Air Companies (Amendment) Bill, 1967 (Certified Money Bill): Second and Subsequent Stages.

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

Minister for Transport and Power (Mr. Childers)

The purpose of the Bill is to enable the Minister for Finance to guarantee borrowings by Aerlínte up to a limit, including any repayable advances made by the Minister for Finance, of £18 million instead of £6 million as provided in section 5 (3) of the Air Companies Act, 1966.

The limit of £6 million in the 1966 Act was expected to meet the likely requirements of Aerlínte for about three years. In the event, this limit has now to be increased to enable the Minister for Finance to guarantee borrowings by the company arising from the decision to acquire two Boeing 747 aircraft for delivery in 1971. The purchase of these aircraft was not envisaged at the time of the enactment of the 1966 Act.

The estimated expenditure involved in the purchase of these two aircraft is $57.35 million, or about £20 million, of which some $15 million, or somewhat more than £5 million, is expected to be provided by Aerlínte from its profits and depreciation reserves, leaving about $42 million, or about £15 million, to be raised by borrowing in the United States. The US Export/ Import Bank have accepted in principle an application for the bulk of this loan the details of which are being negotiated with the Bank. It is envisaged that repayment of the loan would be made over a period of about seven years commencing in 1971.

A condition of borrowing is that the Government guarantee repayment and in order to enable the necessary guarantee to be given the limit of £6 million laid down in Section 5 (3) of the Air Companies Act, 1966, will have to be increased to about £15 million. In order to allow a reasonable margin for contingencies, the Bill provides that the new limit will be £18 million.

The new aircraft are being acquired to enable the company to maintain its competitive position on the North Atlantic. This is essential to safeguard the considerable State investment in Aerlínte. The principal operators on the North Atlantic route have already placed orders for the Boeing 747 (Jumbo Jet) and if Aerlínte were to continue to operate with its present fleet its competitive position would be gravely prejudiced if not made untenable.

The Boeing 747 will have a passenger capacity of 435, or two and a half times that of the existing Boeing, and its capital cost, on a cost per seat basis, will be in line with that of the largest of the present Boeings. The real economic advantages of the new aircraft derive from the economies of scale and it is confidently predicted that its operating costs per seat-mile will be well below those for existing subsonic aircraft. Another advantage is that the freight-carrying capacity of the aircraft, even with full passenger load, will be about five times that of the present Boeing. These economic advantages are such that the acquisition of the Boeing 747 is considered to be a better proposition for the company than the addition of aircraft of the existing type in order to meet the capacity shortage expected to arise within the next few years. If, as is forecast in the industry, the lower operating costs of the 747 resulted in fare reductions, the company, which has achieved a substantial operating profit for some years, might not break even let alone show an operating profit with its present fleet against the competition of the 747.

Aerlínte has been operating very successfully with its present fleet of Boeing aircraft and in 1966 the company achieved a traffic growth of 24.2 per cent and a load factor of 68.4 per cent, the highest of all the carriers on the North Atlantic route. I should add that this satisfactory traffic growth and high load factor are essential to provide Aerlínte with the necessary resources for future expansion. Overhead and passenger handling charges are inevitably costly on what is the shortest of the transatlantic intercontinental routes while the peak and valley period of traffic are certainly more pronounced than in the case of most transatlantic carriers. Aerlínte estimate that, with the introduction of the two 747s into service in 1971, it will be possible to achieve an annual growth rate in passenger traffic of about 12 per cent, so that a total of about 500,000 passengers will be carried in 1975-76 as compared with 300,000 forecast for 1970-71 and 168,000 actually carried in 1966-67.

The advent of the Boeing 747 will create considerable passenger and ground handling problems at Shannon and Dublin Airports, where additional facilities will be needed for the handling of the passenger, baggage and freight loads involved. These problems, which will arise in any event at Shannon where other airlines will be operating services with 747s, are being actively considered by my Department and every effort will be made to ensure that the necessary facilities will be available at both airports in due time.

I wish to emphasise that a Government guarantee of repayment of borrowings by the air companies is given only in the circumstances, firstly, that the borrowings are necessary to finance essential capital projects which cannot be financed at the time from the companies' own resources and, secondly, that the companies will be able to repay these borrowings in due course from these resources. The companies can no longer look to the Exchequer for assistance in the form of further contributions of share capital. Because of the magnitude of the expenditure involved in the purchase of the Boeing 747 aircraft, Aerlínte have no alternative but to borrow. Favourable terms are available from the US Export/ Import Bank as the aircraft are being purchased in the United States. The additional revenue which it is hoped to earn from the introduction of the new aircraft is expected to be sufficient to cover the financial commitments resulting from the loans now being negotiated and, at the same time, yield a net profit on the company's over-all operations. It is on this basis that the Government have agreed to give the necessary guarantee.

I recommend the Bill for the approval of the House.

Mr. Garret FitzGerald

I think we can unreservedly welcome the Bill or almost unreservedly. There are a few questions I should like to put to the Minister because his introductory speech, while brief and to the point, does not cover the ground fully.

It is a particular pleasure for me to welcome this because of my long, personal association with Aer Lingus and, indeed, with the Aerlínte project which has been such a success since it started. It should, perhaps, be said that in retrospect I think it can be seen to be fortunate that the service was postponed for a period. The original decision to start it was, I think, premature at the time. I say that not speaking as a politician——

Seán Ó Donnabháin

Hear, hear.

Mr. Garret FitzGerald

——but because my own experience in the company where I was at the time responsible for the traffic revenue estimates suggested that the decision was premature although the Board felt it desirable to go ahead. The actual growth of traffic on the Atlantic in the 1950s, rapid though it was, would not have been sufficient to make this a profitable venture until towards the end of the decade. I feel that the time actually chosen to launch the service was exactly right. There were, of course, some losses in the first year or two, of a development character, inevitable in the launching of a service of this kind even under the most favourable auspices but they lasted for a very short period and very quickly the service became profitable.

It would have been unfortunate, looking back, if the service had been launched earlier and had over a long period, as would certainly have been the case, had large losses which would have undermined confidence in the project and could have led to some decision by some Government to terminate it. That would have made it much more difficult to restart. The success of the service reflects, on the one hand, the achievement of very high load factors, as the Minister has mentioned, which is very much to the credit of the company. It is all the more to the credit of the company in view of the difficulties of the extremely seasonal traffic which the Minister has properly stressed.

On the financial side, the success of the company which was evident in the years after its launching in 1958 was not as marked in the last financial year for which we have figures, that is, the year ended March, 1966. In the year ended March, 1965, the company—I speak of Aerlínte as distinct from Aer Lingus— earned a profit of, I think, 12 per cent on turnover and about 15½ per cent on capital, which is a respectable profit for any business, never mind an air line. In the year ended March, 1966, these figures were reduced to about nine per cent on capital and 12 per cent on turnover. I should have said that in the year ended 1965 it was about 15 per cent on capital and turnover but these were reduced to nine per cent on capital and 12 per cent on turnover in the year ended March, 1966. It would be important for us to know whether this represented a fluctuation such as one can have in any company taking one year with another or whether it represented the onset of any more long-term trend. The Minister must have at this stage some indication as to how the finances of the company have turned out in the year ended March, 1967, which ended about five weeks ago. The accounts are not yet ready but the Minister must have some indication of this from the company. I think we ought to know whether this disimprovement was temporary or whether it is something that has lasted through to a second year and what are the expectations of the company as regards its profits for the year ahead. The company must have such expectations. Any well-run company must have its plans worked out and the Minister himself referred to the flow of funds from profits and depreciation from which the company expects to provide part of the capital required for this very large investment. What then are the annual profit figures which the company is working on basing its plans on which would yield this £5 million over this period after, no doubt, allowing for other capital expenditure in the interval between now and 1971? Do these plans and expectations envisage a continuation of profits at the level hitherto earned, an improvement on the figures for the year ended March, 1966 or a further disimprovement? The Minister could have said something about this and I would hope he would give us some guidance on this.

The problem of re-equipment is becoming a very difficult one. Indeed, the fact that the company has to envisage purchasing two aircraft at a total of £20 million indicates the scale of the operation into which we have projected ourselves by opening this transatlantic route. A few years ago we would have been frightened by those figures and intimidated and we would have felt that to put so much money into any project would be something we would have difficulty in justifying. However, the success of the operation, the growth of the traffic and the profitable nature of the operation up to the latest figures we have, make it easier for us to accept that the company in its planning is planning wisely in proposing to spend such large sums. It is an investment we can welcome not only because it is an investment in one of the more successful of our State enterprises but also because it envisages bringing in an increasing flow of tourist earnings upon which we are dependent and upon the growth of which we are dependent for the achievement of the targets of the Second Programme. These aircraft being purchased are of a scale of magnitude beyond anything hitherto used for civil purposes and the economies which it is expected to achieve will contribute to the continued profitability of the company.

I wonder if the Minister can tell us anything about the company's plans in regard to supersonic aircraft. I believe it is the case that the company has made some bookings for supersonic aircraft which do not involve it in any firm commitment. Nevertheless, it is an indication of its intention. Presumably with supersonic aircraft likely to come on the market in the years 1971 to 1974—the Concord towards the beginning of that period and the American aircraft perhaps towards the end of 1974 or 1975—the company must be visualising the need for further heavy expenditure on supersonic aircraft in this period. It would be useful to know what its plans and expectations are. We know this is an uncertain field and that the development of aircraft has reached the stage at which it is difficult to say precisely when the company may have to enter on such a commitment.

If the company is to invest £20 million in subsonic aircraft in 1971 at the very time when the supersonic aircraft are coming on the market, our consideration of this matter would be helped by knowing what the company's present expectations are as regards investment in supersonic aircraft. Does it visualise itself buying one or two? When does it think it will have to? Perhaps it hopes to get through the first couple of years of supersonic competition without purchasing a Concord and wait until a larger and perhaps more economic American aircraft is available. We should know something about the plans in this respect.

The Minister has mentioned the likelihood with these jumbo jets and subsonic aircraft that fares may fall and that, indeed, failure to invest in these new, more economic and more efficient aircraft would leave the company facing losses through operations with aircraft which would belong to an earlier era when costs were higher. This one could accept, but could the Minister tell us what, in fact, are the plans of the Government who are ultimately responsible, and of the airlines in regard to the fares structure in the 1970s?

Is it likely that there will be a sharp reduction in fares when these aircraft are introduced? Is there likely to be a two-tier structure? Have the Government given thought to this? Have any negotiations taken place of a preliminary character which would guide us on what is likely to happen in this respect? These are matters we must consider seriously in relation to a project involving an investment of such magnitude.

Before I come to the question of financing I should like to ask some questions about the period between now and 1971. The last company report available, for March, 1966, referred to the purchase of further jet aircraft for Aerlínte in April, 1966, and indicated the purchase of another in May, 1967, the present time. That report says nothing about further proposals for the purchase of aircraft. One supposes that the company can hardly expect to get through the next four years with the present traffic growth without adding to its fleet. We hope that this rate of traffic growth will continue. The present fleet would not be adequate for long to carry the traffic growth we can expect up to 1971 when these larger aircraft become available. What are the company's plans for this purpose? The total amount it can expect to have available from its profits and depreciation is only £5 million. I use the word "only" in inverted commas. It is a large sum, but after depreciation £5 million does not look like the sum of four years' savings unless there is an expectation that the profits will fall short.

Is it the case that the company proposes to purchase further jet aircraft to get it through the interval between now and 1971, and that part of the profits and depreciation fund built up will be employed for the purpose, leaving only part of the fund available for the jumbo jets? If so, what are the plans for the aircraft purchased between now and 1971? Is the company considering the hiring of aircraft to cover part of the gap due to the undesirability of buying aircraft at this stage whose effective life could be four years to be replaced by jumbo jets in 1971? One would need to know something of the company's plans for the interval to be able to see this proposal in perspective.

On the question of financing the project the Minister's explanation could be a little expanded. The Minister said the companies can no longer look to the Exchequer for assistance in the form of further contributions of share capital. I wonder is there any confusion of thinking about this. I know the Government have taken the view—and I think it is one which by and large is correct —that the State bodies should not in future obtain free share capital or capital which has not to be remunerated by interest or dividends and that in future the capital requirements of State bodies where not furnished by the companies themselves should if they come from the Exchequer be remunerated and pay interest or dividends as the case may be. That I think we could support.

The Minister's statement is very different. He does not say that the companies can no longer look to the Exchequer for free share capital or capital with no dividend or interest liability attached to it. He said that they can no longer look to the Exchequer for assistance—and that is an odd word —in the form of future contributions of share capital. If this were a private company it could reasonably look to the shareholders to supplement the flow of funds from profits and depreciation if the company's expansion were such that it could not be fully financed internally. This would be legitimate and normal practice.

I can quite see that in the case of the air companies there are difficulties in the way. These companies have not hitherto paid interest on their capital or on accretions of capital shares in recent years. Normally speaking, shareholders are willing to subscribe additional capital because they are receiving dividends and feel that the further injection of capital will, with good management and good luck, be remunerated by an appropriate and proportionate increase in dividends. This does not apply in the case of the air companies because no dividends are paid.

Has the Minister considered whether it might not be desirable to put the air companies—and particularly Aerlínte which has a better profit record—on a more normal financial basis? Aerlínte has been earning at the rate of 15 per cent on capital which is a respectable rate of earning for any company. Would it not be worth considering whether that company should not start to be remunerated by dividends? Should the Government not be prepared to subscribe additional share capital in the form of rights issues as would be the case in an ordinary company? It is difficult to see the justification for treating this company in such a very different way from an ordinary company, and saying that despite the rate of profit being earned none of that money should be paid out in dividends, and despite the rate of expansion the company should be forced to finance the whole of its expansion itself, assisted by leaving all the profits in the company and taking out no money as dividends.

There are very few companies anywhere in the world even in the most profitable sectors of private business achieving the rate of expansion which Aerlínte has achieved which are expected to or would be able to finance the whole of their expansion internally or by external borrowing. It seems to me that we are building up an unbalanced capital structure by insisting that the share capital must remain at this relatively minuscule sum of about £7 million and that the whole of the expansion must be through the company's own resources. We are forcing the company to incur a volume of debt inappropriate to the scale of its operations.

The Government may be short-sighted here. The pressures of capital shortage through which they have gone during the past couple of years may have unbalanced their judgement slightly. The fact that this project for which the money can readily be found from the Export/Import bank has made the Government breathe a sigh of relief and say: "This is one burden off the Capital Budget. We can get that money abroad and we can use the money we can raise locally for other purposes."

One can understand the Government, faced with the kind of capital stringency we have had in the last couple of years, taking that view. It is a short-sighted view. The Government should give serious consideration to what is the appropriate long term capital structure for this airline, whether a company expanding at this rate should not have injections of ordinary share capital from the shareholders to finance this aspect in part or whether it should not be released from this very heavy burden of acquiring all the additional capital required from outside sources in the form of external loan capital. The Minister's statement here seems to think in terms of share capital not being remunerated by dividends as the present situation is and, therefore, the Government can give no more share capital because the Government do not want to go on handing out share capital and getting no interest in return. That is a good housekeeping approach and we accept that, but why is it assumed it would be impossible and undesirable for the Government to inject further share capital and get a return?

In fact, the return could be paid out of the profits and it would normalise the situation. It would justify the Government in increasing the share capital in the company. We need to know more about the thinking behind the Government's policy here and to be assured it is not either simply a short-sighted policy dictated by an immediate capital situation or one based on a rather muddled view of the issue of the remuneration of share capital. The Minister owes it to the House to explain the grounds on which such a radical departure from the normal canons of sound financing is being made in this instance.

We would not wish in any way to reject this proposal. Those aircraft are needed. The method proposed is legitimate. Borrowing abroad can be defended on the grounds that the return secured from this investment would come in the form of foreign exchange which would more than remunerate the capital to provide the funds out of which the capital can be remunerated. That is fair enough. Even so, the onus is on the Minister to explain why he proposes here to depart so much from the normal pattern and why he is resistant to the idea of the company paying a certain appropriate dividend, a dividend appropriate to its cost level and to the Government making further injections of share capital into the company.

We could do with guidance on that and it would help us to approach this proposal more intelligently if we had that information as well as the other factual information about the company's plans and prospects which I mentioned earlier. I had hoped that the Minister would provide fuller information on this in his speech. As the Minister can see, in raising those queries and asking those questions, I am not for a moment opposing this project in any sense. Indeed, I again stress the importance and value of the airline to the country and of ensuring that its expansion and continued success are not blocked by lack of capital.

There may well be people who feel that this is an awful lot of money to provide for one State company in respect of two aircraft. Once you are involved in this business, a profitable business, profitable in itself and earning profits out of which the company is building up and expanding, and profitable to the country from the point of view of external tourist receipts, when you have a profitable venture of a high capital intensive character you cannot stand still. You have no choice but to ensure one way or another that the capital is provided so that the company may be able to expand.

There can be no criticism of the proposal to spend the money in this way. There can only be some doubts as to whether the method of financing is the most appropriate and whether the company itself is happy that when they are incurring this very heavy burden of debt, this rather unbalanced gearing of capital, this is the right approach or whether it is finding itself in the position that the Government are imposing this approach on it for their own reasons. We want to know whether this method of financing is one which the Government think is appropriate for policy reasons. It is a matter for the Government to decide the financing of their policy matters. This is entirely a matter for the Government to decide. We should know whether this is a Government decision or whether it is a Government acceptance of the company's own approach. We ought to know the full thinking behind this and be assured that this method of financing is the one most appropriate to this matter. With those comments and questions, I have great pleasure in welcoming the Bill.

Mr. Murphy

I, too, support this Bill. I should like to take the opportunity, in dealing with this Bill, of complimenting Aer Lingus for achieving their aim of being the friendliest airline. I think the credit is due to all involved in Aer Lingus, from the board of directors to the lowest paid worker. They have done splendid work in developing our national airlines. It would be appropriate also to extend good wishes to Dr. Dempsey who recently retired from Aer Lingus. He was an excellent public servant and contributed much by his leadership to the development of Aer Lingus.

Aer Lingus have, in my opinion, a very good record in regard to public relations and also in regard to labour relations. It strikes me that Aer Lingus adopt a very positive attitude in regard to labour relations. It is not a fire brigade attitude. They are involved in trying positively to promote good industrial relations within the service, which is so important, rather than waiting until a disturbance arises and then trying to deal with it. Perhaps they have been helped in this respect by the fact that the Minister has not spoken down to the workers in Aer Lingus as seems to be his habit in connection with workers employed in another service for which he has responsibility.

There is one aspect of this further expansion of Aer Lingus which is envisaged here and that is in connection with the tourist business. Aer Lingus is, as I think Dr. Dempsey would call it, a community-owned service and it has a positive role to play in the development and the growth of the economy. It is not just simply there to carry passengers. It is there to assist in the promotion and growth of the tourist industry and also to assist in the expansion of our industrial arm by providing a service for export, particularly cross-Channel. Can we, in fact, be assured if this goes through and Aer Lingus acquire the jumbo jets, which as the Minister says have a capacity of 435, that there will be available adequate hotel accommodation in this country to cater for all those passengers, particularly from America? There is a doubt in this respect. It seems to me that it would be rather foolish and unbalanced to provide for this expansion in one sense while at the same time making quite certain that the tourists could come to Ireland, as a result of the expansion of Aer Lingus and their publicity drive in North America, and that when they came they would not have adequate and suitable hotel accommodation.

I would have expected, in this connection, before now, more concrete developments from Ostlanna Iompair Éireann, which is another company under the control of the Minister. That, as the House knows, is a subsidiary of CIE for the purpose of promoting and developing the hotel accommodation and providing the services previously rendered by CIE. When this was going through one of the justifications for providing the subsidiary company was that a more positive approach would be made to this matter.

An Cathaoirleach

That matter is not relevant on this Bill.

Mr. Murphy

The general point may be appropriate and that is the question of being certain that the passengers who will be brought in the new aircraft will, in fact, have hotel accommodation here. With that, I think I have made my point.

I should also like to welcome the undertaking, though, again, I should like to be a little more certain about it, to develop accommodation at Dublin Airport and particularly at Shannon. I welcome the fact that Shannon was mentioned, since this underlines the fact that Shannon will not be abandoned at any future date as the main airport for transatlantic services. I often get the impression with regard to Dublin Airport that though further extensions are being continuously put up there are not the clean, clear lines it had when it was originally built. Additions are being made to it all the time. Somebody remarked that there is always a fear that in the course of these reconstructions somebody at some time will knock out the appropriate brick and the whole place will collapse. This reconstruction seems to be going on all the time and it interferes with services for the passengers. It is certainly necessary but I hope we will not have the situation—and this is what I fear—that we will have these large aircraft in operation, that Aer Lingus will be successful in its passenger drive, and then we will have chaos in Shannon and Dublin when this huge number of passengers disembark. We all appreciate that some 490 passengers disembarking at the one time, with all the luggage that our American friends carry, could create a chaotic situation, particularly at Dublin Airport.

I hope the Minister can assure us that the necessary ground accommodation will be provided in good time, that the good name of Aer Lingus will continue and that the promotional drive for the expansion of the tourist industry will not be hindered by a situation which would arise through lack of accommodation, with the accommodation being provided at the same time as the passengers are coming in. I welcome the Bill. It has the support of the Labour Party.

Professor Stanford

I should like to ask the Minister about one consequence of this Bill. What precautions are being taken to protect those of our citizens who live in the neighbourhood of the airport from the likelihood of a very great increase in the noise of aircraft taking off and landing? Already, I think, a good many of our citizens are suffering to the limit of endurance from noise in the neighbourhood of airports. I live about ten miles from Dublin Airport, and fairly often the noise of a plane passing overhead is distinctly disturbing. At times it is strong enough to awaken a reasonably good sleeper from his slumbers. If that can happen up to a distance of ten miles from the airport with the comparatively small aircraft we are using at present, what will happen when we are using these Boeing 747s?

This is a serious matter. I am sure the Minister has given a great deal of thought and attention to it, but I should like to hear his mind on it expressed clearly this evening. Of course, it is part of a general problem of our times —this question of the increase of noise. As I walked up Kildare Street on my way to Leinster House today an appalling uproar came from a power instrument at work on the roof of the Club which was recently damaged by fire.

I address myself especially to the Minister for Transport and Power. The fact is that almost all this nearly unbearable noise comes from some form of transport or power. Though I do not want to depart too far from the Bill, I hope this general problem is the Minister's concern. I do not propose to delay on this point.

This is a matter we would all agree on. All of us in this House can say that there is a considerable risk of terrible noise within from four to five miles of Dublin and Shannon Airports. I should like to be assured by the Minister this evening that he has definite plans to cope with this noise increase. Otherwise, it will cause disturbance not merely in the neighbourhood of the airport but to all the citizens of Dublin. Trinity College and University College, Dublin and other respectable parts of this city are being disturbed in the course of lectures and other serious occupations by those comparatively small craft passing overhead. I ask the Minister what he intends to do in this very pressing matter.

Mr. Crowley

I just want to raise two points concerning this particular Bill, rather by way of endorsement of what my colleague, Senator Murphy, has said. I am completely in agreement with what has been said, that we in the Labour Party welcome the expansion of aircraft development by this company, as is being provided for in this Bill. One of the points to which I have referred has already been brought out very forcibly by Senator FitzGerald. The House is entitled to know whether this is deliberate, firstly, on the part of the company itself or is it deliberate policy on the part of the Government that a unique expansion of this company should, in fact, continue on the lines on which it has developed so far and on the lines it intends to develop in the near future?

I query the advisability of literally forcing the company to seek accommodation for loan capital abroad on terms which will obviously be determined by people far removed from any control by our own Government and entirely outside this country. That is undesirable. If we are to have any regard or concern for the future development of Aer Lingus and Aerlínte it is clear that we should be making far greater efforts than we appear to be making to provide that capital as far as possible from our own resources. Having regard to the profitability already shown by this company and its progressive development so far, and to the fact that we have that capital within the country we should be able to provide at least some of it on better terms, I suggest, than have been made available to the company from the Export/Import Bank. I should like to put this first point to the Minister and to get a statement, if possible, from him about future policy.

My second point may be equally important. Those of us who had the pleasure recently of being invited to have a look at some of the operating techniques of the airline will also have benefited from a few rather illuminating comments from the general manager of the company. Part of the information put at our disposal from the boardroom of the airline during the past few weeks was the rather extraordinary fact that approximately half the revenue earned by Aerlínte was earned, not so much by the actual carriage of passengers but by the leasing of their planes to foreign countries. I do not think I have my information wrong—I think I am fairly right in saying that—but one thing is clear, at any rate, that a very substantial part of the revenue earned by Aerlínte comes not so much from the carriage of passengers but by the leasing of their planes to airlines on the other side of the world.

That is a factor quite a number of people in the country are not even aware of but it is something that ought to be adverted to because I believe that if there is justification for the investment of the very large sums envisaged in this Bill, I would like to be assured it is the type of investment on which we can depend in the future. It strikes me that possibly this is a feature of the future of the company we ought to have a more serious look at. I would certainly like to hear the Minister's comments on that aspect.

Mr. Childers

I thank the House for the very cordial way they have received this Bill. I already paid a tribute to Dr. Dempsey in the Dáil but I should like to repeat here my feelings that he gave most splendid service to the company and that he is one of a number of Irishmen who have shown supreme and dynamic imagination, and also a very great sense of business knowledge in the whole development of the airline. I wish him well in his future activities; he has been a very splendid person to this country.

Senators

Hear, hear.

Mr. Childers

Senator Garret FitzGerald got us back into politics by referring to 1948. I want to say absolutely clearly that the planes sold at that time were sold at a profit and I do not believe there would have been any great financial difficulty in launching the transatlantic service at that time. I think it would have brought us prestige; it might have helped us to develop the tourist industry at an earlier stage and to get more conscious of the value of tourism and Aerlínte today might have rights for traffic additional to those they now have. I do not propose to take up the time of the House in arguing this; I think it was splendid foresight on the part of the company and the Government at the time to conceive this venture. After all, at that time, it was essential to land at Shannon or Foynes, because of the nature of the aircraft being used, and we were literally an aircraft carrier, among other things, so far as transatlantic travel was concerned. I do not think there is any point in my going into it any further, except to say I profoundly disagree with the Senator on the subject.

Mr. Garret FitzGerald

There is not much point in that.

Mr. Childers

I might add that the Senator's projections—which he carried out for the air company—of what the traffic was likely to be from the time the transatlantic service was inaugurated in 1958 with piston-engined aircraft have been wonderfully exceeded. That is not criticising the Senator; it is always better to exceed one's projections than to find that the projections have not been realised. Nevertheless, at that time, his projections were very optimistic and they were, by implication, severely criticised by members of the Fine Gael Party in either this House or the Dáil—I cannot remember in which—and one very notable Deputy regarded the whole transatlantic airline venture in 1958 as part of Fianna Fáil crazy lunacy. I wish I had the exact words; in any event, it was Senator Garret FitzGerald, in his private capacity, who carried out that market research into the number of passengers likely to be carried from 1957 onwards and I am glad to say that they were very greatly exceeded.

Senator Garret FitzGerald asked about variation in the profits in Aerlínte from year to year. It would be very hard for me to give a detailed account of these but I think it is true to say that the group air fares have had the temporary effect of depressing profits. Then, of course, there are sudden increases in wages which have an inflationary effect on the company's operation. I suppose it is also true that perhaps interest payments on the coming into service of a large number of new planes at one time may alter the pattern of profit but I think it is true to say there is nothing of any great significance, except perhaps the fact that we all hope further inflation can be avoided, because it affected many air companies, both our own and others. It severely affected the English people, and it affected us. I hope that particular form of inflation can be avoided in the future by intelligent thinking on the part of the whole community.

Senator Garret FitzGerald asks for some figures of estimated profits by Aerlínte in the years to come, to show the variation that has taken place in the profits, in the net profits, after allowing for the payment of interest. In 1958-59, there was a heavy loss in the initial stages of £804,000, when the aircraft were being hired, when Constellation aircraft were being hired. The loss went down to £597,000 in 1959-60, down to £94,000 in 1960-61 and then the profits started to increase from £204,000 in 1961-62, to £1,221,000 in 1964-65. Then, as the Senator remarked, there was a reduction in 1965-66 to £1,050,000. The projected profits in the future, which are based on what might be called reasoned optimism and subject possibly to all the fluctuations in air traffic, due to economic difficulties, balance of payments difficulties and other factors, vary from £600,000, above £1 million, £1,130,000, £1,380,000 in 1968-69. Then there is a reduction in profits to £900,000, and the profits very, shall I say, between now and 1975-76 from £600,000 to £2,800,000 in 1975-76.

The House will understand that it is very difficult for Aerlínte to estimate profits in advance because they are based on the coming into service of planes at different times, based on projections of traffic, on the number of passengers who will cross the Atlantic each year and so on. They are approximate projections. I think it is equally true to say that most of the market research in relation to the air companies' operations since, at least, 1957 has been fairly accurate and I find it possible to have reasonable trust in the boards of the air companies in regard to their market predictions but may I make it clear that there are many circumstances that can alter that picture? I think it is true to say that we and other countries base our plans for expansion on a reasonably optimistic attitude in regard to very many things. We only hope, for example, that other countries around us will behave intelligently in regard to their economies and we hope we will too. We hope and we are certainly depending on good economic housekeeping by other countries in Europe and even by the United States for these predictions to be realised. I must, therefore, speak with great reservation on this whole subject.

Senator FitzGerald asked about plans for supersonic aircraft. Aerlínte has an option on two supersonic aircraft. We do not know when they will be delivered. The date of delivery varies from reports received in Washington and various circles from any time from 1971-72 to 1974 depending on the rate at which the prototype Boeing is built and the results therefrom and the final decision to build the supersonic plane in series. It would be impossible for me to say when they will be delivered. However, the American companies anticipate that some time in the 1980s or 1990s the production of a hypersonic plane flying at 10,000 or 15,000 miles an hour, rocket assisted, across the Atlantic bringing a passenger in ten minutes from Shannon to New York. That is a very long-term project but I am certain that there are very many people here who would be still living. They will be in space outfits and probably put in racks in the plane and will be sedated with a tranquilliser about a quarter of an hour before departure. That is really and truly within the realms of possibility before the end of the century. I shall not give any marked projections in regard to the profits of Aerlínte at that time.

Senator FitzGerald asked about the fare structure of the 747s. The fares of the service are agreed each year at the meeting of the International Air Transport Association. We had been told that because of the savings through economies in scale for the operation of the 747s it may be possible to reduce fares by ten per cent to 15 per cent to 20 per cent but we do know that there are considerable economies of scale in the operation of the jumbo jets. The fare structure of the hypersonic planes has not been determined at all. Many people believe that there would have to be a considerable supplementary charge for flying in supersonic aircraft. In reply to the Senator, I believe that the profits earned by Aerlínte would be sufficient to maintain their operation across the Atlantic. That, again, is based on reasonable optimism and on the splendid conduct of the air company, by not only the General Manager himself but by the board of directors and by a very excellent staff. Of course, I really should never speak about the operation of the airline without referring to the magnificent maintenance work of the men who are never seen by the passengers but who maintain the planes with accuracy and painstaking zeal. The craftsmen who maintain the aeroplanes have had a very vital part to play in the very successful record of the air companies up to now.

Senator FitzGerald asked what other planes were likely to be purchased by Aerlínte between now and the delivery of the jumbo jets. In service there are two small Boeing 720s. The fourth Boeing is due for delivery in July, 1967. At the moment there are no other plans for purchasing the smaller Boeings. We will have to wait and see what the increase in traffic would be and to relate the increase in traffic to the general position of the growth of the numbers of passengers across the Atlantic.

Senator FitzGerald was quite right in asking me whether I had any thoughts on the capital structure of the air company. I suppose it is true to say that it would be very pleasant if one could do what might be described as a tidying up operation enabling Aerlínte to pay a dividend on its existing capital and then to see what could be done about the injection of capital from the State and outside sources. That is quite true. At the moment it seems right to me that the whole profits made by Aerlínte should be put aside for depreciation reserves. Some of them have been paid out in eliminating development expenses that were on the company's books before. I feel that is the best thing to do at the moment. Aerlínte can, in fact, borrow £1 million of repayable advances from the State but the present capital structure of Aerlínte and my instruction to them that they must secure their capital from outside sources is based partly on the general position of the State capital programme, and as the Senator knows the Report on Full Employment indicated that if we were to be able to achieve full employment there would have to be a very great increase in savings which I hope will come but which has not come and there will have to be considerable borrowing abroad. I feel it is reasonable for the Government to say that State companies who can borrow abroad from sources that are not available to the Government for other purposes should do so. It so happened that the source from which Aerlínte borrows and will borrow this money for these jets is not ordinarily available to the Government for other purposes. It cannot be borrowed for housing purposes, for hospital purposes. It cannot be borrowed to finance the replacement of buses in CIE. It is a special form of loan available to companies that purchase aircraft from the Boeing company. Therefore, that means that other sources of borrowing from abroad are available to the Government and can be sought from without prejudice to the growth of Aerlínte. I think it is the best way and I do not think there will be any change in it.

The Government have given about £13 million to the two air companies on which no dividends have been paid. This is a very considerable contribution to the growth of the two companies. As I have indicated to the House on previous occasions, if the air company were being operated on a purely commercial basis it probably would have operated the service to Birmingham and London for years and years on a profitable basis earning sufficient reserves so that it could borrow itself in the market without reference to Government funds or else remunerated Government capital and if that policy had been continued Aer Lingus would have never grown to the extent that it has. It was asked deliberately by the Government to expand its services to places like Manchester and Liverpool where the rate of profit is very low indeed because of the short distance travelled. As a result, the Government in their wisdom decided to provide a total of £13 million. We feel we have reached a point where it is desirable that this company should remunerate its capital to the greatest possible degree. I might add that we do examine the financial position of the two air companies in order to see whether there should be any change in the methods of remunerating capital or whether there should be any change in the directions suggested by Senator FitzGerald.

Senator Murphy gave his support to the Bill and he spoke about my lectures to State companies. In any lectures I have given every word I have said could be justified if Senator Murphy would read the Report on Full Employment recently published by the NIEC.

Senator Murphy also asked about the availability of hotel accommodation. In line with the increase in tourism we have recently increased the grants for new hotels and expansion of existing hotel accommodation. We have provided grants for guesthouses. We are now providing grants for improvements in farmhouses so that they can accommodate tourists. I hope that credit will be available for all this activity as a result of the increased grants and as a result of what I hope will be an easing of the present credit squeeze. Ostlanna Iompair Éireann have been expanding their accommodation and building quite a number of bedrooms in nearly all the hotels. This year they have been granted £500,000 of capital to engage in further expansion.

In regard to the improvement requirements at Dublin Airport and Shannon Airport, I hope there will be no chaos. Up to now there has been no chaos. Up to now we have had very crowded airports, but we have always managed to operate them with reasonable efficiency. The average length of time for passengers' baggage to arrive at the reception centre in Dublin Airport is certainly one of the lowest in Europe. There are exceptional occasions when there are delays. I hope we will maintain that good record. We have arrangements to continue the building of new facilities for passengers at Dublin Airport. We have the building of piers, the new cargo terminal, the new link building between the present piers, the new catering building. These are all provided for in the capital expenditure for this year. They will not be completed within the financial year, but we hope we will be able to avoid any chaos, and that we will be as we have been in the past up to date with the provision of the necessary accommodation.

The Senator is quite right about the need for a careful examination of this. I understand that an ordinary medium-sized express arriving full from Cork to Kingsbridge carries the content of a 747 Jumbo Jet, so it is alarming to think what will have to be done. I am sure the Revenue Commissioners will examine with great anxiety the customs requirements. I understand from an estimate made in London that if the same customs examination as takes place now in London Airport were to take place, it would take something like one hour and ten minutes for the luggage of 435 passengers to be examined, so there will have to be considerable changes in the general arrangements for customs.

Senator Stanford referred to the noise at Dublin Airport. I cannot promise any diminution in the noise of the jumbo jets. There may be more noise, but it would be impossible for me to estimate it. As the Senator knows, the noise nuisance at Dublin Airport is considerably less than that outside many other cities. I think the Senator also knows that the most used runway brings the planes out and in, in directions which do not cause too much unbearable noise.

The Senator raised the whole question of noise in the modern world. I must say I am glad that it is the Minister for Local Government who has the heavy burden upon his shoulders of dealing with noise in general. I agree with what the Senator says. I think there will have to be a gigantic international anti-noise association with a tremendous amount of publicity before the public finally realise the effect of noise upon the human personality. I do not think it has never been analysed. I do not think anyone can give the real figures as to the neurotic states of mind and the illnesses which are caused by noise. We do not know much about it. Very little study has been done on it although I think a study is now beginning. I do not think the jumbo jets will be a serious inconvenience to Dublin citizens.

Senator Crowley referred to the possible dangers of our borrowing abroad. If he reads the Full Employment Report and if he reads whatever programme emerges next for general development, he will find that in existing circumstances it will be essential to borrow money abroad unless conditions change very radically. I may tell the Senator that the terms of the Export/Import Bank which are private to Aerlínte —these terms of credit are very often of a competitive character—are reasonable.

The Senator also asked about the leasing of planes. It is very important for Aerlínte to lease planes in the winter months. Luckily, because of the growing expansion of airlines in the various countries and luckily because winter is different in different parts of the world in different periods of time, it is possible to lease these planes. This is an important part of the financing of Aerlínte. I think I have dealt with all the points raised in the course of the debate and I should like once again to thank the House for its cordial reception of the Bill.

Question put and agreed to.

Agreed to take remaining Stages today.

Bill considered in Committee.

Section 1 agreed to.

SECTION 2.

Question proposed : "That section 2 stand part of the Bill".

Mr. Garret FitzGerald

There are a couple of points I want to raise on this section. I was not entirely happy with the Minister's explanation of the financing. He said it was right that the whole of the profits and depreciation reserves should be available to the company and by implication, that this would not happen if the money were paid out in dividend. There seems to be some confusion because the fact is that the money concerned will be paid out to the Export/Import Bank in interest payments. I cannot see the company being any worse off if it got the money from the Government and paid the same dividends to them as to the Export/Import Bank.

I can see the force of the other part of the Minister's argument, although I am confirmed in my belief that the Government's policy as regards raising capital is a short-term one, governed by considerations of stringency in the area of capital expenditure at the present time. I do not think that from the company's point of view there is anything gained. In fact, there is something lost by this process of paying an interest rate to the Export/Import Bank every year, presumably, regardless of the company's conditions, whereas a dividend could be varied or passed on occasions, if necessary, if conditions did not permit of payment that year. It seems to me that the Minister stood things on their head by suggesting that the company is better off having to pay interest on a fixed basis every year rather than paying a dividend.

I did not fully catch what the Minister said on this point. Am I right in understanding that he said there are no further plans for the purchase of additional aircraft between now and 1971? I may have misunderstood him.

Mr. Childers

There are plans for the purchase of one big Boeing. We have to wait to hear about any further plans.

Mr. Garret FitzGerald

I see. I might have missed his reference to one aircraft. I am puzzled that we are waiting to hear about other plans because the company, through the Minister, has made it clear what funds it expects to have available by 1971 for the partial financing of the jumbo jets. These plans must be dependent upon some assumption as regards the purchase of further aircraft between now and then. They cannot say they will have £5 million available upon this assumption of profit which the Minister mentioned, unless they decided they were or were not going to purchase additional aircraft. I am puzzled as to how there can be uncertainty on that point. Of course the company may change its mind. Its plans might be varied in the light of changes in the volume of traffic. This I could understand but I cannot believe the company has no such plans if it gives the Minister a figure of £5 million available from this source. Perhaps the Minister would explain that a little more fully.

Also I was not entirely happy with what the Minister said about the trend in profits. He mentioned a number of figures but attributed a year to one only, that is, £1,380,000 profit estimated for 1968-69. I can appreciate that he felt a certain reluctance in giving figures and naming years because these are estimates necessarily of an approximate character which can be varied in the light of prevailing conditions. If I am right in thinking that he gave them in the order of years, that seems to imply that the profits in 1966-67 may have been only about £600,000. This would be a very considerable reduction. It would represent a reduction of two-thirds in the return on capital in a two year period. I do not think that can be explained away on the ground of wage increases, which have not been in any way abnormal for Aerlínte compared with other companies, or on the ground of interest payments.

The accounts for the years 1964-65 and 1965-66 show some low increase in the net burden of interest payments, £68,000, but nothing on a scale which would explain this deterioration in the company's finances, if I am right in thinking that the Minister was saying in effect that in March, 1967, the profits may have been as low as £600,000. We would need more clarification on that point.

Finally, I was taken aback by what the Minister said about the terms of the loan being private. I had, in fact, intended asking him what the terms were. It was an oversight on my part not to have done so. I was preparing to do so on this Stage and I was very taken aback to hear that such a question would not be answered. I cannot understand how the terms can be all that private. When the company comes to repay the money it must show those repayments in its accounts. It would have to show the amount of interest being paid and the amount of capital repayments. I cannot see, therefore, how the Export/Import bank can expect this to be kept secret when the company must show those repayments in its accounts.

The House is entitled to know what are the terms of this loan and whether they are reasonable by comparison with what the Government could do in the way of raising money locally. Are we paying much more to the Export/ Import bank than we would have to pay if the money were raised locally? I rather doubt if this is the case. I suspect that the company may have got quite good terms and that, in fact, quite apart from the desirability of borrowing abroad the burden imposed on the company may be no greater, or perhaps less than it would have been if the Government raised the money locally.

We ought to have some guidance on this matter. We cannot accept that this is something which is private. It can be private at the moment if the Minister insists on keeping it private. We cannot force the Minister to disclose the information but when we get the company's accounts for the relevant years it will be disclosed and there seems no particular point in holding the matter over until then or in postponing a disclosure of the broad terms of the arrangement. We are entitled to know what the terms are. I should have asked this in my opening speech. I now like to ask the Minister that question on this point.

Mr. Childers

In reply to Senator FitzGerald I can say that Aerlínte will be paying less interest to the Export/ Import Bank than it would be paying if it borrowed the money from State sources. The actual rate should be kept private. If it should be put in the report it will doubtless be put there are at a later date. Aerlínte are only planning to purchase one large Boeing at present. If they require further small aeroplanes then this Bill provides an additional £3 million guarantee in borrowing over and above the amount actually required for the 747s.

I cannot get into argument with Senator FitzGerald about the payment of dividends and the interest payments to Export/Import banks. I disagree with him that one could arrange the financing of Aerlínte's capital in relation to the payment of dividends to the Minister for Finance and the existing capital structure, and that capital could be advanced on an alternative basis by the State. I think, relative to what the Senator said, in present circumstances it is advisable to concentrate on the sources which are not available to the Government in regard to State capital.

Mr. Garret FitzGerald

I take it now that the Minister does not exclude the possibility of rearranging the capital structure in due course and that he accepts that the present arrangement is less than ideal from the company's viewpoint even though it may be desirable nationally at the present time. I hope I am right in thinking that from what the Minister said.

One other thing which I should refer to, without going into any depth, is the Minister's comment on my remarks about the original decision to postpone the operation of Aerlínte. I would still adhere to my view in saying it would have been a mistake to start at that time. I do not want to press this point any way politically because I think it was a very arguable decision when the company was almost launched. One could argue that it should be given its chance or that the losses likely to be involved would be so great as to damn the project. Certainly, the prospects of traffic at that time were very dim indeed and the prospect was that the losses would be very heavy, indeed, something about £250,000 a year. I do not think the mood of the country at that time would have stood that loss long enough to enable the company to get to the point where it was making money and where it could have achieved a take-off. I am not clear what the results would have been.

I think I can take some confirmation of my view here from the fact that when the Fianna Fáil Government reopened this question in the mid 1950s they themselves decided to go ahead when they looked at the matter again in some detail. I think that was what was announced at that time. I think that provides some confirmation that the original decision was possibly premature, understandable in the desire to get the thing off the ground and to make a contribution to our tourist industry. I think, probably in retrospect, it was a mistake. I would accept from the Minister's view that this is something on which opinions could reasonably differ. I would be glad to have an assurance from the Minister that he has an open mind on financing and when the stringency is less than at the moment he would have another look at this matter.

Tomás Ó Maoláin

Can the Senator say how many other companies had suitable planes for the transatlantic service in February 1958?

Mr. Garret FitzGerald

Of the companies operating?

Tomás Ó Maoláin

All others.

Mr. Garret FitzGerald

Something approaching one dozen at that time.

Tomás Ó Maoláin

The Senator should look up the situation at that time.

Mr. Childers

My mind is always open for reconsideration of this matter. I can say that the boards of the two companies are at present satisfied with the arrangements for providing capital. I cannot say what they would feel two or three years from now. At the moment this is negotiated by the companies, then it is considered by myself and the Minister for Finance and finally it is considered by the Government. The companies are satisfied at the moment.

Mr. Garret Fitzgerald

I accept the Minister's assurance on that point.

Question put and agreed to.

Section 3 agreed to.

Title agreed to.

Bill reported without recommendation, received for final consideration and ordered to be returned to the Dáil.

Seanad Éireann debate - Wednesday, 10 May 1967