AN airport re-financing deal which could leave North East taxpayers with a debt worth hundreds of millions of pounds has been raised in Parliament.
Two former executive directors at Newcastle International Airport Ltd, which is partly-owned by the region’s seven local authorities, were each paid millions of pounds for securing a £377m mortgage as part of a refinancing deal with the Royal Bank of Scotland in 2006.
A remuneration committee of five people – including three North East public officials – approved the deal, which saw former chief executive John Parkin receive 2% of the mortgage and former finance director Lars Friis receive 1%. Up to £83m was shared between all seven local authorities as a result of the refinancing deal.
However, a decision was taken not to refer the deal to a full council meeting – to prevent it from being made public.
The Journal revealed last month that fears are growing that the region’s councils, known as LA7, may be responsible for clearing much of the current debt, believed to be around £325m, before it re-finances again in 2013.
As a result of The Journal investigation, Newcastle East MP Nick Brown raised the issue in the Houses of Parliament, asking the Government to investigate whether the actions of those involved in the deal were lawful.
Mr Brown, former Government minister for the North East, has also written a letter to Chief Constable of Northumbria Police, Sue Sim, calling for a police investigation into the circumstances of the refinancing deal.
A police spokesman last night confirmed the force had received the letter and it would “consider” its contents.
Mr Brown told The Journal: “When I heard about this scandal I immediately planned to raise the issue in Parliament because I wanted to know whether or not it is common place for these directors to have been paid such huge bonuses for simply taking out a loan.
“As public money is at stake, I think everyone involved in the deal had a duty to the public. I think it’s disgraceful that public officials allowed the directors to be paid a percentage. By giving them a percentage, it gives them an incentive to take out a large loan, which now seems to have landed the airport in huge debt. Now it’s taxpayers who may suffer because of it.”
After Mr Brown raised the issue in Parliament, Local Government Minister Bob Neill said the forthcoming Localism Bill would demand greater transparency for any financial deals involving public money.
Mr Parkin, now chief executive of Leeds Bradford Airport, was suspended after details emerged of the controversial £8.5m bonus packages paid to him and Mr Friis, who has since died.
The airport company then launched legal action against the pair but an out-of-court settlement was reached in October 2008 and all parties entered a confidentiality agreement to ensure the details remained private.
Mr Parkin was believed to have been paid £2m in an out-of-court settlement and the estate of Mr Friis is said to have received £1.7m. The airport company is now suing Eversheds, the legal advisers for the deal, in an attempt to claw back some of the millions paid to the two directors.
Nearly every official involved in the 2006 re-financing deal now has no involvement with the company or LA7. Iain Malcolm, leader of South Tyneside Council, is the only person who continues to be involved in decision-making processes.
The Tyne & Wear district councils – Newcastle, Sunderland, Gateshead, North Tyneside and South Tyneside, and the county councils of Northumberland and Durham – own 51% of the airport’s shares. The rest are owned by Copenhagen Airports. Up to £83m was shared between the seven local authorities as a result of the refinancing deal.
A spokesman for LA7 said: “The airport executives in question were employed by the airport, which is a private company. They were not public servants. In agreeing their contracts, the remuneration committee – made up of representatives from the LA7 authorities and Copenhagen Airports – relied heavily on external professional advice.
“When the scale of the bonus payments became known, it was apparent that the remuneration committee had been poorly advised. The LA7 authorities, through the airport board, acted swiftly and robustly in the interests of taxpayers to initiate legal action which led to proceedings to halt the payments and recover the money through the High Court.
“The airport board also sought legal counsel on taking criminal action but was advised that there was not enough evidence to pursue this at the time.
“However, if further evidence does come to light, the airport board will not hesitate to take criminal action.”
A spokesman for the airport company said it could not comment due to the confidentiality agreement entered by all parties following the out-of-court settlement in October 2008.