Oireachtas Joint and Select Committees
Thursday, 29 January 2015
Joint Oireachtas Committee on Transport and Communications
Proposed Sale of Aer Lingus: Discussion
Apologies have been received from Deputy Michael McNamara who, although due to attend this meeting, is in Strasbourg.
The only item on today's agenda is an engagement with: the Irish Airline Pilots' Association; the Central Representative Council of union groups in Aer Lingus; the Dublin, Cork, Shannon and Limerick chambers of commerce; Chambers Ireland; and Shannon Group plc.
The purpose of the meeting is to engage with stakeholders in order to establish the likely repercussions of any potential sale of Aer Lingus to the International Airlines Group.
Members of this committee have been circulated with the document I received from Ireland West Airport Knock, which is obviously also anxious about connectivity issues.
On behalf of the committee I would like to welcome everybody. I wish to draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, they are protected by absolute privilege in respect of their evidence to the committee.
However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him or her identifiable. I also wish to advise that any submissions or opening statements they have made to the committee will be published on the committee's website after this meeting has concluded. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person or an official outside the Houses by name or in such a way as to make him or her identifiable.
I ask those who are speaking to keep their presentations as brief as possible and to try not to overlap with other speakers. I want to provide as much time as possible for engagement between members and witnesses. I ask members to confine their contributions to approximately three minutes. If they want to come back with supplementary questions later in the meeting, I will try to facilitate that. I want us to run the meeting as efficiently as we can. I ask Captain Evan Cullen to make a presentation on behalf of the Irish Airline Pilots Association.
Mr. Evan Cullen:
I thank the Chairman for this invitation and this opportunity. The Irish Airline Pilots Association represents approximately 1,200 pilots, most of whom are employed within Irish-registered airlines. Some 500 of our members are Aer Lingus pilots who are in all five of the airline's bases at Dublin, Cork, Belfast, Heathrow and Gatwick. We own 7% of Aer Lingus. That is divided among a number of investment vehicles, the largest of which is our pension scheme, which currently holds 2.5% of Aer Lingus. Some of our other shares are in an investment vehicle called Tailwind. The rest of our shares came from the dissolution of the employee share ownership trust and from the internal share options that took place during the 1990s before Aer Lingus was floated. Despite our position as stakeholders under various headings, neither the board of Aer Lingus nor anyone in the International Airlines Group has been in contact with us about this takeover. We do not have any information in addition to that which is readily available to the public.
For the reasons I have set out, and based on the information that is available to us, we have formed the view that the proposed takeover is not good for our members, for the families or for many people who are engaged in aviation in Ireland. While we have not issued any recommendation to our members at this point in time, we plan on doing so at a later stage. I ask the committee to keep an open mind about inviting us back when we have more information as we would like an opportunity to comment after the International Airlines Group or the Minister have made their plans known.
While we agree broadly with everything in the letter that was sent to the Minister by Matt Staunton of IMPACT with regard to the takeover, we would like to ventilate some other issues that have not yet been ventilated in the public domain. I refer, for example, to the incredible amounts of financial gain that will be enjoyed by a small number of managers within Aer Lingus if this transaction goes through. We are also concerned that the price being offered for Aer Lingus is well underneath the asset values of the company. This would be of huge benefit to International Airlines Group shareholders and to the disadvantage of the State and the many citizens who use Aer Lingus. We are also concerned about how the transaction will be completed. We are satisfied, on the basis of what we have been told by our advisers in London, that the International Airlines Group does not have the cash to complete this transaction. It must find a way to raise that cash, either through the sale or the mortgaging of assets. Obviously, the assets that it would sell or mortgage would be Aer Lingus assets. This brings us back to Eircom and to other State assets that were heavily mortgaged in order to generate money to buy those assets.
I have included the letter that was sent to the Minister by Matt Staunton in my presentation. The top right-hand corner of page 6 of the presentation refers to the long-term incentive plan for Aer Lingus management. It makes it clear that under the terms of the group's long-term incentive plan, an early vesting of an award may occur at the discretion of the remuneration committee on a change of control of the company. According to a report in the Irish Independent, which we think is accurate, such a change of control would result in €30 million for the senior and executive management of Aer Lingus.
Point 9 in the appendix to my presentation, which is taken from the annual report of the International Airlines Group, describes how that group achieves cost synergies in cases of consolidation. It would be very naive of anyone to think that the International Airlines Group will not seek to drive greater profits and cost synergies if it is successful. It will do this by eliminating duplication of backroom resources and maintenance services in Aer Lingus and the International Airlines Group. The elimination of duplication is how consolidation works. All of this is set out in points 9, 10 and 11 of the appendix to our presentation. It goes into some detail about how synergies are developed and about the International Airlines Group's targets for synergies in its existing airlines.
Mr. Matt Staunton:
I am speaking on behalf of IMPACT which represents pilots, the members of the cabin crew, who comprise the largest single group of workers in the company, and some ground staff. The proposed takeover of Aer Lingus by the International Airlines Group presents significant risks to Ireland's interests in terms of accessibility to the island of Ireland for business and tourism. It also represents a significant risk to the security of employment for Irish workers employed directly or indirectly by Aer Lingus. Therefore, the Government and the Dáil, as guardians of the State's 25.1% share in the airline, will have to make a very serious decision in the coming weeks.
I ask the committee to consider a couple of key points of national interest that will arise if a sale of the State shareholding to the International Airlines Group is to be contemplated. As an island nation, the State should maintain some holding in an airline that serves to maintain strong links with the EU, the US and other critical trading partners. The sole purpose of the International Airlines Group's interest is to expand its own commercial interests. The costs of such expansion to Aer Lingus and the Irish market are likely to be secondary. Heathrow Airport is a vital hub connection for Ireland. Aer Lingus is the third largest holder of slots in Heathrow. The International Airlines Group is the largest and Lufthansa is second largest. Aer Lingus owns 23 prime-time return slots and two seasonal slots at Heathrow. These slots would make greater returns for the International Airlines Group if they were used to service the London-US market rather than the London-Dublin market. In such circumstances, they would encroach on the successful direct connections between Ireland and the US.
It is in the best interests of the International Airlines Group to funnel as many passengers from UK provincial and Irish airports through its Heathrow hub at terminal 5. Over 1 million passengers per year travel from UK provincial airports to use Dublin terminal 2 as a hub to the US. British Airways and the International Airlines Group would like to reclaim this lucrative long-haul business. The business plan of the International Airlines Group in the event of a successful takeover bid remains unknown. Our best guide to the company's likely actions can only be informed by its participation in the last takeover bid by Ryanair. That bid involved dismembering Aer Lingus between three entities: Ryanair, the International Airlines Group and Flybe. The proposal sought to carve up the assets, including the Heathrow slots, the transatlantic operation and the Aer Lingus brand, between the three companies. There were very limited undertakings from the International Airlines Group regarding the eventual use of the Heathrow slots after an initial period of three to five years.
There is no evidence to suggest the current IAG bid is not similar in its intentions.
Aer Lingus directly employs 3,900 people, the overwhelming majority of whom live and work in Dublin. Around 2,100 employees work exclusively on the ground in clerical, operative and other back office roles. For the purpose of the takeover, IAG would have to identify cost and revenue synergies to justify its investment. One of the primary cost synergies would come from a reduction in the Aer Lingus employee headcount, particularly in the back office where there would be readily identifiable duplication with existing resources in London and possibly in IAG’s Iberia base in Madrid. This is also true of some maintenance functions, given the substantial IAG maintenance facilities in London and Madrid. Executive and senior decision making would transfer to London, with perhaps a token executive presence in Dublin. Following the IAG takeover of Iberia, the company announced 4,500 job losses. On a like for like basis with Iberia, this would represent job losses of between 1,000 and 1,200 in Aer Lingus at Dublin Airport. This figure factors in the Aer Lingus jobs lost less than five years ago under the greenfield plan. The IAG CEO’s record with Aer Lingus speaks volumes. During his tenure as Aer Lingus CEO 2,500 Irish jobs disappeared forever. We have confirmed these estimates with analysts in Dublin and London. Following the rejection of the two initial bids, a research note from Nomura, a major international holding company, observed, “Any material bid increase is unlikely to be forthcoming without the ability to drive significant cost synergies”.
As a substantial shareholder in Aer Lingus, the Government will be aware of the long-term incentive plan for current Aer Lingus senior management. Committee members should further be aware that a takeover of the nature proposed by IAG would represent a substantial wealth windfall for individuals in the management team by way of the long-term incentive plan and other share bonus schemes. Therefore, consultation with management or the board on this issue must have due regard to this reality.
Ciarán Hancock’s column in yesterday's edition of The Irish Timesmade for interesting reading. He pointed out that the company, founded in 1936, had survived a world war, the 1970s oil crisis, the 9/11 crisis, Ireland’s worst recession in living memory and competition from Ryanair, including three hostile takeover bids from that company. People seem to forget that it has stood on its own two feet quite well since the turn of the century and that it has arguably had its best trading years during the recent recession. The company delivered profits in 11 of the years between 1999 and 2013. In the four full trading years from 2010 it made an aggregate profit of €187 million, while its operating surplus for the first nine months of 2014 was €103 million. Revenues in these four years rose by 15%. At the end of last September the airline had €973 million gross in cash, while passenger numbers, including for Aer Lingus regional, last year hit a record 11.1 million. It has successfully established Dublin as a hub to North America, with the number of passengers carried on its transatlantic services rising by 20.6% last year. This is far from a deadbeat airline.
In a post-takeover Aer Lingus it is almost certain that the real decision making power would be remotely relocated to London, with functions considered unnecessary duplication in Dublin. That would mean job losses. IAG has stated IMPACT’s claims of job losses of the order of 1,000 to 1,200 are wide of the mark, but implicit in this statement is the fact that job losses are inevitable. In the absence of a detailed plan from IAG, we can only assume the company would take the same approach as it did when Iberia merged with British Airways to form IAG. Iberia was forced to shed 4,500 jobs. Our estimate is adjusted for scale and takes account of the greenfield plan redundancies. Analysts in Dublin and London have confirmed that our figures are closer to the mark.
Given the cyclical nature of the aviation industry, at the first sign of trouble in a post-takeover Aer Lingus, IAG would have the power to limit this island’s air connectivity with London and the United States in order to lower its overheads. These are two of the most important pumping arteries of the economy. An economy in recovery such as ours cannot afford to trade its future away. We can never expect or assume that IAG would see these concerns in the same way. Its commercial interests would always come first. I, therefore, urge all Deputies and Senators to do their utmost not to do something rash or, worse again, stand back and let something happen that could never be reversed.
Mr. Myles Worth:
I thank the joint committee for the invitation to attend this meeting. I have been group secretary to the group of unions in Aer Lingus for the past nine years. I led the defence documents on the three bids from Ryanair very successfully. I wish to focus on two issues, the first of which is staff concerns, while the second is connectivity.
The prospect of Aer Lingus being acquired by IAG has raised huge concerns among the 4,000 workforce employed directly by the airline. As with any mergers, all sides involved tend to look at what synergies they can deploy. This potentially could lead to a major shift in the backroom staff employed in Ireland by Aer Lingus. It is possible that as many as 1,200 jobs could be moved to IAG headquarters in the United Kingdom, which would have a devastating effect on employment and the employment spend in this country.
The aviation division of the Department of Transport, Tourism and Sport asked us to comment on a new draft aviation policy. One of the questions put to us was: "What is the importance of London Heathrow for Ireland's international connectivity now and in the future?" We are a small island nation; this one of the few small countries not connected to mainland Europe by land. By way of our membership of the European Union, our business links with all of the countries within the Union are crucial to our economic development. At the same time, we must maintain and develop our trade links with our closest neighbour, the United Kingdom, while not forgetting our extremely strong business links with the United States, with the IT sector being particularly important in this relationship. In that context, it is vital that we maintain and develop our air transport links with major airport and business hubs.
We have been lucky enough to have had a State airline for almost 70 years and the State still has a 25.1% share in Aer Lingus, which has strong connectivity with the global hub at Heathrow Airport through slots. For strategic reasons, these slots were vested in Aer Lingus and remained thus after the IPO in 2006. The then Minister for Transport, former Deputy Martin Cullen, assured us that the State would retain a minimum of a 25.1% stake in Aer Lingus to be used as a blocking vote should a predator ever try to acquire or sell this vital State asset. Nothing has changed since 2006. If anything, the case for the State retaining its share in Aer Lingus has probably been strengthened. Ireland is recognised as having a very good transport network infrastructure and many of the world's leading high-tech companies have a base here. Let us not lose it. Even Fianna Fáil could see the importance of maintaining connectivity when it privatised the company.
Mr. Owen Reidy:
I thank the joint committee for giving us the opportunity to share our analysis of the current position, particularly of what the Government's position, as a 25.1% shareholder, should be. I am responsible for the energy, construction, transport and aviation sectors in the union. The union represents over 1,500 workers in the company, across Dublin, Cork and Shannon in a range of categories, including baggage handlers, cleaners, caterers, cargo agents, clerical support staff, ground staff, middle managers and others. In the past decade, since the part privatisation of the company, SIPTU members have engaged in quite a number of restructuring and cost saving programmes. They have come to the understanding the industry requires a workforce that is agile and flexible, not only to meet customer requirements but also those of an ever-changing industry.
In particular, they have seen pay cuts, pay freezes and significant cuts to their pensions. Effectively, they have had to do much more with much less.
In recent years the union concluded a number of important agreements with Aer Lingus management that negated and addressed its views on the need to outsource large swathes of the workforce. We did this by reducing the cost base in a significant way, working with Aer Lingus management to preserve and continue decent, direct and sustainable employment. This model has allowed Aer Lingus to retain complete control over all of its operations, while continuing to grow the business, passenger numbers, revenue and, in recent years, profits. It is fair to say the direct labour model in Aer Lingus has worked. Given the flexible nature of our agreements and the manner in which we and management work, the model continues to give safety and security to workers and the employer.
On the possible sale of the company and the stance the Government should adopt as the second largest shareholder, our position is simple and clear. We have called on the Government to block any sale of its shareholding in the company unless clear and tangible guarantees are secured from IAG in this instance or any other possible suitor. The guarantees must cover a number of issues, the first of which is connectivity, something many people have mentioned. As an open market island economy on the periphery of Europe but also at its gateway, it is essential that access to and from other markets continue and develop. This underpins tens of thousands of jobs for employees, many of whom are union members and work in foreign direct investment, FDI, multinationals and other sectors, including tourism.
Second, the Heathrow Airport slots Mr. Worth mentioned have been the subject of much discussion. It is clear that they are of critical value to the company under a number of headings, particularly given the nature of supply and demand and the fact that Heathrow is one of the busiest airports in the world and operating at nearly full capacity.
Third, the transatlantic routes have played a large role in the development of Aer Lingus and are a significant part of its operation. They are a major source of revenue and, with US immigration pre-clearance services operating in this jurisdiction, comprise a key element of the company's strategic growth prospects.
Each of these three issues must be a core factor that the Government will consider when making any decision on its shareholding in the company, taking into account their role in balanced regional development, maintaining key exporting industries and businesses in the economy and underpinning thousands of jobs. The Government must also factor in the maintenance of the current level of decent and sustainable direct employment within Aer Lingus across the three airports in Ireland. It must receive cast iron guarantees from any party seeking to buy the airline. The workers have made significant commitments and sacrifices to make Aer Lingus the successful and profitable airline that it is today. These commitments must be reciprocated by the current management and any prospective owner and must be secured before the Government would even consider selling its 25.11% share of the airline.
Our position should not be characterised as conservative, negative or merely seeking to protect the statusquoas some of our detractors seek to infer. Our position is grounded in reality and is pragmatic and prudent. We want to ensure the Government uses its shareholding for what we were told was its purpose, that is, to act in the strategic interests of the State, its economy and, crucially, its people, including the 3,900 workers employed in Aer Lingus, as well as the tens of thousands of employees who work in a range of sectors and whose industries and livelihoods could be impacted on negatively without clear and tangible guarantees. Were the Government to do anything less, it would be a dereliction of duty.
Thank you, Mr. Reidy. Committee members should confine their contributions to three minutes. Given the large attendance, perhaps I might depart from the format slightly and ask two members to ask questions at a time.
I welcome the presentations from persons centrally involved in the day-to-day operations of the company. My question is simple. Other than providing the Government with a cash windfall to fight the next election, can the delegates see any reason the State should sell its interest in Aer Lingus? The company is profitable, does not require additional cash and has been in a growth cycle since its privatisation. Last year it routed 1 million passengers from the north of England through Dublin Airport and onwards to the United States at a time when Heathrow Airport was becoming even more congested, with the prospect of providing a third runway a long way down the road. There are real opportunities for Aer Lingus in its niche market.
Will the delegates discuss the notion that seems to be gaining traction, namely, that a small, independent airline such as Aer Lingus would be gobbled up by the competition? What strength does it have in its niche market? It has done well and dealt with competition from some of the most aggressive airlines in the world, holding its own to grow and become profitable. Will the delegates debunk these myths?
I welcome the four gentlemen from the trade unions in Aer Lingus and thank them for attending at such short notice. I also thank them for their presentations, as the information they have supplied is valuable in trying to assess what the offer involves. We are suffering from a dearth of information. We are only getting it from the media, with journalists seemingly knowing more about the issue than the rest of us.
It has been mentioned that when IAG took over Iberia, there was a considerable number of job losses in administration. It is practically certain that something similar would happen if IAG were to take over Aer Lingus. As a north Dublin Deputy, many of my constituents work for Aer Lingus and the unions have a legitimate interest in raising their concerns.
My questions are on the issues of connectivity and the importance of the Heathrow Airport slots. Mr. Reidy stated any future takeover of Aer Lingus would have to be based on guarantees covering these slots. Do all of the unions agree that the slots are critical? It was pointed out that were they to be lost, we could lose a great deal of foreign direct investment and tourism business because of the lack of connectivity. It was also mentioned that the Heathrow Airport slots could be switched and used for services to the United States or China. Are they a deal breaker?
Mr. Matt Staunton:
On the likely windfall from a sale, who remembers the windfall the previous Government received for the initial public offering? The figure was €200 million. Where has that money gone? What benefit can anyone point to? The answer is none. One would be likely to receive a figure north of €300 million this time, which would be a drop in an ocean of debt. It would not replace the significant element the company could deliver to the country.
Let us draw a ring around Belfast and its region and around Dublin and its region. People in Belfast would give their right arm for what we have in Dublin, namely, inward investment and the tourism yields announced yesterday by Mr. Niall Gibbons of Tourism Ireland. This is all because of two clever little words - "connectivity" and "certainty". If one removes certainty, one will start to go downhill. Let us remember what happened at Shannon not even ten years ago when Aer Lingus became an independent company. The route to Heathrow Airport was removed by the company.
Very quickly afterwards, during an existing inward investment, Dell began to wonder whether it still needed to be based in Limerick and whether it had other options. This was because the word "certainty" had been removed. Heathrow Airport slots are vital, as Deputy Seán Kenny mentioned, for this reason alone. We should weigh up the windfall against the likely loss. It is self-evident that it is a no-brainer.
Mr. Owen Reidy:
I thank Deputies Timmy Dooley and Seán Kenny for their questions. I agree with Deputy Timmy Dooley on the cash windfall that might come the Government's way. While all other shareholders are interested in the return on their investments, the Government is a unique shareholder and must consider the matter from a strategic position. It has an opportunity; it is in the driving seat and should not drop the ball. Many backbench Deputies from both parties are making positive noises on the issue. Like my colleague, Mr. Staunton, I regret that the previous Government took the decision to privatise the airline because had it not done so, we might not be in this position. Deputy Timmy Dooley and I disagree on the matter, but so be it.
To respond to Deputy Seán Kenny's question on the guarantees, we do not want to add to the fear and concern. In the absence of facts, we do not want to speculate too much. The Government and the board of Aer Lingus have an opportunity to obtain clarity. While there are macro guarantees around connectivity, the Heathrow Airport slots and the transatlantic routes, the critical micro guarantee is to maintain quality, sustainable, direct labour within Aer Lingus and we make no apologies for saying this. It is a key factor that has contributed to the company's success and must be a key issue for the Government, the business community and the chambers of commerce in the Dublin, Cork and Shannon regions. These guarantees are on two levels. If they are conceded, people can make a more informed choice and we can have a debate on whether there should or should not be a takeover or sale. Until the guarantees are given, there is nothing to discuss and it should be ruled out.
Mr. Evan Cullen:
Deputy Timmy Dooley has said the airline is profitable, does not require cash and is growing. However, he has omitted to mention that it already has substantial code share agreements with the Star, SkyTeam and oneworld alliances. If, as IAG proposed in one of the published documents, Aer Lingus were to become a member of the oneworld alliance, the membership would have to increase its return by 300% to replace the losses of the Star and SkyTeam alliances. In addition, it would require a different model because we would have to introduce a two-class service on short haul routes, similar to that of British Airways. There is only one sustainable argument for consolidation in the airline industry, which we must concede, namely, the fact that if one goes to Airbus or Boeing to buy 40 aeroplanes, if one is part of a conglomerate that is buying 400 aeroplanes, one gets a better deal. Aer Lingus has already addressed this fact through its substantial agreement with Etihad on the purchase and procurement of services and does not need IAG to help it with its capital expenditure, capex, because it already has a strategic partner. There is no other reason for an airline that is growing, profitable and on the trajectory Aer Lingus is on, with one of the youngest average fleet ages in Europe and the best fuel hedging contract in Europe, not just by a few dollars but by a country mile, for the IAG takeover. Aer Lingus does not need IAG; IAG needs Aer Lingus. When one takes a capital market value on Aer Lingus of €1.3 billion, there will be close to €500 million of free cash on the balance sheet. That would bring it down to €800 million. The net book value of the fleet is approximately €650 million, while the slots are valued at more than €400 million. IAG is already €200 million ahead on the share price offered.
Deputy Seán Kenny asked about connectivity. The Government cannot guarantee connectivity any more than Ryanair can tell IAG it will take the money for the shares but that it wants a guarantee that it will or will not operate on certain routes. The Government has no more leverage in that discussion than Ryanair or any other shareholder. It is nonsense for anybody to suggest the Government could put legally binding constraints on the new owners when it received the cheque for the shares. It could not happen.
I thank everybody for the presentations. I opposed the privatisation of Aer Lingus, which has been a disaster. Many promises were made, including that the Government would retain a figure of 20% and that nobody would be able to take over Aer Lingus without the Government's approval. Now we see that they were not true and that promises were not worth the paper they were written on. I cannot see how anybody can make a promise about the 24 Heathrow Airport slots. Like promises, managers come and go. Many of the senior and executive managers are ready for a big windfall of approximately €30 million, some of whom have a vested interest in selling it off. What are the delegates' opinions on how the people concerned got into this position and the deals that were done?
There are 3,900 workers, of whom 1,200 could lose their jobs. Where would the jobs be lost? Would they be among pilots and ground staff or a combination of both? There would probably be a knock-on effect on ancillary airport services. Regarding footfall in Aer Lingus, tourism figures have been increasing constantly. There is an extra terminal at Dublin Airport and passenger numbers have increased. Would a sale have a detrimental effect and what would be the effects if the slots, particularly at Heathrow Airport, were to be used to provide services elsewhere? It is very likely that would happen. How much control would we have over whether the slots should be switched to provide services to different airports? Would a sale break European competition laws on the creation of a monopoly?
When Ryanair tried to buy out with its 29% or so, we were told it could not because it would constitute a monopoly. Does this compare to that situation?
I thank all four representatives for their frank and informative contributions. I wish to make two points. Speaking as a legislator and as a taxpayer, I am around long enough to remember and to take sufficient interest in the original privatisation of Aer Lingus. I do not think there are many defenders of what that did for the taxpayer. It was pretty much a short-term gain. If we were going through that exercise today it would not happen; taking this country, the taxpayers and the labour force at that time, when accumulated, it was not a great exercise to boast about. People should be very cautious about going into phase 2 privatisation of Aer Lingus.
I say these things in the absence of a formal offer. We have to be objective about it and not get over-emotional about it. As already alluded to, it would take some substantial offer with multiple conditions for anyone to be persuaded for the State to surrender its 25.1% share. I am one of the people who take that view. As a lifelong trade unionist, anybody who has read what has happened in the past in Aer Lingus will be aware of the sacrifices that were made to turn it into a profitable company. That is not emphasised enough, Aer Lingus is profitable and good for the taxpayer. Objectively, on the basis of a formal offer, I would object strongly to Aer Lingus being sold off, and sold off on the cheap.
Mr. Myles Worth:
I have an article here which might give some background. Should IAG complete the acquisition, the focus will then be on how these slots are used. Some will undoubtedly be used for services to Ireland but everyone realises that the real prize is long-haul usage of these slots. Let us take mainland China as one example. The table in this article highlights just how weak British Airways' position is at the moment in terms of its service to the world's fastest growing market. Based on planned February 2015 schedules, British Airways goes to three destinations with 68 flights; Air France has four destinations with 106 flights; KLM has five destinations with 88 flights; and Lufthansa four with 108 flights. From a competitive perspective, the value of IAG-BA to those extra 20 slots per day to allow further expansion into new markets is pretty compelling. There is an argument as to how weak they are already in London.
Mr. Owen Reidy:
I will make one brief comment. I agree with Deputy Maloney's comments. In response to Deputy Ellis's question as to where the staff would come from if IAG take over and people are outsourced, again, nobody knows but the speculation, when people compare it with Iberia, is that it would be the ground staff yet again. To put it in context, this goes back to Deputy Maloney's point about the profitability of the airline. Since 2008 our members and the members of all the unions in Aer Lingus have put their shoulder to the wheel and saved significant moneys. Many of the staff have had their terms and conditions of employment bought out and have gone on to lower terms and conditions of employment to reduce the cost base so that the organisation can be as lean and as efficient as many of its competitors. They have done that, they have been on pay pauses, pay freezes and pay cuts and have had, effectively, what was a defined benefit pension scheme, albeit one which got into serious trouble, changed into a defined contribution scheme and we are not out of the woods on some elements of that yet.
Given that people have made those contributions and sacrifices there is no way they will willingly lie down and have a situation where their jobs are outsourced whether by the current owner or any new owner. We have current, existing, flexible, agile agreements with the current owner, one of which is a registered employment agreement. We know the Government wants to reinstitute that legislation to allow for further registered employment agreements. If people get certainty and clarity, it creates the context where they can continue to work in an environment to make sure that the company continues to be successful. The absence of that kind of clarity is usually replaced by chaos and that is not what anybody wants but potentially that is what could happen.
Mr. Evan Cullen:
To address Deputy Ellis's question, the aircraft which are flying between Dublin and Heathrow on the Aer Lingus slots are catered for and maintained in Dublin. The proper cross synergy one expects to happen is that they would be catered for and maintained in Heathrow. That would be true of aircraft that are currently catered for in Shannon and Cork. If IAG was to follow up on the cost synergy logic of its whole existence then that catering contract should go into Heathrow, hence a loss of work and employment in Dublin. It equally follows that flights from Dublin to Barcelona would then be catered for and maintained in Barcelona where Vueling has its main base. Flights from Dublin to Madrid would then be catered for and maintained in Madrid where Iberia has its presence. That is how the cost synergies work and that would have a knock-on impact.
In the hard copy of my presentation which I gave to the committee, IAG identifies how it is targeting cost synergies in the existing IAG companies. There are revenue synergies and they are positive for everybody but the cost synergies are just as dramatic in the IAG model. Somebody said there were not many defenders for the privatisation. There is a reality about the privatisation of Aer Lingus in 2006. It is almost a certainty that Aer Lingus would not have had the cash buffer that it needed to get through 2009 if it had not had the cash on its balance sheet because the cash was not going to come from the Government in 2009. I am not saying I am a fan of privatisation but we have to recognise the cash buffer that got Aer Lingus through its bad patch came from the privatisation in 2006. For reasons of balance I thought I would say that.
Mr. Matt Staunton:
There are two question left. Both Deputies Maloney and Ellis posed the question on the value of assurances. Assurances can be written down but a commercial company giving a government assurances has no value. The commercial interests of that company will always come first. We saw that when our own Government was not able to compel Aer Lingus not to unplug Shannon but it unplugged Shannon from Heathrow a number of years ago. One learns that the hard way. The commercial interest will always come first.
The other point raised by Deputy Ellis that was not answered was the bonus culture of the executive management team and company. In his presentation Mr. Cullen mentioned the LTIP scheme. Effectively, we have a management team wooing that company who get rewarded based on the value of the share price for a certain period. Of course, executive managers are going to shop around, bring on offers and bring on bids because they will get the bonus and owners have to be very careful in companies in those circumstances that it is absolutely necessary, which is what is at the heart of this debate.
It has been stated that the approximate job losses projected for Dublin Airport is 1,200, based on the experience of the takeover of Iberia airlines. Are there any projected figures for job losses at Shannon and Cork airports in the event that the takeover bid is successful?
There will be a massive deficiency in connectivity to the regions which will have resultant adverse effects on retaining the jobs created by foreign investment in this country and also attracting much-needed jobs to rural regions in particular, if the takeover proceeds. Up to 70,000 people are employed by foreign companies and the takeover will have a negative effect on their future planning for business and the success of their business in Ireland.
The 23 slots at Heathrow Airport are worth an estimated €400 million, it seems, and are a sizeable part of the €1.3 billion proposed bid. Any loss of this sum will have huge implications for the Irish economy. What are the implications for the regional airports such as Cork Airport and Shannon Airport regarding the loss of the slots? Will the sale have a knock-on effect on the smaller regional airports such as Kerry Airport, where I come from? Its success is essential for the peripheral counties, particularly in terms of the tourism product and business relationships, and for attracting more business to the county as well. Have the witnesses looked at the situation? Will the sale have a huge knock-on adverse effect on regional airports such as Knock Airport, Donegal, etc.?
I thank the witnesses for presenting a very interesting discussion. Do the witnesses agree that there are many elements to the offer? There is the share price, which is the pounds, shillings and pence, connectivity, which has been mentioned, and the Heathrow slots, which are very important. The slots are vitally important for the future of Cork Airport, for example. I do not want to pitch one airport against another but Cork Airport is vulnerable in terms of the Heathrow slots. There is also a brand loyalty or identifier with Aer Lingus.
I would like the witnesses to touch on an area that has not been touched on yet - the potential impact on competition. Since the airlines were deregulated I imagine there has never been such a consolidation of airline companies around the world which has had an impact on the competitive nature of the business. How would that affect Ireland if this bid went ahead?
The airline industry is cyclical. Some years are very good and some years can be very bad. Recent years have been good and this year looks like it is going to be a positive one. Oil prices, for example, have a part to play in this business. The airline industry, similar to the energy industry, is slow to pass the full benefit of falling oil prices on to the consumer. The situation has turned into a good cash cow for the industry but that is not always going to be the case. Do the witnesses see any difficulty, for example, in five years' time, if the airline remains as it is with a trading environment that is much more difficult? Aer Lingus could be faced with even bigger problems.
Mr. Matt Staunton:
In response to the last question, I have said in my presentation that in the event of a cyclical downturn, one is at the mercy of a boardroom in London to decide what they will cut. They are more likely to consolidate close to home in Heathrow Airport than they are in Dublin or in any of our other areas.
In regard to the competition aspect, I am not qualified to answer the query completely. There would be less of the competition effect than the Ryanair takeover. Obviously there would be a competition effect on the Heathrow route which the two people compete against already but I am not qualified to answer.
In regard to jobs in Shannon and Cork, we are looking at the loss of 100 jobs in each. The figure is based on the ratios that prevail between the different organisations.
Mr. Evan Cullen:
In regard to the question on slots, much public comment has been made that IAG already operates on the Heathrow slots into Dublin in direct competition with Aer Lingus. People have reached the conclusion that if IAG is doing that by itself, why would it then reduce the slots. Members should be aware that the slots were originally BMI slots. IAG swallowed BMI whole and bought it from Lufthansa for a very cheap price. IAG was required by the UK regulator to operate the slots, as was, for a period. Equally, Virgin Atlantic acquired the remainder of the BMI slots and it was required to operate the slots, as before, for a period. Virgin Atlantic did not have short haul aircraft and hired Aer Lingus to operate the slots for a period, but the contract for doing so will come to an end in September of this year. In the public domain there is a belief that IAG operates on the London route at the moment with its own aircraft. It is important that is set in context against the requirements of the UK regulator in terms of the slots.
With regard to consolidation, somebody asked whether Aer Lingus would not have bigger problems there. I cannot see what problems Aer Lingus has at the moment. It is more profitable on a like-for-like basis than IAG, it has one of the youngest fleets in Europe and is growing. If somebody could identify the problem with Aer Lingus and that it needs something, then I would love to hear it. Aer Lingus has one of the best co-chair agreements with all three of the world alliances - SkyTeam, Star and oneworld. It has one of the best fuel-hedged contracts in Europe. Why does Aer Lingus need IAG? The only reason Aer Lingus might need IAG is to buy new aircraft. As I have said before, if one needs 40 new aircraft, one will always do a better deal if it is 400 aircraft. Aer Lingus has already solved that problem with its strategic alliance with Etihad. I know Aer Lingus and Etihad combined forces to negotiate with Airbus.
I am impressed by the breadth of expertise that has been provided to the committee. We do not know the details of the takeover offer but the witnesses have provided a lot of context and background.
I am old enough to remember, as an emigrant, that I could not afford to travel by air-----
I am aware of that and I thank the Chairman. I could not afford to travel by air from London to Dublin because it was the most expensive route in the world due to the operation of a cartel. Would that be the outcome if IAG bought Aer Lingus? In fact, consolidation has proven that the consumer loses out, internationally, because prices go up. Do the witnesses believe the most profitable route in the world would come under severe threat in terms of access for people both from outside of Ireland into Ireland and for those who wish to leave Ireland? In this case I am thinking more about income generated from tourism.
I am glad that Mr. Cullen injected a certain note of reality into the recent history of Aer Lingus. However, I will not discuss whether privatisation was good, bad or indifferent. Before he answered I was asking myself the question where Aer Lingus might be today in light of all that happened. The following nationally owned airlines are no longer with us - Sabena, Iberia, Alitalia and Swissair. They are all gone yet we now have a thriving business which Mr. Reidy mentioned. I accept the sincerity of what he put forward and his presentation but it has a certain degree of naivety, and I am surprised to use the word "naivety". He more or less inferred that he would accept a takeover if certain guarantees were given from a private company that in my opinion is nothing more than a predator hovering over a very successful airline.
I wish to ask a question about jobs.
Has there been any increase in the workforce as a result of Aer Lingus's success in recent years? Has the workforce remained static? I am glad Mr. Reidy outlined in his presentation the serious difficulties the workforce has experienced in recent years. It is a great credit to the Aer Lingus workforce that it has managed to come through three hostile bids and through all the rationalisation that took place to make it a leaner airline, which as Mr. Reidy said has made it a more profitable airline. I record the appreciation of all of us of the outstanding contribution the workforce has made to ensure that Aer Lingus is now an attractive enough option for a major commercial company to want to take it over. I am interested as to whether there has been an increase in the workforce. If there has been and I would be surprised if there has not been, it is a further indication of the reasons the Government should not allow a takeover of a company that is not only expanding in terms of bringing in more tourist numbers but is creating more jobs on its own through its own good efforts. I, like everybody else, cannot understand why the Government would for one moment contemplate allowing this takeover to go ahead because, as has been pointed out, Aer Lingus does not need IAG, rather IAG needs Aer Lingus. It would not be around otherwise. That is the way predatory companies operate.
I, too, acknowledge the contributions made by all speakers. I have been greatly informed today about the issues that I have read about in the newspapers. On the question of a €300 million bid, that does not amount to two days' social welfare payments. As everyone has mentioned, connectivity at Heathrow is paramount. The Heathrow slots are the main issue. Guarantees or assurances in any takeover are not worth the paper on which they are written. The group's proposals are job cuts, as was mentioned. I am not aware that any other shareholders have made a bid. I have not heard or read a comment from Mr. O'Leary or Ryanair. That is a significant point and I do not know what is behind it. I also note Aer Lingus has stated that it would be willing to sell depending on the conditions that IAG would give it, but from my experience conditions and assurances are not worth the paper on which they are written. Tourist numbers to this country last year were the highest ever, exceeding the year of The Gathering. Many of those tourists from North America travelled here via the slots at Heathrow Airport. It is paramount that we retain those slots.
I welcome our guests. There is strong and pretty much unanimous support in the Seanad - which does not get reported very much - as our guests will have heard from Senators Brennan and Mooney, for the case they have been making. The Minister came into the Seanad yesterday to announce the committee, and I note that there are some misgivings today that it is excessively focused on finance in its orientation, and both David Begg and Christoph Mueller were not at the recent board meetings for various reasons. I think their terms had expired. Would it have been different if both those directors had been there - the one who had been managing the airline in the recent past and the one who was the representative of the employees?
I have a few concerns. What does British Airways bring to the party? I have mentioned its eclipse by both EasyJet and Ryanair in the UK. A consumer survey put it at number 17. Therefore, it is not Singapore Airlines bringing something that is any way superior to the product that is produced by Aer Lingus. Another concern relates to what happened in Scotland. As a region, it is seriously neglected by British Airways, which is Heathrow focused, as speakers have said. There are approximately 400,000 passengers from Scotland to North America and we transport 2.4 million passengers number on that transatlantic route. The population of Scotland, at 5.3 million, is 500,000 more than ours at 4 million odd. There is more transatlantic traffic out of Dublin than out of Manchester, Birmingham, Belfast, Glasgow and Edinburgh combined. We are talking about "air Heathrow" taking over. Heathrow is still growing. Ever since I started to study this area, Heathrow has been full. It just keeps growing. It is growing faster than Gatwick where in the past five years there has been a decline. The traffic will go through there. I believe that is the plan. I would be nervous having regard to the anti-competitive mergers that people mentioned, the gobbling up of British Midland and so on. We have developed a North Atlantic product that is six times better, at 2.4 million passengers versus 400,000 passengers, than anything that serves Scotland, a country the same size as ours. I do not believe British Airways has any great interest in developing that whereas in recent years Aer Lingus has had, and that is to the credit of everybody involved.
I thank our guests for their submissions. I do not want to exceed my allocation of three minutes as the committee has to keep to the timetable set. Certainly in the Seanad, there is no great welcome for this bid. What our guests are doing is appreciated. As Senator Brennan said, the bid of €300 million equates to about two days' public expenditure, but what has been built up on the North Atlantic routes in particular is worth far more than that.
Mr. Evan Cullen:
To answer Senator Mooney's question on consolidation, the number one priority of consolidation in any industry, particularly in the airline industry, is to eliminate over-capacity because over-capacity drives down prices. It is easier for airlines to make money if they consolidate. There have been mega-consolidations in the US and on all the routes where consolidation took place, the average price per kilometre flown, per seat mile produced, increased. That is a mathematical fact. Consolidation is designed to eliminate over-capacity.
I would take issue with the rhetoric about national carriers. I will set out a number of facts. Sabena only made a profit in one year of its entire existence and that was the year that Air France went on strike and all the French had to drive to Brussels. Sabena was a basket case from the day it was born to the day it died. Everybody accepts that. Swissair got damaged because it was a major shareholder in Sabena and got wiped out by Sabena. However, Swissair is an extremely successful airline. Alitalia still exists and is now controlled, but not owned, by Etihad. While Iberia has had its difficulties, it still exists within IAG, just like British Airways. With regard to the notion that national flag carriers are all a thing of the past, they all exist. I can assure members that if there is one thing the Norwegian Air Shuttle debate shows, it is that the Americans are very committed to their flag carriers.
Senator Barrett raised some excellent points, which may stray outside the debate, but he is correct that BA brings nothing to Aer Lingus. Aer Lingus gets everything it needs from BA by way of its code-share agreements with the oneworld alliance, but it equally gets its income from the SkyTeam and the Star Alliance.
I agree that there should have been more worker participation. Despite the fact, for example, that the pilots hold 7% of this company, we have no representation on the board and we have not even received the courtesy of a telephone call during all of this. The Senator is correct about BA's neglect of Scotland. Scotland has a similar sized diaspora to ours and its population is larger than ours but it only has a fraction of the transatlantic traffic. That is correct. I would ask Senator Barrett to voice our concerns that Dublin could be a substantially bigger hub but because people think it is a shopping mall with a runway appended to it, we do not have the proper infrastructure to put the proper aeroplanes onto the tarmac because nobody wants to invest in the taxi-way system or in the exits at the runway.
The manner in which the airport looks after itself as a shopping mall and not as an operational runway is an abomination.
Mr. Owen Reidy:
I am sure he is looking forward to what I have to say. He infers a sense of naivety but perhaps he does not understand our position. What we are saying is that, in the absence of clarity and in view of the fact that there is a great deal of speculation, some of it informed and some of it outrageous and wild, from various sources, unless tangible guarantees are provided, not words on a page or mere verbal commitments which cannot possibly be entered into, the Government should not even begin to consider the sale of the remaining 25.11%. What Senator Mooney said is ironic and a little bit rich. If I can say so in a respectful manner, the party to which he belongs needs to decide whether it is in favour of the privatisation of commercial semi-State companies. There is no point in a Government selling the family silver - 75% of the company - at a knock-down price of €200 million and then, a decade later, people who were members of that Administration beating their breasts and saying that what is happening now is outrageous. The Senator's party needs to decide. The position of parties, whether they are in government or in opposition, should be clear. We have been clear and we disagree, with respect, with some of our colleagues - I do not want to misquote Captain Cullen here - who thought privatisation would not be as bad as we believed it was going to be. We remain of the view that Aer Lingus could survive as a viable entity in a dynamic commercial semi-State sector. I know that not all of those sitting opposite will agree with what I am saying in this regard but some of them will do so.
Mr. Owen Reidy:
You cannot be in favour of something you do not know anything about. Our position is that until there is an opportunity for clarity and for clear and tangible issues to be provided on the issue we have outlined, there should be no consideration given to it. That is a reasonable, logical position to adopt rather than speculating about whether the sky will fall in. We were opposed to privatisation but, unfortunately, the Government led by the Senator's party proceeded with it. Now he is stating that it is outrageous to sell the 25.11%.
Mr. Owen Reidy:
That is true. However, Deputy Dooley's colleague raised the issue while the Deputy was out of the room and suggested that SIPTU's position is naive. We represent half of the workers at the airline and have done so for many years. Our people, along with others, have contributed in terms of making it the success story it is today.
On a point of order and before Captain Cullen responds, I do not want to give the impression that I am against the concept of State-owned interests. I was making the point that those airlines to which I refer have all been obliged to consolidate in one way or another. With the exception of Sabena, they all required outside investment in order to survive. That is all I wanted to say.
Mr. Evan Cullen:
We need to respond to all of this. In the first instance, it is wrong to say that Iberia, Alitalia and Swissair are in the same bracket as Sabena. That is not true. My colleague from SIPTU suggested that I said I was in favour of privatisation. That is not what I said. What is said is that had Aer Lingus not been privatised, it is very difficult to see how it would have survived the economic crash in 2009 without the buffer of the cash that was on the balance sheet from the privatisation.
I thank our guests for their presentations. I have two specific questions. The first relates to the future of the Aer Lingus brand in the event of a possible acquisition. What is in place to prevent the brand being abandoned following an acquisition? My second question relates to existing business relationships. The Kerry-Dublin route involves a relationship between Stobart Air and Aer Lingus Regional. What would be the implications for relationships of this nature if an acquisition occurred? United Airlines' service from Chicago to Dublin is operated by Aer Lingus. Similar relationships also exist in respect of other routes. What would be the implications of any possible acquisition for such relationships? Would they be jeopardised?
I thank the Chairman for allowing me to contribute, particularly as I am not a member of the committee. I have been watching proceedings on the monitor. This is a very serious matter and no one needs to be reminded of that fact. I get the feeling that this is something of a testing-the-water exercise on the part of certain interests and we are playing right into their hands. The briefing note from the Minister states that if a formal takeover proposal is made, all relevant information to it will be placed in the public domain. The note also states that the Minister is constrained from doing the latter until such time as such a proposal is made. It is interesting that the major shareholder in Aer Lingus has as yet said nothing. I note with interest some of the observations from IALPA speculating on how this proposed takeover could be financed by IAG. If the takeover were to proceed, I presume some competition rules would come into play in respect of the Heathrow slots that would have to be disposed of. I am not a conspiracy theorist but this all points towards certain events happening if the takeover were to go ahead. Given that one should measure twice and cut once, in this instance we should measure a number of times before we decide to take any future action. I appreciate that the Minister, as a shareholder, is constrained in terms of what he can say because a formal offer has not yet been made. We are in an offer period - this is similar to the transfer window in soccer - whereby people are given the opportunity to enter into discussions without making formal offers. I stand open to correction but I understand that period lasts for six weeks.
It is obvious that there is a great deal of concern regarding what is in the ether at present. In the context of what Captain Cullen and Mr. Reidy had to say, there is also much misinformation. People's jobs are at stake and it is not just a case of connectivity, although that is an issue of major concern in the mid-west region where I live. A great deal of emotive language is being used. In terms of the general discussion, it would be helpful if we could focus on the salient points relating to the impact any change in the governance of the airline might have. There is a danger that people might begin showboating in respect of this very sensitive issue. That could cause much damage.
Mr. Evan Cullen:
Deputy Griffin referred to Stobart Air. We represent 95% of the pilots in Stobart Air. There is no question that we would be greatly concerned that the operations of Aer Lingus Regional, on behalf of which Stobart Air provides the service in question, would be hugely curtailed by what is proposed. IAG does not have a history of keeping relationships such as that involving Stobart Air alive. That would have a knock-on effect into the regions. A key aspect of what is happening at Dublin Airport is that Aer Lingus Regional is bringing passengers from the UK provincial airports into the terminal 2 hub. Terminal 2 is operating in direct competition with Heathrow's terminal 5 at present.
In the industry, we call Heathrow "Fortress Heathrow". It is a fortress for BA to make money. No one can get a foothold in Heathrow unless it is a company like Aer Lingus, which arrived in the 1950s when the runways were first laid, or Lufthansa, which has grandfather rights for many years. This is why terminal 2 is posing a challenge to terminal 5. If we could get Dublin Airport working properly as an airport and not as a shopping mall, it would be an even bigger challenge to terminal 5.
A question was asked about United. Aer Lingus operates in partnership with United. United is one of the big world alliances. Aer Lingus was in One World for a while but it left. What is unique about Aer Lingus's relationship with the world alliances is that it does equal business with all of the alliances. If Aer Lingus joins One World, as IAG proposes in writing, it would have to break its relationships with the others. It would then have to generate three times the income in the One World code-share to justify the breaking of the code-share with the others. It would be more difficult, therefore, for a person to travel seamlessly with United through the United States on an Aer Lingus ticket.
Mr. Evan Cullen:
The reason it has not been discussed is that management have a huge conflict of interest in this entire transaction. The question from Deputy Doyle is absolutely valid. When British Midland was taken over and swallowed whole by IAG, the UK regulator demanded slots to be taken off the combined entity of IAG and British Midland. If one were to follow a similar model for an Aer Lingus consolidation into IAG, it would lose between five and eight slots straight away. These slots would be redistributed to other competitors on the route. The UK regulator would say they will be able to operate these slots for a fixed period of three to five years. This is the general template which has been used. The regulator has not said it will do this. This is speculation based on history. I do not know if I have answered all the questions.
Mr. Evan Cullen:
It is a simple matter of fact that there are more people employed directly by Aer Lingus now than there were prior to the Greenfield plan of 2009. There are in excess of 100 more pilots employed in Aer Lingus now than there were in 2009. As a classic local example, IAG-BA has a base in Belfast and so does Aer Lingus. If the transaction goes ahead, it is inconceivable to suggest that there will be two competing pilot bases on the one runway in Belfast. This is not going to happen.
I wish to speak on connectivity. Am I correct in saying that if IAG and Aer Lingus were to join up, combined they would have approximately 21 Heathrow slots out of Dublin, 13 of which would be with Aer Lingus at peak and eight of which would be with British Airways? This would give them a virtual monopoly on the Heathrow-Dublin route. What view do the delegates think the competition authorities will take on this and what would be the implications in terms of connectivity?
Shannon Airport has transatlantic flights and is the only airport outside of Dublin to have these in Ireland. It is hugely significant given that we are in the mid-west and on the western seaboard. Can the delegates see any implications in an alliance between IAG and Aer Lingus for transatlantic flights out of Shannon?
Mr. Evan Cullen:
A number of slots will be taken and given to a competitor. For example, when IAG took on British Midland - British Midland does not exist as a brand or anything else now - the regulator said IAG is not getting all of these slots. It forced IAG to sell these slots. The biggest beneficiary of that transaction was Virgin Atlantic. There is nothing now or post this transaction which prevents Aer Lingus management or its board from moving the Heathrow slots to another airport. If Aer Lingus wished, in the morning it could switch Heathrow slots to New York.
Currently, in terms of connectivity, there are 23 slots used in and out of Ireland through Heathrow. If such an alliance were to take place, what would be the number of slots in terms of Heathrow connectivity through Ireland?
Mr. Evan Cullen:
I would see negative implications. The resources of an airline are deployed to make maximum profits. I do not believe Aer Lingus makes its maximum profit out of Shannon, particularly during winter. Some of the routes which are operated at particular times of the year are an emotional play. I do not think IAG will have that sentiment.
On behalf of the committee, I thank everyone for coming in and engaging with us, answering our questions and putting their points of view across, which they did clearly. We will suspend for a moment and ask the representatives from the chambers and Shannon plc to take their seats.
I welcome Mr. Ian Talbot, chief executive officer, Chambers Ireland; Mr. Conor Healy, chief executive officer, Cork Chamber of Commerce; Ms Gina Quin, chief executive officer, Dublin Chamber of Commerce; Dr. Orlaith Borthwick, chief executive officer, Limerick Chamber of Commerce; Ms Helen Downes, chief executive officer, Shannon Chamber of Commerce; and Mr. Patrick Edmond, Shannon Group plc. I acknowledge the presence in the Visitors Gallery of Mr. Frank Greene, Galway Chamber of Commerce.
The delegates will have heard the housekeeping rules being read to the last group. With their permission, we will continue. The presentations are to be short and members precise and quick in asking questions. I invite Mr. Talbot to make his presentation.
Mr. Ian Talbot:
We are very grateful for the opportunity to address the committee on this vital topic. Chambers Ireland is a national organisation representing in excess of 50 affiliated chambers of commerce throughout the country whose members employ more than 650,000 people. As a result the organisation is uniquely positioned to give the business perspective on matters that impact the entire economy. We also note the special focus on regional economic development in this year's Action Plan for Jobs, launched this morning. I am delighted to be joined today by the leaders of four of our affiliated chambers, from Cork, Dublin, Limerick and Shannon who will address the topic. Also present in the public Gallery is Frank Green, president of the Galway chamber.
Ireland is an island economy and a small one at that. As a result air links are particularly relevant for our economic well-being. There is a statistically significant correlation between air connectivity and GDP growth. Therefore, connectivity is key among the topics of relevance to us in the potential impact of this transaction, positive and adverse. Improved connectivity greatly improves our potential and any threat is a cause of concern. We also note there is very little information available on a potential transaction and therefore a risk of significant speculation on outcomes. We have sought today to work with the facts we know.
I now ask Conor Healy, the chief executive of Cork chamber to address the committee.
Mr. Conor Healy:
I thank the Chairman and members of the committee for giving me the opportunity to address them on this critical issue for Cork's business and tourism communities. Cork chamber is the leading business organisation for the Cork region, representing in excess of 1,000 businesses that employ more than 100,000 people, with a mandate to drive the wider economic development of the region.
Cork is the economic hub of southern Ireland and Cork Airport’s services and air connectivity are critical to the economic health and global investment appeal of Ireland’s second city and its surrounding region. Cork’s air connectivity has been instrumental in attracting inward investment from global market leaders in key sectors with Cork now home to 145 IDA Ireland client companies employing almost 30,000 people. Cork's air connectivity also plays a pivotal role in serving the connectivity needs of the broader indigenous business base and tourism sector.
The accessibility of Cork, in particular the range and frequency of inbound and outbound air services, is a core priority for the chamber given the vital role of these services in facilitating business and tourism in the wider Cork region. Based on our geographic representation, our air travel surveys give a unique understanding of our connectivity infrastructure, the critical nature of the London Heathrow connection being paramount.
Despite some recent positive policy initiatives, Cork chamber has grave concerns regarding the adequacy of existing Government policy measures to support a fair, balanced and effective approach to the development of Cork Airport as one of the three State airports, the most recent of these serious concerns being the potential sale of Aer Lingus to IAG. Following this week's recommendation of the Aer Lingus board to its shareholders to accept a potential offer from IAG, Cork chamber strongly urges the Government to oppose the sale of Aer Lingus in light of our growing concerns over the absence of legally binding guarantees around the safeguarding of the existing Cork to Heathrow slots or any information relating to IAG's longer-term plans for the airline as they relate to Cork Airport.
The Cork to Heathrow slots are a national asset and are a critical piece of business infrastructure for our region. Heathrow is the leading connection to Cork's largest trading partner, the UK, and is the leading access point to and from the globe from a business and tourism perspective. In the absence of direct US connectivity from Cork, the significance of our direct link to Heathrow is further magnified.
In 2014, almost 400,000 passengers flew on the four daily flights which currently operate between Cork Airport and Heathrow and these accounted for almost 20% of Cork’s total 2.14 million passengers. One in five of these passengers then transferred onto another international flight which underlines the critical nature of this onward worldwide connectivity link. In addition, our 2014 business air-travel survey showed London Heathrow is the most used hub airport by almost two thirds of businesses in Cork.
Clearly, losing this route would have severe consequences for our business sectors and we urge Government to ensure a legally binding guarantee is put in place to maintain the existing Cork Airport to Heathrow connectivity before any sale of Aer Lingus is considered. Any reduction in connectivity to Heathrow would undoubtedly make Cork a less attractive destination to multinational businesses considering investing and creating jobs in Cork as well as existing investors. It would inhibit international market access for our indigenous businesses and put our city region at a very significant disadvantage.
While we welcome the Government's announcement to establish an interdepartmental group to consider the implications of the potential sale of Aer Lingus to IAG, it is essential that the terms of reference of the group include a requirement to report specifically on the impact and implications of any sale on Cork Airport. A broad national overview would not be sufficient and would not acknowledge the growing concerns across the Cork business and tourism community which reflect the incalculable importance of connectivity to London Heathrow, which is an intrinsic core of Cork's business and tourism infrastructure.
Ms Gina Quin:
I thank the Chair, Deputies and Senators for having us here. Dublin Chamber of Commerce represents about 1,300 companies in the greater Dublin region - companies of all sizes across all sectors and employing about 350,000 people in the region. Our business is about promoting the Dublin economy as a key driver of the economy of Ireland.
Our concern over the issue relates to connectivity which has been mentioned by many of this afternoon's speakers. We know that international air connectivity enhances a national economy. It is crucial for that criterion to be at the forefront of the assessment of any proposal on the Aer Lingus company. The Oxford economic group, which looked specifically at the impact of connectivity, estimated that a 10% improvement in air connectivity for a country can have a 1% increase in GDP in the long term. So there is a very significant connection between connectivity and GDP growth.
The market forecast of aircraft manufacturer, Airbus, that looks at the global aviation market to 2030 estimates that the global market will be dominated by 87 aviation mega cities - hubs around the globe through which traffic will transfer. It includes Ireland's Dublin Airport as one of those 87 aviation hubs.
The key in connectivity is often long-haul traffic, which has also been mentioned this afternoon. The figures for Dublin and for Ireland have been very encouraging in this regard. Since 2010 we have seen a 40% increase in the number of passengers travelling between North America and Ireland through Dublin Airport.
I have had personal experience of the campaign over the past four years to re-establish the route between Dublin and the west coast of America, resulting in the re-opening last April of the route into San Francisco. We worked very hard with companies throughout the island and in the Dublin region to ensure that route was reinstated. Since it was reinstated last April more than 1,500 jobs have been announced for Ireland by companies from the US west coast. Some of those involve the expansion of existing companies, such as PayPal, and some of them are new companies such as Calypso Technology, AdRoll and AMAX. So it is very significant that this route has been re-established. I am encouraged that Aer Lingus has announced it is expanding that route from five flights a week to seven from the summer.
A key driver for long-haul routes is transfer traffic. That is the concept that passengers will travel through Europe into Ireland and on to the United States of America. We believe this has been a real success for Ireland for Dublin in recent years. It has already been mentioned this afternoon that more than 1 million passengers pass through Dublin en route. The pre-clearance facilities in Dublin are a very significant part of that.
I am encouraged by the statement in the document issued by IAG yesterday that it plans to use its aviation network to grow transfer traffic at Irish airports. This should be good news for Irish business travellers and consumers.
We have very ambitious targets for the economy in the years ahead as we face economic recovery. We must create more jobs and do everything possible to support economic growth, and international connectivity is key to achieving this objective. We also have an ambition to increase tourist numbers by 25% in the next ten years. Tourism is extremely important for all parts of the island and achieving growth in the sector will only be possible if connectivity is improved. This will be the key criterion for assessing the proposed sale of Aer Lingus.
Ms Helen Downes:
I thank the Chairman for the invitation to make a presentation to this meeting of the Joint Committee on Transport and Communications on the impact of a potential sale of Aer Lingus. I am attending in my role as chief executive of Shannon Chamber of Commerce. I will make my presentation in collaboration with the interim chief executive of Limerick Chamber of Commerce, Dr. Órlaith Borthwick. We are also joined by Frank Greene, president of Galway Chamber of Commerce. The concerns and views my colleagues and I will present also have the backing of the Ennis Chamber of Commerce.
The content and substance of our submission is being made on behalf of the economic corridor which stretches from Galway to Ennis, Shannon and Limerick, 1,355 businesses which form the membership of the four chambers in the area in question and 45,700 people who are directly employed in the region by these businesses. I have submitted to the joint committee a document setting out our position. As I am conscious of time, I will proceed to posing the key question that arises on this issue, namely, what vision do we have for Ireland? Do we want the country to remain an internationally traded open economy, with global corporations conducting business globally? If so, we must keep the issue of connectivity to the fore when considering the sale of Aer Lingus. Connectivity is vital for the retention and growth of business on this island nation. We cannot afford to allow it to be determined by market forces. Instead, it must centre on the needs of citizens, business and tourism.
Our focus is less about ownership and more about ensuring that the 23 slot pairs connecting London Heathrow and Irish airports are retained to ensure connectivity to each airport, not only Dublin Airport, is maintained. This requirement must be enshrined in Government policy regardless of ownership. It must be central to the decision-making process and any subsequent deal with IAG or another carrier. Cast-iron and long-term guarantees must be provided to ensure the slots at Heathrow are maintained for access from Irish airports, including the three major regional airports. A minimum of three slots for Shannon Airport must be retained at all costs. Should competition authorities consider that the combined total of slots occupied by IAG and Aer Lingus is anti-competitive, any displacement of Dublin slots should be allocated to the other airports in Ireland, thus facilitating delivery of a more balanced economy and resulting in at least the same number of slots for Ireland Inc.
The loss of the London Heathrow slots would be at odds with the Government's plans to correct regional imbalance and add a hollow ring to the concern expressed by the Minister for Jobs, Enterprise and Innovation, Deputy Richard Bruton, that Ireland would "pay a heavy economic social cost in years to come if regional imbalances are not addressed". Airports, including Shannon Airport, play a vital role in the economic and social development of their region and act both as a gateway and an engine of growth. Why should such strong emphasis be placed on developing national aviation and tourism policies, on the one hand, if connectivity is reduced on the other? Notwithstanding any short-term gain, the sale of Aer Lingus has the potential to do detrimental damage to the country’s economic well-being in the long term. The financial gain of circa €320 million in the context of a €67 billion bailout does not warrant the potential detrimental impact the loss of connectivity would have. Any potential return must be assessed in the context of the risk exposure to be realised.
Dr. Órlaith Borthwick:
I thank the Chairman, Deputies and Senators for inviting us to come before the joint committee to make a presentation. I am the interim chief executive of Limerick Chamber. Given my background in economics, I would like to deal in facts and remove emotion from this discussion. We must consider where the country is and what types of policies we are trying to implement.
It should be noted that this debate is taking place in the void left by the absence of the long overdue national aviation policy. Furthermore, there is a little clarity about the proposed sale of Aer Lingus and a formal offer to the company has not yet been made. For these reasons, much of this discussion is taking place in an information void. It is not good for jobs and businesses in the region to have a question mark hanging over the sustainability of connectivity into the regions.
According to the policy statement issued by the Department of Jobs, Enterprise and Innovation on foreign direct investment, FDI, Government policy is "focused on creating competitive and globally connected city regions, attractive places to do business, to work and to live". The statement also notes that the "role of city regions has become increasingly important in FDI flows - not only in terms of the city itself but how it is connected and networked globally". The region Ms Downes and I represent, the catchment area of Shannon Airport, encompasses a corridor that stretches from north of Galway to south of Limerick. Approximately 150 multinational US companies are operating in the region, directly employing more than 30,000 people. In addition, 25,000 people are directly employed in the tourism sector in the mid-west.
The State has a duty to act strategically in the interests of citizens, employers and investors and their long-term requirements. It must take into account the wider impact of the sale of Aer Lingus on the economy and connectivity. Irish business travellers strongly depend on the hub at Heathrow Airport and require interlining services to access third locations. In 2013, connecting travellers accounted for approximately 45% of Shannon-Heathrow traffic.
Any sale of Aer Lingus must not threaten the unique access Ireland needs as an island economy on the periphery of Europe. The direct transatlantic flights which Aer Lingus offers to our members, namely, businesses located along the entire western coast, continue to facilitate inward investment and job creation. Any reduction in this connectivity would have a detrimental impact, not only on the foreign firms located in the region but also on indigenous companies which are trying to expand their networks and internationalise. We strongly support Government policy on place-making, which is very firm in highlighting that Ireland's regions continue to have strong value propositions for foreign direct investment where there is good international connectivity. The Government simply cannot make any decision that would in any way threaten the connectivity and transatlantic access that our members and businesses along the west coast enjoy via Heathrow.
I hope we will be invited to attend any future debates that may take place if greater clarity emerges on any potential offers for Aer Lingus.
Mr. Ian Talbot:
Members have heard representatives of the chambers of commerce address topics of particular relevance to their members and regions. An extended period of uncertainty in this matter would not be helpful. For example, investment decisions by potential or current FDI companies could be delayed if there were to be an extended debate on this issue or if a fear factor were created by a lack of information or excessive delay in the process. We look forward to this matter being addressed by all parties in a timely and appropriate manner. We will be pleased to respond to members' questions.
Mr. Patrick Edmond:
I thank members for their invitation to come before the joint committee. I am attending in my role as group strategy director for Shannon Group plc, the semi-State company responsible for Shannon Airport. Shannon Group welcomes the recent statements from the Government that connectivity will be a key consideration in the proposed sale of Aer Lingus to IAG. We also welcome statements that it will take into account much wider issues than the potential monetary value of the State's shareholding in Aer Lingus.
Heathrow remains the single most important gateway for business to and from key international markets from Ireland. It is the only European hub served from Shannon Airport, which is the only airport in the west with a hub connection. Some 60% of passengers on the Heathrow route, Shannon Airport's busiest route, are travelling from outside Ireland and one third of passengers on the route are travelling on business.
Direct accessibility, as the committee has heard, is a key decision factor for multinationals which are looking to establish or grow their operations in Ireland and it is also essential for the competitiveness of indigenous businesses which are seeking to reach their export markets. IDA Ireland has been successful in recent years in attracting foreign direct investment into Ireland and the past year, in particular, has seen a series of wins in the mid-west and the west. The leaders of the companies involved, such as Regeneron, AMAX, Genworth and Zimmer, have been explicit in linking their location and expansion decisions to Shannon Airport connectivity and they are constantly seeking reassurances about that connectivity. Any reduction in regional access would thus jeopardise existing employment across these regions. It would make it far harder to attract significant further FDI and associated employment and, of course, it would also impair access for overseas tourists to the west of Ireland and to the Wild Atlantic Way.
This is not a narrow regional issue but a broader one of national economic competitiveness. Heathrow connectivity is vital for the country as a whole, but particularly so outside of Dublin. The language so far has been about protecting slots for Ireland at a macro-level, but that is not sufficient. Retaining Heathrow slots and connectivity for individual Irish airports, including Shannon, must be a priority if Ireland is to have a balanced regional economy.
We would, therefore, expect that any Government decision to sell the State's Aer Lingus stake to IAG would be conditional on an enforceable agreement which would have at least three key elements. First, it would safeguard service levels, with frequency of flights and their spread throughout the day, between Heathrow and Irish airports, including Shannon. Second, it would ring-fence these slots on an airport-specific basis rather than as an aggregate number for the whole country. Third, it would provide long-term clarity, for example, for 15 years or until a new runway is operation at Heathrow - whichever is earlier.
Time is tight this afternoon. I will conclude there and I would be happy to take any questions the committee may have.
I thank the witnesses for all their input. No doubt they all are key stakeholders, in the regions and across the country, and they represent various organisations. There is a nuanced difference between some of the presentations, notwithstanding that they all recognise the importance of connectivity. From our point view, for us to come to some position on this, it is to understand whether the State could sell its 25.1% interest in the company or not. That is ultimately the decision we will have to take.
In the case of Mr. Edmond and Ms Quin, I am hearing that we should sell if we can put in place appropriate guarantees for the future. While I can understand Ms Quin's position, I am disappointed that such is the position of Shannon. I hope it is not the position of the board. From the evidence we have already heard today, there is no chance that we will get the kind of legal guarantees that would be appropriate. To be honest, it is a bit of a smokescreen. Captain Evan Cullen, a representative of the pilots who are considerable shareholders in the company, stated that at a minimum, if IAG were to purchase Aer Lingus, within three years a number of slots would automatically be up for dislodgement or dislocation under competition rules. Therefore, there are real issues here. Perhaps it may not be Mr. Edmond's fully thought-out position, but I would hope that all of the witnesses who have an interest in this would seek appropriate legal advice and develop a position that understands the limitations of any such guarantees or binding warranties. To be honest, when it is gone, it is gone and one has little chance of exercising control over it, and now is the time to deal with that.
Generally, in any takeover, for example, by a bigger company of a smaller company, it is usually the seller, not the buyer, that issues the warranties. There is a wish list being exercised here that nearly expects that the tooth fairy will appear and resolve the problem. This does not happen in the real world. Let us be honest about that. That is the political cover that certain politicians are taking at present. Thankfully, the witnesses are not in that space and they can be a little stronger.
The key theme coming across from what they talked about is connectivity. Ms Quin talks about the wider connectivity and the importance of getting into the global network. We have already heard from others that such is already provided for through the oneworld alliance and the Star Alliance, which Aer Lingus is part of in its independence status. If the airline teams up with oneworld exclusively, it loses its connectivity and onward code share and alliances with Star Alliance. I am not so sure that it provides Ms Quin with the upside of which she speaks.
Mr. Edmond has spoken clearly on the importance of regional connectivity. The only way that such can be achieved is by the State's retention. There are complications and there are difficulties. We have seen it in Shannon in the past even with a State shareholding in how management were able to orchestrate a certain strategy that saw Shannon deprived of slots for a period of time and a lot of work had to be done since, in terms of ensuring that the board had the appropriate level of representation and was in a position to prevent that happening.
Mr. Downes, Dr. Borthwick and Mr. Healy are clear that the sale cannot go ahead. They do not believe that the State should divest. It is clear to me from what they say that one would not get the kind of long-term guarantees that are being talked about.
I thank everyone for the presentations.
I suppose I would feel a bit disappointed over the opinion that IAG is merely going out there and stating it will improve connectivity, deliver more flights and deliver more passengers. It was Deputy Dooley and I who put forward the suggestion of bringing witnesses in, not to scare people but because, in advance of the possibility that some group would takeover Aer Lingus, it is important we have this discussion. I note it has been said we are scaremongering. We are not scaremongering. We must get answers and point out the problems and fears that we all have.
I would have terrible fears. The chamber of commerce must consider that if there is a takeover, by all accounts and according to all of the evidence we have heard so far, there will be job losses that will affect the different airports. That will have an effect on the economies in each of those areas. The connectivity is not guaranteed. The Irish Air Line Pilots' Association, IALPA, made it clear that it has happened in the past where the regulator made it clear after a certain period of time that they could not hold on to those slots, and that is what this is all about. The Heathrow slots are vital, for the west and for all the different airports. That is what we have got to keep our eyes on.
The last thing companies such as IAG will worry about is the regional imbalance. They will be worrying about what they will get. There will be staff in Aer Lingus who have vested interests and will only be worrying about the shares and the money they will get for them. We have heard evidence of that. There are executive managers and managers in Aer Lingus who have a vested interest in selling this off.
From a strategic point of view, why would one sell off an airline that is making money? Passenger numbers are increasing. Connectivity is getting better right across the country. Why would one do it?
This belongs to the people. I made clear earlier that the selling off of Aer Lingus and the State ending up with 25.1% has been a disaster for the country, but we are where we are. If we further lose our control here, we will leave it at the mercy of the markets. That would not be good for the country. It would not be good for business because IAG will not worry about what is happening in Shannon and Cork.
It will be worrying about cutting costs, reducing numbers and using the Heathrow slots for other purposes. That is their plan down the road.
Mr. Patrick Edmond:
I wish to be very clear that our position is that the preservation and retention of our slots and connectivity is foremost in our minds. We recognise that the existing Aer Lingus shareholding structure does not give that reassurance, as those in the Shannon and mid-west regions know very well from the experience of 2007. In the event of any change of ownership of Aer Lingus and as a precondition of any potential sale of the Government's stake, we would look for enforceable agreement to preserve that and would not be in favour of any sale which did not protect the slots. We are very clear on that.
Shannon Airport has been independent for two years and we are growing our passenger numbers steadily - they were up 17% in the last year. Shannon Airport is developing well, is successful and is delivering connectivity to business users and tourism interests in the area. We are very much about connectivity and preserving it. We are extremely clear on that subject and the preservation of Heathrow as a key connecting hub is essential for us in that respect.
Ms Gina Quin:
I wish to respond to some of the issues raised by Deputy Dooley. I cannot be categoric about the difference between Star Alliance and One World but I know that the IAG group is very significant in terms of flight numbers and connectivity worldwide, through both British Airways and Iberia and other sub-groups within the group. My sense is that One World can bring just as much to Aer Lingus as the other alliances. However, I do not have facts on that.
I would see a real opportunity here for Ireland to be a key transfer hub. We must remember that the geography of Ireland is unique, located as we are on the western edge of Europe, heading towards the Americas - South and North. There is a significant opportunity to exploit that further.
I wish to make a short interjection there. Ms Quin will be aware of British Airway's influence on the Scottish market. Scotland has a bigger population but has a lot less frequency in terms of transatlantic flights. It occupies a similar geographic location to Ireland and would have a similar diaspora. Yet, British Airways has effectively hubbed everything through Heathrow. There is real potential for that to happen here.
Ms Gina Quin:
I would make the point that Ireland has a very strong heritage of airline traffic between both Shannon and Dublin and North America. It is that history and practice that will stand to us in the future.
I wish to address some of the points made by Deputy Ellis. Earlier we heard from the unions at Aer Lingus that the company has grown significantly since privatisation, both in terms of profit and jobs but there is no guarantee that this will continue. There is no guarantee of anything in the future. Aer Lingus is at the mercy of the markets, as a private entity. The question we must ask is this - if Aer Lingus becomes part of a large body, can it have more might to fight the markets? We all know that the airline business is extremely cyclical. It tends to have very big ups and downs in terms of profitability. We happen to be in the ascendancy at the moment but there is no guarantee that this will continue.
Dr. Órlaith Borthwick:
I wish to clarify for Deputies Ellis and Dooley the position of the chambers of commerce of Galway, Ennis, Limerick and Shannon. We are very clear in our position. Our first position is that there is no good economic reason for selling Aer Lingus. That said, if it is going to be sold, our preference is that it would only be done if legally binding guarantees are put in place with regard to connectivity. Our first preference is that there should be no sale.
Our priority is and always will be boosting economic growth in the western region. That includes developing the economic attractiveness and the value proposition that we have in order to attract both inward and indigenous investment. The growth of businesses and the jobs they create would be foremost in any policy position that we would take.
Mr. Conor Healy:
Regarding Deputy Dooley's point, I do not think we are at the stage of choosing between a sale or no sale. To clarify, the perspective of the Cork Chamber of Commerce is that there is an absence of clarity here and a lack of information. That said, without ring-fenced, clear, legally binding guarantees as to the future of those Heathrow slots, no sale is the correct response. We are not in that position yet and the whole process is only a number of days old. Everyone in the debate needs clarity on the current legal position. If it is not possible to have legal guarantees, then no sale should take place.
We must look at this from the perspective of economic activity in the Cork region. We are particularly concerned that Cork Airport is more vulnerable than the other airports in the context of this debate. I agree that there is potential for growth and that hubbing could bring economic advantages to Ireland. Such advantages would primarily accrue to Dublin Airport, however, which is absolutely fine as long as it is not at the expense of activity and economic development at Cork Airport.
Regarding Aer Lingus and its activities in Cork, the airline accounts for 45% of all traffic through the airport. In the earlier debate, Stobart Air was mentioned, as was the Aer Lingus regional connection. That accounts for an additional 13% of traffic at Cork Airport. Therefore, combined, the Aer Lingus family accounts for 58% of all traffic at Cork Airport. Anything that would threaten in any way Aer Lingus' future commitment, activity and ambition to grow out of Cork Airport is something that we could not support.
Mr. Ian Talbot:
I will try to draw together a number of issues. First, the committee can hear the arguments we are all making here. For everyone, connectivity is key, as is the lack of information on this deal.
We are an island economy which puts us in a very unusual space. Deputy Dooley pointed out that Aer Lingus was part of the oneworld alliance but that was a long time ago and the issues at play then were very different from those at play now. Ultimately, it was just Aer Lingus piggy backing off something bigger that was already in place. It was focused on Irish people being able to get a few air miles for moving on. There is potential here, as Ms Quin said, for Ireland to be a hub for transfer passengers. We have advantages that other countries do not have, such as pre-clearance, for example. Ireland is also directly on the route to the United States of America unlike Scotland, which is further north.
On the issue of job losses, I am struck by the short-term versus the long-term picture. A very short number of years ago we were told that terminal 2 was the biggest white elephant imaginable. Now, as I understand it, terminal 2 is almost operating at full capacity and I would imagine there are plenty of jobs arising from that. We have been hearing for years about the catastrophe of job losses at Aer Lingus and elsewhere but Dublin Airport is booming. As several people have testified today, Aer Lingus is a profitable company at the moment. That must mean that its routes are profitable. I believe the Dublin-London route is the second most active route in the world. If these routes have all of these people flying on them, then some airline is going to want to fly them anyway. In terms of the fear factor about job losses, I would argue that in a few years time, airports will be bigger than ever.
I thank the witnesses for their presentations. The word "connectivity" looks to be the big player in this debate. We spoke earlier about highs and lows, recessions and airlines going through bad times. Aer Lingus has come through the biggest recession this country has ever had, and has come through it well. We have made mistakes in the past. That is why we need to debate the issue and to make clear decisions. We have made mistakes as a country and cut off our nose to spite our face. Having listened to the people from Cork and Shannon speak, we must be clear where we are going for the benefit of the country. Let no one be codded. If I buy something I could say I would do this, that or the other but later I will do what I like because it is my company. No one can say that someone else will tell them what to do, because that will not happen. That is being frank about it. One can have all the aspirations and dreams and say this, that and the other will be put into the contract but if it does not stand up legally, which it will not, there is no point in saying it will. People are being sold a pup if they believe things like that. Let us be clear. If a person buys an airline or other business, someone will not tell the owner what he or she will do with it in nine or ten years time. Either one is the boss or one is not. It is one or the other.
One must look at how the regional airports are getting on at the moment. To make matters worse, when the pilots spoke to us earlier they spoke about €500 million in the bank, €650 million in assets and €450 million in landing slots. One does not generally sell something for a couple of hundred million below what it is worth. Generally, one tries to make a few pounds extra on something. In addition, it will not be beneficial to the country. Under EU law we cannot use the money to create employment as it must go to Angela Merkel for debt repayment. We must be clear and make decisions for the benefit of Dublin, Limerick and Cork and for the betterment of the country. I am a firm believer that at the moment we would be better to hold on to Aer Lingus.
I agree with what my two colleagues have said. I am surprised at the attitude of the chambers. That is fine if they got the guarantees. Aer Lingus is a profitable company that has done a huge amount to develop this country but when one looks at the performance of British Airways in its own market its consumer ranking is No. 17. It is not Singapore Airlines. It is substantially overshadowed in its home market by EasyJet and Ryanair. I do not know what it brings to the party but it appears that for a few guarantees Chambers Ireland is happy to agree to the sale for, as the Deputy outlined, a minuscule amount of money.
I am pushed into a situation where I have to say that one should please look at what Christoph Mueller and company have done in Aer Lingus in recent years and give it a bit of support at this stage. It is bizarre that if we got the slots we would not mind that British Airways could transfer jobs and managerial functions. Let us look at what happened in the United States when airlines are taken over and the anti-competitive nature of the hub and spoke system to peripheral places. We must get a bit of life into the campaign because what I have heard this afternoon is not going to cut the mustard.
As for saying we did not know what was happening, the board agreed to something over the weekend and it is recommending the deal to shareholders. Milk and water stuff from the chambers of commerce does not help to develop the Irish economy at all. Let us get some adrenaline into it. If one does not mind, that is fine, but as Deputy Fitzmaurice said, we will not get agreement to conditions anyway. The chambers should stop waffling and either support the sale, which they appear to be leaning towards in terms of the safeguards, which they will not get, or recognise that to sell a brand such as Aer Lingus that was built up over 80 years for €300 million which will go into a fund in Brussels would be extremely silly. Would they have the same attitude if Tesco wanted to buy out Brown Thomas? Do such things mean nothing to the business community? The presentations were very strange.
Dr. Órlaith Borthwick:
In terms of what Deputy Fitzmaurice said, it is a question of wording. He referred to Shannon and Cork as regional airports. On a matter of principle, we are national airports that happen to be located in the regions. We are national strategic assets in terms of access.
In response to Senator Barrett’s comments, I reiterate what I already put on record. Our preference is no sale. We cannot see any economic value or any reason the Government would sell Aer Lingus. That will continue to be our preference.
Dr. Órlaith Borthwick:
Okay, but I wish to clarify that no sale is very strongly the preference. If there is a sale, the only way the business community would be able to back it is if legally binding guarantees are in place. Our preference, first and foremost, is no sale. Our focus will always be on jobs, job growth and business growth.
Ms Helen Downes:
In response to Senator Barrett, like many other stakeholders, we are relying on the Government to make the right decision on the sale of Aer Lingus. We represent a significant body of businesses in the mid-west region. As Dr. Borthwick said, this will be an informed decision once the Government gets the feedback from stakeholders. We are not totally against consolidation but if a deal were to be struck we would ask that clear, tangible guarantees would be put in place and that they would be legally binding and enforceable.
Mr. Conor Healy:
We have been clear in our view. We are at a point where there is not any real clarity on the position. If the process goes beyond the point where there can be some legally binding position in place, I would be interested to understand what might be on offer. Cork Airport currently has significant challenges and Government policy is not helping the situation. We are still waiting on a national aviation policy. In its first draft it provided no real future for Cork Airport. In that context, I would be very interested to hear of the potential opportunity for Cork Airport should a potential sale be investigated further but the potential for growth or the opportunity that might come would not in any way outweigh at this point the potential loss of the Heathrow connectivity. That is the No. 1 priority. I doubt very much we will get to that point, but it is worth having that particular view on the record.
I tried to get the same autonomy for Cork Airport that was granted to Shannon Airport but there was no support coming from Cork. That is fine if one wants to run it as a suburb of Dublin Airport but nothing seemed to activate people. If one does not say things, it will not happen, so Cork Airport is still stuck in that situation and Shannon Airport is thriving. I have written a few articles in theIrish Examiner. Communities must be active, in particular chambers of commerce, and not wait for events and wonder whether something will happen. I presume Cork stayed with Dublin on the basis of getting guarantees but the traffic has tumbled since then. Let us be more proactive if one wants these things to happen.
Ms Gina Quin:
I wish to respond to the points made by Deputy Fitzmaurice and Senator Barrett. As we have all seen in recent years, as a private company, Aer Lingus has been making decisions on its routes, based on the commerciality of those routes.
I am very aware of this having personally campaigned to try to have the west coast route from Dublin reinstated by other airlines, as well as Aer Lingus.
The point we are making on behalf of the Dublin Chamber of Commerce membership and businesses in the region but also for Ireland more widely is that we need to have more connections if we are to grow the economy. As I said, it is a fact that economic studies show international connectivity drives economies; therefore, if this or a future deal were to result in greater connectivity, or additional growth for Aer Lingus, that would be to the benefit of all citizens.
Ireland has very good connectivity in Europe and with the east coast of the United States, but we are quite limited in the opposite direction. There are direct connections from Dublin as far as the Middle East. As there are no connections to Asia or India, there is a significant opportunity to grow connectivity from Dublin which is a major hub. It has many advantages and there is capacity. I would like to see this happen and it could have a significant economic benefit.
Mr. Ian Talbot:
Without extending the debate too far, I will refer to the financial aspects. It is up to shareholders to decide whether it would be good value, but the argument for everyone present must be about the economic viability of what is on the table. The money argument is largely irrelevant.
I am in total agreement with the sentiments expressed by Ms Quin in trying to grow business. I recognise the work she did to try to have the west coast connection restored. People in the Shannon and Cork regions tried to secure services to different locations and have been successful, but if we consider the history of aviation in this country, the level of connectivity has grown to the point where there is competition, not consolidation. What we are being offered is consolidation, which I assume is in the best interests of IAG in being able to consolidate its efforts, reduce its cost base and have critical mass to a larger extent, but that would reduce competition. The Tokyo connection was mentioned. What we would see is more back-haul traffic through the BA network, but it would not be direct.
I do not want to be pessimistic. I want to see greater connectivity, but the risk would outweigh any potential benefit, recognising the importance of connectivity through Heathrow Airport. Like Senator Sean D. Barrett, I would like to see more aggression on this issue. I get the impression from all of the delegates - I threw Mr. Edmond a curved ball because he is probably the person I know best - that they are trying to second guess the Government, that they will all be on the right side in the end and that whatever decision the Government takes, they will not be offended. The industry needs to take on the Government every now and again and challenge it to do what is right by its members.
I welcome the delegates. The one aspect on which everyone agrees is connectivity. My question is about risk versus reward. What do the delegates believe are the risks if the level of connectivity is reduced, in the context of the Heathrow Airport slots and certainly in the context of the Shannon region - I am a Deputy in Limerick city - in terms of daily flights to Boston and New York in North America? In their interaction with their members the delegates have multinational companies as members both in Shannon and Limerick and I have no doubt in Dublin and Cork. What is the risk to jobs? What are the risks to tourism and the economy in general in the areas the delegates represent and Shannon Airport? In financial terms, how important is the Heathrow Airport link? Some 400,000 passengers travel through Shannon Airport per annum, a significant number. The figure for Cork Airport is approximately 400,000. For transatlantic links, the figure for Dublin Airport is just short of 1 million, while the figure for the Heathrow Airport slots it is about 1.6 million a year. I ask the delegates to tell me about the risks if the level of connectivity was to be reduced.
I welcome the delegates and thank them for their presentations. My question is for the representatives of Shannon Chamber of Commerce the clients of which have a real concern about this issue. They recently attended the opening of AMEX. Shannon Chamber of Commerce played a role in securing its investment in the Shannon region. Investment decisions are being made. Will the uncertainty jeopardise potential investment in the region?
My question on Shannon Airport is to Mr. Edmond. When Shannon Airport lost the slots, what impact did it have on business at the airport and attempts to grow that business? Thankfully, we are now in a different space. Business has grown by 17% this year. Obviously, if a connection to Heathrow Airport is cut off, it will have a very damaging effect. Has Mr. Edmond examined the possibility of securing connections to other global hubs such as Paris, Amsterdam and so on?
I am not a member of the committee, but I have an interest in this issue, like everybody else in the country. We need a thorough evaluation of all of the implications for the future of air transport services from an economic viewpoint in terms of the need for investment, connectivity and the recognition of our island nation status, all of which must be borne in mind in a particular way.
I support the point made by my colleague, Deputy Joe Carey, about the possible development of transport hubs, a matter I have raised by way of parliamentary question on numerous occasions in recent years. Regardless of the way this issue goes, it marks a watershed. It could have major implications for the economic development of the country in terms of ready access from all parts of the country and the development of aviation services globally.
Mr. Patrick Edmond:
I thank the Deputies for their questions. I will endeavour to answer all of the substantive ones.
In terms of the risks involved for Shannon region, on Heathrow Airport services there were 234,000 passengers last year. Of these, about 75,000 were business passengers; therefore, we can reflect on the significance of that number for the region in terms of the volume of business traffic. Some 60% of all passengers are inbound. They are business people coming into the region to promote economic activity or tourists coming to travel along the Wild Atlantic Way or make use of other tourist facilities in the region. The risk of losing that economic activity and the ability to develop is extreme.
Mr. Patrick Edmond:
I will give the Deputy a concrete example. Regeneron, the US pharmaceutical company which recently established in Limerick its first non-US operation, has been explicit in stating that, to some extent, connectivity with Shannon Airport was fundamental to its decision. As my colleagues from the chambers of commerce will be able to tell the Deputy, the area in the arc from Mayo and Galway through Clare and Limerick is home to a large number of pharmaceutical, medical devices and ICT companies, many of which are US multinationals which make extensive use of transatlantic services.
Mr. Patrick Edmond:
It has performed well, but we are not in any way complacent and that is why we look carefully at the risks, not just from a narrow Shannon point of view, but more widely from the point of view of balanced regional development within the country. Therefore, we are very alive to the risks. As Deputy Carey mentioned, in 2007 when Aer Lingus, under its current ownership structure, withdrew the Shannon-Heathrow link, we saw the chilling effect that had on foreign and tourism investment decisions. Fortunately, that was a short-lived phased, but we recognise that we cannot even be complacent within the existing ownership of Aer Lingus.
Ms Gina Quin:
Connectivity is very important. The risk for Ireland of losing the connection could be detrimental to our economy. We know from talking to our members, that many of the multinational companies base decisions on investment in existing or new facilities on connectivity. Many of these companies are based in parts of the United States that do not have direct flights from Ireland. Therefore, they already have another connection point before they even get on a flight that will land in Ireland. This could be through Heathrow or through another part of the United States.
Let us not put this all on the shoulders of foreign direct investment, FDI, because there is a significant issue also in regard to Irish exporters and indigenous companies.
Ms Gina Quin:
If we are going to be successful in exporting to emerging markets in India and China, we need to have good connections into those markets. Every time Irish business owners leave their premises to develop exports and to make connections with clients in export markets, the time wasted transferring through airports across the globe is time in which they are not minding their business or their clients. Therefore, connectivity is very important.
My third point concerns tourists. Every flight that connects into Ireland has the potential to bring in tourists and often, the cheapest flights on the aeroplane are occupied by tourists. Ireland's ambition over the next ten years is to increase the number of tourists by 25%. This could add €5 billion to the economy and create 250,000 jobs, which is not insignificant. Therefore, this is key.
Ms Helen Downes:
I echo the sentiments expressed by Mr. Edmond regarding foreign direct investment. One of the key criteria for potential investors is connectivity. If we look at how Shannon suffered from the loss of the Heathrow connection in 2007, it could not get customers in or out of the country. Customers had to come all the way from Dublin as opposed to directly from Heathrow to Shannon, which was a huge problem. This had a massive effect, not only on me, but on all the industry around, which relies on proximity to the airport. Connectivity is critical and our location ticks a box for many customers throughout the world.
Recently, Genworth Financial invested heavily in opening a new facility in Shannon. This new state-of-the-art facility was built on the basis of connectivity to Europe and onward to Asia and Latin America. Therefore, connectivity is one of the key criteria for potential investors when making a decision to locate in a region. Amex also recently announced a decision to open a new facility. One of the key criteria for it was the connectivity in and out of Shannon for clients. Similarly, other companies, such as Zimmer Holdings and Wipro bring key stakeholders in to visit the region. The spin-off from this from the point of view of tourism is huge, because this connectivity creates an awareness of the region and people invest and spend more time in the region.
Dr. Órlaith Borthwick:
In response to Deputy O'Donnell, connectivity is critical to the position taken by the chambers of commerce on this issue. As I stated earlier, there are approximately 150 US multinational companies in the catchment region for Shannon Airport. These employ 30,000 people directly. We usually apply a multiplier of three to calculate indirect jobs, which means these 30,000 jobs support approximately 90,000 indirect jobs. Consider the effect of this in Limerick, where we have established firms such as Analog Devices, Stryker Ireland and Dell Computers. In the past year, we have had announcements from Regeneron, Optel Vision and Viagogo and today we had an announcement from Icon plc. We also have financial companies such as Northern Trust, which has based huge numbers in the region and is expanding. There are also significant numbers employed directly in tourism. In the mid west alone, some 25,000 people are employed. We have spoken to our colleagues in the Irish Hotels Federation about this and they have very much the same concerns as us regarding the impact any change in connectivity will have on the jobs they support.
Mr. Conor Healy:
Yes, the indigenous economy is very important. The Cork region makes up the second largest part of the economy. There is significant economic activity in the region and the indigenous sector plays a major part in that. The issue is international access, world access and access to our largest market, namely, the United Kingdom. Much of the global access from Cork is through Heathrow, so that connectivity is of great significance. In terms of Tourism Ireland and Fáilte Ireland activity, Great Britain is one of our core target markets. Our Aer Lingus regional services provide significant connectivity into the whole south west region.
The issue of foreign direct investment is significant. I mentioned in our presentation that there are approximately 145 IDA client companies in the Cork region. Approximately 80% of these are of US origin and it is interesting to look at their travel patterns. The direct US west coast connectivity out of Dublin is very welcome and adds to our national infrastructure. Approximately 50% of the companies mentioned in Cork are west coast origin companies and their preferred route is Cork-London Heathrow and onwards from there, because that works for them. In the absence of direct US connectivity from Cork, this connectivity is an enormous factor in terms of the decisions of those companies and the investments they make and is responsible for significant levels of employment. We have significant concerns as to the potential negative implications of not having this specific connectivity to Heathrow.
I thank all those who attended this meeting at such short notice. As somebody mentioned, it is difficult to discuss the issue in the absence of an aviation policy and a formal offer. However, it was important to allow the witnesses make presentations that will feed into the debate taking place. In that context, today's discussion has been useful to us and, hopefully, to our guests.