Teesside Airport:

Bad Governance

and Plan B

Part 1: The Fiduciary Duty of Directors

Scott Hunter

2 April 2024

Will there ever be a proper statutory inquiry into Teesworks? We don’t know. But if there is, it will immediately be inadequate. Inadequate because the issues at stake go well beyond Teesworks and encompass everything the Tees Valley Combined Authority touches. One of those things is Teesside Airport. And one of the issues it raises is that poor governance of institutions is systemic in the Authority. 



It is also deliberate, and intended to enforce the veil of secrecy around it, put there by Mayor Houchen and his entourage, making conflicts of interest of certain key individuals part of the package and ensuring that no one beyond his core group of advisors can obtain detailed information on how public money is being spent.

Here we consider how it is governed and how it needs to be challenged both by the council representatives on the airport board and the council leaders on the TVCA board. In particular we consider corporate directors’ conflicts of interest. 

In a second, forthcoming, piece we will discuss why the airport needs to be a major focus for all of Houchen’s election opponents.

The Airport and the Houchen Honeymoon

Time was when Teesside Airport seemed to have the capacity to generate endless headlines in the local press following its being brought into public ownership by mayor Houchen in 2019 with a ‘ten-year turnaround plan’ to make it commercially viable.

The plan involved massively increasing flight destinations, having a low cost carrier set up a base, and developing part of the estate into a new business park. The papers then just milked the feelgood factor.

As a slogan, the ten-year turnaround plan has largely gone the same way as ‘Red, White and Blue Brexit’, and the enthusiastic headlines have melted away. In recent months it has been the scandal around alleged corruption at Teesworks that has grabbed the media’s attention.  Come the election, the erstwhile vote winner has been dusted off and is being used not only to shore up his popularity, but also as a stick with which to beat his Labour opponent (principally).  

But in the past couple of years the airport has had its share of bad press as, among other things, large amounts of money have been put up by the TVCA to cover its spectacular losses. Quite how the airport has managed to lose so much money is not clear. It is not clear because no information is made available about how money is being spent. So, assessing if the public is getting value for money is problematic. But the parallels with Teesworks lead us to suspect that it isn’t.

A Full Investigation must include Teesside Airport as well as Teesworks 

The Tees Valley Review criticizes the ways in which members of the TVCA board, which is largely made up of the leaders of local councils, are either not provided with detailed information about decisions made around STDC and Teesworks or are not given sufficient time to examine them thoroughly.

The organizational structure of the Airport venture is necessarily different to the STDC. So, the strategies used to withhold information are also different. In this report we consider how councils are kept in the dark about how public money is being spent at the airport, and how the airport boards need to be changed in order for there to be proper accountability.

For Houchen, we suspect that the arrival of proper accountability will be as problematic for him at the airport as it has been at Teesworks. He has a lot to hide, not least his failure to attract inward investment, and create viable revenue streams. And it is maintained by having key people in posts that they should not be in (and also by issuing threats to council representatives).

When the TVCA bought Teesside Airport

Agreement between the TVCA and the airport’s former owners, Peel Holdings, was reached in late 2018. At that time, Peel owned an 89% share in the airport, the remainder of the shares being split between five local councils. The plan submitted to those councils for approval was for the TVCA to set up a private company, TIAL, that would borrow the money to buy the 89% share. TIAL was to be accountable to a holding company, Goosepool 2019, which was to be a joint venture between the TVCA and Stobart Aviation. 

The TVCA presented councils, who had to ratify the purchase, with three documents – a business plan for the airport, a report from aviation consultants, ICF, and a report on the airport estate by JK Property Consultants. The business plan proposed the organizational structure, and a role for Stobart’s as airport operator. Stobart was to be paid for this work. On the basis of figures provided by ICF, the plan showed how the airport could achieve passenger traffic of 1.5 million per annum. But in order to be commercially viable the airport would also need to develop a business park on the vacant land to the south of the runway. Towards the end of the turnaround period, in 2026, the airport would start to repay the money it had borrowed to buy the airport plus additional loans it had drawn down in the intervening years.

Each of the local councils ratified his airport plan, albeit with some hesitation. Given its popularity with the public at the time, it would have been hard not to. But, with hindsight, councillors should have looked at the plan much more sceptically, especially given what was contained in the two consultants’ reports. More difficult for them to foresee, on the other hand, was the way in which the enterprise was set up in such a way as to prevent proper scrutiny.

Initially, the turnaround plan made some headway …

Stobart’s Contribution to the Airport

During the time Stobart’s were partners in the airport venture, the number of flight destinations rose dramatically. By 2022 the airport was serving fifteen destinations, international holiday flights had resumed and domestic destinations included Heathrow. Stobart had succeeded in bringing in new services, but then dramatically quit, without explanation. 

The joint venture had lasted just under two and a half years. From the outset, however, certain features of it were peculiar. One is that Stobart’s representative on the board of Goosepool 2019 was Kate Willard, their director of partnership development. Curiously, when she left the latter role in December 2019 Stobart did not replace her on the Goosepool board. Equally curious is the fact that the venture is nowhere mentioned in Stobart’s annual statements until after they had left. While they manifestly took the role of airport operator very seriously, they seemed indifferent to the joint venture partnership. At some point an inquiry must reveal why that was.

The Veil of Secrecy

But the Stobart shareholding had a very important consequence. The fact that Goosepool 2019 was part owned by them meant that it was not subject to FOI legislation. The business was thus shielded from prying eyes. That this was no accident, and that the cloak of secrecy around the airport was entirely deliberate is evidenced by what happened at the point of Stobart’s departure.

Several months before Stobart’s departure was announced, a company – Goosepool 2021 – was quietly set up. When Stobart left, their shareholding was handed over to this company, which was immediately renamed Teesside Airport Foundation (TAF) and declared a charity. That this charity is entirely bogus is discussed in our report here.

But if the split in shareholding prevents public scrutiny of the holding company, there remains the trading company, Teesside International Airport Ltd (TIAL) in which local councils have an 11% share. As a result, they are entitled to representation on the board. Doesn’t that mean that council members can scrutinize what is happening even if the public can’t? In reality, that has never been the case.

We spoke to one councillor who had previously served on the board who expressed frustration that the company directors (as opposed to the council appointed directors) simply would not divulge any information, and when challenged would simply offer reassurance that everything was in hand. If that was ever plausible, it became less so after Stobart’s departure. 

Council Leaders denied information about the Airport

Matters came to a head recently at meeting of the TVCA board, largely as a consequence of the Tees Valley Review, which pointed to a lack of willingness by TVCA officials and the mayor to provide council leaders with detailed information in advance of meetings, thus making it difficult for them to challenge decisions. The leaders of each of the five councils in the region has a statutory right to board membership.

Unusually, the public were allowed to attend most of the meeting (as a rule, most of the agenda is declared commercially sensitive and the public are excluded). One of those who attended that day provided us with a report of the discussion between council leaders, TVCA CEO, Julie Gilhespie, and mayor Houchen.

Council leaders observed that they had been told that information about airport finances could not be shared with them by their councils’ representatives on the TIAL board. Houchen responded with some bluster and TVCA CEO, Julie Gilhespie, claimed there must be some misunderstanding. Our source then approached one of those representatives who confirmed that they had indeed been told that they had a ‘fiduciary duty’ towards the company on whose board they were serving. In plain English that’s a duty of trust. In the mind of TIAL managing director, Phil Forster, what that means is that directors have a duty of confidentiality and must divulge details of documents and meetings to no one, not even other council members. Hence the council leaders’ problem.

Fiduciary Duty and Conflict of Interest

Phil Forster’s interpretation of fiduciary duty is problematic in two ways. One is that it means councillors who serve as directors have a conflict of interest, given that they are there as representatives of their respective councils. Arguably, it is councils that have fiduciary duty, not their individual representatives, yet councils have been denied the relevant information.

The other problem is that Phil Forster does not appear to understand that the three corporate directors also have a fiduciary duty, yet two of them – Kate Willard and Tom Bryant – are also board members of Goosepool 2019, the holding company whose job it is to ensure that its shareholders get value for money from TIAL. Furthermore, Tom Bryant is named on the TVCA website as Director of Transport, resulting in multiple conflicts of interest.

These directors cannot simultaneously prioritise the interests of both companies and the TVCA. No one is in a position to test whether the public obtains value for money from the airport.  Furthermore, conflicts of interest such as these were flagged up as problematic by the Review panel in relation to STDC and Teesworks Ltd.

So, while neither the public nor local council leaders know the detail of how public money is being spent at the airport, someone does. So, for example, are the airlines paying commercial rates for using the airport or are they being incentivized to continue to operate from there?

Has there been any private sector investment in the airport estate, or is it the case that developments such as new hangars have been paid for entirely out of public money?

The 28 recommendations of the Tees Valley Review, refer only to STDC/Teesworks, not to the airport. So, we are pessimistic about this anomaly being corrected any time soon.

Who Is Kept Informed About the Airport’s Business?

So, the managing director of TIAL has applied two strategies to keep councils ill informed about its affairs. The first was to tell their representatives nothing, and the second was to provide them with information but swear them to secrecy. The same cannot apply to Goosepool 2019 meaning that information that is denied to local council leaders is made available to Goosepool board members.

And the Goosepool board consists of TVCA CEO, Julie Gilhespie, Kate Willard, Tom Bryant, and, since December 2023, one Brian Robinson of the Teesside Airport Foundation (now famous for his appearance with his wife on BBC Question Time).  We are unaware whether or not he has yet been informed of his fiduciary duty, but his loyalty to Houchen is beyond dispute.

So, one aspect of the need to include Teesside Airport in any future investigation into the workings of the Tees Valley Authority is the culture of secrecy that surrounds it, and which mirrors that of the STDC/Teesworks. But that is not the only reason.

The Tees Valley Review charted numerous examples of ways in which the STDC/Teesworks allows the developers to profit from the ongoing works, while the taxpayer picks up the bills. But the same developers also have a joint venture at the airport. 

In the next part, to be published shortly,  we consider how they might stand to benefit from favourable arrangements there.

Note

The original business plan for the airport is no longer readily available. It can be obtained using the Wayback Machine. The full URL of the business plan is:

https://teesvalley-ca.gov.uk/wp-content/uploads/2019/01/Appendix-2-DTVA.pdf