LAA FINANCIAL REPORT

Managing change

LAA Chief Executive Officer, Steve Slater, delivers the LAA 2020 financial accounts

s longer-term members will be aware,

Aeach year, ahead of the formal presentation of our annual accounts at the Annual General Meeting in October, we annually produce an abbreviated Financial Report in Light Aviation magazine. This year’s summary, fresh from the auditors, shows our income and expenditure for 2020, our planned deficit for 2021, and our future planning for 2022 and beyond.

The figures below are based on the accounts for the 2020 financial year from the formal audit by our accountants, Henson Rees Russell LLP. As I would expect, our auditors were happy to give a clean bill of health to both our accounting processes and our governance, even taking into account the exceptional circumstances in which we have found ourselves recently.

The Covid-19 effect

The past year threw up new and unprecedented challenges for the Association, with the effects of the Covid pandemic on the wider community and on sport flying. The two ‘lockdown’ suspensions of general aviation, for several weeks in early March and again in the final weeks of the year, curtailed many traditional LAA activities including member training courses and marketing events, and also forced the cancellation of the 2020 LAA Rally.

The first lockdown in particular had a significant short-term effect on revenues, but we elected not to furlough any staff and our investment in past years in remote Cloud-based IT systems meant that the LAA was able to serve its members via home working in an almost seamless manner. On behalf of the Board and all LAA members, I would like to express our thanks to all those who contributed to that achievement.

With the resumption of flying in the summer of 2020, key engineering activities and revenues began to recover, eventually returning to around 90% of budget (a circa £50k deficit). Commercial revenues showed a longer-term depression, with lower membership recruitment and a number of members giving up flying in the course of the year leading to a dip in membership figures following five years of near continuous growth. Commercial revenue streams suffered longer-term disruption in areas such as magazine advertising revenue, member training and merchandise sales. As a result, overall revenues for 2020 were £1,196,160, in comparison with £1,308,724 in 2019.

Careful cost control has allowed us to minimise any increase in the resulting deficit. In 2019, prior to Covid having its effect, the Board agreed to use our reserves to generate planned short-term deficits in coming years to increase engineering staffing levels, both to improve the level of service to members and to provide longer-term succession planning. This increased costs from £975,542 in 2018 to £1,072,252 in 2019 and moved us from a pre-tax surplus of £62,859 in 2018 to a planned deficit of £17,306 (1.61% of turnover) in 2019.

Rather than keeping money in the bank at low interest rates, we invested instead in member services, training and the recruitment of new skilled staff. For some time, we have noted a shortfall in design engineering capability, with all three design engineers working at full capacity, leading to delays in approval work. In addition, a number of key staff (including our CEO), are approaching or beyond their 60th birthdays. We therefore needed to plan a staged succession of skills and resources for the years ahead. The extra expenditure has allowed us to bring onboard and train the extra staff.

In 2020, we continued to adhere to this strategy despite the pandemic. Our original planning for 2020 was for expenditure of £1,391,260 and a planned deficit of £133,700. However, we were able to maintain expenditure at £1,122,106 and therefore generated a smaller deficit than planned, of £113,920.

As a result, Association reserves have fallen from £1,365,534 at the end of 2019, to £1,293,448 at the end of 2020. This is effectively the same level of reserves as held at the end of 2017, so we continue to retain more than adequate reserves to protect our members from any further short-term challenges, and to allow the continuation of our investment in the reorganisation of our engineering functions to further improve our services to our members and promote longer term gains in efficiency.

So, where are we now?

The table below shows monies for income, outgoings, operating profits (loss) and reserves from 2016-2021.

2016 2017* 2018 2019 2020 2021 est

INCOME

£1,276,857 £1,318,576 £1,312,580 £1,308,724 £1,196,160 1,330,000

£1,091,040 £1,180,833 £1,248,368 £1,326,030 £1,310,080 1,390,000

£185,817 £137,743 £64,212 (£17,306) (£113,920) (£60,000)

£1,071,384 £1,294,708 £1,406,320 £1,365,534 £1,293,448 £1,233,000

OUTGOINGS

OPERATING PROFIT/(LOSS)

RESERVES

Note: 2017 income data does not show transfer of £81,025 from LAAET following the trustees’ decision to close the charity. These funds are now held as ‘reserved’ deposits.

Income vs Expenditure

Income

Incomes

Even before the pandemic hit, we had noted a trend of reducing incomes, as the table on page 19 demonstrates. One of the principal sources of LAA revenue is our membership fees and these had remained unchanged from 2015. Despite actual member numbers remaining stable, the revenues had fallen due to a larger proportion of members being recruited in the ‘Full Member’ category as syndicate aircraft owners, rather than ‘Full Plus Members’ as sole operators of an aircraft.

It was this that drove the decision to increase membership fees from January 2021. While not part of the audited accounts, the projections for 2021 show a resultant rise in revenues which will reduce the planned deficit by half. In addition, plans for 2022 and beyond show that with a resumption of growth in membership, the restart (and indeed growth) of areas such as training, and additional efficiencies in LAA Engineering, we are targeting a return to zero deficit by 2023 or 2024.

Engineering incomes are the other prime drivers of revenue, and even despite the challenges of the Covid lockdown, the LAA ended 2020 with more than 2,600 aircraft on active permits to fly, just 100 short of 2019. However, areas such as Permit First Issues and New Project Registrations fell notably during the pandemic. As a result, Engineering revenues fell from £637,471 to £594,945 in 2020. However, Engineering activities nonetheless represent just under 50% of revenues received.

What do we spend our income on?

Our biggest area of expenditure is salaries and, due to the recent recruitment programme, overall staff costs increased to £764,838, or 47% of our expenditure. Our second largest area of expenditure is, well, …you are reading it! Light Aviation magazine cost the organisation a total of £173,376 to produce last year. It is of course partially subsidised by advertising revenues, but last year these fell from more than £110,000 to £88,374. One area where we have reduced magazine costs is postage. By moving from Royal Mail to a third-party supplier earlier this year, we expect to reduce these costs by more than £5,000 per annum.

A worrying trend is the rising cost of our insurance coverage, which includes liability cover for the Association and its staff, Inspectors and Pilot Coaches when they are working on behalf of the LAA. It also includes liability cover of up to £20 million for Member Club and Strut events. Up until 2020 we have typically paid premiums totalling around £85,000. However, the preponderance of ‘no win no fee’ litigation and our need to defend ourselves from any claims it generates, has meant that premiums last year rose to over £90,000, and in the coming year are expected to rise to as high as £110,000 per annum.

Our LAA HQ is a significant cost to the Association and of course, over the past year, our meeting rooms and training workshop have stood largely unused - training revenues were less than 25% of past years. In addition, we are now asking ourselves, if home working works, do we need such a large office space? This will be reflected in future lease negotiations, and while it may not offer immediate savings, a move to smarter, more flexible working is being seen as a likely way to boost efficiency in the future. We are also looking at other, more innovative ways to offer a wider service to existing members and to attract new ones. Despite all the challenges, we have another exciting year ahead! ■

Expenditure