Seanad Éireann debate -
Thursday, 27 Jul 1961

Vol. 54 No. 15

Air Navigation and Transport Bill, 1961: Second and Subsequent Stages.

Question proposed: "That the Bill be now read a Second Time."

Minister for Transport and Power (Mr. Childers)

The main objects of the Bill are:—

(i) To increase the authorised share capital of Aer Rianta Teoranta from £10 million to £13 million; and

(ii) To provide for the issue by the Minister for Finance of repayable advances to the Company of such sums (not exceeding in the aggregate one million pounds) as the Company may from time to time request.

Aer Rianta's present authorised share capital is £10 million, of which £9,975,541 has been issued. Aer Lingus and Aerlínte are subsidiaries of Aer Rianta, the capital of which is used mainly for investment in the subsidiaries. The existing capital has been used by Aer Rianta as to £2,977,974 in Aer Lingus and £6,921,477 in Aerlínte, the balance being retained by the Company for its own capital purposes.

In the Bill, provision is made for an increase in the authorised capital to £13 million. Provision has been made in the Capital Budget for 1961/62 for the investment of £1,200,000 in the air companies and provisional estimates of capital requirements in the years 1962/63 and 1963/64 show that an additional investment of up to £1 million will be required, making a total investment of about £12,200,000. It is not possible to forecast for how long the increase now proposed will meet requirements. Because of the spectacular expansion in our air business—to which I will refer later—and the possibility that the increasing traffic may necessitate additions to the companies' fleets and equipment, precise forecasts of capital requirements are extremely difficult.

The amount of £1,200,000 in the Capital Budget for this year includes £150,000 in respect of Aer Rianta's investment in a hotel project. I shall deal with this project in more detail later. The Capital Budget also provides £850,000 which will enable Aer Lingus to liquidate a bank loan on which it has been operating for the past few years. The actual capital expenditure of Aer Lingus for this year is estimated at £450,000 but this will be met by the company from its own resources. Capital expenditure by Aerlínte in the current year is estimated at £600,000 of which £400,000 will be met from its own resources. The balance of £200,000 will be provided by the Exchequer. When these amounts have been issued, the capital of Aer Lingus will consist of £3,820,000 subscribed by the Exchequer and £1 million long-term loan from a commercial source, as compared with £2,970,000 Exchequer participation and £1,500,000 loan capital on 31st March, 1961. The capital subscribed to Aerlínte will be £7,120,000 as compared with £6,920,000 on 31st March, 1961. There will be an increase of £150,000 in the amount retained by Aer Rianta for its own capital requirements.

A sum of £250,000 will be required by Aer Rianta in the years 1961/62 and 1962/63 to cover its investment in Irish and Inter-Continental Hotels Limited, a company formed to undertake the construction, furnishing and equipping of three hotels to be erected in Dublin, Cork and Limerick. The total cost of the project is about £2,750,000 and the balance of the capital required is being provided by means of a guaranteed loan under the Tourist Traffic Acts and by a number of banking, commercial and private interests. I think I should explain that Aer Rianta will not enter the field of hotel operation as such. The hotels will be operated by the Inter-Continental Hotels Corporation, a subsidiary of Pan-American Airways.

The Corporation has very considerable experience of hotel management and has adapted American hotel management methods to international standards of service so as to provide flexible operation in accordance with local customs, style and habits in each country which it serves. The arrangement which is being made provides the maximum selling coverage on a world-wide basis and should be particularly valuable in developing airline traffic and tourism for Ireland in North America against the heavy competition of the more highly developed tourist countries of Europe and the near East.

Very considerable State funds have been invested in jet aircraft and in the development of a transatlantic service and it is considered that the full benefits of that investment cannot be reaped unless it is backed by further investment in the provision of suitable hotel accommodation. There is a serious imbalance between the greatly increased passenger capacity being provided by the air carriers in particular and suitable first-class hotel accommodation in which no worthwhile increase has been made in recent years. Private enterprise in Ireland is rather reluctant to go into this essential development but I am happy to say that one of our leading hotels will be a substantial shareholder in the project now under discussion. This is a happy instance of a union of public and private interests.

Participation by air companies in the hotel business is quite a feature of the international airline business because they appreciate that the provision of first-class hotel accommodation is a very necessary adjunct to the development of air passenger traffic. I am satisfied that Aer Rianta's investment which, in fact, represents only about 10 per cent. of the total cost of the project, is a very necessary one and that it will yield quite substantial benefits for Irish aviation business generally. I have dealt at some length with the hotels project so that Senators will be in a position to appreciate the significance and value of the Aer Rianta investment in the project.

The amount of capital allocated to Aer Lingus for 1961/62 covers the liquidation of the bank loan already referred to and the purchase of such items as fleet and ground equipment. The main ground for repaying the bank loan is the undesirability of the company having a large proportion of its capital in the form of loan capital. The capital required by Aerlínte in 1961/62 is for modifications in aircraft fleet, spares and equipment, ground equipment, premises and office furniture and repayment of working capital.

The provision for the issue of repayable advances from the Exchequer to Aer Rianta is a new feature, and will enable Aer Rianta to obtain capital for items which would normally be financed by means of bank overdraft. It is considered desirable that certain short term capital requirements should be met in some other way than by the issue of share capital. The provision in the Bill follows the lines of similar provisions in the Electricity (Supply) Acts and the Turf Development Acts.

Senators will, no doubt, be interested in a brief résumé of the results, financial and otherwise, achieved by the Irish air companies during the past two years. In the financial year ended 31st March, 1960, Aer Lingus had an operating surplus of about £170,000. The final accounts of the company for the year ended 31st March, 1961, will be published this week after the companies' annual general meeting, and I am glad to say that Aer Lingus will have an operating surplus considerably in excess of that achieved in 1959/60. Aerlínte which operates transatlantic services will have an operating deficit of £93,621 in the year ended 31st March, 1961.

There have been very significant and heartening increases in the numbers of passengers carried by the companies in 1960/61 and, also, quite a considerable increase in freight carried. The number of passengers carried by Aer Lingus in 1960/61 was 713,000, an increase of 25 per cent. on the 1959/60 figure. The total amount of cargo carried—12,000 tons—showed an increase of almost 40 per cent. on the 1959/60 figure. In the year ended 31st March, 1961 Aerlínte carried 35,176 passengers, an increase of about 50 per cent. on the 1959/60 figure, and the total amount of cargo carried at 244 tons was two and a half times more than the amount carried in 1959/60. In regard to the operating deficit of Aerlínte in the financial year 1960/61 it is well to point out that this compares with an operating loss of about £589,000 for the twelve months ended 31st March, 1960 and an operating loss of about £790,000 for the eleven months ended 31st March, 1959.

The traffic carried by both Aer Lingus and Aerlínte continues to expand in the first quarter of the current financial year, April to June inclusive, as compared with the corresponding period last year. Passengers carried by Aer Lingus increased by 16 per cent. as compared with last year and freight by 31 per cent. Passenger traffic on the transatlantic service increased by 57 per cent. I am happy to say that the trend is reflected in forward bookings.

I recommend the Bill for the approval of the House.

Mr. McGuire

We should all welcome the latter part of the statement of the Minister in relation to the successful operations of both our air lines and the great improvement in Aerlínte. We are all very proud of and pleased with the work of Aer Lingus and its quite dramatic expansion and, above all, its wonderful record of safety. Those of us who use air lines quite a lot cannot fail to notice in other countries that there has been a marked deterioration in efficiency, in cleanliness, in service and even in courtesy on some air lines as a result of increased traffic. I am glad to say that in the case of Aer Lingus, nothing like that is apparent, and we all hope that even if the business grows bigger, efficiency and all those other things that go with it will not deteriorate in any way. In fact, in many ways there have been great improvements in Aer Lingus, particularly on the catering side of their operations.

We also will agree with the proposition of providing hotels in connection with flying. Because of the vagaries of the weather, one often finds oneself at an airport having to lie down for the night on a couch and the provision of hotels is absolutely essential. The Minister has said that provision is being made for the erection of first-class hotels. I am very glad that he did not use that awful word "luxury." This is a word that is put on everything nowadays in the public press—it must be a luxury ship, a luxury hotel, or whatever it is. Really what we want in the modern world are first-class second-class hotels, not first-class luxury hotels. By first class, I mean where everything is well done at all levels and where no false frills are introduced to cover up other deficiencies. For that reason, I welcome the Minister calling them "first-class hotels," and I hope that when we operate them, they will be first class in every way and will give a good, decent, straightforward service at every point in their operation.

The purpose of this Bill is to provide the increased capital necessary to do all the things envisaged. We all know that an undertaking such as an air line is very expensive and requires very large capital, and, above all, we should willingly vote this capital in this case because this is not a case where capital is required to bolster up something. It is really a sign of success. The extra capital is absolutely necessary because of the extraordinary expansion that has been going on in our two air lines. It is, therefore, no surprise to me to see that we are presented with this Bill for the provision of increased capital, because once we have committed ourselves to this operation we must follow our investment and keep ahead of other people, if we wish to keep up the success that we all desire to see attending this enterprise.

Many people were, perhaps, a little bit apprehensive about the feasibility of operating a transatlantic air line. I myself believe that with the record of Ireland in air lines and, first of all, in Aer Lingus, we are capable of competing with other and bigger countries provided there is a reasonable degree of co-operation on fares and costs, that we are not being under-cut by wealthy countries merely to get business by running on uneconomic lines. If there is always to be fair competition, we in the new Ireland will always be able to take our place in competition with anybody.

As we are all talking of Common Markets at the moment, I hope that, generally speaking, in our economy the same lines will be followed—that we will have the most efficient machinery possible and that it will be operated by the best and the best paid personnel at all times, because it is only with good machinery and good personnel and a good spirit that one can compete internationally.

It is encouraging to see that at all levels there have been increases—increases in passengers and that the financial situation is improving in both the air lines concerned. We also agree with the Minister that it is very difficult in an expanding industry like this to give precise forecasts of the capital requirements. I should not be surprised and, in fact, I should be rather glad to see the Minister coming again, perhaps in a comparatively short time, for more money to put into these companies. I also welcome the fact that there is being imposed on these companies the obligation to repay the capital invested in them. One of the faults of nationalised companies in some countries is that they are continually run at a loss and the capital originally invested in them by the State and the taxpayer is, in fact, never recovered. I hope that, on that aspect, too, we shall see that these companies are not only successful but so successful that they will be able to repay the capital advanced to them and any loans made to them. It is to be hoped that the provision whereby interest becomes due, where payments are overdue, will not have to operate. We support this Bill. We think it is a sign of success. We wish it every success in the future.

Mr. O'Grady

I should like to congratulate the Minister on the introduction of this measure. Particularly, I should like to pay tribute to the very efficient manner in which our air services have been carried on, right from their introduction. Every Irishman and woman must feel proud of the magnificent record of these services. So long as the same meticulous care and attention as are given to every detail of the working of this grand organisation continues we have nothing to fear from competition, even from the wealthiest countries.

Our Irish airmen have proved that they are second to none. They are amongst the world's best. That has been proved apart from the magnificent progress shown by our pilots in Aer Lingus and Aerlínte. So long as we have the same efficiency in these operations, the same meticulous care to every detail and the extraordinary success of our pilots, we can look forward to a great expansion of our air services. Therefore, I wish to congratulate the Minister.

Incidentally, I should like to pay a tribute to the gentleman, his predecessor, who had the foresight and courage to embark on this vast undertaking when perhaps very few people in this country would agree with the steps he took, steps which have been justified by the experience of the past number of years. I have seen a magnificent airport develop in my native county on a spot that was once a marsh. It is now a show place and one of the finest airports, I understand, in the world.

Mrs. Dowdall

I, too, like previous speakers should like to congratulate the Minister on his coming here with this Bill. Usually we do not welcome Ministers coming to look for more money but in this case we do. It is needed because of the success of the project. I am sure the Seanad will agree, as the Dáil has, to allow this capital to go to Aer Rianta and Aer Lingus.

I, with the other speakers, should like to congratulate the whole organisation of Aer Lingus and Irish International Airlines on which I had the honour and privilege to travel last year. As Senator McGuire has said, often by success and repetition people get careless in their attitude, in their behaviour and in their service but that cannot be said about our Irish airlines. In behaviour, manner, conduct, dress and in every possible way, I think the staffs of our Irish airlines are quite exemplary. They are accepted all over the world. The pilots, the navigation officers, and so on, are second to none and our record is due to their efficiency and their great care. I would say the philosophy that life is very precious and nothing that would cause injury or in any way endanger life must ever be allowed to creep in has permeated to the board and direct to its personnel and that that is responsible for the very fine record.

The imagination and courage of our Government in instituting this fine service are bearing fruit. Even at this stage, I should like to say congratulations to them and may they continue to have imagination and courage in the future. I hope that when Cork's airport is open—with the added success of that to the country and to us in Cork in particular—the Minister will be back next year looking for more money and that we shall support him again. I congratulate him on the need for looking for this money and hope that we shall give it willingly and with grace.

Professor Quinlan

I, too, wish to join in a tribute to the work of Aer Lingus, Aer Rianta and Aerlínte, to the very efficient standard of service and also to the very distinctive friendliness they bring to their operations. We can all be proud of their work and certainly wish them every success in the future. I am glad to see that the hotel project, in conjuction with Pan-American Airways, is about to come to fruition. In Cork at the moment, practically all during the summer season and well into the autumn, hotel accommodation is very difficult to get. I think it is probably the same all round. Therefore, we should welcome this development and add our voices to the appeals that it be kept at a reasonable level and that it will not earn the title of a luxury hotel.

The Minister used the significant words "operating profits" and "operating loss". I wonder if that includes provision for depreciation and replacement of the fleet?

Mr. Childers

The amounts for depreciation and replacement of the fleet have been deducted before that surplus is announced.

Professor Quinlan

In that case, the results are far more satisfactory than they appear at first reading. The provision set aside last year for depreciation of the Aerlínte fleet was some £400,000. That seems a very low figure to depreciate a fleet worth £10 million that is supposed to be replaced within ten years. Ten years is the accepted life of such transatlantic planes at the moment. The figure of £400,000 multiplied by ten gives £4 million. I wonder whether that is the full amount of depreciation. Perhaps it is accounted for by the fact that we did not have all the planes in our possession during that financial year.

Mr. Childers

In the year ended 31st March, 1960, there was no depreciation because there was no fleet. The first Boeing plane came into operation on 14th December, 1960. The depreciation in the accounts for the year ended 31st March, 1961, simply reflects the depreciation on that part of the fleet which was in operation at that time. It is indeed very small for that reason, something in the order of £50,000.

Professor Quinlan

We must face up then to considerably higher depreciation in the coming year. I recently had the pleasure of travelling by Aerlínte and seeing their service in New York and elsewhere. It was brought home very forcibly to me in that experience that a single small company cannot hope to survive in a modern competitive world. With the advent of the European Economic Community and the resulting competition and elimination of special privileges and advantages, I cannot see how Aerlínte can survive, unless it is successful in conducting mergers—I hope it will—with other similarly circumstanced airlines. Aerlínte at the moment has offices in many cities of the United States. It seems very border-line economics, to say the least of it, if you have not a flight to, say, Los Angeles, to bear the cost of maintaining an office there. Aerlínte suffers from the same deficiency as every other activity in the community, the fact that we are such a small community.

Tomás Ó Maoláin

Too small to exist, according to the Senator.

Professor Quinlan

It is our intention to play whatever part we can in the European Economic Community and one of the first services that will have to be strengthened through suitable mergers is the transatlantic airlines. Also in the years ahead, according to my reading of the Rome Treaty, we can no longer retain the very special advantage Aerlínte enjoys in having among transatlantic flights the unique right of entry into Dublin. That cannot be preserved indefinitely. While we share the enthusiasm created by these figures. I think it well to be cautious and see the difficulties that lie ahead. I hope that the forward-looking policy of the Minister will lead to successful mergers in the future.

Tomás Ó Maoláin

The Senator is a "but" man.

Mr. Childers

First, I thank members of the Seanad for their very friendly welcome to this Bill. I am sure that the directors and management of the air companies will be glad to hear their commendations regarding the service, which I also experienced myself.

There are just one or two points I should like to make in connection with the observations here today. The capital of Aer Rianta, as it will be after this Bill is passed, consists of shares taken by the Minister for Finance and there is not any arrangement at the moment for the repayment of capital. It is in the nature of shares invested in the company. I hope that in the course of time it will be possible for the air companies to commence remunerating their capital.

With regard to repayable advances, none has yet been issued. When they are, in accordance with the terms of the Bill, arrangements will be made for repayment of interest on outstanding amounts at regular intervals and for the repayment of the capital itself. We intend such issue of repayable shares for certain types of equipment whose effect on the economy of the company should be fairly quick, such as the establishment of a gigantic computer in connection with the booking of seats and other similar equipment.

Senator Quinlan spoke of the future of Aerlínte finances. In fact, the deficit is going down very quickly. The predictions made in 1957 when the whole question of transatlantic travel was considered by a number of experts proved to be a little optimistic but not excessively optimistic. The prediction was made that we would actually break even in the year ending 31st March, 1961. In fact, there has been a deficit, but the traffic is growing very rapidly and I am glad to tell the House that the percentage of seats occupied, of seats sold, on Aerlínte planes is at present higher than in any other major transatlantic air company. I also think the House would like to know that four years ago the prediction was made by people expert in market research that it should be possible for Aerlínte to carry 40 per cent. of the transatlantic traffic embarking and disembarking at Shannon. At present the figure is 45 per cent. Allowing for the novelty of an Irish transatlantic service and all the difficulties to be overcome there, including the difficulty to be overcome in America where a great many people up to now thought we were not the sort of nation that could run a first-class air service——

Tomás Ó Maoláin

Because of people like Senator Quinlan.

Mr. Childers

——this is very creditable.

Mr. L'Estrange

And the white elephant over there.

Mr. Childers

The House might also take note of the fact that the terms of the Rome Treaty include nothing about aviation at all. There is no provision regarding aviation, no obligations or agreements relating to air companies among members of the Community so air companies are not at present affected.

Professor Quinlan

It comes under transport.

Mr. Childers

Under transport, there is no provision regarding aviation.

Tomás Ó Maoláin

The Senator did not read the Rome Treaty.

Mr. Childers

There are absolutely no obligations whatever either in respect of the type of provision which airlines might make or the type of provision already in operation as far as aviation is concerned.

Senator Quinlan also spoke about pooling. There is no need to discuss that today at all. The Irish air companies operate on their own very successfully. The surplus in the case of Aer Lingus more than makes up for the deficit on Aerlínte. It is quite evident that as the world grows smaller, as the world shrinks, we will see various types of co-operation between countries in and outside the E.E.C. There is co-operation at present. Air companies in Europe, for example, share maintenance facilities, share each others planes for relief purposes. The air companies will consider these problems from time to time.

I think I have said everything that needs to be said, except that I should like to remark on the fact that the Seanad seems to be wholly united with regard to Aer Lingus and Aerlínte and I find it refreshing to notice this spirit of unity pervading the Seanad. I go occasionally to remote rural parts and hear people comparing the capital issue for the Boeing services which will last for many years with the amount for old age pensions in the current year, as part of the current Supply Services, and that kind of dreary nonsense. I am glad there has been no word of that here today.

Question put and agreed to.

Agreed to take remaining Stages today.

Bill put through Committee; reported without amendment; received for final consideration and passed.

The Seanad adjourned at 5.50 p.m. until 3 p.m. on Wednesday, 2nd August, 1961.