Martin Cullen (Waterford, Fianna Fail)

I welcome this opportunity to address the Seanad on the aviation action plan that was approved recently by the Government. In deciding on this major and comprehensive plan, the Government has clearly demonstrated confidence in the future of our aviation sector and for that reason has set out a clear strategic direction and an unambiguous mandate for growth. The net result will be a stronger aviation sector and a better future for the economy, customers and staff.

The Government has decided in principle to allow the sale of a majority shareholding in Aer Lingus in order to facilitate an equity injection into the company while retaining a significant stake to protect the State's key strategic interests. The Government also decided to appoint advisers to advise on the size, type and timing of the Aer Lingus sale transaction. This decision is the culmination of detailed and comprehensive consideration of the various options facing the company that has taken place over the past year. It is now widely accepted, including by the unions, that Aer Lingus needs access to equity finance in order to grow and prosper. The Minister for Finance and I are moving quickly to engage advisers and to consult with the company and staff, as appropriate. I understand that the newspaper advertisements in this regard will be published before the end of this week. In selecting the most appropriate transaction mechanism, a range of key issues will be taken into account, including the price achievable. As regards the timing of a transaction, this will be dictated by the company's needs, its performance, the state of the aviation sector and market conditions.

A key part of the decision is the mandate to the board of Aer Lingus to prepare and submit a plan for future profitable growth as soon as possible on the basis that additional equity capital will be available within a reasonable timescale. This decision allows Aer Lingus to secure funding for new aircraft and, in turn, to open and compete on new routes, particularly long haul routes. The investment will result in a strengthening of the Aer Lingus balance sheet and will ensure that equity funds are available to Aer Lingus as part of its overall funding mix. This is a key issue. In order to compete effectively, Aer Lingus must have the same funding flexibility as its competitors. This was clearly identified in the Goldman Sachs report as being crucial to the future success of the airline as well as being essential for financial stability.

For Aer Lingus to maximize its growth potential, in addition to having access to funds, it must have a competitive cost base. It is, therefore, vitally important that the existing business plan is implemented in full. This will ensure that the airline has an appropriate cost base to support the growth plan which the board has been mandated to complete. It will be critical over the next few months that management and staff work together to achieve this objective. With access to funds and continued progress towards greater productivity, Aer Lingus will be able to compete effectively and grow profitably both on short haul and long haul routes.

From an operational point of view, Aer Lingus has been performing well in recent years in a difficult climate for aviation. However, given the volatility of this sector where nothing can be taken for granted there must be a clear focus on the key issues that will provide the basis for a successful and profitable future for the airline. The two most important of these key issues are funding flexibility, which the Government is now addressing, and the company's cost base, which management and staff are addressing. A forward-looking strategic plan for growth based on clarity and progress on these issues is the next step. That is why I have focused on making the correct long-term decision for Aer Lingus. I do not want the crisis cycles to keep repeating. I want to focus on growth not survival. This decision provides the essential framework for the future of Aer Lingus. It removes uncertainty and allows the airline to plan and take the key decisions on a timely basis which is essential in this fast moving, volatile but dynamic sector.

I now want to deal with the concerns on key strategic matters which have been expressed in the context of the State reducing its shareholding in Aer Lingus. These concerns relate to issues such as the loss of the Aer Lingus brand, loss of direct transatlantic services and the loss of slots at Heathrow. In order to address these concerns the Government has decided to maintain a significant minority shareholding in Aer Lingus. In addition, other options such as specific shareholder agreements, covenants or commercial arrangements between the State and the company will be examined over the coming months with advisers to ensure that key concerns are adequately addressed in the context of reduced State ownership. Retaining ownership of over 25% means, under Irish company law, that the Government cannot be forced to sell its shares and can also deny other shareholders the ability to pass special and extraordinary resolutions such as making changes to the memorandum and articles of association.

While I will take appropriate measures to protect key strategic issues I do not share the negative views of the Opposition on all these matters. I have no concerns that any prudent investor would want to destroy a premium brand like Aer Lingus or would cease to operate profitable transatlantic services directly to and from Ireland. New investors will want to see Aer Lingus flourishing in all its existing markets as well as exploiting the potential new long-haul routes present.

I am also aware that increasing the commercial opportunities for Aer Lingus in terms of services between Ireland and the US is an important element in the overall strategic future for the airline. I will be endeavouring to achieve this outcome over the coming months. Aer Lingus has stated it could double traffic on US routes within a three to five year period if the market is opened up.

Currently, Aer Lingus can only operate scheduled services to five US points under the bilateral aviation agreement. These are New York, Boston, Chicago, Los Angeles and Baltimore. This restriction, which has been in place for many years, is the response of the US authorities to the requirement in the bilateral agreement that all airlines serve Shannon as often as they serve Dublin.

Addressing this issue involves making adjustments to the bilateral aviation agreement between Ireland and the US. In doing so, we must seek to secure the best outcome for Aer Lingus, our national tourism industry, Shannon Airport and the Shannon region. In particular, I am conscious that the new board of Shannon Airport is now producing a business plan for the airport and that clarity on future transatlantic aviation policy would be very helpful to that business planning process.

Negotiations between the EU and the US on an aviation agreement, which would result in "open skies" across the Atlantic, are not active at present but it is likely they will resume after the June Transport Council, at which the Council will review the possible elements of an EU-US agreement. This meeting is only a few weeks away. In the meantime, I am keeping the Ireland-US aviation agreement under review, having regard to the EU-US negotiations.

I welcome the recent appointment of Dermot Mannion as chief executive of Aer Lingus. I understand he will take office in August. I express my appreciation to the chairman and board for their ongoing efforts in directing the airline. The staff, in particular, are due our thanks for their efforts. They work in a difficult industry and have had to adjust continually to change. I assure them we will engage with the unions and the ESOT in a spirit of partnership to progress the Government decision to ensure a viable future for Aer Lingus with the maximum number of sustainable jobs.

On the recent Government decision regarding capacity provision at Dublin Airport, the decisions on terminal capacity at the airport are also a key part of the aviation action plan. In terms of access, inward investment, economic development and tourism generally, Dublin Airport is, and will remain, the metropolitan gateway to the State.

It is also noteworthy that the national spatial strategy has acknowledged that the expansion of the level of air services from Dublin Airport to a wider range of destinations is essential in the interests of underpinning Ireland's future international competitiveness. Notwithstanding the greatly welcome increase over recent years in traffic at Shannon and Cork airports, and indeed at some of the smaller regional airports, Dublin Airport will remain crucial to the national economy as a vital strategic component of national infrastructure.

The Government recognises the urgent need to provide for additional terminal and pier capacity at Dublin Airport. It agreed that the Dublin Airport Authority will build and own the new second terminal and the objective is to have the new facility operational in 2009. Following consultation with its customers, the Dublin Airport Authority will develop the most cost-effective options for the design, building, financing and operation of the terminal. Recognised independent experts with appropriate aviation and financial expertise will be approved by the Government to verify the proposal on its behalf.

Under the Dublin Airport Authority's current legislation, the operator of the new terminal will be selected through a fully open competition, which will be organised by an appropriate independent group or body. Selection of the successful tenderer will be on the basis of the most economically advantageous proposal. The agreement between the Government and ICTU, which was agreed in tandem with last year's negotiations on the mid-term review of Sustaining Progress, will also be reflected appropriately in arrangements for the conduct of the competition.

The Commission for Aviation Regulation will ensure that the level of investment is appropriate through its statutory role in setting airport charges. I am aware that, earlier today, the regulator published for consultation the new draft airport charges determination for Dublin Airport.

In the longer term, the Government recognises that, based on current passenger volume growth projections, further terminal capacity will be required at Dublin Airport by around the middle of the next decade. In this regard the Government decided that preparatory work should begin on examining the current legal and regulatory framework governing the airport for the purpose of identifying any changes that may be necessary to facilitate the delivery of the next tranche of terminal capacity, namely, terminal 3. It is the objective of Government policy to underpin the most cost effective, efficient and timely delivery of terminal 3 in line with emerging aviation trends, through an open, transparent and competitive process.

With regard to contact stands for aircraft, the Government also recognises the priority associated with the provision by the DAA of new pier capacity at Dublin Airport and I have ensured that the authority now has the necessary flexibility to respond appropriately to customer requirements in this area. The Government also agreed that proceeding to finalise the independence of Dublin, Cork and Shannon airports on the basis of viable business plans is critical to achieving the strategic goals of aviation policy. I will be progressing the restructuring of State airports on foot of assessment of the business plans currently being prepared by the airport authorities.

The Dublin and Shannon Airport authorities have been working intensively to identify new business opportunities for Shannon and concluded an agreement last year with Ryanair that will result in significant new business on European routes. Securing access from Shannon to additional destinations can provide new business opportunities for Shannon, and this is one pillar of the approach to future growth by the Shannon Airport Authority. The two authorities have also indicated that addressing the long-standing unsustainable cost base at Shannon is an essential precondition for future viability of the airport. The Shannon Airport Authority is satisfied that necessary cost savings can be achieved and in this regard, I expect that discussions will the trade unions will begin shortly.

Turning to Cork Airport, this is one of the fastest growing regional airports in Europe. Since 1994 traffic at the airport has risen nearly threefold to 2.25 million passengers in 2004. With its relatively large catchment area, it has good growth potential as evidenced by new routes launched in 2004 and 2005. Cork Airport will also benefit from the major capital development now underway, including the construction of a new terminal which will have a capacity of 3 million passengers per annum, with the facility to expand to 5 million passengers, as demand requires. New multi-storey and surface level car parks are being provided and a new internal road system is being developed. Cork Airport will therefore be well positioned to respond to the region's growth potential.

The business planning process currently underway will provide a basis for effecting the restructuring and separating of Shannon and Cork as fully independent airports. As required under the State Airports Act, Senators can be assured that the ability of both Shannon and Cork to operate on a completely commercial basis will be fully assessed as part of this process and will be factored into the decisions made.

When taken together, this package of measures will position the State airports as well as Aer Lingus to realise their full potential in delivering international air access. I am sure the House will agree that this strategic approach is necessary to underpin Ireland's competitiveness, industry and tourism and to enable the economy to maximise sustainable employment opportunities. I am pleased that an outcome to the aviation issues has now been concluded in an inclusive manner. My approach has been to engage with all the stakeholders, listen to all views and then put forward a proposal that best delivers for the country. As a result of the Government's recent decisions, for the first time Irish aviation has an action plan that positions it for long term growth.