Should council sell off its ownership of Luton Airport company? Auditors say 'all options' should be considered

Auditors have told Luton Borough Council it must consider its ownership of Luton Airport - including selling it if necessary

Wednesday, 9th June 2021, 2:16 pm
Luton Airport
Luton Airport

External auditors are asking Luton Borough Council to weigh up all options over the financial arrangements with its airport company.

Senior management in the council have been trying to allay fears over the future prosperity of London Luton Airport Limited (LLAL).

It has suffered significantly reduced income because of the impact of the pandemic on the aviation industry.

Selling off its ownership rights may be unnecessary, but such is the financial administration backlog that the council's annual audits for 2018/19 and 2019/20 are still to be concluded.

The council's external auditors Ernst and Young have been seeking reassurances and making demands over information needing to be considered by the end of this month.

The company wants LBC to complete "a comprehensive assessment on the options and alternatives to its ownership of the airport" and assess its current market valuation, as part of the overall review.

The LLAL board is unable to make dividend payments for 2020/21 or 2021/22, and has developed a financial stabilisation plan.

LLAL owes the council in the region of £400m, according to the town's Liberal Democrats, with a further £83m loan proposed last summer.

Neil Harris, from Ernst and Young, told an audit and governance committee meeting: "We've remaining questions and in some areas concerns about risks of significant weaknesses associated with the council's ongoing financial sustainability and the exposure it has to LLAL's position around stabilisation.

"You'll be aware we've not yet issued our opinion on both the 2018/19 and 2019/20 financial statements," he explained.

"This is largely because we're waiting for information, disclosures and going concern associated with LLAL, and also judgments connected to the capitalisation of airport expansion schemes.

"The key themes we've been discussing with the council's senior management, and our own perspective on the actions which need to be taken at this stage, are a review of options associated with (airport company) ownership.

"This is in terms of any future decisions taken around the stabilisation of LLAL and the commitments LBC might be asked to take around borrowing and future financial commitments.

"The review looks at all of the options open to the council around the current interests it has in LLAL.

"The second area is whether an impairment review should be undertaken around the recoverability of the debenture loans issued by the council to LLAL, given its current position, and how recoverable those are.

"And then how sufficiently certain future airport expansion schemes are, particularly thinking of the development consent order (DCO) application and also the Century Park access road scheme," he said.

"There are obviously ongoing projects associated with Luton DART (direct air-rail transit) where we're keen to understand the total financial commitment which LLAL may have to the current project and what that might mean for the council.

"And it's important the council gets a clear updated position on the market valuation of the airport to inform a choice associated with the decisions it takes.

"The council has been proactively responding to our concerns and intends taking a report to its scrutiny finance review group and its executive by the end of this month.

"LBC will set out a proposed decision associated with the LLAL stabilisation plan."

The council's senior director finance, revenues and benefits Dev Gopal said: "Everything is being done to satisfy the auditors and to make sure the audit committee can scrutinise and is content with what we're doing, and has the information to inform that decision."