Auckland Airport shares

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Policy on Auckland Airport shares

An amendment to Auckland City Council's 2006-2016 Long Term Council Community Plan

• Background
• How the long-term plan has been amended
• Public feedback
• Possible levels of ownership
• Possible implementation options
• General assessment criteria
• Key objectives and criteria
• Changes to significant assumptions

This policy is also available in pdf format

Policy on Auckland Airport shares: An amendment to Auckland City Council's 2006-2016 Long Term Council Community Plan (87kb) PDF

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Background

Auckland City Council currently owns 155,766,240 shares in Auckland International Airport Limited which equates to a 12.75 per cent shareholding.

Following public consultation, the council has decided:

1. not to sell down its ownership interest in Auckland Airport below 12.75 per cent, and
2. to amend Auckland City Council's long-term plan to include a policy on ownership options for the council's Auckland Airport shareholding which retains at least the council's 12.75 per cent ownership interest but maximises returns and strategic benefits from that asset.

How the long-term plan has been amended

Section 5 of the Local Government Act 2002 (LGA) defines council's shareholding in Auckland International Airport Limited as a strategic asset. Under section 97 of the LGA, a transfer of ownership or control of a strategic asset can only occur if the decision to do so is provided for in the council's Long Term Council Community Plan (long-term plan).

This policy sets out the range of possible changes in ownership arrangements provided for by the amended long-term plan (all of which retain at least the council's 12.75 per cent ownership interest) and the key objectives and criteria that council will apply when evaluating proposals relating to its Auckland Airport shareholding.

The amended long-term plan does not provide for any sale of the council's shareholding in Auckland International Airport Limited below 12.75 per cent, except as a technical step in a restructuring transaction that would result in Auckland City Council holding not less than a 12.75 per cent ownership stake in Auckland Airport.

Public feedback

To seek public feedback the council developed consultation materials in accordance with LGA requirements. The statement of proposal sought to amend the long-term plan to allow the council to transfer ownership or control, or restructure its interest in Auckland Airport if doing this is in the best long-term interests of the residents and ratepayers of Auckland city. It also sought feedback on the council's potential ownership options in relation to its shareholding and the criteria to be used by the council to assess its options.

The consultation process was widely promoted and potential submitters had a range of submission options. The special consultative procedure commenced on 15 July 2007 and submissions closed on 15 August 2007. Overall, 614 submissions were received. Public hearings were conducted on 27 August 2007.

Respondents indicated strong opposition to selling the shares (91.3 per cent opposed) and to decreasing the council's stake in Auckland Airport (90.8 per cent opposed). Respondents were somewhat less opposed to restructuring the council's shareholding in Auckland Airport (50.5 per cent opposed). 50.9 per cent of respondents supported increasing the council's stake. The major themes in qualitative responses concerned foreign control, the importance of financial returns (in terms of dividends and capital appreciation) and the need for retaining some public ownership. The results of public consultation endorsed the criteria outlined in the statement of proposal.

Possible levels of ownership

Under this policy, a change in ownership is only provided for if the council's ultimate stake in Auckland Airport is at least 12.75 per cent. Council has not yet decided whether or not it will change the size of its stake in Auckland Airport , rather this policy provides for two possible options for the level of council's ownership or control:

• maintaining its stake at 12.75 per cent
• increasing its stake above 12.75 per cent.

Possible implementation options

Implementation of a change in ownership or control of some or all of its shareholding in Auckland Airport or a restructure of council's interest in Auckland Airport may take place by any of the options listed below, or in combination of those options, or in any other ways that satisfy the six general assessment criteria we set out later in this document:

General assessment criteria

Council will assess all options that may become available to us against the following general criteria. In applying these criteria council will follow the decision making principles outlined in the LGA and consider the specific feedback received from the public consultation process.

1. Feasibility: The likelihood of successfully implementing the option, as measured by the extent of tax, legal and other issues which would need to be worked through to successfully implement the option.
2. Strategic value: The impact in terms of council's long term objectives, desired community outcomes and the broader public interest. This would be reflected in factors such as:
   • council's ability to appoint directors to the board of Auckland Airport
   • council's ability to have input into the management of Auckland Airport
   • the level of public scrutiny of the management of Auckland Airport
   • the level of New Zealand ownership of Auckland Airport
   • the council's ability to block a full takeover of Auckland Airport or otherwise block ownership changes that could significantly impact on the business plan and operations of Auckland Airport
3. Financial returns: the impact on council's projected after tax cashflows over the remaining period of the 2006-2016 long-term plan and beyond.
4. Liquidity: the ability of the council to quickly change its shareholding to cash if required. This would be reflected in factors such as whether council's shares can still be traded on the New Zealand Stock Exchange, the likely number of buyers for council's shareholding and any new procedures or restrictions which may be put in place in relation to council exiting its investment.
5. Risk: the likelihood and impact of negative consequences. This includes any operational risk associated with changes to the management or operation of Auckland Airport as well as the financial risk associated with an increase in the level of debt funding of Auckland Airport. A higher level of debt would reduce Auckland Airport's capital expenditure flexibility and increase the risk associated with the ability of Auckland Airport to make future distributions to shareholders.
6. Overall impact: the overall impact on the current and future social, economic, environmental, and cultural well-being of the community. This assessment will include the likelihood of Auckland Airport's role as an integral part of our regional and national transport system being compromised.

Key objectives and criteria

When applying the general assessment criteria to evaluating proposals that may be put to council regarding its stake in Auckland Airport, council will consider the following to be key objectives and criteria:

1. no single investor controlling 50 per cent or more of voting rights in the Auckland Airport
2. maximising both long-term and short-term financial returns
3. the council being able to influence the governance and strategic direction of Auckland Airport
4. any significant new investors being committed and able to contribute to the sustainable long-term development of Auckland Airport
5. agreement that the council's ownership or influence will not later be diluted/reduced in circumstances outside its control
6. ongoing listing of Auckland Airport on the New Zealand Stock Exchange
7. no reduction in council's stake in Auckland Airport below 12.75 per cent.

Changes to significant assumptions

Auckland City Council's 2006-2016 long-term plan contains a section entitled "Significant Assumptions" in which assumptions are made about the council's shares in Auckland International Airport Limited and the dividends council receives from that shareholding. Previously it was assumed that dividend income and the value of the shareholding would not change over time.

The text of these assumptions previously read:

Since the manner in which the restructure or transfer may be implemented is unclear, there is now a significant degree of uncertainty associated with the financial benefits arising from the council's shareholding in Auckland International Airport Limited. Given this uncertainty, the council will continue to base its financial forecasts on the assumption that there will be no change to dividend income or the value of council's shareholding over time.

The amended assumptions will now read:

Updated December 2007