Follow us

Teesside Airport:


Bad Governance


and Plan B




  Part 2: The Ten-year Turnaround Plan and Plan B

Scott Hunter

6 April 2024


Start with Houchen’s demonology of Labour. Infantile, but highly effective. And it has delivered him not just support but adulation from a grateful electorate through two terms of office. So, “I saved our airport when Labour wanted to shut it down” is currently being polished for its third election campaign:

In each of his election campaigns and at appropriate moments in between, Houchen has made it abundantly clear what the saved the airport from; that was the threat of closure in 2021. What is much less clear is what he’s saving it for. Time for a closer look at the ten-year turnaround plan that he announced in 2019 when the airport was brought back into public ownership. Because there are some key elements of that plan that did not attract much, if any, scrutiny at the time, and have become obscured by subsequent events. As you might expect, there is some divergence between Houchen’s bullish rhetoric and reality.



 

The background to the ten-year turnaround plan for the airport


In 2014, the airport’s then owners, Peel Holdings, struggling to stem the tide of losses at the airport, produced a masterplan. Losses at that time were running at £2 – 3 million a year  (as reported to Parliament) and they hoped that the masterplan would persuade investors to back them. Two elements of that plan are of interest in relation to what followed after Houchen was elected mayor. One is that it envisioned the cautious expansion of aviation, mainly domestic to tap into the market for business travel. The second was the development of the large tract of greenfield land on the south side of the runway into a business park. The hoped-for investment never materialized, and the plan gathered dust until 2018 when the TVCA reexamined it.


The TVCA business case for acquiring the airport recognized that in order to become commercially viable the estate needed to be redeveloped at the same time as increasing aviation traffic, and so copied Peel’s business park plan with some small, but significant modifications.


The major divergence from Peel’s masterplan, however, pertained to aviation. Where Peel were looking cautiously at extending the number of domestic destinations, the TVCA plan was to develop international flights, principally using low cost carriers, like Ryanair as well as increasing flights to UK destinations.


The business plan envisaged the airport turning a profit in ten years, and it was this that was presented to local councils for ratification (and it had to be ratified by local councils because they had retained an 11% combined shareholding in the airport company).



The Business Plan …


The plan submitted to councils for approval was for there to be a new airport company – TIAL – in which the Tees Valley Authority held an 89% share. These shares were to be owned by a holding company – Goosepool 2019. Goosepool was to be a joint venture between the TVCA and Stobart Aviation. Stobart was to be the airport operator.


The plan explained how a combination of developing a business park on the Southside of the airport and promoting aviation, the airport could become commercially viable in ten years. The TVCA would lend the money to buy the airport and to support the venture through the years before it turned a profit. It projected that, by attracting a low cost airline to set up a base at the airport, it could achieve passenger numbers of 1.5 million a year.


The councils duly agreed to the plan, albeit somewhat hesitantly. If the figures seemed a little optimistic, Houchen had public opinion on his side, and it would have difficult to say no.


With hindsight, we can see that they should have looked a little harder at the information they were presented with. They were provided with three documents – the business plan, a report by consultants ICF on the development of aviation, and one by JK Property Consultants on the value of the land for alternative use (i.e. what the land would be worth if the airport were to close). At this point there was little detail on the development of the business park. 


The airport was to be bought for £40 million (which corresponded to the amount Peel Holdings during the period of ownership). The enterprise was then to have access to loans of a further £34.6 million to cover ongoing losses during the period regeneration (a further £20 million was later added to this loan facility).


 

… and the Awkward Bits It Glossed Over


We have described in a previous report how the ICF report, confined to discussion of aviation revenue, made it cleat that its projections were based on attracting a Low Cost Carrier (LCC) to set up base at the airport, while making it clear that this was unlikely to happen. What has transpired is that even its forecast without the LCC are not yet close to being achieved. Actual passenger numbers in 2023, as published by the Civil Aviation Authority, were just over 226,000, while the ICF forecast was for 335,000:

 

Houchen, incidentally, often claims that the airport is ahead of schedule. In fact, this is the only schedule that has been produced (and is no longer readily available on search engines).

Source: ICF Consultants' Report

But there is another issue here, which concerns aviation revenue.



 

Airport Revenue and the veil of secrecy


When the airport venture was launched the TVCA was in partnership with Stobart Aviation (later renamed Esken). Esken was given a 25% shareholding in the holding company, Goosepool 2019. However the full £40 million for the airport was put up by the TVCA. The business plan states that passenger numbers of 1.5 million were possible ‘with driven management’. The gift of shares was Esken’s incentive to provide that ‘driven management’, while coincidentally being paid a fee for being airport operator.


One consequence of this was that it meant that Goosepool was not 100% publicly owned and therefore not subject to FOI legislation. When Esken quit, their shareholding immediately transferred to a newly created charity – Teesside Airport Foundation, so that the airport continued to evade public scrutiny.


In the first part of this report we described how directors have been either denied information or sworn to secrecy over information shared. One aspect of that secrecy concerns the revenue obtained from low cost carriers. An EU report in 2021 observed that such airlines are in a strong bargaining position, particularly with regional airports over the fees they pay:

When a statutory inquiry finally comes to examine the operation of the airport, one of the things it will have to investigate is whether Ryanair and TUI have exploited this while the TVCA continues to lend money to an enterprise that is highly likely to default on those loans. While Peel was losing £2 -3 million a year, the airport is now losing amounts vastly in excess of this and the public is provided with little information about what it is spending the money on.



 So, is the airport subsidizing the cost of hosting those airlines? If so, does the secrecy around its finances prevent proper scrutiny of its compliance with state aid rules?


Similar questions arise over the recent deal struck with Fedex to transfer its base, and therefore its cargo planes, from Newcastle to Teesside.


And with these the question of whether local councils, as shareholders in TIAL, will be judged complicit in the flouting of state aid rules.


 

Plan B


Houchen set out with a ten-year turnaround plan for the airport but acknowledged that there was risk involved. So, there had to be a plan B, an exit strategy if everything went pear shaped. Statements in the media at the time of the airport purchase are vague, but it turns out that the alternative future is more clearly mapped out than the public realise.

 

One key element of this is the work of Stobart Aviation and the questions around the reasons for their departure. Another is the setting up of a joint venture with developers, Corney and Musgrave. Do they stand to gain excessive profits as they have been shown to have at Teesworks, and how much influence do they have over the airport’s commercial strategy?

It wasn’t long after the purchase of the airport that Houchen took the decision to move the TVCA headquarters there.

 

So, all the TVCA staff and all the TIAL staff are together under his watchful eye. A bit like Louis XIV at Versailles. And it makes it easier for him to be the face on all of their advertising. Because the airport’s business is an integral part of the image he likes to project to the public. None of which means that he’s entirely in control of what goes on there. We go back to Stobart Aviation and their severed ties with TIAL.


 

Did they jump or were they pushed?

 

Stobart Aviation’s annual reports to shareholders nowhere mention the partnership with TVCA. The only time Teesside Airport is mentioned is where they state that they received £1.5 million when they ceased to be airport operator. This payment of £1.5 million is also noted in the accounts of TIAL.


This raises an important question: given that Stobart was contracted to act as airport operator, who was it that brought the contract to a premature end? It is not unreasonable to assume that it is the party that made the severance payment, and that is TIAL.


We have to conclude, therefore, that Stobart’s didn’t quit of their own volition; they were asked to leave. At some point, when a full public inquiry is set up, TIAL and TVCA must provide an explanation of why they instigated this act of commercial self harm.

The Airport Joint Venture with Corney and Musgrave


When the airport was purchased in 2019, it came with a ten-year turnaround plan that would make it commercially viable, provided that it made proper use of the wider estate and so not rely entirely on aviation to generate revenue. What was not mentioned in the business plan was that the development of the southside business park should be a joint venture.

Some of the things that transpired after councillors had given their approval to the project could not have been predicted. But anyone reading the consultants’ report that accompanied the business case for the purchase of the airport, would have seen how shaky the case really was. Our report on this is here.


So, airport pax is nowhere near the 1.5 million optimistically predicted by the consultants. But that still leaves the airport estate, and its potential to raise revenue. The estate is divided into two parts, separated by the runway. On one side is the Northside Business Park, most of whose tenants have been there for years. On the other is the Southside Business Park, which is a greenfield site, for the most part.


In 2014, Peel Holdings produced a plan that proposed developing this site as a business park but could not attract an investor (and the government refused to get involved). In 2018, that plan was taken up by the TVCA, with a few modifications. Enter developers Corney and Musgrave.


The arrival of Corney and Musgrave at the airport was different from that at the South Tees Development Corporation. The latter was done without any discussion or any publicity. This was not possible at the airport because decisions about it have to be ratified by local councils and recorded in their own meeting minutes.


The TVCA has alleged that a rigorous selection process was carried out, but when we tried to obtain some details about this via an FOI request, we were refused, as were the Tees Valley Review panel when they tried to obtain the same information. The airport company set out to find a joint venture on the following terms:


And the stated reason why they wanted a joint venture in the first place was,


It’s the ‘significant relevant experience’ that doesn’t quite match with their choice of partner here. Corney and Musgrave, both well-established developers, had never worked together before. Moreover, while Musgrave was experienced in the creation of business parks, Corney was not. Corney’s business was predominantly in housebuilding. So, it raises two questions. Firstly, why did the TVCA and TIAL find Corney a credible partner, and secondly, why did Musgrave join forces with him here rather than involve his long-term business partner, Trevor Cartner? Cartner had experience of creating business parks; Corney did not. (And it is worth noting that if Corney was out of his comfort zone at the airport, he was even more so at Teesworks, where he needed experience of land remediation, but has none (as was observed by the judge in a court case he was involved in in 2014, reported here).



So who might have judged Corney a person with ‘significant relevant experience’?


In a recent article (here)  we reported on the way in which Houchen had previously tried to help Corney by endorsing his bid to build a highly controversial garden village at Skerningham on the outskirts of Darlington and along the way pocketed a £5000 donation from Corney’s stepfather, Ian Waller. He then received a second donation in April 2019:

Source: Electoral Commission


Early in Houchen’s career as mayor, there had emerged a simple correspondence between donations to him and contracts at the airport (as we have described previously). With regard to Corney, however, Houchen seemed determined to go the extra mile. In addition to endorsing the Skerningham Garden Village scheme ,he also tried to obtain grant funding for infrastructure there from the Forward Funding Strand of the Housing Infrastructure Fund, as can be seen here from information obtained via FOI from Darlington Borough Council:

Source: Darlington Borough Council


This funding bid was unsuccessful, and Houchen’s efforts to smooth the way for the proposed Skerningham Garden Village appear to have failed. If Houchen was determined to ensure that Corney benefit from his largesse, the joint venture at the airport presented a problem: the development was for a business park and Corney and his erstwhile associates could not have made a credible bid for this project. If Corney were to win this contract he would have to partner with someone whose expertise in the creation of business parks was beyond question.


Enter Chris Musgrave.


Houchen, in a recent Facebook comment, claims that he had never met Musgrave before he stepped in during the compulsory purchase of the steelworks:




In fact, we believe that Houchen had had contact with Musgrave prior to this (as detailed here). There is no evidence to suggest, however, that he had any longstanding relationship with Musgrave prior to the summer of 2019.


In essence, while Corney and Musgrave work together on the joint ventures, the relationship does not appear to be an equal one. Musgrave has from the outset, it seems, been the Robin of the partnership.


We should point out that, unlike some of the lesser beneficiaries of Houchen’s largesse, neither Corney nor Musgrave has ever personally made a public donation to him.


 

Risk and the significance of the JK Property Consultants’ Report


From the outset Houchen recognized that the airport venture entailed risk and post on his website envisages what might happen if the plan fails:

Source: https://www.benhouchen.com


Worst case scenario. Costs recouped because of the land value. A hypothetical positioned in the distant future. Or so it seems.


In reality, this ‘worst case scenario’ is a lot closer than is implied in that comment.



Along with the business case and the consultants’ report presented to councillors was a third document – a report by JK Property Consultants. This considered the potential value of the land as both an airport and with alternative usage.

Two things are significant here. One is that this report works on a ten-year timescale. 

Source: JK Property Consultants' report


The second is that the proposed ‘alternative usage’ is a garden village, as explained here:

Source: JK Property Consultants' report


So, the assessment of success or failure of the airport is not at some distant, hypothetical point, but after ten years, i.e. 2029. Furthermore, there is the small matter of the value of the land for alternative use. It has been claimed that should the airport close the TVCA will still own the land, and so recoup its costs. The JK Property report says something slightly different:


Source: JK Property Consultants' report


So JK Property expects the land to raise £42 million if sold for alternative use. That equates to the purchase price of the airport in 2019. The problem is that, since then, the airport has declared millions more in ongoing losses. It has been kept afloat by further loans from TVCA amounting in total to £94.6 million, loans on which it will undoubtedly default. So, even if the land raises the amount JK Property says it will, the taxpayer will still be short changed by over £50 million.


 

The Developers and the Business Park


One of the revelations of the Tees Valley Review is the extent to which Houchen puts the profits of Corney and Musgrave before public interest in his decisions. This is most noticeable in relation to the land and leasing arrangements for the SeAH Wind factory, the arrangements for the South Bank Quay, and the options available to the developers to choose which land parcels they wish to acquire, leaving the STDC with ‘stranded liabilities’. There are others.


The airport business park joint venture came into existence in 2020. In 2021, the airport became part of the Tees freeport. The land on which the new business park is to be built is largely greenfield, flat, and relatively easy to redevelop (certainly in comparison with Teesworks). Yet in four years the only work that has been done is the construction of an access road and one incomplete unit. We have to question why progress has been so limited. 


We also have to question why the long access road into the business park is now directly from the A67 and not, as in the Peel plan, an extension of the road leading to the terminal car parks. Is this evidence that Corney is preparing for the implementation of Plan B?


One reason to suspect that this may be the case is the fact that the park is already in the hands of an estate agent. The drawing at the head of this article is from their brochure. While one unit has been built and Stockton Council has given planning permission for three more, the remainder of the site is on the market as plots of land. That is to say, no further building is planned by the developers unless commissioned by a new leaseholder.


Corney and Musgrave, having contributed nothing to the cost of the construction of the access road, are now making only minimal investment in the park itself. 


While Houchen has recently been advertising that Willis Asset Management has obtained planning permission to build an ‘aviation village’, this is to be on the north side of the runway next to the car parks. Given that their core business is plane breaking, a more discreet location might have been more appropriate. And given that the Southside has   to the main runway, this might have been a more suitable location for their scrapyard.


But the southside is being kept clear. In 2021, there were protracted negotiations with SERCO, owners of the International Fire Training Centre (IFTC). The IFTC is on two sites –  admin on the north side business park, the training facility proper on the southside (which has been there for some considerable time and, until recently, was the only structure on the site. The Northern Echo reported that it was the facility on the southside that was at issue as it was getting in the way of the redevelopment of the business park. Agreement was eventually reached, and the IFTC will remain, but it is telling that the attempt was made to remove them from the southside.


Also apparent in the estate agents’ brochure is that the north side business park is where most new development is taking place. So, hangar 4 (paid for by TIAL) near the rail halt will be the new paint shop. The new Draken hangar (paid for by TIAL) is here as is the dilapidated hangar that was refurbished to serve as the new freight facility. Yet access, particularly for heavy goods vehicles, remains poor and as far as we are aware there are no definite plans for developing improved access routes.


So, are we shortly going to see the implementation of Plan B? Will Corney acquire the whole site for his next garden village? That is not yet clear, but the airport looks set to continue to hemorrhage public money. It cannot continue to do so indefinitely, and so selling off part of the southside for housing remains a possibility. While selling off a land parcel there would bring in some much needed revenue, Houchen, given what he has had to say about Peel holdings, Labour councils, and the Labour mayoral candidate, could prove difficult to sell to the electorate. Presumably he’ll wait until after the election to drop that bombshell if the need arises.


 

Time for a Statutory Inquiry into the TVCA


The review as it stands clearly exposes Houchen’s motivation as promoting the interests of the developers, and of Corney in particular over the public interest and has scant regard for value for money. Had they been able to include the airport, they would have seen that his public pronouncements about commercial viability and the ten-year turnaround plan equally cannot be taken at face value. For the panel properly to have understood what was happening at STDC they needed perspective. The airport would have provided that. And to properly judge whether Houchen’s actions constitute wrong doing, the airport has to be included.



Note: The TVCA Business plan for the airport, together with the ICF report and JK Property Consultants' report are contained in this document:

https://teesvalley-ca.gov.uk/wp-content/uploads/2019/01/Appendix-2-DTVA.pdf

Currently accessible only through the Wayback Machine

Share by: