Council's £60m loan to Luton Airport company set for approval 'in private'

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A £60m loan by Luton Borough Council to its airport company is set for approval, in private, by the executive later this month.

The first of two emergency loans - together totalling £83m - has gained the support of the local authority’s scrutiny finance review group, at the second attempt.

The second loan worth £23m to London Luton Airport Limited (LLAL) is scheduled for the 2021/22 financial year, after the council’s emergency budget in July.

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The ruling Labour group on the council was outmanoeuvred by the Liberal Democrat opposition when it first asked the review group to consider the loan on August 6.

The council is "almost certain" to hand a £60m loan to its airport companyThe council is "almost certain" to hand a £60m loan to its airport company
The council is "almost certain" to hand a £60m loan to its airport company

Two Labour councillors serving as directors of LLAL, Amy Nicholls and Tahmina Saleem, had to leave the meeting along with Conservative group leader John Young, who chairs the review group.

This allowed the Liberal Democrats to win a vote to discuss the loan report in public.

But officers asked for the council to take legal advice and defer the issue.

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At the rearranged meeting on Thursday (August 27), councillor Young voluntarily stepped aside, while councillors Nicholls and Saleem were notably absent - with their Labour replacements entitled to vote.

This means that the five Labour councillors are likely to have recommended the council's executive approve the £60m loan deal, with the three Liberal Democrats in opposition.

The executive will formally decide upon the loan at its meeting on Monday, September 14.

The Liberal Democrats said before the meeting: “The latest briefing issued by the council repeats the deliberately misleading claim that all the loans it makes to its airport company are secured.

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“In fact, the almost £400m in loans are secured against the assets of the company.

“But, the council already owns all of LLAL’s assets by virtue of its 100 per cent ownership of the company.

“It follows that for all practical and accounting purposes the £400m loans are unsecured.”

LLAL provided £29m to the council last year and £9.9m to charities and community groups locally.

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But the pandemic severely disrupted the aviation industry, “which has led to a dramatic fall in LLAL’s income”, according to the council website.

“LLAL requires a loan to ensure it can continue to provide vital funding to the town, in the short-term, while the aviation sector recovers,” it said.

“The council is proposing to borrow £60m and then lend it to LLAL, as it can borrow money at a cheaper rate of interest than LLAL.

“LLAL will repay interest on the loan to the council at a higher rate than the amount the local authority borrows it at.

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“As a result, the council gets interest payments (£16m in 2019/20) from LLAL, which it can use to fund local services.

“Without this loan, LLAL could become insolvent and cease trading,” the council added.

“At worst, the council could lose control of the airport, and the benefit of the income it generates altogether.”

LLAL would pay back the full amount at the end of the loan period.

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“It’s the intention that once the loan has been arranged it will be secured through a fee that becomes a fixed charge on LLAL’s capital assets,” explained the council.

“LLAL owns London Luton Airport, land around the airport including the business park, Century Park, Stirling Place and the Luton DART.

“The value of these assets exceed LLAL’s borrowing.

“LLAL has reserves, but these have been used to cover its huge drop in income this year.”