Newcastle Airport deal was 'hard to justify'

TAXPAYERS in the North East were prevented from having any say on a major airport refinancing deal which could land the region with debts worth hundreds of millions of pounds.

Newcastle Airport

TAXPAYERS in the North East were prevented from having any say on a major airport refinancing deal which could land the region with debts worth hundreds of millions of pounds.

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.

However, The Journal revealed on Saturday that the airport company has not been able to pay back the loan and 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 refinances again in 2013.

Now we can reveal how senior council officers from three of the seven authorities emailed members of the LA7 board warning that the taxpayer could foot the bill if the mortgage could not be paid, but those pleas were ignored.

The Journal has also seen emails between LA7 board members discussing how to keep the decision to take out such a large loan out of the public eye.

Before the loan deal was finalised, an executive director from Sunderland Council wrote to the LA7 board: “We may be looking at a period of between 30 and 70 years ahead but I’m sure I don’t need to tell you that local authorities are in it for the long-term and taking money now may become a burden for council taxpayers in the future.

“This is very difficult to justify and may be considered imprudent. We have a duty to the taxpayer to achieve best value from our investments.”

Former airport chief executive John Parkin and former finance director Lars Friis ensured it was written into their contracts that they received a percentage of the loan amount as a bonus – Mr Parkin was due to receive 2% and Mr Friis 1%. The decision to approve the payments was not heard in a public meeting and was instead decided in secret by a remuneration committee of just five people – three of which were leading North East public officials.

Giving reasons for keeping the decision at an executive level, one council official wrote: “I must stress that the airport is potentially going to find itself in a situation that may have serious reputational consequences for the airport and executive directors.

“The legal consequences of getting it wrong are likely to be very expensive and time consuming. This is a really sensitive, risky situation.”

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 the now deceased Mr Friis.

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. The airport company is now suing Eversheds, the legal advisers for the deal.

Nearly every official involved in the 2006 refinancing 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.

Nick Brown, former Government minister for the North East and Newcastle East MP, has called for a police investigation into the dealings of those public officials involved in the refinancing deal and their efforts to keep it secret.

He said: “I find the facts of this investigation astonishing. How can the committee allow the two directors to take a percentage of what they borrowed? It’s outrageous. I mean these people are meant to be public officials.

“I find the details of the loan arrangement absolutely disgusting considering public money is involved. What makes it worse is that the public knew nothing of this and the debt could potentially fall on the public purse.

“The key thing here is the lack of transparency from everyone involved. I will be calling for the evidence to be passed over to the police because there could be potential for serious misconduct in the public office.

“I also plan to raise this issue in Parliament on behalf of the people of the North East. I’m extremely grateful that these details have now come out because the public deserves to know.”

Mr Parkin declined to comment.

Journalists

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Graeme Whitfield
Business Editor
Mark Douglas
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