On behalf of the Minister for Transport, I welcome this opportunity to address the recent Government decision on key aviation matters. In particular, I wish to rebut the distortions and scare tactics of some members of the Opposition. Unlike them, the Government has confidence in the future of our aviation sector and for that reason has set out a clear strategic direction and an unambiguous mandate for growth. The net result will be a stronger aviation sector and a better future for the economy, customers and staff.
I will first deal with Aer Lingus. Last Wednesday, the Government decided in principle to allow the sale of a majority shareholding in Aer Lingus while retaining a significant stake in the company to protect the State's key strategic interests. The Government also decided to appoint advisers to advise on the size, type and timing of the Aer Lingus sale transaction. This decision is the culmination of detailed and comprehensive consideration of the various options facing the company that has taken place over the past year.
The Minister for Transport and I will move quickly to engage advisers and to consult with the company and staff as appropriate. In selecting the most appropriate transaction mechanism, regard will be had to a range of key issues including the price achievable. The timing of a transaction will be dictated by the company's needs, its performance, the state of the aviation sector and market conditions.
A key part of the decision is the mandate to the board of Aer Lingus to prepare and submit a plan for future profitable growth as soon as possible on the basis that additional equity capital will be available within a reasonable timescale. This decision allows Aer Lingus to secure funding for new aircraft and in turn to open and compete on new, particularly long haul, routes.
For many years Aer Lingus was the main provider of air services between Ireland and the outside world. It led the way in selling and promoting Ireland, making it the major tourism destination it is today. With access to funds and a competitive cost base, Aer Lingus can continue to make a major contribution, flying to more destinations, offering more choice to consumers and opening new markets for tourism and employment.
Over its history Aer Lingus has had its share of crises and has come close to failure. That this did not happen is a testimony to the efforts of successive management and dedicated staff. However, the Minister for Transport wants to end these crisis cycles where every few years a crisis is followed by survival followed by stagnation and back to crisis again. The Government decision means that for the first time, there can be investment for growth and not just a short-term response to a crisis.
I firmly rebut any suggestion that the transaction will result in a debt-laden Aer Lingus. This is untrue. The investment will result in a strengthening of the Aer Lingus balance sheet and will ensure that equity funds are available to Aer Lingus as part of its overall funding mix. This is a key issue. It is clear that to compete effectively, Aer Lingus must have the same funding flexibility as its competitors. This was clearly identified in the Goldman Sachs report as being crucial to the future success of the airline and essential for financial stability.
In the motion put forward by the Opposition, mention is made of the fact that State funds, through the national pensions reserve fund, are currently being invested in aviation companies throughout the world. I wish to make it absolutely clear that investment decisions are solely a matter for the National Pensions Reserve Fund Commission, having regard to its statutory remit. Decisions on investment are made by the independent commission which is required to invest for maximum return, subject to risk. The commission could not in fact invest in Aer Lingus at present because it is not publicly quoted. Were it publicly quoted, that option would be open to the commission.
I also wish to make it clear that for Aer Lingus to maximise its growth potential, in addition to having access to funds, it must have a competitive cost base. It is, therefore, vitally important that the existing business plan is implemented in full. Since 2001, 30% has been taken out of the cost base of the company. This will ensure that the airline has an appropriate cost base to support the growth plan which the board has been mandated to complete. It will be critical over the next few months that management and staff work together to achieve this objective. With access to funds and continued progress toward greater productivity, Aer Lingus will be able to compete aggressively and grow profitably both on short haul and long haul routes.
The history of Aer Lingus demonstrates clearly the massive challenges in the sector and the ongoing need to reposition and change in order to survive. It is imperative that airlines try to anticipate and plan for those changes over which they have some element of control because, as has been clearly demonstrated, there will be many events impacting on performance such as terrorist attacks and global downturns over which airlines have no control. That is why it is so important to put in place a forward-looking strategic plan for growth based on a sound cost foundation.
From an operational point of view, Aer Lingus has been performing well in recent years in a difficult climate for aviation. However, given that this is a sector where nothing can be taken for granted, there must be ongoing focus on the key issues that will ensure the success of the airline. The success of any airline is not guaranteed as is shown in the examples of the amalgamation of KLM and Air France, the loss of Sabena, Swissair gone to the wall, Alitalia in serious difficulties and thousands of jobs being lost in Iberia Airlines in Spain. To ensure the success of the airline two key issues are funding and flexibility which the Government is now addressing. This means access to equity from private funds which is available to its competitors and the company's cost base is being addressed by management and staff.
Concerns have been expressed about strategic issues in the context of the State exiting from ownership of Aer Lingus. These concerns relate to issues such as the Aer Lingus brand, direct transatlantic services and the slots at Heathrow. Apart from maintaining a significant minority shareholding, options such as specific shareholder agreement covenants or commercial arrangements between the State and the company will be examined to ensure key concerns are addressed where necessary.
The Minister for Transport and I do not, however, share the doomsday thinking on the future expressed by the Opposition this evening. Have they no confidence in the airline and its ability to serve a growing market? The Minister for Transport has no concerns that any prudent investor would want to destroy a premium brand such as Aer Lingus or would cease to operate profitable direct transatlantic services to and from Ireland. New investors will want to see Aer Lingus flourishing in all its existing markets as well as exploiting the potential which new long haul routes present.
However, both the Minister for Transport and I accept there are some legitimate concerns. I assure the House that these issues will be addressed in the context of the selected transaction. I also want to clarify the issue in respect of the minority shareholding which the Government will retain. The rights attached to this will be no more or less than that which applies to any shareholder under company law. This means that with the ownership of 25%, the Government cannot be forced to sell its shares and can also deny other shareholders the ability to pass special and extraordinary resolutions such as making changes to the memorandum and articles of association of the company.
I am also aware that increasing the commercial opportunities for Aer Lingus in terms of services between Ireland and the US is an important element in the overall strategic future for the airline. My colleague, the Minister for Transport, will endeavour to achieve this outcome over the coming months. Aer Lingus has stated it could double traffic on US routes within a three to five year period if the market is opened up. Currently, Aer Lingus can only operate scheduled services to five US points under the bilateral agreement, namely New York, Boston, Chicago, Los Angeles and Baltimore. This restriction, which has been in place for many years, is the response of the US authorities to the requirement in the bilateral agreement that all airlines serve Shannon as often as they serve Dublin. Addressing this issue involves making adjustments to the bilateral aviation agreement between Ireland and the US. In doing so, we must seek to secure the best outcome for Aer Lingus, our national tourism industry, Shannon Airport and the Shannon region. In particular, I am conscious that the new board of the Shannon Airport Authority is producing a business plan for the airport and that clarity on future transatlantic aviation policy would be very helpful to that business planning process. While negotiations between the European Union and the US on an aviation agreement, which would introduce "open skies" across the Atlantic, are not active at present, it is likely they will resume after the June Transport Council where the Council will review the possible elements of an EU-US agreement. In the meantime, the Minister for Transport is keeping the Ireland-US aviation agreement under review, having regard to the EU-US negotiations.
Deputy Morgan raised the issue of pensions. Obviously Aer Lingus has two pension schemes, one for pilots, with which no difficulties exist, and one for general employees in the company. The pension scheme is a multi-employer scheme, which involves the Dublin Airport Authority and a private company, SR Technics, formerly TEAM Aer Lingus. The administration of that general scheme is a matter for the trustees of the scheme and the company concerned having regard to the rules of the scheme. The problem with the scheme is that because it is a multi-employer scheme it cannot be amended without the consent of all participating employers and a majority of members so that no employer is in a position to negotiate exclusively with employees as to his or her pension entitlements.
Actuarial valuations on the scheme are carried out every three years, with the last valuation completed in March 2003. At that time the scheme satisfied the minimum funding standard included in the Pensions Act 1990. The valuation due in 2006 has been brought forward by a year and is expected to be completed by the end of June. Unions and others have been speculating that the scheme is in deficit. However, indications are that a deficit does not arise under the terms of the present scheme. If the rules were changed to allow for mandatory CPI increases it is likely that a deficit would arise. The Aer Lingus Act 2004 contains enabling provisions which allow Aer Lingus to establish new pension schemes for its employees and pensioners. The Act also ensures that the benefits granted under such a scheme or schemes shall not be less favourable than those granted under the existing scheme. It is a matter for Aer Lingus to decide if and when a new pension scheme or schemes should be established, and the terms of any scheme would be a matter for negotiation with unions. Discussions are ongoing between management and unions on the existing pension scheme as well as a new pension scheme.
I express my appreciation and that of the Minister for Transport to the chairman and board for their ongoing efforts in directing the airline. The staff in particular are due our thanks for their efforts. They work in a difficult industry and have had to continually adjust to change. I assure them that we will engage with the unions and the ESOT in a spirit of partnership to progress the Government decision to ensure a viable future for Aer Lingus with the maximum number of sustainable jobs.
I will now deal with State and regional airports. The decisions on terminal capacity at Dublin form a key part of the aviation action plan announced last week. In terms of access, inward investment, economic development and tourism generally, Dublin Airport is, and will remain, the metropolitan gateway to the State. Ireland's island status creates a greater dependency for the country and a much greater requirement for adequate modern airport infrastructure, with associated air services, than in the case of other European countries with significant land borders. The national spatial strategy has acknowledged that the expansion of the level of air services from Dublin Airport to a wider range of destinations is essential in the interests of underpinning Ireland's future international competitiveness. Notwithstanding the greatly welcome increase over recent years in traffic at Shannon and Cork airports, and indeed at some of the regional airports, Dublin Airport will remain crucial to the national economy as a vital strategic component of national infrastructure.
At its meeting last week, the Government recognised the urgent need to provide for additional terminal and pier capacity at Dublin Airport. It agreed that the Dublin Airport Authority would build and own the new second terminal and the objective is to have the new facility operational in 2009. Following consultation with its customers, the Dublin Airport Authority will develop the most cost-effective options for the design, building, financing and operation of the terminal. Recognised independent experts with appropriate aviation and financial expertise will be approved by the Government to verify the proposal on its behalf.
Under current legislation, the operator of the new terminal will be selected through a fully open competition, which will be organised by an appropriate independent group or body. Selection of the successful tenderer will be on the basis of the most economically advantageous proposal. The agreement between the Government and the Irish Congress of Trade Unions, which formed part of last year's mid-term review of Sustaining Progress, will also be reflected appropriately in arrangements for the conduct of the competition. The Commission for Aviation Regulation will of course also ensure that the level of investment is appropriate through its statutory role in setting airport charges.
In the longer term, the Government recognises that, based on current projections for growth in passenger numbers, further terminal capacity will be required at Dublin Airport by around the middle of the next decade. In this regard, the Government decided that preparatory work should begin on examining the current legal and regulatory framework governing the airport for the purpose of identifying changes that may be necessary to facilitate the delivery of the next tranche of terminal capacity, namely, terminal 3. It is the objective of Government policy to underpin the most cost-effective, efficient and timely delivery of that terminal in line with emerging aviation trends through an open, transparent and competitive process. With regard to contact stands for aircraft, the Government recognises the priority associated with the provision by the Dublin Airport Authority of new pier capacity at Dublin Airport and in this regard the Minister for Transport has ensured that the Dublin Airport Authority has the necessary flexibility to respond appropriately to customer requirements in this area.
The Government also agreed that proceeding to finalise the independence of Dublin, Cork and Shannon airports on the basis of viable business plans is critical to achieving the strategic goals of aviation policy. The Minister for Transport and I will progress the restructuring of State airports on foot of assessment of the business plans currently being prepared by the airport authorities. The Dublin and Shannon airport authorities have been working intensively to identify new business opportunities for Shannon and concluded an agreement last year with Ryanair that will result in significant new business on European routes. Securing access from Shannon to additional destinations can provide new business opportunities for Shannon, and this is one pillar of the approach to future growth by the Shannon Airport Authority.
The two authorities have also indicated that addressing the long-standing unsustainable cost base at Shannon is an essential precondition for the future viability and development of the airport. The authority is satisfied that necessary cost savings can be achieved and in this regard I expect that discussions with the trade unions will begin shortly. In consultation with his colleagues and in the context of the business planning process provided for under the State Airports Act, the Minister for Transport will consider how best to enable the Shannon Airport Authority to carry out its commercial mandate and to maximise its contribution to regional development in the mid-west.
Cork Airport is one of the fastest growing airports in Europe. Since 1994, Cork Airport's traffic has risen nearly threefold to 2.25 million passengers last year. With its relatively large catchment area, it has good growth potential as evidenced by new routes launched last year and this year. Cork Airport will also benefit from the major capital development under way, including the construction of a new terminal, which will have a capacity of 3 million passengers per annum, with the facility to expand to 5 million passengers as demand requires. New multi-storey and surface level car parks are also being provided and a new internal road system is being developed. Cork Airport will therefore be well positioned to respond to the region's growth potential.
The business planning process currently under way will provide a basis for effecting the restructuring and separating of Shannon and Cork as fully independent airports. As required under the State Airports Act, the ability of both Shannon and Cork to operate on a completely commercial basis will be fully assessed as part of this process and will be factored into the decisions made.
The Minister for Transport and I believe that when taken together, this package of measures will position the State airports, as well as Aer Lingus, to realise their full potential in delivering international air access to the country. I am sure many will agree that this strategic approach is necessary to underpin Ireland's competitiveness, industry and tourism, and to enable the economy to maximise sustainable employment opportunities. With regard to the smaller regional airports, the Department of Transport's policy is to assist in optimising the contribution they can make to balanced regional development.
The three State airports, which operate to a commercial mandate, currently account for 97% of all air traffic and are capable of serving the country's primary air transport needs. The size and scale of the State airports mean they inevitably attract a range of airline services commensurate with their location and catchment areas. The reforms introduced in the State Airports Act 2004 are intended to strengthen and stimulate those airports in achieving greater efficiency and promoting further air traffic development. That strategic role for the State airports is complemented by the regional development role of regional airports, and the current grant assistance schemes operated by the Department of Transport are therefore targeted towards the latter.
Exchequer support for the six regional airports in Donegal, Sligo, Knock, Galway, Kerry and Waterford falls under two categories. First, support for essential, safety-related capital investment is available under the BMW and southern and eastern regional operational programmes of the national development plan. It is expected that total capital assistance for the six regional airports will amount to approximately €20 million by the end of the current NDP. Grants are also available towards operational expenditure incurred by the airports on marketing, safety and security, and approximately €2.24 million is allocated for that purpose each year. The Department of Transport also supports regional air access through the public service obligation regime by providing financial compensation to air carriers on regional routes where carriers would not otherwise be prepared to operate to the required standards on a commercial basis. The outcome of a recent procurement process for the next round of PSO contracts for the period July 2005 to July 2008 will be announced shortly.
Regarding suggestions of a wider, all-Ireland, strategy on aviation, Deputies will appreciate that, since the full liberalisation of the European aviation market in the 1990s, there have no longer been any Government or EU controls in the Irish aviation market. That obviously influences the overall approach to that market. Liberalisation of the European air transport sector has ensured that fares, routes and frequency of services operated by carriers at all airports on the island of Ireland are entirely commercial decisions for each airline in consultation with the relevant airport authorities. That basic fact has not been incorporated into the rationale or argument I have heard from the Opposition benches regarding the motion they are proposing to the House.
However, the Government has a long-standing policy of assisting, for example, Derry Airport, in the interests of North-South co-operation and recognition of the fact that the natural catchment area of the airport includes east Donegal. The Government, at my suggestion, recently approved proposals for the allocation of capital funding for City of Derry Airport in co-operation with the British Government. A joint funding package totalling €15 million was approved in principle in response to requests from Derry City Council. Since 2001, the Department of Transport has been supporting scheduled air services between Derry and Dublin through the PSO air service programme, and proposals for the operation of services on the route for the next three years will be announced shortly.
The Minister for Transport and I are delighted that an outcome to the aviation issues has been decided in an inclusive way. The Minister for Transport's approach has been to engage with all stakeholders, listen to all views and put forward a proposal that best delivers for the country. As a result of the Government's recent decisions, for the first time Irish aviation is positioned for long-term growth.
I was Minister for Transport in 1993 and 1994. I recall when Aer Lingus was in very serious difficulties and the future of the company was at risk. When the Government obtained a once-off State investment for the company in compliance with EU rules, dealing with Commissioner van Meert at the time, many continued to say that the company could not flourish. In recent years, when one sees what has happened to long-standing brands in international aviation on both sides of the Atlantic and in Asia, one must recognise that the company is operating in a totally new environment. None of us is here to argue for the demise of a company that has served us well.
People quite rightly spoke of the vision of the pioneers who founded these companies when there were no capital formation markets in this country — a development with which my party was particularly associated — but it is incumbent on us, given contemporary realities, not to allow policy to be driven by sentimentality or emotion. If we allow that to happen, we put at risk those very jobs that we argue we must protect and expand. We must ensure that Aer Lingus can get out in that more liberalised aviation environment in which it now operates, with dog-eat-dog competition on short-haul routes.
There is now also the real prospect of long-haul route expansion following changes to the air transport agreements between the European Union, which now has that competence, and the United States, opening us up to far more than the existing five routes. We all know that, given the goodwill that exists towards Ireland, the knowledge of the country, the diaspora throughout the United States, and the ability to develop working with the hub structure of American airlines in the myriad airports of the country, we can greatly increase the number of tourists that come to this country. The role that transatlantic tourism has played in the development of the business across the country is something of which we must be cognisant.
Looking east, there are very ambitious and visionary proposals that could come to a successful conclusion. The concepts must be robustly analysed so we can determine how we can develop those routes. However, there can be a role for Aer Lingus in all that, once again with a resultant benefit to the economy, our competitiveness and our reach throughout the world when getting more people to visit this country and experience our tourism products developed over many years. That is what we can do.
We must face the challenges and ensure we minimise the risks, robustly analyse the options, tread carefully as we move forward, work with stakeholders, and all try to reach a common analysis of what is in the interests not only of the company and the workers but the country and tourism. That means that we must open our minds to new avenues, approaches and possibilities not based on the capital formation of a company whose origins lie in the 1940s and 1950s. We must deal with competitors which have access to such funds in private markets, putting Aer Lingus at a disadvantage as matters stand.
That Aer Lingus is not publicly quoted may deny an opportunity to some pension funds in this country to consider investing in the company to obtain a long-term return. Such funds should at least have that option, given their statutory obligation to get the best possible return for the pension scheme members for whom they hold money in trust. The arguments are precisely those that I heard ten years ago, all doom and gloom and an inability to recognise that Irish business management and the Irish trade union movement are capable, under the social partnership model and maintaining its principles, of developing a world-class infrastructure in all our airports, providing for a commercial remit and giving them an opportunity to expand. That will bring more growth and more employment, not only directly in the airline business but in subsidiary businesses too.
Ultimately, airports are about a myriad of services that must be integrated. That is why the Dublin Airport Authority must retain operational autonomy and responsibility for developing the airport in an integrated fashion. However, in doing so, we must ensure we develop an infrastructure that is commensurate with the needs of customers and airlines, remains competitive, levies cheap and competitive charges, ensures more airlines are interested in doing business in this country, and allows Aer Lingus to expand its commercial horizons and opportunities by accessing funds that, under EU rules — when one talks about rational investment by the State — can be provided only in good times. We need to factor in these new parts of the equation. We cannot continue a discussion which does not provide the comprehensive range of options available by suggesting that those committed exclusively to State ownership have the interests of workers or the country at heart. Those who recognise the commercial realities agree with the retention of a minority shareholding for the State so that we can retain those strategic interests but can enable the company to access other funds from private equity sources. The ultimate transaction will be dependent upon the best available aviation and financial advice available to the Government and will be of a world class standard.
Despite the barbs from the Opposition, we have treaded carefully in recent months——