IRELAND. The government yesterday announced it plans to split airport owner Aer Rianta into three separate companies to run Dublin, Shannon and Cork airports. And it is evaluating the future of global airport and retail arm, Aer Rianta International.
The announcement by transport minister Seamus Brennan has caused an uproar in Ireland. Trade unions have slammed the move as “institutional vandalism” and workers at the three airports covered by the Services, Industrial, Professional and Technical Union (SIPTU) are to stop work on Monday to discuss the plans.
But others welcomed the move. Budget carrier Ryanair and hoteliers in Cork and Shannon said the break-up of Aer Rianta and the granting of autonomous control over Cork and Shannon to local management groups will be good for Irish tourism and business.
The chief executive of the Chambers of Commerce of Ireland, John Dunne also welcomed the decision and slammed the threat of industrial action. “SIPTU’s knee-jerk reaction to the minister’s announcement misses the core point,” Dunne said. “Experience has shown time and again that competition increases jobs and economic strength.”
In a statement, Aer Rianta said its board will meet next week to discuss the proposals. It declined to make any comment until that time. Aer Rianta also runs the duty free operations at the airports in question.
The smaller Cork and Shannon airports will begin trading as autonomous authorities free of debt. The Irish Hotels Federation said the positive debt free starting point placed the airports in an “excellent position” to exploit free market opportunities and ultimately offer more choice and competition to Irish and international air passengers.
The future of international division Aer Rianta International (ARI) will be discussed in tandem with the break-up of Aer Rianta over the next 12 months Brennan said (see his full statement below).
ARI effectively divides into two main areas: its airport investment arm and its retail interests, in locations ranging from Bahrain to Moscow to Canada.
For the past year, ARI has also overseen the centralised buying for all Aer Rianta operations worldwide, to maximise the whole group’s purchasing power at home and abroad.
ARI director-general Eamon Foley told The Moodie Report it was “business as normal” for the international division over the next 12 months, while its future structure and ownership were resolved.
“We want a strong and supportive shareholder base and that is what we hope will happen,” he said. “We have contributed over one-third of group profits over the past two years, with after-tax profits of over €13 million in both years. That’s good solid profits, especially considering the effect of 9/11.”
Foley said that ARI benefited from already being a separate legal entity with its own board. “We are completely self-funded and anything we have on the horizon for the next 12 months, which is the period of potential uncertainty, we have covered.”
He cited, in particular the long-awaited US$500 million BOT (Build, Operate, Transfer) contract for Cyprus airports, where a decision is finally expected by this Autumn. ARI is a member and 11% stakeholder in one of three consortia bidding for the contract. “We have the funding all in place and we very much hope we are successful,” Foley said.
Underlining ARI’s health, Foley said the company has just opened a major extension to its St Petersburg airport operations and is investing three-quarters of a million dollars in tripling the size of its Kiev retail offer. A new shop is being built in Ottawa, Canada ready for the new terminal that opens there in October while Montreal Dorval has also been the subject of a big-budget revamp. Foley also cited ARI’s US$5.5 million development of the retail offer at New York JFK airport terminal four, in tandem with Saveria, as proof of its ambition and strong funding.
Asked what the changes might mean for group purchasing, Foley said it depended on how the new Irish airport operations were structured. “Do you dismantle the centralized functions that have been built? That’s a big decision,” he commented. “In theory, each airport could go and do its own thing but that wouldn’t really make sense.
“There are so many questions,” he said. “But the sensible thing is to keep the retail operation [including purchasing – Ed] together in some way.
“For now, it’s very much business as normal. There’s no battening down of the hatches and in fact we’ve never been busier.”
Publisher’s note: Here is the statement from the Minister for Transport, Séamus Brennan:
I am today announcing a major Government decision on the future of Irish airports and Aer Rianta. It is an historic decision that will have a significant and far reaching impact on the future growth and development of the aviation industry in Ireland. The proposals had their origins in the Agreed Programme for Government which gave a commitment to continue to transform Aer Rianta and as part of that process to ensure that Shannon and Cork Airports were given greater autonomy and independence.
The Government over the last number of weeks considered at length proposals relating to the future of the aviation sector. The Government has now decided, having regard to the commitments in the Agreed Programme for Government, to proceed with arrangements, including the necessary changes to legislation, to establish 12 months from now Shannon, Cork and Dublin airports as fully independent and autonomous authorities under state ownership.
The Government has also decided that I should proceed with the following interim arrangements under existing legislation:
(a) The immediate formal establishment of 3 Airport Boards-designate for Cork, Shannon and Dublin.
(b) The immediate restructuring of the Aer Rianta board so that its 6 non worker directors comprise the 3 Chairpersons-designate and 3 Deputy Chairpersons-designate from the Shannon, Cork and Dublin Boards-designate.
(c) The mandating of the Aer Rianta board with the continued normal discharging of functions and duties assigned to it by existing legislation and with assisting me and the 3 Airport Boards-designate with all the necessary preparatory work required by these decisions.
I have for some time advocated a policy of introducing greater dynamism to the aviation sector through increased competition and choice. I see the establishing of Dublin, Shannon and Cork as independent airport authorities as heralding the beginning of a challenging and exciting new era in Irish aviation.
Under the new arrangements the three airports will compete with each other and vigorously pursue new business, free from central control. This healthy competitive tension and unrestricted quest for new routes, airlines and passengers will grow the business to the benefit of the airports, the regions, tourism, job creation and the country overall. Shannon and Cork are being given a new debt free start and, under strong and visionary leadership, the opportunity to expand on a scale never before envisaged.
Following on from the Government decision I now intend to proceed with deciding the composition of the three Boards-designate for Dublin, Cork and Shannon. I will be addressing this over the coming days and will announce the composition of the new authorities by the middle of next week. Over the next 12 months it will be the responsibility of the Aer Rianta Board to deal with outstanding issues and to engage in any discussions and negotiations it deems necessary during the period of transition.
As I have previously stated, the appointees to the new authorities will be individuals of the highest calibre, including trade union representatives, and I am confident that they will bring international, national and regional expertise, strong leadership qualities and total commitment to the growth and development of the three airports.
In the lead up to the Government decision I gave serious consideration to a number of alternatives that were put forward. I was asked to do nothing and to leave the present Aer Rianta structure unchanged. I rejected that idea because to carry on under a monopoly situation would mean less choice for airlines, no direct competition from the other airports and a restricting of growth generally.
I was asked to keep the present Aer Rianta structure but to set up three subsidiary boards for Dublin, Cork and Shannon. Again, I rejected this on the grounds that it was restrictive and would not allow for the independence necessary to inject competition, passion, focus and growth into the running of the three airports.
I was also asked to consider disposing of a minority share in Aer Rianta under a public/private partnership deal. I said no because to do so would lead to a private majority stake before long and the eventual replacing of a State monopoly with a private monopoly. It was also suggested to me that by separating the three State airports I would be damaging the shareholder value of the company. I strongly disagree with this view. The new structures are designed to strengthen and expand the three airports and consequently grow business. It is also my view that of equal importance along with shareholder value is the need to allow the airports a fresh start and to give the main customers of the airports, the airlines and passengers, more choice.
I now want to address issues relating to the arrangements under which the new independent authorities will be established. The Aer Rianta Board will, in consultation with the Department of Transport, oversee the transition arrangements over the 12-month period. I see the interim arrangements as ensuring that each of the airports has a full input into the restructuring process. When I establish the independent Shannon and Cork authorities on a statutory basis they will both commence business free of debt. The existing debts associated with both airports, including the debt associated with the major new investment programme at Cork, will not be assigned to the new companies but will remain with Dublin Airport. Any new debts arising at Cork and Shannon will appear on their balance sheets. None of the State airports currently receive any exchequer support and that situation will not change under the new arrangements.
Dublin is effectively carrying the debts for the three airports and therefore, given the strong growth at Dublin, the overall scale of operations there and the reality of the present situation, I do not feel that absorbing the debts for Shannon and Cork will place an unreasonable additional burden. If, as envisaged, Dublin were to bear the debt of the three airports it would be logical and reasonable to consider allowing significant assets, like the Great Southern Hotels Group, to remain with Dublin. There is also the issue of Aer Rianta International, which is based at Shannon. These are issues to be worked out in detailed discussions during the 12-month transition period.
Finally, let me state that I can fully appreciate that there will always be some understandable worries among staff and their trade unions at any departure from the status quo. My whole approach is focussed on developing the airports and significantly growing traffic levels. In respect of jobs, let me emphasis that I see strong overall growth in business and employment. Let me reassure employees that no change in the terms and conditions of workers is envisaged.
I would appeal to all the stakeholders involved, workers, trade unions, management, airlines, business interests and public representatives, to use in a positive and constructive manner the 12 months transition period to resolve any issues of concern so that together we can give these three valuable State assets a “fair wind” start when they go independent.
In conclusion, let me state clearly and unequivocally that I am confident that the changes now agreed by the Government will result in more focussed commercial operations at the three airports. They will deliver an enhanced and more reliable, regular and competitive air services for Irish tourism, trade and industry.
These reforms are about new beginnings, more choices for the customers of the airports, growth in jobs and business, and the opportunity to meet enthusiastically the challenges that lie ahead.
