Tuesday, 31 May 2005
Aviation Action Plan: Statements.
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.
I welcome the Minister to the House. Some of the decisions the Government has taken over the past couple of weeks are to be welcomed, belated as they may be. I am pleased to have the opportunity to speak on the Government's recent announcement regarding the aviation sector. However, the so-called "package" is very disappointing and extremely short-sighted. It is typical of the half-hearted and ultimately weak approach that the Government takes to all the serious problems and challenges facing the country's strategic and economic development. There are two major aspects to the Government's recent announcement, namely, the sale of Aer Lingus and the decision to proceed with a second terminal at Dublin Airport. These decisions have resolved little and they have created more questions than they have answered.
With regard to Aer Lingus, I welcome the decision to sell a majority stake in the company. This is a straightforward and economically rational proposal. The facts speak for themselves. Aer Lingus needs over €1 billion in capital to replace and expand its long-haul fleet. It has already self-financed the replacement of its short-haul fleet from within its existing resources but it is clear it is incapable of stretching its resources to fund the long-haul fleet. It is equally clear that the Government cannot — or should not — endeavour to propose to fund Aer Lingus's long-haul fleet expansion. The Government's resources are needed in more high priority areas such as health, roads and education.
We cannot afford to continue to bankroll Aer Lingus. I am sure other Members will remind the House of the airline's current profitability and no one can argue with that. However, we must also remember that Aer Lingus has been through a number of economic downturns in recent years and the State can no longer afford to take chances with it. It is time to allow the private sector to step in and offer greater investment leverage to the company.
I am sure many Senators will argue that the selling of a majority stake in Aer Lingus will be disastrous for Ireland and that it will result in the danger of losing our airline connections to the wider world, including Europe and the USA. Again, I do not believe this and am confident that the market will dictate.
There has been an enormous growth in the volume of traffic into and out of our airports in recent years. We are all too well aware of the phenomenal growth in travel, foreign holidays or city breaks taken by members of the public. The market exists and is growing. I am confident that no airline, particularly Aer Lingus, is about to walk away from the Irish market while it is undergoing such tremendous growth.
The Irish market remains buoyant and it will continue to be there for Aer Lingus to tap into and exploit. A domestic market leader, such as Aer Lingus, stands to greatly benefit if a significant capital injection to allow it to increase the number and type of routes it is offering to the travelling public is provided. The company has indicated a wish to open new routes to the US, South Africa and Asia. Such ambitious plans offer a major potential for the company's growth and I hope that it will now have to opportunity to advance these plans, which appear to have been under consideration for several years.
Concerns have been expressed that Aer Lingus will lose its identity and that its world famous brands will be diluted. This can be avoided provided the Government puts in place a deal which contains terms of contract that ensure the Aer Lingus brand will be retained. It is crucial that the Government crafts the right type of agreement to ensue that this is the case.
In terms of the landing slots at Heathrow, again, any deal must contain the caveat that Aer Lingus's landing slots may only be used for passengers travelling into and out of Ireland. As regards fears that the slots will be lost to Ireland, such concern relates to my earlier argument that a buoyant Irish aviation market will ensure that the Dublin to Heathrow route will continue to remain much travelled. It is currently one of the busiest and most profitable in Europe and I do not foresee this changing. Indeed, any private sector investor involved with Aer Lingus is most likely to be eager not only to continue with the route, but to seek to expand it.
If it is accepted that private sector investment in Aer Lingus is on the way there is an urgent need to consider the value of the company, particularly at the time of its eventual sale. Its value will be crucial if the company is to continue to grow, fulfil its ambitious expansion plans and complete its survival plan. This is the real issue and it is one about which most people are appalled by the behaviour of the Government in recent years. The figure of €700 million is now being bandied about by analysts and experts as the company's estimated value. This is despite the fact that it made an operating profit of over €100 million in 2004. This time last year its valuation was much higher, with figures of more than €900 million being regularly quoted. The only answer to Aer Lingus's sudden fall in value lies solely in the Government's corner. It has completely botched the handling of the Aer Lingus issue. For years the Government has promised that it would act and decide on Aer Lingus's future but instead it has dithered and the company has lost more than €200 million in market value.
Last summer matters came to a head when the management team was unable to tolerate any longer having its pleas for a swift decision on Aer Lingus fall on deaf ears. The members of that management team, headed by Willie Walsh whom I wish well in his new position with British Airways, decided the Government had no intention of acting and they cut their losses and left the company. That management team was central to the revival of the airline and it had the potential to grow the company further. This is not to take from the vital role played by members of the staff of the company who must also be congratulated on the work they did in recent years to turn around the company. However, it is true that the management team provided valuable leadership to the company.
Even the Government's report produced by Goldman Sachs acknowledged the importance of the management team and its significance in terms of ensuring continuity during the sale period. Instead the Government's incompetence has meant that management team has walked away and the company has been devalued by €200 million. This is disgraceful. It is a further example, if one was needed, of the Government's inability to effectively govern and secure the national interest. It has squandered €200 million of taxpayers' money.
The situation gets even worse when one considers the Government's approach towards the development of a second terminal at Dublin Airport. Similar to its attitude towards Aer Lingus, it has procrastinated, hesitated and avoided taking a decision on a second terminal at all costs. When it was pushed into a corner of having to act, largely as a result of pressure from the Opposition, and conscious of the appalling overcrowding developing at the existing terminal, it was forced to make a decision.
The result has been a political fudge by the Government and an embarrassing climbdown by the so-called watchdog of the Government, the PDs. The Government has moved from the farcical position of being utterly incapable of deciding on one terminal to proposing a third terminal or two further terminals. A third terminal, as everyone knows, may never see the light of day, but at least it has the appearance of the PDs having gained a crumb from the Fianna Fáil master table. Nothing could be further from the truth. The PDs have promised competition at the terminals, in the aviation sector and in public transport, but three years on we have not seen a shred of competition.
The PDs have rolled over to Fianna Fáil, whose agenda is to appease the constituents of north Dublin. No one can argue that Dublin Airport has a much wider remit. It is a vital piece of national infrastructure and is a crucial generator of economic, business and tourism revenue. The decision on the terminal should have been decided in the national interest, with a fair and rounded consideration of all the issues. This did not happen. We have had a retention of the status quo and no prospect of real competition at the airport.
However, what concerns me most is the decision to locate a second terminal on existing Dublin Airport Authority lands. In my view and that of my party, this is a wrong decision. Report after report has come out against such a measure. Such reports include those commissioned by Fingal County Council and the Dublin Airport Authority, which did not favour siting a second terminal on Dublin Airport Authority lands. The reason is simple. The Dublin Airport Authority sites available are too constrained and do not have enough capacity to build the terminal we need. If a second terminal was built on Dublin Airport Authority lands, it would run out of capacity in a short period and we would be back to the current position at the airport, which is one of chronic overcrowding which poses a safety hazard.
Passenger numbers at Dublin Airport are expected to rise to more than 20 million this year alone. I do not see the value in building a second terminal which would cater for only an additional 10 million passengers. If the terminal is not completed until 2010, we will be well on the way to reaching that figure before it opens, given that passenger numbers at the airport have grown by more than 8% in the first quarter of this year alone. Passenger numbers at the airport are rapidly increasing. We need a solution to address provision for such growth, rather than a half-hearted approach to dealing with this issue.
We should adopt best international practice in our development plans for a second terminal. Best practice for the siting of new terminals indicates that they should be on a greenfield site which allows for future expansion. We are pitching our sights too low. We need to plan for at least 40 million passengers at Dublin Airport. We are all too aware of the failure to estimate the growth in traffic, particularly on the M50. We are aware of what has happened on that motorway. The congestion on it is a nightmare for motorists. We are faced with funding the upgrade of this motorway which it is estimated will cost €500 million.
The Minister said that a group will be established to oversee the advertising of the sale of Aer Lingus, securing the best deal for the company and selecting the most appropriate transaction mechanism with regard to key issues, including the price achievable. The Minister also said that the open skies policy could have a big impact in opening up more routes. Under the bilateral agreement with the US, we are currently only flying to New York, Boston, Chicago, Los Angeles and Baltimore. Will a decision on the open skies policy be made before the sale of Aer Lingus or will all these details be taken into account by the review group being set up to advise on the best possible deal for the taxpayer?
There seems to be some misunderstanding on the part of the Senator. We are not setting up a review group. Advertisements will be placed in the newspapers this week to bring in financial advisers to conduct the sale.
Their role will be to conduct the sale. An impression is being given that a group will be set up to advise us. Any private or public company in similar circumstances brings in financial advisers to conduct a sale.
The Minister has put advisers in place to conduct and advise him on whatever portion of the company will be sold. He also referred to the open skies policy. Will it be taken into account by such advisers when they advise the Minister? Will the company be worth more if an open skies policy is in place? Will all these details be taken into account because such a policy would affect the price we would be able to secure for the portion of Aer Lingus that will be sold, given that its market value has been diluted from €900 million to €700 million on the basis of the figures being bandied about and having regard to the lack of decision making by the Government in recent years.
I welcome the Minister, who is a regular attender here, and his officials to the House.
Aviation issues have been an almost permanent item on the agendas of successive Governments for decades. Since my election to this House almost three years ago, it has regularly come up for discussion on the Order of Business and Private Members' business.
The reality is that there have been many crises in the aviation sector but little long-term planning. At its Cabinet meeting on 18 May the Government approved the aviation action plan proposed by the Minister for Transport, Deputy Cullen. The decision gives Irish aviation a clear strategic direction and an unambiguous mandate for growth. A majority sale of Aer Lingus has been approved in principle with the Government retaining a strategic stakeholding in the airline. I am glad that in his speech the Minister alluded to the retention of at least a 25% stake.
Financial advisers will be appointed to advise the Government on the size, type and timing of the sale. This decision allows Aer Lingus to secure funding for new aircraft and in turn to compete for, and win, new routes. If Aer Lingus flies to and from more destinations it can offer greater choice to consumers, open new markets for Irish tourism and grow jobs.
The Government's decision ensures that for the first time there will be investment for growth rather than just short-term funding to help in a time of crisis. I was pleased to hear the Minister reiterate today that he and the Government are interested in growth, not survival. If the airline is to enjoy its full potential the existing business plan must be implemented in full.
As part of the aviation action plan the Government also approved the building of a new terminal — the famous terminal 2 — at Dublin Airport, to be opened by 2009. The Dublin Airport Authority will commission terminal 2 for which an open tender competition overseen by an independent panel of experts will select an operator. I welcome the fact that the full tender for the operation of terminal 2 will be awarded by the independent group to the most economically sound proposition. It is vital for trade, tourism and our economy as a whole to improve access to Ireland. It is clear that we need extra capacity and I welcome the Minister's commitment to ensuring it is provided as quickly as possible.
A new pier for aircraft parking stands at Dublin Airport will be available from 2007. I also welcome the Government's approval of the triple safeguard to ensure maximum efficiency and cost-effectiveness of terminal 2, as outlined by the Minister in his speech. The three safeguards are consultation, verification and regulation. Terminal 2 will be designed to meet the requirements of airlines servicing Dublin Airport. To this end, the Dublin Airport Authority will consult in detail with the relevant airline operators.
Aviation experts will independently verify the final specifications and costings of terminal 2. The Commission for Aviation Regulation, in its independent statutory role, will ensure that charges reflect costs appropriate to the building of an efficient terminal. The Minister stated that the commission made an announcement today. The Dublin Airport Authority will consult with the airlines and the independent experts will verify the design. This approach ensures that terminal 2 will provide the best outcome for the customer and the taxpayer.
The aviation agreement makes very clear that long-term demand at the airport will be catered for. Infrastructural logjams are often the result of short-term thinking but this will no longer work. If we are to serve a modern economy we have a responsibility to think about the long term. That responsibility involves anticipating future passenger needs at the airport by advance planning for a third terminal. We need to plan far ahead for the delivery of transport infrastructure. This approach should apply to aviation just as it does for to other forms of transport. Preparing now would yield two clear benefits. First, it will ensure that when passenger numbers determine a third terminal is required we are ready to respond and second, ensuring extra capacity is delivered when it is needed will avoid the costs that would come with providing too much capacity too soon.
In his speech the Minister stated that under company law, by retaining ownership of over 25% of Aer Lingus the Government cannot be forced to sell its shares and can also deny other shareholders through its ability to pass special and extraordinary resolutions, such as making changes to the memorandum and articles of association. There has been a great deal of scaremongering about this issue. I also welcome the Minister's comments on the loss of the brand, the slots at Heathrow Airport and the transatlantic services.
Senator Paddy Burke stated that this is primarily a Fianna Fáil plan and that the Progressive Democrats received some concessions or crumbs from the master's table. The Senator would use his time better in consulting with his party colleagues and his party's history in regard to Aer Lingus, Dublin Airport and the other State airports. He should also spend more time with his party colleagues working on the new arrangement with the Labour Party, the Green Party, although Green Party members do not like mention of their party in connection with any future potential government, and with the rag bag of Independent candidates which will be needed if his party is to have any chance of forming a government after the next election. Most right-thinking people do not think this group has any hope of achieving that goal, even when such an assortment of people say "No" to everything.
I congratulate the Minister who has been in office for only seven months. He has consulted widely with the stakeholders, listened to all their views and put forward what I and my colleagues in Fianna Fáil and the Progressive Democrats consider to be the best aviation policy this country has seen.
I pay tribute to the Aer Lingus staff and management for all they did to bring the airline through a difficult period to its present position. The management, led by Mr. Willie Walsh, did a good job but Mr. Walsh was wrong to state that the Government had no interest in the airline. He and his colleagues were more interested in attempting to take over the airline for themselves than in serving the interests of the airline or the people.
I also pay tribute to Ryanair, regardless of what we may think of some of the personalities involved in that airline. Today it announced that its profits have risen by 19% to €268.9 million and that its traffic growth has increased by 19% to 27.6 million. I also pay tribute to Aer Arann which makes a significant contribution to the aviation industry, particularly servicing remote areas. The airline recently celebrated reaching 3 million passengers.
I join the Minister in welcoming the new chief executive of Aer Lingus, Mr. Dermot Mannion, and wish him well in his new role. I pay tribute to the Minister who, after seven months of listening, brought this proposal to Cabinet where his colleagues approved it. I wish him and the proposal the best of luck in the future.
I welcome this debate and appreciate the fact that the Minister comes into this House quite frequently and is willing to speak and listen to us, if not to take our suggestions on board. At least he attends the House and gives us the opportunity to make those suggestions. This debate, which may have been useful a little earlier, is unreal partly because the events being discussed have been decided in principle but also because the reasons the decisions have been made have little to do with those stated by the Government parties.
There were two driving forces in this great aviation debate, none of which have been mentioned in any of the speeches from the Government side. It is all very well to speak about great strategic interests, visionary decisions, long-term key directions and even to straddle the ideological divide between the Progressive Democrats and Fianna Fáil. Good financial and economic arguments have been made on both sides but the two motivating forces in this debate were purely political. Senator Burke touched on it. What decided the so-called "aviation action plan", a piece of PR spinning euphemism which will get into the lexicon of the Irish media if the Government has its way? This great plan was decided by a few handful of seats in north Dublin. That was the motivating force. It is regrettable that such an important decision on infrastructure should be decided by someone who is obsessed with the political consequences in his own backyard. I refer to the Taoiseach. That is acknowledged by those outside the political arena as being the truth of the matter and all other arguments are floss, dressed up as some justification for the decision. The Taoiseach would not have minded whether the second terminal went private, public, DAA, or to the entrepreneurs provided it guaranteed seats.
The other agenda driving this debate, to which the Minister referred unwittingly or otherwise, was the trade unions. The Minister referred, as far as I can recollect, to the trade unions three times regarding the necessity to consult with them on all occasions. The same tributes were not paid nor care taken to consult with business and, most important, little care was taken to consult with those who really matter, namely, the consumers.
Those who are benefiting from this decision are the Fianna Fáil Party — the Progressive Democrats are suffering — and the trade union movement. This is because they have a coincidence of interest here. The Fianna Fáil Party hopes this decision will hold the north Dublin seats. Its means of doing this is to keep the trade unions happy. The trade unions will be happy if the workforce is happy and intact. The vast number of staff at Aer Lingus and Aer Rianta are resident in north Dublin. If the trade unions are kept happy, the workers will vote for Fianna Fáil and hold those seats. God help the Labour Party which was completely out-manoeuvred. It sat there while the Taoiseach used his party's trade unions. The trade unions, in particular SIPTU, continue to fund the Labour Party and dictate policy to Fianna Fáil. It is a pretty good trick. They have both parties in their pockets. That is the agenda which has driven this so-called "aviation action plan". I do not believe it is an aviation action plan. This is a little sordid deal hatched because Aer Rianta and Aer Lingus had the same trade unions. It was agreed to let the trade unions decide the agenda and to call it an aviation action plan.
There was, however, a minor tussle in the background when the Progressive Democrats kicked up a little and said it did not like the State's approach and wanted some private enterprise to save its face. It was given a couple of fig leaves but lost its bottle on this issue. It comprehensively lost the Aer Lingus battle on which it was outwitted and just conceded on the airport battle with Aer Rianta.
I have not heard any credible justification for giving the contract to build, design and own the second terminal to the same organisation that has made a complete and utter mess of the first terminal. I would have thought there would have been a sine qua non on this issue, that this would be an open tender to all comers, except one which has proved beyond doubt its utter incompetence. However, the Government has decided to award the contract to the one organisation that has proved its incompetence.
It is extraordinary that those who have proved most incompetent are the most convenient. Provided the Government continues to own and dictate the terms of building the second terminal there will be a soft touch. Private industry and the private sector is not anti-trade unions but it is not a soft touch either. It is obvious that as the second terminal is being built the electoral timetable will get tighter and as the demands being made get stronger, the concessions made will multiply.
Anybody who would give the Dublin Airport Authority-Aer Rianta this contract could not have been in Dublin Airport during the past 20 years. It is a total and utter shambles. Recently it was voted by Irish businessmen as the worst airport in Europe. I will place a wager with the Minister, and any other Member, that the same organisation will also be the chosen operator of the terminal when the time comes.
This tender process which will be chosen by an "independent" body will arrive at the conclusion that all things taken into account the same State organisation, which has run this slum out in Collinstown in Dublin Airport, should do the same with the second terminal. I do not understand this on any grounds except those of party politics. The most powerful forces, the Taoiseach and the trade unions, have won this battle. The consumer can go to hell for the next six or seven years. The Minister and those who made this decision must know of the anti-consumer nature of Dublin Airport, the cavalier way in which passengers are treated and the monopolies that exist there. Does the Minister park his car out there? I am sorry, that is an unfair question for which I apologise. Does anybody in this House park their car out there? It costs €30 for nine hours parking at Dublin Airport. This is what the Dublin Airport Authority imposes. Does anybody ever change money out there? The foreign exchange charges are outrageous.
Sorry, I can blame Dublin Airport and I will tell the Minister why. Dublin Airport charges International Currency Exchange, ICE, €1 million a year. This was the charge insisted upon by Aer Rianta because it had a quasi-monopoly for so long. That is why I blame Dublin Airport.
I accept there is also a small Bank of Ireland branch at the airport but ICE is in a monopoly situation and can charge the customer what it likes. I blame Aer Rianta specifically because its charges are prohibitively high because it is a monopoly. This is one of the reasons competition between terminals might or might not be a good idea. Dublin Airport can also be blamed for the car park charges. The airport is a shambles and a slum. The toilets are disgusting. Everything is wrong because the attitude and the culture is appallingly negligent of the customer.
The other reason this is such an appalling decision is an historic reason which is continuing to this day and which will continue after this happens. Aer Rianta has been a disgrace in terms of political nominees to the board. It has been ruthlessly exploited almost exclusively by Fianna Fáil as a safe reward for party political loyalists who have then decided to run it as a personal fiefdom. I will not go into all the details.
Every Member of the House will be aware of what has been happening in Aer Rianta and the extraordinarily luxurious style in which some of the board members have been capable of enjoying themselves. That system of political nominees goes on to this day and will continue under the present regime. Those who are appointed under whichever party will still be loyal, first and foremost, to the party. This has been one of the diseases of the organisation. There is no reason to believe this will end; they will not be appointed unless they are loyal to the party. If they are thought to be suspect or commercially minded, they will not be appointed or their appointments will not be renewed. The plan for the airport which the House is discussing is utterly flawed.
I wish to speak on the Aer Lingus decision which is part of this deal hatched up to hold the north Dublin seats. On the surface, the decision on Aer Lingus might provide us with some sort of comfort that the State is going to sacrifice and give up its control. The trade unions, playing brilliant ball with Bertie, have made a little bit of noise and said they do not like this very much. The House need not worry because they will not do anything about it; they will not upset the apple cart on this one. They are making all the right noises by protesting a bit as though they did not get their own way which they did.
I will finish this point and then conclude. We are informed that 51% of the airline is being sold. This is correct and the trade unions kick up about it. Where will the other 49% be? It will be in the hands of the State and the unions, the old alliance again. They are locked together and they will stick together. Where is the 51% going to be? It will be distributed everywhere in multiples, dozens, hundreds and maybe thousands of shareholders. Once it is distributed far and wide enough, who will be the largest shareholder? It will be the State, by a very long way. As the Minister proudly said, "Don't worry, lads, we will have 25%, a blocking shareholding." This is the code for the unions. The State will still be in control.
I am just going down the runway.
The other 51% will be distributed in such a way that no one will be able to touch them. The House has heard some scaremongering this afternoon. It is, "We are awfully worried about the slots. We are going to protect them and the brand." Nothing is more calculated to scare off any potential investor than this sort of talk. He will not get rid of the slots unless they are unprofitable. He will not get rid of the brand unless it is valuable.
I am finishing. The State will go on trying to reassure its statist friends and every time this is said, the value of the airline goes down. The truth is that nobody cares. This is a political solution to an economic problem. It is the worst possible solution but the Minister and the Taoiseach's friends in the trade unions can rest assured they have won an enormous victory. They are still in control of Aer Rianta and the second terminal and they are still in control of Aer Lingus.
I welcome the Minister to the House for this debate. Recently I met a Dublin businessman who employs 50 people in a medium-sized industry. He informed me that 20 years ago if one of his machines broke down in Dublin he would be forced to wait until the following day to book an Aer Lingus flight to Birmingham, stay overnight and fly back the next day. His machine would then need to be recommissioned and it would be down for three days. Now he can book his flights for the next month in advance, whether or not he travels and his machinery is back in operation within a few hours. We are very lucky in this small country on the periphery of Europe to have two of the most successful airlines in Europe, Ryanair and Aer Lingus. It is ironic to be debating this subject on the 20th anniversary of the establishment of Ryanair and in the knowledge of its extraordinary success. We are fortunate that Aer Lingus has survived.
This situation pertains today not because of regulation but rather because of competition. Ryanair started that competition 20 years ago and set the standard for Europe and perhaps the world for competition in the aviation sector. Aer Lingus has been forced to follow. Much has been made by Opposition speakers of the differences between the Government parties on the aviation package. Much newsprint has been expended and much radio and television time devoted to the aviation package announced on 18 May. It was suggested that divisions existed about the work practices at the new terminal and that differing views were expressed on the flexibility of the new terminal and the efficiency of the existing terminal.
I refer to the issue of efficiency at the second terminal. I wish to read the following quotation:
There's going to have to be a different kind of work practice and different kinds of flexibilities than are in the present arrangements. That has been clear from the start. That is an issue where people can put forward their plan.
That is not a quotation from a member of the Progressive Democrats. Those are the words of the Taoiseach, which match perfectly and consistently the view expressed by his partners in Government in all press statements and at Government regarding what we set out to try to achieve. What we wanted was the best deal for the taxpayer in terms of the cost of the terminal and the future of Aer Lingus. I hope this quotation puts an end to that particular claim by the Opposition. I also hope that newsprint, radio and television airtime can focus on the many policy areas on which the supposed alternative Government agrees. That airtime should be very short.
Almost 12 months ago this House debated the State Airports Bill, involving the break-up of Aer Rianta. In light of the success of the break-up of Aer Rianta, particularly for Cork and Shannon, I remind the House of some the contributions made here at that time. It might be uncomfortable listening for some Members, so I will keep the quotes anonymous. One Opposition Senator said:
This Bill will have major implications for taxpayers, the workers directly employed by Aer Rianta and the travelling public [which, I presume is the consumer] . . .The absence of business plans and the mixed signals from different reports, such as the PricewaterhouseCoopers report or the Farrell Grant Sparks, a report commissioned by the unions, suggested that the combined value of Shannon and Cork Airports will drop by €110 million following the break-up, are very worrying . . . We seem to be approaching this from the wrong direction . . . We are being asked to take a leap into the dark and this is totally unsatisfactory from everyone's point of view.
Another Senator referred to shortcomings in the infrastructure in the immediate vicinity of Shannon Airport and said:
There is no rail link, the bus link is not very good and although the roads are not improving, they are not great . . . While one intuitively feels there is scope for improvement at Shannon, I do not see how a totally independent company, as opposed to independent management, which takes a certain amount of independent initiative, will improve business at Shannon. The Minister has failed utterly to persuade me and many other people that such an improvement will be achieved.
Another Senator said:
My fear is — I do not say this in anger, despair, in shouting or excited tones — that as the Government can no longer subsidise Shannon Airport, it will fall prey to other forces which would seek to use it for their commercial ends . . . We are a very small country and the idea that competition would arise and be dynamic between the three airports is a paltry excuse for putting forward the Bill.
Let me outline what has happened at Shannon. The airport has recently concluded a deal with Ryanair involving flights to Paris, Prestwick, Hamburg, Frankfurt, Liverpool, Stockholm, Milan, Luton, Gatwick and Stanstead. It has also negotiated a deal for a Boston to Shannon route and a Chicago to Dublin route. It has said that its future must be commercial rather than regulated. This has happened in a mere 11 months.
Some Senators said we were taking a leap into the dark and it could not happen. It has happened. This shows what competition has done around the country and it is good for the regions. Ryanair has promised 350,000 passengers this year. By 2005-06 it has promised 1.4 million passengers. This is the single biggest tourism initiative in the country. These flights will be sold throughout the year and not just during the summer. Anybody can sell Ireland from May to August. The difficulty is in selling it off-season. These flights will be all year around and will bring people to the mid-west and western areas, which shows what we achieved last year. Those flights have already received 450,000 pre-bookings, which shows what competition has achieved.
On the building and location of a second terminal at Dublin Airport, it has been agreed that after extensive consultation with the airlines, the Dublin Airport Authority will set about costing and constructing the new terminal. Again that process will be verified. When it has been built real competition will again take place because the operator of the second terminal will be appointed following a competitive tendering process. In that tendering process all costs and prices will need to be on the table as if in a glass bowl. I would not have any problem if the Dublin Airport Authority was to win the contract. Up to now the unions were happy to enter into an agreement for the provision of an independent terminal. They had no problem with the word "independent" and were even willing to buy a 15% shareholding as opposed to getting it for free.
This is what the unions were prepared to do. It was not to be at a price less than the price for that job in Dublin Airport today — it was at the same price for that job — there was no race to the bottom as we often hear. However, the price to be requested was greater efficiency. I will give an example of such efficiency. Dublin Airport has 140 check-in desks. Some 20 of them, 17%, are operated by Ryanair. However, Ryanair processes 33% of the passengers through Dublin Airport. That is called efficiency and is reflected in its profit figures as cited by Senator Wilson.
When one considers how far we need to travel in the aviation sector one must realise that despite the pain endured at Dublin Airport in recent years, Ryanair has 2,500 staff carrying 28 million passengers. Aer Lingus has 3,500 staff carrying 7 million passengers, which is a quarter of the number carried by Ryanair. Is the Labour Party really suggesting the Government should invest in that model, which is obviously not efficient——
I am saying from 50% up to 60%. The Minister said the Government would retain 25% and there is a further 15% for the staff. If 40 is subtracted from 100, it leaves 60, and a majority stake is anywhere between 50% and 60%. It is only then that Aer Lingus can take its hands from behind its back, where they have been tied for the past few years. It had a Government shareholder that by its very nature could not take a decision. Surely we should have realised by now that the Government should not be involved in such a sector, which is so volatile and risky and in which decisions must be made not within three months but within two or three days. That is where I see the future of Aer Lingus. I have no doubt it will survive and thrive, providing a hub between America and Europe. Its future success can only be achieved by going out to fight for business with competitive rates.
At a recent Oireachtas meeting, Mr. Gary McGann, the new chief executive of the Dublin Airport Authority, said that the greatest increase in traffic through Dublin Airport had been in the low-cost aviation sector. If that is where the business is, the users of the airport must follow that model. If Ryanair can process 33% of passengers with 16% of the ticket desks, one has to ask what sort of efficiency savings must be introduced. That is why I support the current business plan, and I would support another; business cannot stand still. The Opposition attempted to demonstrate differences within the Government, but one need only look at the last election manifestoes of the parties that would form an alternative Government regarding both the terminal and the sale of Aer Lingus. They are diametrically opposed, while the Taoiseach's comments mirror precisely those of the Progressive Democrats.
It is sometimes said there is too much consensus in this House or in politics, but on this issue there is very little. I agree with very little of what Senator Morrissey said and not a great deal of what Senator Paddy Burke said. Of course, I agree with precisely nothing of what Senator Ross said, although I am sure that we would both feel bad about ourselves were it otherwise.
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.
I welcome the Minister to the House for this important debate. We have had a number of debates on all elements of aviation policy announced in the last few weeks. It is welcome to get clarity once and for all on these issues. I will try to address those elements that have a particular relevance to the west of Ireland, the mid-west and County Clare in particular.
It is important that the right solution is found for Dublin Airport. There was much negative comment during the last few months over the perceived delays by the Government in making this decision. It is much better to spend the time going through the planning stages rather than jumping to conclusions much too early.
Successive Governments from all sides have been responsible for making shoddy decisions on future planning for infrastructural projects. That has got us where we are today with decisions on the West Link toll bridge and on other infrastructural projects that did not take account of the expected growth. I welcome the fact that the two parties in Government have played an active role in ensuring that the right decision was made.
There was an effort on behalf of the Opposition to drive a wedge between the coalition partners on Dublin Airport. It was perceived by some elements in the media and in the Opposition that there were differences of ideology. I am sure that there were not and that the best interests of society were taken into account by the two parties coming together.
A comprehensive package of measures has been put together to ensure the level of development required to cater for the future needs of the travelling public. It is good that this decision has been arrived at. However, there have been references in the media to the effect that it is a fudge.
From the perspective of the media and the Opposition, they did not succeed in their aim of driving a wedge between the Government parties and creating the false dawn of an election. That was wishful thinking.
The decision of the Government in this matter has once again shown the resilience and ability of the two Government parties to work together for the betterment of the public. There is no doubt regarding the integrity the measures and decisions taken in this matter and the Government will continue to manage all necessary policy elements into the future ——
The Government parties have the capacity to ensure the policies that are required will be developed and delivered in the coming years.
In regard to the decision to sell a partial interest in Aer Lingus, the Minister and several other speakers observed that Aer Lingus requires access to working capital in order to ensure it has the capacity to compete with other significant players in the market and to develop the type of route structures it has previously been unable to target. The necessary replacement of the fleet, and the long-haul fleet in particular, should allow Aer Lingus to target markets in the Far East and to ensure Ireland has a capacity to look further than mainland Europe and the United States. We are all aware of the importance of the emerging markets in the Far East, especially China. Their significance is recognised in the Government's Asia strategy as is the importance of developing business links——
Senator Paddy Burke is well aware that I intend to do so. It is important that the country as a whole should establish itself as a base for investment from Asia, particularly China, with a view to ensuring the continued growth of our economy.
The Minister, Deputy Cullen, addressed a number of the issues that remain to be considered. Of particular importance is the strategic issue of the slots at Heathrow Airport. The Government's decision to retain a crucial shareholding in Aer Lingus will ensure those slots are protected. An issue that is critical from the perspective of the west and mid-west is the importance of daily access to the United States. This is critical for tourism and for the development and retention of the business that has been established in the region on the back of the work done by Shannon Development over many years. As Senator Finucane is aware, an integral part of this is the necessity to ensure direct daily links between the east coast of the United States and Shannon Airport.
Anything that might threaten this would be of great concern not only to me but to all Oireachtas Members who represent the mid-west. However, the retention of the golden share in Aer Lingus will ensure the Government is in a position to deal with this issue over the coming years. There has been much talk in this regard about the liberalised market and the open skies policy in particular. The upside of this is the potential growth for Aer Lingus and the east coast but there is an equal amount of concern in the mid-west regarding the lack of service in that region. I hope the Government will utilise its influence in terms of the share ownership to ensure Aer Lingus continues to provide direct daily services from the west.
There is no doubt that the open skies policy is a major issue for Shannon Airport. I compliment the progressive approach of the group of organisations that have come together in the mid-west from both the public and private sector with a view to embracing the changes that will arise as a consequence of the open skies policy. This group is prepared to accept the challenges that lie ahead but has also clearly stated the necessity of support from the Government. I am hopeful that support will be forthcoming. What is required is a transition period to allow for the phasing in or out of the current bilateral situation. The current arrangement involves a one for one system in terms of the landing of aircraft from transatlantic points. The group to which I referred has stated clearly that a five-year period is required to facilitate the restructuring necessary for the transition to the open skies situation. This seems to be a reasonable timeframe.
There is a necessity to improve the infrastructure in the region to ensure the future viability of Shannon Airport. It is not merely a question of the future viability of the airport as a stand-alone structure. Shannon Airport has been and must continue to be a key driver in developing the economy of the region through foreign direct investment and through facilitating the business interests and the major international corporations that have developed there. It also serves as a gateway for tourism right along the west coast.
Critical in this regard is the upgrading of the N18 from Galway to Ennis to dual carriageway status, which is already under review by the NRA. This will reduce the journey time from Galway to Shannon to approximately 50 minutes and will ensure that large centre of population can provide Shannon Airport with the throughput of traffic that is so badly needed. Although it is already at an advanced stage in terms of the acquisition of lands, the fourth river crossing in Limerick must be expedited. I ask the Minister of State to consider these key infrastructural requirements as a matter of urgency.
Another important element is the delivery of the first phase of the western rail corridor. A rail connection from Ennis to Athenry will facilitate access to Shannon Airport for rail passengers from Galway. As part of this, the Government should secure the immediate involvement of Iarnród Éireann in the development of a rail spur from the Ennis to Limerick line which will connect at Sixmilebridge through to Shannon Airport. This is a short section of railway but it would make a significant difference to the airport in that it would create a triangle between Limerick, Ennis and Shannon. This would also facilitate access from Galway and the west if the western rail corridor becomes a reality. An issue that relates to tourism interests and Bord Fáilte Ireland is the necessity to deal with the marketing and branding of the region to ensure it is capable of dealing with the challenges that lie ahead.
I wish to put on record the tremendous commendation that is owed to workers in public sector companies for their ability to recognise the challenges ahead and their willingness to embrace the change necessary to take these companies into an environment in which competition is very much part of the reality, in a manner which will allow them to develop. Those who have devoted their lives to the development of these businesses — especially Aer Lingus workers — deserve all our recognition and thanks. Any changes to work practices must be undertaken in a sensitive way that takes cognisance of the tremendous input workers have made over the years. In many cases they have forgone wage increases in line with practices and customs that existed for many years in order to allow certain restructuring to take place. It is important at a time when we are discussing the part-privatisation of Aer Lingus that we should recognise the contribution that the workers, including those who have retired, have made to the company.
I welcome the Minister of State, Deputy Callely. We are all grateful that the Government has finally made a decision on this issue. This was a classic example of Shakespeare's observation that procrastination is the thief of time. The Government dithered over this matter for months. Senator Dooley referred to the media but it was the Government that caused all the media speculation. I am amazed by Senator Morrissey's inconsistency during the debate in this House. He has given many radio interviews during which he repeated the Progressive Democrats mantra of the importance of competition. It seems to be game, set and match to Fianna Fáil regarding the terminal. At long last, the dithering is over and this decision has been made.
I wish to speak on the issue of Shannon, which concerns people of the mid-west region. We debated the State Airports Act 2004, the break-up of Aer Rianta and the creation of the Shannon authority on an autonomous basis but have not as yet reached a conclusion. The chief executive, Mr. Pat Shanahan, and his board have approached their business in a serious manner. Shannon, which has a current debt of €77 million, has lost money for many years. The Minister for Transport made a promise to this House that, with the break-up of Aer Rianta, Dublin Airport Authority would take over the debt of Shannon. Last year, Shannon lost almost €3 million. Passenger numbers there experienced a decrease of 0.3% compared to 2003, whereas Dublin experienced an increase of more than 17%. Shannon Airport Authority, in order to attract Ryanair's business, made the generous concession of €1 per departing passenger, thereby incentivising air travel in that area. We are grateful to Mr. Michael O'Leary for opening up four further airports to travellers from Shannon.
However, much uncertainty remains over Shannon Development's future as an organisation to promote industrial development in the mid-west region. For a long time, it has acted as a catalyst for industrial development and as a stimulant to tourism in the region. A cloud of uncertainty hangs over this organisation. I have often been critical of it but ultimately praise its work. Recently, the Tánaiste stated that the Shannon free zone would have to bankroll the new Shannon Airport Authority. Shannon Development was correct to say that this would have a catastrophic effect on its viability.
A further cloud of uncertainty hangs over the dubious decision to decentralise Enterprise Ireland to Shannon. It is dubious in that a mere two or three people have volunteered to transfer from Dublin to Shannon. The belief within Shannon Development is that it will be absorbed by Enterprise Ireland when the Minister of State at the Department of Finance, Deputy Parlon, finally decides, over the preferences of the Dublin staff, that the latter organisation will move to Shannon. It is significant that within a few days of signing his contract with the Shannon Airport Authority, Mr. O'Leary claimed that the collapse of an Italian airline, Volare, meant that up to six Italian airports were competing to attract Ryanair at more attractive terms than those offered by Shannon. This serves as an example of the existing uncertainty and competition.
The discontinuation of the bilateral agreement is a cause for concern in Shannon. This must be examined in the contexts of the Minister of State's speech and Aer Lingus. If the bilateral status of Shannon is discontinued, followed by the sale of 51% of Aer Lingus, that airline will then become more profitable through the opening of the American market. How is this reconciled with a situation where a prominent director from Shannon said that the discontinuation of the bilateral agreement would be accepted on condition that it is phased over five years? These five years would help Shannon to remain economically sustainable.
How will the Minister of State square the circle? Will obfuscation recur until the next election in two years time? Decisions may not be made on the sale of Aer Lingus or the bilateral agreement because local politics dominate the thinking of the Government, as was always the case for Shannon. However, many of the unfavourable changes which took place in Shannon were brought about by Fianna Fáil.
We await action on the bilateral agreement. It will have the economic effect of displacing approximately 400,000 US passengers to Shannon each year. One million customers of low cost carriers are needed to make up for this economic loss. Clearance of Shannon's debt will require an estimation of the airport's viability. Not only is Ryanair's expansion needed but other low cost carriers must also be attracted.
I am critical of Aer Lingus outside of its transatlantic base. The serious deficiencies that exist in terms of providing a viable service to customers are noticeable if one attempts to make connections between Dublin and Shannon. I wish that Aer Lingus would look more favourably on domestic business and at least provide the opportunity to fly between Shannon and Dublin. Regrettably, that service is not offered at present.
Shannon is important to its region. It has long been an economic catalyst and has employed many people. Uncertainty exists in the region and many pieces of the jigsaw will have to be put in place before satisfaction will ensue. I look forward to a reply which will address the concerns I expressed.
Most of the spokespersons on this subject have changed, as have the relevant Ministers. As Senator Finucane said, the recent Government announcement was game, set and match to Fianna Fáil. The Progressive Democrats, passengers and taxpayers were definite losers. In years to come, we will look back on this time as a missed opportunity. I have often been asked why Baldonnel was not considered as a second airport. People from Carlow would welcome this as they would not have to cross the city. Why is everyone forced to use Dublin Airport? Most capitals have two airports.
I welcome the decision to sell the majority shareholding in a firm which will realise important capital. However, we should look carefully at the lessons to be learned from the Eircom privatisation debacle, when taxpayers got a bad deal. Similarly, taxpayers and farmers got a bad deal when Greencore was privatised.
Taxpayers may be regarded as consumers. The Minister might change his opinion if he tried to get a new telephone line or to have a telephone pole removed. The bottom line is that the service to taxpayers and consumers has gone rapidly downhill since privatisation.
I remind Senator Wilson that Fine Gael's record is proud in this area. As Minister for Transport in the mid-1980s, the late Deputy Jim Mitchell allowed for the development of Ryanair, which has revolutionised air travel. It is cheaper to fly with Aer Lingus now than it was 20 years ago. If the prices Aer Lingus was charging 20 years ago had increased as planned, one would have to pay over €1,000 for a ticket which now costs €100. It is important to record the point.
As I believe in being as politically fair as possible, it is appropriate to pay tribute to former Deputy Jim Mitchell for allowing Ryanair to commence operations. I welcome the Minister to the House and the decisions of Government, which are essentially correct. While it is true the State could have invested in Aer Lingus under the Brussels rules, we saw in 2001 that if there were a downturn, all sorts of obstacles would have been placed in the way of such a measure. It would have been represented as subsidisation. State airlines in other parts of Europe went bankrupt as a result of such events. All things considered, the Government's approach is correct.
I noted the Minister's comment that the emphasis in Aer Lingus should now be on growth, rather than just on survival, and the extension of connections to further flung parts of the world such as Asia and South Africa. As Senator McDowell observed, it is an interesting reversal that the transatlantic flights which used to be loss-making are now among the most profitable undertakings of the business. I accept that the 25% plus shareholding which the Government will retain will provide it with substantial leverage in strategic decisions which relate the vital interests of the country. There are few interests more vital than our air connections.
There is an instinctive reaction in some quarters against any form of privatisation. Some of the voices from those quarters were heard at the Labour Party conference at the weekend. I am not inclined to entertain lectures from such voices. I have been around long enough to remember what happened to Irish Shipping which was simply abandoned when the Taoiseach of the day went on what he called a white elephant shoot. I remember the very unhappy outcome of the sale of Irish Steel in Cork to a fabulously wealthy Indian. It was sold a few years later for a nominal amount, the facility was closed and the owner walked away. Without referring to matters which are the subject of tribunals, the sale for a song of the second mobile phone licence was a disgrace given that it was worth approximately €400 million within two years. Where were the then Tánaiste's departmental officials, programme advisors and others when that was done? Contrary to Senator Browne's comments, the taxpayer was not the loser in the Eircom privatisation. One can argue that incipient shareholders had their fingers burnt, but that was a separate issue. The general public interest did not suffer.
It is amazing that discussion of the simple economic law of supply and demand has been absent from the debate on Aer Rianta. Taking air travel and airport charges together, the real cost of air travel has plummeted in the past 20 years. It is not, therefore, in the least bit surprising that demand has soared. It is this which has created the capacity problems we are grappling with currently which are compounded by concerns about security. I accept that Dublin Airport, at which until recently most of us were very comfortable and of which, even, very proud, has become quite difficult to get through. I worry about the effect delays will have on regional connections within the country. If one must wait at the airport for two hours before one's flight, one might as well travel by road to most domestic destinations. There may be a case for establishing a separate, fast-track regional service within the terminal which people can get through without entering the general melee.
While I will not get into the issue of competing terminals with which I have dealt before, a matter which has not been adverted to sufficiently is the extraordinarily high car parking charges at Dublin Airport, especially at short-term facilities. Access to the airport must be improved to cope with the increased numbers of visitors envisaged. I look forward to Government announcements in the reasonably near future on the provision of some form of rail access. If visitor numbers are to increase to between 30 million and 40 million, I suspect more than one type of rail connection will be needed, including a metro and fixed-track line.
Some concern has been expressed about the way in which debt will be managed, especially that of Shannon and Cork airports. While it is important the airports get off to a good start, Dublin Airport is not anxious to be saddled with the whole burden. Whether the Government has a role in the matter must be considered.
I reject completely the politically reductionist and populist approach of Senator Ross which reduces everything to seats and political interests. While he has not stated it explicitly, it is obvious the Senator believes the Government should attempt to ride roughshod over the trade unions while ignoring social partnership which works very well. The decisions stand on their own merits irrespective of political considerations.
I endorse everything my colleague, Senator Dooley, stated about improving access to Shannon Airport. Presumably, the 25% Government share will help to maintain connections to the airport. My only doubt is that if it is possible to otherwise ensure connections to Shannon Airport, the five-year transition period which is being sought may be too long.
My final appeal to the Minister is only tangentially related. While I am not in favour of the privatisation of the Great Southern hotels, it is clear that they need another home. The Dublin Airport Authority has no interest in them and the parcel has, unfortunately, been passed through a number of different bodies. A more suitable home must be found for them.
I welcome the Minister and the aviation action plan, although I do not think the term is appropriate. I see no connection between the interesting matters of Dublin Airport and the sale of Aer Lingus.
It has not been that long since the House spoke about Dublin Airport and the approach we should take there. I noticed with some amusement as I listened to the Minister's contribution that one of the decisions in the action plan is the completion of pier D as an appetizer to the building of a completely new terminal. It is the same pier D which could and should have been completed long before now had not the interference of the current and previous Governments stopped the project in its tracks. If it had not been for that interference, pier D would be built by now.
As for the new terminal itself, it is perhaps reassuring to learn about the very detailed process that will be carried out before it will be built. However, these are perfectly normal actions that would be taken completely for granted in any public building project. They are being trumpeted as if there is something unique about them. Somebody should tell the Minister that it is not new to look before one leaps, to consider carefully what one builds before it is built and to ensure the money spent is well spent. This is standard operating procedure — or it should be. It may have been necessary to fluff up these details in order to turn this into a full blown action plan. The fact that the Minister has chosen to stress elements that should be part of any building project suggests he is making a hard sell of this. I wish the new board at Dublin Airport all the best for the future. As far as I am concerned it should be able to get on with the job and should be judged on the quality of what it succeeds in doing.
After much huffing and puffing the Government has decided to sell off Aer Lingus once again. This will be the third time in recent years that it has got to this preliminary stage of selling off the airline. This has been long discussed but the argument never appears to move forward. Perhaps it will now. First, Aer Lingus had to be sold off because it was almost bankrupt. Then we were going to sell it off because it was making a great deal of money. Regardless of the circumstances the answer has always been to sell off the airline. The only reason it has not been sold before now is that the Government has lacked the courage to go through with the deal.
When we debated the Goldman Sachs report here at the end of last year, I surprised more than a few Members by suggesting that on the basis of that report — perhaps it was not expected because of my business background — selling off Aer Lingus at that point was not such a good idea. Nothing that has happened in the past six months has caused me to change my mind on the matter. At the time Senator Mansergh was surprised that such an opinion came from a business person. I have two problems with the sale, one is the price and the other is what we give away. The Goldman Sachs report made it clear that the only way we can sell Aer Lingus is at a discount price. The Minister stated:
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.
He further stated:
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.
That is the bit that scares me about the price. Would any of us running our own pension fund invest in a company where the 25% shareholder states it is putting into the memorandum and articles of association conditions that specify certain matters that would be protected regardless of whether it would make commercial sense? If that were the case, why would anyone buy such a company at the high price we would hope to achieve?
Either we hold on to the airline or we sell it all off. I am not a believer in holding on to 25% and hoping that the majority shareholder would take an interest in it. That is a bad decision. We should decide to hold on to Aer Lingus and sack the board if it does not do a good job. We have done this in the past with State companies. The benefit to Aer Lingus of the slots in Heathrow is not unlike infrastructure such as roads or railways. The State should own this infrastructure. The Goldman Sachs report made clear that the only way we can sell Aer Lingus is at a discount price. We will have to sell the airline at a price that is far below its true value. We would be better off holding on to it and financing its fleet replacements from our own resources. We can do that although it is against my usual thinking in this area.
Maybe we cannot. However, if we appoint a board with which we do not interfere whose job is to make a success of the airline, it should be sacked if it does not do a good job. Let us not interfere with it. Let us not be half-hearted and believe we can hold on to 25% of the airline — with the unions holding on to another 14.9% — and believe somebody will pay a good price for 60% of a company because he or she can do the right thing with it commercially. We are wishing for the best of two worlds and we will fall between the two.
I thank Senators for their contributions to this debate. I was present for most of it and I apologise to those speakers whose contributions I missed. Unfortunately I had to be in the other House at the same time.
I am surprised at some of the analysis drawn by Senator Quinn, as someone who has run a successful company and knows the market well. Many private sector companies have major stakeholders but that does not appear to be an issue. Although I do not wish to draw an absolute analogy with what happened recently with Manchester United football club, it was most interesting that when it was being taken over everybody was deeply concerned about somebody holding on to a 25% stake to block the takeover of the company and prevent it from going private. This is part of the reason the State wants to have some strategic interest in the airline. The one thing we cannot do, which is what we have been doing with Aer Lingus, is expect it to compete with everybody else with one and perhaps two hands tied behind its back.
I have been at pains to say to everybody that the issue is not about giving Aer Lingus a sum of money next week or next month. If it were that simple we would all be fine. Aer Lingus must have ongoing access to the capital markets to make strategic decisions, as would any company. In particular, it must be in a position to do so when the aviation market experiences a downturn, which it inevitably will, given that it is the most cyclical of all sectors in the marketplace. It must be able to deal with that and have access to capital markets on an ongoing basis. It is not feasible for the State to remain a 100% shareholder.
I have no doubt that if one sold the company in its entirety one would do better but that is not to say that it is not legitimate to keep a stake in the company and see what the market price will realise. I am confident there will be a great deal of interest in Aer Lingus because if the private sector is to invest it will want to make a profit. It will want to invest in a company that is positioned for significant growth. Aer Lingus has the potential for an incredible amount of growth. Planning its growth on foot of the decision will allow it to go to the market, especially to purchase aircraft. The lead-in time is about 18 months to two years so it would need to be doing that immediately.
I am surprised at some of the remarks made about the Dublin Airport Authority. I again apologise for not being present for all contributions. There is a symmetry between the development of the Dublin Airport Authority and Aer Lingus. Aer Lingus is the biggest customer of the Dublin Airport Authority. It is in the interests of the Dublin Airport Authority to make sure that it develops the airport in a way that maximises the airline's ability to grow within the airport. If the Dublin Airport Authority took the wrong decision, that would not be in the interests of the airline. By doing it the wrong way the authority would not grow the airport and thus its own business because it would not increase passenger throughput.
Senator Quinn is correct in saying I am stating the obvious in regard to due diligence. The reason I have done so is that many commentators referred to gold-plating this and that which I considered wrong. It is important that I would spell out the caveats that exist and how we will ensure that would not happen. I agree with Senator Quinn in principle. It is obvious, but sometimes it is necessary to state the obvious.
I do not have a great deal of time to go through what everybody said. We have made good decisions that for the first time will put the aviation sector in a position where it can grow rather than merely cope with a crisis situation. That is a fair assessment.
It is not for the Government to decide the location of the second terminal. It is not for any political party to decide, although Fine Gael appears to state that if it were in Government it would decide. That is not the legal basis that exists. It is a matter for the Dublin Airport Authority.
We should all draw a line in the sand. It is very wrong to be making references to the board of the authority. It is a new board. Its members are well-known and respected by all in the business community. They are regarded as people who have proven themselves to be highly successful. What happened under Aer Rianta, be it wrong or right, is history and I will not comment on it. What is important is that there is an entirely new board in place with an entirely new mandate, a clear Government policy and a clear direction. I trust the board has the ability to deliver and I wish it well.
Of course Shannon Airport is extremely important strategically. We have had good discussions with the Americans. There are also issues to be addressed at EU level. I am hopeful there will be a very good outcome which will be good for the development of the aviation business in general in Ireland. No airline, be it Irish or international, has suggested to me that it does not believe there is a great future for Shannon Airport in terms of both European and transatlantic destinations.