JOINT COMMITTEE ON TRANSPORT díospóireacht -
Thursday, 18 May 2006

Proposed Sale of Aer Lingus: Presentations.

Chairman

At its meeting on Wednesday, 22 March the joint committee decided to invite submissions from interested parties on the proposed privatisation of Aer Lingus. In this regard, advertisements appeared in the three main daily newspapers on 29 March and subsequently in Foinse. At its meeting on 11 May, the committee considered the submissions received and agreed to hear oral presentations today from a range of the parties which had made submissions. This meeting provides interested groups with a formal opportunity at parliamentary level to inform Members of the Oireachtas and the public of the issues at play. I hope our work will send a message to the aviation industry and the media that the committee is awake to the privatisation issue and that it seeks in a professional, diligent manner to add value by widening the current debate in an informed fashion.

The joint committee has decided to adopt the following format as the most efficient procedure for conducting business. It will hear from eight groups. Each presentation shall last no more than ten minutes and there will be no question and answer session today. There is a substantial body of work to be dealt with and I will allow no slippage on time. The committee will hear from the following groups: the Aer Lingus Craft Group of Trade Unions, SRS Aviation Ireland Limited, Dublin Chamber of Commerce, the Irish Tourist Industry Confederation, Chambers Ireland, Dr. Aishling Reynolds-Feighan, the Rehab Group and the Irish Congress of Trade Unions. It will also hear from the Minister for Transport on 31 May on the matter.

Senator Norris

Will there be an interchange between us and the groups making submissions?

Chairman

No.

Senator Norris

We have received some of the submissions in draft form. I take it we will receive written copies of the submissions from the various groups. I will be obliged to leave before the end of the meeting because I have another appointment

Chairman

That will not be a problem.

The first group from which we will hear is the Aer Lingus Craft Group of Trade Unions. I welcome Mr. Brian Gormley, chairman, Mr. Niall O'Hara, senior shop steward, Amicus trade union, and Mr. Robbie Patton, TEEU. I draw witnesses' attention to the fact that while members of the committee have absolute privilege the same does not apply to witnesses appearing before it. The committee cannot guarantee any level of privilege to witnesses appearing before it. Members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable.

Mr. Brian Gormley

I thank the committee of inviting us to appear. We have condensed our initial presentation and we will make a closing statement, if that is agreeable.

Chairman

That is fine.

Mr. Gormley

The proposed sale of Aer Lingus without proper consultation with the Irish Congress of Trade Unions is contrary to agreements underpinning national partnership. It is clear that State investment is allowed. The ICTU has proposed a workable alternative that would permit continued public ownership of Aer Lingus. Trade unions have played a significant role in bringing about the changes that have delivered the Celtic tiger economy. Much of the high value, high skilled employment necessary for our future prosperity is dependent on air transport. These goods and services need quick access to the markets. Company directors and senior management are prepared to fly directly to their overseas facilities. Aer Lingus has been at the forefront of this economic miracle and has delivered a first class transport facility, which has permitted the international companies to view Ireland as a country with quality, dependable air links to north America, the UK and Europe. The arguments offered in support of privatisation do not add up. The facts are deliberately distorted and those in Government who have failed to keep promises to sort out serious national problems within their portfolios are anxious to push the privatisation of Aer Lingus.

The sale of Irish Ferries and Eircom are severe lessons for the workers and customers of these companies. What benefits these and other privatizations have had for the State has not been quantified. Ireland lags behind comparable countries in the international league table for high speed communications infrastructure. The loss of strategic control over our shipping industry has damaged the access of medium and large size industry to overseas markets for their exports and raw materials and is contributing to the loss of thousands of manufacturing jobs in this diminishing industry. The attack on decent standards of pay and employment saw thousands of workers take to the streets in anger at the treatment of their colleagues in Irish Ferries. An island nation solely dependent on the vagaries of venture capitalists is the vision of a number of our leading politicians, business people and media pundits, many of whom have appeared at the various tribunals investigating corruption in public office.

The Aer Lingus workforce contributes significant funds to the State in taxation and PRSI deductions greatly increasing the yield to the Exchequer from this reliable revenue stream. What will be the outcome for the State when this revenue is passed through the hands of speculators and venture capitalists who will be given the Government's blessing to buy the State airline at a fraction of its true worth?

Chairman

Could the committee have a copy of this submission because it is totally different to the document that has been circulated?

Mr. Gormley

The document is a condensed version of this submission.

Chairman

It is not. I call Mr. Patton.

Mr. Robbie Patton

During the separation of the Aer Lingus maintenance and aircraft overhaul facility to form Team Aer Lingus, the Minister for Transport gave commitments to the craft workers and supporting staff regarding the secure future of Team Aer Lingus and the airline also entered into binding commitments to the staff to encourage acceptance of the separation of the maintenance and overhaul facility. These commitments were in the form of written pledges on behalf of the Government and Aer Lingus. Following the financial woes and sale of Team Aer Lingus in 1998 and the return of Aer Lingus technical staff, these commitments were not honoured. A sizeable number of staff Members are still disadvantaged financially and career wise. This was in contrast to the treatment of other categories of staff in the airline whose job functionality was made redundant, as they were afforded the required resources and training to maintain their careers and financial position.

It has taken a protracted legal battle in the High and Supreme Courts to force Aer Lingus to accept the authenticity of these guarantees. Even with this outcome in recent intensive consultations, management refuses to accept the legitimacy of these claims. On the contrary, the chief executive office proffered a view that had nothing to offer in the way of job commitments to this group or even to its current technical staff as the company's hands were tied by a contract for maintenance until December 2008 with FLS, which is now owned by SR Techniques. The company added that, as SR Techniques is in private ownership and has no ties or links to the State, it could up sticks and leave anytime between now and the end of the contract. This would then leave Aer Lingus with an obligation to the SRT workforce. The engineers and support staff seconded to Team Aer Lingus have first hand experience of how commitments entered into by the State and the company can be ignored. The promised prosperity and job security never materialised. The initial secondment to Team Aer Lingus became a 100% sale, despite assurances given by the Government to retain a 51% stake in the event of any sale and the transfer of Team staff to FLS.

This company was, in turn, bought by SR Techniques, a company seeking new investors to stave off financial difficulties. Recently these employees were served with protective notice. Ongoing attempts to put the facility on a firm financial footing have been ineffective. This downward trend in pay and lack of job security has taught the remaining Aer Lingus craft workers about the dangers of privatisation and over reliance on promises designed to facilitate political decisions rather than properly researched and well thought out proposals for change. Aer Lingus craft workers are asking what value can be attached to company assurances of a bright and prosperous future in the face of broken commitments to their former work colleagues.

Mr. Gormley

The submission is a reflection of craft union concerns, which remain unaltered by the discussions and negotiations that have taken place to date. Little progress has been made in dealing with the issues raised with the company at the beginning of what has been described as an "intensive consultative process". A set of common concerns among all Aer Lingus trade unions has emerged regarding the company proposals on job security, future pay and conditions, pension deficiencies, deteriorating benefits for new employees and the maintenance of the ESOP at 14.9%. The inability of management to satisfy any of these concerns is a cause of great unease amongst employees who are asking their trade union representatives for substantial assurances on these key elements of their future employment in Aer Lingus under private ownership.

The meeting of 15 May with management regarding pensions, attended by all the trade unions, elicited a company commitment to review the unacceptable proposal to create a yellow pack pension scheme for new employees. The reduction of the top-up from the widely discussed €200 million to €70 million is as mysterious as ever. The requirement to reduce take-home pay by 3% to allow for the sale of Aer Lingus will not wash. Proposals regarding future job security, pay and conditions are at breaking point due to the totally unacceptable discretionary nature of the assurances available so far. The retention of the value and size of the employee shareholding is dependent on a future where contracted management borrow heavily to fulfil their ambitious personal plans, used to justify the sale of Aer Lingus, then move on without the need to deliver on the commitments on growth and profitability given to promote the sale of the national airline.

The inability of Aer Lingus management to commit to the protection of the Heathrow slots alone should start alarm bells ringing in the Department of Transport. It has been established beyond doubt that only a State controlled airline can guarantee Irish citizens direct future access to the best-served international airports in Europe. The fanciful responses of senior company representatives suggesting that Ireland's holidaymakers and the business community may welcome a future were it makes sense to fly to Dubai rather than Heathrow is not reassuring. The apparent focus on the Middle East as an area of potential aviation growth does not serve an identifiable national need. The Aer Lingus technical engineering section workers are once again faced with privatization and are reflecting on the previous management decision to privatise the aircraft maintenance and overhaul business to ensure a bigger, better, brighter future. The net effect within Aer Lingus is a technical section operating with a mixture of contractors, fixed-term engineers and, the ultimate irony, seconded SRT engineers — originally Aer Lingus, then TEAM and FLS — who are needed to support the internal aircraft maintenance programme because Aer Lingus cannot employ sufficient engineers due to poorly thought out contractual arrangements entered into force through the sale of Team Aer Lingus. The craft group of trade unions is unable to support the privatisation of Aer Lingus without the necessary substantial guarantees on the issues raised with the company and referred to earlier.

We ask committee members to review the arguments made in the presentation and to use their influence to ensure the taxpayer and the Aer Lingus workforce are not short-changed in the proposed privatisation of Aer Lingus. Let us not mark 2006, the 70th anniversary of Aer Lingus, as the year of its expedient demise.

Chairman

I thank Mr. Gormley, Mr. Patton and Mr. O'Hara for their attendance.

Mr. Gormley

I will forward the condensed version of our presentation.

Chairman

I welcome Mr. Derek Neville, former general manager of ground handling and marketing and Mr. P. J. O'Sullivan, former general manager of the company. I draw their attention to the fact that members of this committee have absolute privilege, but this same privilege does not apply to witnesses appearing before it. The committee cannot guarantee any level of privilege to witnesses appearing before it. Members should not comment on, criticise or make charges against a person outside of the House or an official by name or in such a way as to make him or her identifiable.

Mr. Paddy O’Sullivan

I am accompanied by Derek Neville. We are both members of the SRS (Aviation) pensioners' group and have submitted to the committee a claim document for its consideration. I retired in 1986 from the position of company general manager and Mr. Neville retired in 1997 from the position of general manager of ground handling and marketing.

I thank the committee for the opportunity extended to us to seek its good offices to secure the equitable resolution of our company's dilemma in respect of the escalation of our pensions on the same terms and conditions as accorded to all other Aer Lingus and SRS (Aviation) pensioners. We have repeatedly sought to have our case heard and assessed by an independent chair or facilitator, but Aer Lingus has resolutely rejected any such arrangement. This committee is the first opportunity we have had to have our case heard by an independent, no constraints body. We seek the committee's full support to ensure justice is served and the current situation is not allowed to continue.

In the document we submitted for consideration, we have sought to give a precise account of the historical background and relationship between SRS (Aviation) and Aer Lingus and to illustrate the specific issues involved in our case; the disillusion of members of our group arising from the apparent lack of appropriate consideration by those Aer Lingus executives involved with our case in regard to the undeserved inequality of treatment and discrimination to which the members of our group are subjected; the frustration of our group as pensioners because of the lack of any grievance procedure or effective communications procedure; our clout and influence to have our claim properly, adequately and independently assessed on its merits with a view to its resolution; and the blatant lack of any appreciation by Aer Lingus for the loyal, dedicated service given by the members of our group, frequently outside the normal call of duty, in the service of our employers.

The essence of our case is that our low in numbers, finite, ageing group is most unfairly and undeservedly the victim of what can only be described as blatant discrimination and inequality of treatment in regard to the escalation of our pensions as compared to our former counterparts and peers in Aer Lingus and fellow employees of SRS (Aviation) who have now been absorbed into Aer Lingus.

Our company, from the time of its acquisition by Aer Lingus in 1966, while continuing to function for all kinds of legal requirements as a separate legal entity, operated at all times as a division of Aer Lingus, governed and controlled by a board of Aer Lingus executives, with a board of directors, and until the time of the sale of SRS-MRO engineering company had an Aer Lingus executive on the board of trustees of the pension scheme. It would be difficult to visualise a more integrated and co-ordinated working relationship.

Mr. Neville and I will be happy to respond to any questions the committee may wish to raise or to clarify any aspect of our case as presented, now or at a later time. We had a meeting yesterday with Mr. Dermot Mannion, chief executive of Aer Lingus, and acknowledge the courtesy extended by him in meeting us. From our point of view, the outcome of the meeting was inconclusive because Mr. Mannion, while he had been well briefed and had done some background work, was misled in the briefing and did not have a full appreciation — as one would naturally expect with someone just on the scene — of all the nuances or of the inter-company working relationship that existed or the fact there was such a combination of the two companies' employees in providing the services we provided at Shannon Airport.

The outcome of the meeting was inconclusive and did not provide any indication of a successful result, unless the chief executive could be specially enabled, because of the particular circumstances, to find a solution. I will forward a copy of my submission to the committee when it is typed up.

Chairman

I thank Mr. O'Sullivan and Mr. Neville for their presentation.

Senator Norris

I went after those gentlemen to ask if they could give us some concrete examples of how the discrimination affected them in terms of their pension.

Chairman

Very good. I thank the Senator.

I welcome Mr. Ronan King, vice president, Ms Margaret Sweeney, chairperson of the infrastructure committee and Ms Gina Quinn, chief executive. I draw their attention to the fact that members of this committee have absolute privilege, but this same privilege does not apply to witnesses appearing before it. The committee cannot guarantee any level of privilege to witnesses appearing before it. Members should not comment on, criticise or make charges against a person outside of the House or an official by name or in such a way as to make him or her identifiable.

Mr. Ronan King

On behalf of the president and council of the Dublin Chamber of Commerce, l thank the joint committee for affording us the opportunity to address it on this important topic. I will pin the colours of the Dublin Chamber of Commerce firmly to the mast. Dublin businessmen and businesswomen are major corporate and personal users of Aer Lingus and strong supporters of its proposed privatisation. History and the thinking electorate will not thank this committee or the Oireachtas if the airline's natural progression and growth are further impeded by indecision or unnecessary delay in carrying through a commitment already made. While without doubt many weighty issues are impacting on the definition of an airline's choice of strategic direction, including funding, we submit that they fundamentally boil down to two market-driven factors in a global, cyclical industry: first, an airline's ability to compete when times are lean and, second, its readiness to avail of opportunities to grow. Therefore, an airline's survival is inextricably linked to its access to capital and the freedom and ability of its management to make and carry through rapid decisions. A successful IPO will not only facilitate its survival but ensure its future prosperity.

Speaking last week at a major summit of aviation operators, regulators and politicians in Salzburg, convened by the Austrian Presidency, the CEO of Lufthansa, Wolfgang Mayrhuber, highlighted the importance of transport to European prosperity and the acknowledged threats it faces, both internal and external. He commented that "Mobile societies are wealthy societies", that "air transport and only air transport connects the whole of Europe with the rest of the world and that Europe's growth market [this includes Ireland and Dublin] is the world market." As an island economy, Ireland is more at risk than most through loss of competitiveness and, by extension, has more to gain through attracting strong, innovative and financially sound airlines to operate to and from our shores, notably through Dublin Airport which is pivotal to the city's economic growth. Dublin Chamber of Commerce has campaigned long and hard for the recognition of the airport as a key engine of growth and a critical cornerstone in our national infrastructure. We have been a consistent and vociferous supporter of State investment in the airport and welcome the ultimate decision to proceed with its long overdue development. In football parlance, now that we have at last committed to investing over €1 billion in a new "stadium" for Irish aviation, we need to ensure we do not cripple one of our best players.

On the issue of competitiveness, our document, Imagine Dublin 2020, outlines five key themes that need to be pursued in synch if Dublin is to achieve its potential to be a truly international city, a knowledge city, a city that works, a great European city, a city that is competitive and well governed. Many of the underlying themes are fundamentally dependent upon the continued growth of air access services to Ireland and an international airport with at least two terminals and 21st century runways to facilitate the growth of annual passenger traffic of more than 30 million passengers.

We share Mr. Mayrhuber's view that mobile societies and cities are wealthy societies and cities and the evidence is there for all to see. The number and quality of Dublin's international air transport links have been major factors in the region's success, to the point where Dublin now accounts for 47% of national output. Direct flights are a key factor in attracting multinational firms to locate their regional headquarters here. Dublin's position as the third most popular destination in Europe for short breaks has been hugely facilitated by the numerous direct flights from European cities to the capital. Dublin is also an increasingly popular location for business tourism which brings €500 million into the economy each year, most of it into Dublin. The most recent EU enlargement has significantly increased demand for flights within the European Union and provided many new routes out of Ireland.

For the past 70 years Aer Lingus has been a central player in achieving these successes. It is now faced with a defining moment and its most significant growth opportunities to date. Under the EU-US bilateral agreement, the airline is perfectly positioned to open new routes to and within the United States. It has commenced a programme of new routes to the Middle East and the Far East. Demand for internal EU flights continues to grow significantly each year. Instead of growing in line with such opportunities, Aer Lingus has been starved of new investment capital. Sitting on the sidelines, it has had to watch competitors such as Ryanair grow into a company more than six times its size. While we commend Mr. Ryan and Mr. O'Leary for their entrepreneurial zeal, they have been able to shoot into open goals. Unless funding is secured rapidly, these opportunities will disappear for good. We are genuinely worried for the future survival of the airline and the jobs it provides. Mr. Dermot Mannion's recent presentation to the committee showed that the airline's capital expenditure requirement was in the region of €2 billion to be used to grow the airline's fleet from seven to 14 aeroplanes for use on long-haul services and to purchase an additional 28 short-haul aircraft for use on European routes.

The Government has decided in favour of funding Aer Lingus's capital needs through an initial public offering on the stock market. The Dublin Chamber of Commerce supports this decision. Exchequer capital resources would be better applied to tackle the appalling infrastructural deficit in terms of roads, rail, waste, energy, educational, health and broadband facilities. Equally, the Dublin Chamber of Commerce firmly takes the view that it is in the national interest that Aer Lingus should be free to make the commercial decisions it must make to compete internationally. The potential revenue from an IPO which most commentators expect to be in the region of €400 million is the beginning of a much greater investment required by the airline to realise its strategic potential. To begin raising that level of capital, an IPO is the most sensible way forward. It was stated in the editorial yesterday in The Irish Times:

If Aer Lingus is to prosper it needs fresh investment and commercial freedom. The overwhelming consensus (from business and finance experts) is that the sale of the airline is the most viable route to that objective.

It goes on to lament the last two years of prevarication and abdication of responsibility which have led to what it terms the current sorry pass which has put the airline's future in peril. While we do not share the gloomy predictions of doom for an autumn IPO and notwithstanding the lengthy delays that routinely affect Government decisions, there is no doubt that the political and Civil Service dithering that has characterised a process first mooted in the early 1990s is unacceptable. Had Aer Lingus been allowed to fund the aircraft purchases it wanted to make three years ago, it would have spent €1.5 billion instead of the €2 billion figure now quoted. All of the political parties have expressed concerns about cost overruns in major capital projects, yet this 35% cost overrun is directly attributable to political indecision and ill serves the airline, its customers, staff, management and taxpayers who are the ultimate owners for whom we speak. All too often when it comes to making and carrying through key decisions in Ireland, we have been guilty of prevarication and paralysis through over-analysis. ln July 2004, in calling for a new regime of effective and agile government, the enterprise strategy group put it very well:

As a small country seeking to compete in global markets, our small size can actually be a source of competitive advantage. We can outpace competitor countries in our swiftness, efficiency and responsiveness in anticipating and meeting the requirements of competitiveness.

There can be few better examples of a globally competitive industry than international aviation. After a turbulent decade of procrastination and near death experiences, Aer Lingus has been revived; it needs to move on now. The Government's current proposals for partial privatisation are a bold step and to be commended. Mr. Dermot Mannion might well have quoted the words of William Shakespeare, "If it were done when 'tis done, then 'twere well it were done quickly."

Chairman

I thank Mr. King, Ms Sweeney and Ms Quinn for their attendance and presentation to the committee.

Sitting suspended at 10.38 a.m. and resumed at 10.39 a.m.

Chairman

I welcome Ms Catherine O'Reilly, chairwoman; Mr. Richard Bourke, deputy chairperson, and Mr. Eamon McKeon, chief executive, of the Irish Tourist Industry Confederation. I draw their attention to the fact that while members of the committee have absolute privilege, the same privilege does not apply to witnesses appearing before the committee which cannot guarantee any level of privilege to witnesses appearing before it. Members should not comment upon, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable. I now invite Ms O'Reilly to make her presentation.

Ms Catherine O’Reilly

I thank the joint committee for giving of its time today. It will have received our submission on 11 April on behalf of the tourism industry.

We are a strong supporter of the privatisation of Aer Lingus. Before I elaborate, I would like to give the committee some information on the size of the tourism business. Almost 17,000 businesses, most of which are small, are involved in the industry which employs 150,000 directly and supports the employment of a further 80,000. That the number of tourists coming to the country from overseas increased from 1.9 million in 1985 to almost 7 million last year is an indication that the industry is doing well. I am sure members are aware that this growth is not evenly divided across the country. Dublin is doing very well, but the west is not doing as well. The industry has ambitious plans. It is hoped the number of visitors from overseas will increase to 10 million by 2012, thereby generating €6 billion in foreign exchange earnings. Given that the exodus from farming looks likely to continue and competitive pressures on traditional indigenous manufacturing enterprises are intensifying in the regions, tourism offers great hope for rural invigoration. The future success of the industry is not assured, however. As Ireland is an island, access is and will remain the single most important factor for the sustainability of the industry. We are blessed with very good air and surface access links, which is a happy set of circumstances that must be maintained.

Mr. Richard Bourke

The well-being of Aer Lingus is vital for everyone associated with the tourism industry. Over 54,000 are employed in the hotels sector in which I am involved. The committee will have taken note of the massive investment in the sector in recent years. The number of bedrooms has doubled from approximately 24,000 to almost 50,000. We can all be proud of this country's hotel stock. However, we need to get a return on this investment of billions of euro by continuing to win market share at a time when international visitors have never had more choice. The tourism industry will not meet this huge challenge unless it enjoys the benefit of a strong, reinvigorated and expanded Aer Lingus.

Aer Lingus should be privatised because the Government has made it clear that it will not provide the investment required to ensure the strategic direction of the airline will be as it should be. The benefits of such investment would be enjoyed not only by Aer Lingus which would continue to grow but also by the staff of the airline and the public. Equity is needed to leverage the funding of up to €2 billion needed if the airline is to expand and grow, especially in areas in which Aer Lingus has a competitive advantage and can differentiate itself from the closest competition. It needs to exploit the main factor that differentiates it from its biggest competitor in the budget short-haul market by developing its long-haul services. It would be a tragedy of huge proportions for Irish tourism and Aer Lingus if the company was not in a position to exploit the great opportunities which the liberalised air agreement between the United States and the European Union will shortly present.

Mr. Eamonn McKeon

A fleet expansion from seven to at least 14 long-haul aircraft is needed. Such aircraft are not something that can be ordered today for delivery next week. There is a long lead-in time when one submits an order. If Aer Lingus is not in a position to commit to these orders very soon, it will miss the opportunities presented to it by the open skies agreement. We can be certain that its competitors will exploit such circumstances. A great deal has rightly been expressed by the staff of Aer Lingus who will benefit from the flotation financially through their 14.9% shareholding in the company under the employee share ownership trust and the resolution of a number of outstanding matters, including the pensions issue. It is reasonable to assume that that issue would not be resolved so quickly if it were not for the privatisation of the airline. It should be borne in mind that customers will also benefit from the flotation as they will continue to enjoy greater choice and cheaper fares. Aer Lingus faces stiff competition from some of the most successful airlines in the world which are operating on its doorstep. If it fails to compete with such airlines, it will fail as a company. If adequate investment is not made now, it will be unable to continue its successful strategy of offering greater choice, cost containment and lower fares. Any deviation from this strategy will hasten the return of losses.

Mr. Bourke

Regardless of the various ideological positions on the ownership of the airline, we all know the Government cannot subsidise losses ever again. Aer Lingus will simply cease to exist if investment is not made. We have all had an emotional attachment to the airline. We applauded its great achievements and cursed its high fares in the distant past. We despaired at seeing our hard earned tax euros being used to bail out the airline on more than one occasion. We are convinced that the low cost strategy adopted in recent years is right — it is the only strategy that promises growth and continued success for Aer Lingus.

Ms O’Reilly

Aer Lingus has proven its mettle in recent years. It has survived and prospered against the toughest competition in the world. If it is to realise its strategic potential, much greater investment is needed. The initial public offering is the start of that process. Time waits for no man and the markets will not wait for Aer Lingus. We have a choice between giving the airline the commercial freedom to prosper and grow to the benefit of its staff, the public and the tourism industry and living with the status quo, which would lead to its ultimate demise. I hope the joint committee will do the right thing for the betterment of the State, the airline, its staff, the public and the tourism industry by supporting private investment in Aer Lingus to ensure it can survive and prosper. I thank the committee for its time and patience.

Chairman

I thank Ms O'Reilly, Mr. McKeon and Mr. Bourke for their attendance and contributions.

Sitting suspended at 10.47 a.m. and resumed at 10.48 a.m.

Chairman

I welcome Mr. Dan Loughrey, chairman of Chambers Ireland's air transport users council, and Mr. Seán Murphy, the director of policy of Chambers Ireland. I draw their attention to the fact that while members of the committee have absolute privilege, the same privilege does not apply to witnesses appearing before the committee which cannot guarantee any level of privilege to witnesses appearing before it. Members should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable.

Mr. Seán Murphy

I introduce Mr. DanLoughrey, chairman of Chambers Ireland's air transport users council. I am sure members are familiar with the history of his career to date. He will lead Chambers Ireland's presentation on this issue.

Mr. Dan Loughrey

The air transport users council is unique in Chambers Ireland because it represents the interests of the business community as users of air transport services. Most of Chambers Ireland's committees represent industry in terms of the provision of services. I would like to make a brief personal introduction in case people are concerned about vested interests. I worked for Aer Lingus between 1992 and 2004. I had the honour of serving on the board of the company for the final two years of that period. Mr. Willie Walsh, a former chief executive of Aer Lingus, and I were the two executive directors of the airline when the events of 11 September 2001 took place and immediately thereafter. It is obvious that I am speaking today as the chairman of Chambers Ireland's air transport users council which supports the Government's decision to privatise Aer Lingus. I have summarised the remarks contained in our original submission. We will make a copy of the summary available because there are one or two additional points in it.

Chairman

I thank Mr. Loughrey.

Mr. Loughrey

The users council which, as I said, supports the Government's decision to privatise Aer Lingus wishes to emphasise the need for that process to move ahead as soon as possible in the interests of customers, shareholders and staff of the airline. Air access for personal and business travellers is vital to our social and economic well-being. In Ireland we have enjoyed the benefits of a competitive, well diversified airline industry which, given the scale of the economy, has extensive direct air services to a wide range of destinations in Europe and beyond. It was in this context that the air transport users council welcomed the formal announcement that Aer Lingus was to be privatised. As the representative body for business users of air transport services, our main interest in the privatisation of Aer Lingus is to ensure ever greater levels of competition on pricing and service for business travellers into and out of Ireland.

There is a direct link between access to capital markets and growth in the air services needed to continue the strong development of the economy. The air travel industry, while strategically important from a national economic viewpoint, can no longer be categorised as a national utility. It is an intensely competitive industry and important that all players can participate on a level playing field. Now that the key Government decisions have been taken, the main priority is to get on with the process. The original commitment to privatise Aer Lingus dates back to the late 1990s and delays during the years have been to the detriment of the airline and the travelling public.

The Government, as legislator and shareholder, must be the guardian of its own decision and implement it to its conclusion as soon as possible, thereby ensuring no unnecessary costs are imposed on the Exchequer and management is freed to rapidly embrace business opportunities as and when they arise. As an example of the cost of delay, if Aer Lingus had received the capital injection it needed in 2003-04, when the market for aircraft purchases was particularly soft, it could have placed orders for the fleet replacement necessary to secure new and profitable long-haul routes and consolidate existing ones. Such a fleet is an essential requirement to maintain and increase Aer Lingus's competitiveness and footprint in the global aviation market. At the time aircraft could have been acquired for up to 25% less than current market prices. In Aer Lingus's case, with a fleet purchase programme of approximately €2 billion, this could have resulted in savings of up to €500 million which is equivalent to about seven years of the company's 2005 profits. To the disadvantage of the airline and its customers, however, it did not have the freedom and flexibility to seize such opportunities.

Aer Lingus chief executive Mr. DermotMannion's international experience and the key role he played in developing Emirates into a major player in the international aviation market make him an ideal person to lead the company to its next stage of international development, including multi-continental destinations beyond the United States. What he now needs is a supportive shareholder to seize the current opportunity before it passes.

The air travel industry does not stand still. The competitive landscape continues to change for Aer Lingus. Ryanair has opened new European routes out of Dublin and Shannon airports with significant increases in capacity which directly compete with Aer Lingus. It is feared that by the time Aer Lingus has the same flexibility and access to capital, it may be too late and markets may be lost permanently. This would be to the detriment of customers in terms of a lack of competitiveness, employees in terms of fewer job opportunities and shareholders in terms of lower profits.

These comments notwithstanding, the ATUC and Chambers Ireland have concerns about some of the proposed aspects of the structure of the privatisation. While we understand and support the desire to protect Ireland's access to slots at Heathrow Airport, for example, we are worried that the proposed ownership structure of Aer Lingus post-privatisation could hamper its development as a fully commercial entity. It is not possible to have it both ways. One cannot maintain a semblance of a national airline in the traditional sense while, at the same time, opening up the business to the full rigours of the markets. We must have confidence in the strength of the airline as a business to make its way in the world by continuing to provide and expand its services into and out of Ireland. In my experience, Aer Lingus has been striving to exist as a commercial airline for many years. l caution against too many caveats applying to aspects of its future operations.

With regard to the issues related to one of the core stakeholder groups in any privatisation, namely, employees, it is my experience that those who work in Aer Lingus fully understand the competitiveness dynamics of the modern air transport industry. They work alongside staff of other airlines and are acutely aware of the changing work practices in the industry and the benefits these have brought to other airlines in terms of growth, profitability and expanded employment. The employees in Aer Lingus went through two major restructuring processes in a ten-year period, the combined job losses of which amounted to approximately 3,500. The first restructuring process in the 1990s was supported by state aid, whereas the second in 2001 received no such support. One of the hallmarks of the restructuring of Aer Lingus which followed the attacks of 11 September 2001 was that the Government was not in a position to act the part of a conventional majority shareholder and follow its money by injecting further capital to support the turnaround. While it did its bit by extending the shareholding for employees, this move played a marginal role in effecting the turnaround. The reality was that it was the board, management and staff of the airline who combined to face up to the reality of what needed to be done and thereby prevented Aer Lingus going the way of Sabena and Swissair.

The lesson from that period is clear — to survive, thrive and provide growing, competitive and sustainable air transport services for customers, commercially viable employment for its staff and a return for its shareholders, Aer Lingus needs what every other commercial business needs, namely, access to the full disciplines of the market. In the interests of all stakeholders and to play a growing part in the development of the best performing economy in Europe, the ATUC urges the Government to move ahead as soon as possible with the privatisation of Aer Lingus.

Chairman

I thank Mr. Loughrey and Mr. Murphy for their attendance and contributions.

Sitting suspended at 10.55 a.m. and resumed at 11.05 a.m.

Chairman

I welcome Dr. Aisling Reynolds-Feighan from the school of economics in UCD.

Members of the committee have absolute privilege but this same privilege does not apply to witnesses appearing before it. The committee cannot guarantee any level of privilege to witnesses appearing before it. Members should not comment on, criticise or make charges against any person outside the House, or of an official either by name or in such a way as to make him or her identifiable.

I ask Dr. Aisling Reynolds-Feighan to begin her presentation.

Dr. Aisling Reynolds-Feighan

I thank the Chairman for inviting me to make a presentation. My contribution to this debate will focus on the short, medium and long-term impacts on air accessibility in the event of the sale of a significant share of Aer Lingus by the shareholder.

Ireland depends very heavily on air and road transport due to its geography and demographics. This is counter to EU policy, which emphasises, and will continue to emphasise, the use of rail transport. Ireland's dependence on air and road transport will continue in the short, medium and long term. Our economic growth and development are linked closely to our accessibility and the mobility of the population.

On the privatisation case, Aer Lingus has been very successful in recent years and has exhibited strong growth and expanded services, particularly European services. It has been profitable and remained in public ownership. However, the airline is small by European standards and in the event of its being privatised substantially, it will be vulnerable to takeover by a large carrier. The European airline industry is going through a phase of privatisation, particularly of the larger carriers. In European transport policy documents, we have seen that the Commission is keen to promote consolidation in the European industry.

If we compare Aer Lingus to five other EU carriers, we will note that the largest are being privatised and that the Governments of Germany and France have reduced their interests to 9%, in the case of Lufthansa, and less than 20%, in the case of Air France, respectively. British Airways has been fully privatised for quite some time. Larger airlines buy smaller ones rather than the other way around. In the medium or smaller European countries, the Governments seem to be holding on to larger shares of smaller and medium-sized airlines.

Ireland will continue to depend heavily on air transport. Aer Lingus has highly mobile assets. Its people, aircraft, information technology and organisational skills could easily be relocated outside Ireland. This is not the case regarding other utilities. The communications sector, electricity sector and airports all have very substantial fixed assets that are permanently situated in Ireland.

Aer Lingus is small and vulnerable to takeover in the event of its being privatised in a substantial fashion. What will happen if the airline base is moved out of Ireland? In this regard, let us consider the importance of an airline operational base to a community. We know from experience worldwide that communities with an airline based locally have higher volumes of traffic per head of population than those without such a base. Aircraft originate from the base and return to it in the evening. Transfer passengers are focused on the operational bases and this gives rise to higher than average traffic volumes per head of population. There are also employment and community benefits linked not only to the direct employment effects but also to air accessibility.

We know from international research that medium-sized cities, that is, those with populations of between 1 million and 2 million, and smaller communities are most vulnerable to traffic changes in the event of mergers, takeovers and financial failures. In my written submission, I presented six examples from the United States showing the impact on medium-sized communities under consolidation and the loss of airline operational bases for these communities.

We look to the US experience for a number of very important reasons. The US industry was deregulated 28 years ago and we, therefore, have a long-term perspective on a competitive free market. In the intervening period there have been two significant waves of new entrants, one in the 1980s and another in the 1990s. Both periods of new carrier entry were followed by significant periods of consolidation in which the larger carriers bought up many of their smaller counterparts. There were also significant numbers of financial failures because it is a very tough industry.

The airlines in the United States have always been privately owned and we, therefore, we have an insight into how airlines behave in terms of their strategic organisation of networks. We can see this over the longer term in the context of how airlines behave under consolidation. It is also possible to track how particular communities fare given airline network strategies and changes over time. That is why we look to the United States.

I will cite two examples from the written submission. The first relates to St. Louis in Missouri, the former TWA operational base. It was the main hub for TWA and dominated that community's air traffic during the 1990s. TWA was taken over by American Airlines in 2000 and, looking at the data for 1990 to 2002, we can see traffic volumes declined substantially after the takeover. American Airlines reorganised its network and focused much of the former TWA traffic volume on its main Chicago hub. The more recent period for St. Louis shows that traffic has remained at a much lower level than when a fully operational airline base was located there.

The second case is that of Raleigh-Durham in North Carolina, a secondary hub for Eastern Airlines in the early 1990s until that airline's demise. It was a regional hub for American Airlines in the mid-1990s when traffic volumes increased which more than doubled with its establishment as a hub airport. In the late 1990s, however, American Airlines decided to dismantle its hub at Raleigh-Durham and traffic volumes declined substantially with the removal of that operational base. In the late 1990s Midway Airlines sought to build an operational base at Raleigh-Durham and, with the focus of airline operations, traffic volumes increased again. Unfortunately, Midway Airlines was a casualty of the fall-out after the events of 11 September 2001 and collapsed in that year. Again, we see the decline in traffic when the airline operational base fails or is removed.

For most US airlines the trend after 11 September 2001 was for a couple of years of adjustment and reduction in traffic volumes but they increased again in 2003, 2004 and 2005. This is the general trend we have seen in large and medium-sized communities in the United States. The St. Louis case, however, shows a sustained decline in traffic as a result of the removal of the airline operational base.

It is vital that the Government holds on to a significant shareholding to control its destiny in terms of air access to the country. Ireland must continue to have a significant airline base on the island. If this requires periodic Government investment and is necessary to protect our strategic interests, so be it; it is what we must do.

Chairman

I thank Dr. Reynolds-Feighan for attending and contributing.

On behalf of the Rehab Group, I welcome Ms Cliodhna O'Neill, head of public affairs, and Ms Sonya Felton, senior public affairs executive. I draw their attention to the fact that while members of the committee have absolute privilege, the same privilege does not apply to witnesses appearing before the committee which cannot guarantee any level of privilege to witnesses appearing before it. Members should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable.

Ms Cliodhna O’Neill

I thank the joint committee for giving us the opportunity to make a presentation. People may wonder what the Rehab Group has to say about Aer Lingus. It is one of the largest non-profit organisations in Ireland and the largest voluntary provider of services for people with disabilities, older people and others who are marginalised in our community. Each year we provide a range of health, social care, training and employment services for around 60,000 people in 200 locations in Ireland and Britain. The purpose of the organisation is to progress social integration, economic independence and equal opportunities for all.

Our interest in making a submission for the committee's consideration is to draw attention to the important issue of ensuring Aer Lingus services all of its customers. We do not intend to offer an opinion on the substantive issue of privatisation but want to highlight the need to ensure, whatever the ownership of the airline, its services are accessible to all who wish to use it. We have a number of key points which require attention and would like the committee's support in making progress with them.

There are no statutory standards to ensure people with disabilities have full, equal and unhindered access to airline travel. There are moves in this direction at EU level but a statutory code of practice should be implemented in Ireland. The committee is aware that the Department of Transport is preparing its sectoral plan under the Disability Act 2005 which will be laid before the Oireachtas in July. The plan will provide details of the provision of services by the Department for people with disabilities. Although the provisions of the Act do not cover airline travel specifically, the Minister can include such items as he considers relevant in the plan. That is what we are seeking. There is a clear opportunity for the Department to include in it a commitment to implement statutory codes of practice that would be binding on airlines on matters related to access. We have written to the Minister for Transport requesting him to conduct a consultation process and develop a suitable code of practice to be included in the forthcoming sectorial plan. We are also pursuing this matter through the disability legislation consultation group with which the committee will be familiar. We would very grateful for the committee's support in this matter. It was referred to in our letter to the Chairman and I understand a letter has progressed to the Minister.

A voluntary code of practice, the European voluntary airline passenger service commitment, is in use by European airlines, of which Aer Lingus is a signatory. We would like to ensure Aer Lingus implements the commitment in full, thereby ensuring accessibility for people with disabilities. Unfortunately this is not occurring to its full extent. In many instances Aer Lingus has a good track record and reputation in the provision of accessible services which meet the needs of its customers with disabilities, at no extra cost to them, an important part of the voluntary commitment. However, there are gaps that should be addressed to ensure equal access to services.

Our five recommendations are that the Department of Transport must commit to implementing a statutory code of practice on airline accessibility as part of the sectoral plan process under the Disability Act 2005. Aer Lingus should fully implement the voluntary airline passenger service commitment before privatisation. Aer Lingus should remove its requirement for people with reduced mobility, which includes persons with learning disabilities and psychiatric illnesses, to make medical declarations about their disability as a condition of travel. Aer Lingus must publish a written policy about its services for people with disabilities and make it available in accessible formats. Aer Lingus should establish and maintain a system of ongoing consultation with customers with disabilities and impaired mobility.

Our submission highlights that persons with learning disabilities and psychiatric conditions are required by Aer Lingus to provide a medical certificate signed by a doctor before they travel with Aer Lingus. This is unnecessary, onerous and discriminatory and in contravention of the voluntary code. The emphasis on this service is not on the facilitation of the provision of support for people with disabilities. It is on the requirement of the airline and what someone must do before he or she is allowed to travel. It is not necessary or reasonable to expect a person, capable of travelling without any assistance, to have to go to the trouble and, in some cases, expense of obtaining a medical certificate before he or she is allowed to travel.

The committee has received information it sent from the Aer Lingus website. It contains a list entitled "conditions that require a medical certificate", which includes passengers with a learning disability. In recent days there has been some confusion surrounding this as it has been removed and reinstated on the Aer Lingus website. We spoke to the medical section of Aer Lingus by telephone but still found it unclear as to what passengers must do. However, it did clarify that it requires a medical clearance for a person with a learning disability which is in contrast with other airlines operating out of Ireland.

Ryanair only requires medical clearance when fitness to fly is in doubt. It requires a person with a learning disability to be accompanied only if he or she cannot understand a response to a safety instruction, which is a reasonable requirement. It also offers clear support options on its website for passengers who may require special assistance at an airport. For example, it offers a walker service to a passenger with a learning disability who does not require an attendant but a walker from one side of the airport to another. The only requirement is for the passenger to inform the airline in advance.

British Airways only requires medical clearance when fitness to fly is in doubt. It does not mention any requirements relating to people with learning disabilities. It is happy that when someone is able to fly with BA and feels capable of doing so, it requires no notice. By contrast, Aer Lingus's policy is seen as unnecessarily complicated and not as customer-friendly as other airlines.

The committee may be aware of the situation faced by a passenger with Tourette's syndrome who was to appear as a guest on "The Late Late Show" two weeks ago. He submitted a medical certificate to Aer Lingus as requested. The doctor who had signed it for him and for which he had to pay, suggested Aer Lingus should inform other passengers of the gentleman's condition. The gentleman, Mr. John Davidson, informed me that the airline then contacted RTE informing it that it did not want him to fly with the airline. He then flew with British Airways and highly praised the support given to him by that airline. He was angry and upset by his treatment by Aer Lingus. It was his first visit to Ireland and did not create a great impression. These polices are in contrast to the passenger service commitment.

Ms Sonya Felton

The European airline passenger service commitment is a voluntary code signed by individual airlines to deliver clear and consistent standards to air travellers. The code deals with issues such as procedures relating to delays, baggage-handling, check-in, refunds and information about flights. Most relevant is the code's provision for assistance to persons with reduced mobility or people with special needs. This requires a signatory airline to publicise the services it offers to people with disabilities.

The code contains a specific section entitled "meeting the needs of people with reduced mobility" which includes the definition of people with an intellectual disability. It seeks to improve the accessibility of air travel to these passengers to ensure their needs are provided for and that their safety and dignity is respected. Passengers also have the same right as other citizens to freedom of movement and choice under the code. There are several key points in the code which are most relevant. Crucially the code states in clear terms that disability should not be equated with illness and, therefore, people with disabilities should not be required to make medical declarations about their disabilities as a condition of their travel. This is most relevant to Aer Lingus and its requirement that persons with an intellectual disability furnish a medical certificate prior to travel. The code identifies a responsibility on the part of the airlines to meet the needs of people with reduced mobility, following a declaration of those needs. The airline must also accept a declaration of a person that he or she is self-reliant, which Aer Lingus does not seem to facilitate.

The code also requires the provision of information to passengers to make plans for their journey and they must be able to remain as independent as possible when doing this. The code clearly states that a carrier will not refuse a person with reduced mobility unless he or she cannot be carried safely or be physically accommodated in the aeroplane. This code seeks to ensure such issues are worked out before the person presents himself or herself before a flight. Signatory airlines are encouraged to develop a specific code of practice for their services to people with disabilities to be undertaken in consultation with those they will benefit. Training of airline staff on the code is a core part of the procedure.

Ms O’Neill

I would like the committee to consider the five recommendations we outlined. In particular, we would like the committee's support in securing an assurance from the Minister for Transport to include a commitment to developing a statutory code of practice on airline accessibility in the Department's sectorial plan. The Minister must also ensure Aer Lingus fully implements, as a matter of urgency, the existing voluntary code which will fulfil our other four recommendations.

Aer Lingus should immediately remove its requirement for people with reduced mobility, which includes persons with learning disabilities and psychiatric illnesses, to make medical declarations about their disability as a condition of travel. Aer Lingus must publish a written policy about its services to people with disabilities and make it available in accessible formats. Aer Lingus should establish and maintain a system of ongoing consultation with customers with disabilities and impaired mobility.

Chairman

I thank Ms O'Neill and Ms Felton for their informative contribution to the committee.

Sitting suspended at 11:30 a.m. and resumed at 11.35 a.m.

Chairman

I welcome Mr. Liam Berney, industrial officer, and Mr. Paul Sweeney, economic adviser, of the Irish Congress of Trade Unions, ICTU. I draw witnesses' attention to the fact that members of this committee have absolute privilege but that this same privilege does not apply to witnesses appearing before it. The committee cannot guarantee any level of privilege to witnesses appearing before it. Members should not comment on, criticise or make charges against a person outside the House or an official by name in such a way as to make him or her identifiable.

I invite Mr. Berney to make his submission and I apologise for the rush.

Mr. Liam Berney

I thank the Chairman and members for the invitation to contribute. We know the committee is taking this matter seriously and we are happy to offer our view on it. We have sent a brief written submission to the committee and will elaborate on that today. My colleague, Paul Sweeney, will deal with the substantive portion of our submission.

Congress views public enterprise as extremely important to the Irish economy. For many years it has provided essential public services that the private sector was not prepared to provide. Irish citizens have benefited substantially from the activity of public enterprises. Like all enterprises, the companies in the semi-State sector face pressures from time to time to develop strategic responses to competitive pressures in the sectors in which they operate. For that reason, Congress, prior to and during the negotiations on Sustaining Progress, has been pressing Government to adopt a strategic approach to the sector.

Government policy is to approach the commercial semi-State sector on a case-by-case basis, which has led to some unmitigated disasters, notably, the privatisation of Eircom and the problems arising therefrom for our infrastructure. Unless we take an overall strategic approach to the sector there will be a series of similar disasters. We want to try to avoid that.

The trade union movement is often accused of opposing everything but in this case we were keen to be innovative and propose a means of dealing with the commercial semi-State sector that would help the enterprises within it remain in public ownership, while also providing them with the means to acquire resources to develop and modernise, and become national and international players. The adoption of such a strategy in the case of the company under discussion — Aer Lingus — would provide the necessary funding to develop the airline without having to divest its shareholding.

The basis of our submission is the proposal to develop a State holding company for the semi-State companies. Mr. Sweeney will explain this in detail. Mr. Sweeney is adviser to the employee share ownership trust, ESOT, and the unions in Aer Lingus and has signed a confidentiality clause restricting him in discussing some matters because he has had access to sensitive information. I ask members to respect this when putting questions.

Chairman

Mr. Sweeney is quite safe. There will be no question session.

Mr. Paul Sweeney

I thank the Chairman. I was in the transport union in the 1980s when we made submissions seeking increased subsidies from the Government for various companies, such as the Tuam sugar factory and so on. That day has passed and the environment now is fairly competitive. Most economists conclude their reports by calling for more competition, to the point that it has almost become a cliché.

Some semi-State companies, however, have trouble obtaining access to capital. Various Governments have been unwilling to invest in the companies for different reasons, whether based on ideology, as a result of nervousness, on foot of the argument that money is better spent on hospital beds than airplanes or whatever. I will not go into that argument.

We were challenged to find a way to circumvent this that would retain State ownership. Fortuitously, we found that the OECD had produced two major reports on corporate governance — one dealing with private companies and the other with their semi-State counterparts. The OECD is a fairly conservative body but it says that every State will need to retain some commercial bodies, because they are monopolies, and provide critical infrastructure such as ports, airports, roads and water. Some countries do not regard water as a critical service but that will be the big issue at the end of this century. They also cover strategic areas and governments, for political reasons, may choose to retain a proportion of a State company, as in this case.

We need a more robust way of obtaining quick decision-making from the public service. The system for dealing with the governing Departments, particularly the Department of Finance is appalling. If I was an executive of a State company, it would drive me demented. The current system involves prudence, caution and risk aversion from the governing Department, guided by its political masters. As it is incapable of engaging in rapid decision-making, a new structure is needed. We have proposed a State holding company as a way by which the State could decide to hold on to companies because they are natural monopolies and provide them with access to money. That would also allow the private sector to put money in, without control, yet having influence, which should also help commercial viability. The committee might worry that there might be a further effect, namely, the depoliticising of companies. The proposal would take them away from the political realm and mean the trade unions would have less influence. That is important for the companies involved. It would not depoliticise the Oireachtas committee, however. We are suggesting more funding would be received from what would be a very wealthy organisation, namely, the State holding company. The Oireachtas committee — not necessarily this one; we are not being totally prescriptive — and the Oireachtas would ultimately have control. The relevant Minister and the Department of Finance would have less influence.

The OECD has stated, with regard to state-owned enterprises, that a clear separation between ownership and other state roles is required, while any other obligations of what it calls public service provision or special responsibilities such as helping the west or developing the regions should be clearly identified and provision made to cover the cost in a transparent manner. Some years ago that was opaque but the committee understands what is meant by it.

The OECD report is timely and we use it for guidance. Commercial State companies should not be put into this vehicle because if they cannot show themselves to be commercial, they should be treated differently. A company such as Iarnród Éireann which receives a lot of public money should not be included. All the shares in commercial State companies should be transferred from the Department of Finance which currently holds them, although it might not be keen on or supportive of this proposal for the good reason that its officials are naturally averse to risk taking. The shares would be transferred to a State holding company to be held by a new body called the State holding investment board. The private sector would invest its pension funds through that body. A diagram has been provided in the presentation, showing the State holding company in the middle. Either this or another committee would annually review its operations. It would receive some funding from the National Treasury Management Agency which has four boards. The private sector could also invest in the State holding company.

We got one of the country's leading accountants and a corporate finance expert to advise us on this issue. We also took advice internationally from individuals who have worked in similar areas to ensure this proposal was robust and would stand up. As I said, it is not prescriptive but needs discussion and tweaking. We think it is a very good proposal and would overnight solve many of the problems encountered by the companies involved, particularly in seeking access to capital. Incidentally, Mr. David Begg met the chief executives of the companies who have warmly received the proposal, although one of the big companies involved was a little nervous that the proposal might mean that its treble-A rating would be lessened. That would definitely not happen because the companies would continue to borrow as they do individually. The only change would be that their shareholdings would be owned and held by the State body. The key aspect would be that where such companies made a proposal to seek access to capital, it would be vetted by a small staff of experts in a very short period and either turned down — in most cases the companies would probably not make a proposal unless they were fairly sure that it would be accepted — or agreed to.

Another point the Department of Finance does not like is that the dividends paid by the companies involved would go into the pool of the State holding company. Currently, the Department gets the money and does what it wishes with it. The dividends currently amount to between €100 million and €200 million. They are closer to the former figure, however. We expect that with further commercialisation of the companies and profit capitalisation, they will begin to show hefty rates of return which can be recycled within the State holding company. In years to come the Government could decide to take from this money if big surpluses were building.

ESOTs which are important to workers will continue to hold their shareholdings in the individual companies. If, for instance, workers have a 5% or 15% stake, it would be held in the State holding company, with the balance owned by the State. The Department of Finance would have no shareholding in the NTMA. It is not the plan of the trade unions to privatise the companies through stealth by means of employee ownership.

The State holding company would help fund the Oireachtas committee to ensure it had real expertise in terms of the economists and accountants needed to probe the companies involved in a deeper way. Meanwhile, the pension funds which would invest through the State holding company would operate their own grey market. For example, a pension fund might invest and after five years decide to move into other areas. It would sell its investments to other pension funds within a grey market, in the manner of NTR, for example, which is not listed on the Stock Exchange but into which big pension funds could buy through their stockbrokers. Pension funds would get a return by way of capital growth in the companies involved but might have a mix of bonds or preference shares. We are not prescriptive.

As for private funds, we are suggesting they would be limited to 25% of the total — already the companies involved are worth a fortune — and help in a passive way. This would overcome state aid concerns, whereby any new State investment creates controversy or is subject to objections or delays. The fact that the private sector would be involved means it would help to drive the commercial mandate and perhaps develop new ideas for joint ventures.

Under this proposal, the State companies would continue to operate on a daily basis. The relevant Department would continue to set policy but it would no longer be a shareholder. It would be freed of that burden. Neither would the Department of Finance operate as a shareholder; it would be freed to pursue other interests. The regulators would continue to act as they do. The State holding company would act as a supportive shareholder, not as happens currently, where the Department of Finance is not supportive. Private pension funds would bring in money and ensure a commercial focus. There would be access to capital for companies which want to expand, although only a small number will want to expand at any one time. They would strengthen the commercial ethos of companies in the current competitive environment.

A new system of governance would be provided for, a matter of great concern to the 46,000 who work in what we define as the commercial State sector. The number is roughly half what it was some years ago. That is the essence of the proposal, which is robust and new. In some respects, the companies are not being properly developed commercially due to a lack of expertise and support on the part of shareholders.

Chairman

That concludes today's meeting. We are approximately ten minutes over time, but the witnesses had the advantage of contributing last.

Mr. Berney

I was only getting started.

Chairman

I thank Mr. Berney and Mr. Sweeney for their presentation, which will be considered in conjunction with the others.

The joint committee went into private session at 11.51 a.m. and adjourned at 11.55 a.m. until 2.30 p.m. on Wednesday, 31 May 2006.