Local airports fight sell-off: Mary Braid on the Government's 'carrot and stick' policy on privatisation

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WHEN the first commercial passengers arrived at Manchester airport in 1938, it amounted to little more than a short runway, a couple of aircraft hangars and a lot of grass. Last year the former RAF base boasted 10 million passengers, a turnover of pounds 140m and an annual net profit of pounds 20m.

The 10 local authorities that own Manchester claim the credit for the development of a two-bit airfield into a big international airport. Their early investment is rewarded today by a share in millions of pounds of annual dividends. But if the Government has its way Manchester council and 47 other local authorities will have to sell 25 regional airports. The 15 largest airports, run by independent companies in which councils own all the shares, are being targeted first.

Stephen Norris, the Transport Minister, explains government policy as 'carrot and stick'; the carrot being the Chancellor's concession, granted last September, allowing councils to spend 100 per cent of capital receipts if they sell by the end of the year, and the stick, the decision to stop airports borrowing to finance expansion.

Today, Michael Nott, aviation partner of the lawyers Rowe and Maw, will urge councils to act now. Councils will be allowed to pocket only half of the money from deals struck after the deadline.

At a meeting organised by the lawyers for airport managements, venture capitalists, government officials and potential buyers, such as Regional Airports Ltd, Mr Nott will also urge the Chancellor to extend the concession period because deals will be hard to complete before the end of the year.

The determination of both Conservative and Labour councils to hold on to their airports may surprise the conference. For while the Government insists privatisation will increase profits and improve efficiency, the moves have angered councils that are reluctant vendors. Only East Midlands airport, in which Labour-controlled Derbyshire and Nottinghamshire councils are the majority shareholders, seems near a sale. They say they have been driven to market by budgetary pressures.

Graham Stringer, leader of Manchester council, which has a 55 per cent share in Manchester airport, said the council had no intention of selling.

'The Government's view is based on the loony notion that anything in the public sector is a drain while the private sector brings growth. We would be silly to give up control now. The dividends will support council tax levels. Manchester is a success because local councils took a long-term view of investment. If the private sector had been in control from 1938 it would never have developed.'

Manchester plans to fund future development with its own profits. After opening a second terminal last month, it is planning to self-finance a second runway following Mr Norris's announcement in January that there would be no more government grants.

Britain's premier regional airport may be able to ride it out but smaller airports have less room for manoeuvre. According to Mr Nott, many will soon find themselves starved of investment from hard-up councils. Better to act now, he insists, while there is the financial incentive.

But even among less profitable airports resistance is high, making legislation to force sales a possibility. Jeremy Beecham, leader of Newcastle council, accuses the Government of having a 'a damn cheek' in trying to impose sales of successful airports 'for ideological reasons'. He is adamant the airport will remain in council hands.

Airports such as Norwich have commissioned feasibility studies that have come out against selling, at least for now. Its owners, Labour-controlled Norwich and Conservative- controlled Norfolk councils, are keeping the airport because it is 'a vital regional asset' and a sale now would fetch a poor price.

At East Midlands airport, which made pounds 5m profit last year, KPMG, the consultancy firm, has been contracted to look for buyers. British Airways, Lockheed and GEC have been mentioned as potential customers.

Peter Burgess, vice-chairman of East Midlands airport board and a Nottinghamshire councillor, said: 'Some members think that if this is the way things are going it would be best to get into the marketplace first.'

But David Wilcox, a Derbyshire councillor and chairman of the East Midlands board, is still angry at the prospect of lost dividends. He believes a private owner, unlike a local authority, will see the airport in strict profit-and-loss terms. It will ignore its role in regional development. 'East Midlands was our concept from start to finish. The private sector was not interested in taking the risks we took to bring work to the area.'

Mr Wilcox believes the Government was surprised that regional airports survived - and even thrived - after the 1986 Airports Act, which forced councils to create airport companies from what had been council committees. 'Now they are having to introduce all sorts of other constraints to force us to sell.'

Conservative councils have no philosophical objection to privatisation but argue the Government is forcing them to sell cheaply. Ernest Battey, spokesman for Conservative councils on the Joint Airports Committee of Local Authorities said the Government should recognise 'wholesale privatisation' of airports has proved a disaster in the US.

Mr Battey, chairman of the Bournemouth airport board, said: 'Selling should be a local community decision. Socio-economic benefits need to set against profits and losses.'

Mr Nott, former legal adviser to BAA, claims most airport managers would like to be freed of local authority owners.

But at least one airport manager argues that the Government is obsessed with ownership and should switch attention to investment. 'Who owns the airport makes no difference to the way we operate. The Government's real failure is its refusal to invest in transport.'

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