Ceisteanna — Questions. Oral Answers. - Policy on Aer Lingus.

Michael Noonan

Question:

1 Mr. Noonan (Limerick East) asked the Minister for Transport, Energy and Communications if the Government has accepted the Cahill plan in respect of Aer Lingus; and if he will make a statement on the matter.

Michael Noonan

Question:

2 Mr. Noonan (Limerick East) asked the Minister for Transport, Energy and Communications if the Government intends renegotiating the bilateral air travel agreement between Ireland and the United States; if the negotiations have commenced; and if he will make a statement on the matter.

Desmond J. O'Malley

Question:

3 Mr. O'Malley asked the Minister for Transport, Energy and Communications whether the statement issued by his predecessor, Deputy Máire Geoghegan-Quinn, at the end of October 1992, regarding the status of Shannon airport still represents Government policy; and if not, the reason therefor.

Eamon Gilmore

Question:

5 Mr. Gilmore asked the Minister for Transport, Energy and Communications the response, if any, he has given to the proposals submitted to the Government by the Executive Chairman of Aer Lingus, Mr. Bernie Cahill; the proposals, if any, there are before the Government for the sale of Aer Lingus subsidiaries; his views on whether it is appropriate that a State company should be seeking to shed 1,500 jobs at a time of such high unemployment; if the Government intends to provide the equity sought; and if he will make a statement on the discussions between the Cabinet sub-committee on aviation and the Aer Lingus unions.

Martin Cullen

Question:

6 Mr. Cullen asked the Minister for Transport, Energy and Communications if he will make a statement on the present position and proposals of Aer Lingus as regards entering into a joint arrangement or venture with another larger airline.

Bernard J. Durkan

Question:

13 Mr. Durkan asked the Minister for Transport, Energy and Communications whether the fullest extent of likely redundancies have been made known to the Aer Lingus workforce in the context of the recently announced restructuring proposals; whether he expects job losses in any of the company's subsidiaries other than those already outlined; if he has satisfied himself as to the viability of present plans for restructuring; and if he will make a statement on the matter.

Desmond J. O'Malley

Question:

14 Mr. O'Malley asked the Minister for Transport, Energy and Communications the amount of equity proposed under the Aer Lingus plan for investment by the Government; the amount and dates of each instalment which the Government intends to make; and whether the consent of the European Commission has been obtained for this investment.

Desmond J. O'Malley

Question:

17 Mr. O'Malley asked the Minister for Transport, Energy and Communications if he, and Aer Lingus, will take into account the Aer Rianta memorandum referred to in The Irish Times of 24 June 1993, before making any decision on the future of Shannon airport.

Peadar Clohessy

Question:

18 Mr. Clohessy asked the Minister for Transport, Energy and Communications if he will give details of the location of the proposed 1,500 job losses in Aer Lingus specifying each location in Ireland and abroad; and the number of jobs to be lost at each place.

Peadar Clohessy

Question:

25 Mr. Clohessy asked the Minister for Transport, Energy and Communications the proposed redundancy terms for employees of Aer Lingus who will lose their jobs under the current Aer Lingus proposals.

Robert Molloy

Question:

27 Mr. Molloy asked the Minister for Transport, Energy and Communications when he will publish the proposals submitted to him by Mr. Bernie Cahill, Chairman of Aer Lingus; and the reason these have not been published to date with any commercially confidential figures deleted.

Desmond J. O'Malley

Question:

60 Mr. O'Malley asked the Minister for Transport, Energy and Communications the reason changes have already been made in the plans for Aer Lingus's future strategy; and the reason the present position differs from that set out in the briefing given by him to certain Members of Dáil Éireann within the past two weeks.

I propose to take Questions Nos. 1, 2, 3, 5, 6, 13, 14, 17, 18, 25, 27 and 60 together.

It is very unsatisfactory that all those questions are lumped together.

On 13 June 1993 Aer Lingus submitted to me their proposals, entitled Strategy for the Future, to restore the Aer Lingus Group, and particularly the core airline business, to financial viability. Details of the Aer Lingus' proposals, excluding commercially sensitive information, have been circulated to all Members of the Oireachtas.

These proposals have been formulated against the background of a major cash and financial crisis which threatens the viability and very survival of the Aer Lingus Group. The crisis has developed progressively over the past four years. Group profits of £28 million in 1989-90 have been transformed into a loss of £116 million in 1992-93, excluding restructuring costs; shareholders funds in the same period have gone from £443 million to £104 million and are forecast to fall to £36 million in 1993-94. The group is currently losing over £1 million a week; committed cash facilities will be exhausted by end August; and the group's uncommitted facilities, which can be withdrawn at a few days' notice, have been reduced from £173 million to £78 million. The number of banks providing these new critical facilities has declined from 22 to ten and there is no possibility of any new source of borrowing.

Aer Lingus state that there are four main elements in their strategy: (1) restructuring the operating divisions, (2) removing artificial constraints on the development of the airline, by amending the Shannon stop policy, (3) reducing the airline cost base by £50 million annually, and (4) pursuing alliances with other carriers. Aer Lingus also state that the success of the strategy is also contingent on a programme of non-core asset disposal and an equity injection of £175 million by Government.

Aer Lingus have assured me that there is no change in their strategy as presented to me and as circulated to Members of the Oireachtas. There was some confusion— admittedly caused by the company itself — over the company's plan for its transatlantic operations. However, Aer Lingus issued a press statement on 29 June clarifying its Shannon-based transatlantic fleet plans.

The judicious disposal of a number of assets which are not essential to the core business is an intrinsic element of the strategy. The programme of non-core asset disposal will be an orderly one and not a fire-sale one. The sale by Aer Lingus of any of its subsidiaries is primarily a commercial matter for the company. However, I have been informed that there are currently no proposals before the board for the sale of any specific subsidiary.

The strategy also proposes an equity injection of £175 million by the Government on a phased basis over a number of years. This amount is considerably higher than expected by the Government. However, the Government have indicated that, while an equity injection of this level represents a major injection of scarce taxpayer's funds, it is prepared as shareholder to make its contribution to returning the airline to profitability and ensuring its long term future when all other interests make the essential contributions which are called for under the strategy. However, no decision has yet been made by the Government on the amounts and timing of equity injections. The question of obtaining EC Commission approval for an equity injection does not, therefore, arise at this stage.

The Aer Lingus proposals envisage the shedding of 1,530 jobs and the board have indicated to me that this is a full extent of job losses sought within the group. The anticipated job losses are 1,280 in the airline and 250 in TEAM Aer Lingus. Outside of the airline and TEAM, there are no current proposals for job losses. While any job losses are to be regretted, the Government is on record as stating that it wishes employment in Aer Lingus to be at the maximum level consistent with commercial viability for the company. The Government, in addition, indicated its commitment to try to achieve job losses through a voluntary redundancy scheme. Most of the job losses envisaged will be in Ireland as this is where the main base of Aer Lingus' operations is located. Aer Lingus will, however, try to reallocate in Ireland, where possible, operations abroad which could be more effectively located here.

In addition, the Government have agreed with the Irish Congress of Trade Unions that in order to identify new employment opportunities for surplus Aer Lingus staff a special enterprise development unit would be set up right away with a mandate similar to the special task force for Shannon Airport recently established by me. This unit will consist of representatives of the unions, Aer Lingus together with the IDA, Fingal County Council, FÁS and the Department of Enterprise and Employment.

The Aer Lingus proposals relating to transatlantic operations would involve a modification of the Shannon stopover policy as provided for in the Ireland/US Air Transport Agreements. As the Government has not yet completed its evaluation of the Aer Lingus strategy, existing policy still remains and the question of a re-negotiation of the air transport agreements between Ireland and the United Stats does therefore not arise at this stage.

I would also like to inform the House that I met with local public representatives, the Status and Signal Groups as well as local business and tourism interests to hear their concerns regarding a change in the Shannon stop policy. I have assured them that these concerns would, in addition to the Aer Lingus proposals, be brought to the attention of Government before any decision was taken on the Shannon stop policy.

The Aer Lingus proposals are currently being evaluated by a Cabinet sub-committee on aviation matters which is to make a report on the matter to the Government shortly. No response has yet, therefore, been made to Aer Lingus on their proposals.

The Cabinet sub-committee on aviation matters met a delegation from the Irish Congress of Trade Unions to discuss the Aer Lingus strategy. Following the meeting, which was held at the request of the Irish Congress of Trade Unions, a full and agreed statement, was issued. I have nothing further to add to this statement.

The proposed voluntary severance/ redundancy terms are broadly similar to those previously offered by Aer Lingus. They depend on age and length of service with the company. Basically, the terms include a severance payment and pension. For those aged 50 and over, the pension would be payable immediately, while for those under 50 the pension would be preserved until age 55 or 65, depending on length of service. The formula for calculating the severance payments varies, depending on age and length of service.

In relation to the so called "Aer Rianta Memorandum", I would like to put on the record of the House the statement by an official spokesman for that company. He said the company had not made any comment whatsoever on the Aer Lingus plan and the reported document was apparently an individual's personal assessment of the plan and in no way reflects the views of Aer Rianta.

Aer Lingus has had discussions with a number of American and European airlines over the past year or so about the possibility of some form of joint venture or alliance. No airline, to date, has shown any serious interest in forming a total operating alliance with Aer Lingus, although some marketing alliances have been entered into. Aer Lingus have, however, recently concluded a memorandum of understanding regarding a marketing and carriage alliance with British Airways for co-operation on freight carriage which will open up new opportunities for Irish exporters on a worldwide basis.

In its present financially weak position Aer Lingus do not believe that they have a strong negotiating position with a potential partner airline in an alliance arrangement. However, they expect that they will be in a much stronger position to forge beneficial alliances with other airlines when their Strategy for the Future plan has been successfully implemented.

As I have already indicated to the House, it would not be appropriate, for reasons of commercial confidentiality, to publish the strategy submitted to me by Aer Lingus.

(Limerick East): Many answers are rolled together here into one long statement by the Minister. I put it to him that even though he has collated all the information about Aer Lingus already in the public domain, he has not carried the case forward today and provided us with any new information. I would like to ask the Minister three supplementaries.

Will the Minister indicate if the Government has already taken a decision in principle to implement the Cahill plan and that the outstanding matter is an explicit decision on the Shannon stopover? While the Minister has not said so, the flavour of his reply was that of a Cabinet Minister who has already accepted in principle that the bulk of the Cahill initiative would be forming the basis of the rescue plan for Aer Lingus. The Minister stated that £170 million in equity will be provided to the company, that £43 million of that is earmarked for the Aer Lingus redundancy package and in effect that the remainder will go to the banks and not to Aer Lingus, because it will be used to improve its balance sheet and the banks will be the beneficiaries. It is propagandistic to come in here and suggest that the banks, as it were, are putting a gun to the heads of those in Aer Lingus and that they will foreclose in early August while Aer Lingus await £140 million in Government equity. Is the Minister aware that the new chief executive of Aer Lingus, Mr. Owen, is on public record as stating that if the Government changes its policy on the status of Shannon and if that results in an "open skies" policy, with carriers coming in from the United States, Aer Lingus will be off the North Atlantic route within three years and that fundamental to the proposal for Aer Lingus is a renegotiation of the bilateral agreement with the United States to confine access to one carrier only? Have any soundings been made with the US authorities in regard to their position on that matter?

No Government decision has been taken in relation to the Aer Lingus strategy forwarded by the board. That will be taken when the evaluation by the subcommittee has been completed. I am on record publicly as stating that, given the precarious financial position of this company — a matter which I have stated with clarity from the outset so that people might understand the problem— the central thrust of this strategy is necessary to save this company. On a number of occasions I have stated that there is little room for manoeuvre if we want to save Aer Lingus because the precarious financial position is such that redundancy payments cannot be made by the company. There is a cash crisis in the company.

The beneficiaries of an equity injection, on the basis of a successful implementation of this programme for the survival of the company, will be the taxpayer. On behalf of the taxpayer we are proposing to inject a sum of £175 million as a contribution to the salvation of the company on the basis of a viable recovery plan being implemented. I reiterate that that equity injection cannot be made unless such a viability strategy is in place, because of the disciplines imposed on us by the European Commission in regard to State aids and their compliance with EC competition policy and, more importantly, in respect of the wider responsibilities we have to investment of taxpayers' money. The Deputy stated that I was propagandistic, but it is propagandistic to suggest that one stakeholder is the beneficiary of an equity injection. The company and all stake-holders will be beneficiaries of the equity injection. Given the cash crisis in the company, it is necessary for the Government to show the seriousness of its intent by providing the equity injection it has promised. That will show the Government's commitment to support the company, subject to the other conditions in regard to its viability being met, which include a cost reduction programme totalling £50 million per year in order for the company to survive. Therefore, the beneficiaries will be those making the investment, the Government on behalf of the taxpayer.

A renegotiation of the bilateral agreement is subject to whatever Government decision is taken in the final analysis. The US have been indicating for some time that they want an amendment to the bilateral agreement. That indication has been flagged on many occasions during the past number of years, particularly since deregulation became part of the air transport regime in the United States. As the Deputy is aware, the European Community will be seeking to enter into negotiations with the United States on an ECUS air transport agreement later this year. There will be no change in the bilateral agreement until such time as a change is negotiated by the parties concerned, and until such a decision is taken the present position will remain.

I call Deputy O'Malley. I am anxious to facilitate all Deputies who have tabled priority questions on this matter, but I am also conscious that time is running out for dealing with this important subject.

I appreciate that, but my colleagues and I put down ten questions on this matter and 13 questions have been taken together. When that happens the Minister uses up a great deal of time in replying which could otherwise be devoted to priority questions and, secondly, he glosses over the specific questions which are asked later.

That is disingenuous of the Deputy.

That is regrettable because it forces Members to go back over each one of the questions, which, if we were allowed to do it, would take up a great deal of time.

I appreciate the Deputy's dilemma in respect of this matter, but the Chair is obliged to adhere to Standing Orders at this time which allows 20 minutes only to deal with priority questions. I have repeated the fact ad nauseam in this House.

I will make a number of points in the very short time allowed to me in regard to the changes that have taken place in the plan and on the hit and miss approach to it. It was announced originally that three 747 aircraft would be based in Shannon. Having refused to meet the committee of this House which was set up for the purposes of dealing with semi-State commercial bodies, Mr. Cahill, on the directions of the Minister, went to Shannon last week. A document dated 23 June 1993, which he circulated there to a number of parties states: "Two 747s will be based at Shannon and crewed from Shannon. The third operates Dublin/Shannon/Boston and will need to be Dublin based".

I hesitate to interrupt the Deputy, but I would prefer if he did not read quotations at Question Time.

It is necessary to quote this article because——

Unfortunately, it is not allowed at Question Time and it is disorderly to do so.

——Aer Lingus seems to have changed its mind at least twice on that matter. On how many other aspects of this is Aer Lingus changing its mind? For example, the figures for losses on certain routes appear to change on a daily basis, because they are purely arbitrary. Will the Minister take into account the analysis done on behalf of Aer Rianta by one of its senior staff which was published in The Irish Times of 24 June, which Aer Rianta now say is not a board document but which contains many compelling arguments that undermine many of the arguments put forward by Aer Lingus? Will the Minister reply to Question No. 3, tabled in my name, which, despite his long reply, he did not deal with? That question asked him whether the statement issued by his predecessor, Deputy Máire Geoghegan-Quinn, at the end of October 1992 regarding the status of Shannon Airport still represents Government policy and, if not, the reason therefor. I would like the Minister to begin by giving a specific answer to that question.

I can answer that question specifically. The present position is that the Shannon stop policy remains unless and until there is a change of policy. Deputy O'Malley was a member of two previous Governments during the time when these difficulties arose. I am satisfied that we now have an accurate fix on the depth and scale of the immediate and urgent problems facing this company on which the necessary remedial action must be taken if it is to survive. In that context all aspects of operations must be looked at to see what contribution can be made towards the successful viability of this company. I stated in reply to Deputy Noonan that there will be no change in that bilateral arrangement until one is negotiated if a Government decision requires it. I further made the point that evaluation of all the considerations, including those mentioned by Deputy O'Malley, are at present under consideration by the sub-committee which will subsequently report to the Cabinet for final decision.

I have already said that the Aer Rianta document does not represent Aer Rianta policy. The claim that a fully laden 747 cannot take off from Dublin Airport is not correct. I refer in my document to the Aer Rianta statement and to refer to it as an Aer Rianta memorandum is incorrect.

In regard to questions about Shannon and the transatlantic fleet, some confusion seems to have arisen over the weekend. Aer Lingus provided a clarifying statement pointing out the exact position and, given the understandable intensity of opinion in Shannon, the statement was necessary.

That is not clarifying, it is contradictory. I have the statement.

This statement clarifies the position. In regard to the past performance of Aer Lingus in relation to Shannon, people in Shannon feel that there has not been sufficient transparency on the question of costs, revenue and the contribution of the Shannon operation to the overall performance of Aer Lingus. It is proposed to set up a self-contained transatlantic fleet with its resources, revenue and costs specifically identified. That is the kind of transparency for which people at Shannon have been arguing for quite some time. What is proposed in the strategy for the survival of this company is a fleet of three 747 aircraft managed, operated and marketed from Shannon. I want them to be airborne as often as possible because that is where they will make money. It is in the American airports on turn-around that the planes spend the longest time.

I am concerned about the time factor in dealing with priority questions.

The demands of transparency are being met and the operation, management and marketing of that fleet will be from Shannon by people who will be championing Shannon, who are committed to it and who will not be subservient to head office in Dublin, which has been the perception in Shannon for some time.

After the Congress meeting with the Cabinet sub-committee, the general secretary of the Irish Congress of Trade Unions stated that there would be no compulsory redundancies at Aer Lingus. Will the Minister confirm that?

Second, does the Minister accept the Aer Lingus figure that £50 million worth of cuts have to be achieved annually and, if he accepts that and there are not sufficient volunteers for redundancy, how does he hope to achieve it?

Finally, will the Minister state if the Aer Lingus subsidiary, Cara, is for sale?

I will take the final question first. There is no proposal before the board of Aer Lingus for the sale of Cara.

Is it for sale? That is the question.

It is an intrinsic part of the recovery of this company that a judicious asset disposal programme is implemented. I have said that will be on an orderly basis.

Is Cara for sale?

It may or may not include those types of subsidiaries. It is a matter for consideration by the board in the first instance. I have been given an undertaking that there will be full consultation with me, as Minister, before any such policy decision is taken. If the Deputy is interested in the survival and return to viability of this company, the debt of £540 million has to be dealt with and there is no way round that.

The Minister has not answered my question.

I have answered the Deputy's question. The Deputy asked what will happen if we do not get the £50 million cost reduction programme, the company will continue to lose money and there will be no future for it. There is no getting away from the fact that the company is losing more than £1 million a week and if that simple problem is not addressed the company cannot survive. Unless the company gets that £50 million cost reduction programme to meet the criteria for viability of the company, the equity injection of £175 million cannot be made because it would contravene EC competition policy. There is no way round that dilemma. Everybody must face the magnitude of the problem and get down to the business of cutting costs and making sure that the company survives.

It is the intention of everybody, management, unions, Government and anybody associated with enabling this company to survive that no compulsory redundancies will be necessary. I suggest that the company be allowed to proceed on that basis, which is the basis on which ICTU and the Government met and agreed their statement, which included a judicious asset disposal programme.