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Dáil Éireann debate -
Thursday, 11 Nov 1976

Vol. 293 No. 11

Air Companies (Amendment) Bill, 1976: Second Stage.

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

The main purpose of the Bill is to increase to £75 million the aggregate of borrowings by Aer Lingus and Aerlínte which the Minister for Finance may guarantee at any one time. Under the Air Companies (Amendment) Act, 1969, the limit was raised from £24 million to the present level of £50 million. This was done in anticipation of the major fleet re-equipment programme which the air companies were then embarking on and which involved the acquisition of the two Boeing 747s and eight Boeing 737 aircraft.

The net result is that the total amount of borrowings guaranteed by the Minister for Finance as at the 31st October last stood at £35 million and two other loan facilities for £6 million and $12.5 million which are now in course of finalisation will bring this figure to just under £50 million. Government guarantee is a normal requirement in obtaining loan facilities so that it is now necessary to raise the limit to enable the air companies to make continuing provisions for future capital requirements. The increased borrowing facility provided by this Bill is not required by the air companies immediately. Because of the unsettled state of the world capital market at present the air companies must be in a position to negotiate loan facilities as they become available, to be drawn on as required.

Perhaps this is a suitable occasion to say something on the difficulties confronting the national airline and the future outlook. I need not recount the factors which have made recent years such a difficult period for the industry world wide nor the additional factors, particularly the violence in the North and inflation, which made the period such a critical one for the Irish airline. Over the past two years the air companies suffered net losses of over £5 million in each year before taking account of extraordinary items such as the unrealised loss of £4.6 million in 1975-76 which arises on the repayment of foreign loans due to the devaluation of sterling and the extra £3.8 million received from a US court settlement in 1974-75. These enormous losses are almost exclusively attributable to the Atlantic service. The very depressed state of the industry on the Atlantic is due in the main to a fall in traffic over a number of years, intensive charter competition and uneconomic fares. This depressed state continues and there is little sign as yet of an early improvement. It is of little consolation that foreign airlines have fared no better on the Atlantic, but they have the cushion of much wider networks with sectors more profitable than the Atlantic.

These losses threaten the very survival of our Atlantic service. If the loss situation cannot be quickly remedied we would have little option but to terminate or very seriously curtail the service. This would be a very severe blow and costly in terms of jobs, tourism, national development and morale. Government subsidy would be no solution. We could not afford to pay subsidy of anything like the magnitude of present losses. A subsidised airline, with the deliberation that subsidy brings with it, would have far less chance of survival on the Atlantic in its present exacting and depressed state than an airline standing on its own feet fighting for survival.

I am glad to say that our airline is fighting back. It is pursuing a strategy based on the retention of the present fleet, increased marketing and charter activity, rigid control of costs and the maximum development of profits from related and ancillary activities. For the current year ending on the 31st March next the air companies have set a target of an operating profit of £1.5 million which represents an improvement of about £3.5 million at operating level, over 1975-76. Latest indications are that this target will be realised and possibly exceeded.

This is quite encouraging but there are difficult years ahead. Traffic on the North Atlantic is unlikely to resume the strong sustained growth rates of former years. Future growth cannot be relied upon to solve our difficulties. Containment of costs, efficient operation and vigorous marketing will continue to be the main key to the solution. In the national context the importance of pay restraint is being stressed over and over again but I can see no area in which pay restraint is of more vital importance at this juncture than in our struggle to preserve the fabric of our airline. Given the required containment of costs, I have every confidence that with a renewal of growth in air travel our airline can survive the difficult years immediately ahead and continue to serve the community as effectively as it did in the past.

I am also taking the opportunity in the Bill of providing for control of the remuneration of the chief officer of the air companies. This arises from the general policy of taking the remuneration of chief executives of semi-State bodies under control as and when the opportunity arises. The intention here is to allow the boards to fix the total remuneration of the chief executives within the range approved by me with the consent of the Minister for the Public Service.

Finally, the Bill is consolidating all the provisions in the existing legislation relating to borrowing. The advantages of having all the relevant provisions contained in a single piece of legislation are self evident.

I commend the Bill to the House.

We recognise and we appreciate the reasons why this Bill has to be introduced. It is designed to permit our national airline to continue to maintain itself by raising the level of borrowing from £50 million to £75 million. We are all very conscious of its record and what it has achieved. Likewise, we are conscious that it has fallen on hard times in recent years. We know the reasons for that. We know it has made a supreme effort to overcome the difficulties and we know it has been successful to some extent. It is not, of course, alone in being in a loss situation and, comparatively speaking, its losses are nothing like the losses sustained by airlines like Alitalia and the American networks. Our airline has made a big effort to extricate itself from this loss situation and we hope the projected improvement adumbrated will be achieved.

This airline has been involved to a great extent in promotional activities and the promotional budget in North America, is, I understand, more than the combined budgets of Bord Fáilte and other bodies involved there. In no small way Aer Lingus has been responsible for the growth in tourism from North America over the past ten or 15 years. Its role has been a major one. Unfortunately it is the North Atlantic route which is causing most of the trouble now.

In the past other hazards, such as the landing rights issue, have had to be overcome. There appear to be no ill effects as a result of that major issue. I believe the airline would admit this. European traffic has increased by 7 per cent and cross-channel traffic by 14 per cent. Atlantic traffic has gone down by 18 per cent. I am talking now about passenger traffic, not cargo traffic.

One of the reasons for the introduction of this legislation is the need for currency readjustment as a result of borrowings outside the sterling area. Having indulged in this kind of borrowing the airline is in big trouble now because of the readjustment that has to be made.

Aer Lingus operate out of Britain and from the Continent as well as out of Ireland. They also operate out of North America. A big percentage of the revenue from this traffic must be in hard currencies, like the dollar, the franc, the mark and so on. This must put them in a much more favourable position from the point of view of non-sterling borrowings as compared with the ESB, Bord na Móna and the other bodies under the control of the Minister for Transport and Power. Aer Lingus must be in a slightly privileged position and I should like the Minister to elaborate on this. They have dollars available to them and they have hard continental currencies available to them. Those who book passage in North America pay in dollars. The percentage booking in Ireland would be much lower.

There must be a good dollar return from North Atlantic operations. The number of continentals coming here would likewise be greater than the number of our people visiting the Continent. There should be francs and marks and other European currencies available to Aer Lingus and these should be helpful in currency readjustments. They are in a strong position as compared with those who utilise sterling only. They are in a more favourable position than the ESB and so on because these have to import oil and pay for it in dollars. Most of the employees undoubtedly work in Ireland. They are paid in sterling and deal in sterling all the time. The number of employees who would have to be paid in the hard currency of other countries would not be many in comparison with the total number of the employees of the company. This needs to be explained by the Minister. He should tell us what it means to the company to have access to the hard currencies in order to deal with their borrowings in hard currencies. It seems that they have the currency required to repay the non-sterling loans at their disposal without having to have a readjustment because the pound keeps falling. I should like to know how much more the company would be in the red if they did not have access to that currency.

On the question of currencies I should like to refer to an article in The Irish Press of today, under the heading: “Aer Lingus may drop sterling link”. It states:

Aer Lingus is planning to drop sterling as the currency for calculating fares and is working towards a special negotiating unit called the IATA unit of value, a company spokesman confirmed yesterday.

The IATA unit would be based on the system of special drawing rights of the International Monetary Fund and would overcome severe complications in fair calculations caused by the steady decline in sterling in recent years.

I understood that the conference in question is in progress in Singapore. It seems that air companies are ready to switch from sterling to dollars. The article further states:

The world's airlines believe that it would be better to drop sterling and to use the dollar alone as the base currency in calculating fares, pending the establishment of the air transport association's own unit of value.

If this is adopted what will it mean to travellers from Ireland and those using Aer Lingus from Britain? On the recent record of the drop in sterling if this change comes about the people here and in Britain will have to find a further 20 per cent for their fares if they wish to travel by Aer Lingus. This should be explained before Aer Lingus adopt it. We would need a definite assurance about it.

I should like to quote a further passage from that article:

Asked if this would result in any increase in fares to enable airlines to compensate themselves fully for differences in value between sterling and the dollar, the spokesman said this was doubtful.

That statement does not explain very much. The spokesman should have elaborated. There is an obligation on Aer Lingus, and on the Minister, to be specific and spell out what a change such as this would mean to travellers from the sterling area in increased fares. It is important that we are told that before the company is committed to a change. We are all aware of the criticism by Irish people living in Britain when a rise in fares is sanctioned. Irish organisations in Britain continually harp at the cost of flying home and to suddenly hit these people with such an increase is a liberty that should not be permitted. I appreciate that such a system would mean something to the viability of the airline but if it will cost those using the airline within the sterling area dearly that is another matter.

Aer Lingus are involved in many ancillary activities. We have heard a lot of criticism from different bodies about Aer Lingus being permitted to get involved in those activities. They give us to understand that their involvement in those activities is a drag on the air operations of the company. As far as I can ascertain that is not so. The activities of the company vary a lot. The company is very much involved in hotel accommodation, recreational facilities and other investments. With the principle exception of the Tara Hotel in London it appears that these ancillary activities are proving profitable in the main.

So is the Tara Hotel.

I should have said profitable but has not reached its full expectation of projection. They are involving themselves 33? per cent in ancillary activities.

There has been criticism of this but I think it is only right we should express appreciation of their involvement in outside interests. Aer Lingus have interested themselves in the hotel industry. So have TWA, Pan-Am and other airlines. They have a 50 per cent interest in the Dunfey Corporation of America. The profits from these involvements will supplement their ordinary airline operations on the North Atlantic route and will show in their balance sheets. They have the Tara Hotel in London, into which their flying activities are very large. They have acquired an interest in Tenerife and this is only right because many people from Ireland these days go on winter holidays there and it is logical that Aer Lingus would have an interest in the hotel side of it. Their ancillary involvements in the US will help to pay some of their promotional costs there and will be beneficial to the entire operation of the airline.

Our national airline for years have been known as the friendly airline but recently there have been criticism that they can no longer be known by that term. Of course, there are all sorts of hazards and annoyances at airports these days and people tend to get nettled more quickly than they do at railway stations or other such transport termini. However, Aer Lingus should be very careful to try to preserve their tag of "the friendly airline". We hope they will do so even if it means an extra smile from their lovely hostesses. I do not travel by air very frequently and I do not think that my being the Opposition spokesman on Transport and Power has anything to do with it, but I have had no cause for complaint against the service of Aer Lingus.

Aer Lingus have been the target of criticism many times in the past in regard to charter flights. We appreciate they are in a very difficult position in regard to the charter business and we must remember that the North Atlantic charter service went completely astray. If there was a proliferation of that service our regular flights would come to a standstill. However, a lot of the flak in regard to the charter business blew over on Aer Lingus. They were not the only airline involved in trying to clear up the abuses. I think the Greek airline were also responsible.

People have said that if it were not for Aer Lingus this country would have had more tourists who would have come in by charter. We in the House have a big commitment to our national airline and we on this side have always supported them and will continue to do so. I wonder if it would be beneficial to our tourist industry and to the national airline if Aer Lingus were to repossess and use the Jumbos they have chartered on the North Atlantic route. They have spent a lot of money on promotional work on the other side of the Atlantic. The supplemental air services, who have done nothing for Ireland, seem to be getting a large share of the charter work, particularly into Shannon. Perhaps Aer Lingus should give more attention to this growing market, particularly on the North Atlantic route and, perhaps, here there is room for more co-operation with Bord Fáilte so that the tourist traffic from North America would be maximised.

We support the Bill. It would be wrong to say we welcome it because we do not welcome the necessity for it but we support the airline in their hour of need. Their losses of £5 million odd are not very great. We look forward in the near future to the airline getting back into the black out of the red. In their past history the companies have proved themselves. They are a good commercial operation. Nobody can deny that. Like any good commercial operation they have met a bad patch, but we feel they will prove themselves again and pull out of it in the not too distant future.

The fact that their record has been so good in the past does not put them above criticism from any side of the House. I will be very interested to hear the Minister explain what the effect will be of the fact that they have access to dollars, deutschemarks and hard currency by way of revenue. I would say a big proportion of their revenue comes from hard currency each year. I will be interested to hear what effect this has on repayments of non-sterling loans and how a currency readjustment can occur when they have dollars, deutschemarks and francs available to them by way of revenue.

This Bill proposes to raise the borrowing power to Aerlínte and Aer Lingus to £75 million. The companies made good use of the money they borrowed previously when the limit was raised from £24 million to £50 million. They purchased two Boeing 747s and eight Boeing 737s. On this occasion, although the money is not required by the companies, the Minister is giving authority to raise money for future planning.

There is a loss in both companies at present. This is easily understood in one of the most difficult periods of our history. I will not go over the ground again because it has been worn threadbare. Until we have a normal, peaceful climate we cannot expect to return to a period of buoyancy in incomes earned from our overseas travel commitments. We in the Shannon area are very concerned that both companies should be buoyant. The whole economy of that region is tied up with the success of the companies because of the employment they create.

This is another indication of the Government's faith in our semi-State companies, for which they have a certain responsibility, and of their faith in our future. If the losses are allowed to continue, they will threaten the very survival of our Atlantic service. It is alarming to think that, if we cannot correct these losses and turn them into a profit, it may be necessary in a very short time to terminate this service or curtail it. Either would be a disaster for us in the Shannon area in particular. I have great faith in our tourism potential. Last year we had an increase in the number of tourists coming into the airport at Shannon. There is growing evidence that that will continue in the coming year. We should boost morale in the tourism area and show confidence in the expanding potential which could be described as a national development.

This is a right step at the right time. I congratulate the Minister on making provision in good time to allow the companies to re-equip if necessary.

Yesterday we debated the introduction of a joint committee to investigate the affairs of the semi-State bodies. Speaking as a Deputy for North County Dublin I am proud to say I represent a constituency which has had very close ties with Aer Lingus since the company's formation. If all the other State companies had operated in the same manner as Aer Lingus there would be no need for the setting up of this committee. Down through the years Aer Lingus have maintained one principle above all others—they shunned the word "subsidy" and operated on a commercial basis. They did not operate on the basis that would seem to be the norm of other semi-State bodies, that is, spending money for the sake of spending it and working on the theory that no Government could allow them go to the wall, in other words, that whichever Government happened to be in power would pay the required subsidy at the end of the year, regardless of what were the losses. As a Deputy for North County Dublin, I am very proud that our national airline has operated on a commercial basis. The need for this Bill confirms the basic principle held by the management and staff of Aer Lingus, that is, that they have no wish to become involved in a situation of going to the Government each year cap-in-hand asking for the subsidisation of losses. It was the airline's wish to operate on a commercial basis that has brought about the necessity for this Bill. However, I regret that the Bill is necessary but I am pleased to support it. No other semi-State body has done more than Aer Lingus either on a national or an international level, for the good name of Ireland. This organisation have done more than any other to preserve the pride of the Irish people in something specifically Irish. I say this because of the wonderful reputation of the airline in relation to courtesy, friendliness, efficiency and so on both at home and abroad.

At a time when the airline is facing difficulties we should be failing in our duty if we did not support them fully. I am glad, however, that they are overcoming the problems but that is something I shall refer to again later. In any case, we have a duty to assist them at this time in their evolution.

The previous speaker referred to the importance of the success of our national airline to his constituency of Clare but in my area of North County Dublin there is hardly a family without a member or a relative working at or near the airport. Indeed, the airline's success can be attributed in large measure to the enthusiasm and the dedication of the people of this area. In saying that I am not in any way belittling people from other areas who have come to work with the airline but the airport was located from the beginning at Collinstown and down through the years the employees have given of their best. In the case of air hostesses, for instance, there was always a readiness to operate a check-in if that was necessary or to assist a passenger after he had left the aircraft if that was considered necessary. It was this spirit that has built up the airline to what it is. That is the spirit that has brought Aer Lingus through the difficult times of the forties and fifties, through the successes of the sixties and which will bring them through the difficulties of today and into the successes of the future.

During the past couple of years Aer Lingus have been experiencing problems. These are attributable to such factors as the economic downturn in the US, the Northern Ireland situation and the high rate of hotel charges and other services. All of these factors have combined to result in a downturn in tourism generally. Here, I must emphasise that these problems were created for Aer Lingus and not by them. There is a peculiarly Irish characteristic of knocking anything Irish, of not giving credit where credit is due. In this context there has been some criticism of Aer Lingus and their operations during the past couple of years. It was said that they prevented charter planes from bringing thousands of tourists from the US. There was much bleating from some hotels to the effect that Aer Lingus were preventing tourists coming into the country. All of this criticism was ill-informed and misdirected. Had it not been for the airline's operations in the first place and for the massive amount of advertising carried out by them down through the years in the US and on the Continent in their efforts to sell the idea of holidays in Ireland, many of these hotels would not have come into existence in the first place. These are the hotels that speak now of mythical thousands of tourists that, according to them, have been prevented from coming here. Instead, these hoteliers and others who offer such criticism should be loud in their praise of Aer Lingus for what they have done to create an interest abroad in Ireland.

Aer Lingus are co-operating with other IATA lines to provide sufficient seats across the Atlantic for those tourists anxious to make that journey. It has been said that if Aer Lingus had allowed the principal charters to come in our tourist figures would have been much greater. There are plenty of charters coming in here. All Aer Lingus were trying to do was to regulate for the benefit of the Irish tourist trade and for the country generally and to put some order into the charter industry as it was operating across the Atlantic. If the situation had been allowed to continue at its level of a few years ago, the whole scheduled service across the Atlantic would have been abolished because they could not have remained in competition with the charters. What does the scheduled service mean? It means that we as a nation have access to the American continent for business on a regular basis. Surely it is important for our industrialists and salesmen to know that they have such a service available and vice versa for the industrialists coming in here. Without this scheduled service this country, which is trying to build up its industrial base would have been in a serious situation. I hope the Minister will nail once and for all this lie that Aer Lingus, by their restrictions on the illegal charter operators across the Atlantic, are in some way damaging the Irish national interest.

Again, when the battle over landing rights for the American airlines was being fought here, we heard the story that if only TWA and Pan-Am could come in here they would spend millions of pounds in America and around the world advertising the attractions of Ireland, that there would be full flights, and if only they could have one landing a day, after a couple of years they would be bringing in two or three planes every day due to the amount of advertising they intended to do in America. What are the facts? They have spent nothing like the sums of money they were talking about spending on advertising Ireland. TWA eventually got the landing rights. All they are doing is creaming off business which Aer Lingus themselves have already generated through their own advertising campaigns in the States. I am not saying that TWA have not done some advertising, but they have done very little compared with the wild promises made by the American operators when they were making their case for landing rights here. They have merely exacerbated an already difficult situation and created great problems for Aer Lingus. Therefore, I would ask that the message should go out loud and clear from this House—and I hope the Minister will re-echo it—that TWA should fulfil the promises they made on advertising, that they should generate extra traffic and not be taking the traffic that is already on the Atlantic away from our national carrier.

Aer Lingus, in their usual manner, are fighting back. This year we have seen significant if not dramatic improvements in the number of tourists travelling with Aer Lingus across the Atlantic. The very success they achieved this year brought certain criticism with it because, anticipating a certain number of tourists, they had leased out their Jumbo to another airline. Due to their advertising campaign and the promotion work they did during the year, they attracted extra tourists. Unfortunately, they had to charter a Jumbo from Alitalia. As I say, through their own efforts, the goodwill they built up, the excellent service they were providing for the tourists coming across the Atlantic, they increased business beyond reasonable expectations, and there was no justification for the carping criticism from certain sections of the tourist trade. Aer Lingus will survive to fight these knockers, and through the spirit that exists among the staff they will once again, in spite of their critics, prove that they are capable of holding their own across the Atlantic and in Europe.

The scheduled services provided by Aer Lingus to Europe are equally important to our industrialists, crossing to Brussels, to the centre of the political and industrial areas in the mainland of Europe. Without Aer Lingus we would be depending on somebody else to provide this vital link with Europe. I think it is only right I mention also the attitude of the British airline and airport authorities. Aer Lingus built up a service, Dublin-Manchester-Amsterdam, Dublin-Manchester-Brussels. The very success of their efforts resulted in their losing landing and pick-up rights in Manchester. When Aer Lingus build up a market Big Brother across the Irish Sea looks for that market. The envy with which the British airways and others looked at the success of the Irish airline is a tribute in itself to the service being given by Aer Lingus.

Aer Lingus also, in the last few years, recognising the problems they were facing and about to face, engaged in ancillary activities such as training. This is again a tribute to the service the staff have given at international level down through the years. Aer Lingus have one of the finest training services of any airline in the world. Every year they bring in for training as pilots, hostesses and mechanics, people from Siam, Singapore, the Bahamas and many other places. This is a substantial source of revenue not only directly to Aer Lingus but also to this country, because the people who come in have to stay in hotels or are living with families. If Aer Lingus were not providing such a high standard of service other airlines would not have their personnel trained by them. The greatest tribute that can be paid to any company is to have their services recognised by their competitors to the extent that they send their staff to that company to be trained. Aer Lingus have also diversified by entering the hotel business and leasing planes, and have done very well in both.

In his speech the Minister referred to pay restraint. I can understand his reason for doing this. If the workers of a company are working hard and, as a result, generating profits, they are entitled to a fair share of the profit. My view is that the staff of Aer Lingus are entitled to a fair share of the profit. As this is a sensitive subject, which is under ballot by the staff of Aer Lingus at present, I do not wish to go into it in any great detail, but any group of workers who generate wealth are entitled to a fair percentage of it.

The Deputy will appreciate that detail will be a matter for Committee Stage.

Proper runways and facilities are necessary at an airport. I am speaking specifically about Dublin Airport. New runways are planned for Dublin Airport and there are compulsory purchase orders for land around the airport. In his reply I should like the Minister to refer to the timetable for the new facilities which will allow the new runways to be built. It was anticipated that they would be built by the end of the decade but this does not appear to be the situation at present because the forward planning has come to a halt. In his reply I should like the Minister to refer to the provision of new runways for what I hope will be a dramatically increased fleet of aircraft.

I should like to pay a tribute to the staff and management of Aer Lingus for the pride which they have given us and the manner in which they have carried on the work of this semi-State body. They have avoided the word "subsidy". If other semi-State bodies had the same record our finances would not be in a mess today.

I welcome this Bill. I am glad to note that the increased borrowing facility is not required immediately, which must be some consolation to the public in view of the gloomy economic news from all parts of the world. Aer Lingus have done a good job in difficult circumstances. Their greatest difficulty is the present devaluation of the £ sterling. The devaluation of the £ is unreal and over-pessimistic and is not justified by the facts. This affects Aer Lingus because most of their equipment is bought outside the sterling area, often in hard currency areas. At a recent meeting of the International Monetary Fund one spokesman voiced his concern for the weaker currency countries and said it was about time different language was used by the many critics from the stronger currency countries in cajoling, advising and telling the poorer countries how to handle their affairs. Countries with strong currencies and many natural resources have an international obligation and should make concessions. Recently I had discussions with some foreign businessmen and was pleased to learn that many countries are prepared to take payment in sterling, even at this time. Obtaining foreign currency is a technical matter and it has to be done through certain channels. However, I just mentioned that en passant.

Deputy Barrett referred to the new IATA unit. He gave his version of the meaning of its publication in The Irish Press. His explanation is too simple, and would be open to an unduly pessimistic interpretation. It is necessary to have an international unit of account in dealing with the tourist industry, particularly in regard to airlines. There are enough complications without having to translate different currencies. If international transport calculations have to be made in a hurry as journeys are often last-minute decisions. An international unit of account would help to reduce the running costs of international airlines such as Aer Lingus.

When a piece of what I describe as permissive legislation is introduced to enable some of our State-sponsored companies to raise additional money, or when further capital is being allocated to them, it provides an opportunity of discussing the performance of the company concerned. Under the Air Companies (Amendment) Bill we are provided with this opportunity in relation to Aer Lingus, Aer Rianta and Aerlínte. Deputies Burke and Barrett represent constituencies that are closely associated with Aer Lingus. There is no doubt that the constituency of Clare which is Deputy Barrett's constituency, has gained tremendous advantages as a result of the activities of Aer Lingus and the other companies referred to in this Bill.

Debate adjourned.
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