Part 10: Our audits and the airport sector

10.1
In this Part, we describe the Auditor-General's role in auditing the public entities within the airport sector. The airport sector is diverse and includes privately owned airports, council-owned airports, joint ventures between councils and the Crown, and public companies (for example, Auckland International Airport).

10.2
We also provide an overview of the financial performance of the publicly accountable entities. This Part continues our practice of reporting, in turn, the financial performance of the smaller sectors that fall within the Auditor-General's mandate.

10.3
We also discuss the audit work and disclosures required by the corporatising of Hawke's Bay Airport Authority, which took effect from 1 July 2009.

Overview of the airport sector and the Auditor-General's role

10.4
The Auditor-General audits 18 airport authorities and airport companies. They are publicly accountable entities because their majority shareholders are publicly owned. The requirement for the Auditor-General to audit them is set out in the Public Audit Act 2001.

10.5
In 1985, the Government embarked on a wide programme of reform to improve the efficiency of public enterprises through contestable service delivery. Most airports were corporatised and constituted as companies. Major airports, such as those in Auckland and Wellington, were corporatised and eventually sold. The Ministry of Transport also negotiated new arrangements with a number of local authorities, with which it owned or operated airports on a joint venture basis.

10.6
For the year ended 30 June 2009, there were seven airport authorities operated on a joint venture basis between local authorities and the Crown, and therefore within the Auditor-General's mandate. The Ministry of Transport oversees the Crown's interest in joint venture airports.

10.7
On 1 July 2009, Hawke's Bay airport was corporatised and a new legal entity, an airport company, was created to own and manage the airport. The assets were transferred to the new company. The Napier City Council, Hastings City Council, and the Crown are shareholders of the new company.

10.8
Seven airport companies within the Auditor-General's mandate are 100% owned by councils, and are known as council-controlled trading organisations. One airport company, Omarama Airfield Limited, is 50% owned by a council and 50% owned by an incorporated society. Omarama Airfield is within the Auditor-General's mandate because the Local Government Act 2002 considers an organisation to be council-controlled when a council has a 50% or greater equity share in it.

10.9
Along with local councils, the Crown also partially owns the following airport companies that are structured as council-controlled trading organisations:

• Christchurch International Airport Limited;
• Dunedin International Airport Limited;
• Invercargill Airport Limited; and
• Hawke's Bay Airport Limited (a council-controlled trading organisation from 1 July 2009).

10.10
The Crown's interest in these airport companies will be managed through the Crown Ownership Monitoring Unit within the Treasury.

10.11
Some airfields are also managed by councils (that is, the airport is not a separate joint venture or company). We have not included the operations of these airfields in this report.

10.12
The companies operating Auckland, Christchurch, and Wellington international airports are subject to information disclosure regulations under the Commerce Act 1986. Of these three, only Christchurch International Airport Limited is audited by the Auditor-General. The appointed auditor of Christchurch International Airport Limited conducts the audit of the information disclosure regulation statements. The work associated with the regulatory framework for the airport is additional to our statutory role in auditing the financial statements within the company's annual report.

Overview of the financial performance of the airport sector

10.13
This section provides an overview of the financial performance of the publicly accountable entities in the airport sector. These entities vary significantly in size.

10.14
Figure 10 summarises the financial results and position of the airport sector, based on the most recently audited financial statements.

Figure 10
Summary of the 2009 financial results and position of the airport sector

10.15
Of the publicly accountable airport entities, total assets at the end of the 2009 financial year were $1.1 billion. Total equity was $797 million. The total reported operating revenue these entities generated was $135 million, and total reported pre-tax profits were $28 million.

10.16
Based on the reported financial results, the overall returns on closing equity⁷³ and assets⁷⁴ for 2008/09 were therefore 3.52% and 2.55% respectively.

10.17
Financial returns expressed as percentages are significantly affected by the approaches taken to asset valuation and depreciation. These approaches reflect a historical cost component that is likely to result in the returns being overstated when compared with alternative approaches that reflect more current replacement values.

10.18
Four airport companies paid dividends to their shareholders for 2008/09 (2007/08: three).

10.19
The operating revenues and pre-tax profits reported in 2008/09 were down from reported results in the previous financial year.

10.20
Many airports reported in their annual reports that the global recession had affected their business – there has been a decline in domestic and international passengers for many airports. For example, Air New Zealand suspended international flights from Hamilton airport from April 2009 after the number of passengers flying to Hamilton from Australia on Air New Zealand flights reduced. However, after Air New Zealand's decision, Pacific Blue announced its decision to operate international flights from Hamilton, as of 1 September 2009.

The Auditor-General's role in auditing Hawke's Bay Airport

10.21
In October 2006, the Government announced its decision on the future governance structure of the remaining airports in which it is a joint-venture partner. Hawke's Bay and New Plymouth airports were given the option to corporatise.

10.22
Hawke's Bay Airport was corporatised on 1 July 2009 and the assets transferred to a new company. The Crown has a 50% shareholding in the new company.

10.23
The corporatisation of Hawke's Bay Airport means a change of governance structure, with a company board appointed. Hawke's Bay Airport will now be able to raise its own capital to fund development. Under the previous joint venture arrangement, the airport relied on the joint venture partners agreeing on any future investment.

10.24
The appointed auditor of Hawke's Bay Airport Authority issued a non-standard audit opinion on the financial statements for the year ended 30 June 2009. The audit opinion referred to the fact that the financial statements were prepared on a disestablishment basis. The opinion also referred to appropriate additional disclosure in the financial statements about the corporatisation.

10.25
The financial statements disclosed that a new company, Hawke's Bay Airport Limited, will take over the business, assets, and liabilities from 30 June 2009 at fair value, as agreed in the asset transfer agreement dated 1 July 2009.

10.26
The financial statements of Hawke's Bay Airport Authority for the year ended 30 June 2009 measured the assets and liabilities at their realisation values on transfer to the new company, as recorded in the asset transfer agreement for the corporatisation of Hawke's Bay Airport.

73: The return on equity is the pre-tax profit divided by equity.

74: The return on assets is the pre-tax profit divided by total assets.