Derek McDowell (Labour)

The outbreak of fraternity on my left is a little difficult to take at this time in the afternoon.

Before coming to the substance of what I want to say, perhaps I might briefly address two issues that it would be unfortunate to let pass without some sort of comment. The first is the eulogising of Ryanair by Senator Morrissey. He is right to say that it is an extremely successful business offering a decent service to a great many people. However, one or two things should be put on the table. I am not sure to what extent Ryanair really competes with Aer Lingus. They share perhaps three routes in Britain and another three on the Continent. By and large, they serve different routes, however.

The Senator touched on the second argument towards the end of his speech, when he said that the low-cost sector was the fastest-growing. It is distinctly different from what was traditionally operated by the flag-carriers, including Aer Lingus. It is fair to say that they have increased numbers of passengers passing through the airport, but I am not entirely sure that it has come about through competition. It has certainly not come about through direct competition on large numbers of routes, since there is none. Ryanair is now a largely British-based airline with a relatively small number of services flying from this country and even fewer that directly compete with Aer Lingus.

Another far more important point concerns Dublin Airport Authority. Senator Ross has been remarkably successful in infusing public opinion with the notion that there are horribly inefficient companies that provide no service to anyone. That is simply not fair to Aer Rianta or the Dublin Airport Authority. I accept they have deficiencies, not all of them by any means their own fault, although the design and construction of pier C were not great. Dithering decision-making over the years has not been helpful, but many of those problems were created by politicians, who delayed for a very long time a decision on pier D. In the 1990s they dithered for a very long time before deciding on a growth structure for Aer Rianta or, for that matter, any structure for the company at all.

The company has been dealing with a building that has stood for 50 or 60 years. It has grown incrementally in a not very efficient manner. Perhaps someone should have suggested knocking down the whole thing and starting again some time ago. No one did, however, and one cannot blame Dublin Airport Authority exclusively for that mistake. Aer Rianta, for almost its entire existence, has not only been profitable but very much so. I accept that improvements are necessary, but bashing Aer Rianta is unfair to the company.

The point should also be made that many of the services that operate from the airport are licensed or franchised rather than being operated by Aer Rianta directly, including the shops, check-in, baggage handling and other services where customers come into direct contact with staff. They are not operated by the DAA or Aer Rianta staff but by individual franchisees. Of course, it is the overall business of the DAA to ensure that such services are delivered efficiently, but the flexibility to do so is limited to the initial decision regarding to whom one awards a franchise, and one does not do that every day. It is therefore not a matter for the day-to-day management of the DAA. I am not making excuses for it, but we need a sense of reality.

That impinges on the judgment regarding whether any sort of decent or serious competition is possible between competing terminals in the airport. Frankly, I do not believe there is any reality to that. It certainly does not apply to the customer or passenger. If I wish to fly to Rome in the morning, I cannot simply say that I would like to take an aeroplane from terminal 1 rather than terminal 2. One simply does not have that choice, which will be made for one by the airlines.

I suppose that the terminals can compete to attract the business of individual airlines, but how do they do that? Do they provide less expensive services or better ones, or do they simply not provide any? I am not persuaded that it can operate in an efficient, genuinely competitive manner that feeds through to better or cheaper services for the customer. I do not see that happening, and in any event it is clear that it is unlikely to occur as a result of the current process.

I will spend most of my time on Aer Lingus. The decision is fundamentally wrong and flawed, assuming it means what it appears to mean. The Government has merely announced, very tersely, that it will dispose of a majority share. It has not decided the capital base it thinks appropriate for the airline or how it will divest itself of that 51% or 61% share — whether it will be by private placement or by IPO. I do not think that it has decided what the end result will be in ten or 15 years, or whether it will retain the 25% share thereafter.

The Government has decided that it will appoint yet another series of financial consultants to advise it on those issues. I heard the brief discussion between Senator Paddy Burke and the Minister for Transport, Deputy Cullen, when the latter appeared to say that the financial consultants were there only to sell the airline. That is not really in line with the Government's statement of last week that they were to advise on the type and timing of the disposal. It did not state that those people would look after the disposal. If that is the case, perhaps the Minister might clarify the matter.

This is not by any stretch of the imagination the first time the Government has made a decision of this kind. In 1999, it decided on an IPO, and the assumption at that stage was that it would be of the 85% of the company the Government still held. That was subsequently cancelled.

The Goldman Sachs report the Government commissioned last year is very interesting and quite accessible, judged against similar publications. I will briefly relate three observations to invite the Minister to comment on them in his reply. The first point is that any transaction undertaken regarding ownership structures should address the raising of equity capital for the company at the same time as effecting the change of ownership. It also states that a change in the status quo without ensuring an adequate capital base for the company would not be advisable. The point is surely that these are two quite distinct and separate issues and that the Government must address them as such. There is no indication that the Government has addressed the capital structure.

The second point raised in the report is that any partial divestment or introduction of a new investor should be viewed as the first step towards an eventual exit by that investor and probably the State, through a subsequent sale or IPO. That was the advice that Goldman Sachs gave to the Government less than a year ago. I would like to know if the Government considers that such an observation is valid.

Third, the report states that the ability to retain control of strategic issues will be adversely affected by the introduction of any new investor, although potential measures to mitigate this effect may be established. Goldman Sachs is clearly signalling to the Government that looking after the strategic interests will be extraordinarily difficult in circumstances where it is divesting itself of a majority shareholding in the company. These issues must be addressed by the Government now, especially if it has come to a conclusion on them.

On previous occasions in the House I have outlined my view and the view of my party on the strategic nature of Aer Lingus and I do not intend to repeat it, but I would like to explore the basic rationale for its disposal, which is to give the company access to capital markets. The argument is made that the company needs up to €1 billion over the next five to seven years in order to replace the long haul fleet. We could punch holes in that particular argument, but let us accept it today for the sake of the argument. How does the disposal of 50% of the airline manage to do that? Let us assume that the Government receives €350 million for the disposal of its 51% share. Are we to understand that the Government intends to reinvest that money in the company? The company will by then be a majority privately owned company. Will the Government simply pocket the money or is it the intention to reinvest all or part of it on condition that the private sector investor also does the same? This assumes that a big institutional shareholder or another airline wants to take a significant chunk of the airline.

Unless the gearing of the company is substantially increased or unless some of the assets are disposed of, then an initial public offering of 51% will not come remotely close to meeting the supposed capital needs of the company. Those capital needs are the rationale for selling it in the first place. This is a fundamental misfit which must be addressed by the Government.

The claim is made that a part private, part public, part worker-owned company allows access to the capital markets and thus allows the company to borrow. Where stands the argument that the company's gearing is wrong, thus preventing it from borrowing? If it goes on as it currently does, in five years' time its gearing will be unacceptable. That would surely also apply in the case of this new triple owned company. If the essential rationale for part privatising Aer Lingus is that enough money is needed to do a certain job, namely, to reinvest in the long haul fleet, the very least we can expect from the Government is a clear indication on how that will release the capital. From what little we have been told by the Minister thus far, it is not clear at all.

Senator Ross anticipated that in a relatively short period of time, the ownership of Aer Lingus would be dispersed and that there would be hundreds or even thousands of individual shareholders. That may be the case but I doubt it. Within a relatively short period of time, either institutional shareholders or another airline will hold a majority share in the company. In five to ten years, the State's shareholding will be diluted. We can see that very clearly from the experience of other previously wholly owned state carriers in Europe, where the initial shareholding of the State has been slowly but surely reduced, either by further disposals or by the issue of more shares to raise capital. In a relatively short period of time, the State's holding will fall below the level needed to block an overall takeover. We must anticipate that whatever the initial result of an IPO, those who really want to own the company will do so. The likelihood is that in ten years' time, British Airways or some other large international company will own Aer Lingus.

British Airways may be interested in maintaining the brand or maintaining the services to Naples, Hamburg and other destinations that Aer Lingus has recently opened up. However, it may not be interested in doing so in any recession. After I was first elected to this House in 1992, there was a major crisis at Aer Lingus. At the time, the services that were losing most money were the transatlantic routes. We made the argument, accepted by the Government, that although they were loss making, they were still important services to Ireland and they were maintained. I am not persuaded that in similar circumstances, a private operator would have retained those services. They may have been restored after 12 or 24 months, but a privately owned Aer Lingus at that time would have closed down the transatlantic routes. No one in either House has suggested that would be a good thing.

Given the cyclical nature of the business, it is necessary to take a strategic view of what is a strategic asset. My party is in favour of investing in what is a profitable company that is also a strategic asset. There is an onus on the Minister to stand his proposal to scrutiny, even on its own terms.