Island’s sky-high airport payout
Bermuda is on the hook for “tens of millions” of dollars to cover lost airport revenues because of the Covid-19 pandemic, the chairman of the Bermuda Airport Authority said yesterday.
Lawrence Scott, also a Progressive Labour Party MP, said the Government's next payout under the airport redevelopment deal would be “significantly higher” than the almost $5.8 million payment made last week.
Skyport, the operating company for the airport, said yesterday that the company had “not yet determined, together with the project lenders, the extent to which the funds recently deposited in the minimum revenue guarantee account will be utilised, if at all”.
Neville Tyrrell, the transport minister, revealed last Friday in the House of Assembly that the authority had deposited $5.77 million in a New York bank account under the guarantee to Skyport.
It was the first payment made under the deal with the Canadian-based contractor, Aecon, to replace the ageing terminal building.
The payout covered the second quarter, from April 1 to June 30, when airport revenues plunged because of the island's closure to commercial flights as a defence against the pandemic.
The MRGs were agreed under an agreement signed by the previous One Bermuda Alliance government with Canadian Commercial Corporation and Aecon, CCC's contractor.
Skyport, a subsidiary of Aecon, said the agreement ruled out using MRG proceeds to cover construction costs or for “profits or dividends”.
A spokeswoman for the firm added: “Rather, the thresholds for triggering the MRG were calibrated solely to ensure that the project is able to sustain its debt service obligations during periods of revenue decline, and what we are seeing today is far more severe than anyone could ever have foreseen.”
Mr Scott did not provide a figure yesterday for the next MRG payout.
He said there were “too many variables between now and October, when the next payment would be due”.
Mr Scott added: “It will be similar but higher, as we are projected to be operating at 30 per cent of what we projected when the revenue target was set.”
Bermuda closed to commercial flights from late March, and, although private jet travel had increased, air travel worldwide is still substantially down.
Mr Scott said the total payout faced because of the huge decline in revenue would be major.
He predicted: “It will cost us tens of millions.”
The summer months are the island's best for visitor arrivals, but Mr Scott said even the forecast of 30 per cent for this year was “not a firm projection”.
Opposition MPs sparred with Mr Tyrrell at last Friday's session of the House over the guarantee.
Patricia Gordon-Pamplin of the OBA told Mr Tyrrell that the Progressive Labour Party government could have protected itself with pandemic insurance.
Mr Scott blamed the terms of the agreement and said the pandemic could not have been predicted, but that “we could have been protected against it”.
He added: “We could have had the deal structured in such a way that the risk was mitigated, and/or that the risk was Aecon's to take, and not for the Bermuda Government.”
Mr Scott said specific clauses for a better deal could have been included in the airport development agreement.
He highlighted the legal doctrine of force majeure, which “comes under an act of God”, and a variation clause allowing the agreement to be reworked.
He also quoted a review of the agreement by American global consultancy LeighFisher, ordered by the PLP government in October 2017.
Mr Scott said: “The legal recommendation or opinion, both locally and internationally, was that these two clauses should have been included, which would have protected Bermudians against a situation such as Covid, or a pandemic.
“With that not being robust enough, the airport authority went to look at getting insurance, but the premium was substantial — this was three years ago in 2017.
“We looked at an insurance policy, but the premiums were not feasible. Nor would they have covered against a pandemic-type scenario. This is why we're in the position we are in now.”
But Craig Cannonier, the Leader of the Opposition, hit back: “What is it with the PLP and Bermuda's new airport?
He said: “When the OBA was elected in 2012, we inherited a tired old airport. Working conditions were appalling. There was flooding and mould, making life miserable for the Bermudians working there.
“It was bad for Bermuda's reputation as a premier tourist destination.”
Mr Cannonier added the PLP had “left us with no money”, but that the OBA “managed to build a 21st-century airport, without putting Bermuda into more debt”.
He said: “Remember, the PLP wanted to spend $500 million of your money to build their own new airport. Don't be fooled.
“The OBA's new airport created jobs for Bermudians. And it continues to create jobs — 90 per cent of the workforce are Bermudians.
“Bermudians should be proud of what we now have, given the financial mess the PLP left behind in 2012.”
Mr Cannonier said the Government had had three years to build the airport into a “fantastic regional transport hub”.
But he asked: “Yet what have they done? Nothing. Where is the PLP economic plan? Nowhere.”
He told the Government: “Seize the opportunity we gave you and do something with it.”
Mr Scott said the airport authority should have been put in charge of the airport, which would have allowed it to decide what percentage of airport revenues could go towards the redevelopment.
The Opposition on Friday characterised the payments as going to lenders, which Mr Scott disputed yesterday.
He said: “This is not making a payment to a lender. This is their 16 per cent projected revenue.” Mr Scott also accused the OBA of signing a deal based on air arrivals for its financing, without putting an air service development plan in place.
He said the airport authority had put together a plan in 2018, with record air arrivals reported in 2019.
But the island reaped no profits from it because Skyport, under the agreement, received the airport's takings to cover its original equity injection into the project.
Mr Scott said: “Skyport, which is a subsidiary of Aecon, is required by the agreement to take all profits, whether they go above the threshold or not, until their initial investment of $52 million is repaid, and that is projected at best to be 2027.”
He added: “Even if we have continued record air arrivals every quarter from now until 2027, that is the earliest that we can get.”
The Government and Skyport will be able to split the airport's revenues above a threshold set by the project agreement after that.
Mr Scott said calculation of a new year in light of the pandemic would require the authority to “go back and rework the numbers to find out exactly when that would happen”.
The global outbreak of Covid-19 also hit construction of the airport, which was ahead of schedule before the pandemic hit.
Mr Scott added yesterday: “We are now anticipating substantial completion to occur in late September, with opening to the public in December 2020.
“These dates are dependent upon the imminent return of overseas construction specialists and workers for the final commissioning and acceptance testing of major mechanical and electrical elements of the building.”