Report of Joint Committee on State-Sponsored Bodies: Motion.

Professor Murphy

On a point of order, what is the time allotted to each speaker?

An Leas-Chathaoirleach

Senators can probably gauge the time, and let us hope everybody will be accommodated.

That Seanad Éireann pursuant to the Order of the Seanad of 18 February, 1981, takes note of the Report of the Joint Committee on State-Sponsored Bodies on Aer Lingus, Teoranta and Aerlínte Éireann, Teoranta which was laid before the Seanad on 13 February 1981 and which contains a request for a debate thereon.

Traditionally, Aer Lingus have been one of the successes in the State-sponsored area. Their profit figures continue to be relatively good. I say "relatively" because behind the current reasonable bottom line there are warning signs for the future. First, is the dependence by Aer Lingus on their ancilliary activities to produce profits. The operations for which the air transport side was originally set up have been losing money principally because of the immense losses they have been incurring on the North Atlantic route. The unthinkable was touched on in the course of our discussions with Aer Lingus — the unthinkable being that Aer Lingus might consider having to remove the Irish flag from that route. There comes a point when a decision has to be made between the size of the losses being incurred on a particular route and the necessity to continue to show the national flag on it for reasons of prestige. That dilemma may have to be faced sooner rather than later.

In the committee we did not grasp that particular nettle, though we did isolate that it may have to be grasped. Aer Lingus are not alone in suffering serious losses on that route. Every carrier on the route is sustaining losses. Those who are national flag carriers appear to be sustaining substantial losses and some have departed from it. It has problems peculiar to itself.

We were happy, however, that the management of Aer Lingus were very conscious of the need, if at all possible, to stay on that route and are striving might and main to effect economies to enable them to do so. One economy that has political implications and which will have to be faced is the economy that could be achieved by having a single turn-around point in this country. We were told in the course of evidence that at the moment it is costing £700,000 to maintain two stops in Ireland for our trans-Atlantic service, and that a saving of this magnitude — and it is a considerable sum — could be achieved if Aer Lingus could be allowed to have just one turn-around point in Ireland. The preference for a single turn-around point would be for Shannon. Most of the traffic commences in Shannon and the Dublin route is merely a feeder to Shannon. Undoubtedly, if it was to be set up as a single trans-Atlantic point, some inconvenience would be caused to travellers who have to make their way from the eastern part of the country to Shannon, but we would have to balance that inconvenience against the saving to the national airline, bearing in mind that the saving is substantial. This will be a matter for political-cum-commercial decision in due course. We have not recommended that as it would be outside the scope of the brief of the Joint Committee to make recommendations on that particular matter. We merely point out the saving that can be made and it is for our betters to make the decision.

Some of the other problems lurking behind the present profitable position in Aer Lingus is the unsatisfactory nature of their capital structure. Aer Lingus share this problem with every other State-sponsored company we reviewed. When we spoke to Aer Lingus they reckoned they needed an injection of £20 million by way of capital to restore their balance sheet to proportion to have a proper debt — equity ratio. But the Exchequer is not in a position to provide this equity for Aer Lingus, no more than it is in a position to provide equity for all the other companies who need it so badly. These companies will continue to rely on borrowing, and the interest on those borrowings will continue to distort their balance sheets and damage the commercial standing of the company; in turn, that damages the public perception of the success of the company and this can be damaging to the morale in the company which is important.

This leads me to the next little warning sign behind Aer Lingus, that is, the present state of labour relations within that company. There was a very good record up to the last couple of years, but the company have suffered from two particularly damaging strikes. We were disturbed, on hearing evidence from some of the staff side, that they are unhappy with the level of industrial relations. There was very explicit criticism of management dealing with industrial relations problems. I would be unhappy to think they might continue and, compounded with pressure on the company and damage to their morale, that these could have adverse effects in future by way of trade disputes causing serious damage to Aer Lingus. Strikes in Aer Lingus do not just damage that company, they damage the whole economy because Aer Lingus have a high international profile and our reputation as a country with labour relations out of control gets another boost. It also has an immediate adverse effect on the tourist industry. I am particularly concerned also that this slightly worrying industrial relations scene could have any adverse effect on the ancillary activities, particularly the newest activity which was formally got under way during the week, that is, Airmotive on the Naas Road which is a very big investment.

The management, when we spoke to them, were confident that so far as was commercially feasible their projections for the future were tightly done and that the possible difficult areas, loss of market and so on, were something they did not anticipate. They saw a good future, a good market and a good product. I hope the level of industrial relations will be such as to ensure that full advantage can be taken of that good product in that good market, because overhauling and repairing aircraft engines could be a very profitable ancillary activity which we would encourage because it is directly related to the nature of the company in question, an airline company.

The other ancillary activities are, by and large, successful, particularly the activities in hotels in the United States. They have literally made an immense contribution to the Aer Lingus balance sheet and profits. Without them Aer Lingus would be in a very serious financial position. One would gather from looking at this scene that there is room for expansion. If the opportunities for expansion continue to be taken, we will be at a stage where the ancillary activities will become substantially more important and more valuable than the main activity itself. The committee felt a little hesitant about giving a blessing to this and the Aer Lingus people share that hesitation. To look at the matter in purely commercial terms, one should not have any hesitation but there was some sort of instinctive hesitation about a national airline whose flying activities were only a minor part of their activities.

The possibility of expansion in the United States is there because of the nature of the market and because that company from within its own resources could provide the capital it needs. That is an attractive proposition to a parent company that is short of capital and whose potential source of capital has an empty, or well nigh empty kitty. It is important that the ancillary activities carried on by Aer Lingus, bearing in mind that it is a State-sponsored company owned by the Government on behalf of the people of Ireland, would be consonant with the national ethos and that those activities would recognise the fact that they are being pursued on behalf of a State-sponsored company. Aer Lingus is very conscious of its position in that regard. It has round towers and the like on its cabin wallpaper and has saints' names on its airplanes. I have no doubt that that attitude would manifest itself in all the ancillary activities it would pursue. There are two activities, one in Foxhill's in England and a development in the Canary Islands, which could be disposed of. It is the intention of Aer Lingus to dispose of them when suitable purchasers come. Purchasers are scarce by reason of the fact that the recession is all over Europe. These interests should be disposed of. It would make many people happier to know that what was being done in those two places was no longer part of a national airline's ancillary activities.

Another area in which there is a little worry on my part is in relation to productivity. An independent witness from the Civil Aviation Authority in the United Kingdon, whose evidence was very valuable and much appreciated, was of the opinion that there was a 10 per cent to 20 per cent residual inefficiency in a national airline as against an independent Laker-type operation. There were signs in calculations put to us, which can be read in the evidence that productivity in Aer Lingus was not as high as it might be. For a company whose airline activities are in some financial difficulty it is important that the last drop of productivity would be achieved. It was a bit disturbing to hear that there is this general acceptance that a State-sponsored or nationalised airline generally is 10 to 20 per cent less efficient than its private enterprise competitors. That is something that could be removed. It was identified in the report that the manning of the Aer Lingus traffic handling and overhaul section is too heavy by comparison with other airlines. There would appear to be a recognition by Aer Lingus that there will have to be a reduction in the workforce, that it is over-manned. That is something that tends to happen in State-sponsored bodies. It is an economic phenomenon that tends to happen more easily in State-sponsored bodies. Aer Lingus has suffered from that phenomenon but now that it has been identified it is a matter for the management to cure it. By and large we were impressed by the concern of all in Aer Lingus, management and workers, for the reputation and standing of their company. They are very conscious that they have a national duty to perform being in charge of and running a national airline. This imposes certain responsibilities upon them, possibly more than would lie on a purely commercial operation.

One other matter that arose in the course of our discussions — it is something that arises regularly in the media — is the level of fares on the European routes, with particular attention to the London-Dublin route. We did not go so far in our report as to say that the fares on this route were too heavy. The level of fare was justified to us but we suggested that it is a route that must be kept under very close supervision to see if economies of fares can be achieved. It is a route on which there might be room for experiment to try to achieve a reduction in fares. It was interesting that one of the independent airlines that gave evidence to us did admit that a national flag-carrying airline for an island country such as ours which must maintain its own independent airline must be entitled to possibly preferential treatment in the level of fares it might charge so that it could continue to exist. The open skies policy recently introduced in the United States had effects which were not beneficial to some of the more remote parts of that country, the parts that could not generate a total economic flow of traffic. To some extent the size of this island would put us in a similar position and our national flag-carrier has to be protected if we want to continue to have an independent airline of our own. As an island country in this day and age we must continue and strive to achieve that.

Professor Hillery

In seconding the motion I should like to make a number of points and then briefly develop them. Aer Lingus has a weak balance sheet and does have a case for a further capital injection by the State. Productivity in Aer Lingus is not substantially out of line with other European airlines. Ancillary activities form a key component of the company's overall operations and are proving very profitable. Aer Lingus is an export industry with 70 per cent of its earnings coming from overseas. On the topical and often controversial question of the level of airfares Aer Lingus fares appear very reasonable from the Joint Committee's findings by the general standard of European fares.

On the question of the capital structure of the company, as I have said, Aer Lingus has a weak balance sheet. The equity debt ratio had fallen by 31 March 1980 to 32:68. The financial position of the company weakens further its position in an industry which is characterised by intensive international competition. Fuel costs have gone through the roof. The recession is still with us and the company continues to make losses on the North Atlantic route. The interest on the company's debt will likely reach the very high figure of approximately £8½ million in the year ended March 1981. Clearly, the company have a case for a further equity injection by the State. But, as Senator Cooney said, it must be remembered that the Irish economy as a whole is adversely affected by the international recession and Government finance is limited. Restraint will have to be exercised by the company on any future capital outlays, at least until the international recession has passed.

I now turn to the question of productivity. Clearly, there is scope for improved productivity within Aer Lingus and the company recognise this. The Joint Committee, however, found that the company's productivity is not substantially out of line with other European airlines. The company is pressing ahead with improvements in this area and I am aware that a tremendous amount of managerial time is being invested in trying to improve productivity and, therefore, to reduce unit costs.

A reduction of 500 in staff numbers is being sought, not by way of redundancy but on secondment of staff abroad on consultancy assignments and early retirements. Aer Lingus recently concluded sound productivity agreements with pilots, hostesses and clerical staff. I understand talks are going on with other categories with a view to reaching more productity agreements. The company are pressing for more flexibility among employees and are increasingly applying computerisation, which should lead to further efficiency.

Ancillary activities are essential as part of Aer Lingus operations to offset the cyclical swings that occur in the airline side of the business. At the present time, for example, the airline side is in difficulty and the ancillaries are especially helpful in the current situation. The company should be complimented on the shrewd and imaginative policies they have adopted in their ancillary activities. The results are there to be seen. Aviation-related activities have shown very good profits, and profits on hotels have shown a continuing upward swing, especially in the hotels located in the US. There are also satisfactory profits from financial and computer services.

Aer Lingus are in the export business. Seventy per cent of their revenue comes from overseas. The company earns very valuable foreign currency. Because they are in the export industry, the company's costs are of key importance, especially labour costs, and this underlines the need for pay rates in this country to be brought in line with those in other countries, especially those in the OECD.

My final point refers to the topical and often controversial question of air fares. To help the public to understand the fares charged by Aer Lingus, it is necessary to say that in the evidence we reviewed, the Joint Committee found that Aer Lingus fares seem to be very reasonable by comparison with the general standard applying in Europe. However, the London-Dublin fare in particular, though making a valuable contribution to the company's profits and position as a whole, should be the subject of continuing experiments with lower fares.

Mr. Howard

I welcome the opportunity to participate in the discussion. I compliment the Joint Committee on the report which is a readable document, comprehensive, giving a good deal of valuable information. I have a special interest in the discussion coming from the mid-West, the region in which Shannon Airport is situated. Certain implications in the report have direct connection with that area and I should like to comment on this briefly.

Senator Cooney implied that there is something special about a national airline. I agree that a national airline reflect their country and we are very proud of Aer Lingus in this country. It is a special experience for an Irishman in a foreign airport to see among an array of aircraft one with a shamrock on its tail. It gives one a feeling of pride.

Aer Lingus have made a reasonably satisfactory contribution and I give them credit for it. However, there are areas in respect of which I might express opinions that are not entirely complimentary. They are few but I intend to deal with them. I accept the Joint Committee's view that the financial performance of Aer Lingus is reasonably satisfactory within Ireland, the UK, in Europe and in the ancillary activities they are engaged in. On the other hand, their financial performance on the North Atlantic run is anything but satisfactory. Though the Joint Committee have made such a comment, to my mind they have been easy on Aer Lingus on this issue and on the steps Aer Lingus might be taking or have taken to anticipate developments on that run.

I share the committee's view that the capital structure of Aer Lingus is unsatisfactory. The report before us pointed out that the equity-debt balance is in the ratio of 35-65, and Senator Hillery said the position has deteriorated since then. Therefore, I support fully the committee's contention that the viability of the airline, if they are to generate from their business the financial resources to enable them to develop, must do something in relation to the ratio of equity and debt. I support the committee that that must be brought into line, to a 50-50 basis, if the airline are to make satisfactory progress. In the case of a semi-State body it means that the Government must take the necessary measures to make this 50-50 ratio possible.

In relation to the North Atlantic run, I have already offered criticism of Aer Lingus. Once the US Government went for an open skies policy on the North Atlantic run and once the Laker Skytrain came into operation on that route, Aer Lingus and others were confronted with two new radically competitive elements. Unfortunately, Aer Lingus were slow to anticipate such a situation. They were slow to react to the challenge. They were too concerned with being loyal to the principles of IATA and the fare structure of that organisation. On many occasions I have seen Aer Lingus Jumbos flying into Shannon not half empty but sometimes three-quarters empty. It is economic madness to fly such planes across the Atlantic half empty if it is possible to fill the empty seats by offering attractive fares. Aerlinte have been slow to measure up to the competition posed by other airlines in this respect.

I will move away from Shannon when I have given one example. Last November a friend of mine, a businessman in the west of Ireland, who needed to be in New York on a particular weekend contacted Aer Lingus to book a seat. The cheapest seat cost £462. He contacted Trans-America who offered him a similar service at £245 and eventually North West Orient provided a seat for £165. Therefore, when the committee talk about the necessity for the airline to be conscious of the economics, surely the figures I have quoted have no valid excuse. I am wondering how serious Aer Lingus are about being competitive in the market.

The services to Montreal and other points in North America have been discontinued. When Aer Lingus discontinued the services to those points, it would have made economic sense for them to have attempted to tie up with an American airline operating within the United States, like Eastern or Delta, which could perhaps have generated business from deep within North America. I have looked carefully through the report but there is no indication that that possibility is under consideration.

To be localised or parochial, there are a number of references in the report to Aer Lingus and Aerlinte and the necessity to have a dual stop in this country. There are seven different steps outlined which Aer Lingus are taking to improve the situation on the North Atlantic, but then we come to the following paragraph——

One aspect of North Atlantic costs which is a specific disadvantage for Aer Lingus is the compulsory double-stop in Ireland. Aer Lingus indicated that a saving in the order of £700,000 a year might be possible with a single stop only at the Irish end, although Shannon would continue to be used to a large extent since about 60 per cent of the trans-Atlantic traffic originates there.

There is a further reference in the report in relation to reflecting an attitude by Aer Lingus towards Shannon which I do not accept. I am not totally happy that the figure of 60 per cent of the traffic generated at Shannon is correct. Figures from reputable organisations indicate that the percentage is much closer to 70 per cent than it is to 60 per cent.

Shannon was developed as the principal trans-Atlantic airport in this country. Its operation revitalised the mid-west of Ireland. Its continued prosperity is vital. People might say that is a social argument. There is an economic argument clearly in the fact that up to 70 per cent of Aer Lingus North Atlantic traffic begins and ends at Shannon airport. If the dual stop is causing a problem, financial or otherise, for Aer Lingus, the sensible thing to do is to turn the jumbos around at Shannon and put in a feeder service of small planes. I am not totally happy that that proposal would ever find much grace with Aer Lingus because, unfortunately, and I regret to say this, I believe as do a number of others that there is a policy within Aer Lingus to undermine or devalue the importance of Shannon airport in Irish aviation circles. The turnabout service operated very successfully during a recent strike within Aer Lingus. The capacity of the airport to serve the North Atlantic route effectively and well it has been proved beyond question.

The catering services at Shannon have not been given the measure of support by Aer Lingus that they deserve. The catering services there are renowned all over the world. They have proved themselves to be well capable of providing the measure of service required there.

There are two proposals which are of vital importance to the future of Shannon airport. One is the proposal for customs pre-clearance facilities there for the USA. The second one is the possibility of a Dan-Air operation through Shannon to London. Both these proposals appear to have been obstructed for some reason or other. I hope that Aer Lingus and other responsible bodies recognise the importance of these, play their part and make their contribution in ensuring that whatever objections or difficulties are there will be removed.

There are two other aspects of the committee's report which I want to comment on. Before I move on to the first one, I want to refer to the deserved compliment paid by the committee to the consultants who assisted them in their work. I do not want my following remarks to be interpreted in any way as reflecting either on the personal integrity or the professional expertise of the people concerned. I believe that the objective of the committee in its approach to this report and its approach to the examination of Aer Lingus was one of ensuring independence and total objectivity. But how do you measure total objectivity if, for example, one or other of the consultants may be from companies or firms who have got commercial ties or directorships and may have an involvement with the airline?

The committee did a reasonably thorough job in assessing the efficiency of Aer Lingus relative to other European airlines. Within the base they set for themselves, they did a successful job. I have a certain reservation that they created too narrow a base in which to make an objective assessment of the effectiveness of the efficiency of Aer Lingus. They mentioned Finn Air and the Austrain National Airline. Both of these are national airlines of two countries that have a high cost economic structure. Because of that, it was inevitable that Aer Lingus would emerge well against these two national airlines. I am doubtful if selecting the national airline of Portugal was an effective comparison. Here you are making a comparison with a national airline of a country that in recent times has not been renowned for either economic or political stability. Then there was the comparison with British Caledonian. I believe that if the committee had decided to move outside national airlines to get a comparison with Aer Lingus they should have selected more than one example to do that. I would have felt that more realistic comparisons of efficiency, cost and so on would have been got if the comparisons were made in relation to perhaps ten to 12 airlines rather than the four.

The other point relates to the promotion of Irish tourism and the part that Aer Lingus is playing there. The committee noted that a substantial sum of £13½ million was being spent by Aer Lingus in the promotion of tourism and they came to the conclusion that the co-ordination between Aer Lingus and Bord Fáilte in this field had improved and was satisfactory. I would have felt that perhaps the observations of other organisations, and in particular the observations of the Shannon Free Airport Development Company, on that particular aspect would have been of considerable interest to the committee.

I conclude by saying that I feel the committee did an excellent job. They gave us a report that is readable, helpful and informative. They gave the Seanad the opportunity to discuss it and I sincerely hope that the committee, as promised in their report, will get the opportunity to return to this subject and to a deeper and more thorough examination of the Aer Lingus situation.

Mrs. Honan

I welcome the opportunity in this House to discuss Aer Lingus and to debate the report of the Joint Committee and I thank all concerned for their work on the Joint Committee. It must be quite clear to all in this House that there is nothing more difficult to carry out or more dangerous to handle than to initiate a new order of things which I propose to do this evening.

I propose to the Minister that we turn about the North Atlantic Aer Lingus planes at Shannon. I understand, quoting Mr. Kennedy on page 10 of the Minutes of Evidence, we would save ourselves £700,000 a year. During the strike last year Dublin Airport was closed and Aer Lingus were then turning about their planes at Shannon Airport. It worked very successfully but I did not see any figures anywhere on what was saved by stopping at Shannon and not coming on to Dublin. It disturbed me to even see that Mr. Kennedy had the exact figure of what would be saved if over-flying of Shannon took place. It is important to remember that 70 per cent of passengers land at Shannon and take off from Shannon. I am not being local: I am talking about the west of Ireland and also the rest of Ireland. I think this House should understand that 70 per cent of traffic is a very large percentage. This is not said often enough but I wish to put it on record.

Reading the committee's report on Aer Lingus I notice that in giving evidence the Aer Lingus management said they would save the £700,000 if they were allowed to over-fly Shannon. It was on the books a long time ago and it is on the books again, it seems. By this I presume they mean that they would fly the full load of passengers to Dublin Airport, at least 70 per cent of whom wanted to get off at Shannon in the first place and they would then dump them to get down to Kerry, Clare, Galway and Mayo. I maintain that if the Aer Lingus jumbo fleet were turned around at Shannon there would be a saving in fuel and all other costs. I know that there are problems and I am quite sure I would not like to be looking for a ticket tomorrow on an Aer Lingus plane to go anywhere after making this speech.

I understand bookings at Shannon are up 28 per cent even at this early stage. Of course we now have Trans-America Airlines and their tickets I understand are $50 cheaper than Aer Lingus. Some famous man once said: "Thou shall go so far but no further". I wonder should we say this to Aer Lingus today or are we too late in saying it? Two or three weeks ago in this House we had a debate on the Sugar Company and Senators around me said that the Sugar Company were doing fine while they stayed making sugar but when they got involved with vegetables they started to lose. Could we be doing the same thing with Aer Lingus? I am not quite sure about the auxiliary activites such as hotels and so on. I will come back to that again in a few moments. Are we making the same mistake again with another State-sponsored body by letting them go outside their areas? My concern here is that Aer Lingus may need money in the future for re-equipping their old planes and getting new planes off the ground but perhaps a small nation cannot afford to keep pumping money into such a venture. However, Aer Lingus have not been refused money for planes. As an elected Member of this House I do not think that the people would approve of giving money to Aer Lingus for anything other than buying planes.

I am going to ask a few questions about their new acquisitions that we hear so much talk about. Just take a look at their new travel office assets—Sunbound, Blue Skies, Air Tour, Enterprise, St. Stephen's Green and Michael Walsh. Did Aer Lingus take over one of the above-mentioned recently, with a debt of £800,000? What did the latest company that Aer Lingus took over cost the taxpayer? Are the individual accounts of each of the mentioned subsidiary companies available for inspection by this House or by a Member of it if we require same? My worry here is whether Aer Lingus are going into the retail travel trade side, having already been in the wholesale side of the travel world. We should remember that the Carna and St. Stephen's Green companies were both retail firms.

I am particularly interested in this when I look at the ratio of Aer Lingus staff working at each airport with over 5,000 in Dublin, only 300 in Shannon, only 150 in Cork and ten in Belfast. I am very unhappy about the availability of Aer Lingus services out of Shannon to Europe. People in the west want to get out of the west sometimes. We may not be able to afford it as much as people in the east, but some want to, and there are only a few links at the moment. Is it correct that 1,000 people have been taken on in all fields of Aer Lingus in the past two years? How many of those jobs were given to Cork? How many of those jobs were given to Belfast? How many of those jobs were given to Shannon? How many of those jobs came to Dublin?

I am disappointed that Aer Lingus are concentrating all their European services out of Dublin to the detriment of Cork, Shannon and Belfast. When the case was being made for an evening flight to Shannon, market research revealed that in the first winter of that year when eventually we brow beat Aer Lingus into giving us the flight, we had 18 to 23 persons and they were paying passengers, not staff. I am a bit concerned here again, because we have market research again looking into a case we are now making for Shannon-Europe. Will they come up with the same results?

One of my most important points here this evening is that 70 per cent opt to get off at Shannon Airport. We were pleased to read, arising out of the Minister for Transport's visit to Shannon, that the Government had allocated substantial capital funds to improve the runways and the general facilities at Shannon. However, to improve the level of traffic through the airport, Shannon management, Aer Rianta, have a plan to have an American customs-free clearance established there. I know the Minister has to examine all aspects of arrangements for and against this proposal. The Minister of State is from the west of Ireland like myself, and now that I have stood up and been counted I would like him to do likewise. To tell him about the refuelling and how terrible our fuel costs are, a plane left Frankfurt on 23 March, flew direct to Shannon empty, did not take on any fuel at Shannon Airport but took on 289 passengers to fly them to Boston. That is fact. Did the Minister hear what I said?

Mr. Flynn

Clearly.

Mrs. Honan

I will repeat it if the Minister did not hear me.

Dr. West

He did not believe.

Mrs. Honan

He does believe me. I am not being local, but I had better not come to Dublin for votes. I am stating this because I am not talking about Ennis, Shannon or Limerick. I am talking about Donegal to Kerry, taking in Mayo and Roscommon. Just take the price of one ticket. A return ticket from Shannon to Dublin at the moment is £27.50. I am concerned about the drop in domestic traffic and I wonder if the price that I have just quoted is the reason. The fall in domestic traffic from Dublin to Shannon and back again in 1979-1980 was 23,948 people. That is a lot of passengers from Shannon to Dublin and back. Having said all that, I know the past history of Fianna Fáil Governments. I know who put Shannon there. I know who forecast it would not survive, and I am sorry Senator Howard has to listen to me saying it. He heard me saying it before. Former Ministers in the Lower House said we would have the rabbits running around it. We will not have the rabbits running around it, because the people will have the good sense again to put another Fianna Fáil Government back in harness.

I understand that repairs are to be carried out on a runway during June, July and August of this year. That is top season. It has been explained that this is the only time because of surface topping and so on. Is there any chance that the Minister and his senior officials will take a look at runway 14.23 as well, and we may have less over-flying, and pilots will not have the excuse to over-fly. I suppose people in high places cannot grant themselves the honour of passing the buck. I believe that I am here today because I never passed the buck and whether I will walk home or fly home or be at home for good when all this is over, I do not know. I decided today that when this motion was coming into this House I was going to pin my colours to the mast, and I have done so. While the Minister of State stays in Mayo, the Minister stays in Roscommon and Deputy Haughey remains Taoiseach——

Professor Murphy

On Inishvickillaun.

Mrs. Honan

——I will not have any worries about Shannon remaining the airport.

Minister of State at the Department of Transport (Mr. Flynn)

At the outset I would like to thank the Joint Committee for the time, effort and work which went into the preparation of this comprehensive report on the national airline. From reading the report it is apparent that the committee approached the subject with a critical and impartial mind. The report highlights many of the adverse operational and economic factors at present facing the airline in what can only be described as an acutely competitive industry. It contains constructive proposals as to the various possible ways of surmounting these problems and improving the financial position of Aer Lingus-Aerlinte. I welcome the report and the present opportunity to discuss its contents.

The growth in the size, complexity and diversity of Aer Lingus operations is such that the company nowadays ranks among the largest of our State-sponsored bodies and represents one of the top 100 companies in the country in terms of employment, capital employed and annual turnover. The operations of the company embrace two major continents, Europe and North America, and involve vital interests of an economic, social and strategic nature. The committee were wise in the circumstances to address their inquiry to those matters which were judged to be of major significance. Likewise, in this contribution, I propose to address myself to a number of significant points affecting the company's operations.

The world air transport industry has absorbed a number of major changes over the past two decades. The 1960's saw the widespread introduction of new jet aircraft, a growth in international travel, especially tourism-oriented, and a general buoyancy in airline fortunes. The 1970's on the other hand saw the emergence of a number of major shocks which bore heavily on the airlines. These included the first fuel crisis of 1973/'74, the subsequent worldwide recession, the second fuel crisis of 1979 and the ensuing downturn in global economic activity which is still with us. The escalation in the cost of fuel which followed each fuel crisis has been especially severe on the airlines and has, in fact, completely altered the costs structure of airlines. I give one example to illustrate this; fuel now constitutes about half of direct aircraft operating costs; four or five years ago it accounted for about one-third. It will be clear from this — and the joint committee's report acknowledges the fact — that fuel has now become a dominant factor in airline operations. Other factors which began to affect the airlines in the 1970's included a dramatic liberalisation of US aviation policy and an increasingly vocal consumer demand for lower fares. The effect of all these factors has been to catch the majority of major airlines in a pincers between rising costs and diluted revenue. Many of the factors I have cited are still affecting the airlines and it is fair to say that the airline industry as a whole is at present in a state of transition. In the case of Aer Lingus the effects of the Northern Ireland troubles on traffic and tourism were additional inhibiting factors.

In recent years, the primary activity of Aer Lingus — air transportation operations — taken in isolation, has been operating at a loss. This is attributable, in the main, to the losses being sustained on the North Atlantic which have more than negatived the operating surplus on the European network. Other carriers flying the North Atlantic have also recorded massive losses.

The committee's report deals with this matter and highlights the main reasons for the slump. The dramatic hike in fuel prices — a ten-fold increase since 1973 — is, of course, a primary element. The effects of the world economic recession have also bitten hard and have caused a significant drop in international air travel. Side by side with those two developments, the North Atlantic scene has had to contend in recent years with a "deregulation" policy which has been pursued with great vigour by the US Government. This policy, framed initially for domestic application within the US, and which had as its main thrust a concept of uncontrolled competition, spread quickly to international operations on the North Atlantic. The opening up of markets to new carriers led to a situation of intense competition with capacity being provided far in excess of requirements. The fact that the move coincided with a severe slump in the world economy added to the problem. Airlines chasing fewer passengers resorted to price cutting, and while none of us as consumers will say no to such a move, the consequences for the financial fortunes of the airline industry were very serious indeed. The aviation industry worldwide experienced its worst ever financial results in 1980 and the prospects for the present year are no more encouraging.

Our North Atlantic operations traditionally suffer from a number of drawbacks which are peculiar to us and make the task of providing viable North Atlantic services difficult at the best of times. The committee acknowledge the existence of these peculiarities which can be summarised as follows. First, a substantially higher proportion of Aer Lingus traffic traditionally has been carried at lower promotional fares than for the industry as a whole. There is a relatively low volume of business traffic and short stay traffic to and from Ireland. Most of the traffic is tourist, including a large proportion of ethnic traffic, and is particularly sensitive to price. Second, Aer Lingus has the added costs of a double stop on each service at Dublin and Shannon. This makes it a more expensive operation than a London-New York service even when allowance is made for the fact that Aer Lingus receive a rebate on certain landing charges.

Third, traffic on US-Ireland routes is exceptionally seasonal, with for instance August traffic being some seven times the level of February traffic. Finally, Aer Lingus suffers from higher unit costs due to the small scale of its operation and its resultant inability to exploit economies of scale that are available to larger airlines.

When taken in conjunction with the problems which are afflicting the airline industry generally, the picture that emerges is a far from happy one. The problems posed are serious and development of a strategy that will see us through these difficult times will require great effort on the part of all concerned, including the Government, the board and management of the airline and, not least, the work force. In that regard, I think it is pertinent to draw particular attention to paragraph 126 of the committee's report which dealt with the losses incurred as a result of strikes in 1978 and again last year and to share the view of the committee that such developments cannot help in maintaining marginal services and must prejudice employment in the long term. I know that, faced with their present problems, Aer Lingus are engaged in detailed negotiations with the trade unions on many fronts and I would urge that both management and workers would look on the difficulties as a challenge to be met and overcome on a team basis.

In that connection, I was very pleased to note that just last week Aer Lingus and the trade unions concluded productivity agreements with three of their main staff categories — clerical staff, pilots and cabin crews — and that the airline hopes to conclude similar deals with tradesmen and other operative gardes. Cutting unit costs is essential if Aer Lingus is to compete in the present-day airline environment and, on that score, I very much welcome the progress being made on the productivity front. Aer Lingus have a mandate to provide a reasonable, efficient and economical public air transport service, both domestic and international, to meet the needs of industry, commerce, tourism and the Irish community generally. The possible termination of Aer Lingus North Atlantic services is a question which obviously has arisen from time to time but the potential disadvantages of this course have in the past outweighed the attractions. Termination of the North Atlantic operations would not eliminate the losses at present arising, at least in the short term. The North Atlantic services carry substantial overheads, a large proportion of which would transfer to the European operation on the closure of the Atlantic.

Additionally, the transatlantic operation cannot be judged in purely financial terms as it has much wider connotations, both nationally and internationally. In the national context Shannon, as it is today, owes its existence to the North Atlantic operation. Termination of an Atlantic service under the Irish flag could be calamitous for the airport. The Atlantic operation has been a major factor in attracting a variety of business and industry to the area. It has ensured that a substantial number of US tourists commence their holidays at Shannon. For this reason withdrawal by Aer Lingus from the route would have serious repercussions for tourism which would become dependent on foreign carriers who could not be relied upon to promote the Irish market vigorously or provide the type of all-year-round services required, particularly if the present unfavourable airline economic trends continue. There is the possibility that US carriers might be tempted to serve Ireland through the UK and by-pass Shannon altogether. Termination of transatlantic services would also result in considerable unemployment not only directly at the airport and at representative offices in the US but also indirectly through the loss of tourism and its associated benefits. Withdrawal from the North Atlantic would also be damaging to business and industrial development. The decision last year by Aer Lingus, accepted by the Government only with the greatest reluctance, provoked widespread adverse reaction. In all these circumstances what I have said gives some indication of what termination of the transatlantic service could mean and I must say that the committee, in their report, have demonstrated a keen appreciation of the position.

Suggestions which the Joint Committee have made, aimed at alleviating certain burdens, such as the double-stop requirements at Dublin and Shannon will be carefully examined. At the same time let me hasten to add that, as the Minister for Transport has made known on many occasions and most recently in a speech made in Shannon on 16 March last, there is no question but that Shannon will continue as Ireland's only transatlantic gateway.

Some commentators have suggested the abandonment of Dublin and the operation of a turnaround service at Shannon with a feeder connection to Dublin. The advantages which are seen in basing the airline's Atlantic fleet and operation at Shannon are not there in reality. Such a course would involve serious difficulties. These would include the technical problem of a split maintenance and operational base and the operation of a feeder service between Shannon and Dublin, requiring the acquisition of additional shorthaul aircraft and supporting equipment. Apart from this, Dublin is the nation's capital, the major centre of population and it would be unrealistic to contemplate the city not having a throughplane service to the United States via Shannon. Indeed, contrary to the often quoted view, the Aer Lingus transatlantic service relies heavily on both Dublin and Shannon for its traffic base and elimination of one or other stopping point would not be in the best interests of Aer Lingus at this time.

The Committee considered and, understandably, did not favour the notion that the North Atlantic services should be subsidised by the State. Much of the success achieved by Aer Lingus down the years has been due to the fact that the company is seen as one operating on the basis of commercial criteria. Whatever formula emerges to deal with the present day problems must carry no suggestion of direct subvention of what are the airline's normal commercial activities. A move in that direction would, in my view, be inconsistent with the strong commercial motivation which has always been evident in the management and work force and been a major asset to the airline in overcoming difficulties in the past. In the difficult times that still lie ahead, I believe that we need to sustain and strengthen, and not weaken, the strong commercial edge which has given Aer Lingus a high reputation in the competitive air transport industry.

The trend towards de-regulation and liberalisation has, so far, been concentrated on the North Atlantic, but there are developments which suggest that the European arena is likely to experience similar changes in the years ahead. Fare levels in the European area have recently come under increasing pressure, especially from consumer interests. In addition, as the report of the Joint Committee points out, the EEC have recently begun to direct their attention to the air transport field and have published a memorandum which advocates an evolutionary, rather than a revolutionary, approach to the many complex issues involved. In addition to this, a number of European carriers, including Sabena, SAS and Swissair, have introduced or resumed scheduled services to and from Ireland and there is the prospect of other European carriers entering the scene. All of these factors suggest a growing level of competition for Aer Lingus in Europe in the years ahead. Any increased competition on European routes from other European carriers may be expected to affect Aer Lingus but, of course, there should also be benefits to the consumer in terms of extra services, better frequencies, new routes and a greater variety in air fares.

The role of the national carrier in the development of tourism is obviously a major consideration and was one of the major issues addressed in the committee's report. In recent years, when our tourist trade was suffering gravely from the effects of the troubles in the North of Ireland as well as the difficulties arising abroad, our national carriers, in both the air and shipping spheres, made a major contribution through their continued intensive promotion of the Irish market. The commercial interests of the carriers largely coincide with the national objective of developing the tourist industry and it is natural, therefore, that the airlines and other carriers should be very much alive to the needs of tourism. At the same time, they must take account of their profit and loss account and balance sheet and cannot be expected to incur excessive losses in the continued carriage of passengers at uneconomic rates. The expansion of tourism requires a developing access transport network accompanied by investment in fleet capacity; such investment — so essential for tourism — can be sustained only on the basis of carriers operating on a sound financial basis.

In their report, the committee voiced some concern at the particular danger of Aer Lingus, because of their financial resources, taking on too much of the role of national promotion, which is properly the job of Bord Fáilte. The committee did not view this as appropriate, particularly at a time when Aer Lingus's overall profitability is low, and suggested that Aer Lingus should concentrate their promotional efforts to serve their basic business of selling seats. Viewed from an Aer Lingus perspective, there are certainly attractions in this point of view and this whole question will have to be gone into in great detail, as part of the Government's consideration of the overall position in relation to the airline's North Atlantic operations.

I believe that there is a very satisfactory degree of collaboration and co-ordination between Bord Fáilte and Aer Lingus and this collaboration has been valuable to both parties. Various special promotions undertaken in collaboration between the two bodies have made a valuable contribution to our tourism in recent years and have been of advantage to Aer Lingus, also.

Ancillary activities now play a very significant role in the overall operation and financing of the airline. With Government approval, the airline substantially increased its involvement in ancillary activities in the early seventies for the purpose of generating profits to offset the frequent cyclical troughs and financial fluctuations in its primary activity, that of air transportation. The successful strategy of investing in, and acquiring, ancillary businesses has been vindicated by the results achieved to date. In recent months, Aer Lingus have been reviewing the role, contribution and future development of their ancillary activities. At present, some 75 per cent of all profits in the ancillaries sector accrue from three specific areas, aircraft contract maintenance and overhaul, hotel and leisure operations and aircraft brokerage. A decline in profitability in any one of these areas would seriously affect the airline and, to ensure against this, Aer Lingus are considering what they may need to do in order to broaden the ancillary activities base.

Before leaving the ancillary activities side, it is only appropriate that I should make mention of the Airmotive project which Aer Lingus have successfully launched. The Airmotive project located at Baldonnel entails the rebuilding and overhaul of commercial jet engines, and involves a total investment of some £25 million. At full capacity Airmotive will provide 650 new jobs. Already some 150 people are employed. This is a project with tremendous possibilities and I know that all in the House will join with me in wishing Aer Lingus and Airmotive well with the venture.

The committee's report identifies two main issues which the committee felt needed to be singled out for consideration. Those are, first, the question of Aer Lingus's capital structure, and in particular the debt-equity ratio that is appropriate; second, the question of what should be the proper balance between the main business and the ancillary activities in terms of financial commitment.

Aer Lingus have recently completed an in-depth appraisal of their current and projected performance of their air transportation activities, the role, contribution and future development of the ancillary activities and their future investment plans and requirements. That appraisal has confirmed, among other things, the serious imbalance in the debt-equity ratio and the increased importance of the ancillary activities. My Department will be evaluating the results of that review and the Minister will be presenting concrete proposals to the Government designed to provide a sound basis for the growth and development of all the company's activities and operations during the 1980s. The report on Aer Lingus by the Oireachtas Joint Committee on State-sponsored bodies and the many points made during this debate will provide a useful input into my Department's evaluation.

Mrs. Cassidy

Have we decided?

Could you assess the number of speakers first so that we can give Senator Murphy some indication——

(Interruptions.)

An Cathaoirleach

Sorry, Senator Murphy, please.

Professor Murphy

I shall not be very long because many of the points that I was going to make have been pretty well covered but I want to make my contribution to this debate. I want to welcome two new developments which have come about since this report was drawn up. One is the fact that worker participation is now a fact in Aer Lingus which must improve industrial relations there or, putting it at its most negative, cannot possibly do any harm. The other is the matter to which the Minister referred already, the setting up of Airmotive Ireland whose very inception surely is a tribute to the success of Aer Lingus's ancillary activities. The very fact that it is being set up at all is an attempt to provide for an area of Aer Lingus growth which has been exceptionally successful. Much has been said about the trans-Atlantic aspect of the company's business and indeed Senator Howard and Senator Honan gave us food for thought. I am very glad to take what I believe is the Minister's promise that the unthinkable is not being thought about, that there can be no question at this stage of shutting down the company's trans-Atlantic services. To do so, would be disastrous for Shannon. It would be disastrous for our international role, so to speak, for our relations with our ethnic community in America and we must hang in there and perhaps hope for an upturn. But even if there is not an upturn it seems to me that it is a very grave decision for Government ultimately to take regardless of whether we continue on the north Atlantic. The other airlines, after all, have no real interest in this country. Like all multinationals they will pull out when it suits them. Other airlines have pulled out in the past and these will pull out, too, when it suits them. By the way, we might remind ourselves that Trans-America is not purely a private airline, that it has military connections, Pentagon backing and a federal subsidy.

I am glad to note that the Joint Committee report stresses the national interest which has to be taken into consideration as well as purely commercial considerations. In short, the national airline would demean itself and would demean us really by giving up their obligation to conduct an all-year round service to America while tourist traffic would be very adversely affected. It is impossible to quantify Aer Lingus's contribution to the American-based tourist market but it must be very considerable. The ethnic market is there also. Irish-Americans probably have many faults to our way of thinking but they are generous and they have an affection for this country and they are prepared to fly the shamrock if given any encouragement at all.

There is another interest as well, as any of us who has ever watched Aer Lingus operating in Kennedy Airport will know, that is that they carry the interest of other airlines also. Therefore, the chopping down of the north Atlantic operations would mean a pulling in, a contraction of Aer Lingus's international interests.

I listened with great interest to the talk about productivity, a word that I have great difficulty in understanding. I take it to mean that there are suspicions that the airline is overmanned or perhaps over "womanned", but what we should remember are factors like safety, first of all, which has not been so far referred to here tonight. Aer Lingus have a remarkably impressive reputation as a safe airline. That surely has to do with manning levels at every stage. The week before last the air stewardesses of a particular American line were at Boston Airport asking for signatures to a petition of their own—that they wanted to avoid a contemplated reduction of staff. The point they were making to interested people who chatted to them was that air hostesses are not there simply for the contemplation of their pulchritude, that they are not there simply to hand out drinks but that they are there in a very important security and safety role as well in case of any emergency. The number of cabin staff is proportionately related to the safety of the operation.

I should like to turn from the problems of the north Atlantic to dwell for a moment on the impressive achievements of the national airline in other areas. I mean geographical areas and other areas of operation. The report made only a brief reference, by way of appendix, to the airline's operations and connections with the Third World. We should remind ourselves here of the impressive achievements of Aer Lingus in this area in their training programmes here in Ireland. The number of technical apprentices at present being trained is remarkably high: 160 technical apprentices are being trained in a three-year programme. Their simulator programme operates on a 24-hour day basis. There is extensive training of pilots from Third World countries and, most lucrative of all, is their contracts for maintenance and overhaul. These are, for the most part, commercial operations. Aer Lingus are not in this kind of business in the Middle East and Africa just to aid the Third World. They are there to make money. But the implications go far beyond the purely commercial. The airline does not do a song and dance about their operations but it is a remarkable fact that Aer Lingus have more work in Africa than any other European airline, though it must be one of the smallest European airlines.

On a recent sales tour Boeing took along Aer Lingus representatives with them in Africa as a kind of guarantor of the good faith of Boeing. That says volumes for the standing of Aer Lingus in various African States. I am informed that heads of various States in Africa take a personal interest in airlines and that they talk to each other about airlines. It is not folie de grandeur on our part to imagine that we are well-got, so to speak, in that respect in many African States. Some of these fledgling airlines in developing countries have had bad experiences with their ex-colonial masters. Here Aer Lingus can score again. Aer Lingus make a point of not trying to muscle in or of outstaying their welcome. They can read the situation very well.

When we are talking about costs and the need to be viable and commercial we must remember there are all kinds of intangible possibilities, that in Africa, for example, the kind of pilots and apprentices who are being trained may be very important people in their countries in, say, ten years' time. They know we are meeting their needs and the potential for the future there in terms of growth development is enormous. Without being irrelevant, it is important to note that one of the reasons for Aer Lingus doing so well in Africa is that we are acceptable to these African States because of our particular role in the world, which, I might say, has recently been at risk.

When we discuss reports such as these, I am all for being realistic and for talking in hard-nose terms about facts and figures and the need for commercial viability. But occasion calls sometimes for patting ourselves on the back, or at least patting one of our most successful semi-State companies on the back. Whatever their present difficulties it is gratifying to reflect that they are one of our success stories, that they are very much part of what Ireland is or should be about in the larger world community.

Mr. Mulcahy

Once more I welcome the fact that the joint committee have had an opportunity to look at an important matter like this. The semi-State bodies in the last few years, particularly since inflation has become such a problem to business in all of its areas, have come under particular pressure because the working capital requirements in order to remain standing, are inflating every year at the inflation rate. This has put tremendous pressure on all of the semi-State bodies and Aer Lingus are no exception. As the Minister told us, in relation to the figures for fuel, costs have gone from a third to a half. That puts enormous pressure on the cost structure of Aer Lingus.

People have said many good things about Aer Lingus and I would like to have elaborated on those but we are short on time. One of the points I would like to make is that down through the years Aer Lingus have made a tremendous contribution to training in Ireland and to the development of management techniques. They have always been to the forefront in areas like work study, quality control, safety, and use of computers. In fact Aer Lingus was one of the first to introduce a fully integrated computer scheduling and booking system which is worldwide. That know-how is sold to other airlines. They have always been to the forefront; they are a leading company and we are proud of them. Also when they adopted a diversification policy—which was very creative and led to their taking some major steps that some people looked on somewhat suspiciously and perhaps cynically—they were ensuring their own survival. As the Minister has said, they have been encouraged by the Government to do that. Clearly they will be encouraged to continue to do so.

When we come to one of the issues raised in the debate—that raised in a strong way by Senator Honan—I find myself in a peculiar position and, because of that, it enables me to be objective. I spent a good deal of my time in Shannon. I was there when a certain famous member of the Opposition was talking about the rabbits running across the runways of Shannon. I lived to see the day when one would see hardly a rabbit within sight of the place for noise and activity, not alone aircraft but industrial activity. I spent a number of years working in Shannon in one of the main industries, which is now 21 years old. Therefore I feel I have a feeling for Shannon and can talk a bit about it. Also, I live on the north side of Dublin amongst a lot of people who work in Aer Lingus, who depend on their viability and continuing expansion in the Dublin area. Therefore I feel qualified to speak on both counts.

I am glad to hear from the Minister that there is no question of closing down Aer Lingus's interests in the North Atlantic route. It is an advantage to Ireland in many ways. We have 75 per cent of the traffic and this must have spin-off effects that are difficult to quantify. A cost-benefit analysis might be able to show that what appears to be a loss in money terms might, in general benefit terms, be a gain.

The question of terminating at Shannon is another matter. I have gone to the bother of looking into some of the facts on this. Taking an objective view of it—and not just a view of someone living on the north side of Dublin, worried about constituents and the employees of Aer Lingus—it seems to be a rather wasteful alternative. The duplication of equipment, the new capital investment that would be required to provide the maintenance needed, the fact that unit costs on the trans-Atlantic route would go up by 20 per cent if this happened, the fact that extra short-haul aircraft would have to be taken on, because the major demand for them would come at the peak of the season, would involve the airline in extra capital costs which would not be sensible at this point in time, or indeed perhaps at any point in time. Aer Lingus flying through Shannon to Dublin gives Dublin as the capital, an advantage over other airlines. It gives Aer Lingus an advantage over other airlines. It is a competitive offering which puts Aer Lingus ahead of other airlines and enables them to take whatever is available out of the route. As the Minister said the route is carrying some of the overheads at present. To take it away would mean that whatever contribution emanated from the route would disappear and that would not be a good thing. I am glad the Government are going to stick with the North Atlantic, that Aer Lingus are going to fly into Shannon, but I am also glad that they are going to fly through Shannon to Dublin.

As far as the debt—equity ratio is concerned I would not be too worried. When one looks at the Japanese situation one can see that they have learned how to expand and gain greater market shares in various areas while operating very high debt-equity ratios. As Senator Whitaker knows, I am somewhat liberal when it comes to thinking about debt-equity ratios anyway. As far as selling seats is concerned—and concentrating on selling seats and not Ireland—I do not know what the committee were at when they made that recommendation because marketing is about selling the smile on the Aer Lingus hostess's face as much as it is about selling the seat. I would not like to see them concentrating on selling the seats only.

Dr. Whitaker

For the sake of brevity I am going to drop various laudatory and critical remarks and get straight to the soft, vulnerable areas in what I might call ireverently the under-belly of the Joint Committee. I mentioned one of these soft spots when speaking on the Irish Sugar Company, that was, the risk of accepting too easily the social service or, I might add, the national prestige excuse for subsidising losses indefinitely.

I want now to concentrate on spoiling the unanimity with which the recommendation about improving the equity-debt ratio in both companies, but particularly now Aer Lingus, has been accepted. Whatever other reasons may be advanced for increasing the State's equity holding in Aer Lingus it is not valid to argue that this should be done in order to conform to private commercial norms. That has been the committee's approach. The committee, however, make no attempt to establish that private commercial norms are relevant or appropriate in the case of a State enterprise. With respect, I do not see any valid parallel. The committee's arguments in paragraph 29 of this report are not well founded. I would deny the cloak of respectability to an operation which I believe must be looked upon strictly as a form of longterm subsidisation from public funds of a State enterprise. Underlying the committee's recommendation is a mistaken belief that interest payments are a form of robbery from which State enterprises ought to be rescued or protected by throwing the interest burden on the taxpayer.

Why do I say that there is not a valid parallel with private commercial norms? Essentially because the share capital in private companies must be adequately remunerated over time, having regard to the rate of inflation, or its market value will sink and the prospect of raising any fresh capital in this way will vanish. I ask: can any such prospect of adequate remuneration of share capital be held out in the case of Aer Lingus or a fortiori, in the case of the Irish Sugar Company?

Major private companies in these islands, as the committee have pointed out, maintain roughly a 50:50 ratio of equity to borrowings. But they do so principally because of the conventional expectation of lenders the proprietors of an enterprise should themselves have a substantial stake in it which would show their faith in the venture and also provide free asset cover as security for any loans. This is not so necessary in the case of State enterprises where the security of the State is there to reassure potential lenders and enable borrowing to take place on reasonable terms. I may say that private companies would themselves like to have as low a ratio of equity to debt as market opinion would tolerate. Senator Mulcahy has mentioned the Japanese example. They would take this attitude because it is generally cheaper to raise money by borrowing at a fixed rate with interest allowed as an expense for tax purposes rather than by an issue of shares. If shares are to be used to raise new capital they must have a high market rating and they will have this only if they carry dividends above the inflation rate, dividends which do not exhaust all the profit but leave enough to be put to reserves against future losses as well as for renewal and extension of plant and equipment. It is quite definitely not as a means of providing cost-free capital that equity is maintained at a fairly high ratio in private companies.

I hope I have said enough to differentiate private and public enterprises in this matter of equity-debt ratio, and to pursuade the Joint Committee to reconsider an approach which I consider both suspect and very dangerous. The real test in my view of whether an enterprise, public or private, is a worthwhile viable entity from the community standpoint is: do they clear their running cost and give an adequate return whether in the form of interest or dividends, on the capital employed in them?

An Leas-Chathaoirleach

The Chair proposes to call Senator Brennan to conclude the debate in about two or three minutes.

Mr. Lambert

I will be very brief. I want to speak on behalf of the 30 per cent who want to fly direct to Dublin. I am absolutely in favour of maintaining Shannon Airport. I do not want to be misrepresented but, as a reasonably regular traveller on the trans-Atlantic route, I think it is appalling to have to land at Shannon Airport at 6 a.m. particularly in the dullness of the Irish winter and wait to travel on to Dublin if one wants to get to Europe. There should be compromise thinking on this and there should be a triangular route outwards by Shannon where you have all the glamour of duty-free shopping, on to New York and back overnight. We would get far more passengers if the route were through Dublin to Shannon and en route we gave them a very hearty Irish breakfast. If this was marketed we would get many more extra passengers.

I would also hope that in future the new timetables marking changes in winter or summer time could be made available before the changes take place. I have nothing but praise and admiration for the administration of Aer Lingus over a great number of years.

An Leas-Chathaoirleach

I now call Senator Brennan to conclude the debate on behalf of the mover of the motion.

Mr. Brennan

On behalf of the mover of the motion, Senator Cooney, and the seconder, Senator Hillery, I wish to conclude the debate formally. I want to thank all the Senators who participated in the debate and to express our gratitude to the Minister of State for his contribution. The debate on this motion showed awareness of and pride in the strength of Aer Lingus. It also showed genuine concern for the difficulties which face our national airline. From that point of view it has been an extremely valuable debate.

The time is approaching fairly rapidly when we will have to reconsider the existing philosophy towards the operation of our semi-State companies in general. The present model served us very well in the sixties and seventies but I do not think that we should necessarily adhere rigidly to it throughout the eighties and nineties. One has to be flexible. I have a personal philosophy about State companies. I do not believe the State should tie the hands of the board of Aer Lingus. The State should give Aer Lingus and all our State companies full commercial freedom. In this regard I differ from the committee. They took a rather cautious approach to Aer Lingus and their diversification plans and counselled care in delving into ancillary activities. The essence of the philosophy of not tying the hands of the board of Aer Lingus or any State company is that we charge them with providing a proper service for the Irish people. Having done that, we should not try to do it for them. Give them responsibility. Give them adequate resources and time. If they are not successful replace the people who have not achieved success. That approach is more and more needed in our State companies. Give them a job to do and if they do not do it, find somebody who will do it. Public accountability does not suffer by this approach. On the contrary, public accountability would be enhanced by this approach.

The total investment by this State in our national airline since 1936 amounts to almost £44 million. It should be put on record that Aer Lingus have not received any subsidy from the State since 1950. They received no operating subsidy. The sum of £44 million is a relatively small investment in what has become a very large business. The Irish community have received excellent value in terms of tourism promotion, foreign earnings and job creation. The net worth of Aer Lingus today is reckoned at over £100 million. That is a considerable Irish asset considering that they have not received a subsidy since 1950. Achieving that asset base is a fair performance.

Aer Lingus offer good value for money on most of their routes. As other speakers have said there is room for more competitive fares between Ireland and Britain. It has also been said that the cost inflation of airlines is enormous. We have to stitch this into the record time and time again. Eight years ago in 1973 the fuel bill of our national airline was £3 million. The corresponding figure today is £50 million. It has gone from £3 million to £50 million in eight years and also wage inflation has been catching up on the airline. For a company involved mainly in exports — whether or not they are invisible exports — this trend is particularly serious. Given that, they are doing quite a good job.

I am delighted the Minister took this opportunity to put an end to a lot of this nonsense talked about abandoning the North Atlantic route. In the report it is stated that at a later evidence session Aer Lingus also said that the losses are now such that the correct commercial decision could conceivably be to look at the possibility of pulling out of the North Atlantic route.

I am delighted that the Minister has taken this opportunity to put that to bed once and for all. It would be utter and total madness to consider that approach, and it is not just a simple economic one. We have to have that North Atlantic route and we have to pay for it but we should pay for it by giving Aer Lingus the total commercial freedom they require, which would enable them to earn the revenue in other areas to look after that necessary loss on the North Atlantic route. We should not concentrate our efforts on talking about cutting out the North Atlantic route: even the talk of cutting out the North Atlantic route could seriously affect Aer Lingus's image abroad.

I thank Senators for their comments. Aer Lingus is not just an airline. Its existence is a constant international symbol of the new Ireland and it is a source of pride to all of us here and to our friends abroad. While we charge Aer Lingus with paying their way, we should help them to improve their equity base. There have been a number of demands from speakers today for the Government to give Aer Lingus more money so that they can improve their equity base. I would prefer to see a partnership approach to the building up of that equity. Aer Lingus themselves can build up that equity by profitable ancillary operations. We should not put a rein on the type of activities they get into as long as they are in the national interest and are profitable. In that regard the State might match Aer Lingus £ for £ on increasing the equity base. On that basis we would get a partnership building of the equity base.

It was a very good idea to have this discussion today. It was extremely valuable. As I said at the beginning Aer Lingus is not just another commercial enterprise; in recent years it has come to be more a symbol of our national maturity.

Question put and agreed to.

Seanad Éireann debate - Wednesday, 15 Apr 1981