I am pleased to have this opportunity to seek to establish some of the facts and policy perspectives surrounding media reports during the past several days that the State, through the Shannon Free Airport Development Company, is contemplating undertaking an equity investment in Guinness Peat Aviation in the immediate future. This was confirmed yesterday by SFADCo when it stated that it had been given the opportunity by the Government to consider taking up the equity option held by Aer Lingus in GPA. The development company also stated in its statement that, having evaluated the proposal, it had offered to participate in an equity issue on terms and conditions consistent with a commercial investment of that nature.
I invite the Minister to confirm tonight whether in fact the Government has asked Shannon Development to take up the Aer Lingus share option in GPA. Looking at the Book of Estimates for 1993, Vote 34 for the Department of Enterprise and Employment, under subheads C1 and C2, allocates to Shannon Development a total of almost £14 million. The newspaper reports that I have read suggest that various amounts of between US$15 million and US$20 million worth of investment are being contemplated. Converted back into Irish pounds, this single investment would exhaust virtually the entire allocation to Shannon Development.
My second question to the Minister is: how does the Government propose that SFADCo should finance this investment and does the Government intend to provide a Supplementary Estimate for this purpose or, if not, can the Minister specify, what other means of finance is proposed?
Clearly, by virtue of the overall size of the annual budget allocation to SFADCo or taken simply on its own account, this is a substantial public equity injection. Can the Minister specify what terms and conditions are being proposed by Shannon Development with regard to this investment following on the company's evaluation of the Government's proposal? Moreover, is the Minister satisfied that it is consistent with EC policy on State aid to industry?
In the light of the above is the Minister prepared to state what rate of return such an equity stake will deliver, at a minimum, in the event of Guinness Peat Aviation surviving its current crisis? Furthermore, given the potentially huge catalytic effect which a State investment could have on GPA at this critical time, can the Minister say whether any premium will attach to the State's equity injection?
Subject to being reassured that the tax-payer's probable investment in this currently risky enterprise will be rewarded to the maximum degree possible, let me say on behalf of the Progressive Democrats that we would welcome such an investment. The international aviation industry is going through a severe economic downturn, which is one of the key explanatory factors underlying the current demise of GPA, though not the only factor. However, from the point of view of an investor, if the company can ultimately return to profitability it is perhaps the best time in terms of the business cycle to take out equity, since, in the event of success the potential returns could be phenomenal just as the current risks are substantial.
Guinness Peat Aviation plays a critical role in terms of the development of the new aviation cluster in the Shannon region. The company employs 300 people directly. In its link with Swissair and Lufthansa in Shannon Aerospace it currently employs 600 people, which is set to grow to 1,000. It is also a key player in Shannon Turbine Technologies, which currently has 43 people on its books and which is set to grow to 235 jobs by 1996.
This aviation cluster has already begun to spawn encouraging sub-supply industries locally in the Shannon region; indeed, the spillover even extends to the University of Limerick, which has ambitious plans to further develop its aviation engineering faculty. Classically, this is the kind of cluster development recommended in the Culliton report; and it is right and proper that, subject to due caution and diligence and driving a tough bargain on behalf of the taxpayer, the State should seek to play a leading role in encouraging the investment community to provide the US $200 million now needed to secure the future of GPA, which currently hangs by a thread. However, considerable progress is being made by GPA in restructuring its indebtedness. Much work has been done on the rescheduling of order books and in dealing with the banks to defer loans and to put this investment package together.
Let me say in conclusion that, politically, the Progressive Democrats do not incline towards unfettered injections of State equity into public or private sector firms that are in trouble, but GPA is making monumental efforts to retrieve the current situation. Considerable restructuring is in hand. A valuable cluster of aviation jobs is in place and I would conclude that the risk, subject to tough bargaining on behalf of the taxpayer, is probably worth taking.
