BEFORE A BOARD OF INQUIRY EAST WEST LINK PROJECT

IN THE MATTER of the Resource Management Act 1991 (“the RMA”)

AND

IN THE MATTER of a submission by AUCKLAND HELIPORT LIMITED PARTNERSHIP (#126324) under section 149E of the RMA in respect of applications for resource consent and notices of requirement by the NEW ZEALAND TRANSPORT AGENCY in relation to the EAST WEST LINK PROJECT in Auckland

STATEMENT OF EVIDENCE OF PHILIP BRENT WHEELER FOR AUCKLAND HELIPORT LIMITED PARTNERSHIP

Economics

Dated: 22 May 2017

BERRY SIMONS S J Berry

Telephone: (09) 969 2300 Facsimile: (09) 969 2304 Email: [email protected] Postal: PO Box 3144 Shortland Street AUCKLAND 1140

1. INTRODUCTION ...... 3 2. EXECUTIVE SUMMARY ...... 5 3. PROPOSAL SUMMARY ...... 8 4. AHLP - THE BUSINESS ENTERPRISE ...... 8 5. ECONOMIC FUNCTIONS ...... 11 6. ALTERNATIVE SITES ...... 13 7. MARKET ...... 16 8. ECONOMIC IMPACTS – CONCEPTS SUMMARISED ...... 19 9. TYPES OF EFFECT ...... 20 10. TYPES OF MULTIPLIER...... 21 11. METHODS AND DATA ...... 24 12. CONCLUSION: ESTIMATED IMPACTS ...... 28 13. NZTA ECONOMIC EVIDENCE ...... 30

2 1. INTRODUCTION

Qualifications and experience

1.1 My name is Philip Brent Wheeler. I hold a Ph.D. from the University of Otago (1980). I am a specialist in economics, notably financial economics and the economics associated with resource management. I am a Certified Securities Analyst member of the Institute of Finance Professionals New Zealand.

1.2 I have been employed in providing economic and financial advice to a variety of industries over the past 25 years. My experience covers assessments for central government, membership of the 1991 Resource Management Bill Review Committee, and preparation of economics effects analyses for a large number of consent applications under the Resource Management Act 1991 (“RMA”).

1.3 I have previously been employed as Planning Officer, Senior Planning Officer and Deputy City Planner by the Palmerston City Corporation. As well as standard land use planning duties, I was involved in city economic development issues. I also served as Deputy Regional Planner for the Manawatu United Council. The latter role involved the development of regional plans.

1.4 I was also employed by the NZ Treasury in managing commercial assets and liabilities, asset sales, regulatory reform and the development of economic impact assessments.

1.5 I have undertaken economic impact assessment work in respect of mining and the mining industry (applications over 17 years for Newmont Waihi); Casino applications and tourism (six for the Casino Control Authority); sporting and recreational events (three Americas Cup events, motor racing, outdoor recreation); retailing (big box development, mall development and urban infrastructure design); and a variety of other industries.

3 My involvement with the project

1.6 I have been engaged by the Auckland Helicopter Limited Partnership (“AHLP”) to assess the key economic effects should the New Zealand Transport Agency’s (“NZTA”) proposed East-West Link project (“EWL” - a network connection running through the outskirts of Onehunga) compromise the operations of the existing Auckland Heliport (“the Heliport”) and its support infrastructure at 59 Miami Parade.

1.7 I have visited the Heliport site and am familiar with the business structure of AHLP and its associated companies.

Expert Witness Code of Conduct

1.8 I have been provided with a copy of the Code of Conduct for Expert Witnesses contained in the Environment Court’s Practice Note 2014. I have read and agree to comply with that Code. This evidence is within my area of expertise, except where I state that I am relying upon the specified evidence of another person. I have not omitted to consider material facts known to me that might alter or detract from the opinions that I express.

Layout of evidence

1.9 This evidence:

(a) Begins by summarising the NZTA proposal (Section 3);

(b) Outlines the nature of the AHLP business, including expenditure (Section 4);

(c) Sets out the economic functions the AHLP business performs; assesses those impacts and seeks to identify their nature and extent (Section 5);

(d) Considers alternative sites (Section 6);

4 (e) Briefly analyses the tourist market. Characteristics of the premium segment of that market are presented and the value of that market and the business of AHLP within it are highlighted (Section 7);

(f) Discusses key concepts in estimating economic effects in cases. The methods and data adopted for this study are explored along with the treatment of adjustments to standard methods (Sections 8- 11); and

(g) Presents the results of my analysis, being the estimated economic effects expressed in terms of dollar output and full time equivalent (“FTE”) employment positions. Effects are reported in annual and net present value terms for output and “life of proposal averages” for FTE employment (Section 12).

(h) Briefly comments on the economic evidence for NZTA from Mr John Williamson (Section 13).

1.10 I provide an executive summary of my evidence in Section 2.

2. EXECUTIVE SUMMARY

2.1 This statement of evidence assesses the key economic effects should NZTA’s proposed EWL project compromise the operations of AHLP’s existing Heliport and its support infrastructure at 59 Miami Parade. Current proposals could see the operation effectively reduced to non- viability and the economic benefits flowing from it lost to the city, region and beyond.

The AHLP Operation

2.2 The operation involves provision of storage, aircraft operation (flights), and engineering support for some 11 helicopters owned by the partners and working in the premium segment of the tourist industry. The operation shares not only the growth in the tourist industry generally, but also the exceptionally strong growth and potential of the premium market from which considerable high spend generates dollar output and jobs.

5 2.3 The complex at 59 Miami Parade and the business it supports provides flight and related tourist services, significant assets and operation capability in its markets (over $USD50 million in assets being the broad replacement value of helicopter assets), as well as vertically integrated capacity to operate the business, market registration and branding of capability in domestic and international tourist markets.

Alternative heliport sites

2.4 Other sites that may be seen as alternative locations for activities undertaken at the Heliport – principally Mechanics Bay, Ardmore, Whenuapai and Auckland International Airport - are either used for other purposes in a manner which precludes an operation of comparable scope and magnitude to the AHLP facility (Mechanics Bay and Auckland Airport), are at an inconvenient and resource wasteful locations (Ardmore, Whenuapai and Auckland Airport), or would be prohibitively costly to develop.

2.5 Stringent Civil Aviation Authority (“CAA”) compliance requirements along with other consenting issues effectively rule out the potential for development of a “greenfields” heliport in proximity to the Auckland CBD and Auckland Airport that could safely, and viably, be used as a heliport.

2.6 There is a possible mitigation solution which involves the Heliport relocating to the east, within its existing site. I understand NZTA has indicated it is not able to commit to this option, in part because it is concerned that the costs of the relocation may undermine the overall financial viability of the project. I consider it improbable that the costs of the project could be so finely balanced that its entire viability hinges on a cost change of less than 1%. If this is the case, then this seriously calls into question the entirety of NZTA’s business case for proceeding with the project in its current alignment.

Economic contribution of the premium tourism market

2.7 Growth in tourism in New Zealand (“NZ”) is expected to continue at some 5.4% per annum. Tourism has recently surpassed dairying as the principal

6 export earner for NZ1. Auckland is a destination for some 72% of all visitors to NZ, contributing some $5.0 billion to the local economy per annum. The premium segment of that market (in which AHLP operates) sees expenditures averaging some $50,000 per visit more than “standard visitors” (closer to $3,500 per visit)2.

Economic contribution of AHLP’s operation

2.8 Economic effects of the loss of the AHLP operation have been estimated using conventional economic impact analyses which estimate direct, indirect, induced and enabled (tourist activity facilitated exclusively by their operations). A variety of standard data sources and methods have been applied to the AHLP business and the results considered in light of the proposal.

2.9 The analysis uses value added multipliers adjusted for opportunity costs to provide an assessment of the net benefits which flow to the city, the region and further afield. Results are expressed in respect of annual effects and net present values.

2.10 The results are summarised in the following table:

Economic Effects Output $NZD FTE positions Provision and support activity $ 10,270,400 25 Tourism spend enabled $ 47,880,000 382 less opportunity cost -$ 23,260,160 -163 Net effects $ 34,890,240 244

2.11 The economic effect of the AHLP enterprise is to generate between $31m and $38m in output per year with a net present value considered in total for 10 years lying between $239m and $293m in today’s dollars.

2.12 In respect of FTE employment the economic effect of the business considered over the next ten years rises from a minimum of 224 – 274

1 See ASB Report https://reports.asb.co.nz/tp/view/email/tep963j1056910s4q71f1n3794662c196248068z 2 See http://www.aucklandnz.com/invest/tourism-sector and more generally https://ecoprofile.infometrics.co.nz/auckland/QuarterlyEconomicMonitor/Gdp.

7 annually, to a maximum of 410 – 501 with an average across the 10 year span of some 350.

Economic evidence from NZTA

2.13 Mr Williamson has not quantified the claimed benefits of the EWL project, nor sought to assess its economic costs which should then be subtracted from those to estimate net benefit. In my opinion, the Board is not able to undertake a proper assessment of the EWL in accordance with the RMA without NZTA having provided such evidence.

3. PROPOSAL SUMMARY

3.1 NZTA proposes establishing a network connection serving the East-West linking components of the Auckland roading network adjacent to Mangere Inlet, referred to herein as the EWL.

3.2 AHLP operates the Auckland Heliport facility at 59 Miami Parade, Onehunga.

3.3 In its current configuration, the EWL would severely compromise the operation and viability of the Heliport by eliminating some operations and curtailing the efficient operation of others while at the same time generating a variety of safety issues.

3.4 These adverse effects extend in their impact beyond the immediate concerns of commercial viability and business impact and extend to adverse social and economic impacts affecting wider communities in the Auckland district, region and beyond.

4. AHLP - THE BUSINESS ENTERPRISE

4.1 The business or enterprise consists of several legal entities the ownership and arrangements of which are tailored to meet the requirements of:

(a) Owning a fleet of helicopters, which AHLP does in the names of the Partners;

8 (b) Provision of flight, servicing, administration and engineering infrastructure and support for operating the helicopters (Advanced Flight Limited (“AFL”) and Advanced Flight Engineering Limited); and

(c) Storage, workshop facilities and security (Hangar 31 Limited – which is also a Partner in AHLP).

4.2 It is this operation collectively which is located at and operated from 59 Miami Parade in Onehunga and sits adjacent to part of the proposed motorway connection.

Operations

4.3 The fleet of (currently) 11 helicopters are used by the owners:

(a) For their own private aviation purposes, which may include provision of private or commercial tourist services; or

(b) Chartered through AFL to public and (mainly) private users for tourist and like purposes.

4.4 At present, the business supports some 11 helicopters owned by the Partners and one (1) training machine owned by AFL.

4.5 The operation is highly capital intensive in nature. The replacement cost of AHLP’s assets is in the order of $USD52 to $USD57 million.

Support services

4.6 The two businesses AFL and Advanced Flight Engineering provide support services for helicopter based commercial aviation services including flights for a variety of purposes, chartering services and all operational requirements associated with those services.

4.7 Those services are provided, to all intents and purposes, exclusively to the Partners of the AHLP.

9 4.8 As the names suggest, Hangar 31 Limited is primarily concerned with the provision of storage and related services, Advanced Flight Engineering provides maintenance and related servicing requirements and AFL provides administration, scheduling, training, compliance, and management services.

4.9 The business model sees the three companies operate as a single enterprise selling its services to business partners – members of the AHLP - who own the helicopters.

Activities at 59 Miami Parade

4.10 Activities undertaken from or at the site include:

(a) Landing, taking off, taxiing and any other operational elements of the business (flight planning, briefing, navigation, etc.), i.e. the full complement of aviation services found at a heliport; and

(b) Training and certification of pilots along with such testing and monitoring as is required by the various codes of compliance which govern the aviation activities of concern.

4.11 The Partners obtain the services of:

(a) Storage and security for their aircraft;

(b) Maintenance and servicing;

(c) Availability of pilots with a pilot “assigned” to their aircraft;

(d) Training and compliance assurance in respect of all personnel working with their aircraft; and

(e) Relevant consumables such as fuel.

4.12 The operation of modern sophisticated helicopters is:

(a) A highly complex and specialised business. Dedicated professionals in a number of disciplines and functions are essential for any kind of

10 complying, credible service provision (both to the Partners themselves and to clients “worked” on their behalf);

(b) One which places high asset value at risk. Collectively some $USD52 - $USD57 million is at stake. Consequently, even the value exposed through storage and security is very considerable by comparison with assets of other businesses;

(c) A business involving high opportunity costs. Inability to “put an aircraft in the air” (perhaps through subpar maintenance, non- compliance or non-availability of qualified personnel) involves very high opportunity costs, in the order of thousands of dollars per hour.

Expenditure by the business

4.13 Expenditure by the businesses (considered together since the legal entities form an inseparable economic whole) amounts to some $3.8m per annum in operating costs comprising fuel, components, employment of specialist services, training, compliance and payroll as well as conventional overheads. This is the amount spent in the district and regional economies along with minor expenditure beyond those areas.

4.14 Growth in expenditure can be expected to grow in line with growth in the business as detailed below in the estimates of economic effects. Not included in this expenditure are:

(a) Capital investment in the businesses; nor

(b) Investment for expansion or like growth.

5. ECONOMIC FUNCTIONS

5.1 The economic function of the Heliport is simply to allow the undertaking of a variety of aviation activities specifically associated with helicopters.

5.2 These divide broadly into operations (tourism and recreation) and asset and operational capability.

11 Operations - Tourism and recreation

5.3 AHLP is involved in the provision of a variety of services in the premium segment of the (international and local) tourist and recreation markets. Details are discussed below.

5.4 The key economic characteristics of this activity are its high absolute and relative value and its growth rate – again in both absolute and relative terms.

Asset and Operations Capability

5.5 In order to offer and provide services to its market, the AHLP operation involves (necessarily) the provision of a significant asset base (some $USD52 to $USD57 million in aircraft), maintenance and support capacity and appropriately trained personnel.

5.6 This capability has actual and potential benefit in:

(a) Non tourist commercial markets (electricity surveys, agricultural and aerial transport services) which while presently only forming a small level of activity, are not capable of being provided without an asset base made possible by the threshold of demand produced by tourist and recreation activity; and

(b) Civil and community based activity related to non-commercial activity such as emergency services and like duties. Again, while not forming part of everyday AHLP activity, this potential is not capable of being provided without an asset base made possible by the threshold of demand produced by tourist and recreation activity.

5.7 The asset base also provides the opportunity for expansion in non-tourist markets. The capability and asset base would prove invaluable in the event of a civil emergency as back up for or replacement of the Mechanics Bay facility.

12 Market registration and branding

5.8 More intangibly but nonetheless of significance is the fact that Auckland having a modern, state of the art heliport facility registers its presence in the premium sector of the international tourism market. Market expectations in this segment are that a city of the size and status of metropolitan Auckland would have such a facility.

5.9 The many other economic benefits which flow from the activities of premium segment tourists depend upon both the Heliport’s presence and premium segment tourists (and their agents) being aware of the facility’s existence (and therefore the visitor experiences it enables).

5.10 In this sense, the AHLP serves an important branding and signalling function for Auckland’s status as an internationally competitive city.

6. ALTERNATIVE SITES

Relocating the Heliport to an entirely new site

6.1 At present, other locations for a heliport or potential heliport might be seen as including:

(a) Auckland International Airport – which at present is configured (on a national and international scale) to provide for fixed schedule freight and passenger operations. There are myriad of locational, safety, operational, marketing, and commercial reasons as to why the AHFL operation cannot be satisfactorily replicated (except at unjustifiable levels of cost and compromise to wider economic benefits) on this site; and

(b) Whenuapai - where there are similar constraints as well as the need to tie into other parts of a “network” (such as Mechanics Bay for passenger pick-up and emergency services provision) and the imposition of high costs associated with location of the facility. Again, as with Auckland International, a wide variety of constraints contribute to making this alternative unsatisfactory.

13 6.2 This leaves the existing Mechanics Bay landing platform and the facilities available at the Ardmore aerodrome.

6.3 Neither location is a suitable substitute for AHLP’s existing Heliport for the following reasons.

Mechanics Bay

6.4 The Mechanics Bay facility is presently used primarily for civil emergency and Rescue Helicopter services (Westpac Rescue Helicopter service). Any operations run from this facility would need to yield to this use immediately upon notice and availability could not be assured.

6.5 The facility only offers a purely flight platform rather than a fully-fledged storage, maintenance and operations base for a commercial enterprise such as that of AHLP. While expansion might see such a facility developed there are cost and resource (land, etc.) constraints on any such development. It is not, at this juncture, feasible and is becoming less so with continued urban growth around the facility.

6.6 The facility is located at the “CBD end” of the most common transfer routes. The work of AHLP takes it, in broadly equal terms, both north and south of the Auckland International Airport. The present location may be seen as roughly equidistant while Mechanics Bay would be at “one end” of these routes.

6.7 Given the costs of helicopter flight, distance and the use of cost effective routing is paramount. Mr Stephens expands on this as being a key catalyst for establishment of the existing Heliport facility and selecting the Miami Parade site as the location for this3.

Ardmore

6.8 Predecessors of the current support companies (AFL, Advanced Flight Engineering and Hangar 31) have, in the past, operated services from rented hangars at Ardmore.

3 Stephens EIC, 22 May 2017, Section 5.

14 6.9 While the various aviation support infrastructure is available or might be able to be adapted this would involve incurring the equivalent of the start- up cost for AHLP in its current location.

6.10 More significantly, the distance both from the Auckland International Airport and the CBD present prohibitive costs for effective operation. As Mr Stephens explains, this commercial reality was a main driver behind the establishment of the current Miami Parade site4.

6.11 In addition the “pre-flight travel” requirements (ground transport from the airport to Ardmore) add the very inconvenience which customers seek to avoid through using AHLP as a necessity.

Conclusion

6.12 Consequently, while it might be argued that, as a literal matter, there are always substitutes of one or another type, the cost of using these would render the business non-viable while wasting various resources and depriving local and regional economies of value they currently benefit from.

6.13 The stringent CAA compliance requirements along with other consenting issues also effectively rule out the development of any greenfields heliport within the wider Auckland region, for the reasons explained by Mr Stephens5, Mr Fogden6 and Dr Mitchell7.

Relocating the Heliport within its existing site

6.14 A possible solution for mitigating the project’s effects on the Heliport has been identified which would involve the Heliport relocating to the east on its existing site. I understand NZTA has indicated it is not able to commit to this option, in part because it is concerned that the costs of the relocation may undermine the overall financial viability of the project.

4 Ibid. 5 Ibid, Sections 5 and 6. 6 Fogden EIC, 22 May 2017, Section 3. 7 Mitchell EIC, 22 May 2017, Section 7.

15 6.15 Mr Stephens advises that the total cost of constructing the Heliport (including consenting) was $5.6m (or $6.26m in today’s terms). The costs of land acquisition / compensation to both Ports of Auckland and The Car Distribution Group (the current landowner and lessee respectively) would need to be added to this, to calculate the total cost of the relocation to NZTA.

6.16 NZTA currently estimates the project’s total costs will be between $1.25 and $1.85bn. On this basis, and even with the most extravagant allowance for land acquisition and related matters the cost of the Heliport relocation is likely to be less than 1% of the project’s total anticipated costs. I note that even NZTA’s cost estimate, which runs from a low of $1.25 billion up to $1.85 billion involves a $600 million range which is a multiple many times the size of the likely cost of this proposed mitigation.

6.17 I consider it inherently unlikely that a project having an otherwise justifiable cost of in excess of $1.2bn could be so finely balanced that its entire viability hinges on a cost change of less than 1% and could become uneconomic simply and solely through the expected cost of relocating the Heliport. However, if this truly is the case, then in my view this seriously calls into question the entirety of NZTA’s business case for proceeding with the project in its current alignment.

7. MARKET

7.1 The majority of AHLP’s activities are centred in the burgeoning tourist markets of NZ in general and Auckland in particular. The benefits it generates flow from these markets.

7.2 The economic value of the tourist industry is well known, its relevance to NZ is well documented and accepted, and its growth rates are amongst the fastest in the economy.

7.3 Growth in tourism numbers is expected to continue at its current rate of 4% per annum, expenditure growth by some 5.8% per annum and as at March 2015 export earnings from the international sector were growing at

16 some 21% per annum. The total market size is in the order of $34.7 billion at present8.

7.4 Auckland, as an NZ gateway destination, is pre-eminent in the industry, its growth and the role of the aviation sector in tourism. Each year sees additional in and out bound airline services as well as growth in other major players such as the cruise ship industry9.

7.5 During 2015, the contribution of tourism has come to rival that of the dairy industry in export earnings. This is significant in two ways:

(a) The simple size of the contribution; and

(b) The diversification offered in a national economy which is weakly diversified.

Tourism and the Auckland Economy

7.6 Auckland is the most visited destination in New Zealand, serving around 72 per cent of all visitors to the country10. The Auckland visitor economy was estimated to involve some $4.8 billion in 2012. Today it is likely $5.0 billion or more. Economic benefits affect the immediate vicinity of Auckland city and district as well as the Auckland region and beyond.

7.7 Various analyses undertaken over several years11 point to benefits flowing from:

(a) Expanded choice. Auckland maintains a larger economic footprint than the resident population could support alone. This expands the scale and range of commercial activities that can be sustained.

(b) Consequently there are more choices available for local residents. The Auckland Tourism and Economic Development agency notes for example that the food and beverage offering in the Viaduct Harbour would be greatly reduced in the absence of the visitor economy.

8 Ministry of Business, Innovation and Employment, Key Tourism Statistics, April 26th 2017. 9 http://www.tourismnewzealand.com. 10 http://www.aucklandnz.com/invest/tourism-sector. 11 Tourism NZ. http://www.tourismnewzealand.com/markets-stats/sectors/premium/ 2017.

17 (c) Asset support. Tourists’ financial support contributes to the operation of public assets such as museums, art galleries and public transport (fees and charges). Such contributions benefit local and regional residents as well as the wider NZ community (taxes and charges).

Premium Tourist Sector

7.8 The AHLP operates in the premium user segment of the tourism market.

7.9 This niche is one of the most lucrative sectors of the industry. The group is defined as involving high, very high and ultra-high net worth individual travellers. Tourism NZ divides such travellers into “High Net Worth Individuals” (“HNWI”) at $US 10million in liquid assets, very HNWI at $US50million and ultra HNWI at $US100+ million.

7.10 Tourists and those involved in this sector spend significantly more than the average international or domestic tourist with an estimated $50,000 reaching upward to $100,000 larger spend than average.

7.11 Typical tourist and recreational activity includes and is characterised by:

(a) Access to scarce natural environments;

(b) Special interests – hobbies, sports, groups, education specialties;

(c) Discretion, privacy, less ostentation;

(d) Off “beaten track” destinations;

(e) Political and social stability (security);

(f) Exclusivity and authentic experience;

(g) Culture and tradition; and

(h) Personalised or customised service.

18 7.12 The relevant segment of this market for NZ is estimated by NZ Tourism to involve some 12 million individuals in the largest markets of North America (28%), Europe (20%), Asia (20%) and Latin America (10%)12.

8. ECONOMIC IMPACTS – CONCEPTS SUMMARISED

8.1 The analysis of economic effects of the type included in this assessment is primarily concerned with estimating the multiplier or spin-off effects of the Heliport.

8.2 Measuring the economic effects of the Heliport involves producing quantitative estimates of:

(a) The effects of dollar or Gross Domestic Product (“GDP”) output increases in total spending in the economy occasioned by the development;

(b) The effects of total employment increases produced by increased demand for business activity and its servicing; and

(c) The effects of GDP output and FTE employment arising from the tourism and recreation activity enabled by the services provided.

8.3 These changes in dollar output and employment produce gross benefits to the district and the region. A detailed definition is provided below.

8.4 Gross estimates of GDP and FTE employment impacts are adjusted having regard for:

(a) The effects of transfers from outside the geographical areas of concern as opposed to generation of new dollar output and employment in the immediate area; and

(b) The effects of shifting spending and employment out of some sectors into other sectors as opposed to generation of new dollar output and employment.

8.5 These effects may “dampen” the gross benefits to produce “net effects”.

12 https://www.aucklandnz.com/about-ateed/about-us/what-we-do/tourism.

19 9. TYPES OF EFFECT

9.1 The multiplier effect is well known and documented. Summarising the components of the effect, economic effects are said to take the form of:

(a) Direct effects;

(b) Indirect effects; and

(c) Induced effects.

9.2 In certain cases – notably those where end consumers (in the case tourists and visitors) are important a further impact, “enabling effects” is significant.

Direct effects

9.3 Direct effects are those effects created by the activity itself. In this case the direct effects from operation of the Heliport are the dollar outputs, defined as forecast outputs, and the jobs it directly generates. Thus the anticipated GDP and FTE output make up the direct impact.

9.4 While the immediate concern of the Partners and owners of the supporting businesses is generally limited to direct effects, there are economic effects which reach beyond the confines of direct effects.

Indirect effects

9.5 Indirect effects are those effects created by the need to support and service all of the activity that is involved. Examples of indirect effects include provision of fuel for vehicles, provision of plant and equipment, and provision of administrative or like services. As with direct effects, indirect effects take the form of jobs generated and dollars output.

9.6 Indirect effects are estimated through input-output transaction table calculations and associated statistical techniques. These techniques produce estimates (not observed numbers) and the forecasts are the result of applying accepted econometric techniques to appropriate data.

20 Induced effects

9.7 Induced effects are the effects created by the fact that households (of all descriptions) associated with direct and indirect expenditure and employment, consume and produce as a result of the subject activity. This generates further economic activity in the form of dollar output and jobs generated. Examples include consumer expenditure by suppliers of plant and services.

9.8 Induced effects are the most difficult to estimate because high quality data measuring transactions involving household consumption does not exist in suitable form (some data are not collected, there are compatibility issues and some data are simply not produced in usable form). Various estimation techniques are used to produce forecasts.

Enabling effects

9.9 Enabling effects are effects created by behaviour of final consumers of the product or service. In the case of a service which enables tourism (transport for instance) tourist spending is enabled by the provision of transport.

9.10 Such “enabled spend” reverberates through the economy via a series of indirect and induced effects as described above.

Total effect

9.11 The simple sum of direct, indirect, induced and enabling effects produces the total economic effect. Attached to my evidence as Appendix 1, I set out the flows of effect in diagrammatic form. Enabling effects show the same passage through the diagram as indirect and induced effects.

10. TYPES OF MULTIPLIER

10.1 Different types of multiplier are used to measure effects on different variables.

21 Value Added Multipliers

10.2 Value added multipliers provide estimates of direct, indirect and induced effects based on the wages, salaries and surpluses (together called value added) generated by an activity and their spin-off effects through the economies (district, regional, national and international) in which they occur. The term “surplus” typically refers to profit but may include other forms of income which do not derive from the core activity. Value added multipliers thus give a view of economic benefit more narrowly focused on additional value than on gross expenditure.

Employment multipliers

10.3 Employment multipliers provide estimates of direct, indirect and induced FTE employment positions generated by an activity and the spin-off effects through the economies (district, regional, national and international) in which they occur. Employment multipliers are estimated from expenditure based output multipliers.

Gross versus Net Benefit

10.4 The raw calculations used to estimate output, value added and employment effects represent simple gross benefits and do not take account of two other effects. These are:

(a) Import or transfer effects; and

(b) Allowances for opportunity costs.

Import or Transfer Effects

10.5 It is important to note that not all the requirements of an activity can be met from within the district or even the region. Some goods and services are likely to be sourced from beyond the regional boundary. Goods and services provided from beyond district and regional boundaries clearly do not add to regional and district spending.

10.6 The estimation techniques used to establish multipliers may have to take account of this “import” effect when estimating local and regional effects.

22 This may be achieved through the use of “location quotient” adjustments or like methods which allocate additional spending effects to the region and district only where sourcing is likely to take place from within the region or district.

10.7 The type and extent of adjustment appropriate for the present case is discussed below.

Allowances for Opportunity Costs

10.8 The benefits generated by direct, indirect and induced spin offs or multiplier effects and estimated by multipliers are “gross” benefits. That is to say that they take no account of the fact that some spending in the new activity (activity generated by the Heliport) takes place at the expense of existing activity, that is, some other activity may cease in other parts of the economy in order for the new activity to take place.

10.9 This effect therefore concerns opportunity costs. The impact of opportunity cost is to reduce the “gross” estimate of economic effect to a “net” effect which isolates the level of new beneficial effect to that which is a genuine overall increase over and above the level prevailing previously.

10.10 It should be noted that this effect – the imposition of opportunity cost – occurs for any new project of any type throughout the economy whenever some “new” or “different” activity is undertaken. In the case of the Heliport, some effects are simply transferred, thus activity once associated with for example Ardmore is now with the Heliport in Onehunga, but activity levels at the Heliport, to the extent that they are higher than those associated with past activity elsewhere, create new benefits.

10.11 There is however a potential opportunity cost because resources which could be otherwise employed are taken up.

10.12 In the analyses for this evidence, regard is therefore had to estimating net, and not simply gross, economic effects.

23 11. METHODS AND DATA

11.1 Data used to estimate output, value added and employment multipliers themselves were drawn from the standard sources for economic impact analyses. In NZ, these are the Department of Statistics Inter-Industry Studies series, adjustments made to such data (to account for locational effects for example) and the Census of Population and Dwellings.

11.2 Raw estimates of multipliers for output and employment and value added multipliers were based directly on the input output tables contained in the Department of Statistics Inter-Industry Studies.

Multiplier Estimates

11.3 It should be noted that all multiplier studies are subject to various forms of estimation error. The two most important are:

(a) Timeliness. Because gathering input output data involves time consuming survey methods underlying data is often old. The multipliers used in this report are based on 2013 data. This is a considerable advance on the much older data typically used, but is still subject to some timeliness issues. These are not regarded as fatal in the present application; and

(b) Different ways for estimating and adjusting multipliers themselves. Debate as to best methods is a continuing phenomenon and judgment is required at each application. It is therefore important to apply results with caution. This is achieved by, finally, referring to ranges rather than point estimates.

11.4 Value added type II multipliers drawn from an update Statistics NZ database were used to estimate output effects. Data used for the estimations were drawn from the Auckland regional economy database (to overcome differences between regional and national data). The values were 1.96 for aircraft and related support services and 1.90 for tourism and recreation services.

24 11.5 FTE multipliers were estimated from the same sources. The values were 2.31 for aircraft and related support services and 1.43 for tourism and recreation services. The tourism number is a weighted average derived from the contributing industries as used commonly and discussed in Tantirigama and Singh 200913.

11.6 It should be noted that wide ranges exist in respect of tourism multipliers generally. That range for output multipliers can range from around 1.6 (Butcher et al.14) to over 4.015. Values used in this report are comparable with the many which typify economic impact studies with raw data drawn from the Statistics NZ database.

11.7 Data for estimating the likely location of effects was drawn from the benchmark model developed above. The assumptions adopted for that exercise are therefore carried through to the multiplier analysis.

Location Adjustments

11.8 Wherever possible, it is desirable to use multipliers estimated from the local and regional economies of relevance.

11.9 In the present case, input-output tables derived through extracts made from the “raw” national data for Auckland local and regional economies was used.

Input Data

11.10 Inputs for estimating annual economic effects consist of:

(a) The costs for support of the AHLP flights expressed as current annual expenditure. This data was supplied by AHLP’s support companies’ management and reflects actual costs of present operations;

13 Economic Impacts of Transport & Tourism in New Zealand: An Input-output Multipliers Approach, Tantri Tantirigama Ministry of Transport and Mei Taniguchi Singh Ministry of Tourism and Mei.Taniguchi- [email protected] 2009 paper to NZAE Conference. 14 http://www.telford.ac.nz/PageFiles/6862/907_Rpt37f_s3362.pdf. 15 http://nzae.org.nz/wpcontent/uploads/2011/08/Economic_Impacts_of_Transport_and_Tourism_in_ New_Zealand.pdf.

25 (b) Estimated annual spend by international visitor users of the AHLP services with “spend” attributed to each visit (conservative in that each “visit” might involve several individuals or a group);

(c) Visitor numbers are from AHLP records. Spend was estimated as equating to the Tourism NZ’s estimate of an average spend by the premium nature of AHLP’s clients, which is some $50,000 higher than the “all of sector” international spend; and

(d) Inspection of actual spend for the groups using AHLP services suggest the spend may well be up to twice this figure. In line with a conservative approach however the lower figure of $50,000 was used.

11.11 For the net present value analysis, estimates of growth were developed by taking a conservative view of recent past and expected future growth. Thus the recent AHLP experienced rate of 12% (for the years 2014 - 2016) was modelled as suggesting growth of 10% for the next three years reducing to 7.5% for the following three years and 5% thereafter. This creates a conservative estimate of growth and estimates only some 10 years’ impact.

11.12 In the net present value analysis a discount rate of some 12% was used to reflect the current estimated future cost of capital for the NZ listed equities market. That rate reflects the likely risk in generating cashflows over the period.

Employment Data

11.13 The FTE employment of the AHLP and support infrastructure amounts to some 14.5 FTE jobs.

11.14 Estimating the levels of FTE employment associated with given levels of output in tourism spending is difficult for several reasons. A prime difficulty is the fact that productivity itself (considered as, say, amount of output for a given number of hours worked) varies according to how

26 “busy” a business is at a given time or “how hard the staff have to work” and other like factors.

11.15 The work of Butcher et al.16 is useful in that it used a detailed survey methodology to derive relevant associations in a NZ setting. Their estimate was that some 15 jobs were associated with each one million of spend. Adjusting for inflation since their study was completed and assuming reasonable consistency of productivity (for estimates of FTE in high labour content consumption industries coupled with the low growth in productivity in NZ this is readily defensible), an estimate of 10 FTE positions per million spent seems reasonable.

11.16 This ratio was used to determine employment levels as input for estimating economic effects. The procedure is frequently used in other studies of economic effects. Thus the direct FTE employment associated with enabled impacts was set at some 250 jobs (267 rounded down given the noisy nature of employment and spending ratios).

11.17 An indication of effects over time is given by estimating a minimum (present) a maximum (for the 10 year period) and an average since the concept of net present value is not tractable in dealing with job numbers.

Adjusting for Opportunity Costs

11.18 In any economic effects analysis, typically some attempt is made to account for the fact that resources attributed to an activity (such as that of AHLP) would be otherwise employed if not employed in that activity. Some account should be taken of this effect. While the literature is distinctly unclear about the magnitude of such effects and how to estimate them, in a typical paper Haveman and Krutilla conclude that net benefit accrues to somewhere between 6% and 31% (versus 100%) of effects17.

11.19 In the current case, it is likely that the raw estimates of full impact identified in the analysis do not take account of potential alternative uses and may thus be upwardly biased to some extent.

16 Supra, Note 15. 17 Haveman, R.H. and J.V. Krutilla, Unemployment, Idle Capacity and the Evaluation of Public Expenditures, National and Regional Analysis, Baltimore, John Hopkins University Press 1968.

27 11.20 Some amount of the tourist expenditure enabled by AHLP would remain outside NZ but for the business it operates. That is not true for all of that expenditure however. Thus loss of the tourist spend might mean that only some of the flow on effects estimated might be lost.

11.21 Some of the business might well be taken up by competitor businesses to the extent that they are able to offer a comparable service. On the other hand, it should be noted that the risks associated with taking up such business are very high. This is illustrated by the recent demise of Helipro – a business which had at the time of its receivership some 30 helicopters, a variety of revenue sources throughout the Pacific and Australasia and was long established but was unable to survive18.

11.22 The point is simply that while some replacement take up would undoubtedly ensue, the forgone business and its related flow on would be most unlikely to be replaced to a significant degree. To reflect this possibility however we have allowed a generous total of 40%. This is an estimate of the business foregone because of the existing activity of AHLP. Thus raw estimates of total effect including multiplier effects have been reduced by 40%.

12. CONCLUSION: ESTIMATED IMPACTS

12.1 On the basis of the inputs discussed above the analysis of AHLP’s net economic contribution to the Auckland region per annum is shown in the following table:

18 http://www.stuff.co.nz/business/industries/10592384/Helipro-put-into-receivership reports the scope of the business.

28 AHLP Economic Effects Output FTE Employment Mutliplier - AHLP activity 1.96 2.31 Multiplier - tourist activity 1.90 1.43 Direct impacts $ 5,240,000 14.5 Indirect and induced effects $ 5,030,400 19 TOTAL $ 10,270,400 33 Enabled effects $ 25,200,000 267 Enabled plus indirect and induced effects $ 47,880,000 382 Total raw effects $ 58,150,400 415 Opportunity cost adjustments -$ 23,260,160 -166 TOTAL NET EFFECTS $ 34,890,240 249

12.2 The conclusions then are that:

(a) The economic effect of the AHLP enterprise is to generate between $31m and $38m in output per year with a net present value, that is, considered in total for 10 years but in today’s dollars, lying between $239m and $293m.

(b) In respect of FTE employment, the economic effect of the business considered over the next ten years rises from a minimum of 224 – 274 annually, to a maximum of 410 – 501 with an average across the 10 year span, of some 350.

12.3 This means that any compromise of the operation of AHLP which reduces its activity in any material sense has the potential to:

(a) Diminish economic value by some $33m annually;

(b) Over a 10 year period, diminish economic value by some $230m - $278m in present value terms; and

(c) In addition, an average of some 350 FTE positions may be lost.

12.4 The present value of the activity considered in its entirety (impacts in AHLP and all related tourist activity direct, indirect, induced and enabled effects) equates broadly to the market capitalisation of companies of mid- size in the NZ stock market - Comvita, Steel & Tube Holdings, NZX itself, CDL or Hallensteins Glasson – in short, very substantial.

29 13. NZTA ECONOMIC EVIDENCE

13.1 I have read the economic evidence of Mr Williamson for NZTA. I generally agree with his comments (as far as those go) and note that it is not inconsistent with my evidence.

13.2 However, I am surprised that Mr Williamson has not sought to estimate the quantity of claimed benefits for the EWL project, nor sought to assess its economic costs which should then be subtracted from those. A standard economic assessment for a project such as the EWL typically estimates both, to then calculate the projects’ net economic benefit. I fail to see how the Board can undertake a proper assessment of the EWL in accordance with the RMA without NZTA having provided such evidence.

13.3 I therefore cannot address Mr Williamson’s evidence in detail since he has not attempted to quantify or assess the economic cost of the EWL impairing AHLP’s Heliport, so his evidence is not concerned directly with the economic effects I have examined.

______Philip Brent Wheeler

22 May 2017

30 APPENDIX 1

FLOWS OF EFFECTS

[Attached separately in the electronic version]

31