How not to lose control of QAC

With Queenstown Airport Corporation gunning for a massive expansion, it’s time for Queenstown Lakes District Council to wake up and assert some control over the CCTO’s spending.

Queenstown Airport Corporation (QAC) has lined up its ducks nicely. Thanks to the Council, the company has doubled its landholding.  It’s also obtained Requiring Authority status under the RMA and it almost clinched a Statement of Intent (SOI) with the objective to grow to meet demand. Fortunately, due to massive community opposition, that document (the last duck) was not accepted at August’s Council meeting.

QAC’s enterprise value is worth somewhere between $466 and $483 million. QLDC has a 75.01% share in that and Auckland International Airport (AIAL) has the rest. Current debt is $62.7 million but the company plans to spend unspecified millions on the purchase of Lot 6 and $400 million expanding Wanaka Airport.  All at a time when the future of aviation and the global economic situation are somewhat uncertain.

Until now QAC’s growth and spending have been constrained by location, but with the new Wanaka lease it finds itself without limiting noise and land boundaries and (here’s the thing) still with no constraints on its transactions or borrowings i.e. there remains nothing in its Statement of Intent or its Constitution that allows QLDC to control its spending.

All of this should raise a few questions. Like, how is QAC planning to fund a half billion dollar expansion? What would happen if QAC couldn’t meet debt repayments? What happens if there’s a downturn in the aviation industry and we’re left with a $400 million stranded asset? Could it come down to a choice between liquidation and a share sale? Could QLDC end up with less than 51% of the shares? You get the picture.

But as it turns out we have been so focussed on the noise and ‘over-tourism’ implications of QAC’s expansion plans that we haven’t, and Council hasn’t, considered the risk these plans pose to QLDC’s largest investment and its strategic majority shareholding.

Of course, neither QAC nor AIAL would shed a tear if the Council lost its hold over the company’s strategic direction – because QAC and the communities it serves are no longer on the same page. The Council should keep that in mind because history tells us it’s not beyond a QAC Board to resort to sneaky (if legal) tricks – in the name of doing what’s best for the company.  More on that later.

In hindsight, the Council should have assessed the risk to its investment even before it signed the Wanaka lease agreement, and certainly before considering the new draft SOI. But it didn’t.  Interestingly, when I looked for QLDC’s (s105 LGA) Investment Policy – to establish how the Council has resolved to assess and manage the risks to its investments – I couldn’t find it.  And when I asked the Chair of the Audit and Risk Committee, he told me he hasn’t seen it either.  I asked the CE for a copy last night but have so far had no reply.

So what next?

Councillors are right now (we hope) considering how to amend the draft SOI that sets out, amongst other things, what QAC can and can not do over the next three years. They need to get this right.

First off, I’m going to suggest they should not forget how councillors have been blindsided by QAC in the past. That was back in 2010 when the company had plans for a share sale and strategic alliance with AIAL.  In case you’ve forgotten or weren’t around for that particular drama, QAC didn’t trust councillors with the information about the share sale and sought legal advice about blindsiding them.  It was apparently considered legal.  In late June, QAC presented Council with a new draft SOI for signoff. It included a vague statement about looking to raise capital: “The company will consider the need for and source of capital subscriptions as may be required.”  That seemingly innocuous statement inserted into the SOI was all it took to enable a 24.99% share sale 2 weeks later.  The councillors found out about it just hours before the transaction.  Turns out the Mayor and CE knew about it but were gagged by confidentiality clauses. 

Given the communities’ current opposition, it’s not hard to imagine a similar scenario playing out over the current expansion plans. Sneaky ‘tricks’ with the SOI, confidentiality clauses – all legal but not quite fair play.

Regardless, vague statements in an SOI are clearly risky. This time QLDC needs to make the document crystal clear and without conflicting objectives.  It must state that there will be no work on expansion (including borrowing) until the economic and social assessments are complete and consulted on and council has signed off on a new and detailed SOI. 

Councillors must also reassess the appropriateness of the SOI, QAC’s Constitution, and the Board itself with a view to managing the risk to its investment, protecting its majority shareholding and retaining its ability to shape the future of this district.

And QLDC must add a clause or statement requiring shareholder approval for large transactions.  Auckland Council requires it for transactions over $10 million and so should QLDC. There’s too much at stake here to rely on trust, good intentions and fair play

Vote Niki Gladding for QLDC

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