Airport equity swap ‘not a bailout’
The $22 million rescue deal for New Plymouth’s financially stricken airport will ensure its survival but it’s not a bailout, a district councillor has argued.
At an extraordinary meeting yesterday, New Plymouth District councillors approved a $22m equity injection into its independent airport company Papa Rererangi i Puketapu (PRIP), of which it is the 100 per cent shareholder.
This would allow PRIP to reduce debt, with the council likely to get dividends back by 2023.
But the decision means ratepayers face a potential rates increase of 1.8 per cent from 2021.
The equity deal will reduce the council’s revenue by up to $2.1m – an amount it would have otherwise got when the airport paid back some debt-related costs.
However, the cost to the ratepayer was expected to be offset by future dividends from the airport.
Councillor Richard Handley was at pains to confirm the equity deal was not a ‘‘cash injection’’ or a ‘‘bailout’’ as it had been described by the council itself and in earlier media reports.
Handley asked the council’s chief operating officer Kelvin
Wright to confirm this was not a bailout or a cash injection.
‘‘This company is not bankrupt,’’ said Handley, who has a background as an accountant.
‘‘This company simply has more debt than it’s able to service in the long term.’’
Wright said when the airport company was set up the council made the decision to debt fund approximately $33m and look at the capital structure once the terminal was operating.
Following lockdown, independent finance company PWC recommended recapitalising as soon as possible.
Without the refinancing, the airport company was at risk of being insolvent within six months.
‘‘If approved by you today, this recapitalisation will come in the form of a debt-for-equity swap,’’ Wright said.
‘‘The council will swap a portion of approximately $35m in current debt and gain further equity in the business by receiving shares,’’ Wright said.
‘‘This will reduce the burden of interest and principal payments and allow the company to return to profit.’’
The company was likely to be in a position to pay a partial dividend in 2023 and a full dividend to offset the equity investment in 2024.
The refinancing was likely to occur anyway, but at a level of $10.5m-$11m rather than the $19m-$25m options post-Covid, Wright said.
There were ‘‘I told you so’s’’ from councillors who had opposed building the ‘‘expensive’’ airport terminal option.
Councillor Murray Chong said they had overspent on the airport right from the start.
‘‘We wanted to go flash. We didn’t need to,’’ he said. ‘‘I’m going to say it: I told you so.’’
Other councillors said they supported the refinancing but had favoured the $19.1m option.
‘‘I had $19m in mind too, not surprisingly, but that was when they were building the airport,’’ councillor Gordon Brown said.
‘‘There’s never a reason not to act prudently.
‘‘It takes a generosity of spirit not to say ‘I told you so’, and I certainly won’t.’’
Councillor Harry Duynhoven said they would have been in this predicament even if they had gone with a cheaper terminal build.
Mayor Neil Holdom said his understanding was the average cost per household was $250-$300 spread over three to four years.
This would enable the airport to become a thriving business again.
Wright said PRIP had also received $107,000 in Government wage subsidy, and had also joined a group of airports lobbying the Government for further support.