The future of Aer Rianta is up in the air. Key decisions on the part privatisation of the State-owned airport body and on the sale of its eight Great Southern hotels will be taken by the Government before Christmas.

In an overall reassessment of the State's aviation infrastructure, the Government is also to consider a long-standing plan by businessman, Dr Tony Ryan, to develop a civilian airport facility in Casement Aerodrome at Baldonnel, Co Dublin.

A proposal by the McEvaddy brothers to build a new terminal on their land adjacent to Dublin Airport and a similar plan by Ryanair to construct a "low-cost" terminal on airport lands will be considered too.

The Government must also finalise its decision to proceed with the privatisation of Aer Lingus, which is likely to go ahead in early 2002.

The next few weeks will be crucial for all concerned, none more than for Aer Rianta.

A report on the company by London consultants Warburg Dillon Read is to be submitted to the Minister for Public Enterprise, Ms O'Rourke, before the end of this month. Its contents are likely to have a profound affect on Aer Rianta's future.

Aer Rianta has already laid out its priorities. Asked by Ms O'Rourke in August last year to "undertake a fundamental review of the future development of the company", the firm responded in April.

The conclusions of its Future Strategic Direction report, compiled by consultants Arthur Andersen and Lehman Brothers and by IBI Corporate Finance, were clear.

Citing changes in the industry wrought by deregulation, alliances and mergers between airlines, the advent of low-cost carriers and the beginning of airport privatisation, it suggested that Aer Rianta opt for a part privatisation to secure further capital funding it requires to develop its three airports.

Aer Rianta subsequently stated that it wanted to float 49 per cent of the company, leaving a controlling 51 per cent stake with the State.

Despite forecast capital expenditure of £260 million on the extension of the existing terminal at Dublin Airport between 1998 and 2001, it said additional funding would be needed to construct a second parallel runway at Dublin in 2004 and to develop its facilities at Shannon and Cork.

The report accepted that Aer Rianta could partially fund its strategy by raising additional debt. However, it rejected this on the grounds the company's statutory debt limit of £250 million would need to be raised and said any additional debt would leave the company highly leaveraged with increased financial risk. A possible trade sale of the company and the taking on of a strategic or financial partner were also rejected.

In order to address concerns that the company would exploit its dominant position, the company recommended the establishment of a regulatory framework "to protect consumers, drive efficiency and incentivise appropriate prices".

The report added that the company should sell its eight hotels in the Great Southern group - its only non-core asset. While this would raise additional capital, it would be insufficient by itself to fund the company's strategy.

Ms O'Rourke responded by commissioning her own report, which is also looking at the separate proposals for Dublin Airport and Casement Aerodrome. No decision will be taken until that report is received, although the Minister has met almost all the groups concerned in the past few months.

Pending receipt of the report, it is understood that the Minister is likely to recommend an Initial Public Offering (IPO) of between 25 and 30 per cent of Aer Rianta to Cabinet. This is likely to go ahead in early 2002 after Aer Lingus is floated. Aer Lingus will be privatised first, as the airline industry is cyclical and the company is doing well at the moment.

While Ms O'Rourke has stated on the record that she would not be in favour of replacing a publicly-owned monopoly such as Aer Rianta's with one that was privately owned, she has already decided to appoint a regulator for the industry.

The post has been advertised and an appointment is expected before the end of the year. The Government may opt for either a single regulator or a commission. Either way, the body will be independent of the Irish Aviation Authority, which manages airspace and air traffic control and safety in the air.

It is thought that the regulator's appointment would address immediate competition concerns and the question of Aer Rianta's de facto monopoly, as Ms O'Rourke is believed to be in favour of Aer Rianta retaining its three existing airports, at least in the short to medium term.

While not ruling out the possibility of eventually selling either Cork or Shannon, sources maintain that both airports require further investment as they are still on a growth curve.

However, Fine Gael's transport spokesman, Mr Ivan Yates, said this week that he was concerned that both airports would not receive adequate investment in the event of a part privatisation.

"I'd be very fearful that Cork and Shannon would be on the hind tit," he said, adding that the role of the regulator would be crucial. "The only circumstance where I could agree to it [Aer Rianta] being privatised would be in a very strict regulatory environment. The advertisement made no reference to promoting competition. It's very important that it's not a toothless lion."

The Minister is also believed to favour selling the Great Southern Hotel (GSH) group. While accepting the argument that the hotel business is not a core activity, high property prices would also secure a good return.

Sources stress that any sale of GSH hotels would be contingent on acceptable guarantees to the group's workforce. It is thought that the hotels will not be sold as a single entity. All are in profit and one suggested scenario is that the three airport hotels - the Cork site is under construction - would be sold together with the remainder sold in groups.

Aside from the Dublin Airport GSH, which is a particularly valuable business, the other hotels in the group are: Shannon Airport; Parknasilla at Kenmare, Co Kerry; the Killarney and Torc GSH hotels, Co Kerry; the Eyre Square and Corrib hotels, Co Galway; and the GSH hotel at Rosslare, Co Wexford.

Following a lengthy consultation process with Aer Rianta's management, the company's workforce is said to be broadly in favour of a privatisation.

Asked this week about the flotation of the company, SIPTU's national industrial secretary, Mr Noel Dowling, accepted that the retention of full State ownership of the company is unlikely. "The best alternative is an IPO," he said.

Citing fears that Progressive Democrat members of Government may be in favour of breaking up the three-airport structure, he said: "Any attempt to force the company to dispose of Cork or Shannon will be opposed."

Aer Rianta's chief executive, Mr John Burke, stressed this week that the company was committed to its three-airport strategy. "It makes sense to have Cork and Shannon as part of the system. Cork and Shannon are better off as part of us rather than outside. Having to compete with Dublin is a nonsense," he said. "The important thing about the regulator is that customers get value for money and airports' development is secured."

Mr Burke said the nature of the business is that airport operators have to commit to long-term development and the best way to secure funding is to float. "Unions may be afraid of a creeping privatisation, but you could negotiate an IPO."

While declining to pre-empt the Minister's decision, Mr Burke said the Government could opt to limit the total holding of any one private shareholder to 5 per cent. "I think that the company won't be broken up, but if they don't go for the IPO, the strategy will unravel because we won't have access to funds."

Ultimately the Cabinet will decide. It appears, however, that Aer Rianta's broad objectives will be met, albeit with some modulation. But Government TDs in various parts of the State may well be lobbied by GSH staff reluctant to accept privatisation.

The Minister is understood to be pleased with the company's performance. While the company reported a pre-tax profit last year of £52.3 million (€66 million), up 15 per cent on a turnover increase of 8 per cent, it accepts that its medium-term profits will be hit by the withdrawal of intra-EU dutyfree services.

Mr Burke said this week that the company expects a £15 million fall in profits in the second half of this year. However, he expressed confidence that increasing passenger numbers, capital programmes and commercial opportunities abroad would enable Aer Rianta to recoup lost revenues in medium term. By that stage, of course, 25 to 30 per cent of the company is likely to have been floated.