The Tribune

• Govts latest buy lost over $13m in 2.5 years

• Hutchison/GBPA liability switched to taxpayer

• All seven PPP airports suffer operating losses

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A $200m investment is required for the “comprehensive redevelopment” of a Grand Bahama International Airport (GBIA) that lost more than $13m in the two-and-a-half years before the government acquired it.

The extent of the potential liabilities facing Bahamian taxpayers as a result of that purchase, which closed as recently as June 1, was fully exposed during yesterday’s briefing for private sector groups interested in bidding on public-private partnerships (PPPs) to redevelop, finance and manage Grand Bahama’s major aviation gateway and six other Family Island airports.

Data disclosed during the briefing reveals that Grand Bahama International Airport generated an operating profit in just one of the five years prior to the sale to the government, providing further insight into why its former owners - Hutchison Whampoa and the Grand Bahama Port Authority’s (GBPA) Port Group Ltd - were both so reluctant to rebuild it post-Dorian and so eager to offload a regular loss-maker to the taxpayer.

The financials, based on audited and unaudited financial statements for Grand Bahama Airport Company, reveal that it suffered an operating loss (based on earnings before interest, taxation, depreciation and amortisation or EBITDA) of $5.567m during the 2019 calendar year.

Some $9.608m in revenues were dwarfed by $15.1276m in total operating expenses, of which $3.69m related to staff costs and $11.486m to non-labour expenses. Those figures likely resulted from the catastrophic damage that Hurricane Dorian inflicted on Grand Bahama International Airport, and its closure to income-generating commercial and private aviation traffic for several months.

And the COVID-19 pandemic, with the closure of international and domestic aviation traffic for a significant portion of last year, was probably the major contributing factor that plunged Grand Bahama Airport Company into a further $6.663m operating loss for 2020.

Total revenues, both aeronautical and non-aeronautical, dropped by almost two-thirds year-over-year to $3.046m, while total operating expenses were down by more than one-third at $9.708m. However, the ‘red ink’ continued to mount with a further $1.105m worth of operating losses during the first four months of 2021 to end-April.

As a result, Grand Bahama International Airport has collectively generated some $13.3m worth of operating losses in the near two-and-a-half years immediately prior to its acquisition by the Government, and further multi-million dollar taxpayer subsidies may well be required to ensure the facility remains a “going concern” until a private sector developer is found to take over all responsibilities.

The Government, in defence of its position, will likely argue it had no choice but to take over the airport given that Hutchison and the GBPA had signalled early on that they had no intention of investing the significant sums necessary to rebuild an aviation gateway that is vital to Freeport’s survival as a city and economy.

While the Government has sought to place much of the focus on the $1 purchase price, many observers believe that Hutchison and the GBPA have effectively been allowed to abandon their developmental obligations to Freeport under the Hawksbill Creek Agreement by offloading a loss-making asset on to taxpayers while retaining all the profitable ones.

The Government also agreed to “reimburse” Hutchison Whampoa for half the costs it incurred in paying due severance and other benefits to the airport’s 60-70 staff, a sum subsequently pegged at $1m. And there have been suggestions that the airport’s Dorian insurance claim payout may have been as high as $25m, a sum that the former owners have been allowed to keep rather than invest in the rebuilding.

One Grand Bahama business community source, speaking on condition of anonymity, said of yesterday’s data revelations: “I’m flabbergasted. Where’s the investor going to come from for an airport that lost you millions?

“The Government sold the public on getting that airport for $1. It’s a damned disgrace. It’s an awful, awful story. The Government seemed to have swallowed the Port Authority’s argument that they don’t have responsibility for the airport, and they’ve [the Port] been required to give up nothing. They got that money and they ran, but they still kept the harbour and all the land.”

Jim Lew, managing director of LeighFisher, the consultants hired by the Government to structure the PPP and advise on aviation industry reform, yesterday urged potential bidders to focus on the future and “upside value” that can be unlocked by outsourcing Grand Bahama International Airport’s management and redevelopment to the private sector.

Acknowledging the massive damage inflicted by Hurricane Dorian, and that all repairs to-date are only temporary, Mr Lew said “significant investment” is required by the successful bidder on both “the ground side and the air side” to not only rebuild Grand Bahama International Airport but make it sufficiently resilient to withstand future natural disasters.

He added that “around $200m” is needed to “replace the facilities and ground infrastructure to capture the growth sorely needed at this site”. This was reiterated in the accompanying project information memorandum, which added: “The airport suffered extensive damage during Hurricane Dorian in 2019.

“An FBO (fixed base operation) building was repurposed as a temporary terminal. A comprehensive site-wide redevelopment solution (around $200m) is required to replace damaged facilities, unlock commercial potential, and operate the airport as a profit centre.”

The $200m figure is far in excess of the $50-$60m that Dionisio D’Aguilar, minister of tourism and aviation, previously estimated would be required to transform Grand Bahama International Airport into what is required. And the memorandum made clear that the $200m is for capital expenditure only, and does not include what will have to be spent in furniture, fixtures and equipment (FF&E).

Elsewhere, Mr Lew said further post-Dorian improvements worth around $10m are required at Marsh Harbour’s Leonard M. Thompson International Airport from a successful bidder. That airport generated positive EBITDA or operating income of $885,000 and $663,400 for the 2018 and 2019 fiscal years, respectively, which run from July 1 to June 30.

However, post-Dorian, that airport has sustained operating losses of $477,500 and $446,500 for the 2019-2020 and 2020-2021 fiscal years. Meanwhile, the LeighFisher chief added that Exuma International Airport’s $65m upgrade - which has already started under the Government - is due to be completed in the 2023 third quarter.

The financing to kickstart construction has come from an Inter-American Development Bank (IDB) loan, and Mr Lew said the burden of repayment would have to be assumed by the successful PPP bidder. “An operations solution is required to optimize site-wide functionality, unlock commercial potential, and operate the airport as a profit centre,” the PPP memorandum said.

Exuma’s airport generated an operating profit of $186,500 in the fiscal year immediately prior to COVID-19, but subsequently suffered losses of $208,300 for 2019-2020 and $314,100 for 2020-2021 to-date, which covers the period to March/April this year.

As for North Eleuthera’s $65m transformation, Mr Lew added: “This facility no longer meets demand. Its traffic growth is constrained through acute congestion. There is not enough tarmac space for parking.... Exuma can be used as a model. There is significant upside at this site, and the opportunity is to enter into a long-term agreement to take command of the airport and drive that growth as well.”

North Eleuthera, too, has suffered low-six figure operating losses since the start of the COVID-19 pandemic. Two other Family Island airports included in the PPP package, Deadman’s Cay in Long Island and Great Harbour Cay in the Berry Islands, projects which have been pegged at $18m and $15m, respectively, currently only cater to domestic and private aviation flights.

Mr Lew described the final airport, San Salvador, as “like some of its sister island airports, the airport facility no longer meets demand. Traffic growth is constrained by the capacity of the infrastructure... The asset is insufficient to service the demand”.

A $10m investment was cited for San Salvador, which was sustaining significant operating losses prior to COVID-19. Operating losses of $405,700 and $406,600 were incurred during the 2017-2018 and 2018-2019 fiscal years, and this morphed into $649,400 for 2019-2020 and $454,900 for 2020-2021 to-date.

Currently, none of the airports included in the PPP are generating an operating profit for the Government.