The flip-side to Wellington council’s airport share sale flop

Tuesday, 3 December 2024

The city owns 34% of Wellington Airport, but the airport’s assets are much more than a runway.

Simon Arcus is Wellington Chamber of Commerce chief executive.

OPINION: Wellington City Council’s airport share debacle may be the best financial mistake the city ever made.

Wellington City Council’s long-term plan came to grief due to the failure to resolve significant differences over the minority holding of airport shares. That decision put the city budget into jeopardy if not the future of the council itself.

But could the failure to divest the shares be the best financial mistake the council ever made? If Sir Peter Jackson builds a world class attraction not far from the airport the current holding will be worth far in excess of its value today.

The city owns 34% of Wellington Airport. But the airport’s assets are much more than a runway. It owns large tracts of land, including the Rongotai shopping precinct. The airport’s land investments have a total book value of over $600 million, with around $200m off the airport site itself.

Uncontradicted reports suggest that Sir Peter, or associates, have been acquiring tranches of land for a very large property at a site in Lyall Bay. It is suggested an attraction might be built there and we know Sir Peter is unlikely to settle for anything less than world class.

Wellington Airport first opened its doors to thousands of spectators for the Grand Opening in 1959.

Imagine what this would do for the area. New hotels, hospitality and retail could be located right on Wellington Airport’s door. The value of the land could rise significantly. If this occurred the airport would be a beneficiary and the council’s investment could be a golden goose.

Wellington Airport has also just announced a $500m investment plan, with runway upgrades and new technology meaning direct flights to Asia may only be a few years away.

The Wellington Chamber of Commerce has long been in favour of selling the airport holding based on a number of principles, high among them the value of diversified investment. But principles need to be consistent with all strategic considerations.

The chamber is particularly wary of the sudden and breathless urgency about a crisis in insurance cover requiring the sale. The council’s apparent $2.6 billion insurance shortfall was quickly revised down to $1.8b, and the latest figures from November show damage cover premiums increased just 6% this year.

This is a council that was entirely comfortable taking the cost of cycleways from $100m to $350m and the premiums are certain to be a red herring next to this kind of cost.

In the long run, Wellingtonians may benefit from council dysfunction as the airport precinct continues to grow, says Simon Arcus.

A council facing an insurance crisis is different from an average citizen, yet a cynic might observe this alleged insurance crisis has tapped into public concerns about their personal insurance costs.

The chamber considers the last word could come from the auditor-general. In a 2013 report, the Office of the Auditor-General (OAG) observed that having uninsured assets is not necessarily cause for concern because public entities can mitigate their risks in other ways. For example the1991 Disaster Recovery Plan states that central government will pay up to 60% of restoration costs for water and sewerage services after a catastrophe.

In fact, the OAG concluded that a public entity is unlikely to have enough insurance cover to replace its assets anyway and will be required to pay the excess.

Expediently manufactured insurance crises, suspicions over vested interests and legitimate debt ceiling concerns have torpedoed the airport share sale process, and triggered a contentious amendment to the city’s long-term plan.

And yet, in the long run, Wellingtonians may benefit from council dysfunction, as the airport precinct continues to grow. Should that come to pass, we welcome more of these kind of errors.