Aer Rianta break-up can work - study

A new report by consultants PricewaterhouseCoopers (PwC) strongly challenges the view of unions and their advisers that the break-up of Aer Rianta cannot work.

The report, submitted to the Minister for Transport, Mr Brennan, in recent days, says that the three airports, under new management with "fresh ideas", can become more valuable in the years ahead.

The report strongly challenges the findings of a report commissioned by trade unions from Mazars and Farrell Grant Sparks that suggested the break-up faced serious difficulties. The trade union report was a response to an original study commissioned by the Minister from PwC.

The latest report submitted to the Minister consists of "observations and comments" on the Mazars and Farrell Grant Sparks report, which was commissioned by SIPTU and ICTU.

The authors of the PwC report say: "We do not agree with the thrust of the Farrell Grant Sparks report to the effect that the financial, legal and other preparatory work done since July 2003 does not provide a sufficient basis for the Government to proceed."

In relation to the controversial area of business plans for the new airports, the latest report points out that this is a matter for the new designate boards, which are scheduled to take control of the airports later this year.

"The long-term planning for the individual airports must be a matter for the new boards and management teams of the independent airports," the report says.

The report however acknowledges that additional capital expenditure will have to be met by increases in landing charges.

In contrast to other reports released in recent weeks, the latest publication from PwC says that Shannon will be able to produce earnings before interest, taxes and depreciation of €7 million by 2008.

It says some €36 million of capital expenditure will be incurred between 2005 and 2008 at Shannon, but adds that this can be financed by the operating profits of the business.

In relation to the distribution of assets - in the case of Cork and Shannon - the PwC report is confident this will not pose a major problem. This follows a finding by Mazars and Farrell Grant Sparks that Shannon and Cork's combined value will drop by €110 million once the break-up is implemented.

PwC plays down the importance of this issue: "We expect that the new boards of Shannon and Cork airports will, together with their professional advisers, form a view on the fair value on a standalone basis of the assets that they receive. Their view will be determined by the future free cash flow that these assets can generate," says the report.

It says the whole issue "should not in any way effect Aer Rianta's" ability to spin off Cork and Shannon.

The report says the restructuring of Aer Rianta needs to address a series of issues:

• the "non transparent" subsidies between the three airports;
• the differing priorities of the airports;
• the serious constraints on the availability of capital;
• the "inefficient" allocation of capital between the airports.

The report says these issues must be addressed in a focused way. "The establishment of independent new entities will allow each of the above issues to be addressed in a focused way with fresh ideas, a clearly defined capital pool and an autonomous approach to the business priorities of each airport."

If this occurs, the report is optimistic about the future. "This should enhance the ability of the respective companies to preserve and enhance shareholder value."