Leo Varadkar (Dublin West, Fine Gael) | Oireachtas source

I move:

That Dáil Éireann approves the following Order in draft:State Airports Act 2004 (Shannon Appointed Day) Order 2012,a copy of which Order in draft was laid before Dáil Éireann on 5th December 2012.

When I was appointed to the transport, tourism and sport portfolio in March 2011, I made the aviation sector one of my key priorities. One of the issues that needed to be addressed was the unusual situation that characterised the relationship between the three State airports since the enactment of the State Airports Act in 2004. While the 2004 Act provided for the establishment of two new public limited companies - namely, Shannon Airport Authority and Cork Airport Authority - for the purposes of owning, managing, operating and developing these two airports, in reality these functions were never transferred from the Dublin Airport Authority, DAA. While both companies were established in 2004 and have their own boards, they have very limited autonomy from the DAA, which remains responsible for all significant commercial decisions with regard to both airports.

The onset of the economic crisis in 2008 created severe turbulence in the aviation sector. This is because of the close correlation between trends in the national economy and trends in the aviation sector, which means that the key indicators of both sectors mirror each other with a short time lag. As the economic situation worsened, there emerged a particular concern for the future viability of Shannon Airport, given the quite dramatic fall in its passenger numbers in recent years.

Last week, my colleagues the Minister for Public Expenditure and Reform, Deputy Howlin, and the Minister for Finance, Deputy Noonan, delivered the budget for next year and announced expenditure cuts and revenue-raising measures amounting to €3.5 billion, designed to reduce the general Government deficit to 7.5% next year, down from a projected 8.2% in the current year. The target is to reduce the deficit further, in stages, to 2.9% in 2015. We will continue to face up to the challenges this involves in as sensitive and as fair a way as possible.

Members might ask what is the relevance of this to our State airports, particularly Shannon Airport. While we have mapped a clear road to the recovery of our economic sovereignty and to the economic recovery of this country, the scale of our current difficulties requires that every part of the State's business, whether in the commercial sector or not, contributes to this goal. For example, we are undertaking the most comprehensive reform ever of the public service, with the aim of reducing public expenditure and staff numbers while at the same time endeavouring to maintain key services and social supports. This is far from easy, but we have to do it and we must succeed. We simply have no choice. Our efforts cannot be confined to Exchequer finances.

The commercial State sector must also play its part in full. In the current circumstances, this is an economic and financial imperative. Our three State airports operate in the commercial sphere and can play a vital role in our economic recovery. I say "can" because unless they are actually contributing, they could hold back economic development and hinder recovery. Shannon Airport is currently in this unenviable position. It is loss-making and its passenger traffic has fallen dramatically since 2007. It is being supported by the DAA and is not delivering its potential for the mid-west region. Regardless of where ownership of Shannon Airport lies, this cannot continue. The stark facts are that passenger traffic at Shannon more than halved, from 3.6 million to 1.6 million, in the period 2007 to 2011 and is expected to fall further, to less than 1.5 million, this year. Clearly, this trend could not be allowed to continue without putting the very future of Shannon Airport at risk. There was a need for some intervention to put the airport on a more viable footing. This, in turn, required a thorough examination of all the options.

Having discussed the matter with the three airports, I commissioned Booz & Company, a leading firm of aviation consultants, to identify and analyse all likely options regarding the ownership and operation of Cork and Shannon airports and to make recommendations with regard to the optimal ownership and operational structures for those airports. After consulting widely, Booz found Cork Airport to be performing well under DAA ownership and management and as such, they concluded that the benefits of any fundamental change in its ownership status in terms of increased traffic and revenue for Cork would be marginal. Accordingly, the Government decided that the existing ownership of Cork Airport by the DAA would be maintained for the present. Cork and Dublin airports will need to continue to need to address their costs and look for opportunities to increase the size of their businesses as part of a renamed DAA.

The Government decided that it needed to focus on halting and reversing the serious decline of Shannon Airport. The basic conclusion of the Booz report regarding Shannon Airport was that its decline and financial situation as a loss-making entity would continue unless there was a fundamental change in strategic direction for the airport. Having carefully considered the matter, the Government agreed in principle last May to a new strategy designed to reverse the decline in Shannon Airport and put the airport on a new strategic footing. This new strategy, which takes account of the Booz recommendations, involves the separation of Shannon Airport from the DAA, the merging of a restructured Shannon Development with Shannon Airport to form a new entity with a commercial mandate in public ownership, and the development of a suite of aviation-related industries located in the lands contiguous to the airport. The Government also decided to rationalise the tourism and enterprise support agencies in the region. Shannon Development's tourism functions are being transferred to Fáilte Ireland and its enterprise support functions will be transferred to IDA Ireland and Enterprise Ireland. These initiatives will serve to eliminate the historical duplication of resources and deliver a better service to the region.

The Minister for Jobs, Enterprise and Innovation, Deputy Bruton, and I established a high-level steering group to develop proposals for the implementation of the Government decision and to assess the feasibility of creating an international aviation services centre of excellence at Shannon Airport. The steering group was assisted by two task forces. The aviation business development task force was charged with seeking out and evaluating aviation-linked business opportunities that could be associated with the merged Shannon entity and introducing proposals to address issues relevant to the merger for consideration by the steering group. The change management task force was formed to develop transitional arrangements for Shannon Airport and Shannon Development prior to the merger, including matters relating to information technology, human resources, finance and accommodation. The task force also considered issues related to the transfer of Shannon Development functions to the IDA, Enterprise Ireland and Fáilte Ireland and the development plans of these agencies for the region. Both task forces concluded their work last month and their reports have been published on my Department's website. The report of the aviation business development task force strongly supports the potential for the establishment of a broadly-based aviation industry cluster in and around the airport with the potential to achieve global recognition while also providing a strong employment stimulus in the Shannon region. Areas of the aviation sector that will be targeted for this purpose include aircraft maintenance, repair and overhaul, flight crew and other aviation-related training and the development of aviation logistics and cargo facilities, among others.

It is a prerequisite for airport separation that the Minister for Public Expenditure and Reform and I are satisfied as to the state of operational and financial readiness, including business planning, of the three State airports. Detailed business plans for the proposed new Shannon entity, which includes Shannon Airport, and for the DAA post-separation from Shannon were prepared, and these were subject to independent expert evaluation by KPMG on behalf of the steering group and my Department. I am seeking the approval of the House for this motion because the Government is confident that Shannon not only is ready to stand on its own but will perform far better on its own, free of constraint and control by the DAA.

In this regard, it has been suggested the passenger projections for Shannon Airport seem fanciful. While the business plan is confidential, in the next five years the Shannon plan projects passenger numbers to grow from approximately 1.5 million this year to 2.3 million in 2017 and 2.5 million in 2021. Shannon traffic peaked at 3.6 million passengers five years ago. I do not deny that it will be a challenge to meet these targets, but they are achievable. Moreover, the alternative of accepting that passenger numbers at Shannon cannot be improved is much worse because that would spell the continued decline of the airport. In that eventuality we would soon be seeking to downgrade or even wind down the structures at Shannon. That is not the future I want for the Shannon area. As I announced last week, the Government has confirmed its decision on Shannon Airport and we are working on implementing it. I am delighted with the news that commitments for the creation of 850 jobs have been secured by the task force from two companies as part of plans for an international aviation services centre to be located at Shannon. The longer term potential of this centre is projected to create and maintain up to 3,500 new direct jobs within five years, not including construction jobs.

While on the most important subject of jobs, I understand the concern that may be felt by the staff in both Shannon Airport and Shannon Development at this time of significant change. I acknowledge that, as with any new initiative, there are challenges ahead for the airport and the new Shannon entity being formed from the merger of the airport and the restructured Shannon Development which we will call NewCo for the time being. However, it also offers a great opportunity for Shannon and the region. The terms and conditions of the DAA employees working in Shannon Airport will not be diminished in any way when they become staff of the Shannon Airport Authority. This was agreed following intense negotiations with ICTU in 2004 while the State Airports Act was being enacted and their protections are enshrined in that legislation. The terms of the Croke Park agreement apply to the staff in Shannon Development and, when the State-owned NewCo is established in due course, they will transfer to that company with their current terms and conditions. The workers in both Shannon Airport and Shannon Development are vital to the success of the airport and the vision for NewCo. Together with management, I am convinced that they can and will work together to ensure not just the survival but also the renewed growth and success of the airport. I am aware that some in the unions are unhappy with how these policy initiatives have been progressed to date and feel excluded from that process, notwithstanding the arrangements for consultation in place. I have invited ICTU to nominate a representative to join a steering group of key Departments which the Minister for Jobs, Enterprise and Innovation and I will establish to oversee implementation of the Government decisions on NewCo. I also want to ensure the workforce in the Shannon Airport Authority can have representation at board level as soon as separation is effected on 31 December. In this regard, I have also invited ICTU to nominate an employee representative for appointment to the board of the SAA on a temporary basis pending agreement on the arrangements for NewCo.

The Government's decision represents an historic new beginning for the Shannon region, with Shannon Airport playing a central role in the drive to develop a world-class aviation industry. In addition, the decision grants Shannon Airport the long awaited freedom to determine its own future in the best interests of the airport and the region. The decision will give the board, management and staff of Shannon Airport the scope to bring a fresh approach to its future development. Its merger with a restructured Shannon Development provides an opportunity to open up access to the extensive land bank at Shannon to facilitate the development of the international aviation centre of excellence.

Some in the Shannon region maintain that Aer Rianta International should be transferred to Shannon Airport from the DAA. From the time separation of the State airports was mooted in 2004, it has been the intention of successive Governments that while the debts associated with the business of Shannon Airport would remain with the DAA,Aer Rianta International would also remain with it. Aer Rianta International is an integral part of the DAA group and the DAA's balance sheet, funding and credit rating are reflective of the group's business, including Aer Rianta International. Being part of a larger group allows Aer Rianta International to access funding necessary for its ongoing expansion by borrowing against the assets in Dublin. I would prefer the Shannon Airport Authority to use borrowing to develop Shannon Airport rather than overseas businesses. Even if it was desirable to transfer Aer Rianta International out of the DAA, it would damage the latter's viability if it was done as part of the Shannon Airport separation process. In short, if the DAA's financial viability was compromised as a result of separating Shannon Airport, separation could not happen. Both Shannon Airport and the DAA post-separation must be viable. That is the law.

I have been particularly struck by the degree of support for an independent Shannon Airport across a wide spectrum of interested parties, including business interests, chambers of commerce, and local authorities. Airport users, service providers, and prospective new airport customers, including airlines and aviation companies, have expressed an overwhelming desire to deal directly with Shannon Airport on an independent basis. The State Airports Act 2004 provides the legal mechanism for the separation of Shannon Airport from the DAA. In particular, section 5 (1)(b) of the Act provides for the making of an order to specify the 'Shannon appointed day', to be the day on which the assets and business of Shannon Airport will be transferred from the DAA to the Shannon Airport Authority.

As Members can see, the draft order for approval by this House is a straightforward one which simply sets 31 December 2012 as the appointed day for separation of Shannon Airport from the DAA. Once this order has been approved by each House of the Oireachtas, it provides the legal basis to progress with the plan that will secure the future of Shannon Airport. My hope is that through co-ordinating with all interests in the mid-west region and working together we can provide exciting and innovative opportunities that will benefit business, tourism and job creation in the region. The task now is to make these plans a reality. I thank Deputies for their attention and look forward to hearing what they have to say in reply.

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