Aurigny jet: lending options explored

A DECISION on whether taxpayer money will be used to fund the purchase of the new Aurigny jet will be made after it has explored all lending options, the airline’s chief financial officer has said.

A DECISION on whether taxpayer money will be used to fund the purchase of the new Aurigny jet will be made after it has explored all lending options, the airline’s chief financial officer has said.

Deputies agreed during the July States meeting that Treasury and Resources could facilitate a loan to the airline so it could fund the purchase of an aircraft to cover the Guernsey-Gatwick route.

Chief financial officer Peter O’Donovan said the airline was still evaluating the funding options, which he expects to take back to the States at the end of September.

‘It is an understanding we will look for third-party funding, we were not forced to. I would prefer to borrow from the cheapest source. We are looking for that on the open market.’

The discussion about the States directly providing the money ‘has not happened’ and so he does not know the rate at which T&R would potentially offer. ‘It has never been black and white. ‘The Billet gave the States both options.'

Comments for: "Aurigny jet: lending options explored"

a voter

Oh come on please, do you think we are all stupid?

It`s obvious that the loan will be from T&R because they will be the cheapest interest rate, T&R can hardly charge a normal rate interest loan when it is them that are paying Aurigny`s bills can they?

Is this the reason that taxpayers are being asked to write off the £10,000,000 debts Aurigny has already accrued?

It would mean a clean slate to borrow millions more only to be asked to be written off at a later date. Anyone who thinks that won`t happen must be incredibly naive.

If T&R do loan the money for the new aircraft then the tax payers must ask, no DEMAND, that all the details of the rates of interest must be published so that we know that it is the best deal.


‘It has never been black and white.‘ AND THAT`S THE PROBLEM. Nothing is these days when it comes to being OPEN with OUR money is it?


OK seems you don't like Aurigny running at a nominal loss, suppose you are in favour of the States offloading it?

Have fun as your air-links go through the floor.

Alvin J Furrer

By getting this new jet, does not safeguard air-links any more than continuing the existing route schedule using only the ATRs, or by acquiring another ATR, ( at just over half the price of the 195 ), and expanding services to, say, Stansted.

This new jet will place Aurigny under a much greater financial burden - and what would happen if another airline were to start on that same Gatwick route ? The 195 would become Guernsey's own big, white, flying elephant !


As much as Stansted sounds good on paper, the reason that the number of Gatwick services has increased over the years is because of the demand.

If people wanted to go to Stansted we would have seen an increase in flights already.


Stansted was used by quite a few people when it had an early morning and evening flight. I used it myself several times and the train link via Liverpool Street station worked fine.

What immediately killed it for me and any other business users was when the commuter flights were dropped and they changed the scheduled to mid-morning and mid-afternoon. Fine for leisure passengers, but utterly useless for the business passenger, who was then forced back to using Gatwick.

It would not be impossible for Aurigny to keep using an ATR on the Gatwick route (and accept all future higher landing fees which would inevitably come), and to use an ATR on Stansted, PROVIDED that Stansted capacity was probably at least 4 return flights per day, including (crucially) return flights at commuter times. That would just about replace the lost Gatwick capacity from Flybe, and I guess some would make increased use of Southampton as well. I would anticipate that Gatwick passengers would have to expect to pay a premium for the added costs of using that airport, but an extra £10 per return fare per passenger certainly wouldn't put off business passengers.

A half-baked approach to increasing Stansted would be doomed to failure. It either needs to be a core service for Aurigny, or they shouldn't bother at all.

I still wouldn't rule out London City. A daily commuter return flight in the morning and evening would be very popular with business passengers.


Tell me another airline which is able to and would be willing to provide the frequencies which business travellers (ie. minimum 3x/4x daily) demand?

Perhaps you're referencing easyJet. The fact is that it might only serve Guernsey 1x daily, maybe 2x, but the fact is that most businesses who regularly send people to GCI will already have BusinessPlus accounts (and favour the flexibility that provides) with Aurigny and will favour the regularity of service.

As a rule, a once daily service (for that, given the overarching increasing value of LGW slots) is not enough to satisfy the business community, which will favour a more regular service if available.

Perhaps I'm being unfair. Which airline would you suggest might provide competing services? There is, as GCI says, a finite demand for STN services at present and whilst a second daily rotation might well be accomodated, there is a reason for the modesty of the route's growth in the past.

Alvin J Furrer

Gatwick is more popular because there is more choice on the flights, but also because the fares are often cheaper – even though we are told it is so expensive to land there. But without competition, that should change. Put up the fares and reduce Stansted’s and one can spread the load. For next July, one can still get fares as low as 80 quid return on both routes – put up the Gatwick fare to 100 quid return and leave Stansted’s as it is... see the booking trend and then start planning a strategy, not just jump in and invest so heavily in one new large aircraft.

As for which airline would fly in competition with Aurigny on the Gatwick route... I have no idea – for Aurigny’s sake, I hope none ! But we can not rule that out – and by purchasing one new large jet aircraft, one is committing oneself and putting all one’s eggs in one basket. If another airline were to start, then what would one do with the large jet ?


I'm making the point that there is no other airline at the moment positioned to compete on the Gatwick to Guernsey route in the UK with high enough frequencies to satisfy business demand. It was a rhetorical question.

In essence the City of London is not interested in Stansted, and it is not Aurigny's duty nor its job to try to change that sentiment. If it does try then it will do so at its peril.


Just do it. There are fewer things more important to the success of the island and equally the enjoyment and ease for islanders to get close to London and further a field.

Alvin J Furrer

No... just do not do it !!

Expand services to Stansted - which has an excellent network of cheap, onward connections to all over Europe using Easyjet and Ryanair, as well as Thomas Cook and Thomson charter flights - and serves north London much better !

Start a service to London City !

If one needs another aircraft, then standardize the fleet and get another ATR !

In fact, one could probably buy Blue Islands and another new ATR for less money than the new 195... that would safeguard air-links to Guernsey and turn Aurigny into a profitable airline much more than getting this new, larger jet and putting all one's eggs into the Gatwick route !



I partly agree with you about expanding other services to Stansted and London City, but it is still vital to preserve a viable link to Gatwick to protect the finance industry, for whom Stansted and London City will just not do the trick. If there is any risk that we will lose Gatwick altogether without flying larger aircraft into there, then we simply must do that.

London City would be a fantastic link, but not instead of Gatwick. International clients and their advisors flying into Heathrow or Gatwick won't bother to trek to Stansted or London City to get to Guernsey - they will simply place their business in Jersey instead, and keep flying there from Gatwick.


London City is one of the most expensive airports in Europe to operate into. Stansted does not nearly have the right connectivity; hence it is not (unlike Gatwick) London's second busiest airport. Guernsey needs good connections for the sake of its economy, and you can't fly to Ho Chi Minh City or Moscow from Stansted.

Alvin J Furrer

Sorry GM... but I believe that international business visitors will be more likely to use London City than Gatwick. Fly from North America and one can fly via Manchester, Amsterdam, or Zurich, in addition to Gatwick. Fly from all the business centres in Europe, and LCY has the far better network and that airport is so much easier to transit at. And it serves the City far better ! Bear in mind that Flyebe's interline agreement with BA, offers Flyebe a big marketing advantage. If Aurigny were to use LCY then such an agreement would be imperative - preferably with the Lufthansa Group or KLM/Air France Group.


Alvin J Furrer

Sorry, but if you anything about the finance industry and its future direction, you would realise that good links to mainland Europe are not important. Most of Europe is bust and will take 10 years to recover. Business does not come to Guernsey from Paris, Rome, Madrid, Barcelona, Frankfurt, Amsterdam, Rotterdam etc. Links to those cities are worthless.

As well as London, the finance industry needs hub links to the Middle East, the Far East, Southern Africa, North and South America. Clients and advisors from those parts of the world will NOT be landing it London City. They will be landing at Heathrow and Gatwick and connecting to here. The vast majority will land at Heathrow and jump in a car to Gatwick. The extra hassle of getting from Heathrow to London City would put them off completely. They would simply use Jersey instead of Guernsey for their business, and fly to Jersey from Gatwick.

London City is a very useful route for Guernsey businessmen doing business in London and vice versa. Its also very good for those holidaying in Europe. But that's all.


Good points ... I use Stansted a lot and find it ideal for getting in to London etc.

Doug White

If Stansted were such an ideal alternative it begs the questions as to why FlyBe did not simply lift and shift it's Gatwick routes to Stansted?

I believe London City is rather expensive to operate from which would presumably have to be reflected in the fares.

Alvin J Furrer

Because they do not fly to Stansted at all. Ryanair and Easyjet do and that means too much competition for them to start a new hub there.

Flybe are not just cancelling Guernsey route - they are pulling out of Gatwick completely.


GM, Ryanair flies no domestics from Stansted and easyJet only flies on the trunk-routes to Scotland, which Flybe historically hasn't been interested in anyway.

Flybe could easily have started a hub at Stansted if it wanted, but it chose Gatwick instead. You can suggest why for yourself.


Does somebody want to give me a valid reason why we couldn't have leased/ chartered a jet for a year to see how being the sole operator pans out?

Shane Langlois

You've hit the nail on the head. Hopefully that is exactly what Aurigny in consultation with T&R will eventually decide to do if the figures stack up. I do not know what the market for 'wet or 'dry' leasing is like at the moment but Embraer itself owns ECC Leasing Co Ltd which leases as well as sells pre-owned 175s & 195s.

Do the right thing the right way

Good question

It appears that continuity of sufficient Gatwick / Guernsey capacity from the point of Flybe's exit next year from that route is the objective for now?

Confidence for business, tourist and islanders who need to use that route is maintained in this way.

But how to achieve that objective is the big question?

There is usually more than one way to do the right thing. One can do it badly / well or inexpensively / expensively or in a rigid / flexible way etc etc.

One can see that there could be a dash to buy the best, biggest, shiniest plane or a more measured, flexible even multi-stage approach as you suggest. E.g. lease a jet for a year or so and during that period confirm or not the solution to use a 195 and if confirmed then potentially buy a new one (but not in a rush).

However, if one is spending somebody else's money (e.g. Aurigny is ultimately spending taxpayer's money if it cannot recover it all from paying passengers) then one can see that the weight attached to (i) financial prudence may not be as great compared to (ii) weight attached to e.g. having the best plane asap.

Would the directors of Aurigny make the same decisions if the debt (or portion of it) was backed up by directors' personal guarantees? Focusing on what is needed rather than what is wanted can be quite different depending on when there is a misalignment of the people deciding and the people paying.

One can take some quite substantial 'business-non-sensible' decisions when it is somebody else's money at stake - it is just human nature.

A company in the private sector has inbuilt checks and balances including the rigour of (usually) sophisticated shareholders who demand a reasonable return on their investment and will not accept excessively levels of risk taken by the directors.

The 'compelling' case for a brand new expensive jet is presumably advanced by the experts (directors) IN AURIGNY?

I am sure that the majority in Guernsey stand behind the right thing being done, but let us hope that it is being done in the most sensible way for the island and its economy in the long term.

'Boys' usually like new toys and can usually come up with good arguments why buying the new toy now is far better than all other competing options, more so when somebody else picks up the tab for the new toy.

Anyhow, if there is well informed relevant expertise brought to bear by sophisticated shareholders who can be satisfied that they fully understand the various options before allowing the company's directors to commit the company (and in this case the island's taxpayers) to one a of a number of options and to significant and long-term financial liabilities then all should be OK.


This is not a mere case of 'boys and their toys'. The operation of a jet is going to be quite an upheaval for Aurigny, and it is no coincidence that a leased jet will be used between March and June such that Aurigny can be ready to operate on its own when the time comes.

Let's say Aurigny can't recover the money in fares, and makes another £10m loss over the next decade. Should people complain?

Well, without it Guernsey wouldn't have links to Gatwick and Alderney wouldn't have links to Southampton. The economic benefit it renders to Guernsey far exceeds the loss it makes on its own books. Because if Jersey was significantly more accessible than Guernsey, everyone would use BA and go there instead.

So perhaps we should look at the wider picture of the whole, total value of the service which Aurigny provides alongside the cost of the jet which it plans to operate (purchased from a loan; not taxpayers' money).


Assuming use of 1 larger jet is the right solution, there a various ways to achieve this. Committing to buy a brand new jet immediately is not the only way to implement this solution.

A downside of this sourcing route is its comparative cost and probable inflexibility as the aviation market and Guernsey's economy continues to adapt to a rapidly changing environment.

Are there any other more flexible, incremental paths to achieving the same output - eg lease for 1 year + and during the first part of that period dcide whether or not to buy a new plane?

Ease of adaption to an evolving external environment tends towards resilience. Short term leasing building towards a better informed long term solution may be less expensive in the long run.

Government is lender of last resort to Aurigny so regardless of the funding mechanism, if Auigny buys a new jet (or anything else) the ultimate risk all rests with the taxpayer (witness the capital prioritisation priority A proposal to write off Aurigny's rolled up operating deficits of the passed few years.)

Whoever is taking the risk, should call the shots - in this case the Shareholder.

Alvin J Furrer


If there is no large jet, it does not mean that the Gatwick flights will stop, just that the capacity is reduced.

If the extra capacity that is required can not, for whatever reason, be shared with Stansted and/or London City, then by all means think of leasing a larger jet and don't put all one's eggs in one basket by such a heavy investment.

If the decision to buy this jet is the wrong one, the loss could be much greater than 10 million... Aurigny lost 1.3 million alone lost year !


excellent idea

Right thing the right way

Good question!

It is always possible to do the right thing the 'wrong' way and some organisations have a track record of being more afflicted than others by this.

If a company has business savvy, sophisticated shareholders (e.g. professional investors or is listed on a stock market), the shareholders will hold the directors to account for their decisions and will not usually tolerate excessive risk which can flow from rigid, non-future-proofed decision making.

Business success and strength often comes from well thought through, measured, flexible and adaptive use of resources and less frequently from rushed yet superficially strong showcase decisions (bravado)

Not many predicted that only a couple of years after the States mulled over selling Aurigny to Blue Islands that Fybe would exit the Gatwick route.

Who knows what lies around the corner in another few years?

Presumably if Aurigny (and through them the tax payers of Guernsey) order (in a few weeks time?) a £multi-million new jet for delivery next year then there will be some long term liability financial consequences for the States from this option if it turns out not to have been the best decision in hindsight?

One can expect that it is the Aurigny directors extolling the virtues of buying a shiny new big jet asap, rather than a more measured approach (such as first (i) lease for an interim period (ii) then re-evaluate then (if appropriate) (iii) buy.

'Boys' can always find compelling arguments for new ‘toys’ rather than the less glamorous, less costly, but often equally effective and often more flexible alternatives.

Would the directors make the same business decisions if they had to give personal guarantees for the new jet debt than under the reality of the government-owned airline which is that the taxpayer always picks up the trading losses (whether from routine operations or high profile new jet purchases). Maybe they would?

The check and balance for Aurigny stems from its shareholders, like all other companies who in this case also represent the (current and future) taxpayers.

Do the shareholders have the necessary aviation industry expertise and experience (themselves or from their advisors) to be satisfied that of all the potential options that the immediate purchase of a brand new expensive custom-fitted-out large jet is the best overall option in all the circumstances?

Most of us are not qualified to know the answer to this question, but we can hopefully rely on the shareholder to take such advice as is necessary (other than from Aurigny directors and staff) to ensure that it takes the best possible decision when sanctioning any proposal from the Aurigny directors.

It is human nature that when spending somebody else's money and not your own and when the downside consequences to the decision-makers are relatively non-existent, that less wise long term decisions for the organisation are more likely.

I am sure that the overwhelming majority of islanders and those that benefit from the economy here all want the same thing - capacity to London Gatwick assured.

Let us make sure though that it is done in the most cost effective and future-proof, well thought through way.


Are you writing an ESA? Right thing wrong way


You don't really mean the European Space Agency, do you mark? You will find 'essay' in any spell check or dictionary.


good point! laps of concentration


... and that should be 'lapse'!!

Right thing right way

Is it better to err on side of too much not too little detail?

The devil is usually in the detail.

And oftentimes glossing over the detail leads to it coming back to bite later (when it is too late / more expensive).

Buying a (new) jet is a pretty major commitment for the island, I think.

Consider all options?

If a business in uncertain times needs more transportation capacity does it:

(a) move forward flexibly (e.g. rent / lease something adequate, whatever that is, for an interim period) and then fine tune its business needs before making a longer time more inflexible / expensive commitment with a greater confidence level that it is right; or

(b) spend all its money at the outset on a single comparatively inflexible purchase that may not match its needs and do this on a comparatively weak evidence base and in a fast evolving external environment?

Maybe it depends whose money it is and who is carrying the ultimate risk?

After the passengers, is it not the States of Guernsey on behalf of the taxpayers that meet the costs of Aurigny's losses (including any future expensive adjustments to any decisions taken by Aurigny)?

Are we not all just about to pay off the £10m legacy Aurigny trading losses?

Hopefully the capacity problem can be plugged prudently so that any necessary future fine-tuning can minimise passengers and taxpayers having to dig unnecessarily deep a second (or third) time.

For this, we must rely on the wisdom of the shareholder (on behalf of passengers and taxpayers) to evaluate the directors' business proposal(s) before sanctioning any particular leasing or purchase decision.

Alvin J Furrer

Very well said.


Aurigny's Chief finance officer assures us they will be in profit by 2015....If not then he should be fired, then hung drawn and quartered.

Stick and carrot

Does anybody know if the directors (and relevant senior management) of Aurigny are subject to a total compensation package that rewards long term success?

E.g define success to include things like

*limited fare rises (decreases are better!)

*quality and reliability (use measurable metrics)

*passenger numbers

*return to profitability over agreed time period

These should avoid the pitfalls of encouraging short-term behaviours that are disadvantageous to the owner (the states) and the taxpayers and other stakeholders whom they represent. The reward should have a long tail with deferred benefits to ensure that the directors (re)build a sustainable business.

That means that the directors are incentivised to do what the owner wants and if they fail they are not rewarded. In the case of the above example re the CFO, his total comp should be a lot less if the business does not deliver as he predicts.

Usual arrangement to drive right behaviours and compensate for existence of government backing which otherwise tends towards soft or even reckless business decisions.


There is a slight irony in your 'definitions': on the one hand you want 'limited fare rises' or 'decreases', which you think are 'better', but on the other hand you want a 'return to profitability over agreed [sic] time period'.

Working at an airline for a short time (especially one like Aurigny where the costs are high and margins are notably slim) would show you that one often precludes the other.

Heard it before?

Since the company has been in government ownership have we not heard this refrain before from directors (and the losses just grew).

How is T&R (as owner) ensuring that the directors assertions are translated into action this time?

If T&R want to there must be measures that they could put in place - after all the directors are accountable to T&R.

If the Aurigny Gatwick capacity enhancement plan implemented is not the best it could have been this could easily come back to bite T&R as hard if not harder than Aurigny.

No doubt they are working hard on getting it right. A lot is at stake for us all and them.

Student Bob

This whole situation is utterly ridiculous.

Aurigny with debts of 10 million they can't repay, who made another 1.3 million loss last year are talking about borrowing from the private sector?

Firstly committing to buying a jet at this early state is totally stupid. We have no idea what capacity is required on the Gatwick route next year or beyond. On top of that people will complain about abuse of monopoly position if the fares are increased to a level required to cover this burden. Add to that the cost of retraining all the pilots to fly this new jet (including the flying hours required for this approval) and that once the pilots are trained for jets they could very well be wanting more wages.

Secondly, why give all the profit on the loan repayments to a private company? Do you not see this as another waste of taxpayer money? Even if (and I find this unlikely without creative accounting) Aurigny make a profit in 2015, shouldn't the loan interest payments go back to the states to help address the 10 million writeoff?

Thirdly, people harp on about Gatwick as if it is the most important link we have. I recall similar comments about the loss of the Heathrow link back in the day and (shock horror) people were still able to go on holiday, the finance industry carried on fine, the world turns.

When I was working in the finance industry we flew to Stansted (which at the time had an early morning service) because the train link was more convenient for the London offices. If Gatwick really is crucial for the finance industry, then the finance industry will have no issues with paying a higher price to ensure it remains.

As to holiday travellers, be honest, how many times has your holiday gone along these lines.

1) Fly from Guernsey to Gatwick

2) Take a bus/train/taxi to Heathrow to get the flight to where you really wanted to go.

Why do I fly to Gatwick in this case? Because it is usually the cheaper option, frequently because the planes are half empty.

Aurigny need to become profitable, loaning themselves up to the eyeballs with a brand new plane is not the way. But I guess it is easy to commit to such a path when you have the safety net of the States to bail you out when you continue to make losses.

Alvin J Furrer

Totally agree !

In addition to the cost of re-training of pilots, and their higher salaries, there are other factors that will increase costs...

Will the States come back and say, " Ooops, we need to lengthen the runway ! ".

Will the airport fire-service require more cover - larger aircraft needing more cover to comply with regulations etc

Equipment for luggage handling, loading, etc that will need to be acquired by the States - just for one aircraft !

Additional maintenance costs and stocks of basic spare parts, ( which is why I keep on stressing the importance of standardization )

And so on....

Red Herring

Exploring the funding options is a slight red herring.

As a wholy government owned business that has been propped up by the tax payer for years, and operating on a genuine lifeline route, who do we really think is the funding backstop - the States and the taxpayers.

So whilst Aurigny is exploring funding options, is the shareholder (T&R deputies, civil servants and advisors) busy firming up the conditions of being the ultimate guarantor of ALL of the lending?

The shareholder has the most at risk in this arrangement - back the wrong plane configuration and the shareholder will simply have to dig deeper into taxpayer's cash to sort out the problem.

[If ever Aurigny were unable to repay a private loan (with or without fare hikes) who do we think will step in to assure the lifeline's continuity and so who is really liable for the entire jet purchase price - not the company, but its owners!]

So the big story is all around how the States will derisk the funding that IT is ultimately taking on behalf of the taxpayers of Guernsey.

It is almost irrelevant what explorations the company is doing as the buck stops with the States not them.

What independent due diligence is the shareholder undertaking to safeguard £millions of taxpayers' money. They surely cannot be relying solely on advice and information from the company?

Let us hope that the shareholder is not distracted by the non-issues and focuses on the real substance (with such advice and assistance as it may need to call upon ensure it makes a robust decision with taxpayers's money).

Derisking might also include director incentivisation packages which reward them for delivering lon-term sustainable success.

Does anyone know what is actually going on / in pace in this area?

If you....

If you had a future uncertain shortage in delivery vehicle capacity for a logistics company:

(a) would you consider LEASING in extra capacity (e.g. some van(s) or lorr(y)(ies) etc) on an interim basis until you had enough information and certainty to make a good long term business decision; or

(b) would you just go out and buy a brand new large customised (fleet of) vehicle(s) which would take years to pay back the business loan for?

Presumably you would lean toward (a) if at all possible because the downside consequences of getting (b) wrong could be too severe for the business to absorb /


But then you remember that 'mummy' will bail you out come what may and as you think it would be nicer to have new vehicles to your specification you manage to justify to yourself (and mummy knows no better) that option (b) is objectively the better of the two!

And if it is wrong option to have followed, you will not be there to pick up the pieces.

Mummy will clear up after you.


That depends:

If a private company, where directors are putting their own cash & future on the line, then the anwser is 100% A.

If you are spending other peoples money with no personal financial risk, then the anwser is 100% B.

Sadly for the taxpayer, i think we all know how this story is going to end.

Wants versus needs

Why rent or buy an adequate pre-owned ford focus when somebody else will guarantee your loan for a brand new BMW M3?

Buy just what you want today and let somebody else worry about the consequences tomorrow.

Fun for some if they can pull it off.

Here for the long haul?

Who is most likely to be here in a few years to deal with the consequence of today's decisions?

(i) an interim chief executive; or

(ii) the shareholders (= T&R Political Board?)

(iii) the taxpayers (in their capacity as funding guarantors)

Both (i) and the political board of (ii) might all be gone within a very few years when any adverse consequences might crystalise.

So who has the most skin in the game?: (iii)Taxpayers.

But who is accountable?

Maybe all that taxpayers can do is hope that some politicians involved want to be re-elected and that they also want to make sure that all due diligence, objectivity and expertise is applied as is necessary to safeguard ~£25million of our money (and the capacity continuity of the Gatwick link).

A £25m debt or a big jet is hard to hide in Guernsey these days.

A big decision for the relevant politicians: we are counting on you.