No Main Heading

I welcome the officials to the meeting and I thank them for agreeing to deal with that issue. I welcome Mr. Ronan Gallagher, principal officer, Mr. Daragh Phelan, administrative officer, and Ms Bronagh Treacy, higher executive officer. They are very welcome to the meeting.

Before we commence, I am required to read the following statement on privilege. By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they give to the committee. However, if witnesses are directed by the committee to cease giving evidence in relation to a particular matter and they continue to do so, they are entitled thereafter only to a qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, witnesses should not criticise nor make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing parliamentary practice to the effect that members should not comment on, criticise or make charges against either a person outside the Houses or an official, either by name or in such a way as to make him or her identifiable.

I invite Mr. Gallagher to make his opening statement.

Mr. Ronan Gallagher

The Minister has asked me to thank the Chairman and the committee members for setting aside the time to facilitate pre-legislative scrutiny of the general scheme for the air navigation and transport Bill 2019.

I will begin by explaining the policy background to this proposed legislation. In August 2015, the Minister published the national aviation policy. Included in that policy document was a commitment to restructure the regulatory functions of the IAA and CAR to reflect developments at EU level and international best practice. Government policy to reform the IAA was further reinforced following an independent review of the airport charges regulatory regime in Ireland, which took place during 2016 and 2017. That independent review led to the publication of the national policy statement on the review of airport charges in September 2017, and it, too, included a commitment to reform the way aviation is regulated. I believe the committee has been provided with copies of both of these policy documents.

Following on from these stated policy objectives, the Government approved a proposal in September 2017 to implement structural reforms of aviation regulation, involving a merger of the safety regulatory division of the IAA with CAR, to form a stand-alone aviation regulator under the name of the Irish Aviation Authority. The Government also agreed that the existing air traffic control side of the IAA would be reconstituted as a separate, State-owned commercial company. In the period since, the Department has led a detailed due diligence process examining all the issues related to this reform proposal, including staffing, financial and legal implications. This work has informed the general scheme before us today.

Moving on to the rationale underpinning this policy objective, as it is currently structured, the IAA has a dual mandate. It provides commercial air traffic control services, while also regulating aviation safety and security, including the regulation and inspection of its commercial customers, the airlines, as well as its own air traffic control systems. The IAA’s founding legislation dates from 1993, more than 25 years ago, and while there has been continuous independent audits of its regulatory performance over that period, which has shown the IAA to be a high performing organisation by international benchmarks, the regulatory model provided for in the 1993 Act is not unsurprisingly somewhat out of date. The founding Act was about putting aviation regulation on a sound, independent footing, at a remove from the Minister and the Department. That was the right thing to do at the time and it represented a significant step and undertaking. It has also worked insofar as it has allowed Ireland to develop a technical expertise that perhaps would not have been possible within a Civil Service Department. However, much as there has been in other sectors, there have been major developments in aviation regulation practices, principles and norms since the early 1990s, and it is fair to say that our administrative arrangements have not kept suitably apace with these. The dual commercial regulatory mandate of the IAA, as it is currently structured, is largely an outlier in a European and international context, notwithstanding the company’s high international reputation.

The IAA’s high performance as a regulator is an important point. More often than not, reform proposals come about as a result of a crisis event which points to a systemic failing, after the damage has been done, so to speak. In this instance, the Minister is reforming from a position of relative strength, and the question then posed is: why is he fixing something that is not broken? The Minister’s response is now that he has identified what the right thing to do is and he is clear that the current arrangements are sub-optimal, it is right to reform and put in place arrangements that are fit for purpose and match modern regulatory needs. In that context, it is very difficult to argue for no change, where we have a State body that has important non-commercial oversight functions, and at the same time a commercial mandate to run a service on a for-profit basis. This leads it to have a regulatory oversight and enforcement relationship with the airlines and at the same time a commercial relationship as a provider to the airlines of air traffic control services. If we look across Europe, that model is now hard to find. If we also consider the new EU Regulation 2018/1139 for aviation safety, which requires member states to "ensure that their national competent authorities are independent when taking technical decisions on certification, oversight and enforcement and exercise their tasks impartially, and transparently and are organised, staffed and managed accordingly", then the case for reform of the current arrangements is all the more pressing.

I would like to take the committee through the main provisions of the scheme. It is relatively straightforward. The scheme creates a new State-owned commercial air traffic control operator, largely based on the provisions of the 1993 Act, which will be reconstituted as the Irish air navigation authority. This commercial function is therefore removed from the IAA. In addition, the scheme provides for the dissolution of the Commission for Aviation Regulation and the transfer of its functions to the IAA, to form a new, all-encompassing aviation regulator. The name of the Irish Aviation Authority will be retained by the new regulator. The regulatory provisions of that 1993 Act and the Aviation Regulation Act 2001, which underpin the functions current assigned to CAR and the IAA, will continue, for the most part, to apply to the functions of the newly formed regulator. There are some amendments to be provided for which I will touch on later.

The general scheme is made up of 86 heads in eight Parts. Part 1 of the general scheme is the preliminary and general provisions. All of the heads in this Part are replicated from the 1993 Act. These include the Short Title, definitions, application of the scheme to State aircraft, making of regulations, ministerial powers of direction, disposal of moneys received by the Minister and expenses. These are all standard provisions.

Part 2 of the scheme is broken into three sections. Section 1 comprises 29 heads and deals with establishing the Irish air navigation authority.

This company is to be established as a new commercial body under the Companies Act 2014 to provide air navigation services. The new company is to be set up on the same commercial basis as provided for in the Irish Aviation Act 1993 using largely identical provisions. The objectives of the air navigation service provider are also set out in this Part. They are primarily to provide air navigation and communication services within the State; operate and manage terminal services; impose charges for use of its services; give effect to the purposes of the Eurocontrol Convention and any other international agreement. This Part also provides that the company will set out its articles of association with approval from the Minister and consent from the Minister for Public Expenditure and Reform. Further set out is the issuing of shares to the Minister, transfer of lands, properties, rights and liabilities and the payment of dividends to the Exchequer. They are largely housekeeping provisions required when reallocating functions. There are also, of course, provisions around annual report of accounts and auditing. These are standard provisions based on those of the 1993 Act. Staff members of the IAA whose work mainly relates to air navigation services will transfer to the new company, provided they are agreeable, and there will be close co-ordination with staff and their representative organisations.

Section 2 is made up of 11 heads and relates to dissolution of CAR. All the functions of the CAR will transfer to the IAA. In addition, all the staff of the CAR will transfer too, on the same terms and conditions as they currently have, working in tandem with the staff representative organisations, as appropriate. Further provided for is the transfer of land and properties belonging to the CAR, along with all rights and liabilities.

Section 3 consists of eight separate heads setting out new provisions, which will made by way of amendments to the Irish Aviation Authority Act 1993. There will be a new requirement placed on the IAA to publish a statement of strategy and other reports related to its functions, particularly around safety audits and inspections. The IAA will have the ability to recruit staff, but must submit a rolling three-year workforce plan to the Minister on an annual basis. Powers will also be provided to the IAA to require the payment of fees for the application or renewal of certificates and licences, and any other functions which are set out in the schedule to the scheme to comply with EU and international law. The IAA will also have the power to make orders to give effect to EU regulations as necessary and appropriate.

Part 3 of the scheme relates to fees and charges of the air navigation service provider. The service provider may make regulations requiring the payment of such fees and charges to the company, the Minister or Eurocontrol, depending on what the payment relates to. These fees and charges may be imposed on aircraft operators, aircraft owners or on the managers of airports used by such aircraft or on them all should the need arise. All these provisions are carried across from the 1993 Act.

Part 4 is split into two sections and deals with provisions in relation to Eurocontrol and the International Civil Aviation Organization, ICAO. These include membership fees, attendance at international meetings, the ability to take proceedings against a person to recover fees due to Eurocontrol and the making of regulations requiring operators to keep records of aircraft movements.

Part 5 of the scheme relates to enforcement issues. There are nine heads in total in this Part, three of which are entirely new provisions. It had been proposed to give the new air navigation service powers relating to the appointment of authorised officers, the issuing of search warrants and the ability to bring proceedings. However, following consultation since publication, these provisions will be removed as it is agreed that only the regulator requires these powers. The head relating to the indemnification of staff against any action arising in exercise of their functions will remain. The other six provisions in this Part are about joining up the currently separate powers of the CAR and the IAA.

Part 6 provides for transitional arrangements. This means that all orders and regulations outlined in the 1993 Act will continue in force while this legislation is being progressed through the enactment process. Any legal proceedings under way involving the air navigation service provider will also continue as normal. It also sets out the transfer of land and property, rights and liabilities from the IAA to the new Irish air navigation authority. Arrangements are also included for transitional financial provisions around payment of staff, goods and services.

Part 7 of the scheme relates to miscellaneous provisions. These include rates payable to the local authority by the new air navigation service provider and annual performance statements from the IAA regarding aviation safety regulation performance. There is also a requirement for the IAA to arrange for another civil aviation body to undertake a peer review of the performance of its regulatory functions. A further requirement is to appear before the Committee of Public Accounts when requested in relation to its accounts and internal controls, and to any other Oireachtas committee as necessary in regard to its functions.

The final Part contains only one head, designating the IAA as the competent authority for EU regulations outlined in Schedule 1 of the scheme, some of which would have previously been the responsibility of the CAR.

This scheme may seem extensive on first look, but for the most part, it is largely about reassigning existing functions and legal mandates set out in the IAA Act 1993 and the Aviation Regulation Act 2001. Where appropriate, the general scheme also seeks to clarify and update references to functions related to EU legislation, which have been introduced since the original legislation. The merger of the IAA's safety and security regulatory functions with CAR's economic and consumer protection functions will create a one-stop-shop for economic, safety and security aviation regulation in Ireland and it will ensure that Ireland's approach to aviation regulation is in line with international best practice. I am happy to take any questions the committee have in relation to the general scheme.

I thank Mr. Gallagher for his presentation and briefing. He mentioned that the new amalgamation will provide better services. Can he give me an example of that? He also said that some of the costs would be marginal and he does not know where some of the higher figures came from but in recent times we have seen the picture change very quickly on the costs of various projects. Is Mr. Gallagher certain that these costs are marginal, a few million euro or whatever? He also mentions that it will be met out of the cash reserves of the IAA. What is the extent of those reserves? He mentions that this is needed because the IAA has been out of date with modern developments. Could he explain that a little? He said this will allow the IAA be proactive rather than reacting to past crises. Is that right?

Mr. Ronan Gallagher

That was more a comment about the Department's decision to reform something that does not, on the face of it, look like it is failing.

Yes, more often than not reform proposals come as a result of crises which point to a systemic failing after the damage has been done.

Mr. Ronan Gallagher

We tend to look at regulators and regulation after the regulatory system has failed. Then we find a fix but here we are getting ahead.

That is what I am saying, that it is proactive.

I see the logic in what is being proposed and I take the point about doing it in a proactive rather than a reactive way. There is a three year workforce plan to be presented annually to the Minister. When the commercial is separated from the non-commercial it is more dependent on the Department to provide resources. If those resources are not provided amply at the outset it is very difficult to scale up to what is needed. I would be quite concerned that we get the baseline right to begin with and that the full extent of what is required is dealt with. The commercial side takes care of itself in many ways but am I right in thinking that there is a loss of oversight because some of that would have been formerly audited by the Comptroller and Auditor General?

They are not the only ones subject to regulation and there are many smaller ones. Weston Airport, which is close to where I live, will be subject to the rules of the IAA for air separation issues, although it will not be the only one. From a planning point of view, I presume the code will continue to be determined by the IAA. When the code is changed, it can present all sorts of other unintended consequences, such as for mapping risk. Shifting the code around can affect one area to its advantage or disadvantage in respect of another. They are some practical matters that have been evident over the years. Will Mr. Gallagher comment on which body will have those functions? I presume they will remain with the IAA.

Following the recent passing of the Aircraft Noise (Dublin Airport) Regulation Act 2019, noise regulation was allocated to the planning authority, which many of us considered wholly inappropriate given the very conflicts that the Department is trying to avoid through the separation of a commercial and a regulatory aspect. It is logical and right that they are separated but it seems to have gone the other way for noise regulation. Will either of the entities have a function for noise regulation? I presume that if one of them will, it will be the IAA.

On human resources, HR, issues, we have learned from mergers or entities that have been reassigned responsibility that there can sometimes be staff on different grades. Are there HR issues we should know about and, if so, how are they being catered for? Is it different between the two organisations? I presume we must concern ourselves most with the IAA. On the expertise, will Mr. Gallagher take us through, from the workforce point of view, what expertise is available and what is required? I fully understand that where there is a customer service aspect, it needs to function properly. Equally, people might have complaints about noise, low-flying planes, and breaches of rules at airports where take-off and landings might not be strictly policed. Will there be improvements in that regard?

Which side will impose the fees and charges on aircraft operators and managers of the airports that use such aircraft?

I, too, have a couple of questions. I welcome the benefits of the proposals, which make sense, although I am concerned about the clarity on the set-up costs. For the legislation, the Department will give us the detail it has at the time. It is unfortunate, politically, that the Department was not involved in the set-up of Irish Water, new entities and the trouble they can cause for unfortunate politicians and administrators. Mr. Gallagher spoke about the transfer of staff at their existing salaries. Will there be any regulatory change to the working conditions, or could any additional changes be made? When Irish Water was set up, a problem was that it was supposed to be a separate entity but it was benchmarked against another organisation for salaries and so on. Will Mr. Gallagher provide some clarity in that regard?

Mr. Ronan Gallagher

I will respond to the questions in the order in which they were asked, but if I miss out on something, members might pull me back. Senator O'Mahony asked what I meant by better services and for examples. Along with the restructuring proposals, a digitalisation project is ongoing in the IAA. It specifically concerns the safety and security of the house. It already involves CAR and we have preliminarily teamed up. For the new organisation, the IAA wants there to be a much more customer-friendly system of applying for licensing certifications. Currently, airlines have to apply to the IAA for certain licences and certificates for aircraft, and separately to CAR for different sets of licences and certificates. There is toing and froing between the organisations, which adds a lot of time-----

The intention is to streamline matters.

Mr. Ronan Gallagher

It will be one application to one organisation for a series of certificates. There will be one point of contact and one certification, or separate certifications, will issue. The digitalisation aspect is just to speed up what is currently a paper exercise, and benefits will come from providing information once and having it held and, therefore, tracked. It will provide for much better engagement with licence holders.

The Chairman and the Senator asked about preliminary costs. We have not fixed them but I am able to comment on the margins with relative confidence because we have done some work on that, although we have not got it down to the finer detail. There are 685 members of staff in the whole organisation of the IAA. Of that, only 120 will become part of the new regulators. The vast majority are air traffic control staff located at the airports and at the facilities in County Clare, and they will not move at all. It will be just a nameplate change. The only staff affected are those at the headquarters in D'Olier Street and they are mostly the corporate staff associated with the commercial entity. Over time, although it can be managed, they are likely to move to their own headquarters and the CAR staff are likely to move in. Costs are associated with those moves. The marginal aspect relates to some loss of efficiency due to everyone not being packed into the one building. There will also be some additional HR costs. While they will probably not be high, we have not yet had a debate on what is appropriate. At a high level, there are approximately 710 members of staff between the two organisations. At the end of the process, there should still be 710 staff between two organisations, just distributed differently. On the face of it, that should not give rise to a significant cost base.

It was reported in the annual report of the IAA that the cash reserves are in excess of €200 million, of which the Exchequer received a dividend for last year of €18 million, comprising an ordinary dividend and a special dividend of €12 million. That was the case for the past two years, based on advice from NewERA. It is a cash amount because of the profitability of the IAA, which has grown in the meantime and is therefore quite a substantial amount. The appropriate distribution, in respect of assets and liabilities, will be considered in the round. Similarly, what cash reserve is appropriate for the two organisations to be set off with will be considered, as will be what cash reserve is excessive. Those decisions are beyond my pay grade and we have not yet come to them.

That brings us back to the point about pursuing a reform agenda for organisations that are performing well and are financially robust, which is a change from previous efforts.

There are a few elements involved with getting ahead of the curve. While it is not absolutely explicit, there is a growing legal obligation in the EU to have a separation of these powers, as has been made clear in EU policies and laws. Some 23 of the 27 member states have separated air navigation services from aviation regulatory oversight, which leaves four countries which have not, namely, Ireland, Cyprus, Greece and France. We are an outlier in that sense.

It is difficult to speculate about what could go wrong with the current set-up. The issue is that we have a substantive, financially robust and profitable commercial wing that represents most of the staff in the organisation on the one hand, and a smaller, non-commercial regulator on the other, whose tasks include overseeing the company's strong commercial wing. While there are not necessarily explicit problems with that, one can see where pressure may come in over time. It is much better, in the round, to have a regulator that is absolutely separate in its legal status, powers, and management, which is strong enough and in a robust enough position to call the service provider to account if need be. That is more difficult within one organisation that shares a chief executive and board.

Deputy Catherine Murphy asked about staff and workforce planning. I agree with her that we need to have a baseline to start from, and we have been very conscious of building enough flexibility into that. The workforce plan has not been submitted to the Minister for approval but it introduces a discipline not to have a regulator growing beyond what it needs to be. The regulator will be fully financed from industry and various other streams and is therefore cost-based. It will be accountable to both the Oireachtas and the industry in terms of what it proposes to charge. We do not want to put either the Minister or the Department in a position where they are second-guessing whether the IAA needs two additional civil aviation engineers or three extra security personnel. That is a matter for the company and we do not want to micro-manage it in that way. The purpose of workforce planning is to have the company clearly set out a three-year plan, and report back to us annually on whether it is following that plan. If there are changes to the plan, it needs to be able to explain what those changes are. It is not intended to do anything more than that.

Reference was made to the Comptroller and Auditor General. At the moment, the commercial IAA company is not audited by the Comptroller and Auditor General but has its own auditors. An annual general meeting, AGM, is held at which the Minister is represented as a shareholder. That is the system that currently applies. After this legislation is enacted, the IAA will fall under the Comptroller and Auditor General's remit. There will be more oversight and the Minister will continue to have a shareholder relationship with the commercial entity.

I refer to the issue of codes, fees, and the regulator's relationship with customers. The rationale for removing the commercial entity from the IAA and leaving it as a regulator is that it will not upset the existing licences and certificates and that there will not be any change. We are aiming to have as little impact on the IAA's customers as possible and are relatively confident that, due to the way in which we have structured the legislation, the industry will not notice any difference. The Department also runs an industry forum, which includes a regulatory working group. We have been bringing our thought process through that forum and will continue to do so, in order to sense-check it against the industry and ensure customers are aware of what is happening as well.

The Aircraft Noise (Dublin Airport) Regulation Bill 2018, which was enacted in May, made Fingal County Council the competent authority for aircraft noise. Originally, that legislation would have made the IAA the noise regulator but it fell foul of the fact that it had a significant commercial interest in increased aircraft activity at Dublin Airport, to the extent that, according to legal advice, it was conflicted. Debates were held in the Chamber on conflicts, or perceived conflicts, involving Fingal County Council, which seemed to arise from the council's role as a planning authority and rate collector. However, the position of both the Department and the Minister is that that does not represent a conflict, because the council has various functions. My perspective, having been involved in both that discussion and this one, is that the noise requirements are much more closely aligned with planning and environmental protection than they are with technicalities around aircraft movement, although that is part of it and the IAA will have to feed into that process as well. The most important skill set required of the noise regulator was the ability to run public consultation campaigns, understand environmental and planning directives, ensure the airport is developed in a sustainable way and understand how the noise mitigation measures fit into that. I would argue that, even in the future when we have an independent, non-commercial aviation regulator, Fingal County Council's responsibility as the competent authority for noise, as set out in the Aircraft Noise (Dublin Airport) Regulation Act 2019, is appropriate. People are free to disagree with that, but we have thought long and hard about this and are strongly of that view.

On the HR issues, there are not as many differences in pay as we anticipated when starting this process, as the pay scales are relatively closely aligned. We have agreed with staff representative bodies that people will transfer to no less favourable terms and conditions, which is a standard undertaking. We are also mapping out the appropriate future structure of the regulator, including management and pay levels, in tandem with the management of both organisations. Where staff conditions do not precisely match when transferring over, staff will hold what they have in a personal capacity, and we will get to an optimum structure over time. However, the gap is quite narrow and does not seem problematic. The most difficult part will be bringing clarity to people's pensions and pension funds, and ensuring entitlements already earned are properly protected into the future. Again, we have had good engagement with staff, management and staff representative bodies on that. While we have not reached a formal agreement yet, there is no sense of a wide chasm between us. We are confident on that front.

There are some issues with the expertise available to both the IAA and CAR. Having a separate regulator will allow us to strengthen the functions currently spread across the IAA and CAR, particularly in consumer affairs and how they deal with their client bases. The IAA's staff are mostly civil aviation engineers, who can inspect aircraft and ensure they are sound. It also employs legal personnel and people familiar with EU regulations on work practices. Its staff checks flight hours and runs that type of system as well.

Reference was made to breaches of practices, or mis-movements in aircraft, at airports. Much of those would fall under the remit of the air traffic control provider, which is responsible for managing planes in the air, as well as during take-off and landing. Under this legislation, it will be the IAA's job to oversee that, so if there are incidents, the air traffic control provider will have to report them to the regulator. Part of the regulator's role will be to investigate whether those incidents were properly dealt with and whether the systems were properly rolled out. That role exists at the moment, but it is all under the one roof.

I expect that there would be a more robust tension in that relationship in the future in a positive way.

Regarding who charges what, most of the air traffic control provider's income comes from en route charges - planes that do not ever land in Ireland. Of its €200 million revenue a year, €122 million comes from en route services. That is transatlantic traffic. Terminal services, which are the three Irish airports, account for €25 million. Then there are amounts separated elsewhere. The fees of the safety regulator, the residual regulatory function in terms of non-traffic control stuff, are in the region of €22 million. That is the amount of charged in certificates to Irish airlines and their aircraft and pilots' examinations. Less than €500,000 of that is down to aerodrome fees in respect of licensing. We are looking to introduce charges for aviation security because we are investing in the IAA's oversight capacity in that space - in other words, going out and checking that airports primarily have proper aviation security arrangements in place.

On the set-up costs, when we come back before the committee we will be much clearer. The costs are not significant.

I am happy that the Department will give us the best knowledge it has at the time. That is fine. There is transparency in that.

What of the question about benchmarking existing salaries? I raise that because it is an issue.

Mr. Ronan Gallagher

It is. There is not any pressure and there is no expectation. That is not part of what is happening. The remuneration packages available in IAA are relatively competitive as it is. CAR is a small regulator. Its staff are relatively high-level staff because of the nature of the business. We will watch for drift. We will not have everyone drifting up to some higher level. It will be what the organisation needs. It does not look like it will be a feature.

Will it be a stand-alone entity?

Mr. Ronan Gallagher

The IAA will be. The reference point for its salary bands will be existing regulators within the system and it will have to stay in line with that.

I welcome Deputy MacSharry.

I thank the Chairman.

I do not know whether it is official yet.

I do not know whether the Committee of Selection has formalised my appointment yet but I am here.

I thank the Deputy for coming.

Is the cost of this €65 million?

Mr. Ronan Gallagher

No. A figure of €80 million was mentioned earlier as well. It is not in the order of that at all. I am not sure where that figure is coming from. I have heard €40 million, €30 million and different numbers, but I have not heard anybody own the figure.

I am new to this committee, but Deputy Catherine Murphy and I are on the Committee of Public Accounts. That answer frightens me in that Mr. Gallagher has heard figures. Does he know how much it will be?

Mr. Ronan Gallagher

Figures are being put out there that have no basis in fact.

What are the facts?

Mr. Ronan Gallagher

The facts are that we will start off with two organisations of approximately 700 staff and, within that, move approximately 150 staff between offices that we have. There will be costs associated with that movement and there may be additional costs associated with getting additional office buildings. There will be costs associated with recruiting additional staff in human resources, HR, for this new regulator.

Those are the kind of steps the Department will need to take. Are there estimates on the costs for that?

Mr. Ronan Gallagher

We have not bottomed out on it yet. We have preliminary costs. I suppose my fear is throw the Deputy a figure now and being back in six months throwing him a different figure. I will say it will be in the single digit millions of euro.

The Department will be at one with many other Departments. There are many moving feasts on the capital side at present.

Mr. Ronan Gallagher

Yes. It is different because we can count the heads.

Of course. Prudence demands that we know what the costs are for the Oireachtas to take an authoritative view.

Mr. Ronan Gallagher

When we come here to start the full legislative process, we will be clear about our costs.

I accept we are only at heads of Bill stage.

The reason this is happening today is the Minister asked for it to happen.

Which is good and I welcome that.

I accept the accuracy of the Deputy's questioning. Earlier, Mr. Gallagher undertook to give us all that before we go into the legislative phase.

Mr. Ronan Gallagher

Yes.

We will have costs. That is great. I am sorry.

No, those are important questions.

Mr. Ronan Gallagher

I pointed out earlier that if we were to do nothing, both the IAA and CAR would have to invest in additional resources because the industry is growing and they would have to match it. Wherever costs will go up, they will go up in response to service demands of the industry. The unit cost of the organisations will not change whereas the total cost will. That is the main cost driver, not the restructuring. All we are doing is a little like we do in Departments - move functions around to better align them with the policy objectives.

I refer to the driver for this. At the beginning, the Department produced its own report. In producing that report, was there substantial consultation with the industry, the airports, the IAA and everybody else or did the Department produce it independently?

Mr. Ronan Gallagher

There were two different reports and a back history as well. We have the national aviation policy of 2015. There was consultation with that. The national aviation policy is the document that set out how we would do this restructuring. There had been two previous attempts to do this that did not, for various reasons with which I am not familiar, get to the point we are at now. I understand there was some resistance within the organisation, as is natural because change affects people and people are threatened by it and, therefore, there is often kickback. We had extensive consultation in 2015 that resulted in the policy decision.

We had another exercise to do with airport charges. As part of that, we reassessed. I suppose we just looked again, because we had not made any progress, at whether this still made sense. We were strongly of the view that it did and it came into that policy document. After that, we had extensive engagement with the IAA and CAR about how we would go about doing this. Over the past 12 months, before we got to the point we are at today, we had extensive high-level engagement with management, staff and the unions to bottom out the policy ideal to make sure that it was sound before we came to the Oireachtas.

Is there broad support from all of the stakeholders?

Mr. Ronan Gallagher

There is. We have an industry consultative forum. I have been to that on a number of occasions and explained where we are at and where we are progressing, and the feedback has been either neutral or positive. It is fair to say in the early stages at senior management level in the IAA there was concern because it was their company and they might have asked what the Department would do with it, but we have overcome that. There was concern among the staff, which was natural as well, when they first heard of that, but we have had good engagement with them directly and through the staff representative bodies. They are on board and they are supportive of that as well. I suppose, like good things, when a policy is first announced, no matter how much consultation has been done, once one consolidates or crystalises that one will do something, people get worried. We have been careful to manage that over the past year.

The Department is confident that it has that in hand. Was a business case completed for this proposal?

Mr. Ronan Gallagher

It is a policy. The business case relates to the fact that we have EU policy obligations in this regard and then a broader regulatory consideration around the idea that we have a company that is regulating itself. One way to look at it, if it is helpful, is that the IAA is essentially the equivalent of the Central Bank and the Bank of Ireland in the same organisation and no one would think it a good idea to merge them.

We have an industry regulator and an industry service provider, a key market player in the one organisation. Therefore, we are separating that out. We have had NewERA run through the books and we have preliminary financial information. We will finalise that during the course of the legislative process. The decision-making for us is around a regulatory policy piece.

Senator John O'Mahony took the Chair.

So, there was not a business case. I suppose that is the short answer.

Mr. Ronan Gallagher

I am not quite sure what a business case would look like in this context.

Neither am I but I suppose it would be helpful; it is how we tend to approach things when it comes to expenditure-----

Mr. Ronan Gallagher

There is a policy analysis.

-----or the cost implications of things. There is not one. That is fine.

Mr. Ronan Gallagher

To be fair, there is not because it does not lend itself to a business case. There is extensive policy analysis-----

Yes but there are cost implications of policy implementation-----

Mr. Ronan Gallagher

There always are, yes.

-----in terms of the cost-benefit analysis. Is Europe forcing us to do this? My understanding of the last section 32 safety audit by Helios consultants recommended to keep the strong functional separation under review. It was not saying "do this". I am taking Mr. Gallagher at his word that this is a great idea or whatever but let us look at the cost implications. Are we going about it the right way? I have no doubt that it is a positive thing but we should ensure we are doing it the right way. Has a regulatory impact assessment been done?

Mr. Ronan Gallagher

Yes.

Is that a public document?

Mr. Ronan Gallagher

Yes, it is-----

Mr. Gallagher does not have to get it for me now. I can get it if it is available.

Mr. Ronan Gallagher

From that perspective, insofar as we are not changing the regulatory landscape, it is about how we organise it. It has not got a material impact on the industry.

Will there be any cross-subsidy between the air navigation body and the proposed new IAA?

Mr. Ronan Gallagher

There will be a financial relationship insofar as the air traffic control service will become a regulated entity and will have to pay licence fees to the regulator in the same way as other industry players.

Does that have to be approved by the Commission or anything?

Mr. Ronan Gallagher

It will form part of a regulatory process that is ongoing at the Commission. That is a fee that separated air traffic control services pay to regulators right across Europe.

How much would that be per annum?

Mr. Ronan Gallagher

Those figures have to be worked through. Off the top of my head, I would give a cost of several million euro.

Who would ultimately pay?

Mr. Ronan Gallagher

For that one, it is coming through the air traffic control and will mostly be distributed over the en route traffic that is going over our heads from transatlantic flights.

Will this lead to an increase for the industry of fees or regulatory charges?

Mr. Ronan Gallagher

Not directly. The Deputy's point about the business case is right in that we have to be careful to manage the cost of this as we go along. We will be accountable to this and other committees. We are mindful of that, absolutely. In terms of the cost to industry, I mentioned earlier that there may be additional cost. It will be so marginal as not to be meaningful but the main cost driver in the industry is from a policy decision and EU policy developments that require higher levels of regulatory oversight in safety and security. If we were not doing this separation, we would be enhancing the level of safety and security oversight on Irish aviation. That would mean recruiting more staff who would have to be paid for, meaning the airlines would have to pay more for safety inspections. The Department is happy with this.

At the moment we are the fourth safest in the world.

Mr. Ronan Gallagher

We are high-performing, yes.

We want to be even safer and we are going to pass on that cost to the industry of more inspections.

Mr. Ronan Gallagher

Yes.

That is something that needs to be out there in terms of those kind of costs because Aer Lingus, Ryanair and various others will be queueing to come in to us. It is important that we know there is going to be X increase to them and what they are going to be getting for that. There needs to be a payback. The sense from the very basic research I have done is that there is pushback. Whoever it is coming from is clearly not in the consultative forum because Mr. Gallagher said the response was neutral or positive there. That is just not what I am getting and I have only been in this role for a couple of days. Is there a conflict of interest between safety and economic interest?

Mr. Ronan Gallagher

I am being politic about the pushback. There is pushback among some senior staff in the IAA. Some of the points the Deputy has made have been made to us. That is fine. I have listened to it and I do not think there is anything to it other than "leave us alone". I do not see any conflicts in respect of economic regulation. The economic regulatory function is twofold. It is with Dublin Airport and on behalf, in a way, of Eurocontrol, with the oversight of air traffic control. The new IAA will oversee, inspect and challenge the cost base of air traffic control. I suspect that might be the source of some fears within the IAA that suddenly its cost base will be subject to a level of scrutiny that it has not been subject to up to this time. I understand and am sympathetic with that but, from a policy perspective, we are happy that this is one of the outcomes.

What the chronology of what happens next? Elections aside, what are the timeframes for the various elements?

Mr. Ronan Gallagher

Subject to the pre-legislative scrutiny process, the Government has made its decision to draft this. We will be engaging with the Office of the Attorney General and starting the drafting process as quickly as can be facilitated. It will be a priority for the Minister and the Department in the new term after the summer. Our ambition is to have a published Bill in the autumn and start the process from there. Then it is a matter for the Oireachtas.

Theoretically we are looking at Second Stage in the Dáil in October, subject to the various factors that none of us controls.

Mr. Ronan Gallagher

Yes.

Would it be possible to put a bit more flesh on the costs? There is a cost implication to how it is going to play out and it would be useful for the committee members who, from a standing start, want to be advocates for something that is going to be positive, if in fact it is positive. We just do not have all the tools at this point to be able to embrace it credibly.

Mr. Ronan Gallagher

There is work going on in the companies to bottom out the costs. The Department has had some numbers but has not been satisfied that they are clear enough. It is precisely what the Deputy is talking about. I have not seen a figure that was anything like €60 million although I have heard that rumour put about.

That is no problem but how long is a piece of string? Is it €6 million or €100 million or what? As we have seen, sadly, from so many other examples, we are better knowing this than Mr. Gallagher being next door at another committee with Deputy Catherine Murphy and I beating him up over it in a few months' time. I do not want to delay the meeting and I am only getting to know the personnel responsible. I have a question to do with charges and things. Are the witnesses the right people in the Department to respond on that?

Before we get onto that, will Mr. Gallagher update the committee on the costs that have been asked for as soon as possible?

Mr. Ronan Gallagher

As soon as we have them and are satisfied with them, absolutely, we will share them.

In other words, that will be in advance of Second Stage in the Dáil.

Mr. Ronan Gallagher

Yes, for sure. I expect to have any assurances that are needed in that space. There is no way this Bill is going anywhere if there is any thought of that. The Department would not be sponsoring it because I would be mystified as to how that cost would arise out of reallocating existing functions.

I will be guided by the Chairman if this question is out of order as I know the witnesses are in for a specific reason today. I will throw the question out and if they are not the competent people to answer it, or if I should not be asking it here, the Chairman will tell me. I do not want to be causing trouble. There is a proposal by the regulator to reduce the charge from about €9.50 to €7.50. I know theoretically it is good because if it is passed on to consumers at the end of the day, we will all be saving money. However, there is a concern about the potential impact of that on the ability of the DAA to develop its substantial capital programme as a hub.

There are various reports from Aer Lingus and others on all the positive economic outcomes this can bring to Ireland. If the regulator, which I accept is independent, proceeds with a reduction from, say, €9.50 to €7.50, where will the shortfall be made up for the DAA? Will this strip out its potential to continue with its programme, which we are all in favour of? Will it affect its timelines? Is the Department planning to fill the gap, if there is one, of whatever is not available through the charges with direct subsidisation to facilitate the development of the €2 billion hub?

The witnesses do not have to answer that question because it was not on the schedule, but they may answer it if they so wish.

Mr. Ronan Gallagher

That is fine. I am conscious of the fact that that draft determination is now out there and subject to consultation, so I do not want to say anything that might be interpreted as the Department-----

Mr. Ronan Gallagher

I might speak in the abstract then. There is an independent regulator that has carried out detailed work, including an assessment of the capital investment plans of Dublin Airport, and come to a draft position as to what it thinks that will lead to as far as a per-passenger charge is concerned. It would be very surprising if the regulated entity accepted that the first time out of the gate. Therefore, there is a regulated entity saying we need more and a regulator saying we need less. That is the way regulation needs to work. Between now and September, the airlines will have an opportunity to make their views known as to whether they think this will be enough to provide the kinds of services we need at Dublin Airport. The DAA will be available at this point, and there is a process around that.

The CAR statutory requirement aims to ensure that the airport has sufficient revenue and sufficient capital to invest and grow the airport. There is therefore no question of a regulatory determination being put in place that results in the airport making a loss or not being able to afford what it plans to do. There is no question of Exchequer support. The way the system works, though, is that it is subject to annual review. Therefore, if the regulator has undercut or overshot something, it can be corrected when what has happened can be seen.

Our position is to let the independent regulator take that position and to let the industry take a view and to see where that goes. The regulator watches it over time. Part of the issue is that it is very difficult to be certain about capital plans - Deputy MacSharry mentioned this earlier - before planning applications have even been submitted. It is very difficult even to know how to assign a financial allocation over the next five years when a lot of these plans have not even been submitted to the planning authority. This probably explains in part some of the tension surrounding the disagreement as to when these projects might start seeing the ground turned.

I have just a couple of quick questions. Is there only one industry consultant? Who is the consultant who has been engaged to help with this process?

Mr. Ronan Gallagher

Is this about the economic regulation?

Mr. Gallagher told us there was an industry consultant.

Mr. Ronan Gallagher

Yes, a consultation. Is the Deputy asking the question in the context of Dublin Airport and what I have just said?

I picked up that there was an industry consultant engaging with the various entities.

Mr. Ronan Gallagher

Was this to do with Deputy MacSharry's question about-----

No. It was to do with Mr. Gallagher's response earlier. He mentioned industry consultants.

Mr. Ronan Gallagher

I mentioned industry consultation, which took place through the forum. There was not a-----

It was done directly by the Department then.

Mr. Ronan Gallagher

Yes, absolutely. We meet representatives of the Department periodically.

When Mr. Gallagher says "industry", who-----

Mr. Ronan Gallagher

Aer Lingus, Ryanair, the State airports, the IAA and the aviation regulator, I think, are the members. It comprises the main regulators and the main industry bodies.

Perhaps my visual idea of this is wrong, but both the entities could be in the same building. Is that how this will play out in the short term? It is pretty difficult to go up the lift to the third floor while someone else is going to the fourth floor. There is a kind of human engagement that does not create that kind of separation. We often call it Chinese walls. We come across it routinely in the Committee of Public Accounts. The one consultancy firm could perhaps be doing work on the same thing on two sides, which on the face of it looks like a conflict of interest. How are such conflicts avoided in this environment?

Mr. Ronan Gallagher

We have spent time thinking about this at even that level of detail, walking around the buildings to see how to fix the problem. We are mindful of that. We know, for instance, that when the ESB and EirGrid split off, there was a period during which they were in the same building. Part of the solution related to security access and access through different doors, but one cannot stop people meeting on the street or in the canteen.

Mr. Ronan Gallagher

Yes. The question is whether we can guarantee we will be able to move everyone out on day one. It seems a bit of a stretch but, ultimately, we will be able. We just have to manage our way through it.

When Mr. Gallagher says "ultimately", are we talking about several years? Are we talking about more-----

Mr. Ronan Gallagher

That is mostly within the gift of the commercial entity because it is the one moving and it will fall on its ability to find a suitable space for itself. It is looking and, as soon as it is ready to go-----

It strikes me that the space does not necessarily need to be in the city centre.

Mr. Ronan Gallagher

Yes, I think the Deputy is right.

The digitisation project sounds like a sensible move from every perspective. Who sets the fees for the licensing, and will that change?

Mr. Ronan Gallagher

CAR and the IAA are carrying out a joint exercise on the future fee structure. That is due to be reported to us soon. In principle, we do not plan to change the fees as part of this, either how they are arrived at or the rates, but it may happen once the new entity gets up and running. They set them themselves but in relation to their cost base, so part of what we are trying to achieve through the legislation is to give them sufficient financial flexibility to grow and recruit as they need but not to set charges at some imaginary number and to gouge the industry. We probably have a little more work to do with the legal drafters to crystalise getting that balance right. The IAA will set fees but it will be accountable to industry so it will be part of a consultative process and, ultimately, accountable to the committees here and the Minister. We are looking at what the control mechanisms are and what the other regulators will do, but there are models there and we look at the one that fits best.

How do we compare with other countries in respect of charging? Is that modelled in?

Mr. Ronan Gallagher

Yes, and this report includes that, so I hope there will be a little more clarity. I will say two things about this. We are in line with other countries, but we do not want to get into the language of being competitive as a regulatory body. It should not be about that. It should be about standards. There is a concern, looking across Europe, that European airlines are able to register their planes in any member state. What we need to avoid as a collective of member states is regulatory shopping, that is, racing one another to the bottom. We are mindful of this and of keeping the standards consistent across the EU. We have common laws. The airlines are entitled to push back but not to the point where they are playing one regulator off the other.

I have a final question about climate obligations. I presume that the commercial entity factors in any such obligation given that transport is one of the contributors of greenhouse gas emissions, or is there an obligation? I understand from my work on the Committee of Public Accounts that we have a larger element to our transport requirements because a fairly large number of aircraft organisations are domiciled here.

An obligation comes with their locating here. Do either of these entities have an obligation to contribute to the purchasing of credits or anything of that nature? How is that affected?

Mr. Ronan Gallagher

It is not an area in which I am particularly expert; it falls to a colleague. The airline industry's climate change agenda is derived from initiatives by Europe and, at UN level, the ICAO. There is an emissions trading programme under which there must be offsets. The airlines are obliged to do that. In the context of this Bill, we will consider whether we can be specific on that matter. Under the Finnish Presidency, there will be a focus over the next six months on transport and climate change. The focus is increasingly on aviation even though, in proportion to other transport modes, it is not the largest contributor. Large advances in aircraft design and, more importantly, air navigation space management are being made. The technological investment in the latter is concerned with trying to streamline the movement of planes, reduce journey times - how much travelling they must do - and manage them into different strata of the upper-----

Mr. Ronan Gallagher

Higher up, less fuel is burned. There is a great deal happening but, in terms of directions, we will consider what roles the two organisations can play. I do not know the details off the top of my head, as they are buried in some of the directives and regulations, but we will crystallise whether we can do more in that space.

I thank Mr. Gallagher.

I thank the witnesses. The joint committee has completed its scrutiny of the general scheme of the air navigation and transport Bill 2019. Is it agreed that the general scheme warrants no further scrutiny? Agreed. The transcript of this meeting shall be deemed to be the report of the joint committee.

The joint committee adjourned at 3.05 p.m. until 11 a.m. on Wednesday, 17 July 2019.