Competitive times touch down at Aer Rianta

Business Opinion: Was Friday the evil day for Aer Rianta? The State-owned airports company has long resisted demands for the…

Business Opinion: Was Friday the evil day for Aer Rianta? The State-owned airports company has long resisted demands for the creation of an independent terminal at its Dublin operation. Long did it have the support of the then Minister for Public Enterprise, Ms O'Rourke. Now all that may be changing.

By the end of October, Ms O'Rourke's successor Séamus Brennan wants to examine proposals for a new independent terminal at Dublin. This is in addition to the Government's demand for a new fast turn-around terminal geared.

Days after Mr Brennan linked CIÉ's demand for fare increases up to 20 per cent to reform in that organisation, the latest development suggests the new Minister for Transport is indeed a man in a hurry. He is right, for infrastructure and transport programmes are hugely demanding of time. If the Minister really wants to radically change Dublin Airport and introduce competition, now is the time to do it.

The very concentration on these matters is symbolic in its own right of how the economic climate has altered. Just three years ago, when the boom seemed it might never end, the thrust of Aer Rianta's management effort went behind a plan to float the company. This was during the early phase of the Eircom era, when the telco seemed to have a future on the stock exchange. Ms O'Rourke was supportive.

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But because she did not want to replace a public monopoly with a private one, she favoured a partial flotation - of up to half the company. Though she pushed it strongly, Ms O'Rourke failed to secure the support of her Cabinet colleagues.

Hindsight gained amid the economic calamity that followed the dotcom crash suggests the Government's stance was wise. One recalls the Aer Rianta chief executive, Mr John Burke, stating in March 2000 that the company could be floated in summer 2001. It was not to be.

Two years on, double-digit growth is a memory. Unemployment is creeping upwards, inflation is perilously high, the public finances are poorly and tourists are staying away from Ireland in droves.

None of this is Aer Rianta's fault. But the focus now, as the slowdown persists, is on the Republic's lack of competitiveness. With growth picked up from the US dimming and infrastructure heaving at the seams, competitive is the only means of keeping ahead economically. Yet the signs are not good. Gridlock is not competitive. Neither is a wage-price spiral. And high retail prices are not competitive.

This is where the future of Dublin Aiport comes into play. Aer Rianta's flotation plan was linked to its €1.28 billion capital expansion plan. The company wanted to source about €250 million on the public markets. This was the best option, it said, because the Government would not release the money.

All very well as far as it went. But the plan proved to be bloated according to the aviation regulator, Bill Prasifka, who studied it at length. In a determination a year ago, he said only €345 million of the programme could be recovered from landing fees. It was a severe blow to Aer Rianta, but one that suggested the company was less than efficient when it came to capital expenditure. Aer Rianta is challenging Mr Prasifka in the High Court. Defending the case will take almost half the budget of his office this year.

The significance of the determination cannot be over-emphasised for the exercise was the first time Aer Rianta had to justify its plans to outsiders. It was damning. Soon afterwards, when the likelihood of a tourism crisis dawned on the Government after September 11th, Aer Rianta was told by its shareholder, the Government, to develop "low cost" services at Dublin Airport. It refused at first - and in so doing annoyed the Government.

Only when the Cabinet ordered the company to construct Pier D, to cater specifically for fast turn-around carriers, did the company act. It has submitted a revised scheme for planning approval due to changes in the immigration laws. It also accused the Government of extreme folly regarding aspects of the plan. Pier D is likely to be completed in 2004. Temporary facilities will be built in time for the summer season next year.

With Aer Rianta's credibility still in the dock over the Prasifka ruling, the Government's latest move suggests it sees a significant role for the private sector at Dublin Airport. This is in line with Mr Brennan's commitment to public-private partnerships. It is music to the ears of the the Ryanair boss, Michael O'Leary, and the McEvaddy brothers, Ulick and Desmond, who have made no secret of their plans to develop "independent" terminals at the airport. They are expected to make submissions to Mr Brennan after he advertises in the national and international media next week for expressions of interest.

Yes, wealthy businessmen should not be allowed build profitable terminals on State land just because they want. This means any such proposal should be subject to a rigorous and transparent scrutiny on the part of the Government.

But the very fact that Mr Brennan moved on the matter at all suggests the Government believes the only means of stimulating competition and lower prices at the airport is to introduce independent competition. If this leads to lower airport charges and a better service from Aer Rianta, then it is a good thing.

The move also suggests that any plan to privatise part or all of Aer Rianta is not a runner at the moment. This too is welcome. For the raison d'être of such a company should be to provide its service in the most efficient means possible at the best price. In a slowing economy, with fewer tourists and business passengers visiting, this is crucial.

It is a concern which should override any plan to float the company. Two highly valid arguments justify this.

First, the stock exchange imposes its own pressures on the performance and management of listed companies. Second, share prices are determined in the long run by the capacity of listed companies to swell their profits. Neither of these factors is necessarily at variance with the provision of decent, competitively priced services at Dublin Airport. But they are a distraction. Competitiveness is better served by a rival terminal at the airport.

Arthur Beesley

Arthur Beesley

Arthur Beesley is Current Affairs Editor of The Irish Times