Noel Dempsey (Meath West, Fianna Fail)

I welcome this opportunity to address the House on Shannon Airport and the development of the mid-west region. This is an important issue for the House, the Government and the people of the west and mid-west. Regarding the decision made by Aer Lingus to withdraw the service between Heathrow Airport and Shannon Airport and the issues surrounding the wider development of the mid-west region, the fact that the Government has initiated a debate on these matters in both Houses indicates the serious manner in which they are being considered.

I do not propose to go into background detail relating to this situation as it is well known and has been discussed in the other House. I will, rather, deal with issues and questions that have been raised as a result of the decision. Lest anyone is in doubt I will repeat again that the Government is disappointed with the decision taken by Aer Lingus to discontinue the service between Shannon Airport and Heathrow Airport and has consistently conveyed that disappointment to the management of the company publicly and privately. I reiterated this view on my behalf and on behalf of the Taoiseach and the Government on a number of occasions during the weeks following the decision and I emphasised it again at a formal meeting with the chairman and chief executive of Aer Lingus on 28 August. I sought to convey to them, once again, the extreme disappointment felt by the Government. I pointed out that the decision runs contrary to public policy in a number of respects, including the national spatial strategy and regional development and aviation policy. It was recognised that Aer Lingus is not an instrument of Government policy but there was an expectation that such wider policy issues would be considered when commercial decisions were being made. I also made the point that Aer Lingus should have engaged more with its customers, staff and wider stakeholders before announcing its decision. The chairman said the decision was taken to establish a new base at Belfast International Airport following extensive evaluation of growth opportunities throughout Europe. He said the decision was commercially robust and the company would not reconsider it. The company has since reiterated that position consistently.

It was evident from early on that Aer Lingus would not deviate from its decision and, given this fact, the Government began to look at the possibility of restoring connectivity on the route. A number of options were explored in this regard. I first investigated the possibility of the State acquiring Heathrow slots to replace the service. I was informed that this was not legally possible because it is not open to this state or any other to acquire slots as the applicable rules allow only for slots to be assigned to airlines. The option of providing funding to assist in acquiring such slots was also examined but this or any other form of direct subvention of a London Heathrow slot is constrained by state aid rules.

It became clear that the only option open to us was to assist the Shannon Airport Authority in any way we could to secure a replacement service for the Aer Lingus Shannon-Heathrow service. Arising from this it was clear that the focus of attention had to be on getting a replacement service for the Shannon-Heathrow route. We indicated clearly to the Shannon Airport Authority, which has direct responsibility for securing such services, that we would assist it in any way we possibly could. The authority has been actively pursuing all options in this regard since then and I have made it clear to it that I am available to assist in these efforts, if required.

Undoubtedly, the best chance of securing a London Heathrow service was through the efforts made by the Shannon Airport Authority with BMI. Unfortunately, we now know that BMI has decided not to provide the service on this route in the short term. I have no doubt that the Shannon Airport Authority will continue its efforts to try to attract another carrier to the route, but the current situation, as far as I am aware, is that no such carrier has been identified.

The question has been raised on a number of occasions and no doubt will be raised again today as to why the Government as a shareholder does not intervene directly to change the Aer Lingus decision. The answer is simple. The clear and unequivocal legal advice we have is that shareholders do not have the power to overrule management decisions on business matters. This is a simple legal fact which cannot be changed by any amount of political rhetoric. Even if the Government, on its own or in conjunction with other shareholders, called an EGM and voted for the restoration of the service, the management of Aer Lingus would not be obliged to follow any such direction of its shareholders.

The question has also been raised as to why the State retains a strategic shareholding of over 25% in the company. We had two key objectives in mind in doing this. First, this shareholding provides a major block to a hostile takeover by enabling the State to prevent a compulsory takeover of 100% of the company. If the company was taken over, the new owner would not be able to extract the Aer Lingus assets, including slots and cash. This provides significant protection against the selling of slots. The second strategic advantage of a 25% shareholding is that it enables the Government, as a shareholder, to block special resolutions which could lead to the sale of Heathrow slots. The report of the senior officials group, which was appointed to examine all aspects of the decision, states, "Disposal of slots relates specifically to the sale of slots and/or the transfer of slots between airlines and does not apply to the reallocation of slot pairs to new or existing bases". Our key strategic interests are protected in the memorandum and articles of association. While they do not protect against the transfer of slots such as occurred in this case, they nevertheless remain extremely important from a national point of view.

I conveyed to the chairman and chief executive of Aer Lingus the Government's strong disappointment with the decision on the Shannon-Heathrow service. In those discussions I set out, in particular, that the decision ran counter to public policy in a number of respects, including the national spatial strategy, regional development and aviation policy. I made it clear that while it was recognised that Aer Lingus was not an instrument of Government policy, there was an expectation that it would take these wider policy issues into account in making commercial decisions. However, it is clear it did not do so.

To ensure this point of view is consistently articulated at board level, I have decided to appoint two further directors to the board of Aer Lingus. I will ask the State appointees to seek to ensure that all future decisions of the company, that have implications for wider Government aviation or regional development policies, are considered and decided at board level. That will give the State appointees the opportunity to raise the public policy implications of each decision and to ensure the full commercial implications for the company are taken into account.

The State appointees to the board do not, nor will they, have a veto on board decisions. Under company law it is not possible for the State or any other shareholder to overturn a decision taken by the company on day-to-day business matters. The legal advice to the Government has been clear and unequivocal. Neither is it possible for the State, even as a shareholder, to seek to impose non-commercial obligations on the company. By appointing our full board complement it will be possible to ensure the full ramifications of all significant strategic decisions are fully discussed and decided by the board.

Would the appointment of these extra directors have changed the decision on the Shannon-Heathrow service? In these particular circumstances the answer is "No" because the board gave the management a mandate to pursue all commercial opportunities for the airline. On foot of this mandate, management decided to discontinue the service between Shannon and Heathrow. It did not have to get the further approval of the board. The appointment of two extra directors would not have made any difference to this decision. Even if board approval was a requirement, the emphasis that the company has put on the commercial advantages of Belfast over Shannon suggests that a better understanding of the wider implications for the Shannon region and wider commercial issues for the company would not have tipped the balance in this case.

On the point about connectivity, it is accepted by the Government that this decision by Aer Lingus will have an adverse effect on the region, especially business travellers to the Middle East, Asia and Australia. The senior officials group confirmed that. I am committed to ensuring the mid-west will continue to have the widest possible range of connectivity options available for the benefit of business and tourism throughout the region.