QAC 2020 annual report – contrasting other airport’s finance reports?

QAC Annual Report, Otago Daily Times 21 August, 2020, and Sydney Airport information

On the same day that ODT’s business page gave saturation coverage to negative airport and airline news, Queenstown Airport Corporation released its annual plan stating that its financial position, as at 30 June, “remains strong”.

Admittedly, also at that time, QAC was planning to pay shareholders (QLDC and Auckland Airport) a final $7.295 million dividend.  On August 19, it decided not to.  The figure is still included in the annual report. The only surprise is that this decision took so long.

Mind you, QAC apparently require seven months to develop a Covid 19 survival strategy, which other airports (like Auckland and Sydney) had developed within weeks.

ODT’s three “business and money” page stories on August 21 were entitled “Auckland Airport profit hit hard”, “Qantas braced for extreme turbulence” and “Staff reduced 24% during, post lockdown,” featuring Covid’s impacts on Dunedin airport.

Ten days earlier, Sydney Airport opened a $2 billion retail entitlement offering, to raise funds from shareholders.

Hopefully, soon if not yet, councillors and especially the joint QLDC – QAC steering group will know a whole lot more about the financial status of QAC than we do from their annual report. And, not holding our breath, but maybe our councillors will have even provided the strategic objectives they want QAC to achieve, as per the Local Government Act.

As far as we know, discussions between councillors and QAC about the QAC statement of intent, due late October, haven’t even begun yet.  Remember, QAC is supposedly a council-controlled trading organisation…

Meanwhile, this is the link to the full annual report and here are some interesting tidbits:

  • “As at 30 June 2020, the company’s financial position remains strong, with term debt totalling $69.0 million representing 23.5% of net assets. The equity ratio (total shareholders’ funds to tangible assets) was 74.6% and interest coverage ratio (EBITDA/finance costs) is 11.9 times.”
  • During the year, QAC decreased its banking facilities from $220 million to $140 million, sourced from four major banks, secured by company assets, undertakings and any uncalled capital.  It has already taken up half of its $30 million debt facility with the Bank of China. Debt currently stands at $69 million.
  • In its amortisation calculation, it defines the “useful life” of the air noise boundaries (ANB) as 6 to 9 years. We have asked QLDC CEO Mike Theelen to clarify whether this means QAC now believes the existing ANB has this much life left.  (Remembering that QAC calculations have not included the capacity and noise technology improvements that already exist, which would allow them to smash their PAX targets within the existing ANB…)
  • A $1million interim dividend was paid in February, three quarters of which would have gone to QLDC. Page 43 acknowledged as a “subsequent event” that the remaining expected $7.295 million dividend had not and would not be paid.
  • QAC paid $491,000 rates to QLDC in 2020.  We wonder how this compares to other businesses with similar footprints?
  • QAC has so far incurred about $310,000 in legal costs for the Wanaka Stakeholders Group Judicial Review (of the Wanaka Airport lease, which starts in court on September 21) and forecasts “significant costs in the future”.  Remember that QAC is the second respondent in this case – so QLDC, as first respondent, is likely to have at least equivalent legal bills. And remember that ratepayers are effectively footing both bills.
  • QAC paid $7.1 million in staff and directors’ costs, up from $6.3 million in 2019.  CEO Colin Keel’s salary went up to $580,000 before we are told he took a 20% Covid related pay cut, though when this reduction would be valid until is not known.
  • $18.4 million is included as payment for the 16 ha Lot Six, the subject of a decade-long fight settled recently through the Public Works Act, but compulsory arbitration will settle the price if this is not accepted by previous owner Remarkables Park. Initial media reports quoted Remarkables Park as saying they were undecided, and “certainly cannot understand the offer”.
  • Minimal mention of climate change mitigation.
  • QAC says they have “put on hold” further developing their preferred dual airport approach for Queenstown and Wanaka airports, “awaiting the outcome of the Economic and Social Impact Assessment, as commissioned by QLDC “. It is understood councillors haven’t even discussed this MartinJenkins report yet. QAC might be wise to also hold off until after the Judicial Review response to the Wanaka Airport lease issue.
  • And their response to Christchurch International Airport’s purchase of 750 ha to develop a new international airport on rural land near Tarras?  “The timing of the proposed development is not known, and it is not expected to have an impact on the Company’s trading performance for the immediate future.”

As 75.01% owners of QAC, ratepayers will no doubt be interested in the impact of this proposed development beyond the “immediate future”.

What about the potential both for long-term pain (as airlines choose to switch to the safer, cheaper, quicker and more reliable Tarras Airport, as already advocated by Air New Zealand) and long-term gain (reference the FlightPlan2050 proposal for an urban campus on ZQN’s Frankton Flats land, freeing up some $900million for QLDC and substantially increasing rates take)?

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