Part 2: Events leading up to the decision to sell

Inquiry into the sale of Paraparaumu Aerodrome by the Ministry of Transport.

Paraparaumu Aerodrome

2.1
Paraparaumu is on the Kapiti Coast, north of Wellington. In the 1930s, the Government wanted to build an aerodrome there, for defence purposes. Between 1939 and 1949, the Government used its compulsory acquisition powers to obtain some 130 hectares of land. The aerodrome served as a defence facility during World War II, and reverted to civilian use after the war.

2.2
There were several development proposals for the aerodrome in the 1950s and 1960s. By that time, urban development was taking place on the Kapiti Coast. This had resulted in the aerodrome being surrounded largely by residential properties. Its suitability for expansion was therefore limited, although it served as Wellington’s main airport while the new airport at Rongotai was being constructed.

2.3
The aerodrome subsequently became a minor facility. It continued to be used for some government aviation functions – for example, the Civil Aviation Flying Unit (responsible for flight calibration) was based there for many years. But mostly it was used by aero clubs, flying schools, and small aircraft operators. Some aerodrome land was leased for other uses, both residential and commercial.

The Ministry of Transport

2.4
By the 1980s, Paraparaumu was one of many airports and aerodromes in which the Crown had an ownership interest. Some were owned jointly by the Crown and local authorities. Others were wholly owned by the Crown and operated by the Ministry. Paraparaumu was in the latter category.

2.5
In the mid-1980s, the Ministry was a large government department, with policy, regulatory, and operational functions. From that time, successive Governments separated off a number of its regulatory and operational functions. For example, the Airways Corporation was formed as a State enterprise in 1986 to operate the air traffic control system. The Civil Aviation Authority was formed as a Crown entity in 1992 to regulate air licensing and safety. Major airports, such as those at Auckland and Wellington, were corporatised and eventually sold. The Ministry also negotiated new arrangements with a number of local authorities with which it owned or operated airports on a joint venture basis.

First moves

2.6
The story of the Paraparaumu disposal began in 1988, when the Government decided that there was no justification for the Ministry to continue operating the aerodrome, and that it should be disposed of as a surplus asset.

2.7
For a number of reasons, the disposal had not proceeded by the time of the 1990 general election. The Government that took office after that election decided to introduce a capital charge on departmental assets. The aim was to create an incentive for departments to dispose of under-performing or unnecessary assets. Paraparaumu was one of 7 Crown-owned aerodromes that the Ministry of Transport operated at the time. None were considered capable of generating enough revenue to meet the proposed capital charge that the Ministry would have to pay in respect of them.

2.8
Accordingly, Ministers confirmed the previous Government’s policy of aerodrome disposal.

Obstacles to a sale

2.9
Disposal of Paraparaumu was problematic, for 5 main reasons.

2.10
The first was that the land for the aerodrome had been compulsorily acquired. Under the Public Works Act, the Government had an obligation (with one qualification – see paragraph 3.3) to offer land back to the original owners (or their descendants) if it was no longer needed for a public work.

2.11
The second reason related to the Treaty of Waitangi. The Court of Appeal had recently held that the Crown’s intention to transfer certain land to State enterprises without sufficient protection for Māori claims was contrary to the principles of the Treaty and was therefore inconsistent with section 9 of the State-Owned Enterprises Act 1986 (New Zealand Maori Council v Attorney- General [1987] 1 NZLR 641 – known as the Lands case). In the case of the Crown-owned aerodromes, the land was not subject to any legislative protection of that kind. Selling the land out of public ownership would remove the opportunity for it to be returned should there be a successful claim to the Waitangi Tribunal.

2.12
The third reason was financial. The commercial viability of the aerodrome and the other Crown-owned aerodromes was marginal, at best. In the late-1980s, the Ministry considered a proposal by Land Corporation of New Zealand Limited (Landcorp) to improve the aerodrome’s commercial viability by reducing its operational size and subdividing off the remaining land.

2.13
But it was not government policy at the time to undertake land development. In March 1991, the Minister of Transport advised Cabinet that–

Expedited disposal of [the Crown’s] aerodromes has become imperative because the Ministry does not believe it can generate sufficient revenue from the aerodromes to meet return requirements expected to be set under the proposed capital asset charging regime [due to be implemented in July 1991]. The problem in earning sufficient revenue stems from the return target that is expected to be set as well as an overvaluation of the aerodrome assets on the Ministry’s balance sheet.

2.14
It was thought unlikely that the aerodrome would ever be viable in a corporate structure. By 1991, its revenue position had worsened because of the closure of the Civil Aviation Flying Unit. Landing charges were not set at a level that enabled full cost recovery, and there were exemptions for some users. There was little prospect of any change while the aerodrome remained in Crown ownership and was earmarked for sale.

2.15
One of the options for securing a viable aerodrome operation under Crown ownership was for the Ministry to sell off aerodrome land that was surplus to requirements. But this would raise the issue of the Public Works Act requirements. Moreover, many of the properties that had been compulsorily acquired traversed the operational parts of the aerodrome (including runways and taxiways). Enabling former owners to exercise their “offer-back” rights could therefore frustrate continued operation of the aerodrome facility, and eventually result in its closure.

2.16
Ministry officials told us that the Government’s general policy position was that it wanted the aerodrome to continue operating if it was commercially viable, but that it did not want to make the decision about viability itself. Hence, it preferred to sell the aerodrome as a going concern and let the market (and/or the local community) decide about its continued operation.

2.17
The fourth reason was a related one, which arose from a combination of the aerodrome’s marginal commercial viability and the high value of the land if converted to other uses. The Government’s corporatisation policy at the time involved valuing assets on a “full-value” basis, in order to avoid economic distortion and maximise the Crown’s returns. But maximising sale proceeds could result in a purchaser deciding to offset purchase costs by converting the land to the most profitable form of use. That would conflict with Ministers’ desire to keep existing airports operational if possible.

2.18
The final reason was aviation-related. The Minister’s March 1991 memorandum to Cabinet noted the implications that closing the Crown’s aerodromes could have for safety and congestion at other airports. It said–

The closure of Paraparaumu, with 50,000 aircraft movements annually, would place an increased strain on general aviation traffic in the Wellington region. It is likely that this traffic would either shift to Wellington International airport, or possibly Palmerston North or Masterton airports. Wellington International airport, with 120,000 movements annually, is already experiencing problems with airways congestion at peak hours, and these problems would be compounded. There would be increased risk to aircraft safety, if Wellington were to be required to absorb increased general aviation traffic from Paraparaumu, especially following the increase in commuter airline traffic stemming from the recent withdrawal of Friendship services by Air New Zealand.
The Airways Corporation also considers that Paraparaumu should be retained and has stressed its importance in relieving general aviation congestion at New Zealand’s main domestic hub.

2.19
Ministry officials told us that these aviation issues made it desirable, although not in their view critical, that the aerodrome remain operational.

The corporatisation option

2.20
In response to this advice, Cabinet authorised the Ministry in March 1991 to hold discussions with Wellington International Airport Limited regarding a possible sale of Paraparaumu. The subsequent public announcement (made on 21 March 1991) said that the Government would consult with interested parties before making firm decisions on future management structures of its aerodromes, and that “it may be possible to arrive at a structure which would allow local communities to control and run their airports in a way best suited to their needs”. We were told that this policy position was similar to that which the Government was taking to joint venture airports which were of marginal commercial viability.

2.21
Cabinet considered the matter again in July 1991. The Minister advised Cabinet in respect of Paraparaumu–

Paraparaumu is unlikely to be commercially viable although it could be after an extensive land rationalisation programme. However, there has been interest shown in its purchase for continued use as an aerodrome but prospective purchasers are also likely to have in mind the development potential of the surplus land. On balance, I believe that the best option for Paraparaumu would be sale on an open market basis.

2.22
Cabinet agreed that the aerodrome (and others) should be sold, but made it a specific requirement that the purchasers keep the aerodromes operational. Further investigation took place on how this could be achieved. Special legislation was identified as the best option, but this would take some time to prepare. An immediate sale was therefore impractical.

2.23
A proposal then emerged in August 1991 to place the assets of each aerodrome in separate airport companies (under the Airport Authorities Act), which would be subsidiaries of a holding company established under the State-Owned Enterprises Act. The holding company would be known as Airport Holdings Limited (AHL).

2.24
The Establishment Board of AHL commissioned a valuation of the aerodrome in June 1992. The valuation concluded that the aerodrome would be uneconomic as a business. The main reason was that a large amount of capital and maintenance expenditure was needed to keep the aerodrome operational – but with insufficient increase in revenue.

The re-emergence of full disposal

2.25
In 1993, the Treasury and the Ministry concluded that the entire AHL proposal was uneconomic and should be abandoned, and that all the aerodromes should be sold. Advice was prepared for Cabinet recommending that it–

direct the Ministry of Transport, subject to fulfilling the Crown’s obligations under the Treaty of Waitangi and the Public Works Act, to offer for sale:
i the shares in an airport company established for each core aerodrome by:
EITHER
tender on the open market (preferred option):
OR
negotiation with user groups;
ii the surplus assets by tender on the open market where separate disposal is expected to maximise return;
agree that there be no restriction on purchasers designed to prevent closure of the aerodromes…

2.26
Ministry officials told us that the preferred option, if accepted, risked closure of the aerodromes. They told us that Ministers continued to baulk at the prospect that the aerodromes would be closed. But the option of negotiated sale to user groups was also considered unacceptable. A compromise position was therefore developed. It involved transferring the aerodrome assets to airport companies, followed by a sale of the Crown’s equity in each company at market value as a going concern, to parties that would be likely to continue operating the aerodromes – such as users, local authorities, or nearby airport companies. As a result, on 27 April 1993 Cabinet–

directed the Ministry of Transport, subject to fulfilling the Crown’s obligations under the Treaty of Waitangi and the Public Works Act, to offer for sale the shares in an airport company established for each core aerodrome by negotiation with user groups and/or other local groups, or by restricted tender involving user groups and/or other local groups;
invited the Minister of Transport to report back to the Committee on the use to which potential purchasers propose to put the aerodromes.

2.27
This Cabinet minute became the final authority for Paraparaumu Aerodrome to be sold. But the sale process took another 2 years to complete.

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