Dáil Éireann debate -
Wednesday, 15 Dec 1993

Vol. 437 No. 3

Air Companies (Amendment) Bill, 1993: Committee Stage (Resumed).

Debate resumed on amendment No. 3:

In page 4, line 37, after "Finance" to insert "or any other person".

—(Deputy O'Malley).

Mr. Noonan

(Limerick East): Section 4 provides that the Minister for Finance may subscribe for further shares up to an amount not exceeding £175 million. Deputy O'Malley seeks to amend that section by providing that the Minister for Finance or any other person, which introduces the concept of private investors coming in and buying Aer Lingus shares. In present circumstances the only investor who is interested in Aer Lingus shares is the Government. On any kind of open market there would be no offer for a tranche of Aer Lingus shares. We need only recall that there were accumulated debts of £540 million and losses of £188 million in 1993. Who would want to buy into a company, in terms of equity, with that kind of profile? Even after the restructuring which has taken place on the cost base and the intention of the Minister to sell subsidiaries and put in equity, on the best case scenario it is difficult to see Aer Lingus being profitable in the short term and it is difficult in the medium term to see a dividend being distributed. The issue of private shareholding in a public offer, along the lines of the amendment, is not a practical possibility at present.

The future of Aer Lingus, like the future of many European airlines, is contingent on arrangements being made with other large airline companies. The national carriers of Europe are forming alliances and there will be four or possibly five mega-carriers within a short time, some of which are in place already. There are groups of airlines centred around British Airways, Lufthansa, Air France and SAS and another may be centred on Alitalia or Iberia. It is not possible for Aer Lingus to continue on its own under the guise of being a national carrier when it is becoming increasingly regional in its activities.

I am not sure what the future of the North Atlantic holds under the arrangements being made by the Minister. Following changes in the bilateral agreement, Aer Lingus will be competing with American airlines whose cost base is 40 per cent lower than the average European cost. Aer Lingus will also be competing indirectly with the same group of airlines into London and backtracking into Dublin. If the Minister's plans are successful for Aer Lingus Express on the Dublin-London route and if the competition which one expects comes in on that route — I understand six or seven airlines have indicated an interest — this will be a very low cost route for several years ahead. That has an implication on the transatlantic route also. If one can backtrack from London to Dublin at shuttle costs it makes it a very attractive option to fly from one of 25 American cities directly to Heathrow and backtrack to Dublin.

I do not think Aer Lingus has a future in the medium term unless arrangements are made with other European carriers and perhaps with American carriers. SAS is a very big airline company but originally it was an amalgamation of the national airlines of Sweden, Denmark and Norway. Individually they were three small national carriers. It is interesting to see how this has developed. We now have a merger of Swedish Air, Danish Air and Norwegian Air into SAS. Last year SAS announced they were teaming up with KLM, Swissair and Austrian Airlines. SAS, KLM and Swissair each plan to hold 30 per cent in a new operating company. The smaller Austrian Airlines will take 10 per cent. That is the kind of arrangement that is being made between the smaller national carriers — a holding company with three taking 30 per cent and one taking 10 per cent. That is the type of arrangement Aer Lingus will have to consider in the future rather than a public subscription to shares.

I do not believe Aer Lingus can survive as a national carrier in anything but name without making arrangements with some of the other European carriers. As we move towards the open skies policy and the free market policy to which most Ministers of Transport in Europe have now pinned their colours, there will not be an independent airline carrier for each country of Europe. The days of the individual national carrier, almost being an arm of Government as a state company and flying all the national routes on a closed shop basis, are over but the fallout is commencing.

An enormous number of arrangements operate now following Danish Air, Norwegian Air and Swedish Air coming together to form SAS and then entering into a partnership arrangement in a holding company with KLM and Swissair with a 10 per cent holding for Austrian Air.

KLM, in which it is in partnership, has a minor stake in American North West, in Swissair, in Delta Airlines and Singapore Airlines. Air France, for example, has teamed up with Sabina and CSA; Air Canada has invested in American Continental. Even American Airlines are taking on partners and that company has a partnership arrangement with Lufthansa. British Airways plans to set up an airline in Russia. It owns 49 per cent of Deutsche BA, a new German airline and it took a 25 per cent share in Quantas in 1992.

It is not the detail but the pattern that is important. While the arrangements for four or five mega carriers are being made in Europe, Aer Lingus is struggling with bankruptcy. It is not a question of Aer Lingus being a company for which there is a queue of investors if only the reluctant Minister would open the door to the private sector. That is not the reality. If it were not for the Government's commitment to the rescue plan, Aer Lingus would have gone belly up and nobody from the private sector would come in to rescue it until the liquidation sale.

We hope that the combination of the cost-cutting measures, the injection of equity and the disposal of subsidiaries will return the airline to profitability. It is only at that point that Aer Lingus will be on a par with other airlines, which made such decisions but they had been properly run for the past three or four years. Aer Lingus will then have to make the key decisions for the medium term and this must involve partnership arrangements. I know the Minister is putting matters rather softly but I do not think joint ventures is the way things will work out. It will be organised on the basis of either a holding company, in which a number of partners have a shareholding or a reciprocal arrangement where Aer Lingus buys an equity stake in its putative partner and the partner buys into Aer Lingus.

We have gone beyond the stage where the equity holding of Aer Lingus can be preserved totally in the hands of the Government. It is not because there is an ideological drive towards privatisation but simply because of the way the airline industry is going, this is the nature of the arrangement that will have to take place. Whether it can open up further and the Irish investor in the future can buy shares in the publicly quoted Aer Lingus company on the Dublin Stock Exchange, I do not know but, again, there are straws in the wind that suggest that is what will happen eventually. There is not much point in giving the workers of Aer Lingus up to 5 per cent of the equity of the company unless the shares have a market value. If the Government is the only investor it seems that there is not any market value except what the Minister decides from time to time might be the value of the shares. Certainly, I doubt if the workers will be able to cash in their shares at the nominal value.

I am glad Deputy O'Malley tabled this amendment as it opened up the debate. However, in the way it is cast it is premature. If one were trying to privatise Aer Lingus it would require a major privatisation Bill rather than an amendment to a provision that allows the Minister to inject equity into the company. I am not advocating that route but in my view it is inevitable that there will be arrangements where the Government shareholding in Aer Lingus will of necessity be diluted as Aer Lingus enters partnership arrangements which are necessary for its medium term survival. Beyond that point it is a question of whether individual shareholders can get involved subsequently or not. I believe that is the way it is going to go.

The unions negotiated an arrangement with the management team, with the goodwill of the Government, to enter into profit-sharing arrangements by way of equity. I suggest that that arrangement only makes sense if ultimately the Government's shareholding is diluted and where it reaches the point that the value of the share has a measurable external value and is simply not an internal estimate by the Minister and his Department.

Mr. Cowen

I accept the general thrust of the arguments on future arrangements put forward by Deputy Noonan. Before strategic alliances, joint ventures or cross-shareholding arrangements can be considered both parties have to bring something to the table. Aer Lingus is not in a position because of its commercial problems to bring a great deal to the table and that is why a State equity injection is required to stabilise and consolidate the position of the company as part of an overall package. Because of the level of indebtedness, referred to by previous speakers, that of itself will not resolve the problem. The core operational problems have to be addressed, and are being addressed, and the debt overhang of £540 million has to be addressed in terms of the judicious disposal of assets. The cost reductions and the injection of equity taken together offer the best prospects for viability in the circumstances.

I agree it is not possible to foresee what the future may hold. However, the Government, as the shareholder, is open to suggestions for consideration in terms of what is in the best commercial interest of Aer Lingus at any given time. Some marketing alliances have been entered into. Earlier in the year Aer Lingus concluded a memorandum of understanding regarding a worldwide interline feed arrangement with British Airways on passengers and a similar agreement has recently been concluded on freight. Aer Lingus believes it may have to wait until the strategy is fully operational and the airline has achieved the necessary financial targets to enable it to be in a much stronger position to seek a partner in the future.

These issues are not in the immediate future and, perhaps, it is slightly ponderous to seek to indicate with any degree of accuracy what will be the outcome only to say that whatever is in the best commercial interest of Aer Lingus has to be the primary criteria from which one looks at prospective partners, alliances or marketing arrangements. For that and other reasons outlined earlier, I am not in a position to accept Deputy O'Malley's amendment.

Mr. O'Malley

In response to Deputy Noonan, who obviously does not want to support the amendment and is trying to concoct a very nice way of agreeing with the principle but not having to vote for it——

Mr. S. Ryan

The Deputy may smile.

Mr. O'Malley

I have been around a long time and I know all of the little tricks that go on.

Mr. Noonan

(Limerick-East): I know the Deputy played rugby in Limerick.

Mr. O'Malley

Deputy Noonan says it could be quite a number of years before the possibility of anyone taking up shares would arise. I said that twice this morning. I said that even being optimistic it could be five to ten years before the possibility arises. If one was pessimistic it might never arise and all one might ever see is the sale of assets which I hope will not be the case. It should be open to people, including the Government, without recourse to further legislation to encourage investors if and when the time comes.

Deputy Noonan portrayed a scenario of partnerships and cross-shareholdings and so on, which is happening in many parts of Europe and the US. I accept that there may be such developments but he is not correct in his references to SAS. That proposal for a merger between four airlines, one of which was SAS, has fallen through and Mr. Carlzon has resigned as President and chief executive officer of SAS as a result of his failure to get agreement. That means there are four airlines in Europe who are not spoken for, who are not tied into some form of alliance. This may well be the last opportunity that Aer Lingus will have after the passage of this Bill to make some kind of an arrangement with some one of those. If one moves away from the centre of Europe to the periphery there is not much point in Aer Lingus making arrangements of that kind with somebody like Tap for example, with Olympic of Greece or with Malev or one of those at present in central or eastern Europe. It would have to make an arrangement with some airline in the central part of western Europe. This opportunity may be available only to Aer Lingus for six to 12 months after the passage of this Bill.

If an arrangement of the kind Deputy Noonan talked about was on offer it would not be possible for one of those airlines to take a shareholding in Aer Lingus after the passage of this Bill and that is wrong. I will not labour the point any further nor do I want to return to the matters we debated this morning. However, I have not heard any Member disagree with the logic of my strong feeling that we should do what other countries have done and not retain the State unnecessarily in enterprises in which it does not have to be involved. I have heard several people say that they do not agree with me, but nobody has contradicted the logic of it. It seems to make abundant sense and to be foolish to try to remain in some kind of time warp as if this was not happening. It is obvious I have no support in the House for that point and for that reason I will not press the amendment.

Amendment, by leave withdrawn.

An Leas-Cheann Comhairle

Amendments Nos. 4 and 5 are related and I propose we discuss them together.

Mr. O'Malley

I move amendment No. 4:

In page 4, line 38, after "£175,000,000" to insert "provided that the consent of the European commission is obtained to such subscription".

The Minister may well say that what is contained in my amendments is self evident because it has to happen, but it seems to be putting the cart before the horse to come along with this legislation in respect of a proposal that has been put to the Commission, before the Commission has consented to it. If the Commission does not consent to it this will be law in Ireland but it will be unenforceable and ineffective. Under European law the Minister for Finance will not be allowed to make the investment. To make that absolutely clear it is common sense to say so in the Bill and that would allow for the consent of the Commission.

The other way to deal with this would be to postpone this Bill until the consent of the Commission is forthcoming. There is no point in us trying to legislate potentially in the teeth of the Commission. The Minister has been assured of the Commission's consent and they may well consent but, perhaps, only with conditions. Conditions have been applied to large investments of State aid in numerous cases not just in relation to aviation. With every month that passes the Commission become stricter because they are fundamentally opposed to the concept of State aids being given to any industries who are competing with private companies that have no subsidy from any taxpayer but who are in fact paying taxes. I am glad the Commission take that view as it is eminently sensible. I am glad that they are becoming more strict and the stricter they become the better because for too long we have had the abuse of State commercial power. Both here and in the Community companies aided by the taxpayer have constantly acted to the detriment of those who do not receive assistance. A classic example of it here, apart from Aer Lingus, is CIE who get £110 million annually to subsidise their losses.

Mr. S. Ryan

They are not actual losses.

Mr. O'Malley

As is the wont in modern State commercial accountancy, they are called something else but the reality is that they are losses and CIE up to now has been allowed to act in a way which is unfair to those competing with it who do not receive any subsidiary.

I would ask the Minister to accept this amendment although it would be more appropriate for the Bill to be delayed until the consent of the Commission is forthcoming. My amendment No. 5 seeks to ensure that the conditions which will be imposed will be complied with because there might be an anxiety not to comply with such conditions. If consent is forthcoming, and we are told by the Minister that it will be, it is unlikely that it will be forthcoming without conditions if we are to judge by previous experience and the experience in other countries. Some of the conditions imposed will be quite stringent and could have quite an effect on the prospects for the revitalisation of Aer Lingus.

The debate on this Bill will be less than meaningful if we do not know if consent will be forthcoming and the conditions, if any, that will be attached to it. It is similar to legislating for a position we know will change dramatically in a short time following the enactment of the Bill. In normal circumstances if a Minister came into the House and requested us to legislate on a carte blanche basis, the House would suggest that he should wait until all the circumstances were known. In an attempt to cover those points before becoming aware of what they are, I have tabled those amendments and I ask the Minister to accept them.

Mr. Gilmore

I want to make a couple of points arising from Deputy O'Malley's contribution. It is a great mistake to put forward the proposition that the only companies which benefit from State aid are State companies. It would be difficult to find any company here, public or private, that has not benefited from some form of State aid. It has been a feature of Irish industry that substantial State aid, such as IDA and training grants, tax breaks and so on, is provided to industries. Unfortunately, we do not often hear about such aid. What was the £20 million given to GPA through SFADCo if not a form of State aid? The only time that aid was questioned was when an RTE journalist put a pointed question to a Government Minister and nearly lost his job as a result.

Mr. Noonan

(Limerick East): That never happened.

Mr. Gilmore

It is somewhat like the fax. The amendments propose that the legislation should not take effect until the European Commission gives its approval. I am concerned that the European Commission should have to give its approval to what is proposed in this House. We are talking about Irish taxpayers' money and it is ironic that we are passing legislation in what is supposed to be a sovereign Parliament and it is being argued that we must await the approval of the European Commission. Do we seriously intend to hand over to the European Commission the last vestiges of sovereignty and the effective decisionmaking for our economy and public life? I do not accept that, particularly when I consider what is happening in other member states of the European Union who, whenever they like, can extract themselves from the commitments of membership. The United Kingdom had no difficulty in ducking out of a number of commitments under the Maastricht Treaty. Denmark was effectively able to renegotiate sections of the Maastricht Treaty whereas we were told here that could not be done. During the currency crisis last year, Germany faced no great difficulties in regard to the conditions attached to the Maastricht Treaty, yet we cannot pass simple legislation relating to a company owned by the State, which proposes to provide equity from the pockets of the Irish taxpayer to the company, without the approval of the European Commission. I cannot accept that, particularly as stringent conditions were not attached to similar equity and assistance given to companies in other member states. The Minister challenged my comments in that regard yesterday. I share the concern that we are debating this legislation not knowing where we stand in regard to the European Commission.

At the end of October the Official Journal of the European Communities set out seven conditions it wished to impose on the £175 million being provided for Aer Lingus. The Minister stated that a response was given to that. Nevertheless, we are entitled to know the up-to-date position with regard to the Commission. What type of conditions does the Commission intend to put on the £175 million being provided for Aer Lingus? We are being asked to pass legislation which, on the face of it, is about giving £175 million to Aer Lingus, but on the basis of the recovery plan for the company announced last June. If the conditions indicated in the EC journal more than one month ago were applied, the basis on which the money is being provided would be changed significantly. We are entitled to know the current state of play from the European Commission. I presume the Minister has a more up-to-date picture than the public and he should inform the House of that picture so that we know exactly what we are being asked to legislate for.

Mr. Noonan

(Limerick East): I agree with Deputy Gilmore and ask the Minister to come clean with us in regard to the conditions imposed by the European Commission. The injection of equity, the cost cutting programme and the rescue plan for Aer Lingus are interdependent and if conditions attach which dismantle the rescue plan before the equity can be put in, this will not be a fruitful exercise. In the course of passing this legislation we should be given all the information the Minister has in respect of the conditions which might apply. As is the case with all legislation passed in this House, we were briefed from various sources. I have been informed that a firm of English solicitors, Soames and Company — a distinguished son of a distinguished political father — took up the cause of British Midland with the Commission. One of the most expensive, extensive and competent lobbying efforts ever conducted on behalf of a private company is being conducted by those solicitors in Brussels on behalf of British Midland and it is rumoured that they are having an element of success. It has been stated also that our former colleague and ex-Commissioner, Ray MacSharry, is doing an excellent job in Brussels on behalf of Ryanair and is pinning down the Aer Lingus lobby and succeeding in getting conditions attached which will restrict the activities of Aer Lingus, particularly Aer Lingus Express.

Those rumours are circulating openly and range in status from high class rumour to actual briefing. This is the key section in the legislation. The Minister wants the Dáil to sanction the injection into Aer Lingus of £175 million in equity. That will be Irish taxpayers' money, it will not come from Europe. What will come from Europe is the permission to do so, with attaching conditions. The Minister has an obligation to bring us up to date in regard to the conditions. There is not much merit in Deputies debating something with only half the information and perhaps discovering during the Christmas recess that the plan is off the rails because of the stringency of the conditions applied by the Commission.

Mr. Costello

Amendment No. 3 which was discussed earlier and amendment No. 4 indicate that there is division in the House on the direction we should take. I detect from these two amendments in the name of Deputy O'Malley that it is his wish that the State will not succeed in this matter. He sought in amendment No. 3 to insert the words "any other person" not "any other company". This would seem to indicate that he favours a private mogul——

Mr. O'Malley

The definition of "person" includes a company under the Interpretation Act, 1938.

Mr. Costello

It may, but in the context of the debate which has taken place——

Mr. Noonan

(Limerick East): Do not tangle with a former Minister.

Mr. Gilmore

Does it include mogul?

Mr. O'Malley

If a mogul is a company, it does.

Mr. Costello

In relation to amendment No. 4 there was never any question of the Commission querying the amount of money to be made available, rather it was a question of whether restrictions should be imposed or regulations implemented. The sum of £175 million is a tiny amount in relative terms. The procedure adopted by Air France and some of the other airlines was to provide the money in advance and await the response of the Commission. Deputy O'Malley is arguing that we should await the decision of the Commission and then consider the matter. The sum of £75 million is the critical element of this package and if it is not possible to inject this sum into Aer Lingus it will be unable to carry on. Therefore the question we should address is what steps should be taken to ensure the development of the company in the future.

It is normal procedure for a private shareholder to inject equity into a company from time to time. There are few companies which have not received State funding from time to time. Why should we cavil therefore when a State company receives State funding, especially when we consider that Aer Lingus has received little by way of funding? It has not swallowed up a large amount of taxpayers' money. It is an extremely efficient company which has provided an enormous number of jobs, expanded into international markets, competed with much larger airlines and secured some prized developments in other countries. In this legislation and in the programme agreed with the trade unions and the staff we are giving it the kiss of life.

It should be borne in mind that we are an island State on the periphery of Europe without direct links to the central markets. Structural Funds have been and will be provided to lessen the impact. Because it is critical we have access to these markets we have all the more reason to argue that restrictions should not be imposed on Aer Lingus. We have to travel either by sea or air, otherwise we cannot get off the island. We do not have a channel tunnel. We should adopt a positive approach and make no excuses when we say that we are prepared to make money available to ensure Aer Lingus remains viable.

I am concerned about statements that I have read that both British Midland and Ryanair are lobbying the Commission to ensure restrictions are imposed. There was no talk of restrictions until Aer Lingus applied for permission for the equity injection of £175 million. All previous proposals were agreed to without so much as a murmur, even though billions of pounds were involved. All of a sudden objection have been raised with the European commission which has been requested to impose restrictions and introduce regulations. The purpose of lobbying the Commission is to ensure that Aer Lingus Express will not be able to operate on lucrative London-Dublin routes. Private companies do not want Aer Lingus competing on that route. The sum of £175 million is the key element of the entire package and it must be injected with the minimum number of restrictions.

Mr. S. Ryan

I am disappointed at a time when the European Commission is considering the case put forward by the Government that we are having this debate in Dáil Éireann. If other Governments in Europe made a submission to ensure the survival of the state airline I doubt that amendments would be tabled to a Bill required to guarantee its survival to ensure restrictions would be imposed.

Earlier Deputy O'Malley made a solid case in favour of the privatisation of Aer Lingus in perhaps ten years time. He also made the point that no one would be interested unless this sum was injected and the survival plan was successful. We are all in agreement that the sum of £175 million is required to ensure the survival of the company. I question whether it is enough.

We should compare this with submissions made in the past by our competitors which are much larger and stronger airlines. The sum of £1.28 billion was injected into Sabena while on separate occasions the French Government injected £400 million and £200 million into Air France and subsequently sought the approval of the Commission. The larger countries support, and are seen to support, their airlines and here we have a suggestion pointing to restrictions. I am very disappointed but, perhaps, I should not be surprised given the line put forward by Deputy O'Malley and his party.

British Midland is using Aer Lingus. It is not that Aer Lingus is a threat to any airline. Does any Member think that Aer Lingus is a threat to Air France or British Midland? It is not, but British Midland is using their political clout in the EU to set precedents in relation to Aer Lingus in order to get at Air France. That is the scenario that is described and we must be very careful about that. If we are to get the go-ahead from Europe we should not be talking about restrictions. In the context of the EU there should be a level playing field. My constituency colleagues tend to use that kind of phrase but it is relevant.

Mr. Connolly

It always was.

Mr. S. Ryan

Representatives of Ryanair may ask what will be the effect on their future of Aer Lingus getting £175 million. I have no doubt that when the money is provided the Commission will ensure that there will be no unfair competition. For years we have been seeking an opportunity to compete. The Minister should go to Brussels and, perhaps entice the Taoiseach to go with him. I know he has been to Brussels twice or three times in the past fortnight. However, before the decision is made he should go to Brussels and make the strongest possible case to show the Commissioners that the Government is serious. We should be going to Brussels and supporting the case on behalf of Aer Lingus with a united voice. If one is to judge by these amendments we do not seem to have that.

Mr. R. Burke

This section is the central feature of this Bill. I congratulate the Minister on bringing forward this Bill and securing Government approval for the injection of £175 million into this company. Let no one think that this £175 million represents an act of charity or a hand-out. This is an investment by the owner of a particularly profitable company that has gone through difficult times in the past two or three years. This was a profitable company that served this country well. It provided good employment. The workers paid for that employment with their loyalty to the company and to the State. The employees, and their families, have made major sacrifices in the past 12 to 18 months. They had great concern in relation to their future and that of their families. Almost 1,000 of them have taken voluntary redundancy and there is also the situation in regard to TEAM.

The workers in Aer Lingus have gone through a difficult period and the company needs an injection of equity. The sum of £175 million which has been put forward by the Government is not a small amount. Only time will tell whether it is adequate. I hope it will be. What we do not want at a time when this is being debated and examined by the European Commission is division in the House on the entitlement of this company to an injection of equity.

It is vitally important that we have a national carrier. With the opening of the Channel Tunnel we will be the only island state left in Europe. Therefore, it is vital that we have secure air routes and connections. That can be achieved only if we have our own airline. Like all businesses an injection of funds is required from the shareholders every now and then. In this case the shareholder is the State and we should not send cross-signals from this House that could damage our national interest. The maintenance of a strong and commercially viable Aer Lingus is in the national interest.

The workers in Aer Lingus have shown their loyalty. They have taken difficult decisions, some of them never to work again, by accepting voluntary redundancy when they are in their fifties. Those who remained have taken major decisions by adopting changes in work practices, overtime etc. They voted massively to accept these cutbacks because of their commitment to their company. We should not, for party-political purposes or some ideological reason, send out cross-signals from this House which could be used by the Commission to impose further conditions. In the October statement the Commission suggested conditions which were not imposed on Sabena Airlines and others when they got injections of equity from their Governments. I am afraid that we as a small country are being made an example for future cases such as that of Air France.

We have a very dedicated Minister and I know he will fight off these attempts by the Commission. The £175 million is not charity or a hand-out. The Government is not the St. Vincent de Paul Society helping an unworthy company. This is an injection of equity. In the case of private companies Governments encourage further equity injections to allow the business to be maintained and expanded. I hope the Minister will take the opportunity when responding to the amendments, to announce that the Government will not be barred from injecting further equity into the company if it is necessary, although I hope it will not be necessary. Shareholders would be allowed invest in a private company and what is wrong with the State investing in its own organisation. I am not asking for a blank cheque.

However, the workers have taken on board the company's difficulties, redundancies and changes in work practices. The State has enjoyed the benefits of that airline for many years in respect of taxes and PRSI contributions paid by its employees. The Minister and the Government have worked to ensure its future will be secure but I would like the Minister to give an assurance that he will fight again for that company if necessary.

Mr. Cowen

A number of issues have been raised and I will respond to them as fully as I can and explain the context in which the issues raised under the amendments should be considered.

I am not prepared to accept Deputy O'Malley's amendments because, as the Deputy knows, we are subject to the Treaty of Rome. The consent of the European Commission is required in cases of State aid. As members of the European Union we are bound by that treaty.

Deputy Gilmore questioned why we should be subject to those disciplines. The Deputy is entitled to his personal opinion, but the Treaty of Rome supersedes our national law. The supremacy of European law over national law is a fundamental legal principle in European Union law, otherwise there would not be uniform application of EU law. When we acceded to the Community on 1 January 1973 we incorporated the principle enshrined in Article 27 (4) of the treaty into our Constitution and a blanket amendment to our Constitution was agreed by the majority of our people in a referendum. While people may prefer the position to be otherwise, the treaty provisions are legal and binding on us and supersede any national considerations.

Article 92 (3) (c) of the Treaty of Rome relates to competition policy. The treaty provides that, save as otherwise provided in the treaty, any aid granted by a member state or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between member states, be incompatible with the Common Market. Article 92 (3) (c) states that aid to facilitate the development of certain economic activities or of certain economic areas where such aid does not adversely affect trading conditions to an extent contrary to the common interest shall be compatible with the Common Market. The Commission in considering our State aid application for the provision of £175 million equity injection into Aer Lingus will consider that article and home in on that subsection.

From 1 January 1993, the Commission has a competence in this area in terms of the establishment of a Single Market in the air transport sector. It is somewhat unfortunate that our State aid application is the first to be considered in this area. I have been asked to indicate the State of play in regard to this issue. It would be unusual for the Commission not to insist on some conditionality so as to ensure compliance with Article 92 (3) (c) of the Treaty of Rome. I am confident that the Commission's decision will not affect the integrity of the plan or stop Aer Lingus doing what it sets out to do during the term of the "Strategy for the Future". That is the fundamental substantive issue. The Commission has an agenda and a reason for imposing conditionality in respect of State aid applications. There are other applications in the pipeline. We must ensure that the conditionality is such that substantively Aer Lingus's commercial freedom as envisaged under the plan is not in any way hindered or obstructed. I am confident as a result of many meetings between my Department and the Commission at official, ministerial and commissioner level that we will succeed.

Third parties who are interested in this area, our commercial competitors, have made representations for their respective cases and they are entitled to do so. On 28 October the Commission opened up the procedure by inviting interested parties to make their case in relation to State aid applications. That is a reasonable measure and is the reality of competition. We have always believed that the strategy agreed by Government is one which has the requisite level of transparency and commerciality which will ensure that a State aid application will be successful. We are not interested in applying State aid for the purpose of wiping out competitors. The purpose is to redress a serious imbalance in the balance sheet to make sure that the further viability of that company can be assured.

Deputy Gilmore referred to what he termed the seven conditions. They are not conditions but queries which have been raised in relation to specific areas of the "Strategy for the Future". We have responded comprehensively. The Deputy can be assured that I discussed those issues with the CRC in Aer Lingus who were happy with the responses we were in a position to give in relation to those seven areas outlined by the Commission. At all stages there has been a comprehensive approach by the Government as shareholder to ensure that the £175 million State aid application is agreed by the Commission within the parameters I have outlined. It would be unrealistic to expect no conditionality but we will ensure that the integrity of the plan is maintained. That is our fundamental requirement.

It has been claimed that there was no conditionality in relation to previous State aid applications, but that is not the case. I refer to my Second Stage speech and my response to contributions on Second Stage which outlined, albeit it cursorily, the conditionality that applies to Sabena and Iberia. That conditionality applies in respect of applications submitted prior to 1 January 1993 before the Single Market and the full competence of the Commission was established in relation to the air transport area. Further details can be supplied to Deputies on request in relation to that level of conditionality. I am satisfied that as a result of much negotiation, lobbying and discussion by my officials and me at the highest level in the Commission we will succeed in ensuring that whatever conditionality applies will not in any way impede the consolidation and expansion envisaged within the three years when the State aid is invested in the company.

For that reason and because of the legal supremacy of the Treaty, the amendments proposed by Deputy O'Malley are superfluous. That position is catered for under the treaty provisions.

Mr. O'Malley

I want to refer to the conditions that might be imposed by the Commission. Deputy Ryan seemed to suggest that I am almost encouraging it to do that and that, by tabling this amendment, I am trying, of my own volition, to create conditions, but that is not the case. Will one of the conditions that might be imposed as a result of the various representations being made quite lawfully by private companies, particularly one Irish and one British company, be that Aer Lingus could not establish one of the subsidiaries mentioned or could establish it only subject to strict conditions in regard to competition? Is the Minister and Aer Lingus prepared to accept that, or will it cause a rethink of the whole position?

Mr. Cowen

I do not require the Commission to ensure that I have respect for taxpayers' money. As I said on Second Stage, Aer Lingus Express will be a stand-alone subsidiary company based on full commercial principles. As outlined in Strategy for the Future, which has been adopted by the Government, it must be a low cost airline. The comprehensive business plan will have to be submitted to me as a prerequisite to the setting up of that company to ensure that Aer Lingus Express does not become a drain on other subsidiary companies in the group. It is important that Aer Lingus ekes out every niche of the market, including low cost, low fare operations. I do not require the Commission to impose a condition to ensure that that happens because clearly it is in our interests to ensure, as shareholders, that the venture is a successful one based on full commercial criteria. Management and unions are discussing this issue — I wish them well in their deliberations — and everybody will know precisely what will be required to get the company off the ground.

Deputies opposite have said that it is wrong to bring forward this Bill before Commission approval is granted. It is urgent that the first tranche of State equity be injected into this company at the earliest possible opportunity. As soon as EU approval is given to this State aid application — I am confident approval will be given — we must be in a position to immediately arrange for the injection of the £175 million into the company. This is simply a facilitating Bill in that regard and we should not have to await approval of the Commission before passing it.

As Deputy O'Malley said, what we are doing is increasing the authorised share capital of the company by £175 million. Therefore, if in the very unlikely event that the State aid application is not approved the position in regard to Aer Lingus will not be changed. It is important that we pass this Bill in the coming weeks so that when the application is approved we will be in a position to inject into Aer Lingus the first tranche of equity. I am confident that whatever condition is attached to such application — given the level of equity envisaged some condition will be imposed by the Commission — it will in no way upset the arrangements and plans of Aer Lingus management and unions for the next three years.

Mr. Gilmore

Having listened to two contributions from the Minister since we asked about the up-to-date position in relation to the conditions that might be imposed by the Commission on this investment in Aer Lingus, I am none the wiser as to where the Commission stands on this matter. We have been aware of the Aer Lingus plan since last June and the Minister stated last night that it was made known formally to the Commission last July. I find it extraordinary that in mid-December when we are putting through the House a Bill to provide equity for the company the Minister apparently is not in a position, or is unwilling to tell us what exactly is the Commission's definitive position on the conditions that may be attached to this application.

Did the Minister inform the Commission that this legislation would go through the Oireachtas this week and did he seek from the Commission a decision so that we would all know where we stand on this matter? It is well known that British Midland and Ryanair have been camped in Brussels since the Aer Lingus plan became known, lobbying for conditions to be attached to the Commission's approval. It is also known that the Ryanair effort was led by the current chairman of Ryanair, former Deputy Ray MacSharry, a man who well knows his way around Brussels. It is generally believed that the Commission intends to impose conditions on the Aer Lingus investment which will have the effect of restricting Aer Lingus' operations on the UK routes, which are of interest to British Midland and Ryanair.

Query No. 5, as the Minister called it, in the Commission's communication of 28 October pointed out that the Commission needs to be assured that the aid to Aer Lingus does not have unacceptable competitive effects on certain routes where traffic level is very high and competition is intense, such as London-Dublin routes. I understand that to mean that British Midland and Ryanair are succeeding in persuading the Commission to impose a condition on the State investment in Aer Lingus which will have the effect of Aer Lingus Express, the company to be established to trade in a competitive way on the UK routes, not being established or being established in such a way that it cannot compete effectively with British Midland and Ryanair.

Instead of the Minister and the Government being prepared to defend that position, what they are doing is standing back from it and putting legislation through the House so that in a couple of weeks time when the bad news comes from the Commission the Minister will be able to wash his hands of it and say it was the Commission who imposed this condition, that it has nothing to do with him. It is incredible that the Minister does not know what conditions the Commission intends to impose on this investment. It is also incredible that he has not taken the precaution of extracting from the Commission a decision in this regard before introducing legislation.

Mr. Cowen

This State aid application has been made to the European Commission quicker than any other application. If the Deputy checks the records he will see that certain procedures have to be adopted by the Commission to ensure that a full range of interests are given the opportunity to put forward their views on the matter. I reject the suggestion that this decision should have been given sooner. It will be made faster than any other decision in relation to a State aid application. If the Deputy was au fait with the procedures he would know that. I know the Deputy likes using emotive language — it is okay to have a diversity of opinions on these issues; people have legitimate interests — but I totally refute any insinuation in his Marxist remarks about democracy that in some way people are camped, itinerant-like, outside the front door of the Berlaymont Building watching Mr. Matutes going in every morning——

Mrs. Owen

The Berlaymont has been closed for a year.

Mr. Cowen

——and that we are not in any way looking after out interests. I can tell the Deputy that apart altogether from the specific officials dealing with the matter the Department has made this issue its number one priority since I became Minister, and even before that. No one can suggest that the Department of the Government, through the Department, have been remiss in their responsibilities in ensuring that the Commission has received the full information requested by it on numerous occasions, in answering further queries, in having further meetings and discussions and making further representations. Nobody has been in Brussels more often than we have been there, the simple reason being that we are very interested in ensuring this application is accepted.

If Deputy Gilmore is putting himself up as the only prospective saviour of Aer Lingus, as the only person interested in the State aid application, I should like to tell him that the evidence does not suggest that this is the case. Nobody involved in this issue — the trade union movement or management — will tell him that the Government was remiss in any way in dealing with this issue. The initial seven queries raised at the beginning of the procedure were comprehensively addressed and the proposals put forward were understood and agreed by the CRC and others who had an interest in this matter. When further information is required from Aer Lingus it is channelled through to the Department which passes it on to the Commission.

The Deputy's contribution was full of assertions without anything to substantiate them. All the experience suggests otherwise than was stated by the Deputy. If the Deputy has any State aid application in his file which has been dealt with quicker I should like to have it. I would be very amused if the Deputy had such a file as I do not believe it exists. The Commission will deal with this issue on 22 December. This issue can be dealt with only by the Commission. With all due respect, it is not possible for me to find out the likely decision on 22 December because Deputy Gilmore asks me a question on 15 December. Maybe this is possible in "Socialist International" but it is not possible in terms of member states——

(Interruptions.)

Mrs. Owen

Fianna Fáil's partners in Government are members of the socialist——

An Ceann Comhairle

Let us hear the Minister without interruption.

Mr. Cowen

All I can say to Deputy Gilmore is that we will place a man outside the front door of the Commission office——

Mr. Barrett

The Minister of State at the Department of the Environment, Deputy Stagg.

Mr. Cowen

——and as soon as a decision is taken we will swipe it, get on a plane to Ireland and give it to him as quickly as possible. We canot give the Deputy the decision any quicker than that.

Mrs. Owen

It could be faxed.

Mrs. Doyle

If it was faxed to the Deputy he would get it quicker.

Mr. Noonan

(Limerick East): I do not know whether the Minister is becoming excited or intoxicated by the exuberance of his own verbosity——

Mr. Cowen

The Deputy is a dab hand at that himself.

Mrs. Owen

Or perhaps the big audience.

Mr. Noonan

(Limerick East):—— or is merely reacting to the unusually large crowd in the Parliament today.

Mr. Ferris

Dermot Morgan watch out.

(Interruptions.)

Mr. Noonan

(Limerick East): Did I hear a voice echoing in an empty factory bay?

(Interruptions.)

Mr. Noonan

(Limerick East): I would like to ask the Minister two questions to which I would like precise answers. First, when does he expect the decision to come through? Second, on the basis of the information available to him within his Department, can the Minister say if there is merit in the Ryanair and British Midland case which charges that Aer Lingus was involved in uncompetitive practices in the past and continues to act uncompetitively on certain routes and whether conditions will be attached to the Commission decision to correct that? Does he think that the condition will simply be a general condition arising from the application of the general article of the Treaty of Rome or does he envisage specific conditions being attached to the investment of £175 million in equity?

Mr. Cowen

To be precise, there may be general conditions of a specific nature or specific conditions of a general nature. The answer is, I do not know. To answer the Deputy as best I can——

Mr. Carey

As flippantly as possible.

Mr. Cowen

——as I have outlined, there will be conditions based, presumably, on what the Commission believes are factors which would adversely affect competition in the common trading market. I do not know whether there will be one, two or three conditions. This is our first application and it is like a planning permission — one has to wait and see.

Mr. Shatter

I hope it is not like Fianna Fáil planning permission.

Mr. Cowen

With regard to the Deputy's first question, hopefully the decision would be reached on 22 December. With regard to whether the fares policy pursued by Aer Lingus in the past was anti-competitive, it certainly was not commercially smart — the company lost a lot of money. As I said, I am not going to get involved in the apportionment of blame game, but I can assure the Deputy that from now on strictly commercial criteria will apply in all aspects of the company's operations, including its fares policy. The company will pitch its fares against the competition they should be directed at rather than pursuing a fares policy which, on the one hand, seeks to provide a low cost airline fare and, on the other, provides a cost base which is more in line with a better quality product.

An Ceann Comhairle

May I interrupt the proceedings to hear an announcement from the Minister of State at the Department of the Taoiseach, Deputy Noel Dempsey.

Progress reported; Committee to sit again.