In this second article in our three-part series, we look at some of the important changes to aviation law contained in the Civil Aviation Bill. This topic formed part of presentations by Ford Sumner’s Jaesen Sumner and Sarah Churstain at the recent New Zealand Airports’ Conference.

Turbulence in the regions 2

As outlined on in our last article , change to the regulatory landscape in which many of New Zealand’s regional airports and aerodromes operate is on the horizon.

As well as removing the power of airport companies to set fees and charges as they see fit, the Bill proposes other changes that present barriers for regional airports wanting to develop and expand their operations. Before considering the detail, it is important to understand the context of the proposed changes.

A Consultation Document released by the Ministry of Transport with the Consultation Draft of the Bill states:

“Some of the provisions in the AA Act have become obsolete over the years since the Act was first passed (and indeed some provisions date back to the 1920s). In particular, the Local Government Act 2002 means that local authorities that are airport authorities do not require sector specific empowerment to be able to carry out many functions.  The Bill proposes that these redundant provisions be deleted.”

The Regulatory Impact Statement and the relevant Cabinet Paper only briefly mention the removal of obsolete provisions in existing legislation. Discussion is largely focussed on provisions in the Airport Authorities Act dealing with disclosure of aircraft-related charges, and others which allow airport companies to borrow money and acquire, hold and dispose of property. This suggests to us there has been only limited examination of the policy behind some of the provisions identified as obsolete and suitable for repeal. This is concerning, as some of these changes will have consequences for smaller regional airports.

Our experience drafting leases for airport clients has clearly shown us that airline industry-specific powers are required for smaller regional airports to function. For example, some of our airport clients have airport master plans containing decade-long plans for development. Regional airports are right to be concerned that these plans will be unnecessarily interrupted if the Bill is passed in its current form.

Leases

Currently, airport authorities (i.e. local authorities and airport companies) are able to terminate leases where the land concerned is required for the purposes of the airport; a useful power where an airport is looking to expand. Vacant land bordering the airport, often rurally zoned, can be leased in the full knowledge that at some stage it may be required by the airport authority as the airport grows. In addition, airport authorities are exempt from certain powers in the Resource Management Act 1991 which treat leases for a term exceeding 35 years as a subdivision of land. This creates a win-win situation; land earmarked for development can be put to its most efficient use before development plans are put in place and lessees can benefit from using the land (often at a discounted market rate) for the duration of the lease term.

In our experience, it is clear that there are frequently negotiations with lessees over termination and relocation provisions in a commercial lease of airport land. It is for the tenant to raise termination and relocation as matters of concern.

As a result, the power in what is now section 6 of the Airport Authorities Act provides a useful backstop in the event that land owned by the airport is required for airport development.

At the very least, transitional provisions are required to make it clear that leases executed prior to the repeal of section 6 will continue to be able to be terminated after the new legislation comes into effect.

Capital expenditure

Our second concern relates to the rules requiring consultation on capital expenditure. Currently, only the larger airports are required to consult on capital expenditure plans. The Bill will introduce stepped thresholds based on both annual passenger movements (APM) and the level of capital expenditure (capex). These will require all airports to carry out consultation on capex when the following thresholds are reached:

• for an airport with less than 1 million APM: $5m capex;
• for an airport with between 1 million and 3 million APM: $10m capex;
• for an airport with over 3 million APM: $30m capex.

Regional airports have significant concerns about the proposed obligation to consult with airlines over proposed capital expenditure. In many cases the airport will have only one major customer, so there is the potential for one party to have the practical ability to veto or significantly delay all airport development operational and financial decisions if the expenditure falls within the proposed rules.

The policy work undertaken by the Ministry of Transport presupposes that if any such consultation leads to negotiation, any such negotiation will be on arms-length terms; that is, that the parties have equal bargaining power, and neither is subject to undue pressure or influence from the other. However, we know that will not be the case. The sole customer of many smaller regional airports has significant commercial and political leverage.

We believe that this in itself justifies the retention of the status quo; that is, that the requirement for consultation be limited to the larger airport companies.

Not doing so introduces a level of uncertainty for regional airports, and a decreased ability to plan for the future. Ultimately, this environment cannot be good for the operational ability of the regions. Our airport clients are forward-thinking, looking to grow their own business, and to open up opportunities in their region. We’d like them to continue to be able to do this.

Our final article will outline some of the less controversial changes contained within the Bill relating to safety and security.