Aer Rianta is to purchase the Canadian duty free chain, United Cigar Stores, for 27 million Canadian dollars (£13 million), pending approval from the Canadian government.

United Cigar Stores has eight duty free shops at five Canadian locations, the two most lucrative of which are at Montreal airport. Aer Rianta says it hopes to grow the chain by entering smaller airports around Canada.

Yesterday, company chairman, Mr Noel Hanlon said the acquisition is the kind of project the company needs to get involved in, if the EU decides to abolish duty free. Duty-free sales in the three Irish airports accounted for more than half of Aer Rianta's after-tax profits of £42.1 million last year, illustrating clearly the impact that the abolition of duty-free sales would have on the State-owned airport company.

Total revenues last year came to £247 million, a rise of 7 per cent on the previous year, although the revenue figures in the annual report does not include Aer Rianta's £12 million share of revenue from its associate undertakings such as Birmingham and Dusseldorf Airports and the dutyfree operations in Russia, Ukraine and Bahrain.

A £14.9 million dividend was paid to the State, compared to the £12.9 payment in 1996.

Profits from group operations rose from £38.6 million to £41.7 million while the associate undertakings contributed a further £5.8 million in profits, compared to £5.5 million the previous year. Profits at Great Southern Hotels rose 12 per cent to £2.9 million. Overall, pre-tax profits were £47.5 million from £44 million in 1996.

Revenue from airport activities rose from £190.3 million to £203.4 million, but most of this increase came from a jump in shopping revenues from £78 million to £88.4 million.

Revenue from landing fees, passenger load fees, rents and concessions were only marginally higher. This was reflected in the fact that airport-related revenue rose by just 4 per cent even though traffic increased by 12 per cent.

"Profits from airport operations remained static as airport charges were again maintained at the levels existing since 1987," chief executive John Burke said in his review with the annual report.

Mr Hanlon said that other avenues being explored as part of its "fall back strategy", if duty free is abolished, one is further expansion of Dusseldorf and Birmingham airports, which, he said, could bring in increased revenues. Mr Hanlon would not say if landing charges will be increased to offset the estimated £50 million annually which the company will lose in revenue if duty free is scrapped.

Mr Hanlon said the new powers given to the European Parliament under the Amsterdam Treaty might mean that the earlier decision by the EU commission to abolish duty free can be reversed.

He said the EU Commission had "pulled a fast one" in its promise several years ago to carry out a survey on the effects of abolishing duty free.

Mr Hanlon defended the company's recent decision to double the size of its duty free facilities at Dublin airport. He said that if it was abolished the space could be converted to other retail uses and he said one possibility would be a Disney store.

The company strongly attacked Ryanair's recent claim that it paid Aer Rianta £10 million in airport charges last year. Mr Hanlon said that Ryanair paid Aer Rianta £5.89 million last year, which was less than it paid in 1994, even though it carried more passengers last year.

Mr Hanlon said the £5.89 million is below the salary of Ryanair's chief executive, Mr O'Leary. "We have given Ryanair £25 million in rebates and subsidies over the last few years and we have only charged them £1.93p per passenger," he said.

A statement from Ryanair rejected this and said Dublin airport continues to suffer from "congested and inadequate facilities, ridiculously overpriced and remote services such as car parking".

Dublin Airport made an operating profit of £42.8 million which was up from £37.8 million and there was a 14 per cent increase in passengers. Mr Hanlon said that the company's plan to invest £215 million over the next three years at all its airports would bring capacity at Dublin to 20 million passengers.

Shannon Airport's operating profit rose to £2.5 million from £2.3 million in 1996, although commercial profits were down from to £1.7 million from £1.8 million. There was a 5 per cent increase in passengers to 1.82 million people. The company says Continental Airlines would start operating from the airport soon and this should increase the traffic further.

At Cork airport, operating profits increased to more than £3 million from £2.4 million, with a 6 per cent increase in passengers to 1.2 million.