Fighting for survival

A very large number of regional airports was originally developed by the commonwealth government for military use during World War 2. Over time the ownership of many of these airports has transferred to local communities under the Aerodrome Local Ownership Plan (ALOP), by which some 260 airports transferred from commonwealth to local government ownership. Under the ALOP local governments are required to maintain and operate the airport. It has resulted in significant financial obligations being assumed by the local community and local governments are only able to sell, lease or dispose of their airport assets with approval of the Department of Infrastructure and Transport.

The Australian Airports Association (AAA) stated in 2012 that “local governments have not and are not able to make provision for major maintenance projects. Many are facing funding pressures that make continued operation of their airport uneconomic.” These communities are then faced with three choices –to direct investment away from airport infrastructure, seek state and federal government funding or to entice private funding.

Some federal funding is provided for airport development projects by the Department of Infrastructure and Transport. A number of states also have schemes to help fund airport infrastructure, an example being Victoria’s Regional Aviation Fund, which assists with upgrades to increase the operational usability of airports.

For many regional communities, scheduled services are volatile with strong commercial power held by the airline. The AAA reported 317 airports were certified or registered by CASA as being suitable for RPT or charter operations. Of this number only 148 received scheduled services in 2010, declining from 169 in 2005. In this period, RPT services ceased at 44 airports but began at 24 new locations. Furthermore, 70 per cent of regional airports were served by only a single airline. Communities are often faced with the need to invest in significant long-term capital infrastructure to attract RPT operators but in return they generally do not receive a long-term commitment from the airline to provide the service.

Without scheduled services, local communities are typically left with developing and maintaining airport infrastructure for air ambulance emergency services or for the general aviation community. Emergency services place pressure on the communities to retain an airport and invest in infrastructure to enable 24-hour operations.

In recent years general aviation activity has been in sharp decline. Although often not requiring substantial infrastructure, the volume of general aviation activity does not generate sufficient income to meet council outgoings at most, if not all, small regional airports. The AAA estimates the cost of operating a regional airport primarily for general aviation, without RPT services, can be up to $250,000 a year. This figure does not include major infrastructure maintenance such as runway resurfacing.

In response to these issues regional airports are embarking on a number of innovative schemes to increase revenue. Wagga Wagga is a defence-owned airport serving a rural city of 63,000 people. An operating lease for the airport is held by Wagga Wagga city council.

Building on Wagga Wagga’s history as a defence training centre, a number of related business ventures have been attracted to the airport. Stephen Prowse, manager council businesses Wagga Wagga City Council explains. “Education and training is a key strength of the City, with Charles Sturt University, TAFE Riverina Institute, Kapooka Army Base and RAAF Base Wagga underpinning that strength.

“RAAF technical training is now provided by BAE Systems, RMIT and Pennant Training Systems, while Airservices Australia has established a training centre at the NSW TAFE Riverina Institute to deliver the Diploma of Electronics and Communications Engineering.”

Of particular significance has been the establishment of the Australian Aviation Pilot Academy (AAPA). The academy will provide pilot training for Regional Express and international training for the Alpha Aviation Group which is targeting the United Arab Emirates market. Prowse said: “AAPA has acquired a hangar and developed a training school at the airport. It is a fully contained campus including accommodation for 94 students with planning approval for a further 92 beds. The campus also includes three flight simulators, classrooms and a library. A building is also under construction to house a SAAB 340 simulator. Rex and AAPA combined employ more than 100 people in the city. To reflect this regional benefit, council has invested $20 million over the past six years on airport infrastructure and facilities.”

A feature underlying income generation at a regional airport is effective business planning lead by the master planning process. Anecdotally, larger regional centres, probably with a residential base exceeding 30,000 people with significant scheduled or FIFO operations, seem to be able to attract greater management expertise and invest in airport planning. This planning process, when done well, identifies business activities for the airport to target as well as defining trigger points for investment in infrastructure.

The contrast in outcomes from an effective planning process can be illustrated at Wagga Wagga. Prowse said: “Historically airport planning has been ad hoc. The process was heavily influenced by physical constraints and to a lesser extent the contractual limitations imposed by the airport lease from defence. This resulted in the poor placement of infrastructure, which has created restrictions on future growth without relocating some facilities. Ineffective planning changed when we embarked on a strategic master plan, which was completed in 2010.”

One of the outcomes from this planning process was the identification of industries that could be attracted to a commercial aviation precinct. Douglas Aerospace, which undertakes aircraft painting, has been the anchor tenant. Although having had operations at a number of locations across Australia, the owner decided to centralise activities at Wagga Wagga.

Currently Douglas operates from one hangar and is able to paint 737 and A320 aircraft, while construction has commenced on a second hangar to undertake Saab 340 painting. Once the operation is at full capacity Douglas will have 60 employees at the airport. Future plans include construction of a training hangar.

Prowse highlights the flow-on from attracting Douglas. “We expect to be able to leverage from the market Douglas has created. Already we have had significant interest from other MRO businesses.” He also highlights the ability to attract these ventures. ********“Critical mass is important and Wagga is of sufficient size and has the infrastructure to attract new business ventures**********. The strength of the aviation sector in the region plus related business activities on the airport provides a revenue base for new business to grow and service debt.”

Nevertheless the support provided by the council was important in attracting Douglas Aerospace. Prowse explained: “While an unusual undertaking, in view of the significant benefits, council decided to provide a rent-free period and a commercial loan of up to $2.5 million. This was done to overcome the limitation on commercial borrowings presented by the remaining term on the airport lease.”

The experience of Wagga Wagga illustrates the difficulty regional airports have in relying on traditional aviation income streams. For most regional airports passenger and airline charges are the main source of income. Airlines can quickly cease services, plummeting revenue. From the airport perspective, increasing passenger costs such as parking or other fees can drop demand. The major competitor to air services at these regional airports is passenger travel by car. Increases in air travel costs makes car travel more attractive. To contain costs the council does not currently charge airlines for the use of terminal space.

Carparking charges were first introduced in 2012 for a stay of longer than two hours. This has helped stop some non-airport users using this space as a long-term parking lot. Imposing a charge has meant carparking space is always available for visitors to the airport. Before the charge, a doubling of the carpark area in 2008 was filled almost immediately. The charge has eased pressure on the need for additional capital spending on car parking. An added benefit is that surplus revenue from airport parking spreads the revenue base and can be put back into passenger amenities in the future.

Mt Gambier is the second largest city in South Australia with a population of 27,000 but the airport has a catchment area of around 50,000 people. The airport was formerly a World War 2 airstrip with some of this infrastructure still remaining. Rex provides scheduled services to Adelaide and Melbourne, which amount to approximately 90 aircraft movements a week. Due to the current downturn in the South Australian economy, passenger numbers are declining. The Royal Flying Doctor Service, fire-fighting operations over summer months and an active aero club with 13 aircraft are other significant aviation activities.

The district council owns the airport and requires it to be self-funding. No ratepayer funds are used for capital or operational expenditure. However, the airport is seeking to progressively provide infrastructure and improve the passenger experience so more operators and businesses are attracted.

Ian Fritsch, airport manager explained: “Two years ago the council decided to undertake a runway and apron overlay to increase pavement strength and ensure ongoing compliance. The project cost of $3.5 million was funded from airport reserves, supported by a grant of $500,000 from the state government. Prior to these works the airport had to turn away business jet traffic. We learned that not accommodating these aircraft was impeding investment in our region.”

However, attracting new operators often requires costs to be either subsidised or minimised. The airport is located 10km from the city, which means that it is unable to generate significant revenue from commercial leasing of airport land. Most unused airport land has been leased to local famers.

To generate new income streams the airport has established a small airport consulting service. Fritsch said: “We commenced the consulting service 18 months ago after a recognition that many small regional airports have limited expertise and time to undertake all the activities associated with regulatory compliance. Our services include preparing airport operations manuals, writing and supervising emergency exercises and undertaking security compliance audits for certified airports. It has seen us create a support system for these airports. We are able to share equipment and provide expertise to help another airport when it has an immediate need.”

In addition to consulting services for nearby regional airports, Mt Gambier has provided a safety officer for audits of resources airports. Consulting services are separated from other airport activities and are now generating a significant revenue stream. The role of the airport compliance officer, who undertakes most consulting activities, is becoming completely self-funded. A non-monetary benefit has been an expanded knowledge of airport related issues for Mt Gambier management.

An impediment to growth of the consulting service is the reluctance of small airports to seek help. Fritsch said: “The ego and pride of smaller airports is the biggest impediment to growth of this venture. We hope councils will realise this service and

ports we are creating is able to provide them with a stronger level of support while also growing their level of knowledge and confidence. A safety net of expertise and resources is also gained.”

Mt Gambier airport personnel are now taking responsibility for writing their airport master plan. Like a number of other regional airports they have found some of the base assumptions and outcomes proposed by external consultants are unrealistic. Fritsch notes: “Writing a master plan is time-consuming but not that hard. It is best written by those who know the airport. Our current rewrite is focused on initiatives to attract more aviation business operators to Mt Gambier Airport.”

A desire to improve the passenger experience has been another area of innovation. The airport has installed a locally-designed flight information display system (FIDS). This system is self-funded by local advertisers with space fully booked. The airport has also entered social media. Airport compliance officer, Paul McFarlane explained: “We have developed an airport website to provide improved information to passengers and at the moment we are working on a mobile application. We also have a facebook page with over 2,000 followers and are on twitter. These initiatives are a great way to engage with the community. It shows there is more going on at the airport than just a couple of Rex flights each day.”

While regional airports with scheduled services have significant challenges in achieving economic viability, it is small airports without scheduled air services that face the greatest challenge. The case study of Glen Innes Severn Council provides an illustration of the issues and how they were overcome. It also points to some of the problems of local government in fostering new business initiatives for their airport.

Glen Innes is located in the New England area of NSW with a population of 9,000 people. Its airport was developed during World War 2 and includes a sealed runway with a small terminal building and some private hangars. Scheduled daily air services ended a decade ago. The airport now has very little use, with only a small aero club and a daily courier flight.

To maintain the airport, the council is faced with a $200,000 annual cost with further funds needed for the airport to remain CASA compliant.

Colin Price, Mayor Glen Innes Severn Council, provided some background. “It was becoming very hard for the council to justify the annual operating cost plus the additional funding for the upgrade works when the airport had so little use. The council completed a strategy three years ago to explore options to provide direction for our economic development. One option was to improve utilisation of the airport and raised the idea of attracting a flight training operation. After this option was raised we became aware that Australia Asia Flight Training (AAFT) had been unsuccessful in establishing operations at some other regional airports. We decided to make an approach to the organisation.”

Prior to the approach from the Glen Innes Severn Council, AAFT had been unsuccessful in attempts to establish its operation at three other airports. Neil Hansford described the problems encountered. “The first airport we targeted was Goulburn, which was looking to sell its airport. We tendered to buy the airport but the council decided not to proceed with the sale.

“The next was Gunnedah where we had strong council and community support. We had gained local council approval and completed a development planning application. Unfortunately the wrong form was completed for the development application and we were denied on procedural grounds.

“We then approached Quirindi, where we had excellent support for 18 months. However, at the last moment the council rolled over in response to a local farmer’s concern about large numbers of people moving in and out of the area. We had also looked at Tamworth, Armidale, Moree and Bundaberg. ********Councils need to be committed to the venture.********* They need competent people who recognise the benefits of the opportunity and are willing to execute the steps needed to make it happen.”

To attract the AAFT flight training operation, Glen Innes Severn Council entered into a fully repairing and operating lease of 30 years with an option of a further 30 years. Under this arrangement AAFT is responsible for infrastructure development and undertake maintenance for a fee of $100 per year. In addition, the council sold a further 10 hectares of airport land to the AAFT for $100. The sale of land for this price was justified by being an offset to the annual $200,000 cost of airport maintenance, a total of over $6 million over the 30-year lease term.

In addition to the transfer of land and the operating lease by the council, the venture received strong financial support from the NSW state and federal governments. NSW has committed $1.6 million for site works and an upgrade of services to the airport. The federal government will provide $500,000 for an upgrade to infrastructure and services.

AAFT affiliate Australian Wings Academy will operate the flying school. The school will provide training for 400 pilots and 200 other aviation jobs such as flight dispatch, airport management and engineering. Trainees will largely come from China, however, a significant number of Australian pilots are expected to be attracted. Australian Wings Academy is one of three flight training organisations in Australia whose students are eligible for VET-Fee Help government loans to undertake commercial pilot license training courses.

A fully contained campus will be built on the airport including accommodation, sporting facilities and computer facilities. In the first phase of development five classrooms, three simulators and 14 briefing rooms will be built.

Hansford described the fleet and other improvements to infrastructure. “We will operate a fleet of 34 aircraft. Initially it will comprise Diamond and Cessna 172 aircraft, however, we intend to move to an all-Diamond fleet. This enables us to undertake all flight training in a multi-crew environment. We will be sealing runway 10/28 plus parallel taxiway and PAPI. The cross-runway will also be sealed. Within two to three years we will install an ILS. At the moment Tamworth is the nearest airport with ILS.”

The flight training school is expected to bring $24 million a year in economic benefit to the area, including 138 direct jobs. Mayor Price added: ********“The flying school will increase commercial activity, provide stable employment and will lead to growth in our population.********* Related industries will also come to the area. We expect tourism will also increase with families of foreign students coming to the town.”

Price goes on to describe the community view of the venture. “The venture had the clear support from the community. Some people living near the airport raised some objections about aircraft noise. Changing some flight paths and agreeing to have no flying after 10pm or on Sundays overcame these concerns. We also encountered some very small instances of bigotry about the changing nature of the community. In the end, the overwhelming benefit to our community overcame the objections.”

Construction of the flying school is expected to begin in November, with an opening planned for June 2014. Phase one will provide accommodation for 200 students. The planned capacity of 600 students will be reached in three years. Once accomplished it will have taken AAFT six years work and an investment of $2 million.

The development of the flying school venture at Glen Innes, while providing some hope, provides a stark contrast to other small regional airports without scheduled services. On top of little aviation activity they are often unable to attract non-aviation revenue from commercial use of this land. It is almost impossible to attract business activities to the airport when it is located outside the town boundary and where existing firms are struggling to remain viable.

Without additional revenue, the maintenance and occasional upgrade costs faced by small regional airports are a significant drain on council funds. Communities face the dilemma of how to fund these ongoing costs to meet the needs of emergency air services and often a small general aviation community.