Funding arrangement for Singapore Airlines route

Kevin Lavery
Chief Executive
Wellington City Council
PO Box 2199
Wellington

Dear Mr Lavery

FUNDING ARRANGEMENT FOR SINGAPORE AIRLINES ROUTE

Singapore Airlines’ Wellington-Canberra-Singapore route started in September 2016. Media reports at the time questioned the basis of the decision to provide Council funding to support the route. Several members of the public contacted us to express their concern about the funding decision. The types of concerns from the media and members of the public included:

• an alleged lack of paperwork and analysis to support or document the funding decision;
• the ability of the Council’s Chief Executive to approve the funding without consideration by the Council; and
• a lack of transparency about the cost to the Council and its ratepayers.

The Auditor-General has the power to inquire into a public entity’s use of resources under section 18 of the Public Audit Act 2001. Factors that we consider when deciding whether to inquire include:

• whether the issues involve a public entity’s use of resources;
• whether there is any indication of systemic issues;
• the seriousness of the issues; and
• whether the issues are relevant to the wider public sector.

We did some work to help us decide whether a more formal inquiry might be needed. As part of this work, we met with you and your staff. We reviewed information and documents provided by Council staff, along with publicly available information, including long-term and annual plans. We also met with the Chief Executive of the Wellington Regional Economic Development Agency (WREDA) and obtained relevant information from WREDA.

Based on the information we have seen to date, we do not intend to investigate this matter further. We are publishing this letter on our website to give the public more information about the process that led to the funding decision.

Alleged lack of paperwork and analysis

We understand there was a series of meetings in 2015 between Council staff, Wellington International Airport Limited (Wellington Airport), and Singapore Airlines in the lead-up to the funding agreement. In December 2015, Wellington Airport presented a six-page written proposal that outlined the service and its expected benefits. The proposal also sought funding to contribute towards Singapore Airlines’ route development and marketing of Wellington as a new destination.

Around the same time, Council staff sought WREDA’s interest in supporting the proposal. This was necessary because the funding was to come from the Destination Wellington programme, which is funded by the Council but administered by WREDA. The Destination Wellington programme is part of the Council’s Economic Development Strategy, and aims to attract business, talent, and investment to the Wellington region.

The result was a funding agreement, signed in April 2016, between the Council, WREDA, and Wellington Airport. The Council’s Chief Executive signed the agreement on behalf of the Council.

The purpose of the agreement was to provide funding to Wellington Airport to help it meet its obligations under a contract with Singapore Airlines. Under the agreement, WREDA committed to make funding available to Wellington Airport from the Destination Wellington programme for “route development and marketing support”. The Council agreed to continue funding WREDA under the Destination Wellington programme.

We understand it is not unusual for airports or local authorities to provide marketing support or other incentives to encourage airlines to establish new routes. Media reports from Australia show that the Australian Capital Territory government and Canberra Airport offered Singapore Airlines incentives to establish the new route.

Council staff used their own modelling to see whether their estimates of the intended economic benefits to the Wellington region were similar to those in Wellington Airport’s proposal. Council staff used a more conservative scenario and created three models based on different numbers of flights each week. Based on that work, and the Council’s past experience, Council staff were satisfied that Wellington Airport’s description of the proposal’s economic benefits was reliable. We have seen the Council’s scenario modelling and a two-page bullet point briefing prepared for you on the proposal. These documents show that Council staff considered the economic and other benefits of the proposal, as well as the risks and how these would be managed.

The ability of the Council’s Chief Executive to approve the funding

In relation to concerns that the agreement did not go to a Council vote:

• Funding is coming from the Destination Wellington programme, which WREDA is responsible for administering. WREDA’s Board gave approval for WREDA to enter into the agreement. There is no requirement for WREDA to seek Council approval.  
• The agreement is in place until June 2025, which is in line with the Council’s current long-term plan. Under that long-term plan, WREDA is to receive annual funding for the Destination Wellington programme.
• We also understand that Council staff considered whether you could sign the agreement on behalf of the Council.
• Under Wellington City Council’s Terms of Reference and Delegations for the 2013/16 Triennium (adopted by Council resolution and in place at the time the agreement was signed) and Delegations Policy (as at October 2015), the Chief Executive had the power to commit to operating expenditure to give effect to the Council’s long-term plan and annual plan, as long as the expenditure was within the budgets set by those plans.
• Part C of the Council’s long-term plan includes a group of activities relating to “City promotions and business support”, which includes funding for WREDA. The service offerings listed for this include promoting Wellington to visitors, building international relations, attracting and supporting business activity, and exploring “major economic development initiatives such as… airline attraction”

A lack of transparency about the agreement

You and your staff have said to us that details about the cost of the agreement remain confidential because of the particular commercial realities of the airline industry and the potential to prejudice future negotiations. We acknowledge that the concerns about transparency may have come from the Council’s response to official information requests. The Ombudsman is the appropriate agency for considering these concerns. However, we do encourage you to consider whether there is any more information about the agreement or the process leading to the agreement that the Council can release publicly. We hope that publishing this letter on our website will provide greater transparency about this process.

Thank you for the assistance we received from you and your staff.

Yours sincerely

David Lemmon
Inquiries Manager

Cc Chief Executive, Wellington Regional Economic Development Agency