Seanad Éireann debate -
Tuesday, 14 Dec 1976

Vol. 85 No. 10

Air Companies (Amendment) Bill, 1976: Second and Subsequent Stages.

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

Minister for Transport and Power (Mr. T.J. Fitzpatrick,

Cavan) The necessity for this piece of legislation arises from the fact that the existing limit of £50 million on the power of the Minister for Finance to guarantee repayment of borrowings by the air companies has been reached. Under the Air Companies (Amendment) Act, 1969, the limit was raised from £24 million to the present level of £50 million. This was done in anticipation of the major fleet re-equipment programme which the air companies were then embarking on and which involved the acquisition of the two Boeing 747s and eight Boeing 737 aircraft. The net result is that the total amount of borrowings guaranteed by the Minister for Finance as at 31st October last stood at £35 million and two other loan facilities for £6 million and $12.5 million which have been negotiated will bring this figure to just under £50 million. Government guarantee is a normal requirement in obtaining loan facilities so that it is now necessary to raise the limit to enable the air companies to make continuing provision for future requirements. The present Bill would raise the limit from £50 million to £75 million.

The increased borrowing facility is not required by the air companies immediately but, in view of the unsettled state of the world capital market at present, the air companies must be in a position to negotiate loan facilities as they become available, to be drawn on as required. The losses currently being incurred require the air companies to supplement internally-generated funds by additional loan capital in order to finance general capital expenditure on such items as aircraft modifications, ground equipment, spares and so on. In recent years the shorter maturities prevailing in loan capital markets means that the air companies must turnover borrowings with additional or replacement loans at a faster rate. The repayment of a maturing debt and the negotiation of a new one cannot be done simultaneously, which requires that the Government guarantee limit must always be in excess of the actual limit of borrowing required for day-to-day purposes. In addition, because of currency depreciation the repayment values of maturing loans in foreign currencies have increased very considerably.

Having regard to inflation and general increase in costs it is anticipated that the increased guarantee level will be adequate for a least the next five years. The provision does not give the airlines a blank cheque to raise £25 million. As Senators will have seen, section 3 of the Bill provides that the airlines may borrow only with the consent of the Minister for Finance after consultation with the Minister for Transport and Power. In addition section 2 (4) of the Bill requires the Minister for Finance to lay particulars of any guarantees before each House of the Oireachtas. In the circumstances it can be taken that guarantees and approvals of borrowing will be subject to very close scrutiny.

There has been a considerable amount of debate and discussion recently about the finances of the air companies and the threat to the air companies' position on the North Atlantic. The House is aware that over the past two years the air companies have suffered net losses of over £5 million in each year before taking account of extraordinary items or losses on borrowings in foreign currencies. These heavy losses can be attributed almost entirely to the North Atlantic operation. The very depressed state of the industry on the Atlantic is due in the main to a fall in traffic over a number of years, intensive charter competition and uneconomic air fares. The air companies could not continue to sustain losses indefinitely at the level of the past two years and hope to remain in business.

The air companies keep all of the options under constant and critical review. In a doomsday situation one of the options would be total withdrawal from the North Atlantic. The air companies however, see their best interests in maintaining the Atlantic operation and fighting back. It is in the vital interest of our tourism, trade and industry and all of those employed in the air transport industry, the Shannon region and our overall national well-being that they should fight back successfully. They have been adjusting their strategy so that they can get maximum benefit from every potential improvement. For the year ending March next they have planned to reduce their net loss to less than 50 per cent of the 1975-76 figure and the indications are that the strategy they are adopting will enable them to reach this target. They are increasing their promotional effort for next year and are going for real traffic growth and an increase in market share. I have every confidence that the air companies are doing all in their power to reverse the present financial position and I am equally confident that they can achieve this through their efforts to contain unit costs, improve productivity and efficiency, improve revenue yield, and stimulate the market through more vigorous selling.

I believe the air companies have an essential role to play in the development of the country's trade, business and tourism. The economics of charter and scheduled operation are fundamentally different and while I recognise the very real benefit which charters can bring I am also very mindful that the national interest requires reasonable scheduled services. As Minister responsible for the development of both aviation and tourism my policy is that the two should develop in harmony serving each other in a complementary way. Within the aviation sphere, my objective is to promote the fair and orderly expansion of air transport services, both scheduled and non-scheduled, to and from Ireland.

In regard to non-scheduled operations the aim is to provide the maximum opportunity for participation consistent with maintaining the viability of the scheduled services, which are essential not only in the interest of tourism but also to meet the needs of trade and business generally. I believe both categories of air services can coexist within sensible regulatory framework embodying reasonable conditions for each type of operation. I believe our tourism interests are best met in the long run by having a strong national carrier working in the market. The air companies are committed to the improvement of tourism traffic and their huge investment in aircraft and promotional effort abroad are evidence of this. This summer their charter programme represented an increase of over 50 per cent on last year and in 1977 they are planning for further growth in charter traffic. Without their presence on the North Atlantic we would have no way of ensuring that the Irish market would be promoted vigorously by a dedicated carrier or that the type of all-year-round service necessary for the welfare of the economy would be provided.

I believe therefore the mood should not be one of complacency on the one hand or pessimism on the other. What is required is a strong will to overcome the odds and a commitment by all to work unceasingly to that end. The odds facing the air companies can be overcome by hard work and dedicated effort. There are difficult times ahead of the air companies and this is accepted by all. They cannot rely on traffic growth alone to get them out of their difficulties and the main key to the solution will be greater productivity, efficient operation, maintenance of standards and vigorous marketing together with a rigid containment of costs.

The opportunity is also being taken in this Bill of providing for control of the remuneration of the chief officer of the air companies. This arises from the general policy of taking the remuneration of chief executives of semi-State bodies under control as and when the opportunity arises. The intention is to allow the boards to fix the total remuneration of the chief executives within the range approved by me with the consent of the Minister for the Public Service.

Finally, the Bill is consolidating all the provisions in the existing legislation relating to borrowing. The advantages of having all the relevant provisions contained in a single piece of legislation are self-evident.

I commend the Bill to the House.

Mr. W. Ryan

I should like to take this opportunity of congratulating the Minister on his appointment to Transport and Power. I wish him well in that position and hope he will make a success of that Ministry.

I have very little to say on the Bill except that we support it. When a company such as Aer Lingus or any other State company are in difficulties it is necessary for us to come to their aid. It is necessary because they are companies that must be kept going. It might be described as a necessary evil.

While we support the Bill, we do not welcome it because we are sorry to learn that our air companies are in financial difficulties. The trouble with both the air companies and the railways is that, time and again, Ministers come into this House and ask us for more money to get them over their losses. It appears that is our sole function in this matter, merely to provide the money. When one asks questions afterwards about the running of railways, airlines or anything else we are told that the Minister has no function in the matter. That is not fair to the people who provide the money. I am not asking that we should have a say in the ordinary day-to-day running of railways or air companies. But both Houses of the Oireachtas should have a say when a company similar to the one mentioned here faces a threat of having its Atlantic route terminated. The same applies to railways. CIE will announce that a railway line is to be closed and we have no say in that matter. That is entirely wrong.

Speaking of the Atlantic route, it would be a national disaster if that were to be terminated. It is a mystery to me why they are losing money on this route. We have been told that there are plenty of passengers coming to Ireland from the United States, Canada and elsewhere. Yet we are told that this route could cease. If that were to happen it would mean the beginning of the end of our airline service because that is what follows when one starts chopping off bits like that. One sees the same happening with CIE when they close one portion of a line and, as a result, lose more passengers. If we lose our transatlantic route it will mean that other companies will take it up and we shall lose the services from, say, Dublin or Shannon to Europe. I hope we will never see the transatlantic route terminated. It is a pity we have to lease planes to other countries, that we are unable to use them ourselves. There is no reason why we should not increase our business, keep those planes and use them ourselves.

There is one airport about which I am a little worried because it is not too far from me, that is, Cork Airport. I travel from time to time to Europe, to Paris and other places, and Cork airport is by far the nearest one to me; it is only an hour's journey away. But, if I go to Cork and board a plane, I may not get a direct one back. More use should be made of Cork Airport. For example, the Dublin/Cork/Paris flight should stop at Cork every day.

I have another complaint to make in that respect. When one disembarks at Cork Airport, unless one has a car, very often there is no transport available to the city. Such things react unfavourably against that airport. I hope Aer Lingus will endeavour to improve that service and retain that airport because if it continues as at present, with planes on the Dublin/ Cork/Paris route calling there only on, I think, two days a week, eventually Cork Airport will close down. We will be told by the people running it that it is not paying its way and that they must close it and that would be very sad. That Dublin/Cork/Paris route must be Aer Lingus's most profitable route. At least any time I travel on it there is always a full plane load.

I understand also that Aer Lingus intend purchasing a number of hotels in the United States. I know a certain number of hotels are necessary. For example, a hotel in London is necessary. I would go so far as to say that, as well as the Tara Hotel, there should be a hotel at the airport itself. There are quite a number of hotels at London Airport, all of which are full every night of the week. If one gets to London and wants to take an early flight to somewhere else the following day, naturally the airport is the right place to stay. The Tara and other hotels are quite a distance from the airport.

Speaking about the American venture I find it difficult to understand why the air company should be purchasing a number of hotels. I am told they are purchasing about 14 hotels in America, and in cities where our planes do not call. I cannot see what we have to gain from a venture of that kind. I understand also that Aer Lingus are interested in golf links and that two have been acquired in Britain. I cannot understand why we should be spending money on golf links. It would be all right to spend money on golf links if we had plenty of money to spare, but when they have to come into this House and ask us to provide them with money it is ridiculous. Were they set up in Ireland there might be something to say for it, because by so doing at least we would be encouraging tourists here. But what will we gain by their establishment in Britain? I cannot see the air company gaining anything whatsoever from that venture. The Minister should tell Aer Lingus that we are not in favour at present of money being spent on golf links. I do not believe they will bring in revenue nor will the hotels in American cities.

From experience I notice that our cross-channel and European routes are going very well and, I hope, will continue to do so. Aer Lingus have always been known as the friendly airline and I hope that reputation will be maintained. But it has been said in the last few years that Aer Lingus is not now as friendly an airline. I must admit to that from my own experience. Let us hope they will change their tune and, in that way, attract more passengers so that no Minister will have to come to us again looking for moneys to get them over their difficulties.

Minister for Transport and Power (Mr. T.J. Fitzpatrick,

Cavan): I am grateful to Senator Willie Ryan for his kind personal remarks concerning myself. I hope my term as Minister for Transport and Power will see a profit situation arising in the case of airlines and that the twin industry of tourism will also prosper. The airlines and Bord Fáilte are engaged in a twin operation. When the airlines sell seats they are at the same time selling hotel beds in this country and selling other items that tourists purchase when on holiday here. On the other hand, when Bord Fáilte engage in selling Ireland as a tourist centre they also sell airline seats. I sincerely hope that Bord Fáilte and the airlines will continue to work hand in hand in the interest of the general economy of the country.

As the Senators appreciate, this Bill is largely an enabling measure. In 1969 the extent to which the Minister for Finance could guarantee borrowing by the airlines was increased from £24 million to £50 million. In other words, it was increased by £26 million. The position is that, with borrowings which have been arranged but have not yet been availed of, the limit of £50 million has now been reached. It is necessary therefore to increase the power and authority of the Minister for Finance to guarantee future borrowings because in the present state of the world's money market it takes time to arrange these loans. It is not just possible to arrange them at the drop of a hat, so to speak. It is necessary therefore that the airlines should have authority to arrange these loans which should be guaranteed by the Minister for Finance after consultation with the Minister for Transport and Power.

The question of the North Atlantic route has been raised again by Senator Willie Ryan. As I have said elsewhere, there is no question of closing down the North Atlantic line. In the prevailing circumstances it would not be in the interest of the economy in general, of the tourist business or of our industrial sector to think of closing down that line. At the same time the airlines must adopt a realistic approach to a position in which heavy losses are being incurred. They must keep all options open. They had a look at all options and the suggestion that the line might be closed down was considered to be nothing more than a doomsday option. I am glad to say that the airlines have rejected that proposal, that they have decided not to close down the line but to fight back and turn the position again into one of profit. That is what they are doing. They have set as a target for this year the reduction of losses by 50 per cent of last year's figure. I am glad to be able to say that the indications are that that target will be reached. That is a move in the right direction. I hope it will continue and that the situation of profit will again be in operation.

Senator Ryan was surprised that there should be losses, so I suppose it is only right that I should repeat what I said in my opening statement. The heavy losses on the North Atlantic operation are attributable to the depressed state of the industry on the Atlantic and that is due in the main to a fall in traffic over a number of years, to intensive charter competition and to uneconomic development. The question might be posed as to why we do not accept uneconomic air fares. As Senator Ryan and other Senators may know, these fares are arranged by an international organisation known as IATA and, consequently, are not within the control of our airlines.

Senator Ryan also raised the question of Cork Airport. I think his complaint was that it was convenient for him to depart from Cork but that it was not always possible for him to return there. In other words, he could not always find a convenient plane. That, I am afraid, is a matter of the day-to-day running of the airline. Aer Lingus must deal with it; and, of course, in deciding what flights leave or enter Cork Airport they must have regard to the economics of the situation.

In the context of this Senator Ryan also suggested that the House had no way of discussing or debating the overall performance of the airlines. I do not accept that. It is true that the Minister for Transport and Power is not responsible for the day-to-day running or operations of the airport but he has responsibility, and wants to shoulder it, for the overall performance of the airports and the other companies and boards under his control. As the Senator will also probably know, Aer Lingus and Aer Rianta have come under the scrutiny of the Parliamentary Committee which has been set up recently.

Senator Ryan dealt also with the purchasing of hotels in the United States by the companies. These hotels have not, in fact, been purchased. Some of them have been leased and some of them are being operated by the companies on management agreements. I am told that the overall picture of these hotels is good and that they are regarded as a profit-making enterprise. Airlines have engaged in a number of activities that perhaps might not be regarded strictly as matters which might be relevant or proper for air companies. They might be regarded as ancillary activities. The adverse results of the airlines operations have been offset to the extent of about £2 million a year by profits from ancillary activities. These include aircraft overhauling and maintenance and airport handling services. I am told that Aer Lingus are one of the biggest operators in the world in the field of airport handling services, personnel training and management services on behalf of other airlines.

In addition, the air companies have a programme of auxiliary activities not necessarily related directly to aviation, such as hotels, leisure centres, travel agencies and computer services. The intention was that the airlines would invest in these activities so as to counteract to some extent the fluctuations in airline industry. The air companies' attitude to each project is based on a strictly professional assessment of its earning power and potential. Some of the ancillary projects in travel-related activities have been affected by the general depression in the airline industry. However, taken together, the investments are basically sound and should contribute increasingly to the airlines' overall financial position. The total investment to date in all ancillary activities amounts to about £17 million.

The position is that the ancillary services are entered into on the professional judgment of experts within the airlines and many of them are showing a handsome profit, such as repairs, handling and the hotels. I have not at the moment details of the golf links to which the Senator has referred, but these golf links are situated in Britain. They were established after professional judgment had been passed on them. It is expected that they will show a profit and that they will add to the overall earning capacity of the airlines. These are all the matters which have been raised by Senator Ryan and I trust I have dealt with them fully.

The overall position, then, is that this Bill is simply an enabling Bill, enabling the Minister for Finance, after consultation with the Minister for Transport and Power, to guarantee loans which the airlines request and, more important, which he considers necessary. Furthermore, when this Bill is enacted, the Minister for Finance must lay before the Houses of the Oireachtas particulars of all transactions entered into by him for the preceding year, so that the Oireachtas have a check on the activities of the airlines and the responsible Minister under this Bill. I am glad that Senator Ryan accepted this Bill in a realistic way. While saying he accepted it he expressed regret that the airlines were not paying. We all share that regret and we all share the wish that the day is on the way when they will again be a paying proposition.

I recommend the Bill to the House.

Mr. Dolan

Might I ask the Minister a question? It is in regard to something which has been brought to my notice. I am not sure whether it is true or not, but it has a bearing on this. It has been said that in our efforts, justifiable as they are, to catch the Atlantic trade route, very often Aer Lingus planes leave London before 4 o'clock in the evening with the result that, while we gain in that context so far as the tourist industry is concerned, with regard to flying in weekend visitors from England we would lose. Perhaps on Committee Stage the Minister might have inquiries made and he might be able to dovetail those two exercises both to the benefit of the air companies and of tourism.

Mr. T.J. Fitzpatrick

(Cavan): I have no particulars in my brief of the matters raised by Senator Dolan but I will certainly bring his remarks to the notice of the airline and I undertake also to communicate with him in connection with the matter.

Question put and agreed to.

Agreed to take remaining Stages today.

Bill put through Committee and received for final consideration.

Question proposed: "That the Bill do now pass."

Mr. Dolan

With the indulgence of the Chair might I ask the Minister another question with regard to St. Angelo Airport, Enniskillen, which has been more or less lying dormant. Would the Minister check on what help and co-operation we might be able to give in this regard because that airport is very important to the tourist industry along the whole Erne basin.

Mr. T.J. Fitzpatrick

(Cavan): I certainly will. Like Senator Dolan I would like to see a happy state of affairs return to this island where we could have co-operation between North and South in matters of this nature to the advantage of the country as a whole. I am not familiar with the present position regarding Eniskillen Airport but I am sure it has its difficulties. I will look into the matter raised by Senator Dolan.

Question put and agreed to.

The Seanad adjourned at 7.15 p.m. until 2.30 p.m. on Wednesday, 15th December, 1976.