The present authorised share capital of the B & I Company is £35 million, which is held in its entirety by the Minister for Finance. The main purpose of the Bill is to increase the company's authorised share capital by £25 million and to enable the Minister for Finance to take up this amount in additional shares in the company. The Bill also provides for an increase of £25 million in the maximum amount of the company's borrowings which can be guaranteed by the Minister for Finance.
As Senators will no doubt be aware, the B & I Company is encountering severe financial difficulties. The company recorded losses of £1.1 million in 1979 and £2.8 million in 1980 and, notwithstanding an increase in turnover from £66 million in 1980 to £73 million in 1981, the loss in 1981 jumped to £7.54 million.
The trading conditions in which the B & I has had to operate in recent years have been very difficult, given the depressed environment for tourism, the general economic recession and serious cost inflation. The B & I's difficulties have been aggravated by a significant increase in borrowings and lease obligations resulting from an expansion of capacity from 1978 onwards. Severe competition on the Irish Sea, which has forced the B & I to hold down fares, has also seriously undermined the company's financial position. Industrial disputes both here and in the UK have cost the company a total of £5.9 million in the years 1979 to 1981, inclusive. In 1981 alone disruptions of one kind or another, many of which were completely outside the company's control, cost the B & I in terms of net loss £2.6 million.
The Government's reason for purchasing the B & I from private UK interests in 1965 was basically the strategic one of having an Irish presence on the Irish Sea which would at the same time operate on a strictly commercial basis. Following the take-over the company began an investment programme to replace old ships, introduce multi-purpose car ferries and to mechanise cargo handling facilities and since then the B & I has made a major contribution to the development of modern and efficient transport services between this country and the UK.
In 1977, the B & I decided on a large-scale investment programme. This programme was designed to meet the requirements of the company in the light of technological changes and expected growth in trade and tourism. The total cost to the company of the investment programme, which has since been completed, was approximately £72 million. The main investments were: the replacement of two older car ferries; the introduction of the Jetfoil on the Liverpool route; the termination of the Dublin/Liverpool Load on/Load off service, which was being scaled down since 1975, and the introduction of a Roll on/Roll off service to Fleetwood; and the introduction of a new short-sea service on the Rosslare/Pembroke route.
The new car ferries, m.v. Connacht and m.v. Leinster were built in Verolme Cork Dockyard at a cost of IR£40 million. The orders for these vessels enabled employment to be maintained at Verolme during a period of very severe world-wide difficulties in the shipbuilding industry from 1971 to 1981, and brought the volume of business given by the B & I to Verolme since 1967 to almost IR£60 million. It was recognised at the time that, because of subsidies and incentives available to other shipyards, these ships could have been built abroad at significantly lower cost. The Government, therefore, provided additional share capital to the company, £20 million in all, partially to finance the construction cost of the ships involved.
A further part of the B & I investment programme was concerned with the development of a short-sea route strategy. This had been a long-standing ambition of the company because of the inherent advantages associated with more intensive asset utilisation and lower unit costs — a factor which had become even more important with the increase in oil prices in the seventies.
The introduction in 1980 of the company's short sea route, Rosslare/ Pembroke, involved the B & I in capital development commitments for the construction of a ferry terminal at Pembroke in south Wales. The introduction of its other short-sea route, Dublin/Holyhead, earlier this year did not involve additional capital expenditure due to a change in Sealink policy regarding the use of its port facilities at Holyhead by other operators.
The current problems of the B & I are due in large measure to the fact that the increased traffic and revenue budgeted for under the 1977 plan failed to materialise. In this situation the servicing of new debt has become a burden beyond the company's capacity to carry unaided. The company's financial charges increased from £2.6 million in 1979 to £7.6 million in 1981. At the end of 1981, the company had term loans of the order of £27 million as well as obligations relating to leased assets. The share capital of £35 million has been eroded by accumulated losses of over £12 million. Furthermore, the company's cash flow position has deteriorated to the extent that an injection of equity working capital is now urgently required.
The B & I has been pursuing a policy of retrenchment in an effort to reduce costs and improve its trading position. The company's strategy for 1982 is based, inter alia, on a rationalisation of services and is designed to reduce permanently B & I cost structures, maximise the use of operating assets and realise saleable assets to alleviate cash difficulties. The main features are: the commencement of a daily short-sea service between Dublin/Holyhead in conjunction with a Dublin/Liverpool nightly service; the operation of a forked service from Pembroke, servicing Cork and Rosslare with one ship; the cessation of groupage services in Cork and the sale of surplus assets involved; the termination of the Jetfoil service; the sale of one car ferry, the Munster; the overall reduction of B & I personnel by approximately 200 people; the negotiation of a three months' pay pause; the raising of base revenue for tourism and freight to more economic levels; and the implementation of a cost reduction programme to cover all aspects of B & I's operations. This rationalisation plan is now being put into action and very good progress is being made.
The company has terminated the Jetfoil service and is investigating the possibility of a sale or long-term charter. The Jetfoil operation was conceived as a fast and comfortable passenger operation, linking as it did two major conurbations, Dublin and Liverpool. It was unfortunate that the introduction of the service coincided with a contraction in passenger demand on the Irish Sea and that the viability of the service could not have been tested in more favourable circumstances. The company has also rationalised its services on the southern corridor and has been servicing the Cork/ Pembroke and the Rosslare/Pembroke routes with one instead of two vessels for some time now. This move will help the company's finances to the extent that the surplus vessel is available for disposal and that there will be greater utilisation of the vessel on the combined route.
As regards the reduction in staff, I understand that this has been effected by voluntary retirement and severance schemes. It is unfortunate that the level of jobs has had to be cut back but the measure is crucial to the overall viability of the company.
I am very concerned about the deterioration in the B & I's financial performance and I am glad to note, therefore, the steps which the company is taking to rationalise its operations with a view to achieving economies and improving productivity. I am in full agreement with the B & I board on the need for these economy measures, which should help to improve the B & I's trading results and create a more stable employment environment for the company's employees.
The Minister recently discussed with the chairman of the B & I the progress which has been made to date towards the implementation of the company's cost reduction measures and the need for further measures. The chairman advised him that while there has been broad acceptance among employees of the action which is being taken, there are still some difficulties to be surmounted. It is essential that these difficulties be overcome quickly in the longer-term interests of job security.
I should mention that a detailed examination of the affairs of the B & I is being carried out under the aegis of my Department. The examination has revealed that the company cannot continue to operate without immediate assistance from the Exchequer. In the circumstances, the Government have agreed that the Minister for Finance should take up additional equity in the B & I, not exceeding £8.7 million, during 1982. This should help to relieve somewhat the heavy burden of financial charges which represent a substantial proportion of the company's overall loss.
While it will be necessary to disburse a portion of these funds as soon as the legislation has been passed to enable the company to meet its immediate obligations arising from the seasonal downturn in its cash flow, I expect the company to demonstrate to me that satisfactory progress has been made in the rationalisation of its operations before I shall agree to recommend any further disbursements from the Exchequer.
In recommending this Bill to the House, I am concious of the representations made both to myself and my predecessor by representatives of B & I workers setting out the company's record of good industrial relations and highlighting their participation in the affairs of the company over the years. I feel sure that the general body of workers in the B & I are as committed as the board of the B & I to restoring the company to profitability as soon as possible. I expect the company to make substantial strides towards this end in the current year.
I am very pleased that the unofficial dispute which had led to the suspension of all B & I services has ended. Industrial disputes of any kind are not in the long-term interests of either the B & I or its workers, and this latest disturbance was singularly ill-timed both by reference to the company's financial straits and the holiday season on which it is so dependent. I am glad that saner counsels have prevailed and that management and unions were able to arrange a speedy settlement.
Because of the Government's general concern about the deterioration in the B & I's position, I have arranged that the company's performance will be continuously monitored by my Department during the remainder of 1982 so as to ensure that the Government will be kept fully informed of the progress of the company towards the elimination of losses and a return to profitability.
I accordingly recommend the Bill to the House.