Council's £60m loan to Luton Airport company approved in private by executive committee

The money borrowed on behalf of London Luton Airport Limited (LLAL) is the first of two emergency loans, totalling £83m, with a further loan of £23m scheduled for the 2021/22 financial year.

The figures were highlighted during the council’s emergency budget in July, after the impact of the pandemic on the aviation industry.

There was little doubt the Labour-controlled executive would agree to the initial £60m loan after it gained the backing of its scrutiny finance review group, at the second attempt.

The Labour group on the council was outmanoeuvred by the Liberal Democrat opposition when it first asked the review group to consider the loan on August 6th.

A vote to discuss the council report about the loan in public was proposed and then won by the Liberal Democrats.

But officers asked for the local authority to seek legal advice and defer the matter.

LLAL provided £29m to the council last year and £9.9m to charities and community groups locally.

But the company has seen “a dramatic fall in its income” resulting from the severe disruption to the aviation industry, according to the council website.

“LLAL requires a loan to ensure it can continue to provide vital funding to the town, in the short-term, while the aviation sector recovers,” it said.

“The council proposes to borrow £60m and then lend it to LLAL, as it can borrow money at a cheaper rate of interest than the airport company.

“LLAL will repay interest on the loan to the council at a higher rate than the amount the local authority borrows it at.

“As a result, the council gets interest payments (£16m in 2019/20) from LLAL, which it can use to fund local services.

“Without this loan, LLAL could become insolvent and cease trading,” the council added.

“At worst, the council could lose control of the airport, and the benefit of the income it generates altogether.”

LLAL is due to pay back the full amount at the end of the loan period.

“It’s the intention that once the loan has been arranged it will be secured through a fee that becomes a fixed charge on LLAL’s capital assets,” explained the council.

“LLAL owns London Luton Airport, land around the airport including the business park, Century Park, Stirling Place and the Luton DART.

“The value of these assets exceed LLAL’s borrowing.

“LLAL has reserves, but these have been used to cover its huge drop in income this year.”

The Liberal Democrats criticised a briefing issued by the council in the run-up to the rescheduled review group meeting.

“It repeats the deliberately misleading claim that all the loans it makes to its airport company are secured,” the opposition group argued.

“In fact, the almost £400m in loans are secured against the assets of the company.

“But, the council already owns all of LLAL’s assets by virtue of its 100 per cent ownership of the company.

“It follows that for all practical and accounting purposes the £400m loans are unsecured.”