Aurigny recapitalisation

I made the following speech about the recapitalisation of Aurigny in November 2015. The reference to running an airline arose out of a comment made by Deputy Lester Queripel who said anyone could do it, to which other Deputies responded that it was not so simple.

Sir,

I don’t profess to know anything about running an airline but what I will focus on is something I do know more about and that’s finance and accounting. I agree with Deputy Harwood that we have no choice but to support this report BUT, as Deputy Domaille would say….

The T&R Minister has frequently made the point that we should be making the right decision in the right order. I would question whether we are doing that in supporting the capitalisaition now. Given the issues raised by the Scrutiny Committee report and specifically the need to determine a strategic way forward – should we be investing £25m into this venture above other worthy Capital projects?

 

We are all aware that a number of key social and environmental strategies have been and are going to be laid at this meeting seeking ‘revenue’ funding. In addition, the Budget debate last month highlighted that the ‘Capital Reserve Cash Flow’ is under pressure from numerous commitments.

 

The decision to invest £25m of public money, is a major decision and must be done so based on a strong evidence-based rationale that provides a convincing argument.

With regard to this specific SCIP project, the investment of ‘capital’ into a wholly-owned subsidy could quite frankly be perceived as a somewhat academic accounting exercise given that the ‘liabilities’ are effectively already held by the States.

However, the advantages to the Company of an influx of capital to address its insolvent position are obvious. Certainly ‘refinancing’ unattractive / uncompetitive overdraft and loans would certainly appear to be sensible. And if that is the purpose, I’m not entirely sure, even though the T&R Minister tried to explain this in his opening speech, quite why the Bond can’t be used.

The problem is that the management of the Capital Reserve is a complex balancing act involving £100s of millions of public money and the Policy Letters of this nature MUST provide clear rationale presented with ABSOLUTE clarity but it really doesn’t seem to be the case here.

Sir, prior to the debate I did ask the T&R Minister and CEO of Aurigny what the accounting treatment would be should this policy letter be approved. It was unclear from the States accounts, which is probably not a surprise, and it was difficult to ascertain when we did not have the accounts of Aurigny. The publication of the latter has helped, although it is still not completely transparent. Presumably the provision for accumulated losses of £19.9m within the States accounts will be reversed and a benefit will be seen in the general reserve where the provision has been posted to date. Interestingly, the provisions haven’t gone through the revenue account; this would be the expected normal accounting treatment and would have the effect of reducing surpluses or increasing deficits. It will be interesting to see how future losses are treated.

Furthermore, the ‘Return on investment’ is NOT clearly stated within the Policy Letter. In many ways, less would have been more in this Report; less background and more specifics on the rationale for this investment.

Whilst the recapitalisation course of action may be reasonable there is a lack of a coherent convincing argument presented within the Billet why this spending should be prioritised. I attended the Deputies’ briefing given by Aurigny and it wasn’t very clear from that. So I guess where I am on this policy letter is I want to support it, but that the authors to this report have hardly done their best to make a convincing case. Disappointing to be perfectly honest, especially given the sums involved.

I do welcome the review that will come out of the amendment we have just approved. It was something that I was pushing for when I was on Commerce & Employment.

So whilst I do have reservations over the recapitalisation I will support the report, as amended.



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