Here is just a small part of the EY audit draft report that I have got hold of and that I would speculate the Council doesn’t want you or the public to see. This section concerns the DCO together with its opening remarks in reverse order. There is more but it is too long for Pprune.
This is published here due to the Council muting and so suppressing a meeting open to the public.
DCO
To support our work in this area we commissioned EY Corporate Finance aviation specialists and reviewed the relevant work of the LLAL component auditor PwC. Corporate Finance’s remit was to review the rationale for capitalisation of DCO costs for the purposes of group accounts, in light of the significant impact Covid-19 has had to date and the uncertainties it raises for the future of the aviation industry and for London Luton Airport specifically. Further, the concession agreement with the Airport operator results in additional factors that need careful consideration in relation to expansion. The work of Corporate Finance included:
• An overview of the planning environment for airports through independent research of airport expansions in the UK.
• Obtaining and reading documentation which supports the feasibility of the DCO.
• Review of financial modelling supporting the DCO.
• An expert view on the incentives in the existing concessionaire agreement for the operator to
finance each phase of the Airport expansion schemes proposed in the DCO. The proposed expansion of the Airport is split into three phases:
• Phase 1 which is for adaptations to the existing Terminal 1 to increase the capacity of the airport
to 21.5 million passengers per annum (mppa) at a cost of approximately £274 million.
• Phases 2a) and b) which is for the addition of a new terminal and related infrastructure works to
increase the capacity of the airport to 32 mppa at a cost of approximately £2.7 billion
Based on the results of this work and other relevant factors we have concluded that expansion of the airport in line with phases 2a) and b) of the DCO is highly speculative, uncertain and is likely to have a reduced net present value. This conclusion is supported by the findings of the Council’s own external expert, Arup. The modelling performed by Arup does show an increased net present value of the Airport for phase 1. However, at this point, planning permission has not been obtained beyond 18mppa, there is no approved business case for the scheme and the financing and viability of Phase 1 remains uncertain. Further, under the terms of the concession agreement, the Council does not have contractual rights to enforce the concessionaire to undertake and finance expansion of the Airport. The Council will need to renegotiate the concession agreement to seek the concessionaire to carry out the expansion. There is no assurance that such an arrangement could be reached on mutually acceptable commercial terms.
In addition, further risks to expansion to Phase 1 could be brought about by ongoing legal challenges, objections, and environmental considerations.
DCO (continued)
In addition, further risks to expansion to Phase 1 could be brought about by ongoing legal challenges, objections, and environmental considerations. All the factors pose a significant risk to deliverability and timing of proposed phase 1 expansion.
Considering all of this we have concluded that a material value of capitalised expenditure at the end of 2018/19 on Luton Airport expansion schemes in the Council’s group financial statements does not meet capitalisation criteria under IAS 40 as an investment property asset under construction. We have not been able to obtain sufficient and appropriate evidence from the Council that the costs incurred to date on the DCO application are all, or in part, eligible to attributable to phase 1 of the proposed expansion. We are unable to conclude whether any of the £20.3million of capitalised costs have been reliably measured and accounted for as a capital asset in the group financial statements as at 31st March 2019. We therefore propose to qualify the 2018/19 financial statements opinion in the form of a limitation of scope.
As a result of significant weaknesses in the Council’s procurement and contract management arrangements and related breaches of laws and regulations, we have concluded the Council does not have proper arrangements to ensure it took properly informed decisions and deployed resources to achieve planned and sustainable outcomes for taxpayers and local people.
We have fed back to the Chief Financial Officer that the revised unaudited 2018/19 financial statements presented to the 28th July 2022 Audit and Governance Committee contained fundamental omissions in the accounting and disclosure on the valuation of Luton Airport and significant errors and inaccuracies in the updated critical judgements and post balance sheet event disclosure notes.
We therefore propose to issue an adverse qualification of our 2018/19 Value for Money conclusion.
Last edited by LTNman; 21st Jul 2023 at 06:08.