Vol. 437 No. 1
2 Mr. Noonan (Limerick East) asked the Minister for Transport, Energy and Communications the progress, if any, he has made in getting the agreement of the EU Commission to the investment by the Government of equity to Aer Lingus; the conditions he expects the Commission to attach to their permission if it is forthcoming; and if he will make a statement on the matter.
3 Mr. M. McDowell asked the Minister for Transport, Energy and Communications if he will bear in mind the concerns of Ryanair and of its 500 employees regarding the possible use of part of the £175 million equity investment by the Government in Aer Lingus to establish Aer Lingus Express for the purpose of competing with Ryanair by means of cross-subsidisation in view of Aer Lingus' history on certain routes where it was subject to competition from an Irish airline.
5 Mr. Gilmore asked the Minister for Transport, Energy and Communications when, following the acceptance by the Aer Lingus workforce of the revised Cahill plan, the Government will provide the required equity injection; the latest position regarding EC funding for Aer Lingus; when the Government intends to sanction the new low-cost Aer Lingus Express on the Dublin/London route; the investigation, if any, that has been carried out as to the way in which Ryanair came to be in possession of a confidential departmental memorandum regarding Aer Lingus which it is allegedly using as part of their campaign against sanction for the Aer Lingus Express; and if he will make a statement on the matter.
12 Mr. Yates asked the Minister for Transport, Energy and Communications if, arising out of the "Tuesday File" RTE television programme, on Tuesday 2 November 1993, the attention of his Department was brought to and advised of the necessity, for the future survival of Aer Lingus, to immediately inject financial equity, to seek to alter the trans-atlantic bilateral agreement and to the fact that there should have been price flexibility on fares as far back as the year 1988; the reason his Department records show no such decisions were taken at that time; and if he will make a statement on the matter.
57 Mr. Yates asked the Minister for Transport, Energy and Communications if discussions took place between Aer Lingus and other international air carriers over recent years in relation to the possibility of a new alignment partnership of cross-shareholding which did not materialise due to political inaction to the issue of the Shannon stop-over and other legal restrictions as was alleged on the "Tuesday File" television programme of 2 November 1992; and if he will make a statement on the matter.
109 Mr. Callely asked the Minister for Transport, Energy and Communications the Government's target for annual savings in Aer Lingus over the next five years; his views on the future for our national airline and its employees; and if he will make a statement on the matter.
I propose to take Questions Nos. 2, 3, 5, 12, 57 and 109 together.
In the past number of years, the Aer Lingus Board forwarded proposals or submissions to my Department on financing issues relating to the company. Both I and my predecessors have carefully examined all such proposals.
In our Programme for a Partnership Government, we gave a specific commitment that we would ensure the commercial future of our national airline as part of our overall air transport policy. I assure the House that we have taken specific action to fulfil that commitment.
On the question of fares flexibility, the Deputy will be aware that, in reply to a question from Deputy Yates, on 13 February 1991, my predecessor outlined the general position in relation to Aer Lingus fare increases since 1987. This showed that fare increases sought by Aer Lingus have generally been approved. Since 1991, all Aer Lingus applications for increases have been approved by my Department.
Both I and my predecessors have consistently encouraged Aer Lingus to develop links with foreign airlines with a view to improving access to international markets as well as achieving additional earnings in areas such as maintenance, overhaul and training. These objectives can be achieved in a number of ways such as, for example, cross shareholdings, joint venture agreements, marketing alliances and service contracts. No proposals have been brought before me or my predecessors for a strategic alliance between Aer Lingus and any other airline. I would be favourably disposed towards any proposal which was clearly in the best commercial interest of Aer Lingus.
On 9 March 1993 I appointed an Executive Chairman to Aer Lingus with a mandate to develop a framework to restore the airline to commercial viability. On 13 June 1993 the board of Aer Lingus submitted to me their proposals, entitled "Strategy for the Future", to restore the Aer Lingus group to financial viability.
The Government endorsed the broad strategy on 6 July last, and decided to invest £175 million equity in Aer Lingus over the three years 1993 to 1995 by way of one £75 million and two £50 million instalments subject to the following conditions: a full and comprehensive agreement having been reached between management and unions in Aer Lingus on annual reductions in internal costs essential for the return of the company to commercial viability; production of satisfactory evidence that the necessary measures proposed are being implemented in full; a formal indication by the European Commission that it will raise no objection to the proposed State equity injections.
An essential part of Aer Lingus's strategy was a modification in the Shannon stop policy to allow the airline fly direct between New York and Dublin. When taking its decision on Aer Lingus's strategy, the Government authorised discussions with the United States authorities to amend the Ireland-US Air Transport Agreement.
Formal negotiations with the US authorities were held on 27 to 29 September last. Following some progress, these talks were adjourned as the US authorities were, in line with their international aviation policies, seeking an open skies arrangement with Ireland. I subsequently visited Washington to meet the Secretary for Transportation, Mr. F. Pena, and to impress upon him the urgent necessity to achieve an amendment to the Ireland-US Air Transport Agreement which would provide for Shannon's interests. Talks were resumed on 27 October last and agreement was reached with the US authorities on the following day.
There was no inaction on my part on this issue. As is evident from what I already said, I took immediate action as soon as Aer Lingus submitted a firm proposal for a modification to the Shannon stop policy and the Government had taken its decision.
As regards Aer Lingus's broad strategy, I have consistently made it clear that the Government's bottom line is that the £50 million in annual savings must be achieved. The proposed financial restructuring of Aer Lingus, while involving inevitable job losses, will offer the prospect of secure employment for those remaining with the company. Without commercial viability, there would be no future for the airline or its employees.
The Government's proposed investment in Aer Lingus is an essential part of a once-off financial restructuring package designed to restore the airline's commercial viability within a short period. There is no question of the investment of IR£175 million being used to subsidise loss-making routes.
Following the financial restructuring, the Government will require Aer Lingus to operate the airline profitably and in accordance with established principles in relation to both domestic and European Union rules. In particular, I will ensure that the Aer Lingus Express operation will only be put in place when the company can demonstrate in full detail, on costs and revenues that such a low cost operation can operate profitably on a stand alone basis.
In October 1993, a letter issued from my office to a third party, attaching a document which outlined some of the main points of the case made to the European Commission in support of the Government's proposed investment in Aer Lingus. The document was not an internal memorandum but a note specifically prepared for transmission to the third party concerned. The information contained in the document, and more detailed information, had been available in my Department for some time.
A photocopy of the document, including a copy of the covering letter, signed by my Private Secretary, came into the possession of Ryanair. I am certain that this photocopy did not emanate from my Department. This is confirmed by the fact that the copy of the letter in Ryanair's document is a copy of the original signed letter which issued by post from my office. The file copy of the letter in my Department is on plain paper with the officer's name stamped in block capitals in place of the signature. This indicates that the letter and document were copied after they issued from my office.
I should add that the information in the document, which was issued for the information of the third party only, contains nothing of a commercially or otherwise sensitive nature. If that had been the case, it would not have been issued in the first instance.
Substantial progress has been made in discussions with the European Commission and I am confident the Government will be able to make its investment as planned. I do not, however, intend to discuss details at this stage.
I will be bringing a Bill before the Dáil next week to provide for the equity investment in Aer Lingus and related matters. Deputies will have a further opportunity to discuss Aer Lingus at that time.
(Limerick East): I do not think the Minister added much to the sum of our knowledge in his very lengthy reply. No doubt he is aware that one of the main causes which almost reduced Aer Lingus to bankruptcy was the fact that over several years it operated a below cost selling policy on the London-Heathrow route. Would the Minister give this House an absolute guarantee that Aer Lingus will not revert to that practice when its balance sheet is improved by the injection of the Government's £175 million, thereby putting the company at risk once more as well as doing serious injury to any putative competition, in particular to Ryanair which is also an Irish company employing 500 people?
Aer Lingus in future will operate on a fully commercial basis. It is a national airline operating on many routes. Over the period of the plan, and beyond it, it will ensure that those routes are viable and are profit making. It will compete competitively with all other airlines, Irish or non-Irish, on all their routes. That is its commercial mandate as a body under our aegis.
Would the Minister agree that at the moment Aer Lingus is pursuing a policy of deliberately under-pricing and losing money on routes where it is in competition with Ryanair and that on routes where it is not in competition with Ryanair, such as on the Glasgow and the Bristol routes, the cost of travel is substantially higher per mile and in every other respect than on routes where it is in competition with Ryanair? Would the Minister agree also that it is not good enough simply to say that Aer Lingus will act competitively? Taxpayers' money is being invested in a semi-State company which, if it is used in a predatory price competition war with Ryanair, will destroy 500 jobs. The Minister said that the Aer Lingus Express is a stand alone operation viable in its own right, but would he indicate to this House precisely what steps he will take to ensure that it is publicly seen to be a stand alone operation and that there are no hidden subsidies as there were between TEAM and Aer Lingus in the past?
I have made it clear in the House on a number of occasions that under the restructuring proposals these will be stand-alone operations which will have full cost transparency, which is required in any event under EC competition rules. I can assure the Deputy that Aer Lingus will not in any way act in a predatory manner simply because it is not in its own interests, apart from the interests of others.
It has been doing it for years.
I am here as Minister seeking to solve the matter. I do not intend getting into the area of history. I intend to continue to a successful completion and Aer Lingus and its employees, who have negotiated the necessary cost reductions, will be allowed to engage in the tough business of aviation and I am confident they will do well. As Minister with responsibility for transport I will seek to ensure that they be given the commercial freedom that is required to do that. Obviously, I am equally aware of the tax-payers' investment and it will be done in such a way as to ensure the future viability of the company.
Now that the trade unions and the management of Aer Lingus have concluded an agreement on cost cutting, including a very substantial reduction in the number of jobs in Aer Lingus, can the Minister assure the House and, indeed, the employees and unions in Aer Lingus, that the Government's and the company's side of the bargain will not be watered down in any way and that the Government's commitment to the various aspects of the recovery plan, including the establishment of Aer Lingus Express, will be adhered to? Could I ask the Minister also if he has received any indication from the EC Commission that it intends to impose restrictions on its approval for the package and if it has so indicated what has the Minister done to ensure that such restrictions will not apply?
The Government is committed to the full implementation of the strategy plan which has been agreed as a result of discussions with the Congress of Trade Unions and all necessary aspects of the plan being put in place. I want to assure Deputy Gilmore and all other Members that Aer Lingus Express, when established, will operate on a fully commercial basis in line with all other aspects of the operation. I wish to say also to the Deputy that the application to the EC Commission for approval of the equity injection is continuing, it is ongoing and I and my officials are working hard to bring that dossier to a conclusion so that an equity injection can be made at the end of this month. I would remind the Deputy that in relation to a State aid application, this dossier is being processed more quickly than any other ever submitted to the Commission.
We are grateful to the Commission for facilitating us in that regard. Clearly, the Commission are seeking to ensure that the equity injection is made in conformity with Article 92 (3) (c) of the Treaty of Rome. We are putting our case clearly to them and I believe that will ensure that Aer Lingus, over the period of the plan, will be allowed do what it envisages. That is my position. We can achieve that in conformity with European Union competition rules and without in any way affecting the integrity of the plan.
Mr. Noonan (Limerick-East) rose.
As the House will observe, the time for dealing with questions nominated for priority would now appear to be exhausted. However, I was anxious to dispose of the remaining question nominated for priority, No. 4. If the Deputies concerned so wish, I will hear three very brief and relevant questions from them and then proceed to other questions.
(Limerick-East): Can the Minister inform the House whether the full Aer Lingus restructuring package is now on the table and whether the measures agreed between the Aer Lingus unions and the company, together with the Minister's proposals on equity in the Bill he published today, completes the restructuring process? In particular, can he give us a guarantee that all Aer Lingus subsidiaries will continue to trade in 1994 and that there will be neither closures nor sell-offs of subsidiaries in a further restructuring of the balance sheet? In particular, will he give some degree of hope to the employees at SRS in Shannon who believe that that subsidiary will be either closed down or sold off very shortly?
The Deputy is misrepresenting the strategy if he speaks about its being only an equity injection and a cost reduction plan. The Deputy will be aware that part of the strategy to reduce the debt overhand of the company, which is in excess of £540 million, is a judicious assets disposal programme, as agreed at the meeting with the Irish Congress of Trade Unions in May of last year. It would be wrong to suggest that that is not also part of the strategy because clearly it is. We are required to ensure that the core operations of the company achieve economic viability as quickly as possible and that the strategic interests of this country in terms of aviation matters are upheld. Clearly, a judicious assets disposal programme — as I indicated from day one — is also part of the strategy. In relation to specific issues the Deputy raised, I am afraid they should be the subject of a separate question. I am not in a position to interpret what are day-to-day management affairs of the company.
Will the Minister indicate to the House, first, whether Aer Lingus Express is to be a division of Aer Lingus or one of the companies provided for in the new Bill, or is it to be a stand-alone subsidiary company to be established under the provisions of section 14? Can the Minister also indicate, in relation to the price policies being adopted by Aer Lingus, whether he accepts the thrust of what I said earlier, that there is a remarkable difference in the price per passenger mile charged on routes where there is no competition with Ryanair to that on routes on which there is such competition?
In answer to the Deputy's first question, it will be a stand-alone company. On his second question, I do not accept the thrust of his statement. From once the structuring package has been put in place, the company will operate on a fully commercial basis so as to achieve economic viability. Clearly, that will be on the basis of profitability in the future.
When the Minister states that Aer Lingus must demonstrate that Aer Lingus Express must operate on a stand-alone basis, does he mean that the Cahill plan, as presented to him, did not demonstrate it could operate on a stand-alone basis; that the question of the establishment of Aer Lingus Express is now in some doubt and that it may not go ahead, or may be delayed?
I would not accept the contention or the implication in the Deputy's question. If he refers to the "Strategy for the Future" plan, he will see that the company states it is its intention to follow business in all niches of the market; it refers to the requirement, for that purpose, in terms of low cost operations, to set up a new company called Aer Lingus Express which would have the requisite cost base to ensure that that was a successful operation. Discussions on how that would be done are a matter for the staff and management and are at an early stage at present. That will be a matter for further discussion between the staff and management of the company.
