ARGYLL & BUTE COUNCIL EXECUTIVE

OPERATIONAL SERVICES 20 DECEMBER 2007

ARGYLL AIR SERVICES UPDATE

1. PURPOSE

The purpose of this report is to update Members on the current position with the implementation of the Argyll Air Services.

2. RECOMMENDATIONS

It is recommended that the Executive

• Instructs the Head of Roads & Amenity Services to take all necessary appropriate action to ensure that the Argyll Air Services commences as soon as possible.

• Confirms that Argyll & Bute Council will provide an out of hours air ground service at Airport to aid emergency re-fuelling.

• Requests that a further report is brought to the next meeting of the Executive.

3. DETAILS

General

The Argyll Air Services Project was commissioned and undertaken to reduce the isolation of the islands of and and also to provide the opportunity for the long term development of . The provision of scheduled service flights from Oban to Coll, Colonsay and improves accessibility to these islands for visitors and residents. The costs of redeveloping Oban Airport will be met by the Scottish Government and the operation of the scheduled flights is being subsidised through GAE support. It has always been recognised by the funding parties involved, including the Scottish Government, HiTrans, European funders, the Local Enterprise Company and Argyll & Bute Council that the cost of operating the scheduled service would not be recovered through fare income. GAE support would allow the vast majority of this cost to be recovered.

Once the infrastructure improvements are complete and the airports are licensed the Airport Development Manager will be free to maximise the business potential of the Oban Airport.

1 Appendix One contains details of a report prepared by HiTrans – the Regional Transport Partnership which provides a historic context of the Argyll Air Services project.

At the outset of this project in 2002, it was anticipated that the licensed services would commence around the autumn of 2007, and now five years later, we are reporting a project that is just four months late. From the project’s inception, the completion of the project has been frustrated by many factors including poor advice given by the initial airport consultant, Airport Operational Services Limited (AOSL), previously Humberside Aviation. All the detail provided by this company has needed to be reviewed once the Airport Development Manager was appointed. All general issues have now been addressed.

The full requirements for a scheduled service have proved far more onerous than expected at the project initiation and a substantial amount of additional specialist design work and procurement has been required. The skill of the project team has been reflected in that they have managed to overcome all the obstacles presented to them and they have delivered three airports to the required standard. Credit must also be expressed to the main Contractors involved in the construction work which include Ennstone and M & K MacLeod who have worked in partnership with the Council to deal with the delays and additional works

3.1 TLC Ltd Issues

There are a number of on-going issues at Oban Airport between TLC Ltd, the sole fuel supplier at Oban Airport and Argyll & Bute Council. These issues could affect the issue of a CAA licence. The current problems include:

1. There have been two reported instances of inappropriate use of the Argyll & Bute Council business frequency, which is for the sole use of the Council.

2. There has been much press interest relating to the emergency out of hours fuel service which is provided by TLC Ltd. It has been reported that Argyll & Bute Council banned this service. This is not accurate. The Council have made no changes to TLC’s right to supply fuel, and indeed the Council has allowed TLC, 24 hour access to the airport by installing a new access gate and we have also installed an external switch to the control tower to allow TLC to operate the runway lighting should it be required, which would increase airport safety. Under CAA regulations, TLC are not permitted to operate the newly installed VHF RTR Radio to contact aircraft for the supply of fuel. TLC have been aware of this requirement since 24 July 2007 and to address this matter, TLC need to purchase a business radio licence for about £100 from OFCOM which would be supported by the CAA, if they wish to have radio contact for refuelling with visiting aircraft during out of hours. There has never been any contract between TLC Ltd and Argyll & Bute Council to provide an out of hours service.

2 However, in light of TLC Ltd’s current refusal to apply for a business radio licence it is necessary that Argyll & Bute Council takes the appropriate action to ensure that the emergency re-fuelling can be sustained. Accordingly, it is proposed, that there is a move from the current ad hoc nature for out of hours cover to an “on call” arrangement where Argyll & Bute Council staff will provide the necessary air/ground cover.

3.2 Public Service Obligation - Highland Airways

The official contract start date with Highland Airways is 7 January 2008. The airports will not be licensed by that date so scheduled services cannot start. Highland Airways are unable to obtain their CAA licence until they have undertaken proving flights. These cannot be undertaken until all the airports are fully staffed and operational.

It has been necessary for Highland Airways to prepare advance publicity. As a result, Highland Airways decided that their current published start date will indicate that the scheduled service will commence from Monday 3 March 2008. If a licence is obtained earlier from the CAA, then the start of scheduled services will be advanced.

The nominal fare level of £1 for the school pupil flights has been discussed with both Strategic Finance and Community Services. This nominal fare has been set as the fare income is offset against the cost of the service which is supported by GAE (currently at 80% of costs incurred). Setting a higher fare increases the cost to Community Services, who would be expected to pay the pupils’ fares, and as such this would reduce the GAE support levels to the Council. Overall Community Services would expect to have a cost saving by the reduction in ferry fare costs.

3.3 Colonsay

The emergency water tank has been constructed, and the meteorological equipment is currently being installed. The need for a backup communication system is being investigated and this matter will be addressed early in the New Year. The operation and maintenance of the airport will be undertaken by Beaver Perseverance Limited. It is still necessary to train the staff and this is will be completed in early 2008.

The CAA inspection team identified the need for additional minor earthworks to provide the necessary runway clearances. Resurvey work has now been completed and the Contractor will undertake these works in January 2008 to allow this to be completed prior to the next CAA inspection. This additional work is cost neutral to the Council.

Minor snagging work on the terminal building has been completed, and the completion certificate for the terminal building should be issued this week. Operation and maintenance manuals for the terminal building have been approved by the CDM Coordinator and they will be issued in early January 2008.

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3.4 Coll

The meteorological equipment is being installed. Ground staff are being appointed and training will be carried out in January 2008. Some additional fencing is required after the initial CAA inspection, and this work is in hand. The terminal building completion certificate will be issued this week. The need for a backup communication system is being investigated and this matter will be addressed early in the New Year. Operation and maintenance manuals for the terminal building have been approved by the CDM Coordinator and they will be issued in early January 2008. Minor repairs are required to the aircraft standing area in front of the terminal building. This work will be completed in January 2008 and prior to the next CAA inspection.

3.5 Oban

All civils works have been completed apart from the sealing of the filter drains which is being delayed by a combination of wet weather conditions and the availability of the bitumen tanker. It is recognised that the recent weather has been more than reasonable but there has been difficulty in procuring the bitumen tanker for this work. This work will be completed in January 2008. Other minor works are ongoing but these do not affect the CAA licence. Final measurement and claims have still to be agreed with the Contractor, but these do not affect the issuing of the CAA licence.

3.6 CAA Licensing

The initial CAA inspections raised minor issues which prevented the issue of the licences for the operation of the scheduled services. At the end of the inspection the Chief Inspector from the CAA indicated that there were no “showstoppers”, and that he was extremely pleased about the quality of work that had been prepared for the inspection, and that they fully expected that at their next visit the licences would be issued.

A second inspection by the CAA, has been arranged for February 2008 when all the necessary works and training will have been completed.

3.7 Fire and Rescue Vehicles

A Protector C2 Fire Vehicle has been delivered to Oban. A second fire vehicle for Oban, as backup and for training, has been purchased and it will be delivered in January 2008. There is an ongoing need for fire and rescue training to be undertaken and a Service Level Agreement with Highlands and Islands Airports Limited has been completed to allow this to be undertaken at Campbeltown Airport. On financial grounds it is more cost effective to store this vehicle in Campbeltown for the training purposes.

4 The current airport building at Oban cannot accommodate the fire and rescue vehicles, and there is a requirement of the CAA Licence that the fire and rescue vehicles are garaged.

The lease for the hanger adjacent to the terminal building has been completed. Slight modifications are required to the doors, and once complete the fire and rescue vehicle can be stored in this location.

The vehicles on Coll and Colonsay are garaged.

3.8 Emergency Buoy System

VTMS have been appointed to install the emergency buoy system at the South end of the Oban runway. This work will be completed in January 2008, and prior to the next CAA inspection.

3.9 Financial Issues

Financial provision has previously been made in the revenue budget for the operating costs of Oban Airport until March 2008. When the scheduled service commences Scottish Government will support the operating costs through additional revenue grant. It currently costs £51,000 per month to operate Oban Airport.

The agreed start date for Highland Airways is 7 January 2008. Until the airports are licensed the scheduled service cannot operate. It is expected that we will have to meet a proportion of Highland Airways monthly costs of £36,700. There may be a small reduction for fuel savings but Highland Airways have appointed staff and entered into aircraft lease agreements. Negotiations are underway to ensure that the costs to Argyll & Bute Council can be minimised. Payments to Highland Airways in 2007/08 have been budgeted to be paid by the Council. However, from April 2008, this Public Service Obligation will be funded by the Scottish Government through additional GAE. Coll and Colonsay are similarly funded through additional GAE from April 2008. Costs in this financial year have previously been budgeted.

4. IMPLICATIONS

4.1 Policy – The licences for Oban, Coll and Colonsay will be achieved by February 2008.

4.2 Financial – Financial provision has previously been made to operate the Argyll Air Services until March 2008. Thereafter, they will be funded through the Scottish Government. The cost of providing of air ground cover will be met from existing budgets, although the actual cost is dependent on the number of calls by the emergency services.

4.3 Personnel – Appointment of staff on Coll is being actioned.

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4.4 Equalities Impact Assessment - None

4.5 Legal – None.

For further information, please contact Peter Ward (Tel: 01546 604651).

Stewart Turner Head of Roads & Amenity Services 20 December 2007

6 APPENDIX ONE

The Development of Argyll Air Services

Historic Position

Local air services to the Scottish islands started in the 1930s and developed after World War 2 through the 1950s and 1960s with regular services being introduced between the Northern Isles, Western Isles, Islay and Campbeltown to the main national service centres of and , and on internal services within the Northern Isles. These services have developed to become part of the normal means of access to these areas for business, health and to some degree social interaction.

The equally remote smaller Argyll islands were not included in this network development and continue to suffer population decline, with related threats to the sustainability of the communities involved, and to the ever increasing challenge of providing support services in an era where easy access has become an accepted norm elsewhere in the country.

Within Argyll the airports at Campbeltown (Machrihanish), Islay (Machrie) and Tiree are maintained by national Government and are Licensed Airports used by passenger air service operators who ran services to and from Glasgow. Airports at Oban (North Connel) and Mull (Glenforsa) are maintained by the local authority as unlicensed strips used only for private flying and, in the case of Oban, for very occasional charter. Small grass strips are also present on Colonsay, Gigha and Coll maintained by the local land owner and used only on an irregular basis by private aircraft.

In the late 1990s the Local Enterprise Company (AIE) identified that action was needed to regenerate the failing economies on Tiree, Coll and Colonsay and that one critical common constraint was their poor transport links with the mainland and service centre in Oban. Developing air links to Oban were seen as a critical element in meeting this challenge. In the same period Council were being tasked to justify retention of assets in relation to its function of delivering their core services. The airport at Oban requires ongoing maintenance and while it was attracting increasing use by private aviation, there appeared no prospect of it delivering benefits that supported the core service delivery functions of the Council, or enabled any significant wider benefits to the communities in north Argyll. The Council took the decision at this time to investigate whether further investment at the airport could encourage passenger services from the central belt which would improve accessibility in the area and stimulate economic activity. This resulted in the Barr report in 2002 which identified that there was indeed potential benefit from improving facilities at the airport to a level that it could receive scheduled services and to do this the airport would have to be licensed. There were however challenges in delivering such benefits in terms of overcoming physical constraints, the need for capital investment, and the potential for increased running costs in the future, which would have to be overcome and the cost of so doing offset against the identified economic gains.

Contemporarily HITRANS, the then voluntary regional transport partnership covering the whole of the Highlands and Islands was working on its PSO Network Proposals which when fully developed included the services identified as necessary by AIE and Argyll and Bute and an additional daily link between Oban and .

The Project Development

Clear synergy between the AIE proposal and that of the Council resulted in both organisations looking into the possibility of a joint project to develop air services between Oban and three 3 islands, with the desire to additionally develop a regular air link between Oban and Glasgow and/or Edinburgh. It became clear during the development of options for delivering the desired outcomes that a number of major challenges would have to be overcome:-

1. To run scheduled services under the PSO government led criteria, and to attract maximum usage and maintain adequate safety, the airports involved would have to be licensed. 2. The physical constraints on Coll, Colonsay and at Oban would only support a Code 1 runway based on initial assessment which would limit flights in terms of capacity. 3. A PSO would not be provided between Oban and the central belt as government already supported rail subsidy on this corridor.

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Much development work took place on the Argyll project and consultants appointed to support the Council and AIE achieving their combined goals. A proposal was developed after extensive investigations and which provided:-

1. A new code 1 airports on Coll and Colonsay 2. Improved code 2 airport at Oban with an innovative curved approach 3. Air services supported by a PSO between Oban and the 3 islands on the days the ferry didn’t sail during the winter, and on similar frequency during the summer, with flights on Fridays and Sundays allowing children being educated in Oban the opportunity to return home to Coll and Colonsay at weekends. 4. An air service between Oban and Glasgow/Edinburgh could not be guaranteed (would have to be run commercially) but it could be developed as part of the PSO operators proposals or in time, as scheduled/business flights increased in the new environment in which business usage would be encouraged to use the facilities in Oban, on a commercial basis.

A Business Plan was produced, approved by the Council and HIE through AIE, and applications made for support funding from the ERDF funding programme. This was provisionally secured in September 2005 based on a detailed application identifying the economic and social benefits that the project potentially brought to the area. Capital funding for the project was to be split ERDF (50%) AIE (25%), and Council (25%). The ERDF contribution was subsequently reduced proportionately in May 2006 when HITRANS provided £1m of funding in support of the project at which point the final ERDF grant was confirmed.

The Business Plan was developed based on the commitment by central Government to meet the running costs of running Oban Airport given its identified function as providing a strategic regional hub for air services.

Tenders were invited for the civil’s works at the 3 airports and subsequently for the terminal building works. Tenders for the civils work came in within estimate but the tender costs of the buildings were substantially higher than estimated. Additionally, unforeseen costs were experienced during construction on maintaining road access for construction on Coll and during construction of the buildings in Oban. All these cost increases were reported to the Council in accordance with their scrutiny requirements. While the Council only contributed 25% of the cost of the project based on the business case project cost estimates, all the other partners limited their contribution to this monetary value, with the exception of HITRANS who raised their contribution by £100k to support the increased access road costs on Coll and by a further £100k towards meeting increased costs for the terminal buildings on Coll and Colonsay. This fixed grant funding approach is normal in projects of this nature, where the Council, as core funder and client meets the cost of any increases incurred. The increased capital costs incurred by the Council in developing Oban Airport were reflected in the loan charges set against ongoing running costs which would be subsequently met by the Government.

The Council at this time employed the services of an Airport Manager with the experience and skills necessary to manage a licensed airport and develop the commercial use of Oban Airport. It was necessary to have a person in charge of the running of the airports who could demonstrate to the CAA, the licensing authority, the necessary level of competence to allow them to approve the Licenses for all 3 airports.

Tenders for the PSO air services were advertised in accordance with the European competition rules as work proceeded and were returned within budget. The services will commence in January2008 following final Licensing of the 3 Airports, a process that cannot be finalised until all three airports are completed and all employees are in place and fully trained.

The way forward

The opportunities for development and reducing costs enabled by the new airports as envisaged by business interests and public service agencies in the north of Argyll can now start to be realised. A number of expressions of interest to use the new facilities have already been received. The development of the seaplane service between Glasgow and Oban is encouraging and demonstrates the untapped potential for a commercial land based on this route.

The Code 2 airport licensing of Oban Airport will allow it to be used by aircraft of Twin Otter size or equivalent, and it is encouraging that production of this specific aircraft has now recommenced in Canada following worldwide demand for delivery of aircraft of this size and capability. Highland Council is looking to develop a similar airport facility at Broadford in Skye on the basis of the economic benefits it will bring to the island. This

8 will result in three airfields with a need for aircraft of the Twin Otter size in the area, Oban, Skye and Barra. The opportunity clearly exists to develop a network between these airports and the areas they serve and the hubs within the central belt and Inverness. The Scottish Government are looking into how best to procure best value in delivering the PSO services to Barra and this may separately provide added benefit to other services requiring this type of aircraft in the area.

With the introduction of local island services in Argyll as well as in Orkney and Shetland the opportunity now exists for these 3 PSO networks to look to be developed as a single entity, initially using the Islander aircraft but possibly in future using single engined aircraft of similar size but increased capacity. These are used elsewhere around the world and may be accepted in the UK once their apparent better safety record is confirmed through ongoing experience. .

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