Column: Airport Project ‘Badly Unbalanced Trade’
[Opinion column written by Larry Burchall]
With this $200 million two year Loan Facility the Bermuda Government has just dragged all of us lot deeper into the quagmire that the Bermuda Government self-dug between 2004 and now. If the Bermuda Government succeeds in dragging all the rest of us even further into its self-made muck, this country won’t get out of it in a whole generation.
Jamaica went into a steep economic decline in the 1970’s. Forty years later, in 2015, Jamaica is still struggling to emerge from the impact of the national political decisions made in the 1970’s. In 2015, Bermuda is struggling with the fallout from the 2004 national political decision to switch to a policy of consistent overspending. What has already happened in Jamaica, and is beginning to happen in Puerto Rico, is also happening here in Bermuda; with Bermuda and Puerto Rico sharing uncomfortably close parallels.
The Government is now on the cusp of making the second of two critical decision mistakes. It’s that Airport scheme.
Giving away $620m of future revenue and foreign exchange [See Notes 1 and 2] to Aecon for a new Airport is a bad idea and will be a bad decision with deep and bad long term impacts.
An Honest And Complete Comparison Of All The Core Facts:
CCC/Aecon Build Plan – Renovate, Repair, Rebuild
A – $275m overall but 40% overseas for materials – $89m overall but 30% overseas for materials
B – $165m net investment in Bermuda – $60m net investment in Bermuda
C- Overseas developer will retrieve $275m – No requirement to retrieve any funds
D – $275m in foreign exchange taken out – No requirement to pay out foreign exchange
E – Give away $620m in future Gross Profits – Keep $620m in future Gross profits
F – Project to last 3.5 years – Project requires 5 years
G – Provide 110 Bermudian jobs a year for 3.5 years – Provide 40 Bermudian jobs a year for 5 years
H – No Government loan/borrowing required – No Government loan/borrowing required
The Full Background With Essential Explanations.
One – Government’s Greatest Current And Future Need Is For Revenue
Now and for the next fifteen years, the Bermuda Government’s most pressing – perhaps even desperate – need is and will be for sufficient annual revenue to carry Nanci[*] at Nanci’s extremely high cost. Nanci is currently $169.9m a year and 18% of [projected] revenue.
With our new $200 million borrow, the Government has just guaranteed that Nanci will rise to $184.4m by early 2017 – or before. By then, Nanci could be an even larger percentage of Government’s revenue that has stagnated under $915 million since 2011. [[*]Nanci = NNC = Non Negotiable Costs = Debt Service Costs]
Two – Government Has Just Created A New And Bigger Profit Stream At The Airport
The Airport Departure Tax was increased by 43% going from $35 to $50. Considering all other Airport revenues and expenses, it meant that for 2015/16 and into the future, the Airport was specially singled out and given a new projected annual “gross profit” [excess of revenue over expenses] of $11.49 million a year [See Note 1]. All of this increase in the Departure Tax is ‘earmarked’ for the proposed developer.
Additionally, with effect from mid-2015, a $16 surcharge on all passenger tickets has been imposed. According to Minister for Home Affairs Senator Mike Fahy: “… the new fee should generate an annual revenue stream of approximately $6.25 million.” [See Note 2]
Under current proposals, that newly created annual gross profit plus the newly added “revenue stream” – together totalling $17.74 million – would be given away to Aecon for 35 years in exchange for a temporary three year boost in employment generated by the nominal $275 million dollars [but only $165 million net investment in Bermuda] that Aecon might put up in building a new airport.
During the planned three-year CCC/Aecon building phase, $53m in gross profit plus new revenue stream [total gross profit] will come to Government. After that, Government gets zero revenue from the Airport. Aecon will begin getting all of that revenue and will carry most – but not all – of the expenses [See Note 1].
If that happens, then by 2019, heading into 2020, just when the Bermuda Government begins facing its highest ever revenue needs; the Bermuda Government will start giving away real revenue [gross profit] of at least $11.49m plus the new ‘revenue stream’ of $6.25m [total $17.74m] a year. All of this money will be paid over in foreign exchange – which must first be earned.
Three – Government Will Be Stripping Itself Of Financial Power.
At an [adjusted] average 5.09% rate of interest on Government’s total [adjusted] $2,385 million Debt, that $17.74m of total Gross Profit can carry $348m of Debt. Under present plans, Government would, therefore, be stripping itself of the capacity – and the foreign exchange – to carry $348m of the huge $2,385 million Debt – with $2,335 million denominated in foreign exchange – that Bermuda will be struggling with in July 2017. That stripped away capacity will have to be replaced from somewhere else within Government’s shrunken revenue stream.
Four – Another Option
A different Airport plan? Keep all the future revenue streams and repair and renovate instead of new build. Earmark three to five years of that just increased $17.74m of total gross profit. Use that earmarked cash build-up to renovate and repair the Airport, ensuring that maximum efficient use is made of Bermudian labour and indigenous materials. These repairs and renovations would inject a nominal $53m – $89m into Bermuda’s economy while fixing the airport and creating jobs; but still retaining the future profit streams. This fixes the Airport, maximizes future revenue, and leaves Government best placed to deal with an increased Nanci.
Summary of points One to Four:- Giving away $620m[*] of foreign exchange and future “total gross profits” in exchange for a short term gain of three and a half years of jobs resulting from $165m of total net inward investment is a badly unbalanced trade. Over the long term, the Bermuda Government loses thirty-five years of desperately needed revenue and will be forced to compensate by continued borrowing – or severe cutting. [[*] $17.74m x 35 years = $620.8m]
Giving away $620m in revenue would be a bad and wrong decision. Cabinet must not, again, make a bad and wrong decision, especially of this magnitude.
Five – Yesterday’s Bad Decisions Create Today’s Problems
Everyone should realize that, as in 2004, a bad decision in 2015 will lock in the next two to three – or more – Administrations and their Cabinets and Finance Ministers.
We are currently living the example. The original decision to overspend and consequently build up massive national Debt was made eleven years ago in 2004 by a previous Finance Minister and agreed by a previous Cabinet under a previous Administration. The Grand Atlantic housing units mistake and the $22m a year overbuild of the new hospital wing are two more examples of yesterday’s bad decisions that haunt today’s decision-makers.[See Note 3]
Eleven years on, in 2015, under a changed Cabinet, different political Administration, and new Finance Minister, the entity called the Bermuda Government still has not broken the pattern of overspending and borrowing that was originally set in motion eleven years ago. This 2015 Administration and Cabinet and Finance Minister have been ‘locked in’ by that and other decisions taken in 2004 and subsequent years.
Bermudians Need To Think, Think Hard, Think Clearly, And Think Ahead
This Cabinet and this Minister for Finance need to re-think the Airport situation. On current form and in the real world in which we live, the CCC/Aecon decision will be a bad and wrong decision.
Everyone should realize that Bermuda is less than twenty-eight months away from an election. Bermuda will start 2018 either with this current political Administration and Cabinet with a few new Cabinet Ministers; or an entirely new political Administration and Cabinet with an entirely new set of Cabinet Ministers.
Conclusion
Bad Cabinet and bad Ministerial decisions taken in 2015 will have a negative impact for a long, long, time. A Cabinet decision to build a new Airport and consequently give away $620m in Gross Profits and foreign exchange will be a bad decision that will harm Bermuda for years to come.
This Administration’s Cabinet Ministers and Finance Minister must not throw away $620m Gross Profits and foreign exchange by deciding to build a new Airport. Instead, they must demonstrate common sense and fiscal prudence and use those newly created Gross Profits to carry Bermuda into 2019 and beyond.
Use five years [$89m] of these just enhanced [future] Gross Profits to provide new and additional jobs. Keep that $620m of future Gross Profits flowing into Government’s coffers – which all Cabinet Ministers must know, or should know and understand, are emptying – which is why that $200m was borrowed.
Note [1]:- Government accounts set out in Government’s Budget Book for 2015/16 show these revenue and expense figures for the L F Wade International Airport:
2014/15 – 2015/16
Total revenue from all Airport Operations - $10,712,000 - $10,818,000
Total revenue from Airport Departure Tax - $13,484,000 - $20,000,000[*]
Total Revenue from all activity at the Airport - $24,196,000 - $30,818,000
Total expenses for all Airport Operations - [24,395,000] - [19,331,000]
[Loss]/Income From The Airport - [$ 199,000] - $11,487,000
[*] Increase is a result of the $15 [$35 - $50] increase in Airport Departure Tax.
The proposed CCC/Aecon deal will leave the Bermuda Government still paying for the runway maintenance and Bermuda Fire Rescue Service support. These two additional infrastructure costs currently amount to well over $3 million a year. Therefore, over 35 years, the Bermuda Government would still pay that $105m – $140m expense.
Note [2]:- [All underlining by me] In the Senate on July 27th, Senator and Minister for Home Affairs M Fahy told the Senate [and therefore all Bermuda]: “Senate will be aware of the need to redevelop the Airport facility and this Government remains committed to bringing about a solution that would enable us to realize that objective. When pursuing a major capital investment the size and scope required in Bermuda, Airports typically look to introduce an industry-standard, Airport Improvement Fee [AIF] to help finance the project.
Accordingly, the DAO proposes a flat rate of $16 be applied to the passenger ticket as a supplemental charge. The funds accumulated would be placed into an escrow account and in accordance with the International Civil Aviation Organisation’s [ICAO] requirements for AIFs, be earmarked solely for civil aviation services and projects.
Minister Fahy also said: “….the new fee should generate an annual revenue stream of approximately $6.25 million.”
Note [3]:- [a] The previous Administration’s 2010 decision to use a PPP to build the new wing at KEMH – an addition that many argued was not needed – has left BHB [which is underwritten by Government] to find an extra $22 million a year for repayments; with the first payment due in 2015. This new and added $22 million a year extra payment is what’s driving up 2015’s Health Insurance costs.
[b] The previous Administration’s 2010 decision to go ahead with building those 76 Grand Atlantic housing units was taken when Bermuda’s ResPop was already falling and demand for housing had already evaporated. Those 76 un-needed and – proving the point of un-need – unsold housing units have simply added to 2015’s housing ‘glut’.
- Larry Burchall
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As a young Bermudian male with, I admit, little to no interest in politics, but a fairly good understanding of economics and finance. Can someone explain to me how giving away 620 million of our county’s future revenues away, when we are already severely in debt, makes sense? I landed at the Bermuda airport a few weeks ago, with no issue thankfully. No pot holes were on the runway, there was a clean terminal to get my bags. Why is building a new airport more important than balancing our crippling debt?? I’m lost. I really dont want to inherit a financial mess from “grown ups”.
I am still not sold on the airport plan either and would like to see a comprehensive breakdown of future cashflows for both building a new airport and refurbishing the existing airport. I understand that the maintenance costs at the present facility are growing (exponentially?) and I whether or not we try to refurbish the location will remain susceptible to storm surge damage which raises the question of sinking good money in the wrong facility. I am not sure where Mr. Burchall got the $89M to “renovate, repair, rebuild” and I would like to know how much useful life said monies would add to the existing terminal.
Minister Richards laid out arguments for a new airport, but I would certainly appreciate seeing the figures fleshed out so that both options can be compared and debated.
Spot on Mr. Burchall, I do agree with you in regards to this AIRPORT FAILED DEAL. I seldom do on some matters. But, this one is like Burt and Scott has also indicated……..its not right…..really
Be careful Mr. Buchall some of the Defenders will reject your findings if they interpret it as going against the OBA, rather than looking at it from an objective perspective.
Becareful, Step cautiously, if they do not like your analysis you might end up in court before a judge.
Your analysis is correct. WE do not at this time need a new Airport. But how do you now convince MP Richards? He is known to be extremely stubborn on most days. I think “People Power ” can do it.
I hope people see the importance of this
Airportgate.
Predictable. Betty hates the idea that hundreds of jobs might get created without adding a penny to Bermuda’s debt. Yet she’s ok with employing three thousand public employees that we don’t need.
No Betty hates as Mr. Burchall so clearly pointed out above, and my position has always been against the airport…he cites some Real reason for us not doing it AT THIS TIME……..this is not the best time…….
Agree or disagree, this is an exceptionally well-reasoned and constructive commentary. Good job. I am eager to see comments and reactions that are similarly rational and constructive.
One thing, if more maintenance is required and at an accelerating rate, then the expenses should be increasing, not decreasing. Why has Larry ignored that.
Now watch the bloggers vilify Larry Burchall because he isn’t supporting an OBA project yet prior to 2012, they loved his columns when they criticized the PLP.
Watching: Thanks for the hateful comments. As always, very helpful. As an OBA supports (most of the time) I would like to see the PLP take up the reins on what Larry has outlined in this article. This discussion should be: How bad does Bermuda need an airport and can we afford one? If so for how much. End of story. A mature, measured conversation on the basic facts. Jumping up and down and making corruption claims and issuing email etc. is nothing more than political point scoring and not what the opposition should be doing.
I wonder how interesting it would be to see Larry on a publicly televised discussion with a few finance ministers (past and present) and all of those People’s Campaign top guys.
people’s crapp I mean campaign have no business here !
I think the oba is going to need a bigger boat to catch Larry. Larry my friend please pass the tarter sauce you caught Minister Richards hook line & sinker.
This is NOT a matter of one person “catching” the other. Has nobody ever told you that rational people of good intent can disagree on things from time to time. Your juvenile response is not in any way enlightening nor constructive.
I would like to see a source for Larry’s assumption of 110 jobs a year for 3.5 years. One of the major benefits of this project is to help fulfil the promise of 2000 jobs, which everyone is crying out for. Based on public statements by Bob Richards, the airport project will generate hundreds of jobs, in the region of 400, in the construction phase and will also be hiring more staff than are currently hired, to run the new facility once built. Please can Larry give his source for the potential jobs number he has come up with. It does not correlate with what I have heard from the Govt. on numerous occasions and is a crucial element to any discussion on the pros and cons of such a project.
Yes, this a a very bold move by the OBA and they will be judged by it, amongst other initiatives. Even the plp recognise the need at this time for bold ideas. I still feel that if carefully executed, the airport project will work to the benefit of Bermuda. The idea of repairing the old terminal again, is really throwing good money after bad at this point and along with the vulnerable location of the existing terminal, would not be a wise move as sea levels continue to rise… We rely on those with bold vision to get us to a better place.
The KEMH new wing had a final – audited and reported – cost of $264m. It started in 2010 and completed in 2014. So it was about the same size and took the same time as this proposed CCC/Aecon project.
1. The KEMH project did not employ 600 workers day-in-day-out week in-week-out over every year for three and a half years. Over time, however, 600 people in various trades might have passed through the project. The real question is:- How many workers, on average, will be employed every day, day-after-day, week-after-week, for the whole 1,275 days that the proposed CCC/Aecon job is projected to take?
2. In a March 2015 Town Hall, the Minister did actually promise ’600′ new jobs. Check Bernews video of that meeting and you will hear him make that promise. Then set that vague political promise into the real world of absolute ‘profit and loss’ where you go bust if you get it wrong.
Larry
In regard to your comments on the increasing health care costs, please look at the annual financials of Bermuda’s health insurers published on line by the Bermuda Monetary Authority. Net profits for Colonial Medical alone for the years 2009-14 total $51.46m. Add in BF&M and Argus profits for the same period and ask why this cost is built into our health care system.
Very bold is not a comforting conclusion – much prefer smart and reasoned…
If these numbers are correct you have just changed my mind on the need right now for a new Airport. The numbers speak for themselves. Come up with a plan to fix the airport for the next 5 to 10 years and see where we are at. Install Jetway’s that can be reused on any new development in the future as it is so tacky and costly to have to walk out on the runway and waste so much labor in security and others doing this. It does not take a brain surgeon to figure out the salaries for doing this would pay for the Jetway’s. Build a new shed for cargo next door to it/ increase the cost for fright to pay for it.Demolish the one there do not fix it.make it 2 story and out the mail sorting upstairs.
Do not give away our revenue for 30 years please. It does not make sense. Why is the minister not saying anything ref the new bridge that must be built and where the money will come from for the that and the cost?
Is this a good time to ask about quantifying the value of revenue/productivity/potential lost when the majority employed in the civil service do NOT support the current administration. I would say that it would be a real drag on absolutely effort being made to improve the country’s economic recovery, among other things that need to be restored.
apologies… correction needed “… be a real drag on absolutely every effort being made…”
The ‘comparison of all the core facts’ doesn’t compare the two end results.
Do we repair the rusty old car that doesn’t run properly any more, or do we buy a new one? It’s a problem a lot of people face once in a while.
One result described by Larry is that we end up with a new airport, adding nothing to our debt. Also adding to jobs, most likely many more jobs than he is assuming.
The other result is that we put band aids over band aids on the current old airport, and the $89m that Larry thinks this will cost (a number presumably conjured out of thin air) will, somehow, not add to debt.
Where do these numbers come from? And what will we end up with? Most likely, a tarted-up version of what we have now. In 30 years it will be a 90-year-old airport, give or take.
I also take issue with this idea that we’re ‘giving away $620m’. The article, depending on where you look, describes the $620m both as ‘future revenue’ and ‘gross profits’. Well, it can’t be both. Gross Revenues (even if Larry has the number right) are not the same as Gross Profits. Gross revenues might yield zero in gross profits, particularly if we’re spending through the nose to patch up a decrepit building.
Whatever. I don’t have to work in the current run-down mess of an airport. I won’t be getting any of the hundreds of jobs created there. I am customer in as much as I travel through it, but I’m used to it looking like a third-world dump. I do worry about the people who might benefit from the redevelopment of it though, including the boost it might give to tourism.
But let’s depend on Larry. He’s conjured up some numbers and thinks he knows better.
Before too many ‘angry facts’ from those who disagree get introduced, let’s re-examine exactly where and how the numbers that I use do arise.
$89m – That comes from $11.47m of just increased annual Gross Profit pPLUS the $6.25m of annual New Profit Stream that Minister Fahy described [Both are set out in the body and explained in the Notes].
Add them. You get $17.74m per year.
Multiply that by 5 years – 5 yrs x $17.74m a year = $88.7m total available. Round that up = $89m.
$620m – That comes from $17.74m x 35 years = $620.8m. Round that up = $621m But I used $620m.
It is helpful when real facts are defeated by other real facts.
Disagree? Assemble real facts and publicly blow my conclusion apart. I invite you to do that.
Well, there you go again. The extra revenues are not necessarily profit. What you’re presenting as ‘real facts’ are actually assumptions.
But even if you’re assuming right and they do equate directly to profit, you’re suggesting that all of that profit is ploughed back into refurbishment for 5 years.
And you’re assuming that after that five year period of refurbishment the airport will be good, with no further expenditure on refurbishment, for another 30 years.
It just doesn’t add up. You’re ignoring a huge amount of refurbishment cost that would be incurred over the 35 years, that would not be incurred at all under the other scheme.
So Larry, you’re comparing 5 years worth of (totally made-up) maintenance and renovation costs with 35 years of gross revenues. Of course the revenues will look higher. Duh.
There is nothing new in your argument. The debate has all along been: do we keep patching up the current airport, or do we build a new one.
You minimise the benefits, by making totall assumptions, like your assumption about reno costs. We can build a new one without adding to debt, employing hundreds.
Tourist are not staying away because of the state of our airport – the idea that we can spend less than half of the 200 million required for a complete overhaul and retain the fees generated is worth further discussion and consideration.
If not, why not?
Bob should explain.
I have traveled a bit and never care what or how the airport looks !I have no idea what you can call third world but Puebla, Mexico has an airport terminal half the size of Bermuda with ten times more flights .with steps to enter and deplane below a low activity volcano and on many of my travels would prefer arriving in Puebla versus the busy Mexico city air port an 1hr away. point being I am happy to arrive safely and be received with a smile than and airport that in your words first world that the employees are miserable and bring down the travelers experience I worked in Bermuda airport twenty years ago and have many great memories if the present air port is in bad shape why not start by changing the management on a five year plan, and that it from that point forward . lately excuses have been made to close parking lots for one day , beaches for one day etc. is it possible that privatization is taking place right below or noses.
repairing an old rusty car is a far cry from what you say in your last paragraph about being used to it looking like third world but still you use it.. An old rusty car that doesn’t work properly is just a heap of metal.. An old airport that still functions but needs some major repairs maybe cosmetic, who knows, but a breakdown of the facility and major needs would be helpful in knowing what we are dealing with because it may just be more cost effective to repair..or even better if we repair locally and benefit later with maybe some bond options put out to public..Whilst you are still able to travel through airport , that old rusty car may not get you to point B.
Well hopefully we can get something positive out of all this borrowing….like medical marijuana and grow dispensaries to licence holders world wide…to pay off the debt and assist medicine propagation…
Giving the contract to a reputable foreign company ensures that it will actually get done, versus giving the contract to a Bermudian who loses the money and accomplishes nothing.
Serengeti, a better analogy would be this – you have a taxi license and a rusty old taxi that does not work properly. Do you accept a new taxi from somebody (that knocked on your door after he noticed that your taxi was in poor condition) that has offered you a new one, in exchange for your license and all profits generated from your new taxi for 30 years, after which time you will receive a new rusty old taxi that does not work properly, + your license back.
The taxi license is actually not doing you much good if you’re spending more on maintenance of the old rusty dirty noisy vehicle than you’re netting. You’re losing money, and your maintenance costs will keep going up, while your ability to attract customers will keep going down.
Assume you can’t afford to borrow for a new taxi.
What if you could lease a new vehicle for no outlay, pay a predictable amount of your expected revenue for it, have someone else take 100% of the responsibility for maintenance of the vehicle, and you remain in business as a taxi operator. You would be much better off. At the end of the lease you get to keep the well-maintained, newer vehicle. You have remained in business for the duration of the lease; your customers are happier; your business has been more successful; and you have newer equipment at the end of it than would have been the case.
Your analogy is all well and good but I think that what would really happen is the taxi driver would be working for free and at the end of the tenure would maybe end up with a tax that was in only marginally better condition than his original clunker .
There is nothing in the analogy that suggests the taxi driver is working for free. The taxi lease is predictable and fixed. The driver still draws his share, much like all the employees at the airport will.
During the term of the lease he is driving a new taxi, not an old one, and at the end of the lease the taxi is well-maintained and much newer than the taxi he started with.
It isn’t a perfect analogy, but it isn’t a bad one either.
Even at the end of the arrangement the airport will be half the age of the airport we currently have.
That isn’t what would happen in the analogy at all. The taxi lease cost is predictable, and someone else takes responsibility for maintenance. The taxi operator/driver is still paid. You’re driving around in a new taxi, which is better for business. And at the end of the lease you have a taxi which is definitely newer than the old one (in the case of the airport 35 years newer), and which has been maintained at someone else’s expense during that time.
Is the government getting paid to drive (operate) the new airport under the conditions of development that have been presented so far ?
If all of the new airport revenues are going to be used to pay for it how does the taxi driver get paid to drive his new taxi when the guy who bought him the new one wants all of his earnings to pay for the new taxi before they hand it back over to him ?
Like I said , the analogy was flawed in relation to what government is presenting in the case of the CCC proposal.
Except that after 30 years the new taxi is not guaranteed to be in good condition. I don’t see any 30 year old taxis on the roads now.
we dont need a new airport we dont have air carriers to support what we have!
Careful Larry , be very careful …. Less the OBA finds something to sue you because you’ve made salient and non partial talking points that maybe highlighted at the PLP town hall meeting .
Not constructive, not helpful.
I do not doubt the veracity of Mr. Burchall’s in depth analysis which is quite informative. I agree that this is a massive project that we should not be getting into so lightly which can easily impact our fragile revenue streams and expenses in a significant way for years to come. I am for a rethink of this disaster period. How about a PPP to renovate at a much lower cost instead with several other bidders. Again why just CCC/Aecon alone???
My concern is that Minister Richards’ will continue his arrogance and stubborn ways against listening to all the well reasoned arguments. If he can easily take Govt’s money to file a very low key alleged court defamation case against one lone individual what chances to we have in him listening at all regarding the people’s concerns on this bad airport project matter? The fact that he wouldn’t even consider another bid is still frightening to me. I just hope nothing has been signed already.
Mr. Larry Burchall thank you for your synopsis. Bermuda does not need a new airport now! Your reasoning is spot on as usual.
Triangle Drifter? Kangoocar? And the rest of the paid ones? They must be on vacation… oh well
Interesting analysis but as has been pointed out very eloquently by ‘Serengeti’, Larry’s numbers are very speculative. The cost of the ‘Renovate, Repair, Rebuild’ method is quoted at $89m. I am of the opinion, it would cost more than that, especially if modern features such as deplaning systems are added so that passengers can deplane through covered walkways. I recently had a special needs relative who is confined to a wheel chair visit us and in order for her to deplane, a fork-lift type truck was used to deplane her which is just not dignified. Additionally if past capital projects are any guide (Berkeley Institute, Port Royal Golf Course, Heritage Wharf, the new Courthouse, TCD)which all ended up costing much more than estimated, i.e. Heritage Wharf alone was estimated at $35m and ended up costing almost twice as much ($60m). ‘Faulty assumptions can lead to faulty decisions and the ‘Renovate, Repair, Rebuild’ method could place us in further debt.
Exactly. The asdumed numbers for renovation are not based on anything other than revenues. No one has any idea whether that would be enough money to patch up the airport for the next 35 years.
1. “…quoted at $89m”. The cost is not worked out that way. Instead, the cost is determined by what funds are or will be available. As explained in the article, re-explained in the comments section, and for a third time re-re-explained here; the $89m is what’s available from the five years of $17.74m a year of Gross Profit that was newly created by the Legislature.
2. Instead of following the current method of deciding that “we need a new airport, let’s build one”; go to the better method – given all current and future national needs – of determining EXACTLY what is it that we require and must have/fix/create/repair/build; then determine the most cost effective way to achieve that within a $89m budget and five year timeframe.
3. Bear in mind that LFW International has a current transit of about 380,000 passengers. That the current and just bumped-up Gross Profit is based on a 400,000 passenger transit. Note that this is the size of a small ‘provincial airport’ in Canada and that St John’s Newfoundland Airport – a provincial airport – has an annual transit of 1,200,000 passengers.
4. Bermuda’s highest ever passenger transit was back in the 1980′s when, at peak, we had about 600,000 passengers transiting a much smaller and less sophisticated airport. If we can ever get this economy up to where it needs to go, we can anticipate a transit load around 600,000 again. That’s not 1,200,000. It’s much less.
Let’s keep things in perspective: –
A – Small airport – not Gatwick
B – Low passenger transit – currently under 400,000.
C – If everything works perfectly, passenger transit might get back to levels of 30 years ago – when the Airport was smaller!
D – Dealing with Nanci is THE CONSTANT and Nanci currently demands $170m a year with the certainty that Nanci will go higher if bad financial decisions are taken and Government REVENUE does not get up to and over $1.3bn.
E – Increasing Current and future REVENUE for Government is the big national requirement – not building a new Airport.
So keep the future revenue stream that will flow from the just created Gross Profit – the background to which is set out, completely, in the article.
Larry Burchall
Thanks for adding some more perspectives about the airport analysis. The fact is Bermuda is broke – we can’t balance the budget, we have to borrow another 200 million to pay for all of the government services. We simply could not use the yearly 17m airport revenue to rebuild, renovate and repair the airport. It has to be used elsewhere to fund the government expenses which means more borrowing. If $89m has to be borrowed and it probably will be more like $120-150M, then over a loan period of 30 years, you would have to pay nearly three times that amount. Consequently, the $89m or $150m (renovate, repair and rebuild project) could cost nearly $270m or $450m.
What will be placing us in further debt is not replacing the income that we will be giving away to CCC. + Fahy just gave CCC more guaranteed revenue that could have been ours, when he announced the hike in fees to leave the island.
Here is a thought. There are 8 ramp gates at present airport. Move the freight shed and associated building at the eastern end of the airport to south side. Demolition these building and using gates 1, 2, and 3 and build a new elevated building with 3 jetways for the gates during our slow winter season. And after the summer season is over renovate and expand the next 3 gates 4,5, and 6 with new jetways. I am sure we will be able to retain all revenue streams from the new and renovated airport.
2+2=4
Every thing in Bermuda is way over priced,
Excellent, factual letter Mr. Burchall as always.
…..from which a logical, well reasoned conclusion can be drawn. Renovate.
I agree fully that giving away 621million dollars revenue is wrong, especially when we are supposed to be bringing IN that revenue to assist with the ballooned debt, WHY WOULD WE GIVE AWAY MONIES rather than try to cut cost..There should be a breakdown from airport authorities as to the changes or repairs that NEED to be done and then #4-ANOTHER option should be the option in the above article regarding repair and renovate… If the oba governmentare so keen on trying to control the debt climate then we should be looking at how we can locally repair our own airport first!!Or are we all incompetent to run our own island and at least benefit from possible future profit..But GIVING AWAY essentially profits for decades is ludicris and the government should respond to the public opinion on this matter and explain how giving away monies will assist us. Also how urgent is it that the airport be repaired and in what areas…The hospital was just finished yet people are still being flown overseas for treatment, Does this make any sense? We are as Mr. Burchall points out continuing an overspending trend from 2004 and both parties are now equally respondible.