CIT0043

Written evidence submitted by the Airport Operators Association

 

The Transport Committee Inquiry on COVID-19

 

Introduction

 

  1. This response is submitted on behalf of the Airport Operators Association (AOA), the trade association representing the interests of more than 50 UK airports. The AOA is the principal body the UK Government, Parliamentarians and regulatory authorities consult with on airport and related aviation issues.

 

  1. The AOA welcomes the opportunity to respond to this inquiry on COVID-19 as airports are now beginning to look to the medium-term future and can see that the aviation sector will not recover quickly. Instead, aviation analysts expect a very long road to recovery. Even if UK restrictions are lifted before the summer, the aviation recovery will largely depend on the return of consumer confidence and the lifting of international travel restrictions and border closures, both of which are expected to take some time. Airports are not expecting to return to pre-COVID-19 levels of operation until 2021 or even 2023 in a worst-case scenario.

 

      What has been the immediate impact of Covid-19 on the aviation sector?

 

  1. The aviation sector has been at the forefront of the COVID-19 pandemic long before other UK sectors felt the impacts. Aviation was already being affected by travel restrictions and passengers voluntarily choosing not to travel - indeed, it contributed to the collapse of Flybe. With many countries around the world instituting travel bans and closing borders, demand for aviation has plummeted and airport traffic is flatlining at near-zero or even zero passengers at some airports.

 

  1. The UK’s airports are critical national infrastructure, fulfilling a vital public service, which have successfully navigated financial crises previously, but never a complete decline or sustained halt to air traffic. Airports took immediate and drastic action to cut costs, including reductions in rostered working hours, temporary pay cuts, asking staff to take unpaid leave and laying off staff.

 

  1. Yet for the UK economy it is vital that airports remain open. Airports are continuing to see repatriation flights, provide lifeline services to Highlands & Islands communities and the UK Crown Dependencies and freight services to ensure vital supplies (including medical supplies) arrive in the UK, amongst many other critical services such as being the operating bases for air ambulances, the National Police Air Service and HM Coastguard, supporting Royal Mail, and facilitating maintenance and crew changes for the offshore oil, gas and wind industries. Closing airports thus has a major impact on communities and whole sectors of the UK economy, including other critical national infrastructure such as energy supplies.

 

  1. With no specific package for the aviation industry and having been told to rely upon existing support measures that the Government introduced for the general business wide sector, airports have found the packages useful but not well targeted to help our members:

 

Job Retention Scheme (JRS):

 

  1. The AOA welcomed the extending of JRS until the end of June. However, the scheme’s inflexibility – for example allowing for “training” but not “work” - creates a problem for staff such as Air Traffic Control (ATC), Rescue Fire Fighting Services (RFFS) and security who require both training and currency. Currency is where a certain number of hours need to be worked in order for regulatory compliance to be maintained. If this is not maintained, then partial or full re-training will be necessary. There are concerns about how this retraining will be managed, if staff from all UK airports have to go through the same, limited provision of such training when travel restarts following the pandemic receding sufficiently. Moreover, with the expected slow recovery in aviation, a more flexible use of the JRS (e.g. allowing part-time furloughing) could protect jobs in the medium term while consumer confidence returns.

 

Extending VAT:

 

  1. This is helpful but airports have asked for deferral of other taxes, such as corporation tax, PAYE, and other relevant taxes in order to preserve cash.

 

  1. Time to Pay: For all 50 AOA members to have case-by-case decisions on Time to Pay via HMRC is unfeasible in the timescale required.

 

Liquidity Support:

 

  1. Following representations by the AOA and other business groups, the extending of the eligibility for the Coronavirus Large Business Interruption Loan Scheme (CLBILS) and having the Bank of England’s Covid-19 Commercial Financing Facility will be useful to some airports. However, the borrowing limits and criteria requested by banks may act as a deterrent. For example, our understanding is that the loans have to be brought in pari passu with existing debt, which can be difficult in the airport context where a range of different credit is in place with lenders and bondholders to invest in the improvement of airport infrastructure. Moreover, airports also have to deal with fixed costs mandated by Government, which would mean liquidity that comes in is instantly going out to meet such costs, for example business rates.

 

Business Rates relief for Retail, Hospitality and Leisure:

 

  1. Relief from business rates is the top priority for airports. The Scottish Government has already provided 100% rate relief to airports and ground handling agents as part of its version of the business rate relief for retail, hospitality and leisure industries. In Northern Ireland, the Executive has given all businesses a three-months rates holiday. Such action would provide an immediate boost to the cash position; would not discriminate between airports (nor distort competition); and would be simple and quick to administer. Failure to act, given the position taken by Scottish and Northern Irish governments will lead to a potential market distortion for airports within the UK.

 

UK Guarantees Scheme (administered by IPA):

 

  1. In his letter to industry of 24 March 2020, the Chancellor suggested airports can also discuss forthcoming debt financing needs with the above scheme. However, the online description of the scheme reads as follows: The UK Guarantees Scheme (UKGS) supports private investment in UK infrastructure projects. It works by offering a government-backed guarantee to help infrastructure projects access debt finance where they have been unable to raise finance in the financial markets.

 

  1. UKGS is only available to ‘nationally significant’ infrastructure projects. Infrastructure is defined as any of the following:

 

  1. The IPA will also consider whether:

 

  1. Given the strong focus in the criteria on “projects” – it is unlikely that many airports will be eligible for UKGS, which anecdotal evidence from our members supports.

 

Regulatory Alleviation:

 

  1. Industry has broadly received a positive response from DfT and Civil Aviation Authority (CAA) on regulatory alleviations and deferral of upcoming deadlines that have cost implications for airports, such as:

 

  1. DfT announcements so far have been welcomed for the above but given the uncertainty around how quickly travel restrictions can be lifted and the economy get back on track, it will be necessary to consider further movement. For example, the vital airspace modernisation project will require a rethink. Airports and NATS are responsible for the upgrading of UK airspace to ensure we do not fall behind other parts of the world. This will benefit communities by enabling the introduction of respite, or “planned breaks”, from aircraft noise and reduce aviation’s emissions by creating more direct routes and improving arrivals and departures. However, with airports cutting back on all investment costs, it will be challenging to maintain the current delivery timetable. There is a role for Government to part-fund modernisation now, to ensure aviation recovers in a way that reduces emissions and noise, rather than delaying implementation until airports are in a position to fund this again.

 

 

What will the likely long-term impacts of Covid-19 be on the aviation sector, and what support is needed to deal with those?

 

  1. European airports association ACI EUROPE’s figures are suggesting that overall passenger numbers could be down by 35% across Europe over 2020, IATA put it at 38% for the UK but some in the industry estimates are as high as 50% year-on-year drop – and these forecasts are worsening the longer the pandemic lasts.  

 

    1. Airlines are taking action already on the predicted lower passenger demand: Norwegian is keeping most of its fleet grounded until 2021, Lufthansa and KLM have retired a proportion of their fleet, and IAG has raised this as well for British Airways, alongside their recent announcement laying off 12,000 staff.
    2. Airbus announced a cut in production by a third.
    3. This is much worse than the financial crisis: as ACI said in their statement “it took Europe’s airports 12 months in 2009 to lose 100 million passengers. With COVID-19, it just took 31 days – the month of March”.  

 

  1. There is a real concern in the industry about a disjointed emergence from the global lockdown – we need a coordinated approach to lifting travel restrictions and the introduction of health measures, certainly in Europe. There will be nothing worse for consumer confidence than confusion about how they can travel. DfT has set up a unit to look at recovery, and a crucial part of this will be aligning with other countries. For example, the European Commission is beginning to look at the need to coordinate the lifting of travel restrictions and what health measures may be needed on a Europe-wide basis to limit the risk of further spreading of the virus and to boost consumer confidence, while being meaningful measures that do not create unnecessary barriers to travel. We need the UK as Europe’s largest aviation market to actively engage with that and help drive the need for appropriate action.

 

  1. AOA welcomes the DfT moves to establish the “Restart, Recovery and Engagement Unit”, and looks forward to assisting with this project. The AOA has been talking extensively with the department and has made the following proposals to them:

 

    1. To establish a high-level industry/Government panel to drive the work and allocate workstreams. This will help avoid duplication of effort (a number of trade bodies at EU and International levels are undertaking projects which will be relevant to the work). In addition, this will ensure the right people are involved in this work.
    2. To ensure that all parts of the sector are included as appropriate – particularly on restart issues, we will need to plan for circumstances where a particular part of the supply chain may not be ready (or indeed may no longer exist).
    3. To help facilitate discussion the AOA has sent a proposal on health measures. These standards draw on the valuable work of ACI Europe and are the absolute priority for the AOA and UK airports. The AOA believes any proposed measures should be judged against the following six principles, developed by our European sister organisation, ACI EUROPE:

 

 

  1. There also needs to be a joined-up approach between various departments when it comes to communicating with the industry. For example, the FCO advised against all non-essential travel abroad “indefinitely” was unhelpful language and it was unhelpfully communicated to the public. The aviation industry was not told of this beforehand and it would have been helpful to gauge its views on how best to prevent further cancellations of travel, which in the event did occur. There has also been the recent example of Departments publicly speculating on the 14-day quarantining of inbound passengers. The continuing speculation on future public health measures the UK Government might adopt has not been helpful in building the confidence of the consumer in travel nor that of our shareholders as we approach the economic restart and we seek to reassure them a coordinated, strategic approach is taken to health measures.

 

Conclusion:

 

  1. With the UK’s ambition to become a global actor after we have left the EU, aviation will be more important than ever to realising the Government’s long-term goals. Equally, the UK’s communities and visitors will see their fortunes restored more rapidly, if aviation can quickly recover from the current pandemic. The UK Government has an opportunity to make both those things possible, if it acts decisively now.

 

May 2020

 

 

ANNEX: Examples of countries taking action to help their aviation industry:

 

    1. In the US:
      1. Airlines have access to US$58 billion, split evenly between loans and payroll grants
      2. President Trump outlined $10 billion in support for US airports, including $100m for general aviation (GA) airports. This can be used by airports for any purpose ‘on which airport revenue may lawfully be spent’.
    2. In Australia, AU$715 million relief package for Australian aviation industry, involving the refunding and ongoing waiving of a range of government charges on the industry including aviation fuel excise, air services charges on domestic airline operations and domestic and regional aviation security charges. There will be an upfront estimated benefit of AU$159 million to Australian airlines for reimbursement of applicable charges paid by domestic airlines since 1 February 2020.
    3. In Norway:
      1. The Government is fully compensating airports for the loss of airport charges
      2. The Government has suspended the air passenger tax (equivalent to UK Air Passenger Duty) until 13 October
      3. A domestic airline receives NOK40 million (£3.1 million) per month to maintain critical routes until further notice
      4. The state offers loan guarantees of NOK6 billion (£472 million) to airlines registered in Norway
    4. In Spain, a credit line of up to €400 million for the travel sector, granted by the state-owned Credit Corporation
    5. In France, the Government has set out €700 million of tax aid to airline sector and directly supported Air France-KLM, in coordination with the Netherlands.
    6. In Denmark & Sweden:
      1. Joint state-backed credit guarantees worth a total of SEK3 billion (£243 million) to enable airline SAS to borrow money on the commercial market.
      2. In Sweden, Swedish airlines are offered credit guarantees worth a maximum of SEK5 billion (£415 million), of which SEK1.5bn is for SAS
      3. In Denmark, DKK1.5 billion (£184 million) to cover travel cancelled due to COVID-19
    7. In Finland, the government has agreed to provide a state guarantee of €600 million to assist the national carrier.