• Home
• NZ Economic Development
• Infrastructure Development
• Archive
• Airfield Inquiry
• Final Report Part IV
• Part A - Main Report
• 8. Auckland Airport
• Necessary or Desirable

• Infrastructure Development

• Archive

• Airfield Inquiry

• Final Report Part IV

8.240 As noted in Chapter 2, under Part IV of the Commerce Act goods and services may be controlled if it is necessary or desirable for those goods and services to be controlled in the interests of acquirers. The potential benefits and costs to acquirers of controlling the airfield services supplied by AIAL have been identified above. The Commission considers that if the weighing of these benefits and costs demonstrates that an improvement in the economic welfare of acquirers would result, then control would be demonstrated to be necessary or desirable in the interests of acquirers.

8.241 Table 29 brings together the Commission's estimates of the potential benefits and costs to acquirers of declaring control for airfield activities supplied by AIAL. The figures shown in Table 29 are an average of the seven years 2001-2007. Results for individual years are shown in Appendix 13.

Table 29: Estimates of the Potential Benefits and Costs to Acquirers of Control of Airfield Activities Supplied by AIAL, Average Per Annum ($000s)

8.242 There are potentially benefits to acquirers (in this context, specifically the aircraft operators and any indirect acquirers, such as airline passengers) if the airfield services supplied by AIAL were to be controlled. At the point estimate of WACC, these range from $4.1m to $4.4m per annum. However, to achieve these benefits, costs ranging from $2.1m to $2.3m per annum would potentially be incurred (on the basis of the control mechanism assumed by the Commission). The Commission thus estimates that there would be likely to be $2.0m of net benefits per annum to acquirers over the seven year period, or some $14m in total. Use of the WACC range produces a wider range of net benefits, from a gain of $4.5m to a relatively small loss of $0.6m per annum. Overall, the Commission considers that it is likely, on the balance of probabilities, that net benefits would accrue to acquirers through the declaration of control. The likely net benefits of about $2m per annum are significant, as they amount to about 10% of the net profits earned by AIAL on its airfield activities, or to about 4% of landing charges paid to AIAL.

8.243 In considering whether it is necessary or desirable in the interests of acquirers to control the airfield activities supplied by AIAL, the Commission also notes the fact that it has found evidence of a trend of excess returns historically, including during the period of the Inquiry. This reinforces the Commission's concern that excess returns are likely in the future under the current regulatory environment.

8.244 Table 30 presents potential net benefits to acquirers of declaring control for airfield activities supplied by AIAL for individual years

Table 30: Estimates of the Potential Net Benefits to Acquirers of Control of Airfield Activities Supplied by AIAL for Individual Years ($000s)

8.245 Forecast results for individual years show that net benefits to acquirers are expected to decrease slightly over 2003-2005, and then increase in 2006 and 2007 to levels greater than at present. The increase in net benefits between now and 2007 is primarily due to [...]. The forecast decrease in net benefits for 2003-2005 is due to the impact on forecast returns of increases in the asset base in coming years as the costs of rehabilitating the current runway are capitalised. Actual net benefits may be higher if AIAL has overstated forecasts of capital expenditure required in respect of the runway rehabilitation. The Commission has not assessed whether the forecasts are appropriate.

8.246 In calculating the costs of control, the Commission has assumed price cap regulation, as this is one of the more common forms of regulatory control overseas. Use of this form of control, for the purpose of estimating the costs of control, should not be seen as predetermining the form of control that the Commission would employ if control were declared. The Commission notes that a wide range of regulatory controls are available under Part V, which are likely to be less intrusive or less costly than price cap regulation. It would also need to be determined, however, how effective different control mechanisms would be in achieving the benefits of control, i.e., the overall cost-effectiveness of control would need to be assessed for control mechanisms besides price cap regulation. The Commission has not considered the efficacy of other forms of control.

8.247 In terms of other control mechanisms, section 70(2) enables the Commission to use formulas or other methods from which prices or revenues, or any part of a price or revenue, may be determined. One suggestion, from BARNZ, is that the parties could commercially negotiate, based either on the principles resulting from this report, or pricing principles established by the Commission as a form of control. In addition, the Commission notes there may be other policy options available to the Minister. Irrespective, the Commission is cognisant that any form of control utilised would need to be commensurate with the level of market power available to AIAL, the size of the anticipated excess return, and resulting net benefits to acquirers.