benefit to a candidate or not?
So, I spoke with the existing chair and with the chief exec and with the other members of the board, particularly those on the panel, about what our selection criteria should be. And we were clear that what we required was somebody to be able to run the company, to be able to hold the executive to account, to be able to mentor fellow board members, both executive and non-executive, and to be able to develop the company as it moves forward. It wasn't felt that aviation experience was important in that regard because, as I said earlier on, the airport board has now got the services of Terry Morgan, who brings that aviation expertise to the board. So, what we were looking for was somebody who would seem to be a high-quality chair and be able to set the right governance standards, to be able to progress the company, to be able to develop the individuals and, at some stage during the tenure of the chair, in all likelihood run a process to secure the services of a new chief exec.
Okay, thanks. Rhianon Passmore, did you have any more questions?
Thank you. Moving on to the new Cardiff to Anglesey air link and the Welsh Government's plans—we mentioned public service routes previously—can you tell us about the new contract with Eastern Airways for the Cardiff to Anglesey air link? What can you update us on?
Simon and I came to talk to you about this last—I've lost track now—last summer, was it? Something like that.
A while ago, it seems.
It was a little while ago. And we were talking then about moving on to a new provider towards the turn of the year. I think in February, Eastern took on the service on a contract to run for the next four years. It's a bigger, more resilient, more flexible contract with an established provider in the marketplace who, as we talked about before, can do through ticketing with other providers, so that helps passengers. And we've been working with them looking at the prospects of getting bigger planes onto the route. The net effect of that is it's costing a bit more than the earlier contract but, through that, we're buying these other things, including the wider quality and resilience of the service.
So, you're saying that the added value of that quality, resilience and the wider sustainability offsets that cost. If so, how are you forward planning to reduce that over the next period?
So, two bits there, I suppose.
I believe it's four years, isn't it?
Yes, it's a four-year contract.
But with opportunities to break the contract, if we need to. So, I guess the benefits of going with a larger company, Andrew's explained, but we've seen, three times, smaller companies that have bid for this fail, and the service ceases operation for a period of time.
So, on that particular point, bearing in mind the overall additional total for where we are now, when a smaller contract fails, is there any calculation or additionality of cost because of that, in terms of the resourcing around getting another contract at a later point, or does that never come into it?
So, we wouldn't ordinarily award on that basis, but I think we're very wary of those costs because we're kind of three times bitten, I suppose. So, being able to contract with an established provider is really important, because letting emergency contracts is not cheap. You're exposed to value-for-money issues when you do that, so actually having somebody who is likely to be around for a while, with partners, is a really valuable thing for us.
When do you expect to publish information around the level of subsidy, passenger numbers and the assessment of the value for money of the service?
So, in terms of passenger numbers, that information was published as part of the procurement process. So, we've done that. The rest of it, though, I don't think we've got any immediate plans to do that, but I guess that's something we could take up with Ministers to look at.
In regard to the previous three contracts, the short-term end of contracts, and in regard to publishing detail around that, was that after a certain timescale, or on request? How did it work previously, because, obviously, this is new?
So, I think a lot of that information may have been published by our colleagues in the Wales Audit Office in the past, because they've done a number of studies on this stuff. But we can find out what's out there.
I'm just trying to work out what is the status quo around this.
So, I think we have published passenger numbers in the past, but some of the other metrics that you asked for there—
Yes. So, values of subsidy and the assessment of the value for money.
So, I think Ministers have talked about the level of subsidy in the past for previous contracts. So, I think there's a conversation for us to have with Ministers about publishing that kind of information.
And, obviously, you would expect that, I would presume, to come back to this committee.
Yes, okay. Finally, then, are you able to provide an update in respect of—we've touched upon this—the new PSO routes to locations outside Wales, and obviously, in regard to where we currently sit in the chaos of where we are in terms of Brexit and the sitting of Parliament, what are the implications of Brexit, given the importance of that absolute communication needed to be able to facilitate that?
We'll both have a go at this. [Laughter.]
A very small question to finish with.
So, as you know, we've put in an application, which we struggled to get very far with with our colleagues in the DfT.
Can you extrapolate why?
So, the reason they gave us was because they were in the process of writing a new aviation strategy for the UK as a whole, and they wanted to delay any thoughts about PSOs in Wales until after the publication of their strategy. So, to my knowledge, that strategy hasn't been published yet. They've consulted on it, but it hasn't been published and turned into firm policy. So, we find ourselves waiting for that. I must say they have come back to us over recent weeks and said to us, 'Well, what will be the top three or four of those routes that you might do?' So, we're starting a conversation with them now about maybe taking forward a smaller number of those.
I don't want to go into the next bit, but I have to. In regard to the 31 October, or a big question mark around after that, what happens then to public service obligations?
Well, it depends on the nature of our leaving, I think, probably. So, some of the PSO stuff is linked to the current European framework. I think, for the foreseeable future, we're still going to be operating on that basis, as much as we would be for state aid and other provisions generally.
Are you assuming that?
I think it's a sensible operating assumption, in the absence of anything else that gives us a certainty about planning, and also, the fact that if we are in a deal situation, we're going to have to be continuing to observe, effectively, the rulebook, and if we're in a 'no deal' situation, we're going to be going back to talk to our European partners pretty quickly about coming up with some new kind of arrangement for the future. So, I think our planning assumptions at the moment are based around that, as indeed, to be fair, are the airport's planning assumptions, with the Civil Aviation Authority, and so on, in terms of the operation of flights. There is a slightly different set of arrangements that might come to pass in a 'no deal' situation, with respect to duty free and what's covered by tax, and so on, if you were wanting to buy alcohol and cigarettes in different places. That's a bit more complicated. But the passenger experience going through the airport, the documentation, and so on, we're not anticipating major changes to that, even in a 'no deal' situation. And colleagues at the airport are working with partners at a UK and international level to try and keep that running as smoothly as possible.
And if I may, Chair, in regard to preparedness around this, because all of the highest level indications are that there will be an exit, in that regard—and assuming that we don't have a general election imminently—how have you held conversations, operationally, with our airlines to determine whether there's going to be any impact upon our airlines, because we know it's fragile anyway?
We engage both at UK Government level with Border Force colleagues and others who are involved in all of the impacts on our entry points and exit points from the United Kingdom. So, that's the first thing to say. We work very closely with the airport itself, and they, in turn, with the airlines, and we are having direct conversations with some of the airlines on Brexit-related matters.
But, as Andrew says, we work closely with the Department for Transport, the Home Office, Border Force, on something called the UK ports group, which looks at these matters as they impact on us in particular in Wales. And the airport are represented on that group, as are the sea ports around Wales. So, that's the forum for those kinds of discussions.
Have extra Border Force staff been recruited to the airport in advance of 31 October?
Not to my knowledge, but that doesn't mean that that hasn't been the case. We can find out for you.
I understand that they have at Bristol, I think I'm right in saying. Whereas, at the moment European Union residents will come through pretty much easily, there will be a lot more requirement for checks, won't there, on people coming, which don't exist at the moment when it's into Europe, but it will all be—
There are contingency plans in place for all of these scenarios, bearing in mind, as you pointed out, Chair, that the function of access to the UK is a UK-reserved competence. So, Border Force do not—. We work with them, as colleagues within the wider public service, but they're answerable to UK Government.
I'm straying into non-devolved issues; well pointed out. Oscar, do you have one more question?
One or two points there. Thank you very much, panel. Aviation is not a devolved matter—it's run by international rules and regulations, and, in this space, Europe and Britain are abiding by those rules anyway, no matter whether Brexit or non-Brexit. The Prime Minister announced only last month that there will be 3D baggage screening within the next three years. So, who's going to pay for it? Is it the Welsh Government, or—?
That's part of this wider discussion with the airport about future financing and what they're going to need. But we are not in a position to produce a grant; state aid rules, operated at UK level, prevent us from doing that. But they will have to have it, because it will be part of what will be required for all airports for security.
Rhianon, did you have another question? You looked eager.
I'm not going to go there. [Laughter.] A whole other session.
I'm afraid to say I think we're all going to go there. [Laughter.]
Just going back to my earlier question to you, I missed an obvious key question with regard to the chair. The new chair comes in to post in June 2020.
I had a letter from the Minister, telling the committee that, but not mentioning a name. I don't suppose you're prepared to mention a name.
The individual's contractual terms do not allow us to reveal the name.
Can't help but try. [Laughter.] Do you know when the name will be in the public domain?
In the springtime.
Whoever it might be.
But the outgoing chair, Roger Lewis, has agreed to remain in post until the end of May to cover a gap.
Yes, and just from a Holdco perspective, I'd like to put on record gratitude to Roger for stepping in to do that. It's very good of him. He's got other things that he's involved with now, and actually making the time to do this is very important. I'm very grateful.
He seems to have been involved with everything over the years, doesn't he—from [Inaudible.] to devolution? Great, thank you. Any other questions? No. Okay. Thank you to our witnesses—we finished ahead of time as well—Simon Jones and Andrew Slade. That's been really useful. We will write up the transcript and send it for you to check. Thank you.
Okay, we have one more item before we move into private session, which is item 3, the management of follow-up out-patients across Wales. The committee's report was published in July and contained 10 recommendations, all of which the Welsh Government have accepted. Did the audit office have any comments to make on this?
Briefly, Chair, I think, generally speaking, the response means the committee can take confidence that the issues that have been flagged are now being taken seriously. I think, in the short term there might be one or two things that would be worth following up. So, for example, in recommendation 4, the committee recommended that the Government clarified what the consequences would be for the health boards failing to meet the new out-patient targets, and the response says that they'll write at the end of the year with an answer to that. I think it would be worth following that up, because one would assume that the consequences of not meeting a target would be clear before those targets are set, especially when additional funding is attached. If you do go down that route, it might also be worth asking for confirmation of the amount of funding that each individual health board is going to be in receipt of this year to support improvement.
And just to round up, there are commitments flowing through the response to various updates over the next few months. My suggestion would be that you come back to this after April, which is the end point of those various updates, to take stock in the round of the progress that has or hasn't been made at that stage.
Well set out, the approach there. Everyone happy with that? If Members do have any other points of clarification that you'd like me to make in the meantime, let the clerks know.
bod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod yn unol â Rheol Sefydlog 17.42(vi).
that the committee resolves to exclude the public from the remainder of the meeting in accordance with Standing Order 17.42(vi).
Cynigiwyd y cynnig.
Okay, item 4, then, is the motion, under Standing Order 17.42, to meet in private for item 5 so that we can discuss the evidence session that we've just had.
Derbyniwyd y cynnig.
Daeth rhan gyhoeddus y cyfarfod i ben am 14:43.
The public part of the meeting ended at 14:43.