Argyll and Bute Council to re-tender for the new three-year PSO contract to secure an operator within the existing budget

Council currently provides a subsidy of over £2million for these vital air services over the three-year contract

Hebridean Air Services Ltd. (HASL) is demanding a substantial increase in the subsidy

The lifeline air services to Coll, Colonsay and Tiree are will be suspended from Saturday 16th May after Hebridean Air Services Ltd. (HASL) walked away from negotiations over the new public service obligation (PSO) contract to provide the vital flights from Oban Airport.

The current contract with HASL ends on Friday 15th May, with the council having carried out a complicated procurement exercise over the past few months in the hope of securing an operator for the new contract within the £707,000 a year budget.

Although there were expressions of interest from a number of operators only HASL made a tender submission, with an inflated bid being well over the council’s £2.121million three-year budget, and two variant offers which were also well over budget. The option existed for HASL to submit a bid for a reduced service, however, it chose not to do so. It had been hoped that there was room for negotiation which would allow the air services to continue, however, HASL is not willing to compromise.

The council fully recognises the importance of air service to the islands, however, the flights must be sustainable and any subsidy has to provide best value for the public purse. It would be completely irresponsible to acquiesce to HASL’s unacceptable demands, particularly when its offer may raise legal issues in terms of overcompensation.

The HASL offer is based on a profit margin well above the industry norm for similar PSO services throughout Scotland. As a public body the council must take particular care with these kinds of contracts not to distort the private market. By providing a subsidy to this unacceptable and possibly illegal level there is likelihood that other private operators could challenge a contract award on this basis in court.

There is no choice other than to re-tender for the contract, actively pursue the firms which previously expressed an interest and accept this short-term inconvenience in order to secure a long-term sustainable future for these services.

Island communities will stay connected to the mainland through existing ferry services which have been improved as part of the Scottish Government’s ferries plan, although the council remains committed to ensuring a resumption of the lifeline air service.

It is hoped that the re-tendering exercise can be completed as quickly as possible and a new operator can be in place to provide flights in time for next summer.

The council will also be making the necessary arrangements to ensure adequate travel provision for island pupils at Oban High School.  

The daily operation of Oban Airport will continue as normal; PSO flights account for only one-fifth of all air services from the aerodrome. The council will also be moving forward with the access improvements to land adjacent to the airfield to enable the development of a much needed business park as well as pursuing a Glasgow to Oban service.

More information on the re-tendering process will follow.