A feasibility study for the development of an airstrip in Gozo

Abstract

Purpose: The study aims to assess the financial feasibility of developing an airstrip in Gozo over a 10-year period. This study seeks to estimate in granular detail the Capital Expenditure, Operational Costs and Revenue expected to be incurred and earned during the above-mentioned period. Finally, the dissertation aims to draw conclusions on the financial feasibility of such a project by constructing a projected set of financial statements and applying investment appraisal techniques. Design: After analysing existing literature in relation to the project, the author designed the data collection process carefully. For those areas which were deemed essential for the study, the researcher conducted in-depth interviews with stakeholders from different industries. Meanwhile, the author also held several discussions with other stakeholders to enhance the relative reliability of the study. Finally, quotes were collected from different suppliers, including international ones, to best estimate various expenses and capital costs. Findings: Given the set of as the assumption and targets, the capital expenditure required for the project was estimated at € 3,450,000, with the project being financially unfeasible, producing a negative FNPV of circa € 1,000,000 within the 10-year period. However, it was found that the project produces an annual profit and given a longer period may be financially feasible. It was further found that such a project will more than likely require some form of EU or government funding to be feasible for a private operator. Conclusion: It was thus concluded that given the assumptions in the main scenario, over a ten-year period, the development of an airstrip in Gozo would not appear to be financially feasible. However, the project becomes more financially feasible with a more optimistic demand level or if the project attracts EU funding. The project’s sensitivity to changes in the following key variables should be noted: term of the feasibility study, ground rent rate, revenue (demand and prices charged) and the discount rate. Value: This study has been prepared purely for the purpose of the requirements for the award of the Master in Accountancy, with the aim of demonstrating knowledge of the issues involved in such a study. It should not be construed as an ultimate study to serve as a basis for a decision. Nevertheless, it may serve as a pilot study for future studies and potential investments seeking to establish a fixed-wing operation in Gozo. It further provides value to the aviation and tourism sectors, where a lack of financial research exists.