This item was published during the term of a previous administration that ended in April 2007
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Deal for Inverness Airport buy-out secured
20/01/2006
A deal to buy-out the PFI contract for Inverness airport's terminal was secured today.
The Executive is funding Highland and Islands Airports Ltd (HIAL) to buy-out the contract from the PFI owners Inverness Airport Terminal Ltd (IATL).
The buy-out price is £27.5 million if HIAL provide a tax guarantee to cover the estimated tax liability of up to £8.4 million.
If the PFI contract had run its full term to 2024 the cost is projected to have been £73 million.
Transport Minister Tavish Scott said:
"I look forward to the passenger numbers, airlines and economic activity growing as a result of this change. Inverness is an exciting, vibrant city, Scotland's fastest growing city and the change will help in the development of Inverness and the surrounding area.
"Removing the PFI contract from the Inverness airport terminal will have a major impact on the economy of the Highlands and Islands. It will allow Inverness airport to attract new airlines and new routes and therefore increase its competitiveness."
The PFI deal which delivered a new gateway terminal was signed in February 1998. The contractual relationship was between Highlands and Islands Airports Ltd (HIAL) and Inverness Airport Terminal Limited (IATL), which is owned by I2 - an investment company part owned by Barclays Bank, Societe General and 3i. Although the Executive was not a party to the deal, Ministers were consulted on any changes to its structure.
At the time the deal was signed it was envisaged that the costs of the passenger charges would be largely offset by growth in landing charges. However, the advent of no frills carriers has meant that all airport operators have had to accept little or no growth in landing charges and instead look to increased growth in retail concession and parking income arising for the operation of air terminals. In the case of Inverness the car parking and retail income has fallen to the PFI operator under the terms of the contract.
The PFI structure was based on a volume-based per passenger charge and HIAL, with the assistance of their financial advisers and the Executive PFI Unit, concluded that the current structure of the deal was an active disincentive to the development of new services from Inverness. Although HIAL was able to secure a number of new services this was achieved at considerable additional cost (the PFI volume charge amounted to 1.9 million pounds in 2004-05). In consequence HIAL (with the agreement of Ministers) made an offer to i2 for the buyout of the PFI deal.
In the first six full years of the contract HIAL incurred charges totalling £8.482 million.
The projected passenger total for the 12 months ending March 31, 2006 is circa 625,000 passengers and the projected total PFI charge for the same period would have been over £2 million.