City council could be more than $2 million out of pocket after loaning money to an aircraft refurbishment company that fell into voluntary administration.
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The announcement was made at a press conference on Tuesday morning to address the deal council struck with airliner Regional Express (Rex).
Comparing the arrangement to a homeowner defaulting on their mortgage, council’s general manager Phil Pinyon said the $2 million loan to Douglas Aerospace was cancelled as a result of the acquisition.
“The loan is replaced by the ownership of the hangar,” he told reporters at Wagga Airport. “Let’s say I loan you $300,000 to build a house, you have difficulty in repaying that $300,000, so instead of you owing the loan for the house, you give me the house … the house is now mine and the debt no longer exists.”
Wagga mayor Rod Kendall could not put a figure on the value of the hangar, but said it would be “well in excess” of the $2 million loan.
Although, council still needs to undertake internal works at the facility to bring it up to scratch for Rex.
The cost of those works were not outlined on Tuesday, but Mr Pinyon said they would primarily focus on fire safety measures with a risk analysis to be conducted this week.
"We will be in position to comment on that more fully once that’s been done,” he said.
Rex’s general manager of engineering, Dale Hall, was pleased with the agreement with council and said the airliner would use the facility to paint and refurbish its own fleet of nearly 100 aircraft.
Mr Hall expected in-house maintenance crew to paint up to seven Saab aeroplanes each year, revealing Douglas Aerospace employees would have their employment transferred to Rex.
“We hope it will obviously reduce our cost and keep that cost within our own group, which is what we tend to do in a lot of our business,” he said.
The future of Douglas Aerospace as its own entity is unknown, with owner Doug Clarke unable to return Advertiser phone calls.
Council is currently conducting an internal review into its processes as the fallout continues, but Mr Pinyon said he believed the pivot to Rex was a good result for ratepayers.
