The buy out of the PFI has been achieved through the purchase by HIAL of Inverness Air Terminal Limited (IATL), the PFI concession company.

HIAL purchased IATL from Elbon PFI Fund Limited, part of the Infrastructure Investors (I²) group. The purchase has been funded by the Scottish Executive via a grant to HIAL which covered both the purchase price and potential tax exposure for I².

The cost of HIAL purchasing IATL was £27.5 million with an additional sum of up to £8.4 million being paid to indemnify I² against potential tax exposure, including tax losses and payment of corporation tax due.

The buy out represents value for money compared to the projected £73 million cost of the PFI running its full term to 2024. The deal consolidates HIAL’s control of the business at Inverness and the immediate impact will be that passenger growth will no longer be penalised by escalating PFI charges and HIAL will have access to the non-aviation revenue streams from car parking, concessions and franchises that IATL received under the terms of the PFI contract.

Inverness is the largest of 10 airports in the region operated by HIAL, a limited company wholly owned by Scottish Ministers. It is the fastest growing airport in the region and has seen passenger growth of 63% since 1999 as a result of route development and air service enhancements. The airport is on target to handle a record 625,000 passengers in the year ending 31 March 2006. Research published last year showed that Inverness Airport, an important gateway for business and leisure travel, currently provides an annual economic output of £120 million and supports 2,300 full time equivalent jobs in the Highlands.

The Inverness Airport passenger terminal facility has operated under a PFI contract since 23 May 1999. At the time the PFI deal was signed in 1998 it was regarded as providing the best value for money option to replace the obsolete terminal building which dated from 1972. It was envisaged that the costs of the PFI would be largely offset by growth in landing charges at Inverness. However, since 1998 fundamental changes have occurred in the aviation market. As a result of the passenger growth achieved at Inverness the costs of the contract significantly increased while at the same time HIAL’s ability to generate income from landing charges diminished.

With the PFI issue now resolved Inverness Airport has the potential to become a successful business that operates without the need for revenue subsidy. HIAL therefore aims to achieve market value returns from the asset over the coming years while ensuring that it continues to develop as the region’s air transport gateway.

With the purchase of IATL HIAL is therefore better able to:

• work with the market to develop new and existing air routes and services that benefit business and tourism;
• control costs and investment;
• reduce the overall requirement for revenue subsidy through efficient business practice and the development of new and existing revenue streams; and
• develop the airport to profitability.

The airport’s performance and outputs going forward will thus provide best value for the region, the Scottish Executive and the public purse.

The news was welcomed by Minister for Transport Tavish Scott who said: “I look forward to the passenger numbers, airlines and economic activity growing as a result of this change. Inverness is an exciting, vibrant city, Scotland’s fastest growing city and the change will help in the development of Inverness and the surrounding area.

“Removing the PFI contract from the Inverness airport terminal will have a major impact on the economy of the Highlands and Islands. It will allow Inverness airport to attract new airlines and new routes and therefore increase its competitiveness.”

Inglis Lyon, managing director of HIAL said: “The buy out figure represents value for money over the projected cost of the PFI contract running its full term. It allows us greater flexibility in managing our business as we will no longer be financially penalised for increasing passenger numbers. It also unlocks the potential for us to bring Inverness Airport into profitability thus eliminating the need for revenue subsidy from the Scottish Executive in the future.

“By funding this buy out the Scottish Executive has shown great commitment to the long term development of a major driver in the regional economy. I am sure that all those with an interest in the future economic and social prosperity of the region will join us in welcoming the resolution of this issue which could not have been achieved without the support of the Minister for Transport, his colleagues and the team at HIAL – all of whom have worked tirelessly on the buy out for over two years,” said Mr Lyon.