I am glad of the opportunity to make a statement on ground handling arrangements at Dublin Airport and to clear up possible misunderstandings.
Responsibility for the maintenance and operation of Dublin Airport is delegated to Aer Rianta. This includes responsibility for ensuring that ground handling arrangements at the three State airports are efficient, cost-effective and in compliance with Irish and EU competition law.
What has happened in relation to ground handling at Dublin Airport is that a very modest element of competition has been introduced in the provision of ground handling services. To put this in perspective it is necessary to take account of a number of important developments in recent years.
Under a franchise agreement dated 13 June 1988 concluded between Aer Rianta and Aer Lingus, the airline was given the sole concession to do aircraft and passenger ground handling at Dublin Airport for other airlines. This agreement expired on 31 December 1992. Aer Rianta continued the sole concession arrangement on a week by week basis from 1 January 1993, pending consideration of new arrangements and legal advice sought by the company towards the end of 1992 on the implications of EU competition law and the Competition Act, 1991, for their ground handling arrangements.
The company's solicitors advised that an exclusive agreement could be caught by the prohibition in Article 85 (1) of the EU Treaty and result in legal action by an aggrieved party under that Article; in relation to the Competition Act, 1991, an exclusive ground handling agreement would come within the prohibition in section 4 (1) of the Act and require a licence from the Authority; and the grant of an exclusive agreement could amount to an abuse of a dominant position, unless it could be shown that the contract was awarded on the basis of objective criteria after open tendering procedures. I am aware that there are other opinions on those issues.
This advice was given towards the end of 1992. Aer Rianta considered it had no option but to act on the basis of the advice which it got and appoint a second ground handling agent at Dublin Airport.To give Aer Lingus time to adjust its cost base to enable it to compete with other operators, on a number of occasions in 1993 and 1994 my Department asked Aer Rianta to defer the introduction of competitive arrangements for ground handling at Dublin Airport, particularly as airlines could self-handle there.
In the light of the legal advice which Aer Rianta obtained and as a number of airlines had complained to the European Commission about the Aer Lingus monopoly of ground handling at Dublin during 1994, Aer Rianta decided in May of this year to appoint a second ground handling agency at Dublin Airport with effect from 1 January 1995.
The then Minister approved these arrangements in May 1994, on the basis that he could not instruct a State body to break the law. The new arrangement was agreed with Aer Lingus and the executive chairman of Aer Lingus was informed of the decision.
As I said, an important consideration in the past has been that airlines could self-handle at Dublin Airport. Severe pressure on the amount of space available on the ramp at the airport — brought about by an increase of 16 per cent in aircraft movements in that year — meant that new carriers could no longer self-handle, because of the physical limitations on capacity. All operators on the ramp are obliged to follow strict safety regulations and procedures. The existing congestion on the ramp, in terms of vehicles and other equipment, is a potential safety hazard and I understand that a number of carriers have complained to Aer Rianta in this regard.
There are also severe capacity restrictions in the passenger terminal at Dublin Airport and no space for new carrier self-handling check-in desks. The design capacity of the terminal is 5.8 million passengers — the number of passengers handled in 1994 was 6.9 million, an increase of 18 per cent over 1993. A major development of both the apron and the terminal is planned but phase 1 of this scheme will not be ready until 1997 at the earliest.
In the last few years, a number of new low cost carriers have come on the scene. There was no space for them to self-handle at Dublin Airport. Also, they regarded the ground handling costs under the Aer Lingus monopoly agreement as high, given their own low costs. Apart from the fact that these carriers cannot self-handle at Dublin Airport because of lack of space, they may not be prepared to self-handle in any case because of the heavy cost involved in purchasing the necessary equipment for ground handling.
The foregoing developments, together with complaints made by new carriers about the Aer Lingus agreement, brought matters to a head. Aer Rianta decided in December 1994 to appoint a second ground handling agency, Servisair, from 1 January 1995. Servisair was already doing third party freight handling at Dublin Airport, so what was involved was extension of the Servisair contract to cover passengers as well as cargo. As Servisair already operated at Dublin Airport with its own equipment, their appointment had the merit of ensuring no increased congestion on the ramp.
Shortly after taking up office in December 1994, representations were made to the Minister, Deputy Lowry, about the implications of the new arrangement for Aer Lingus's third party handling business. He felt that there was a case for further time to allow Aer Lingus to adjust and that the new arrangements should be phased in over a 12-month period. Aer Rianta agreed to the Minister's request for a 12-month transition period. I understand that Aer Lingus also agreed to this period. The Minister also asked Aer Rianta to discuss with Aer Lingus management the full implementation of competitive ground handling arrangements over a period of 12 months, and whether it would be possible that only two at maximum of existing Aer Lingus customers could transfer to the second ground handler, and only 10 per cent at maximum of existing charter business handled by Aer Lingus could transfer to the second ground handler.
It would be wrong to term this arrangement "competition". The balance of advantage is very much with Aer Lingus — the airline cannot lose more than a very small amount of its existing business but can win new business if it is competitive. The purpose of the transition arrangement is, as I said, to allow Aer Lingus further time to adjust so that it will be able to compete successfully with other operators.
I would like to stress that all the contacts between the Government and the social partners over the last eight or nine years laid heavy stress on the need for greater competitiveness and reduction of access transport costs. Nowhere is this more crucial than in air transport. As an island nation on the edge of Europe, we require efficient, economic, speedy and, above all, cost effective transport links with our trading partners in Europe.
Ireland's geographical position in the European Union represents a major disadvantage in competitiveness terms. The additional distance, time and associated cost factors contribute significantly to Ireland's transport costs — an estimated 9 per cent of export sales values, equivalent to about twice the EU mainland average. The fact also that Ireland is one of the most open economies in Europe makes it essential that our competitive position in the EU is improved.
I would now like to address the issue of whether we are pre-empting the EC Directive on ground handling. As I understand it, this directive, when adopted, will apply the existing provisions of the Rome Treaty about competition law and set down the procedures to be followed. As I said, the existing EU competition law prohibits exclusive arrangements. Regard must be had also, of course, to the provisions of the Competition Act, 1991, which prohibit exclusive agreements in domestic law.
Aer Lingus has provided an excellent service in the past and the introduction of this limited competition should not be seen as reflecting in any way on its performance. The quality of the airline's service has long been recognised by customers and the industry.
The Minister, Deputy Lowry, met a delegation of the ICTU on Thursday, 9 February 1995, and there was an exchange of views on the new ground handling arrangements at Dublin Airport. The ICTU representatives requested a separate meeting to discuss the matter further With all the interests concerned, namely, Aer Rianta, Aer Lingus and my Department. This meeting took place on Friday, 17 February 1995 and I understand that there was a wide-ranging constructive discussion of all the issues. A further meeting has been scheduled for 7 March 1995.
