The perils of an aggressive public sector

The face-off between a local council and developer over plans for London Luton Airport appears to have been resolved – but provides a case study in how public/private relationships have changed

Infrastructure Investor has dedicated a fair few column inches in 2012 to ruminations on the budgetary pressures public bodies are under in these cash-starved times and the possible implications for private sector ‘partners’. This theme was neatly illustrated by the lively negotiations involving the concession to operate the UK’s London Luton Airport – which now appear to have reached a conclusion.  

To recap, Luton Council – which owns the airport – in February expressed its desire to double capacity to some 18 million passengers by 2020. Abertis, the operator of the airport until 2028 (under the original concession), described the expansion plan as “unrealistic” and unsustainable. In response, the Council pointed out – in a move of surprising aggression – that, from 2014, it had the option of terminating the concession agreement. 

Abertis responded to the threat in two ways. Firstly, it pointed out that it would be due substantial compensation if the concession were halted. And secondly, it produced its own expansion plan for the airport – effectively a watered down, but still fairly ambitious, reworking of the Council’s vision. 

Earlier this week, it was revealed that the differences had been set aside and that a new plan – which was presented by the Council and Abertis as a merger of the two separate plans, in which the main elements of each were preserved – would be implemented. Further, Abertis was granted a three-year extension of its concession until 2031. 

Pressure group Hertfordshire Against Luton Expansion (HALE) detected in this a “commercial ploy” whereby the whole point of the Council’s own plan for the airport was to “force the operators to table their own investment and expansion plans against the threat of termination of their operating concession”. HALE saw both plans as detrimental, involving a likely clogging up of both the airport itself and surrounding road and rail links.      

But whether or not the sleight of hand hinted at by HALE was present, London Luton is emblematic of the pressure on governing authorities to find ways of balancing their books. Revenues from the airport have been a big contributor to the Council’s coffers at a time when central government has been forcing it into substantial budget reductions. Can it be blamed for seeking to sweat its prized asset yet further, even at the expense of a brief outbreak of negative PR? 

The lesson for the private sector in relationships with public sector counterparts is that it’s a changed world, so get used to it. Understand the pressures and anticipate the likely responses – or find yourself on the back foot.