Friday 16 October 2015
In the November Billet, the Treasury and Resources Department is recommending the recapitalisation of the Aurigny Group (Cabernet Ltd). This will address its accumulated losses which date back to 2003 and amount to £19.9m. In addition, the Department is recommending that Aurigny is capitalised for its forecast losses totalling £5.3m for the years 2015, 2016 and 2017. The recapitalisation is a legacy of previous States' decisions made as long ago as 2005 about the debt funding model for the airline, which has seen it borrowing to fund its operating and capital expenditure costs.
Peter O'Donovan, Aurigny's Finance Director, says:
"Recapitalisation will restore Aurigny's balance sheet to a neutral position. This will help our financial position immensely because we will no longer have to repay borrowing at relatively high rates." He continues: "Aurigny operates in a highly volatile industry where direct costs can impact on the business without any degree of predictably. Indeed, around two thirds of our direct operating costs are outside of the airline's control. The recent bird strike, which damaged one of our Embraer's engines, is an example of how our budget forecasts can be affected by events. Repairs were costly, as was the chartering of alternative jets to service the Gatwick route for six days."
Aurigny was bought by the States of Guernsey in 2003 to secure the Island's air link with London Gatwick when British Airways announced it was leaving the route. In its report, the Department argues that the States' continued ownership of the airline remains overwhelmingly in the Bailiwick's strategic interest, providing an insurance policy that ensures decisions around its essential public air services are determined not just by commercial considerations, but by wider economic and social ones as well.
Mark Darby, Aurigny's CEO says:
"Aurigny enables business and leisure travellers to connect with Guernsey and London's second airport. Aurigny also provides a high degree of connectivity between Guernsey and a large number of UK destinations. Our Alderney routes make a loss but are "lifeline" services for that part of our community. Our London City route is an example of the role we play in supporting Guernsey's economy which we introduced a year ago, at the request of Guernsey's business community." He continues: "Aurigny is an important contributor to the economy in Guernsey. Not only do we provide vital year round air links, but we employ a high number of local people and pay significant sums to the Treasury. In 2014 alone we paid just under £2m in tax and social security contributions. Our payments to Guernsey and Alderney airports totalled £5m that year."
Treasury and Resources Minister Gavin St Pier says:
"Aurigny remains mandated to break even and our policy letter indicates that this should be possible by 2018, subject to new funding arrangements being put in place for its loss making, but socially and economically essential, Alderney services. Recapitalisation of its historic debts will help to stem its losses and work more effectively towards break even, whilst continuing to provide Guernsey and Alderney with a high degree of air connectivity that could never be delivered year round by a commercial operator."
Deputy St Pier goes on to say:
"Balancing commercial considerations with Aurigny's wider responsibilities to the Bailiwick remains a constant challenge for the States and the airline. The launch of the London City service is a clear example of how Aurigny has put its role as an economic enabler for the Island ahead of the commercial considerations that might otherwise have discounted introducing the route. For as long as we expect Aurigny to continue fulfilling this social and economic role for the Island, then we have to accept that this will bring with it a risk that ongoing financial support will be required."