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

I move: "That the Bill be now read a Second Time."

I thank the House for the opportunity to introduce this Bill. Deputies will recall that, 18 months ago, Shannon Airport was separated from the Dublin Airport Authority, DAA. I will reflect in a moment on the performance of the independent Shannon Airport since then. Separation of the airport was just one part of a two-step process designed to deliver a new future for Shannon. The second part is the subject of today's Bill.

The main purpose of the Bill is to establish a new commercial State company, Shannon Group plc, which will incorporate the Shannon Airport Authority, SAA, and Shannon Development. The establishment of the Shannon group will complete the foundations to support a new future for Shannon and the mid-west region, as envisaged in the report by the Shannon Aviation Business Development Task Force of November 2012. In that report, the task force was satisfied that an independent Shannon Airport, coupled with a restructured Shannon Development, could develop and grow passenger traffic and the route network. It also anticipated that this could create new employment opportunities in aviation-related services in and around the airport. The task force pointed to the opportunities to develop and grow an internationally recognised centre for aviation services, known as the international aviation services centre, IASC, at Shannon. This could draw on its geographical location, good airfield facilities and ample adjacent land.

It also has an existing foothold in aircraft leasing and maintenance operations with a skilled, English-speaking workforce and US pre-clearance facilities.

When we separated Shannon from the DAA, the first priority for the independent airport authority was to halt the dramatic and constant prevailing downward slide in passenger traffic over the previous five years. A decline on the scale suffered by Shannon - the airport lost two-thirds of its passengers between 2006 and 2012 - was always going to be challenging to address. However, the outturn for last year of 1.4 million passengers was an improvement on the 2012 outturn of 1.39 million. This reversal of the serious slide of previous years was a major achievement for Shannon in its first year as an independent airport and is a tribute to its board, headed by Rose Hynes, and to the management, headed by Neil Pakey, and all the staff. With the new routes already operational and increased capacity on existing services, Shannon is now looking forward to new and sustainable growth. Figures for the first five months of this year show passenger numbers overall are up by more than 10% on the same period last year with all air corridors - the UK, Europe and the transatlantic - performing well. There is a renewed energy evident at the airport.

I will now turn to Shannon Development. The Government decided two years ago to restructure this company. Its functions in regard to indigenous enterprises and foreign direct investment were transferred to Enterprise Ireland and the IDA and its tourism functions were transferred to Fáilte Ireland. The main benefits of this restructuring included the streamlining of Shannon Development's activities, the elimination of duplication of work by public bodies in the region and a more focused role for the remaining part of Shannon Development, namely, managing and developing its property portfolio including the free zone adjacent to the airport. That restructuring is now complete.

Shannon Heritage is a standalone and successful subsidiary of Shannon Development and is unaffected by these changes. The Government decided some time ago that Shannon Heritage will remain within Shannon Group pending a review of its most appropriate permanent location.

Considerable attention was given to the optimum legal structure for the merger of Shannon Airport Authority and Shannon Development. A number of different options were considered by my Department and the Department of Jobs, Enterprise and Innovation. We worked closely with the Office of the Attorney General on this. Shannon Group will be the parent or holding company for Shannon Airport Authority and the restructured Shannon Development. Under this Bill, it will acquire all the shares of these two companies from the Minister for Public Expenditure and Reform. Both will maintain their separate legal identities as wholly-owned subsidiaries of the Shannon Group. In the new scenario, the restructured Shannon Development, which will be renamed Shannon Commercial Enterprises Limited, will have a commercial remit.

This structure has a number of advantages. Keeping the businesses of Shannon Development and Shannon Airport Authority separate from each other will impose financial discipline on each of them and ensure that both will pursue a commercial ethos. The success of Shannon Group will be enhanced by ensuring that its two main subsidiaries are each commercially successful in their own right and do not cross-subsidise each other. This structure will also facilitate greater transparency in the application of State aid rules by Shannon Group and its subsidiaries. Any business arrangements between them will be on a commercial basis and will involve no cross-subsidisation of operations at the airport.

In the case of the SAA, the proposed structure avoids another transfer of staff from the airport authority to another company. Deputies will recall that when Shannon gained its independence from the DAA 18 months ago, all staff working in the airport were transferred from the employment of the Dublin Airport Authority to that of the Shannon Airport Authority. Despite the protections for those staff who were transferring, which were contained in the State Airports Act 2004 and in the TUPE regulations, their union representatives expressed unease and some reservations at the time about the consequences of transfer to a new employer. While I think it is fair to say the transfer went smoothly, there was a considerable burden on the SAA management in dealing with those concerns and all the administrative issues involved. There is some merit, therefore, for all concerned, in avoiding yet another staff transfer for those employed by the SAA. Similarly, the staff that manage and deal with the property portfolio in Shannon Development will also remain as employees of that company.

The Government's objective in creating Shannon Group is to bring a unification of purpose to the two separate companies for the overall benefit of the business. This will also have indirect positive impacts for the Limerick-Shannon area and the wider region. As well as promoting a greater commonality of purpose, the new company will maximise the synergies between the SAA and Shannon Development to promote the development and expansion of the aviation services with the potential for new job creation as reported on by the Shannon task force in 2012. This will be greatly facilitated by the fact that the Shannon free zone lands are adjacent to the airport. However, this advantage of physical proximity needs a new dynamism to carry-through on the full potential of the Shannon campus.

I would like to take this opportunity - as I did in the Upper House - on behalf of the Minister, Deputy Bruton, and myself to acknowledge the contribution of the chairmen, directors, management and staff of both Shannon Development and Shannon Airport over the past two years in ensuring the smooth, ongoing, operation of the companies while also working together to prepare for the establishment of the Shannon Group. I believe that the pioneering spirit of the people who gave us the airport and the Shannon free zone in the first place has been rekindled and there are now exciting opportunities to exploit to ensure a brighter future for the airport and the region.

While the central aim of the Bill is to provide for the establishment of the Shannon Group, there are some other important elements in the Bill that I want to mention. The first is the adoption of the "Alternative A" insolvency regime under the Cape Town convention. This Bill will provide for implementation of the special insolvency regime applicable to aircraft - known as "Alternative A" - that is set out in the Cape Town convention. Through enactment of the International Interests in Mobile Equipment (Cape Town Convention) Act 2005, Ireland was among the first countries to ratify the convention. It provides an international legal framework for the financing of high value moveable or mobile assets such as aircraft, trains and satellites. The convention has no meaning or effect unless and until a protocol is agreed and comes into force for each of the three asset types covered by the convention.

To date, only one protocol, the aircraft protocol, is operational. The 2005 Act gave effect to the aircraft protocol in national law. Essentially, the convention and protocol provide protection for creditors of aircraft assets in countries that have signed up to the convention. The "Alternative A" insolvency regime for aircraft assets under the Cape Town Convention and protocol essentially replicates the insolvency regime in the United States where enhanced equipment trust certificates, EETCs, have been successfully issued since the 1990s. These are an aviation-specific form of asset-backed security, where the secured asset is the aircraft and they have proved popular both for both airlines and investors in the United States. It is a matter for individual countries to specify the waiting period in the protocol following which, if a default is not rectified, the creditor is entitled to the automatic repossession of the aircraft. The vast majority of countries that have adopted the "Alternative A" regime have opted to replicate the 60-day period applicable in the United States. Under this Bill, we are also proposing to adopt a waiting period of 60 days.

Ireland has always punched above its weight in the aviation sector and this sector is growing rapidly on a global basis. We have a particularly strong foothold in the aircraft leasing business with nine of the top ten global leasing companies located in Ireland. Adoption of this "Alternative A" insolvency regime for aircraft will support the development of aviation finance in Ireland and help maintain Ireland's leading global position in aircraft leasing where there is already growing competition from other jurisdictions that have already adopted the "Alternative A" regime.

An exemption from stamp duty was provided by the Minister for Finance in the Finance Act 2013 to facilitate the successful issuance of enhanced equipment trust certificates in Ireland and make this form of financing more attractive to investors. Together with the proposed implementation of the "Alternative A" insolvency regime, these measures will enable airlines and leasing companies to access finance on more competitive terms and will help sustain and develop the leasing and aviation finance sectors within Ireland.

I will now turn to the Irish Airlines (General Employees) Superannuation Scheme, IASS. I want to make special mention of section 34 of the Bill which provides for amendment to the existing statutory provisions governing superannuation schemes in our State airport authorities. This section will also facilitate changes, by the trustee, to the IAS scheme, which is the Irish airlines superannuation scheme. An important development since I was in the Seanad with this Bill has been the publication of the expert panel's final report on the resolution of the industrial relations issues surrounding the scheme. Deputies will recall that the panel was established in March by ICTU, IBEC, my Department and the Department of Jobs, Enterprise and Innovation to identify how to resolve the IR issues relating to the problems in the scheme. This report is very welcome and points the way to finally dealing with the serious problems in the IAS scheme. The scheme, as Deputies know, dates from the 1950s and is a multi-employer scheme covering the majority of employees, pensioners and deferred pensioners in the State airports and in Aer Lingus.

It also covers some of those who worked for SR Technics prior to closure of its operations at Dublin airport in 2009. All issues concerning the IAS scheme, including its rules and provisions, contribution rates and benefits are matters for the trustees of the scheme, its members, participating employers and, of course, the Pensions Authority, which is the national regulator of occupational pension schemes. I do not control the scheme and cannot impose or prescribe a solution for its problems. However, I do want to help and to see this long-standing issue resolved. I have done so through the expert panel and I am further assisting the process through the legislative amendments that I have provided for in this Bill, which I will explain later.

Of the members of the IAS scheme some 69% were or are Aer Lingus employees, 26% were or are DAA-SAA employees and 5% were employees of SR Technics. There are approximately 14,800 members in the scheme, split into three groups of similar size made up of current employees, known as "active" members, pensioners and deferred pensioners, the latter being people who have left the company but are not yet drawing down their pensions. The scheme is currently closed to new members-staff.

Under the IAS scheme, fixed contributions are payable by employers and members regardless of the funding position of the scheme. Both the benefits and the contributions are defined within the scheme rules. The scheme is registered and operated as a defined benefit scheme under the Pensions Authority criteria due to the benefits it seeks to provide and accounted for as a defined contribution scheme by the sponsoring employers due to the fixed funding covenant. In March of last year, the IAS scheme reported a deficit on the statutory minimum funding standard basis of €769 million. This deficit has arisen over the years as the companies and members did not put enough into the scheme to match the benefits that were expected or promised. Resolution of the issues will involve contributions from all the parties involved.

Because of the priority position of pensioners under the Pensions Act 1990, prior to the amendments contained in the Social Welfare and Pensions (No. 2) Act 2013, the residual funds that would be available for active and deferred members in the event of a wind-up of the scheme would be approximately 5% of benefit expectations. This is not an acceptable position and the employers and unions held extensive negotiations on the way forward under the auspices of the Labour Relations Commission, LRC, and the Labour Court. This ultimately led to Labour Court recommendations of May of last year. The trustees of the IAS scheme issued fresh proposals to the employers and unions in February last. These proposals include a number of benefit reductions, which affect active and deferred members and also pensions already being drawn down. The latter is permitted under the Social Welfare and Pensions (No. 2) Act 2013. These proposals have been the subject of ongoing discussions since then and the trustees have also asked that the position of deferred members and pensioners be taken into account in those discussions.

The expert panel examined the complex IR issues that remain to be resolved arising from the trustees' proposals and the earlier Labour Court recommendations. The panel held a series of meetings with all the relevant parties including the DAA, SAA, Aer Lingus, the trade unions and representatives of deferred members and pensioners. I have asked that all parties engage constructively on implementing the panel's recommendations and I am hopeful that they will recommend acceptance of its findings. It is important to emphasise the panel's definitive view that these recommendations represent the best possible outcome that can be achieved. It is also the view of the panel that if this final opportunity to resolve this very protracted problem is not grasped now, the situation facing members of the IAS scheme will deteriorate further. I agree.

When, hopefully, the parties do reach agreement on the way forward, it will be important they have the necessary tools to ensure that it can be implemented. The amendments contained in section 34 of the Bill are designed to facilitate implementation of whatever proposals emerge from the current negotiations to resolve the IAS scheme difficulties. They do not pre-empt or anticipate what those solutions may be nor are they intended to undermine staff terms and conditions of employment. On the basis that the panel's recommendations will prove acceptable to the parties, it is important that the legislative framework is fit for purpose and will not act as a barrier to implementation. This was always the intention of the provisions in section 34 of this Bill, namely, to facilitate the implementation of whatever solution was ultimately agreed for the future pension provision of IAS scheme members.

There has been some confusion about certain provisions in section 34, which I included to deal with a possible scenario - one which nobody wants to see - in which agreement on a way forward could not, ultimately, be agreed by the parties. This was no more than a pragmatic approach which I viewed as prudent given the complexities of this pension scheme and the challenges faced in resolving the current problems in it. Those particular provisions, which were intended to be used only in a fall-back situation, provide for a different option, an alternative to a forced wind-up of the scheme by the Pensions Authority, which would involve a somewhat better outcome for members. On the basis of the panel's report and views expressed in the Seanad, directly to me by some Deputies and by interested parties, including the unions and representatives of the deferred members and pensioners, I have decided to delete these fall-back provisions. I will be tabling an amendment to this effect on Committee Stage, along with some other amendments to bring greater clarity to some of the other provisions. I will take Deputies through this section in detail on Committee Stage.

In summary, provision is being made for employees, if they wish, to cease making contributions to the IAS scheme when they become a member of another scheme. One of the amendments I will be tabling on Committee Stage is to clarify that this option is entirely voluntary on the part of employees. It is a bone of contention among some employees who are members of the IAS scheme that they must continue to contribute to the scheme even though, given the substantial deficit in the scheme, any such contributions may accrue little benefit for them in the future. However, ceasing contributions will not solve the serious problems in the IAS scheme, namely, the deficit, which still must be addressed by the parties. Provision is also being made for new pension schemes in the airport authorities, which will require ministerial approval, that do not have to replicate the inflexibilities and flaws of the IAS scheme. This will ensure that if the parties agree that new pension schemes for future service are to form part of the solution to the problems in the IAS, the legislative tools are available to the airport authorities to establish such schemes.

There are approximately 1,250 staff in DAA and SAA that are not members of any occupational scheme pending the resolution of these issues. While they can avail of personal retirement savings accounts, PRSAs, it is preferable that the airport authorities, similar to other companies, have pension schemes in place for their staff. When considering pension provisions it is important that we bear in mind the needs of all members of the current scheme and those employees currently not included in the scheme. There can be a tendency at times to focus on those with existing benefits rather than more broadly on all staff, including younger and newer employees. These full-time employees are unusual in the public and semi-State sector in that in many cases they do not have a pension scheme. The ladder has been pulled up on them due to the inflexibilities and unsustainability of the existing scheme. I want to put this right and to give them proper pension provision for the future. Clarification is also being provided on the powers of the trustee of the IAS scheme, particularly in the context of ensuring that an agreement among the parties on the way forward can be implemented. In the event that the panel's recommendations prove acceptable to the parties, and I hope they will, the trustees and the employers need the legislative amendments that I have included in the Shannon Bill. Those recommendations, or indeed any solution agreed among the parties, cannot be implemented without these amendments having been made.

I will now outline the main provisions of the Bill. Its main purpose is, of course, to establish the new commercial State company, Shannon Group, and to transfer ownership of SAA and Shannon Development from the Minister for Public Expenditure and Reform to Shannon Group. Part 1 is made up of five sections dealing with the Bill's Title and collective citation, definitions, expenses, the making of orders and repeals. These are standard sections in a Bill of this nature.

Part 2 is the key part of the Bill and provides for the establishment of Shannon Group as a public limited company under the Companies Acts, the issuing of 38,100 shares in the company to the Minister for Public Expenditure and Reform and the issue of one share, to be held in trust for that Minister, to each of the subscribers to the Memorandum of Association of the company. These latter are standard minimum requirements for a public limited company under the Companies Acts. The citizens of this country will be the ultimate owners of this new company and section 9 provides for the payment of dividends to the Minister for Public Expenditure and Reform and for such dividends to be disposed of for the benefit of the Exchequer. The remainder of Part 2 sets down the purpose, functions and general duties of Shannon Group and provides power for the company to borrow, subject to ministerial consents.

An aggregate borrowing ceiling of €100 million for Shannon Group and its subsidiaries is specified in section 13, but this can be varied subsequently, if necessary and justified, by ministerial order.

Part 3 deals with the administration of Shannon Group and corporate governance arrangements. The board of the company will have ten members, including the chairman, the chief executive and two employee representatives. The chief executive of Shannon Group will also be appointed as chief executive of each of the group's two main subsidiaries, the SAA and Shannon Development. Initially, what this means is that the current CEO of the SAA and Shannon Development, Mr. Neil Pakey, will be the first CEO of Shannon Group.

On staffing matters, provision is made in section 18 to confirm that the transfer of ownership of the SAA and Shannon Development to Shannon Group will not operate in a way that would worsen the conditions of service, or remuneration, of staff working in these two bodies.

In section 20 I took on board a suggestion made by the Oireachtas Joint Committee on Transport and Communications when it examined the heads of the Bill, that the members of the board of any subsidiary of Shannon Group should be appointed by the group board rather than solely by the chairman. However, subject to notifying the Shannon Group board, the Minister may specify any subsidiary for which he or she wishes his or her consent to be obtained for board appointments.

Sections 21 and 22 provide for reporting arrangements in regard to Shannon Group.

Provision is made in section 23 for a pension scheme in Shannon Group and any such scheme will be subject to approval by the Minister with the consent of the Minister for Public Expenditure and Reform. Standard provisions relating to the conduct of directors and employees of Shannon Group and its subsidiaries are also included in Part 3, as is a power for the Minister to issue directions and guidelines to the company.

Part 4 contains just three sections, the key one being section 28 which provides that, following the establishment of Shannon Group, all shares held by or on behalf of the Minister for Public Expenditure and Reform in the SAA and Shannon Development will be transferred to Shannon Group. The SAA and Shannon Development will then be wholly owned subsidiaries of Shannon Group and provision is made for the SAA to be re-registered as a private limited company, similar to Shannon Development. Simultaneously with this transfer of ownership, the existing directors on the boards of the SAA and Shannon Development will cease to hold office. This will allow the board of Shannon Group to make appointments to the boards of these subsidiaries under section 20, to which I referred.

Part 5 contains a number of provisions that are relevant to State airports. Section 31 provides for the dissolution, for the time being, of Cork Airport Authority plc, but it also provides the power to reincorporate the authority at a later date. Essentially, the provisions in the State Airports Act 2004 which would facilitate the separation of Cork Airport from the DAA, if and when such a decision is made, are being preserved. Cork Airport Authority plc was incorporated in 2004, the then Government’s intention being to move relatively quickly towards the separation of Cork Airport from the DAA. However, that never happened and it was never envisaged that the company would remain in existence for a decade without the airport being separated from the DAA. The board of the Cork Airport Authority has only existed in skeleton form for some time. Even in the period before that, when a board was in place, there were significant corporate governance concerns on the part of directors about their being on a board in such circumstances. Fulfilling the normal expectations of the board of a public limited company is difficult, particularly given the statutory duties and obligations on it. I am, therefore, taking the opportunity provided by the Bill to bring this abnormal situation to an end, while preserving the power for the Minister to incorporate the company again at a future date.

I am, of course, very conscious of the importance of Cork Airport in the social and economic development of the city and the wider Cork region, including its importance for tourism. That is why the DAA has established a new high level stakeholder body - the Cork Airport Development Council, CADC - to boost the development of the airport. The council held its first meeting in March and met again yesterday. The CADC which is chaired by the DAA chairman Pádraig Ó Ríordáin and also includes the CEO, Mr. Kevin Toland, will provide a forum for stakeholders, including senior representatives from the tourism and business sectors who have an interest in the development of Cork Airport, to engage with management at the airport and help to contribute to traffic and route growth. We should never forget that Cork Airport remains the second busiest airport in the State after Dublin Airport.

Section 32 provides for the renaming of the Dublin Airport Authority as "daa". The company has a strong preference to change its current name to the acronymic form daa and cease all references to the “Dublin Airport Authority”. However, each of its two airports, Dublin and Cork, will be branded separately. In the past ten years the name daa has become embedded in public and corporate consciousness as the master brand for the group. The acronym is used extensively across infrastructure, systems and other assets.

Section 33 contains a series of technical amendments to existing airports legislation, in particular, the Air Navigation and Transport (Amendment) Act 1998 and the State Airports Act 2004, which arise as a consequence of the renaming of the Dublin Airport Authority, the dissolution of the Cork Airport Authority and the power in section 31 to which I referred to reincorporate the CAA at a future date.

I have outlined the rationale for the provisions in section 34 dealing with amendments to existing legislative provisions governing superannuation arrangements in the State airport authorities and facilitate amendments to the IAS pension scheme.

Part 6 contains a number of miscellaneous provisions relating to Shannon Development. Section 35 provides for the renaming of the company's official title, Shannon Free Airport Development Company, as Shannon Commercial Enterprises Limited to reflect its future commercial focus. Allied with this new commercial focus, section 36 provides for the ending, on a phased basis over four years, of Shannon Development's exemption from corporation tax and also removes the company's current exemption from capital gains tax. These types of exemption are only appropriate for non-commercial State bodies.

Section 37 provides for certain technical amendments to other legislation as a consequence of Shannon Development's future commercial remit. This section also removes the Shannon Airport Authority and Shannon Development from the scope of worker participation legislation since these two companies will be subsidiaries of Shannon Group. As I mentioned, I am providing for two employee representatives on the group board.

Section 38 provides discretionary power for the transfer of Shannon Customs Free Zone land from the Minister to Shannon Development. Since approximately 1959, the Shannon Free Zone lands have been leased to Shannon Development at nominal rent under long-term leases. When I published the general scheme of the Bill last year, the proposal was that these lands would be transferred to Shannon Development at no cost. It has since been clarified, in conjunction with the Office of the Attorney General, that, subject to further analysis, such a transfer for no consideration could constitute State aid. For this reason, section 38 provides discretion - not a commitment or an obligation - for the Minister to transfer the relevant land to Shannon Development. This will provide time and space, following enactment of the Bill, for my Department to explore, in consultation with the Attorney General's Office, options for the proposed land transfer that would be in compliance with state aid rules. The consequential amendment of the Customs Free Airport Act 1947 in section 39 will reflect the change in land ownership from the Minister to Shannon Development, if and when the lands actually are transferred.

Sections 40 and 41 provide for the transfer to Enterprise Ireland of Shannon Development's equity holdings in certain businesses in the Shannon Free Zone and, similarly, the transfer of rights, duties and obligations relating to grants awarded or approved to either IDA Ireland or Enterprise Ireland. These equity holdings arose from Shannon Development's enterprise and support development remit for indigenous companies. These provisions follow on from the restructuring last year of Shannon Development and the transfer of its non-commercial functions in regard to enterprise support to IDA Ireland and Enterprise Ireland.

Provision is also made in section 42 for the transfer of Shannon Development's superannuation scheme, its liabilities, duties, obligations and funding to the Minister for Jobs, Enterprise and Innovation. The section also enables that Minister to appoint a specified agency of his Department to administer the pensions scheme on his behalf. These provisions reflect an agreement between management and staff in Shannon Development reached last year under the auspices of an independent facilitator that the staff remaining in the restructured company who number approximately 20 would maintain their public service pensions scheme arrangements.

Part 7 relates to some miscellaneous amendments which I am sure I can discuss further on Committee Stage. Parts 8 and 9 relate to the Cape Town Convention and amendments to the Transport (Tour Operators and Travel Agents) Act 1982 which I can discuss in more detail on Committee Stage.

See this speech in context