Auckland Airport likely on the sales block – could this happen to ZQN?

WLW commentary, 7 December 2022

Auckland Council’s new Mayor Wayne Brown has proposed selling the council’s 18% stake in Auckland International Airport (AIA) to help address a potential $295 million budget shortfall.

A controversial proposal on many fronts – but not nearly so controversial as it would be if Queenstown Lakes District Council were to suggest the same.

Because here, it would mean a total loss of control of Queenstown Airport Corporation and of our airports, as well as the loss of a significant asset and dividend stream.

Auckland Council already has no control over Auckland International Airport nor a seat on the AIA board because it has only a minor shareholding.

But QLDC’s supermajority holding (75.01%) gives it the legal right to instruct Queenstown Airport Corporation as to its strategic objectives, within the parameters of the Local Government Act – and QAC must comply.  And it must approve QAC board appointments.

Both QAC and QLDC legal counsel at the High Court hearing, which overturned QLDC’s illegal 100-year lease of Wānaka Airport to QAC, confirmed that QLDC has total control of QAC through the annual Statement of Intent (SOI).

That the previous council largely chose not to apply this control does not diminish the current council’s legal mandate to do so.

Nor the importance of maintaining this potential to ensure QAC fulfils QLDC’s strategic objectives for our community’s and environment’s well-being.

Because this is a legal requirement of QAC as a council-controlled trading organisation. The profit and growth agenda of QAC’s commercially focussed board is not.

It is up to a new council to stipulate these objectives in its Statement of Expectations (SOE) early in 2023 and then to ensure QAC listens. Last year, the Council succeeded with step one, but failed to force QAC to follow its governance direction on several important strategic fronts in its SOI.

Sale of even 0.2% of QLDC’s remaining shareholding would lose our community the control it currently has – if council chooses to use it – over QAC. 

So the possible implications of a QLDC fire-sale could be serious for our community.

As, potentially, is Auckland Council’s sale of AIA shares. Because when QAC’s 2010 board secretly sold 24.99% of airport shares to AIA, they also signed a secret strategic agreement with Auckland Airport.

We don’t know what it contains because, well, it’s secret. But we have been told by someone who has seen it that it gives AIA “far too much influence and control, despite QLDC’s assertions to the contrary”. 

Who knows what influence a new shareholder bloc, with no interest in New Zealand/Queenstown/climate change/et cetera might bring to this secret agreement? So we asked new mayor Glyn Lewers some questions about possible implications for Queenstown Lakes of Auckland Council’s potential sale of its Auckland Airport share:

Mayor Glyn Lewers

PQ – If Auckland Council does decide to sell all/some of its shares in AIA, what implications might this have for QAC, QLDC and the broader Queenstown Lakes community? For example, would it have any impact on the strategic agreement (I think still secret) between AIA and QAC? Might it have an effect on the lens through which AIA looks at its cooperation with/part ownership of QAC? Might the removal of Auckland Council’s local government lens change the governance approach of the AIA board? There are no doubt other aspects that might be affected that I haven’t thought of, and I would welcome your comment on these.

GL – Any proposed share sale in relation to AIA is covered by the Constitution.

PQ – QLDC will be facing its own budgetary pressures going forward. As mayor, would you consider it an option to sell down shares in QAC to reduce debt/interest costs?

GL – It has never been raised during my time at Council, except by yourself. I personally hold no such intention.

PQ – If so, what would the process be?

GL – NA

Is there any provision in either law or QAC’s constitution to prevent QAC’s board unilaterally choosing to dilute QLDC’s shareholding further?   (Acknowledging that if QLDC’s QAC shareholding were to go down just 0.2%, we would lose our “supermajority” shareholding and therefore, our guarantee of specified governance controls)

GL – Yes. It would require a resolution of Council.

PQ – If not, would you agree to QLDC looking to change the QAC constitution to prevent such a move?

GL – NA

PQ – Your reasoning for the above decision?

GL – No answer provided.

It would have to be said that we don’t feel much the wiser for these responses. We have asked Mr Lewers for elaboration on his first answer, as we could see no relevant provision in the QAC constitution. We shall share his response once received.

From our reading of the QAC constitution, there are three main risk areas for our community to lose control of QAC and, therefore, our airports and their impact on over-tourism and all its downstream ramifications.

First is if councillors decide that debt or budget constraints override the need to maintain strategic control of our airports and vote by a simple majority to sell. Losing just 0.2% of our shareholding would cost us our supermajority strategic control.  A significant sell-down would lose council’s nominal control over board member choice.

The second would be having QLDC’s cash-strapped hand forced by the QAC board, who we know from experience is not shy of wielding the reins of power in this relationship.  Because shares can be sold to third parties if existing shareholders don’t take up a sales notice (i.e. refuse to add equity).

And the third, which again a cash-strapped QLDC could be susceptible to, would be if our council couldn’t afford to take bonus shares in lieu of a dividend, which could cost us council’s supermajority shareholding and therefore our control.

Even before Covid, labour shortages, inflation and supply chain issues, QLDC was highly likely to find itself facing some serious budgeting and debt issues over the next decade. Selling off airport shares could be seen by some to be an easy solution, especially if councillors didn’t recognise their vital role in airport governance.

The QAC constitution, described by QLDC CEO Mike Theelen as “fit for purpose” earlier this year when challenged by councillors requesting a council-led review, contains no requirement for QAC to consider our community in any decisions it makes.

It does speak of the rights of deceased and body corporate shareholders – neither of which can exist at this stage.

So, as we asked when Mr Theelen first made his “fit for purpose” comment, for whose purpose is QAC’s constitution fit?

Not for the purpose of ensuring QAC meets QLDC’s strategic objectives to enhance the well-being of its community, as legally mandated under the Local Government Act.

Far better designed, it seems, for freeing QAC from any of the LGA’s constraints on a theoretically council-controlled trading organisation.

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