Y Pwyllgor Cyfrifon Cyhoeddus - Y Bumed Senedd
Public Accounts Committee - Fifth Senedd16/11/2020
Aelodau'r Pwyllgor a oedd yn bresennol
Committee Members in Attendance
|Angela Burns MS|
|Delyth Jewell MS|
|Jenny Rathbone MS|
|Nick Ramsay MS||Cadeirydd y Pwyllgor|
|Vikki Howells MS|
Y rhai eraill a oedd yn bresennol
Others in Attendance
|Adrian Crompton||Archwilydd Cyffredinol Cymru|
|Auditor General for Wales|
|Andrew Slade||Cyfarwyddwr Cyffredinol, Grŵp Economi, Sgiliau ac Adnoddau Naturiol, Llywodraeth Cymru|
|Director General, Economy, Skills and Natural Resources Group, Welsh Government|
|Matthew Mortlock||Archwilio Cymru|
|Simon Jones||Cyfarwyddwr, Seilwaith Economaidd, Llywodraeth Cymru|
|Director, Economic Infrastructure, Welsh Government|
|Steve Vincent||Dirprwy Gyfarwyddwr, Is-adran Rheoli Seilwaith yr Economi, Llywodraeth Cymru|
|Deputy Director, Economic Infrastructure Management Division, Welsh Government|
Swyddogion y Senedd a oedd yn bresennol
Senedd Officials in Attendance
|Claire Griffiths||Dirprwy Glerc|
Cofnodir y trafodion yn yr iaith y llefarwyd hwy ynddi yn y pwyllgor. Yn ogystal, cynhwysir trawsgrifiad o’r cyfieithu ar y pryd. Lle mae cyfranwyr wedi darparu cywiriadau i’w tystiolaeth, nodir y rheini yn y trawsgrifiad.
The proceedings are reported in the language in which they were spoken in the committee. In addition, a transcription of the simultaneous interpretation is included. Where contributors have supplied corrections to their evidence, these are noted in the transcript.
Cyfarfu'r pwyllgor drwy gynhadledd fideo.
Dechreuodd y cyfarfod am 10:04.
The committee met by video-conference.
The meeting began at 10:04.
Good morning and welcome to this morning's meeting of the Public Accounts Committee.
Item 2 on our agenda today in public session is an evidence session with the Welsh Government on Cardiff Airport. Can I welcome our witnesses to the meeting? Andrew Slade is going to be joining us soon as he can—he's experiencing some IT issues at the moment— but we do have some of the other officials with us. Would you like to give your name and position for the Record of Proceedings?
Sure, thanks, Chair. My name's Simon Jones, I'm the director of economic infrastructure in the Welsh Government.
Thank you, Chair. Steve Vincent, deputy director within economic infrastructure.
Great, thanks for being with us this morning. We've got a number of questions for you, and I'll kick off with the first couple. The Minister for economy and transport told the Economy, Infrastructure and Skills Committee in January that he accepted that Cardiff Airport was not always going to make a profit, as it carried a wider social benefit. Do you think there's a tension between this view and the Welsh Government's statement at the time of acquisition that the airport would and could operate on a commercial basis?
Thanks, Chair. Before I answer the question, do you mind if I just make a statement about a conflict of interest?
So, when I've appeared before this committee in the past, I've declared a conflict of interest because of my joint role as the lead policy official on transport and also as the chair of the Holdco of Cardiff Airport. Up until now, or up until this crisis, that's been something that we've been able to manage, but, as a result of the difficulties of the airport, it became clear that that situation was no longer tenable, so, as a result, I've tended my resignation as the chair of the Holdco, and we're going through the paperwork at the moment to appoint a new chair for the Holdco. A candidate has been identified, and we're just going through that paperwork with Ministers at the moment. So, I tended my resignation at the end of September on that, so I just wanted to share that, because we've discussed that in the past.
Yes. It has—. We did have some issues about changes, some questions about changes in the management team—
—for you later. It was remiss of me, actually, in launching into this to, first of all, not pass on the apologies of Rhianon Passmore and Gareth Bennett, who can't be with the committee today. And also I should have asked witnesses or Members if you had any declarations of interest you wanted to make. No.
Okay, so back to the questions then, and thanks for your statement, Simon. So, do you think that there is a tension between the Welsh Government's statement at the time of acquisition that the airport would operate on a commercial basis vis-à-vis the wider social benefit role of the airport?
So, I think, Chair, there is a tension between those two things, but, in practical terms, it can't make much of a difference, because the airport has to operate in a competitive market and operate in a state-aid compliant way. So, whilst there are those wider social benefit ambitions that Ministers have, they are constrained by the state-aid view that the UK Government takes of the way that aviation should run in this country. So, the UK Government's view of a private sector led, market-led model for operating airports makes that—well, constrains that.
Thanks. In your letter in February, you referred to the Development Bank of Wales as the agent of the Welsh Government that monitors the airport's financial performance and provides external, independent, professional assurance for the term of the loan. As a wholly owned subsidiary of the Welsh Government, can you explain how the development bank is external and independent?
Sure. So, whilst the Welsh Ministers are the sole shareholder, the bank is a regulated body, regulated by the Financial Conduct Authority, and it needs to act independently in order to meet its regulatory obligations. So, that's where the independence comes from, from the act of the regulator. In terms of what the DBW is doing for the airport, it's acting as our agent in terms of managing the loan facility, so it's collecting management information, looking at performance measures, and reporting on the management accounts that it receives.
Thanks. Angela Burns.
Morning, nice to see you again. I just wanted to have a little bit more clarity on the loan agreement. Can you please confirm the total value of the new loan agreement announced in October 2019? I ask that question because—18 June 2020, I've read a paper that said it was £61.9 million, then there was another £2.5 million of interest on the debt, then I've also got a figure here of £71 million, which was £38.2 million, £4 million of accrued interest, £28 million of new money, of which £21.2 million was available to Cardiff Airport. So, lots of millions—I'd just like a number.
Okay. I guess one of our challenges here is about the commercial sensitivity of some of this information. The total loan facility is £71.5 million. That's the total loan facility that's been agreed with the airport to date. That includes interest, and that includes consolidation of previous loans. If it would be helpful, it may be that this is something that we could get into in the private session after this. I think there's an issue about how much of this can be exposed in a way that doesn't prejudice the interests of the airport, because they're operating in a commercial environment. So, would you mind if we deferred getting into the detail of how all those millions are put together?
I don't mind doing that, but there is a very fine line, because of course this is taxpayers' money, and they have a right to transparency, and to know where their funds have gone. So, what should or could be in the public domain should or could be. I do appreciate that people have grants, have loans and they don't give the ins and outs because of commercial confidentiality. So I just want to make sure that we are giving our taxpayers the information they require that they're entitled to have.
I think that understanding that the full loan is £71.5 million is interesting. In the private session, I would be interested to understand more what was brand-new money, if you're not able to tell us now, and what is then consolidated money, and not only consolidated money, but there's also a slight issue, in my view, between giving a loan to be spent on capital revenue, or whatever it might be, and a loan that actually just pays back the interest of a previous loan. We tell our public, don't we, 'Don't do that on your credit card. Don't go and borrow on other credit cards to pay the interest on a previous credit card', and I would not like to think that Cardiff Airport was in that sort of situation.
In the letter that Andrew Slade wrote to us about the loan and the bridging loans, are you able in the public session to confirm or discuss a little bit about the rate that you are charging for that loan? Because it says here,
'Our short term solution to this was to repurpose £4.8m of an existing £21m loan facility to provide a bridging loan under MEOP state aid cover until other funding can be agreed and accessed.'
But the sentence I wanted to explore was the one that goes,
'This was undertaken on commercial terms with a high interest rate in recognition of the high commercial risk and extraordinary international circumstances.'
Of course, we're very well aware of the appalling situation the aviation industry finds itself in because of the pandemic, but could you reassure this committee that the high interest rate is not punitive, and actually is in line with high interest rates that one might expect to have if you were to borrow that same level of loan from any other source apart from Welsh Government?
Sure. So, there are a couple of things there that are worth saying about this. Just to be clear, that emergency loan is not part of the £71.5 million that we've just discussed. It's a separate facility, but it's making use of the budget that would have been available for draw-down of some of the £71.5 million this year. Because that £71.5 million would have been used for the purposes that the loan was originally agreed for, which was about development of the airport, development of routes, capital investment—those sorts of things. This £4.8 million that we're talking about is an emergency bridging facility in order to help the airport get through the crisis, as you've described. This is something that I'm sure many airports around the world are having to rely on—an emergency facility.
So it's pretty much a revenue spend, I'm assuming.
That's right, yes.
Staff salaries, et cetera.
Exactly that. So, it's used in the same budget that would have been drawn down from the main loan, but it's a separate instrument, if you like. In terms of the interest rate that's being charged on that, because it's for a different purpose, we've had to calculate that separately, and we've done that with reference to the market because the state-aid rules require us to be compliant with what a commercial lender would provide. So, there’s a balance here. We’ve got to be able to justify this as something that a reasonable lender would provide, but your point about it not being punitive is also really, really important as well. So it’s higher, I think, the interest rate, than would have been charged on the main loan, because it’s for a different purpose, but it’s not in a situation that we think isn’t justifiable.
Okay. So if Cardiff Airport had wanted to go and borrow that £4.8 million from somebody up in the city, they’d have been paying the same kind of interest rates that they’re paying Welsh Government.
That’s right. That’s the theory. In practice, as we’ve talked about in committee in the past, the airport’s options for borrowing from somebody else are pretty limited by the way that the Welsh Government’s own accounts work. Because they’re a wholly owned subsidiary, if the airport goes out and borrows from the market, that borrowing counts against the Welsh Government’s overall borrowing. So it’s more straightforward for them to borrow from us, in practice. So we are their lender because of the way that the Welsh Government block grant works and our borrowing constraints.
Okay. If you’re able in public session to discuss the interest issues a little bit, I’ll pose a question and then you can tell me if you can or can’t. In your letter to the committee in February, it said that the loan extension provided flexibility to the airport to refinance the existing loan and cover a crude interest associated with the previous agreement in 2017. Are you able to confirm the amount of interest that was due but not paid by the airport, which you then had to put back into the new loan facility?
Sure. This sounds evasive, but would you mind if we covered that off in the private session?
Okay. Okay. Are you allowed to tell me in public why the airport did not pay the interest when it was due?
Okay. The arrangement that we had with the loan was such that the payment of the interest was backloaded in the repayment profile.
Okay. Sorry, I’m just making a note. Okay, so my other question is to do with interest, so I’m guessing I’ll have to wait for the private session for that. So that finishes me off for the moment, Chair. Thank you.
Thanks, Angela. And I should welcome Andrew Slade, who has 'Zoom-ed' in while we were having those questions.
Morning, Chair. Many apologies to you and to the committee for being held up. I’ve come in on my own phone, which seems to be working. So that, at least, is something.
I thought it was a phone because of the layout. Thanks for joining us. Okay, the next questions are from Jenny Rathbone.
I hope you can hear me now. So, to what extent is the airport now using the loan to fund issues related to the pandemic, rather than some of the other things that the loan was originally given for? Would you say that the funding is now being drawn down more quickly, given its loss of revenues over what would have been, in the summer, its busiest months?
Shall I take that, because I think that follows on from the answer that I just gave? It’s a separate loan facility, the £4.8 million emergency funding facility, and that is entirely to do, as you say, with covering the day-to-day running costs of the airport because, in common with every other airport in the UK, its revenues have completely disappeared.
Okay. Let’s leave that on one side. What about the main money, either the £59.4 million or the £71 million, most of which was due to be on essential capital spending?
Yes. So, the airport have drawn down a chunk of that money already. There’s a remaining element that hasn’t been drawn down, and we can get into the details of that in the private session, if you’d like. The remaining chunk of that money was always due to have a financial due diligence review on it before they were able to draw it down. So they haven’t drawn any of that lot down because the trading conditions are incredibly difficult at the moment for them.
Okay. So, none of the £59.4 million has left the Welsh Government's bank?
No. I can't tell you hand on heart how much of it has, but the majority of the facility that's been agreed with the airport has been drawn down. There's a remaining amount outstanding that hasn't been, which wasn't due to be drawn down until after this year, and that won't be drawn down until we've completed the financial due diligence.
Okay, because my main concern is that the money that was set aside for security screening, and maintenance and resurfacing of the runway, that we're not simply spending on that on standing still.
Well, that's, in part, why we've given them this separate emergency loan facility of £4.8 million, in order to be able to cover off the liabilities this year that have resulted in the loss of revenue.
All right. So, they're not using the capital sum for revenue.
So, in July, you told the Economy, Infrastructure and Skills Committee that you had some very rough and ready estimates of the airport's future funding requirements. Would you just tell us in what capacity you had this information? Was it in relation to your role as chair of Holdco, which you only stood down from at the end of September, or in your current role as director of the Welsh Government?
Well, I guess it was precisely because of that tension between the two roles that I ended up having to tender my resignation, because it became impossible to reconcile those two positions.
Okay. So, on the basis of the information you hold currently, could you now update us about the future funding requirements, in terms of how much the airport needs to keep operating during the pandemic, and the amounts? Have the amounts required for investment that we've already discussed changed in any way?
So, the answer, I think, will be 'yes', because the pandemic has changed everything. The view that we would have had a year ago about future trading and future passenger numbers has completely disappeared out of the window. We, in common with every other airport owner and airline owner around the world, don't have any certainty of when passenger numbers will begin to return; what the appetite for people flying internationally will be; what the impact of remote working will be on business travellers. There are lots of unknowns, and we also don't yet know, quite obviously, I suppose, how much longer the current levels of restrictions are going to be in place for, and once those restrictions, as I say, are removed, to what extent we may see suppressed demand or whether we may see weak demand returning, which might take many, many years to come back.
I don't think—. The industry isn't forecasting that sometime later this year we'll be back to 100 per cent travelling. So, that makes forecasting really difficult in terms of what happens next.
I appreciate the situation is very unclear, but what is the role of the Welsh Government in all this, because, surely, they have a duty to keep regional airports functioning, so that when there is a return to more normal travel operations, we will still have regional airports?
So, I suppose—. A lot of that actually sits with the UK Government. We're involved in this only because of our shareholder, which came about on the back of economic development powers. The strategy for regional airports, and the support therefore for regional airports, really is a reserved matter for the UK Government.
No, I appreciate it's a reserved matter for the UK Government. What funding have they put in so far to ensure that our regional airports, like Cardiff, are still there after the pandemic?
So, as a shareholder of one of those regional airports, we would say they've put in insufficient funding, but perhaps even more challenging is the state-aid environment that those regional airports operate in. It makes it very difficult for the public sector to provide any kind of support, so an airport like ours is hit twice really. So, not only do we not have a package of measures for regional airports that the UK Government is putting in place, we also have a very strict state-aid regime, which prevents us, as the shareholder, from acting in a way that perhaps other shareholders might be able to to support their own airport.
Okay. But it hasn't stopped the airport getting the job retention scheme for those who it has furloughed.
No, it hasn't, and the airport has made significant use of that.
Okay. So, above and beyond that, what other funding has the UK Government provided so far?
None that I'm aware of.
Thank you. This may be for the private session, but can you give us any information at this stage on how you think future funding requirements are going to be met, given that we're going to need, if the airport is to function in line with current regulations, to upgrade its security screening and its runway resurfacing and maintenance?
As you say, we might be able to be a bit more absolute with you about that in a private session. But there are a whole load of liabilities that fall to the airport. And I think Ministers have said in the past that one of the challenges that Cardiff faces, as a smaller regional airport in the UK, is that the operating regime in the UK doesn't allow support for safety and security measures to be funded from the public sector. So, in other parts of Europe where the same state-aid rules apply, the state is allowed to provide financial support for safety and security. And you might say, 'Well, if we don't do that in the UK, so what?' Well, the difficulty is it's a disproportionately high percentage of operating costs for smaller airports. So, it's about 30 per cent of the operating costs for Cardiff. I've read elsewhere that, for larger airports, that figure reduces to about 10 per cent. Now, what the UK Government could do, if it were minded to—and this is what Ministers have asked them to do—is to put in place a regime that allows the public sector to provide support for safety and security, because that's allowed under the existing state-aid rules, but the UK Government haven't chosen to do that. Now, were we able to do that, that would be a significant benefit to future financial planning for the airport, and it's something that is fairly straightforward for the UK Government to do.
Okay. Apart from being Wales's only international airport, its unique selling point is the fact it's got this massive, long runway, which is obviously suitable for transatlantic travel. How is that being used to ensure that the airport continues to function?
The runway has been used over the pandemic for things other than passenger flights—there have been some fairly well-publicised personal protective equipment bits and pieces. We're operating in a commercial market, though, with relatively few flights taking place during the pandemic, so other airports have also had capacity to be able to do those things, as well.
I'm just focusing on this long runway, which, for example, our competitor, Bristol, doesn't have. So, in September last year—a very long time ago—you were talking about some kind of partnership deal that could be done to secure the future of the airport. Is there anything relevant that could now be said, given that so much has changed since then?
I think that the world that we were envisaging, or the world we were seeing in September of last year is completely different. So I guess what was in our minds then and what private investors, or others, might have been willing to do—private or public investors, actually—a year ago, that's completely different. This has changed everything. The revenues have disappeared, the passenger numbers have disappeared, the risk and the uncertainty have skyrocketed.
Is it still possible for the Welsh Government to be continuing to fund this airport? Can we now afford it?
Well, there are questions that every airport owner in the world is having to answer at the moment. So, the Welsh Government isn't alone in that situation. We've talked in the past, I think, about the amount of loan funding that Cardiff Airport has. When you compare that with some of the other big airports in the UK, although the numbers are huge, they are tiny in comparison with other airports in the UK. It's a really important question that Ministers have got to grapple with, but they're having to grapple with that same question for all sorts of parts of the economy at the moment. If you think about the area that I've talked to the committee about in the past around buses and trains, exactly the same problems are besetting those industries because of loss of passenger numbers.
Okay. I think we'll come on to that later. Thank you.
Thanks, Jenny. Vikki Howells.
Thank you, Chair. I've got some questions on the recovery and Brexit. So, firstly, as the owner and sole shareholder, does the Welsh Government have a plan to get the airport through the current crisis and also through Brexit?
Shall I give Andrew a chance to take it?
You're doing marvellously, Simon; I'm watching in admiration. I think it's worth saying, on that point, that we're working very closely with the airport on the recovery plan. I think we might say a bit more about that in the private session, because a lot of it is commercially confidential. I just wanted to pick up on Simon's point about how much the world has changed. I think I'm right in saying—and Simon and Steve will correct me—that, before the pandemic struck, passenger numbers in Cardiff were up to about the 1.6 million mark annually, which would be 60 per cent-plus growth on where we were in 2013, when Welsh Government purchased the airport. So, it's a very solid and successful growth record. The numbers have gone off a cliff since then, and the aviation industry generally has had 10 years of profitability, but I think now the International Air Transport Association are forecasting something of the order of £100 billion net loss by the end of this year, which is about three times worse than what happened in the aftermath of the financial crash in 2008-09. So, these are the sorts of numbers that we are talking about in terms of severity.
Brexit, as we've discussed before, poses a series of challenges around the management of people coming and going and goods associated with that, and in particular around the regimes that will apply in respect of taxation, duty and so on. But I think most of those subjects, from the information we have available, are in hand in terms of the airport's ability to manage those, and we're working with the border delivery group on the wider impacts on borders. But the kind of knock-ons of Brexit, in terms of the economic concerns for the sector, are part of a wider look at what we do with the airport, going forward, taking into account both EU transition and the end thereof, and COVID-19 and its many impacts.
Thank you. To look more broadly, then, at support for the aviation sector in general, Ken Skates, the Minister for Economy, Transport and North Wales, has called on the UK Government to do more to support the aviation industry, and in particular regional airports, so that they can recover from the impact of COVID. Can you expand on that for us? What specific support is the Welsh Government looking for, and what has been the response from the UK Government to date?
Well, Ms Howells, I think most of the points were the ones I think I heard Simon say, just at the point when I was joining the call, around what we can do within the existing state-aid regimen, as we understand it, at European level, where the rules in the UK are quite a bit tighter on the security and safety spending than might be the case elsewhere. We think there's more that could be done around public service obligation routes to get those up and running in a way that we think would help kick start things again, and also contribute towards regional connectivity. And, more generally, I think Ministers feel there's a clear need for an airport and aviation recovery plan, funded because of the significant sums of money involved and the impact right down through the supply chain. So that aerospace as well as aviation. The numbers of new aircraft being produced are very significantly down. I think they're down by about a third compared with last year, and the numbers of maintenance contracts, and work on that side, are down by about half. So, it gives you some sort of sense of the impact on the wider supply chain. And Ministers have called for a much bigger and clearly signalled package of support from the UK Government because these are, as Simon says, reserved areas, and Welsh Government doesn't have the means to fund the kind of work that would be needed for a very important sector to the UK as a whole.
I think the other thing is that we're involved, to a degree, in the connectivity review—the union review being led by Peter Hendy. We've had a little bit of contact on that. We'll wait to see what more comes out of that. And there are a number of other UK-level initiatives that we're waiting to hear more on. But this is a very big item, and we are looking to the UK Government to come forward with proposals about how it can help the sectors affected out of this very difficult situation. I do have—
Simon, did you want to come in?
I was just going to say there are two issues that we wrestle with, and we've been wrestling with these as the owner of the airport since the start, and the crisis has just thrown them into greater relief. So, one is about the affordability and value for money of any support that we might provide to the airport as the shareholder, as the owner—so, putting public money into the airport. So, issue 1 is a kind of affordability, value-for-money piece. Issue 2 is a state-aid-compliant route to allow us to be able to do that. And we can't deal with one without dealing with the other, and I think Ministers are keen that the UK Government provides support on both of those, both on the affordability side by providing a funding package that is available to all airports in the UK, but also a state-aid-compliant mechanism to allow that funding to be able to flow from Welsh Government as a public body to an individual airport. Ministers don't want to distort the market, but the rules that have been seized upon by the UK Government are perhaps a harsher interpretation than is true elsewhere in the European Union.
And, as we say, there's the long-standing issue beyond that, isn't there, of the devolution of air passenger duty, on which this committee, and others in the Senedd, have given their views in the past.
The Welsh Government has been calling for support from the UK Government almost since the start of the pandemic, if I remember rightly, for the aviation sector. So, what has been the response from the UK Government to date, or has there simply not been a response?
Well, we're still debating the UK Government's strategy on aviation towards 2050, on the back of the consultation that was launched, I think, last year. There's still the work on the Hendy union connectivity review, but I don't think—and, again, Steve or Simon may be able to update us—there's been any response from UK Government either on the question of the aviation recovery package, or, for that matter, a response to the recent transport select committee in the House of Commons report. Is that right, Simon?
Yes, that's right. We haven't had those kinds of detailed answers that Ministers have been calling for for some time.
Thank you. And my final question is on that House of Commons Transport Committee report, actually. I was just going to ask you if you had any update on the recommendations from that, but I take it that that's a 'no'.
Not so far, no.
Okay. Thank you, Chair.
Thanks, Vikki. Delyth Jewell.
Diolch, Cadeirydd. Hi, good morning. I've got some questions about some of the practicalities of operating the airport in a time of COVID-19. Earlier in the year, when the 'stay local' restrictions were staying in place, Ryanair were continuing to operate flights, and I know the Permanent Secretary has said in a letter, that it might have been possible for the Welsh Government to close the airport to prevent this happening, but there would have needed to be strong evidence required in order to do that. Can I ask, if the Welsh Government felt that it was wrong or unsafe for those flights to operate, why were they allowed to continue with that?
I think the clearest way to answer that is that the airport has responsibilities, both statutory responsibilities and commercial ones, in terms of making its facilities available to airlines. It isn't illegal to fly or travel, even in the sort of 'stay local' situation, where there are particular needs for people to do so—so, if there are reasonable excuses for people to fly. So, shutting the whole airport, which is basically the only thing that we would have been able to do in that context—we couldn't have just said that that particular flight would be stopped, or another flight would be stopped—would have been a very, very significant step to take. We'd have had to do it on public health grounds and we'd have had to explain why that was more important than allowing people to travel with a reasonable excuse, either in relation to care responsibilities or health, or there's a number of other things that were under regulations at the time. What we were concerned about—and the economy Minister wrote to Ryanair at the time—was that we were very close to the end of the 'stay local' restrictions at that point, for the flight that I think you're describing, and we felt in the circumstances that the fairest thing to do would have been for Ryanair to cancel the flight and that would have helped with people's claims for compensation—[Inaudible.]
Yes. But I think the numbers actually that went through in the end—I can't remember exactly how many it was, but it was a low-ish number coming in from Faro and about 40 people leaving on the flight out. But, potentially, in all of those cases and with others, the onus is on the individual to demonstrate that they have a reasonable excuse to travel.
But the point the Permanent Secretary was making was, in extremis under public health measures and regulations, we could have closed the whole airport, but you have to be proportionate in your response to that and there would have to have been a very, very clear, very significant public health risk that would have forced us to shut the whole operation down, given, as I say, the statutory responsibilities that the airport has, the regulatory ones, and its commercial responsibilities to the airlines that it has contracts with.
Thank you for that. As things stand at the moment, although the Welsh firebreak has ended, the First Minister has said that international travel should only happen if, as you were referring to, people have a reasonable excuse to do so, until the restrictions in that regard end—
So, practically in that situation, what can the Welsh Government do, or what can the Welsh Government direct the airport to do in order to, not police, but to ensure that people are only travelling internationally if they have a reasonable excuse to do so?
Again, it's quite tricky, because at the end of the day, the airport is providing a service that is then utilised by airlines. Airlines, I'm sure, given the current restrictions—I'm thinking back to some of the communications I saw earlier in the pandemic—are saying to passengers, 'You must make sure that you respect the laws in place, including the latest guidance on COVID.' The onus is on the individual to have a reasonable excuse to travel. The general state of affairs across the whole of Great Britain, I would think, including Scotland which has a slightly different regime again, is that where people have got a reasonable excuse to travel, they can do so and airports have stayed open in that regard. But wherever we can use public messaging, and enforcement authorities generally, including the police, are alert of the need to minimise travel and that's one of the things that they've been looking at very closely over recent months. The nature of the airport's operations is not such that we would be stopping people coming in, because they may well have reasonable excuses, and I don't think we would see it as the airport's job to do that policing. The important thing there is that people undertaking flights have a reasonable excuse to do so.
Thank you. But does that mean then that, in effect, there's nothing that can be done, and this is just up to individuals' conscience to make sure that they only travel—? If there are no specific checks that people have to go through in order to prove the reasonable excuse element, then it just seems a little bit arbitrary whether or not people will follow that advice.
Well, I suppose, at the end of the day, it’s no more or less than the enforcement regime that applies generally, both on the England side of the border and what we're operating now in a post-firebreak set of arrangements in Wales, which is that there are a range of enforcement authorities to keep an eye on what's going on, but the onus very much has to be on the individual, otherwise we would be in a position where we would be stopping everybody and asking them what they were doing out and about, including on the potential that they've come across from England when they shouldn't have been coming across—[Inaudible.] It's getting the balance right. The reality is that very small numbers of people are coming through the airport at the moment, reflecting that huge drop-off in passenger numbers that we were talking about earlier.
Okay, well, thank you. And then finally from me, it's been reported that Qatar Airways are going to be resuming flights in March of next year. Is that still the case and would there be any kind of level of severity for any future—we hope would not happen—but would there be any level of severity that would have to be passed in order for that to somehow not happen?
Yes, I might bring in Steve in in a moment, because I know he's been working very closely with the airport and the other airlines, but I think that is correct; I think we're expecting Qatar Airways to come back into operation in March. A number of other airlines have similarly suspended their operations through the winter period and expect to pick up again next year. I think most of the airlines are now taking bookings for next year, so they're working on the basis that they will be opening up for businesses. Of course, as you point out, Ms Jewell, the pandemic could take us off in different directions, and we would need to be ready and alert to all of that. But I think in terms of planning assumptions, we're not expecting anything other than what you've just described. I don't know if Steve's got anything to add to that.
No, I mean, you're right, Andrew. I've discussed it actually with the airport—I think it was yesterday. The Qatar flights are actually on sale now, or will be very shortly. So, the planning assumption is at the end of March they'll be fully operational, but, obviously, that does come with a caveat around further pandemic and restrictions across other countries. But, the planning assumption at the airport is that at the end of March they will resume.
Okay, thank you.
Diolch, Delyth. Jenny Rathbone, did you want to come back?
Please. Thank you very much. I think you can still hear me. You can hear me now.
As we heard from Simon Jones earlier, having stood down as chair of Holdco, there's been significant change in the senior team at the airport during the pandemic, with a new chair taking up the post, the departure of the chief executive and the director of finance. Could you tell us about this change of leadership and potential loss of knowledge and expertise, whether it represents a risk for the airport during these particularly challenging times?
I think that's a fair question. The first thing to say is that we should put on record our sincere thanks to the outgoing members of the senior team: the chair, Roger Lewis; Deb Bowen Rees as the chief executive; and Huw Lewis as finance director. All three contributed very significantly to that success that I was describing earlier on in terms of the growth in passenger numbers, and the work that's gone on at the airport in recent years to improve the passenger experience, to work with airlines, to improve the carbon footprint of the airport and its operations and so on. So, a very significant number of achievements. Roger's term was due to come an end, Deb has retired and Huw Lewis, as I think you'll be aware, has gone on to a job at the Royal Mint. So, first of all, we say thank you to those individuals for their service.
The incoming chair, Wayne Harvey, the new chair, has lots and lots of experience in the business world. We might talk a little bit more about the sorts of approaches Wayne may bring in the private session, talk a bit more about the direction of travel stuff more generally. Spencer Birns, who is the acting CEO, is the former commercial director at the airport and has lots and lots of knowledge and lots of experience of the operation of Cardiff Airport. We've got a new finance director, David Walters, and I think he, again, brings lots of commercial experience. So, we've done whatever we could to manage the transition, and I know Deb stayed on a little bit longer as CEO to make sure that things were as smooth as possible. We think we've got lots of relevant experience and knowledge still in the team, in terms of the operation of the airport, and we've brought in, to add to the mix, some very significant and senior professional expertise to replace the individuals who have gone on to other things.
Simon and Steve have regular dealings with the airport team. Have I missed anything critical there?
Perhaps it's just worth noting that the three non-executive directors of the airport have remained unchanged through this, so there is significant consistency with the three non-execs and Spencer Birns. So, whilst there have been some movements, actually four of the seven members of the board have stayed the same. So, there is consistency through the non-execs as well, as well as Spencer Birns.
Okay, but trying to appoint a new chief executive in the middle of all this challenge is pretty difficult. I mean, who is going to want this poisoned chalice when there are lots of easier ways of earning a living?
I guess that's why Spencer has been appointed as the interim CEO for—. I mean, it's a question really for the airport board, how long Spencer maintains that job, but to deal exactly with the point that you're making, that's why Spencer has been appointed on that interim basis.
Thanks, Jenny. So, before we go into the—
Sorry, Chair. Chair, may I just ask a question on that? I have been waving my arms around.
Sorry, I didn't realise that you were trying to get my attention. Sorry, Angela.
I just wanted to clarify one issue, because to be frank I think that losing three out of a team of seven is quite a substantial number. I wanted to understand who has responsibility for succession planning. Would it be yourselves as the major stakeholder—or the stakeholder—or would it be the executive team?
Shall I take that question, Andrew? The Holdco has responsibility for appointing the chair. All of the other appointments are appointments of the airport. You might be aware that we ran the process to appoint the chair back in the autumn of last year. Perhaps we can talk in—. Sorry, I'm like a broken record: perhaps we could just talk in the private session about why there was a gap between that process and Wayne Harvey being appointed. That's the piece that's with Government. The other succession planning stuff sits with the airport, and that is part of what the chair really is charged with doing, in terms of identifying how the succession planning takes place.
I have to say I think it's a real hole, though, because if this was a publicly listed company and you lost the three top members of the executive board in one fell swoop, there would be all sorts of concerns raised. So, it might be something that would behove the holding company to ensure that succession planning is really given priority and effectively planned. The chair may have known he was gone, but he obviously had the responsibility for ensuring that the other two were replaced quickly. As Jenny says, we've been unfortunately caught out with the pandemic, but even without the pandemic, it's not easy to replace three key people very quickly.
Simon, are there—? Along the lines that Angela Burns just asked her question on, are there concerns about that and the scale of the losses to the team and the delays with the replacement?
We had a number of these conversations with the airport team over the last year, because this succession planning piece has—. It's an excellent point that Angela Burns makes, and it's something that we are well aware of. There were extenuating circumstances for each of the three. Contracts were coming towards an end for both the chair and the chief exec, and Roger Lewis was able to stay on for an additional six months or so in order to be able to bridge the gap between the end of his contract and Wayne Harvey starting. And, as Andrew said, we were grateful to Roger for doing that. Because of the delay in appointing Wayne Harvey as the chair, I think that exposed the issue of the fact that Bowen Rees's contract came to an end in a similar time frame. I think that is a lesson that has been learnt, and it is one that we have discussed with the airport to make sure that the chair and chief exec don't depart within the same sort of time window.
In terms of the finance director, he identified another role that he wanted to go for and he applied for it, and he was successful in that process. I don't think we can prevent people from applying and being successful in applying for other roles. So, it was unfortunate that Huw had identified a role with the Royal Mint that I think he felt was a step up in terms of his career. But the other two—. I think there are lessons to learn for us about how we separate better the appointment of chairs and chief execs.
Thanks. And finally from me, before we go into the private session, on a totally different issue, although still transportation, as we've got you here, Transport for Wales: I wonder if you could say anything about the new delivery model for Transport for Wales and any related financial consequences for the Welsh Government.
Shall I take that one?
Yes. All I was going to say just in response to that, but you're the undoubted expert on this, is that, obviously, from February next year, we'll have a new publicly owned subsidiary of TfW managing the rail side of business. But the financial consequences, which I think was the second point of your question, Chair, whatever the model of delivery is, I think it's fair to say, Simon, isn't it, are going to be dwarfed by the impacts of COVID in terms of knock-ons for public transport generally over this period and the recovery. But that was all I was going to say by way of overview.
Yes, that's the main issue. There is a marginal potential for savings in the way that we're running it now, because there won't be a profit charged by the operator in the same way as there would have been in the long term in the other arrangement. But that's, frankly, inconsequential compared with the loss of passenger revenue. So, just by way of example, the Wales and borders franchise receives, in very, very round terms, about 50 per cent of its operating costs through subsidy. The other 50 per cent of the costs was covered by passenger revenue. At the worst of the pandemic, we saw passenger revenues drop to about 5 per cent or 10 per cent of what they were pre pandemic. They're bumping along now at around 30-ish per cent of pre-pandemic passenger numbers. So, passenger numbers are pretty much roughly equivalent to revenue, so we've got a huge gap—so, a 70 per cent reduction in the revenue that we were expecting from passenger revenue for most of this year. So, that's a figure of perhaps £100 million that we're short of this year, perhaps slightly more. That completely dwarfs any difference in operating costs between the two regimes.
The challenge for us here, as we were talking about earlier on in the session in the context of aviation, is that we don't know when public appetite to travel by public transport will return, and to what levels. And to make matters even more complicated, capacity is currently constrained by social distancing, which reduces effective capacity to about 50 per cent of normal levels. So, for as long as we have social distancing in place, we can't expect revenues to return to more than 50 per cent of what they were at pre-pandemic levels, even if the demand is there.
I suppose you only have to look at us here today doing this Zoom meeting to show that people have got used to working from home, and, if that continues, then there might not be the uptake of public transport that we've had over the last few years.
Yes. Wales's passenger numbers aren't completely dominated by commuting—in the south-east, that's certainly a big part of it, but not everywhere; we've got a mix of uses. So, remote working will have an impact on some of the lines, but not all of the lines, and, of course, not everybody can work remotely anyway. So, the remote working will have an impact on it, but, as you say, there are other factors here, and I think the public's appetite to travel by public transport will be high up amongst that.
Great. Okay. With that—obviously, you're going to remain with us now for some of the private session, so thanks for that.
bod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod yn unol â Rheol Sefydlog 17.42(iv).
that the committee resolves to exclude the public from the remainder of the meeting in accordance with Standing Order 17.42(iv).
Cynigiwyd y cynnig.
I move Standing Order 17.42 to exclude the public from the meeting for item 4. Great.
Derbyniwyd y cynnig.
Daeth rhan gyhoeddus y cyfarfod i ben am 11:01.
The public part of the meeting ended at 11:01.