Two key factors are driving Aer Rianta's move towards privatisation: the pending loss of duty free which accounts for the bulk of its current £42.1 million (€53.46 million) post-tax profits, and the explosion in passenger numbers at its three airports.
Passenger numbers at Dublin, Cork and Shannon are currently running at 14 million a year and the year to date has seen increases averaging 20 per cent at each airport. The £360 million investment plan for Dublin Airport over the next five years to cater for and cash in on the growth in passenger numbers, needs funding from somewhere.
As the report points out, more Exchequer funding is not desirable, nor is increasing the current £250 million Government-imposed borrowing limit. It points out that Aer Rianta is currently near this limit.
Although the recommendation of privatisation is no surprise - it has been mooted by analysts for several years - the report and Aer Rianta's comments yesterday, illustrate just how fast business is growing. Aer Rianta chief executive Mr John Burke said Dublin Airport had been well-planned in the 1960s and 1970s and could eventually cater for up to 40 million passengers.
Although duty free may be extended in some form for two or three years, Aer Rianta's strong reliance on it for revenue has been a source of concern for some time.
The company's intra-EU business would virtually disappear, but its duty free from Shannon and its operations in Bahrain, Russia and Canada would be unaffected.
Aer Rianta has several plans to replace revenue, although it admits this will not happen overnight. Millions of pounds will have to be invested in income-generating projects, such as car-parking and retailing, before this can be achieved.
Mr Burke said yesterday that the company has been told that its car-parking charges are too low. There is also a similar view on its landing charges. A report on the matter is due by the end of this month.
The landing charges issue is one on which Aer Rianta has been constantly attacked by Ryanair, which says they are too high and has threatened not to launch new routes from Dublin.
Aer Rianta chairman Mr Noel Hanlon had no time for such complaints, saying it was time Ryanair chief executive Mr Michael O'Leary "grew up, stopped complaining, put his hand in his pocket and paid his fair share like everyone else".
This aside, Mr Hanlon said landing charge discounts were currently being eliminated and "we should be back to proper landing charges by 2003". Discounts are given to airlines launching new routes at Irish airports. Mr Hanlon maintained that landing charges - and car-parking charges - were very low, only accounting for about 16 per cent of revenue.
The report on Aer Rianta's future backs its argument on landing charges. "Numerous independent studies comparing airport charges have demonstrated Aer Rianta to be among the most competitive of commercial airports," it says. The report also says that the "current bundled nature of the shareholder regulator function and price pressure from low-fare airlines has resulted in a situation where the level of airport charges does not provide an economic return".
Mr Burke stressed yesterday that a regulatory framework to rule on the issue of airport charges was vital and the sooner it was introduced, the better. He envisaged it would be funded by the airline industry and would use the Consumer Price Index (CPI) as a guide for charges. Aer Rianta would be allowed to vary its charges plus or minus the CPI, but would have to demonstrate why it was doing so. In other words, it would not be allowed to make huge profits from the charges.
The removal of duty free means Aer Rianta will focus more on retailing. Mr Hanlon said it was likely that passengers would see a lot more "high street" names in the airports in the coming years.
Sources said last night that the duty-free issue was unclear. Even if it was removed, it was suggested that Aer Rianta as a group had such bulk buying power that it could still sell goods cheaper at the airport, compared to high street retailers.
Although the company is looking for investment opportunities overseas, one source said it is unlikely to be in a position to finance such opportunities in the next three to four years.
Aer Rianta was very highly-regarded internationally, said a source, and was regularly asked to join consortiums bidding for airports because of its management expertise. However, it would probably have to put such projects on hold for some time, the source said.
One benefit for Aer Rianta if it is floated, would be that it would no longer have to pay a dividend to the Exchequer. In the past five years it has paid £65 million.
Aer Rianta would not value the company yesterday, but it is estimated to be worth £550 million-£850 million by some sources and this is seen as conservative in other quarters. Its real value to potential investors will be based on its future income projections which, in turn, will hinge on its plans to replace duty free.
