Auditor-general's airport probe on hold

The Auditor-General's Office was about to start a probe into Queenstown Airport's partial sale to Auckland International Airport (AIA) when a High Court challenge to the deal was launched.

The office said it had postponed its probe in the meantime and was following the matter, after a complaint from a group of Queenstown business people about the July sale of a 25 per cent stake in the community-owned airport via the issue of $27.7 million in new shares to AIA.

The same group, Queenstown Community Strategic Assets Group, is seeking a High Court judicial view of the transaction, which also gives AIA the option to buy up to 10 per cent more before June.

The High Court in Christchurch will be asked to determine whether the sale was legal under the Local Government Act 2002.

Air New Zealand is also challenging the sale in separate High Court proceedings. The business group, headed by property developer John Martin, claims the sale process sidestepped the act.

The act requires a local authority trading organisation, such as an airport company, to provide its council owner each year with a statement of intent (SOI), which informs of material intentions, projects, objectives and performance targets.

Queenstown Airport's SOI for the June years ending 2011, 2012 and 2013 does not mention discussions with, or forecast a transaction with, AIA. Its financial forecasts showed no forecast increase in shareholder funds and said debt repayment would be financed from operating cashflow.

Under the section "capital subscription", the SOI said "the company will consider the need for and sources of capital subscriptions as may be required". Queenstown Airport chief executive Steve Sanderson has said this was because the draft SOI was given to the council in February, and the deal went through in early July. However, the council did not formally accept the SOI until late June, just before the July 7 transaction.

An AIA spokesman said the two airports were in talks in late March. While the deal's challengers will test the Local Government Act SOI provisions, the council and its airport company seem likely to argue that, under a 1996 clause in the airport company's constitution, it can issue new shares without offering them first to the council.

Meanwhile, the council and Queenstown Airport have headed off an application by the business group for an injunction to stop progress on the deal by voluntarily undertaking to the court not to decide finally on the sale of the second tranche of shares.

- © Fairfax NZ News