THE threatened abolition of EU duty-free sales was described yesterday by Aer Rianta chairman, Mr Noel Hanlon as a major challenge facing the airports' authority.

If the EU Commission's plan to eliminate duty-free selling between member states goes ahead, it could produce significant job losses and increased airport charges, according to chief executive, Mr Derek Keogh.

The annual report shows Aer Rianta's sales of duty-free goods within the EU reached a record £25 million last year. Mr Keogh said this figure would rise to £40 million by the year 2000

"This is threatened if the EU decides to abolish intra-EU duty free, but surely it must realise that duty.free is a major support for transport generally", he said.

An increase in airport charges to compensate for the loss of duty-free income would be a "last resort", he said, and he pointed out that the company's charges had remained unchanged since 1987.

Aer Rianta intends to co-operate with Aer Lingus, Stena Line and Ryanair in opposing the proposal.

Yesterdays results show that, for the first time, Aer Rianta International, which manages the group's activities outside Ireland, had a higher managed turnover (£251 million) than its parent company.

Recent overseas developments, like the acquisition of Birmingham International Airport, have made the company the second-largest airport operator in these islands.

The company has not made any firm decision about further overseas expansion. A decision still has to be taken on whether to bid for Dusseldorf airport.

If an offer was to be made, it would have to emerge within the next three to four weeks before the tendering process ended, said Mr Keogh.

Mr Keogh said Aer Rianta was in "search of a more broadly-based partnership" than the limited one with NatWest in acquiring Birmingham International Airport.

"Any partnership would not necessarily have to be a shareholding partnership; it could be a venture capital partnership or an equity partnership," said Mr Hanlon.

"We are not ruling anything in or out. It could be abroad or here in Ireland. We are open to all possibilities," he added.

The company's directors re-stated their objections to proposals for a privately-run second airport terminal.

"There is no need for a second airport terminal and the present proposal from Hunstown Air Park is planned for the wrong location and comes at the wrong time," said Mr Keogh.

He said the "jury is still out on airport competition". He claimed that where there was competition between airports the results had not been good. He cited examples such as Brussels and Belfast.

Mr Keogh said the issue of competition was one for the Minister for Transport, Energy and Communications, Mr Dukes.

Mr Keogh said the board did not accept the recent failure by the company to break into the Australian airport privatisation programme was a setback.

"We did not think those airports were worth what others paid for them. It's that simple," said Mr Keogh.

He disclosed that the failed bid for the Australian airports had cost half a million pounds. "Our reputation internationally has not suffered because of this.

The impending change in Aer Rianta's status, from being an arm of the Department of Transport, Energy and Communications to being a hilly-fledged semi-state, would not affect the financial projections of the company, according to Mr Keogh.

The Great Southern Hotels, owned by the company, generated an 11 per cent increase in profits to to £21 million. Next year a new hotel is due to open in Dublin and there are plans to build one in Cork too.