Public Accounts and Public Administration Committee

Well, that now brings us, just a couple of minutes ahead of schedule, to our first, or our only public evidence session of the day, on the subject of Cardiff Airport. We have a number of witnesses with us, who I welcome—croeso—to the meeting. And I'd be grateful if, perhaps, you could begin by stating your names and roles for the record. And we'll perhaps just start at one end and work to the other. Do you want to start with Mr Stott?

Yes. Good morning, Chair. My name is Jonathan Stott, and I'm the finance director for Cardiff Airport. I will say at the outset that I've been in post for five months, so, in preparation for this, I've tried to do as much research as I can and I will answer your questions as best I can, but you may need to follow up with written representation following this session.

Thank you.

Morning, all. Nice to see you all in person. Thank you for having us. I'm Spencer Birns from Cardiff Airport, I'm the chief executive officer. Thank you.

Bore da, pawb. Good morning, everybody. I'm Tracey Burke. I'm here again, Chair, as director general for climate change and rural affairs at the Welsh Government.

Good morning, Chair. My name's Peter McDonald, and I'm director for transport and digital connectivity in Welsh Government.

Bore da. Good morning, Chair, and committee. My name is Jonathan Moody, and I'm the head of aviation in the Welsh Government.

Okay. Thank you, all. As you'd expect, we have a number of questions for you. I'd ask all of you and Members to be as succinct and concise as possible to enable us to cover the wide range of issues that Members hope to be able to speak with you about. And I will, as convention dictates, begin the questions as Chair.

It's been now 10 years since the Welsh Government purchased the airport. What reflections, if any, do you have on how relationships have evolved over this period, and particularly on Holdco's role in ensuring that the airport is operated at arms' length from the Welsh Government?

I'm happy to comment on that, Chair.

Yes, by all means.

So, yes, I was just about to say that 10 years has flown by, but that would be a very bad pun. So, yes, I suppose it was 2013 that the airport was purchased by the Welsh Government, and 2013 when these arrangements were put in place to monitor the governance model, I suppose you might call it, with a separation between the airport and its operations, the Welsh Government and its policy and funding interests, and then, Holdco, which is sort of in between those two. So, a sort of clear demarcation of roles, and that was the model that was decided at the time. And I think that that has worked well. Things haven't stood still over time. There was a governance review a few years ago, I think it would have been in about 2019 from memory, and that did look at some areas that could be strengthened in the governance arrangements that we've got in place. But I think it found that the model followed best practice guidelines for these types of arrangements and, as I say, has stood the test of time, really. So, I think, if I had to say, on your point about relationships, I'd say that relationships are good. I don't think they're so good that they're cozy. I don't think Spencer would describe them as being that, but they are positive, so I think they're open, they're honest, they're based on trust. There's very good open and regular communications between all of the parties.

So, I would say, Chair, there's always room for improvement. In fact, we are trying to improve things at the moment, bringing in some new non-executive directors into Holdco, but, on balance, I would say the relationships are good and that the model has held up, really, as an effective governance model.

Mr Birns, do you have any—?

Thank you, Chair. If I reflect on the 10 years, I would say that the first seven years were extremely good. We were growing at 60 per cent. Unfortunately, at the end of 2019, or March 2020, we got absolutely decimated by COVID. And, you know, the last three years have been, 'How do we survive ad start to revive?' So, the first seven years—absolutely phenomenal. To get 60 per cent growth in that period, we wouldn't have been able to do that if we hadn't had the shareholders and the relationships we have with the Government. And to survive through COVID, we absolutely wouldn't have been able to do that without the Government. And, you know, for the working relationships with all the different director generals and directors of transport teams that we've had to deal with, I would say that we couldn't ask for a better relationship.

Again, the latter part of my question: are you able to comment, specifically, on how relations have evolved in the context of Holdco's role in ensuring that the airport is operated at arm's length from Government?

Sure.

We've heard the positives about the relationship, but how effectively is the arrangement for arm's-length working operating?

So, as a—pardon me. As a board, we operate as a commercial focus. None of us are officials or civil servants as such, we're all commercial contracts. We operate as directors with fiduciary responsibilities, and we file accounts accordingly. We report into the holding company. We have Holdco meetings bimonthly, but we actually also have biweekly meetings with the chair of Holdco, in conjunction with a senior official, where we discuss trading matters.

I think it's fair to say that Holdco is broadly supportive of the things we bring to them for consent. They do challenge us. They will actively take things in a commercial environment and not as a environment you'd expect from a Government background. And they will challenge us. There are members on the Holdco board who are accountants; they actively say to us, 'Well, if you do that, where’s the actual benefit to the business in the long run?', and they will actively turn round to us sometimes and say, 'We're not going to give that consent until you prove all these business cases for us'. So, we do go through some robust process there, and I would say that it's exactly what we'd expect it to be.

Okay. Thank you. I've got a couple of questions, specifically for the Welsh Government, so you can rest easy for a moment. But, to the Welsh Government, what internal advice did you receive on the principles and rules over the appointment of the Holdco chair, and what advice did officials give to Welsh Ministers?

I'll take that again, Chair, if that's alright. We took a range of different advice thinking about this. As you know, Chair, it was something that we discussed, actually, the last time we were at committee. We were deliberating on this. So, we took advice from the public bodies unit within the Welsh Government. So, they're the centre of expertise, if you will, on our public bodies. So, funding arrangements, governance arrangements, those sorts of things. So, I took advice from them, also from our internal legal services department, and from other governance colleagues as well. So, that advice wasn't 'Should we, shouldn't we?' It was more to understand what we could and couldn't do, what was and was not appropriate. And then, the outcome of that was the decision that we would appoint a civil servant as the Holdco chair. So, that was the outcome of it. I can talk a little bit, if you'd like, Chair, about the whys and wherefores of that, but that was sort of the process and the advice that we took.

Thank you. Well, if you would, because our next question is actually specific to that point. The predecessor committee to this committee, the Public Accounts Committee in the fifth Senedd, said that, in the interests of transparency and accountability, the Holdco chair should not be a Welsh Government employee, i.e. Welsh Government civil servant. So, how do you respond to that?

Yes, I know. That is a very fair challenge, and I think long-standing members on this committee will know that I'm not somebody who would normally go against the grain of a Public Accounts Committee recommendation—far from that. As I say, I've deliberated long and hard on this with colleagues, and I think, looking back at the previous committee's view on whether the Holdco chair should be a civil servant or not, that seemed to be influenced, I think, by the fact that the chair at the time could have been perceived to be too close in their day job to the workings of the airport. So, there was a potential for a conflict of interest there, and I think that was sort of driving some of that thinking by the Public Accounts Committee. If you recall, Chair, I came here and asked for this committee's view, but obviously, you didn't feel that it was appropriate to try to influence that. So, since then, the current civil servant chair is a step removed from that, and in the new arrangements will be further removed again, so completely out of the accounting officer line of command. Certainly, I've precluded all directors who in any way report to me being able to become the Holdco chair. So, there is that clear separation. So, I think that was my sort of rationale, thinking about what the previous committee had said.

So, then, why still a civil servant? So, we've taken a decision, based on the governance review, to add more commercial expertise onto the board of Holdco, so people with more business acumen; that had been picked up as something that needed to be strengthened in the governance review. So, the decision was to recruit three new non-executive directors with that commercial acumen. But, the point of Holdco is that it's trying to manage two things, really: it's trying to be able to take independent commercial decisions but at the same time be mindful of protecting Welsh Ministers' interests. So, in trying to get that balance, bringing three commercial non-executive directors on who would have that commercial experience, I felt that balancing that with one senior civil servant in the chair who would be bringing that Government perspective, who would be experienced in managing public money, would understand the standards—probity, value for money, governance—that, to me, felt like the optimum place to land. At the end of the day, Chair, it was a judgment call, but I felt that that was the right balance.

And given that the role of a chair is a neutral role, to facilitate a meeting rather than dictate their views, opinions or interests, why not consider one of those independent non-executive appointments, who had expertise in a professional area, in that neutral role, and retain the civil servant representative as somebody who can then, as a full member of the body, represent the interests that you articulated?

Well, I suppose the chair does still have rights on the board, so they're not completely out of the decision-making process. We did think about adding another civil servant onto the board, but I was very mindful of, (a) the size of the board and (b) the need that had come out from the governance review to increase the commercial aspect of the Holdco board. So, as I say, Chair, I think it could have gone a number of ways; I just felt that the balance was right to put the civil servant as chair of the board.

Okay. Rhianon Passmore.

Thank you. So, you've mentioned the new arrangements and that the senior civil servant will be further removed again. What does that look like, then, in this regard, and when will the new arrangements start?

Be in place—yes. So, the new arrangements will start as soon as the new Holdco chair is appointed. We're in that process at the moment. We're not without a chair; the current chair is still in place, and will do a handover for as long as necessary. So, in terms of what that looks like, it's an internal competition within the Welsh Government. It's at a very senior level—so, it's at a director level—so, these are very experienced civil servants. There's an application process where they have to demonstrate a range of expertise and experience, there's an interview process, and a candidate will be selected. But it will not be a candidate who is anywhere within my 'range', I suppose is the word I'm looking for—from my group.

And that was directly stipulated in the advert, that applications would not be accepted from any quarters within that line-management range.

Okay, thank you.

Can you just fill us in a little bit more about the process for appointing the Holdco chair, and just clarify whether Mr Thomas will continue as the senior civil servant on the Holdco board and as its chair?

Yes. So, no, Jason—sorry, Mr Thomas—won't continue on the board, but he will do as long a handover as is required with an incoming chair. We are right in the middle to end of that process at the moment. In fact, Chair, I hope—. Normally, after committee, there's an exchange of letters, because there's usually something to follow up, inevitably, and I hope that, by the time I'm writing back to you on any points that come out of this meeting, I will be able to give you an update then on the new chair's appointment. But it's a competitive process. It's internal to the Welsh Government, but, nonetheless, it is competitive. There's an application process, interviews—what you would expect, really.

Okay. Thank you. And just to clarify again, presumably the chair does attend meetings of the Holdco board. I think it goes without saying, I think.

The chair does, yes.

Yes. Rhianon Passmore.

Thank you, Chair. So, this question is for the airport. In regard to, I presume, your production of a business plan, how does that link to the rescue and restructuring plan agreed with the Welsh Government? And if I'm wrong in my presumption, I'm sure you'll put me right.

You're absolutely correct, and thank you for the question. The business plan that we have as part of our structure with the Welsh Government, through Holdco, is that we write a business plan every year, which is a two-year rolling business plan that is then ratified by the board and then provided to Holdco for consent. So, we go through that process. Since the rescue and restructuring agreement came into effect in March 2021, the business plan fundamentally revolves around the target objectives of the rescue and restructuring agreement. It's effectively a top-down plan off the back of that. What we then do is we then look at where is the ex-ante position, because trading and costs and other things take place in that period that can have an effect on the overall plan. We make adjustments, we discuss it in detail, actually, through our trading discussions biweekly, with the chair of Holdco and senior officials. We then have regular meetings where we actually prewarn what we're likely to be changing. And then we have a process, then, where we submit that plan to the board for approval, and, once the board has ratified, we send it to Holdco for consent. And if Holdco have questions for how that plan needs to be adjusted or recommendations and challenges, they go through that in a pretty robust process, and that's typically how they run that.

Okay. And obviously, we would expect a robust process. How timely is the process in practice? Is it workable—

So, I—

—in terms of you as a business?

Sorry, apologies for that.

No, go on.

Our typical working pattern to that is: we would start the plans predominantly at the end of November, in terms of production of the plan, aiming for 1 April all ratified and consent in place. We would normally be in the process that the board have ratified the plan by the end of February and it has gone to Holdco for consent by the end of March. The majority of the time, it does work like that. We've had, this particular year, a slightly slower process, because we've seen some significant changes in the cost of operating. Inflationary pressures have been the biggest factor.

Yes. Okay. So, this question is for Welsh Government to respond to. I'm not sure in terms of whether you are now in the practice of approving or not approving the business plan, so perhaps some insight can be given on that, but the substantive question is around the Development Bank of Wales monitoring and verifying the Holdco review of performance against the plan. So, what actions have arisen or do you think will arise from that? And who will take that forward?

Okay, shall I start on this? So, I'll start with the plan. We do approve the plan. That is something that Spencer's outlined, their side of the process. We look at the Holdco's review of the plan also, with the development bank, look at their analysis and input. We use all of those then to make a recommendation, really, in terms of approval of the plan. So, that's the process that we go through internally—

So when you say 'we'—

Welsh Ministers.

Right. So, in terms of the Development Bank of Wales, are you counting that as 'we'?

No. I would say that that is an input into the Development Bank of Wales. It's an input, an important part of the process, both Holdco's review and the development bank's review. I'm sure colleagues will correct me if I'm wrong, but—.

That's a good summary. In effect, we have two parallel streams of advice, because the level of scrutiny necessary for this is—

To interrupt you—if I may, Chair—with two parallel streams of advice, what if they're contrary? Who adjudicates between that, if they—? Or has that not arisen?

So, Spencer's going to go first, and then—

Because I'm on the receiving end of it quite often, it's quite helpful to just explain. So, what we do is, by doing the bi-weekly calls with our chairman and the chair of Holdco and a senior official, who's normally in charge for our relationship management in transport, we actually quite often will have the opportunity to pre brief what's coming down the line. We can make sure that everyone's understanding what the complications are, and then when we bring it to Holdco—because we go through the Holdco process for consent matters—it's not a surprise to anyone. All the officials are clearly understanding what our challenges are, and they're actually saying, 'Have we thought about it this way or this way?', and then we'll either have a discussion through Holdco on that process or there may be a direct conversation. But we've not come across a situation in all 10 years where there's been a conflict of message from Holdco or the officials.

Okay, thank you. My next question is in regard to analysis of airport performance, to Welsh Government. So, before providing advice to Welsh Ministers, from the Welsh Government officials' end, is there any example of any actions that have been flagged as a result of that process and dialogue that you can think of? Or any impacts as a result of those actions?

As you say, we go through quite a process, really, through monitoring, through the quarterly reports, the monthly reports, and, as Spencer said, the fortnightly meetings. So, we've got a lot of information to review and to consider. So, in a sense, we don't wait for formal reports to come through—we've got a lot of real-time information that we're considering.

I'm just trying to think—and maybe colleagues can help me—of anything of real significance that's happened in the last year where we've had to take action with some impact. I am struggling to think, because actually the airport has performed against the rescue and restructure plan—it's performed well against that.

So, there haven't been any, as far as you can tell.

I can't think of a case.

I can give a couple.

Oh, Spencer's going to give me a couple.

I can give an example, and it's not to be seen as a negative, it's actually a positive in relationship dealing. So, we work in quite a dynamic environment. The nature of passenger flying is airlines move their assets. The nature of other activities related to flying is that things can happen very quickly. So, for us, we would have an example where there may be incident-related activity, we have a number of lines of communication into the Government teams, as well as Holdco, and that incident-related activity could be something most people might not see on the face of it—for example, we may have a gas interruption of supply into the terminal building, as an example. How do we communicate that appropriately? What are the actions taken? What are the steps, and what are we thinking? Where do we need to deviate from our current plan to be able to make the repairs, which are additional to the original cap ex plan, for example? There may be a situation where an airline suddenly makes a move that we weren't expecting, and we had that situation earlier in the year where Wizz Air were performing exceptionally well for us. On the Friday, they were telling us the summer ahead is looking brilliant, on the Monday they were telling us they were pulling out. The nature of our relationship is such that we're straightaway on communication with Tracey and Peter, straightaway on communication with the chair of Holdco, Jason, obviously through our own board as well, and also straightway on communication with the relevant comms teams up to the Ministers. So, we're making sure that that communication process takes place, and, again, trying to avoid any surprises so that we can deal with any changes in direction.

Sorry, I didn't raise Wizz Air—obviously, there was quite a bit of action—I didn't raise that, because it didn't come through the monitoring process. It was a very public event that happened, and it wasn't something that we discovered through the monitoring. But I think it's a positive that there haven't been a number of significant things where we've had to take action. I think that's a good thing.

That makes sense. In regard, then, to assurance, really, in terms of officials providing to this committee around that monitoring process, you all seem to speak of a positive process that works in practice, so, in that regard, do you feel that it's working in regard to the dialogue, in terms of monitoring, in terms of process? What gaps do you feel there are?

I personally feel it's working well. This level of monitoring has only been in place quite a short period of time, really, since the pandemic, where we actually put in quite tight controls, I think you'd probably say—I can see Jonathan and Spencer nodding there—quite tight controls and quite close scrutiny, because this was put in place at the time of maximum uncertainty. I think there could be a case where some of those controls could be loosened a little bit now, as time goes on. We haven't done that. It's not really a gap, but it is something that we could look to change a little, obviously, and to talk that through. But I think the model and the monitoring process has provided a good deal of assurance over some very, very turbulent times. So, personally, I think it's done well, really.

I have got another question, in terms of targets around carbon neutrality, which I'll just touch upon. But can I just ask Jonathan: in terms of the dialogue and the process, obviously you're new in post, but what is your take on what's been articulated to the committee so far?

I think the scrutiny that we receive from Holdco, from Welsh Government officials and from DBW is certainly stronger than maybe if we were a privately owned business. It does require additional time and effort, and that is a challenge for us. It's a resource we would like to be using to grow the business and improve the numbers, but I completely understand that it's public money and, therefore, I understand the need for the scrutiny, and ultimately we've got nothing to hide as a board and we're happy to talk through the numbers with Welsh Government, as we see fit.

Okay.

If I might come in on that as well, I act as the interface between the development bank with officials at the airport and as the policy lead, and I think there have been a lot of lessons learned since the onset of the pandemic, in terms of time is money, it's critical for the business, and looking to ensure that there's no duplication of information and that information is fit for purpose in terms of for Holdco, as independents, for the development bank, as agents, for the airport themselves. And I've found with Jonathan's predecessor and himself, and with Spen, there's a good flow of information, and this is on a weekly, monthly, quarterly basis, and we're certainly alerted to any positive opportunities, risks, issues within the business, and I think there's certainly good communication. I think we're constantly looking to improve as an organisation, despite the pressures we have on our resources. The airport have those pressures too, more so on the coal face of business, but I certainly have—. I came in at a very challenging time. That was my first impact with aviation, back in 2018-19, so I think I'd say it's been a positive step forward, but there's always room for improvement.

Thank you.

[Inaudible.]

Yes, yes, yes.

One thing that we should reflect on, I think, as a positive of the tightness of control is that the regularity of the dialogue helps improve the flow of information both ways. That has actually unlocked quite a lot of opportunities for the airport as a business. As part of COVID, we took a strategic review of what we do as a business. We're running a 24-hour runway operation, we've got all the assets. We've primarily been focused on passenger activities prior to that, how do we start to utilise the other assets in this diversification of income plan? How do we create a management arrangement at other areas for teams in the Welsh Government that may require our assistance where we've got capabilities and specialities? We've been doing that through the process here.104

But what the regularity of discussion does bring is opportunities to the table pretty quickly, and it allows officials to say, 'Actually, I can talk to another department in the Government, we can bring that to the table, we can bring other opportunities to us', which we weren't necessarily getting in the same way prior to COVID. So, I see that as a benefit. We've literally just been with the Welsh Government teams at the Paris Air Show on the Welsh Government stand promoting Wales as a place to do business, with Cardiff Airport's opportunities, and to invest in. We've been able to access various Ministers, not just the Minister responsible for our area, to go through those processes with us, and I think it's brought us to a different level through our relationship there.

Thank you very much. Finally, in regard to the commitment on 31 March 2023 to become carbon neutral as a target for the airport, obviously, there are huge global issues, and we are talking about aviation and its role within that. So, what process is in place in order to be able to agree, presumably, changes to the targets in the rescue and the restructuring plan, bearing in mind the global crisis that we are all in? And can you be brief? I'd like to just address that to the Welsh Government, unless you've got a very short answer before the Chair tells me 'no'.

We are able to amend the targets. That is something that the Welsh Government can determine. Obviously, we don't want to diminish our ambition against those climate change targets in any way, but we do have to recognise that some of those targets—I think the climate change targets are split over about five different things—are outside the airport's control. The supply of sustainable aviation fuel, for example, is not something that the airport can control. It's not about us stepping back in any way from those targets; I think it's more about the 'when' and in what sequence can these things be done. Because I have no doubt about the airport team's commitment to carbon neutrality, but I think there have been a number of hurdles in doing that. Spencer might want to say something really quickly on that.

I'll be succinct. In the last two years, we've managed to reduce our carbon dioxide emissions by a further 830 tonnes per year. We're currently—

Is that strategic or is that because of a drop in passengers?

No, it's strategic. It's in terms of activities we've been doing to change the way we do things. That's based on our scope 1 and scope 2 activities, and passengers would actually fall under scope 3—

I think it would be good, Chair, if this could be sent to us in terms of what's occurred—

Sure, we'll give a summary.

If you want to just finish what you were saying.

On the carbon focus, on the last measure, 1,500 metric tonnes per year is what we're currently going through.

There were four key targets to achieve by 31 March, one being the commitment to operating a solar farm. We signed the contract with the solar farm operator last July. There is a delay in hook-up to network, which is being experienced across the whole of the UK, so we're waiting for the hook-up dates. We've also understood from the contractor that they've also experienced inflationary pressure in terms of the production of the equipment, so we're going through that process, but we're expecting that to be imminently operational.

Our commitment to developing sustainable aviation fuel was another target. We now fully control the fuel farm at Cardiff Airport as of February of this year. We've got full control of the fuel farm, and we're now in the steps where we can actually bring tankers on board that are purely aimed at sustainable aviation fuel. Part of the challenge we've got and that Tracey was alluding to is the demand for sustainable aviation fuel isn't necessarily there from the airlines at this stage, because there is a price differential. For us, it's about how do we make sure we bring that into play—that, actually, there are incentives for airlines to want to use it. But we are in talks with airlines like KLM about uplifting sustainable aviation fuel at Cardiff, and we're also in talks with the likes of TUI and Ryanair about that.

On the commitment to the future purchase of all vehicles being electric or hybrid where available, this is an interesting one, because back at the end of 2020 when we were negotiating these, the purchase of electric vehicles was pretty easy to do at lower prices. The prices have shot through the roof, and now when we're looking at replacements on certain vehicles, we're looking at extortionate prices for replacements, so we're then looking at lease options and things like that, but we're absolutely focused on this. But certain vehicles we can't replace yet, because fire tenders, for example, are not electric. We've currently got diesel fire engines. There will be a future where they continue to become hydrogen and so on.

And then finally, the other one is offering a price structure available through our incentive programme to airlines to operate fuel-efficient aircraft. We do have incentive programmes with our mainstream carriers on that. Wizz were operating the most fuel-efficient aircraft and air fleet at Cardiff, Ryanair are operating two of their routes on the most fuel-efficient aircraft in their fleet, and KLM are currently operating with their most fuel-efficient aircraft. So, we're working through programmes on that. For TUI, I think it's one in seven flights that operates the most fuel-efficient aircraft.

It would be good if you could send us that as well.

Sure.

Thank you.

Thank you. A few weeks ago, Airbus were in the Senedd talking about the technology and timescales involved in transfer to sustainable aviation fuels. So, if we needed any more information on that, perhaps Airbus could share that information more broadly.

Before I bring in the next question, if I could, just for clarity, confirm which airport officials attend the meetings of the Holdco board.

Which airport officials? So, you mean the directors of the airport.

Yes.

Of our board members, it's the chairman, Wayne Harvey, Jon Stott as our finance director, and me as CEO.

Thank you. Can I bring in Mike Hedges—

Sorry, was that for Holdco? Was that who attends Holdco?

Who attends the meetings of the Holdco board.

Holdco board, yes.

If it's helpful, Chair, I could just add another point of clarification: the airport attend the Holdco board, but the Holdco board also meets separately from when the airport executive team attends. So, the team attend to provide updates, information, clarification et cetera, but on consenting matters, the Holdco board meets separately on that, because obviously, the airport wouldn't be part of that decision making. So, just to clarify.

Right. Thanks for that. Mike Hedges.

I'm going to be very helpful, because the answer will be either 'yes' or 'no'. It's to the airport. Have the latest passenger numbers met the milestones in the rescue and restructuring plan?

You're probably best placed to answer this.

That's fine. In terms of the passenger numbers for the financial year that's just ended in March 2023, we've achieved 910,000 passengers in that period. That has been 12 per cent above the plan for that particular year in the rescue and restructuring agreement. The first year in the rescue and restructuring agreement, we were quite far short, but that's because the COVID restrictions were extended for another 12 months, which wasn't anticipated at the outset of entering the agreement. So, the target was 498,000; in that year, we achieved 188,000.

So, cutting a long answer short, the answer is 'yes'.

Yes, we're exceeding those numbers in the last year.

We know people travel less. I travel on the M4 and it's a lot quieter than it used to be. We know from train operators that people are travelling less by train. We know from bus operators that people are travelling less by bus, and we know from your figures that people are flying less. So, I think that we know these things that have happened. But how do you compare yourselves against the other regional airports? We've got a North Point Aviation benchmark, which showed that you were not performing particularly well against eight or 10 other similar-sized airports.

We would comment on a couple of things there. First, people are travelling by air. The demand for travel by air is outstripping supply, and the industry is definitely seeing a very strong demand for that. At Cardiff Airport, the challenge we're having is the capacity being put back on has not been as much as we used to have. Our airlines that have put their original capacity back on are back at the levels they were already operating at in 2019. So, the shortage we've got in terms of our recovery is actually on domestic routes, predominantly on routes like Edinburgh, Glasgow, and places like Jersey, where we haven't had the frequency put back on, or even the routes re-established. In 2019, we had 52 non-stop routes served out of the airport, with four hubs; we're currently at 28 routes with one hub.

As a recovery process, 50 per cent recovered was slightly in excess of where we were expecting to be by the end of that year in the rescue and restructuring agreement. Other airports that have big bases of aircraft are recovering quicker. Our biggest competitor at Bristol is recovering very, very quickly. But Heathrow Airport are still 21 per cent down. They're actually an equally big competitor for us at Cardiff. But if we look at our other peers in terms of regional airports across the country, Exeter are only 42 per cent recovered to the end of the last year; Southampton, 31 per cent recovered; London Southend is only 9 per cent recovered—they're 90 per cent down. Doncaster airport, which in 2019 was the same size as Cardiff, is now closed. So, yes, we are probably in the middle of the group in terms of recovery. A lot of those airports that had significant bases have not been able to recover them. We have lost Flybe. Exeter and Southampton have equally lost Flybe and have not been able to replace them at the same level. So, that's where we're having the challenge. It's not the demand for flying—there's definitely demand for flying—it's the replacement of capacity.

Just to get correct what you're saying, there's demand for flying, but the people who run those flights are not meeting that demand. So, it is a lack of provision by people who run aircraft that is causing the failure to increase your numbers, and if you had more aircraft going to Edinburgh and to Glasgow and other places, then you would have more passengers—substantially more. So, these people are not running flights when they could actually make money on them. I find it very difficult to understand why they would do that.

They're actually deploying their capacity, which is quite scarce capacity at the moment because they've got finite resources. They're deploying that to the areas where they think they're going to make the most money at the quickest turn. Airlines are very nimble, and we've seen that with Wizz Air, for example—they literally pulled their capacity out of Cardiff and stuck it into London, because they thought they could make more money doing it from there. They had slots at Gatwick—they were pretty lucrative slots that they wanted to fill very quickly. So, what we're finding is very competitive environments. The airlines are deploying capacity there first and that's what's sucking traffic across. We are actively in discussions with airlines all the time about, 'Why don't you fulfil the demand in Cardiff, because we think there's a really good market opportunity for you?' and the airlines quite frequently say to us, 'We think there are equally good opportunities elsewhere that make more money.'

We'll have further discussion about it probably the next time you come here.

I've got a question now, and you may wish to take it into the private session—I accept that. We've got the effect of inflation, which is affecting people's abilities to spend. The answer you gave was that there is a huge amount of demand out there. I think that, when people find that they're paying £250 extra on their mortgage, it may well reduce your bucket-and-spade demand to Spain quite substantially, and the effect of inflation and the fact that people properly and rightly prioritise eating and heating over flying. The problem we have with the economy is that the Welsh economy, which you're mostly relying on, has far too many people who are low-paid. Median wages are low, and that also reduces demand. How do you see demand continuing to increase with all those economic winds coming across you?

It's a fantastic question, and thank you. We look at the economic factors like that. It seems odd that there is going to be strong demand when you've got those macro-economic challenges going on, because typically in the industry, the big macro-economic challenges that we'd come across, apart from economy impacts, will be war; they will be things like major sporting events that will affect the propensity for travel—Olympics or world cup football and things like that. What we have seen, and it's been quite well noted in the industry, is a lot of surveys being produced by the airlines and by other groups, where people are saying they're prioritising their holiday spend for the year, making sure they have an annual holiday. We are seeing that in the demand on our flights. What does it mean for the future demand? It's quite hard to predict that at this stage. As a natural economic output, you would look at it and go, 'There must be a bump in the road coming.' But all the industry trends that we're seeing are that that's not happening in the aviation industry globally—it's bouncing back really hard.

Let's assume you're correct on this; why aren't we attracting other holiday airline companies? Why are Bristol, Birmingham, even Bournemouth, attracting other holiday airline companies and Cardiff isn't?

The airlines themselves are telling us that they see other, more lucrative markets to operate from ahead of Cardiff. That's what we're trying to convince them on. There's only a finite capacity that these airlines have got to deploy and they're deploying them elsewhere at the moment, and we continue to challenge that and we continue to encourage them to do it. Ryanair actually have grown at Cardiff Airport this year; they have stuck on extra routes. In terms of the holiday airlines that you're referring to, the big one is Jet2.com. They're not in Bournemouth, but they are in Birmingham and they are in Bristol. When we talk to Jet2 and we talk to EasyJet, for example, and we say, 'Please come to Cardiff; we think there's a really good opportunity for you. Loads of people in Wales want to fly on your holiday flights', the answer we get is, 'No, they will come to us at Bristol; we don't need to come to Cardiff, thank you very much'. So, we do actively encourage. We do actively negotiate. And we've been doing that every year since I've been at the airport. We continue to do that all the time. We literally will phone them up quite frequently and say, 'Have you changed your minds yet, because we've got a market here?' And by being persistent, we do win business too. A good example is how we managed to be persistent and bring Ryanair back to Cardiff—they weren't in Cardiff for about 10 years.

You've said several times about the finite number of aircraft, as if it's a fixed number that cannot increase. If I had Airbus sitting opposite us here now, they'd be telling us about the number of aircraft they're making. If I had Lockheed sitting there opposite us now, they'd be telling us the number of aircraft they're producing. What are the numbers of aircraft currently in operation, and how do they compare before we had COVID, when you're only 52 per cent of what you were in terms of aircraft movement pre COVID? And why are people—? Sorry. Which airports are now over 100 per cent capacity, because the number of aircraft, I assume, hasn't gone down and may have increased because of the new aircraft coming in?

Thank you. It's a really good question. From the last industry figures we saw, the number of aircraft available for capacity supply was down about 20 per cent versus pre-COVID levels. There is a shortage in the supply chain. There are delays in deliveries, and if you had Airbus here, they would be telling you that. What we have seen from the airlines is they've got three-year waiting lists to take aircraft. We were literally in a meeting with an airline CEO with the economy Minister on Monday, who was telling us that they've got significant delays in aircraft deliveries, and that's not a surprise across the whole of the globe.

Now, the reason why aircraft were taken out of commission during COVID is that there were economic pressures, there were early retirements of fleet. Replacement of that fleet is the slow-down in terms of what's happening. Yes, there are some airports that have been able to recover, but they've effectively taken fleet off other areas. Now, if you look at Flybe, it was an airline that existed in the UK prior to COVID. It had a fleet of over 80 aircraft. That's just not been replaced. They don't exist. So, that airline hasn't taken on anything extra; that's not been fully replaced. And that's where we're seeing the gaps in our flow—it's actually on domestic routes.

So, the Flybe aircraft have all been scrapped.

They have either been sent to other parts of the world or they've gone into recycling. If you look at a company like ecube operating at St Athan, they were extremely busy in the last three years recycling aircraft.

You might not know the answer to this. If you don't, I could look—well, I was going to say 'I could'; our researchers can look it up. How many aircraft are currently in operation in the United Kingdom, and how many were before COVID?

We can do some research on that and give you the answer. I don't know that off the top of my head.

I'm sure that our researchers could produce those numbers, because they really are behind an awful lot of the answers you've given us.

Thank you. We've got about 12 minutes technically left in this section, and four questions to go, so about three minutes for each question. I would be grateful if people could be as succinct as possible. Adam Price.

Thank you, Chair, and good morning. I'll be asking my questions in Welsh. First, a question for the airport: how would you describe your financial performance in 2021-22?

Sorry, I didn't hear—

How would you describe your financial performance in 2021-22?

Jon, do you want to—

Sorry, I completely missed that—sorry. I haven't used this before.

How would you describe the financial performance in 2021-22?

I think the performance, considering that the airport was shut for a large part of the year with COVID restrictions, was a reasonable performance but it's difficult to comment on. Obviously, the historic—. I think 2020, the last year that was slightly impacted, would be the year you'd probably compare it with, but there were so many one-offs, and furlough claims and things like that in those intervening years, it's difficult to comment on the accounts.

I can give you—. Sorry, apologies, Jon. So, in terms of the year, it was the second year of COVID restrictions. Our operating expenditures were £23 million. We had an income of £10 million, and we actually massively reduced our capital expenditure programme in there, because we were making sure that we survived on the cash we had through the grant and the rescue and restructuring agreement. That draw-down really helped us sustain operations and make sure that the airport was still open. But we've got to bear in mind that the COVID restrictions advising against travel from Wales were still in place until February 2022, so the airport only facilitated 188,000 passengers in that year, so we were massively down.

And regarding what you've just said, how does that compare with the milestones under the rescue and restructuring plan? We don't know what those milestones are, but you do, of course, so how do they compare with that?

So, the key milestone for that year, on passenger numbers, was 498,000 passengers to be achieved, but that was written in January 2021, without any understanding that there were going to be further extensions. And you may recall that there was a massive extension that took place in that year on COVID. So, it was pretty well understood that we were not likely to achieve that while the travel restrictions were still in place.

The other points on the monitoring process were how do we spend our money, what are the cap ex approval plans and where do we actually focus on making sure that we retain staff, retain our currency in terms of our regulatory burdens—making sure that we can still maintain operations and stay operational throughout. All of those things were pretty much compliant and in line with expectations for the rescue and restructuring agreement.

And in terms of underlying earnings before interest, taxes, depreciation and amortisation—there may be a question on that—so, underlying EBITDA, before the release of Government grants, the result was ahead of the target in the rescue and restructuring agreement.

One specific question for the airport before I turn to the Welsh Government, namely, in your report, you show a loan balance at the end of March 2022 remaining at the same level—namely £27.2 million—as the previous year. Could you explain that? Why is it the same, given that interest would have been accrued, given that there weren't repayments happening until 2031, if I remember rightly? So, how is it the same?

I believe that that's probably within creditors, but I would need to confirm that, I'd need to look into that. But I understand the question.

Okay, thank you. If you could write to us, that would be great.

Turning to the Welsh Government, the information that you shared with the committee last September shows that the airport's targets for profitability were due to be achieved by March 2029. This is three years later than the aim that you had set out in the rescue and restructuring plan, which talked about reaching financial viability by 2026, namely three years before that. So, why was there a difference between the two?

Thank you very much. Peter, do you want to pick up on that?

I will start off and then I'll look to Jon to follow up on detail. But, essentially, this is about two different measures of profitability. The 2026 target is about the point to which you get above zero, so to speak, and 2029 is much more about the point at which the airport has sufficient cash flow and working capital in order to start to entirely be financially sustainable. But Jon may wish to comment on the detail of those two different definitions of profit.

Yes, absolutely. So, there's a point in time, which is estimated to be 2026, when the airport becomes self-sustainable. In other words, it can meet its own liabilities moving forward. And then, there's a trajectory, as part of those forward-looking forecasts, that by 2029, the airport, as Peter was saying, would start generating additional cash. But there is a buffer there in terms of being able to generate enough cash and profits in order to either reinvest in the business, or repay any outstanding loan finance to the Welsh Government. So, that's the difference between the 2026 date and the 2029 date.

Could I ask a further question on the same kind of theme? The airport reported a positive EBITDA of £1.4 million for 2021-22. But, in the Welsh Government's update in March 2023, you said that the airport hasn't yet reached a level of annual profitability, measured by EBITDA. So, could you explain the contradiction between those two things?

Do you want me to answer it? I'm happy to, of course. Again, this comes down to different measures of profitability and perhaps there's an action for the Welsh Government to be very precise in its definitions in future updates to the committee on this point. But, essentially, the EBITDA of £1.4 million was flattered, you might say, by grants given by the Welsh Government under the rescue and recovery plan. But, Jon, again, you might want to come in on the detail.

Yes, absolutely, and I'll also hand over to Jonathan. As a professional accountant, he'll probably describe it a lot better than me. So, it's the difference between an annual accounting perspective from auditors, from a Companies House perspective, that the accounts have showed up a positive EBITDA, when, in reality, if you reduced the £7.9 million Government receipts, which is stated within the accounts, from that figure, then, in reality, there's a £6.5 million loss against the EBITDA. So, that's the confusion in terms of us writing to the committee—that there is a loss, not a positive EBITDA. I think, Jonathan, that's a recognised standard practice, from an accounting Financial Conduct Authority perspective.

Yes, it is slightly confusing and, look, we would look to management accounts, which is what we would report to Welsh Government on, which, as Jon said, would be a £6.5 million EBITDA loss, or losses before interest, taxation, depreciation and amortisation. I think it's just that a reporting—. It's a technicality that we have to report it this way in our statutory accounts. You have to release the grant in the year for which it was given for the purposes for which it was given. So, that was the £7.9 million that was released in the year. But, clearly, we wouldn't expect the benchmark for us to be assessed against that, because the test is, ultimately, that money is to fill the gap on the losses. Ultimately, that's what the rescue and restructuring agreement is for. So, we wouldn't expect to get the money and then include that and say, 'Yes, we're EBITDA positive'. So, unfortunately, it's an accounting technicality, and the rules are set. The rules change, but it is what it is, unfortunately. But the note does helpfully state underneath that the £1.4 million is after the release of the grant, so I think that gives the reader a clear indication of what's gone on.

Could I just come back in—sorry? Just to say that our role, in coming to committee, is to clarify, not to confuse. And I think that, as Peter said, we need to be much clearer about this, setting it out much more clearly. As I say, there's nothing to hide here. We're coming to be as transparent as possible, and we're certainly not seeking to tie everybody up in knots about various accounting procedures. So, we'll be much clearer in our correspondence, going forward.

So, it would be fair to say that the consensus is that EBITDA, generally, is better than operational profit, in terms of providing a holistic picture of the financial health of the airport, but that it has to be adjusted to take into consideration this question of grants, in order to benchmark and set targets.

Just one final thing, Chair. Looking at the benchmarking, in terms of financial performance, which Mike Hedges referred to earlier, we see quite a difference in the figures for revenue per traveller. In the figures before me, Prestwick has £273 per passenger; Bournemouth, £162 per passenger for the year in question; and then Cardiff, £56 per passenger. This question of passenger yield is very important; it's not just a question of numbers, but how much profit or turnover you receive in association with them. So, how do you interpret this question of the difference, the gulf? Does it reflect the kinds of flights that go through the airport? Is it as simple as that, or is it something that these different airports do to increase revenue per head?

Thank you for the question. Actually, I love the question, because it does reflect well on what we're trying to do. The two airports you've chosen, Bournemouth and Prestwick, as good examples, have significant other activities going on that generate flying through their assets, and they have other tenants using their assets. So, when you're looking at top-line income pro rata based on the number of passengers, that's going to naturally show a higher income pro rata per passenger. Similarly, if you look at somewhere like Heathrow, your income spread over 100 million passengers is probably, pro rata, much lower down as well. So, depending on the airport and the ecosystem they're operating in, it depends on what ultimately they're generating as income. So, if you look at Prestwick as a good example, in the last calendar year they had 444,000 passengers. That was still 36 per cent down from where they were pre COVID, but the vast majority of Prestwick activity is actually transit flying for the US military. They do a lot of activity where they've got maintenance, repair and overhaul. They've got a lot of other tenants operating there that are generating flying.

So, if we look at Cardiff Airport in the last financial year as flying, we had—I've got the actual flying figures here for you—1,900-odd flights using the airport facilities. Thirty-seven per cent of that was actually passenger-related flying, and the other 63 per cent was other flying activities that generate income, that actually then goes overall to the income pot. So, if you then look at a place like Bournemouth, there's huge real estate being used at that airport, with tenants either doing maintenance, repair, overhaul activity or a lot of other GA activity—general aviation activity. So, depending on the ecosystem of the relevant airport, it depends on their revenue pro rata per passenger.

Great, okay. Thank you.

Thank you very much indeed. Natasha Asghar.

Thank you so much, Chair. Thank you so much for coming this morning. The first question: as it stands today, 22 June 2023, I'd like to know from both parties what you identify as the main challenges for revenue generation at the airport right now.

Can I take it? Morning. The main challenges for revenue generation at the airport, ironically, when we're dealing with airlines, they don't necessarily want to pay to use the services; they have very robust negotiating processes, and when we're competing, like I was explaining to Mike before, when we're competing for the same business, you've got to be very competitive on the incentive arrangements. So, that is a challenge in itself.

Another area that we focus on revenue generation is actually on our commercial aspects. It is quite an interesting business, an airport, because it's not just passenger-related activity; there may be people who are using it for maintenance and repair, there may be people who are using it for private aviation. We've been focusing heavily on how do we use the land to bring other activities in. So, those are revenue-generating activities that we've been trying to establish more of. Going back to the point we were saying before, Prestwick and Bournemouth are doing a pretty good job of getting that other revenue in from a much lower passenger base.

But, in terms of the revenue-generating activities, there's a big challenge at the moment. I would say it's the airline pressures back on the airport operators, saying they're not necessarily keen to pay the prices that are needed to fly through those airports—they reverse that pressure the other way around. So, that's the biggest pressure.

Okay. And what's the view of the Welsh Government on this?

So, obviously, growth in footfall, passengers, through the airport—colleagues may have other views—and, I think, alongside revenue generation, for me, is cost reduction, so looking at ways to reduce the costs associated with running the airport. I think that's a significant challenge at the moment, particularly with inflation at where it is. Did you want to add, Peter?

Only to add that this is the type of discussion that does happen and we would expect to continue to happen in Holdco, and this is why we're recruiting the additional non-executive directors with commercial expertise to support the Welsh Government in holding the airport executive to account to ensure that we're maximising the opportunities here, because clearly that has implications for us.

If I may, just diversifying income and looking at alternative sources of revenue. I think Spencer has already alluded to a good example of where we're trying to be more joined up in this area, with the Paris Air Show, and looking at wider economic opportunities, looking at the asset as a whole, some of the benefits that the asset's got—is it just specifically aviation or are there other areas economically, in terms of being able to diversify there? Obviously, you've got a huge space of land there. Obviously, the priority is for passenger recovery and aviation-type opportunities, but there are also opportunities across other portfolios. So, what we try and do is tie Spen and team to colleagues in Visit Wales and the wider economy team to look at those opportunities.

Okay. Thank you so much for your answer. Yes, Spencer.

I've just got a supplement there. The cost base is a very hard to change, because almost 80 per cent of our cost base is regulatory fixed burden. We run a safe, secure port. Our primary objective is safety and security for all of our passengers and all of our staff. We have to have a minimum level on security, on fire service, on things like radar and runways and all that equipment. Those come with their own cost burdens. They're very hard to cut that back, because you ultimately don't have a service, then.

The other thing is, if you look at the airport facility, we've got over 2,000 people employed off the fact that the site's currently operating. Our biggest current customer with employment there is British Airways—they've got over 700 staff employed. They are highly skilled. They're one of our 13 airline customers using the airport, but they're not actually flying any passengers through the airport, but they are an important customer. If you then look, we've actually got over 50 companies trading off the fact that we've got a site operating, and they've got all employees. So, at Cardiff Airport ourselves, we've got 330-odd direct employees, but if we then look at the likes of Select Service Partner, the catering company, you look at TUI, you look at Swissport, they've all got big numbers of employees off the back of that. So, part of that revenue-generating activity we do there is how we actually then look at other things that we can generate from those other companies trading at the airport.

Okay. Great. Thank you so much for that. I'm really actually glad that you answered that, because—. And you said something previously that you saw, and I quote, you said that, 'Heathrow Airport is seen as one of the competitors of Cardiff Airport', which is music to my ears, because when I mentioned it in the Chamber, I was laughed at and told that that shouldn't be what you're looking at; you should be looking at airports more like Teesside as competition for Cardiff Airport. So, I'm really glad you said that, because I met with Heathrow last week, and I saw that their plans, going ahead, are 50 years, and they are light years ahead in relation to transport, in relation to their plans—everything that you've all mentioned, they have those solutions to those issues.

I also have spoken with Teesside as a sort of relation—if that's what Welsh Government is seeing as competition to Cardiff Airport. I met with the mayor, who's responsible for Teesside airport, and he told me they have a 10-year plan, obviously, in the foresight of where the airport's going to go. Now, if the airport is not successful in Teesside—just to share with my colleagues—they're going to be knocking down the airport and building houses. That's been approved by the residents locally. And Heathrow, obviously, is not going to be a failing airport under any circumstance; they have back-up plans for absolutely everything. So, my question is, going forward—. You mentioned that the plans, obviously—and, Mr Moody, you mentioned that you speak on a weekly, monthly, quarterly basis in relation to the airport—. So, my question for you all now, for the airport as well as Welsh Government, is: what is your plan for the next 10 or 50 years? Is there a plan, and are you open to joined-up working with other airports? Because it feels like, sometimes, from my perspective—. I'm not an aviation expert, but I believe in building my knowledge, and that's why I'm more than happy to speak with the mayor of Teesside, go to Heathrow Airport and make those proactive moves. Are you making those proactive moves to ensure that Cardiff Airport is going to be a success and you are going to hit this 2026 or 2029 target?

Can I answer it?

Do you want to start?

Thank you. We very actively work with the other airports, and I'm fortunate enough to be on the board of the Airport Operators Association. So, we quite frequently will talk to the other CEOs of the other airports, and, where there is not competitive commercial tension—in a negotiation, for example—where there's a sensible sharing of collaboration, of information, operationally and, suitably, how we learn from each other, we do that and we do collaborate a lot. And Phil from Teesside, he's the MD up there, I frequently talk to him, and we frequently talk to Heathrow. We do do a lot of collaborative activities, and we actually also do a lot of activity with Bristol Airport. For us, it's really important, because the industry needs to learn from each other, and we need to develop with each other, and we've done that at all time, and we will continue to do that.

In terms of our master plan, parts of the master plan were put on hold because of COVID. Our master plan was published in 2018, when we were looking at a new terminal, we were looking at a number of other activities, we were looking at—. Because we were coming off the back of 60 per cent growth, it was appropriate to do that then. We've paused that element of the master plan, but the diversification of income, which was part of the master plan, and our links to education and all the other things are firmly pressing ahead. They're all still going full tilt. We're actively out there trying to encourage business. Yes, we're competing with the likes of Teesside to win that business from American companies or French companies, but we're also, equally, collaborating with the likes of Teesside to learn what they have done well with companies that are there that, potentially, are also here, and how we work with them. So, the straight answer to your question: yes, we have plans. The main master plan in terms of the terminal rebuild, that’s on pause because we need to take stock once we've gone through the rest of the restructuring agreement. We're now only into the third year of that agreement. We probably will be revisiting that, as I say, when we're in the middle of the fourth year. But, ultimately, the rest of the plan is pressing ahead in terms of the land space utilisation, in terms of diversification of income. There are ground transport things that aren't for me to comment on, but ultimately those are part of the plans that we need to build into the Government transport team.

Thank you. Welsh Gov, would you like to answer?

Thank you. It's a very good question and a very fair challenge. So, if I think back to when the restructuring and rescue agreement was put in place, it was deliberately done for five years, not two or one year, in order to manage through turbulence, and I think we've seen through some of the evidence today that that was a reasonable decision to make. But I think, as Spencer said, now is the time to start turning thoughts to what happens after that point, and I think it's timely that we're strengthening and refreshing Holdco at this time, and I would expect this to be the type of activity that Holdco takes an increasing interest in in its refreshed form.

In terms of working in partnership, we've heard from Spencer about other airports. I think there's a challenge on the Welsh Government to ensure sufficient join-up for Transport for Wales. So, Transport for Wales, as you will be aware, is taking on additional responsibilities in relation to things such as active travel and buses. It's not just a rail organisation anymore, and that brings more opportunities for join-up across the transport portfolio. That's a challenge that I see upon myself in joining up things within my portfolio, and something that perhaps we haven't been able to do as much of in the past because Transport for Wales has a narrower remit. So, that's something I'm very keen to explore.

Good. I appreciate that.

I would just add we have just recently completed a 30-year forecast. Now, the validity of looking out 30 years is a real challenge, clearly, but the Welsh Government are currently reviewing that, so it is very much something we look at and we are reviewing, and the plan is there, so we look to refine that as much as possible in the future. But, certainly, yes, we need to look to the future and the longer term. Thirty years is how far we've gone out.

Fantastic, that's good to hear. All right, so, coming back to the questioning, to the airport, by September 2022 you had drawn down £26.2 million of the £42.6 million for the rescue and restructuring grant, which was the amount profiled to March 2023. Can you explain why, and what were the implications for the remainder of the 2022-23 financial year, please?

So, in terms of the draw-down activities, the draw-down activities are as per the scheduled plan. We've been using the funds to help us trade and to, obviously, sustain the business. We've also been rolling ahead with some of our major capital expenditure projects—you heard me mention before that, in 2020 and 2021, we had paused a lot of activity there. So the cap ex plans have actually fundamentally started to kick in in a meaningful way. For example, in the last year, we've actually delivered a replacement for an aged flight information system that needed urgent replacement. We've done safety upgrades to our instrument landing systems. We've started projects on our fuel farms so we'll be able to get into a position where we can actually facilitate sustainable aviation fuels. We've actually had to commence an asbestos strip-out of the terminal. Now, we're living in a terminal from 1972. We're actually going through a major project where we have to replace all our security equipment, because the law's changed in the UK and we have to put brand-new security equipment in by June 2024. We have to strip out a load of asbestos in the terminal to actually replace that, so part of that project is there. But we've also been doing things that are customer facing, and in terms of other, smaller things. For example, we've got a new website. We're rolling out a number of different activities there. So, in addition to our operational expenditure and trading activities, we've also been using it for cap ex development.

Okay, great. Can I just ask a sub-question to what you just answered there? So, you mentioned the airport shake-up of security, which I am aware of. Just to make the room aware, I did as a question on this in the Chamber this week. It's about all airports having the requirement to fulfil this new 100-ml ability and to take laptops through security without having to empty your bags, and that sort of thing. So, are you confident you're going to hit that deadline, firstly, of 2024? And secondly, my question is: what assessment has been made regarding the cost, because these scanners are not cheap, and I'm really interested to know who's going to be footing the bill for this?

If I answer the first part of the question and then, I think, Jonathan and I'll probably share the second part of the question, if that's all right. On the first part of the question, yes, we're fully on target to achieve the operational period. We've been doing the building work now since November last year. For those of you who have had the chance to fly through the airport recently, you'll see we're currently trading as an airport. We've had no disruption in terms of flow, but we're having to do this whole build. So, for us, it's quite a challenge to maintain a full operation while you're fitting out brand-new equipment. And, yes, it's for the right reasons that the law's changed, to upgrade all the equipment—UK safety standards are the top, and, for us, we're proud to be part of that process.

In terms of funding the process, for us it is higher than we originally anticipated in 2020, when we were originally scoping this out. Inflationary pressures have definitely caught up. There have also been situations where the people who are currently on the DfT approved list of suppliers have not necessarily tendered, because they've run out of capacity to supply. All the airports in the UK are buying this, but across Europe the airports are buying this equipment too. So, that has created a challenging cost base.

We've also had to, as we mentioned before, strip out things like asbestos, so our manpower costs have gone up significantly on inflationary pressure. So, where we originally anticipated this project in our rescue and restructure agreement, we've had to go back to the Government—we have actually flagged this quite early on and said, 'This looks like it's going to be more than we were originally anticipating, we need to bridge the gap.' We discussed that at ministerial level. We've explained to even the First Minister, to Lee Waters and also to the economy Minister what are the challenges we're going to incur here, how we're going to go through that process, and we've been working really closely with Tracey's team.

That's ongoing work at the moment. As Spencer has explained, these are unavoidable costs, and they're also really necessary costs for regulatory compliance. It's not something that the airport can't do. The impact of inflation has really hit here on this capital expenditure, and I know the airport have been looking to see whether they can reprofile other capital expenditure, but this isn't something that can be reprofiled. This needs to happen by a certain date, so we're working really closely with the airport to understand those additional cost pressures. Ministers have been clear in public statements in terms of their support for the airport, so it's in that context that we're looking at this. But it will be the subject of formal advice—and that's something that we're working through at the moment—to Ministers.

Just to clarify and confirm that the costing of this will be added onto the accounts next year, and it's more than likely to be a cost to the taxpayer.

No, I couldn't confirm that, because that is work that is under way at the moment. As I say, we're still working with Spencer, this is ongoing work, and that's something that will be subject to advice to Ministers, which isn't prepared yet.

Okay. Fine. I'm going to be asking you another question, which is my final question, I think everyone will be relieved to hear. This is for the Welsh Government: what mitigations have you identified from the work that you've conducted with the airport for the impact of inflationary pressures on regulatory compliance costs and the capital investment budget?

I suppose it directly follows on, doesn't it, what we were just discussing, because we've seen inflationary pressures across the capital expenditure programme—the next-generation security scanners as we've just discussed—and we've been looking at ways that those costs could be mitigated. But it's not just there. We've seen inflationary pressures in terms of energy costs, in terms of a wide range of things, and it's not just in the airport, is it, it's across—

It's across the whole transport portfolio, and it takes us back to what we were discussing with respect to revenue generation, actually, because many of these costs—Spencer, you can say more about this, I'm sure—are very fixed and very regulatory. They're not something that goes up or down on the basis of passenger numbers, they are very difficult to change on a short-term basis. There are perhaps more options on a long-term basis. Therefore, in terms of the underlying financial performance of the business, it takes you straight back to the revenue-generation opportunities.

Spencer may want to come in, but they don't look like they're going away. I think the figures I saw this week were inflation at 8.7 per cent, which is the fourth month in a row that it's been higher than is expected. So, this isn't going to go away overnight.

I think if we just look purely at our business in terms of where are the, probably, five key points where we see that pinch, the one area that a lot of people forget about is cyber security. Cyber security has massive cost implications that come with it in terms of preparation, and it is regulated at airports, so that you're aware of it—the CAA actually acts as a regulator on behalf of the DfT on cyber as well. The security equipment and the personnel training for that equipment is a massive cost base, but other training that takes place for making sure we are regulatory compliant also. For example, if we bring in fire staff, they need to go through training, they need to be maintained at training level, so the currency levels and things like that to maintain that regulatory compliance is quite an interesting one, because it's not actually what you would normally see as a fixed cost for an asset, but it's actually an operating cost that is a regulatory cost burden in itself.

And then, the other one that we've got in there that is quite interesting is the cost of technology. When you're replacing technology, you're upgrading technology, making sure you remain cyber compliant, that's also got significant increases in costs across the whole of the UK anyway, but we experience it as an airport. And then one area that we experienced as a cost hit in the last 12 months was actually the inflationary pressure on staff wages. The real living wage change happened pretty much instantaneously. Normally, it would be announced in November and follow through in the April. It came out in the September with immediate effect from the October. So, those things have a follow-through effect, with a cascade effect, immediate effect on the business.

So, those are examples of where we're experiencing inflationary bounce against the business that weren't necessarily anticipated in the same way when we started the rescue and restructuring agreement.

Okay. Great. Thank you, Chair.

Thank you very much indeed. Can I just ask very quickly, will the 30-year plan be publicly available?

As the CEO of the airport, yes, our objective is to make a revised business plan, and we will definitely make that available, because we will be consulting with our stakeholders.

Okay. Thank you. We are running horribly late, but can I bring in Adam for some concise questions?

Understood.

Some very specific questions. You took advantage of an accounting exemption in order not to include a statement of cash flows in your annual accounts. Have you now discussed this with Holdco and the Development Bank of Wales, and if you have, what was the response to that? You explain that the reason for doing this was to make savings on your audit fees, so can you give us an idea of what these savings are? It's a question for the airport.

I've seen the correspondence to the Chair in September regarding this. On the saving of the audit fees, I wouldn't be able to quantify that at this stage. But what I would also add is that as a commercial business, our job is to get best value for our shareholders, the Welsh Government, and, ultimately, the taxpayers. There are strong commercial reasons for not publishing cash flow unless absolutely required to do so, and most businesses would take that exemption. Clearly, it may help our competitors, it may help people negotiating contracts with the airport. I understand the need for transparency, but as I say, it's a balance of giving out information that could be used by people to actually end up costing us more money, and that's the last thing we want to do.

We provide detailed cash flow to the Welsh Government, which is weekly—it gives a weekly breakdown—and there's a monitoring programme with DBW. I think we will take a view this year with our accounts regarding cash flow. As I say, some commercial entities may choose, if they feel it's advantageous from a commercial point of view, to put it in there, but we are governed by the rules and if there is an exemption there, then we would take the exemption in regard to what we put in the public domain. But clearly, all our cash flow is scrutinised.

It was reported earlier in the month that Qatar Airways would be restarting flights from Cardiff Airport by the end of this year. Are you able to confirm if this is accurate? Can you provide any further details?

Thank you for the question. The reporting was off the back of another person issuing their own press statement following a meeting that they'd had with the airline. But I can confirm that Qatar Airways are in discussions with us about restarting their flights. I was actually there with the economy Minister, Vaughan Gething, on Monday at the Paris Air Show meeting the CEO of Qatar Airways, Akbar Al Baker, about the resumption and how soon it can be.

These services were paused during COVID—there were a number of services that were paused across the network. They are trying to reinstate those services. There is a shortage of aircraft, there is very high demand for assets, and they're basically trying to figure out how they can redeploy some of those routes now. In the UK, the two routes that hadn't restarted yet were Birmingham and Cardiff. Birmingham's due to come online next month, leaving Cardiff as the last one still to come. But in the meeting we had with the CEO on Monday, he reaffirmed to the Minister and myself it's his intention to come back, and we're just now going through the fine tuning on how do we bring that forward and how quickly can we get it there.

And just to reassure you as well, we've been working really closely with Welsh Government Ministers on the return of Qatar Airways. We've had meetings with the economy Minister and the CEO from the airline. We've also had meetings with the First Minister and the CEO of the airline, to make sure we're pressing as much attention into this as possible, to restart the service.

A question for the Welsh Government on that very issue. In the past, I think you have provided support to Qatar Airways for the commencement of their services from Cardiff, if I'm correct. Do you have any intention to provide either direct or indirect support to Qatar Airways to resume these services?

Thank you. I was actually listening to the First Minister in the Chamber on Tuesday when you asked that question, and I think he was very clear that this is a commercial matter between Cardiff Airport and Qatar Airways, and whilst we would welcome a resumption of that service, it is a commercial negotiation between Qatar and the airport. I certainly have not been involved in any discussions about Welsh Government support. I think the commercial negotiations need to take place between the airport and Qatar Airways, and then, if and when appropriate, there would be a discussion with Welsh Ministers.

Okay. So, you currently don't intend to provide that support.

No, that's not what I'm saying. What I'm saying is that the discussions are at an early stage between the airport and Qatar Airways about the resumption of those services. In time, there could be a formal proposition to the Welsh Government. At the moment, that is not the case. That's all I'm saying. The negotiations are at a period of time. That is all I'm saying.

Okay. So, it's a possibility, then. Is there any possibility that you would provide similar support to any other service, building on the discussion you had with Mike Hedges on the competition for routes? Would you consider providing a support package to any other company that the airport might want to attract to Cardiff?

Is that a question to me, to the Welsh Government?

Yes.

I'm not sure I'm best placed to answer this.

I think our starting point is that Cardiff Airport is a commercial entity to be run on commercial terms. We would not want to rule anything in, we would not want to rule anything out, but I think we will need to set a very high bar for use of public money, especially given the scarcity of fiscal resources. In general, I think we can see from the airport's performance that they can be very successful in the circumstances in attracting airlines and services on commercial terms, and that would very much be our starting point.

Okay. Fine. So, it's not generally something that you would do, but it's an exception.

Just finally, you have told us in the past that there is some uncertainty around some of the close-down costs associated with terminating the intra-Wales air service—specifically the service from Anglesey. Can you provide us with an update in terms of the financial implications in light of the Welsh Government's decision to terminate the contract with Eastern Airways early?

I can certainly say some of that in public session. If you do go into private session, there may be something of a more commercial nature that I could say in that part of the session. We're much clearer now—that's the short answer to your question. We provided a grant to Anglesey county council to run that service, and due to that service being suspended and then us closing it, there is a significant saving from that. I will check my figures, but I think the grant was about £800,000. Let me check my figures, sorry; I'll just do that while another colleague's answering that. There was a saving from the suspension and closing down of the service, but Anglesey council still had a lease agreement with the Defence Infrastructure Organisation at the base, and that lease could only be terminated when all the equipment had been removed. So, over the last year, all of the equipment has been sold through public competitive auction, and that, I think, generated about £40,000. The council still has to pay a little bit more on that lease, and maybe we'll say that in a private session if that's what we do, but it's a much smaller amount of money, and we hope that that lease will be terminated imminently in the next few months. As for the Eastern Airways side of things, we gave notice in June 2022 about the termination of the service, and the termination was in line with the contract agreements, but the contract agreements are something that I would maybe talk about in a private session.

Yes. Okay, thank you. And finally, in this section, a very succinct question from Rhianon Passmore.

Thank you. In regard to the North Point Aviation report of February 2022, the importance of scrutiny of the management team was emphasised. What is your view of the committee's ongoing role in scrutiny of the airport?

What a question.

I don't know who would like to take that first.

I'll certainly say something. That is quite a challenge, isn't it? Scrutiny is important. It's uncomfortable at times. It's not something, certainly, that I particularly look forward to. I'm not sure about the airport team. But it's such a necessary part of living in a democracy, and we are talking about public money here, so there has to be good scrutiny, and I hope that you feel that we take that scrutiny very seriously. We certainly prepare really hard to come to these scrutiny sessions, to make sure that we can answer your questions fully and try to be proactive in providing you with information that you request. I find your scrutiny very comprehensive, wide-ranging, very detailed in points, I have to say. I don't know what the airport's view of the committee's scrutiny would be, but certainly from a Welsh Government point of view, it feels testing, which is what it should do, and it feels comprehensive.

I'm interested to know, Jonathan, from your background, how you feel in front of this committee—the importance of the role of scrutiny.

I think scrutiny, as you say, is very important, and whether it's being scrutinised here or if the airport was, say, privately owned, you'd be scrutinised by lenders or equity investors, and that scrutiny would be equally as robust. So, I totally understand the need for the scrutiny. I think our challenge as an airport, as we're trying to recover, is probably resource allocation, certainly at management level. It's a real challenge. There are huge opportunities at the airport, but it's knowing where best to put our time and allocate that, and obviously this takes a couple of days out of our working month, but I understand it and if it helps to give comfort as well, regarding our accounts and the questions you've raised, then we're happy to do it—of course.

Okay, thank you. I'll conclude the session by thanking all of you for being with us and answering our questions. I confirm that a transcript of today's meeting will be published in draft form and shared with you for you to check for accuracy before it's formally published.

I now propose, in accordance with Standing Order 17.42(ix), that the committee resolves to meet in private for the remainder of today's meeting. Are all Members content? Thank you very much indeed, in which case, I'd be grateful if you could take us into private session.